-----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, MhGQ5nGwMsm8QnhY+KEpR8iRDJ0RflBSX3UJ3Gx0SJbfcxD/lPYQm64VYpoFWj/C f/oTxKk/boqK036hrUr9hw== 0000950130-99-006584.txt : 19991118 0000950130-99-006584.hdr.sgml : 19991118 ACCESSION NUMBER: 0000950130-99-006584 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19991117 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: S-1/A SEC ACT: SEC FILE NUMBER: 333-89393 FILM NUMBER: 99759705 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 S-1/A 1 AMENDMENT NO. 2 TO FORM S-1 As filed with the Securities and Exchange Commission on November , 1999 Registration No. 333-89393 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ----------- AMENDMENT NO. 2 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ----------- TELECORP PCS, INC. (Exact name of registrant as specified in its charter) Delaware 4812 54-1872248 (Primary Standard (I.R.S. Employer (State or other Industrial Classification Identification No.) jurisdiction of Code Number) incorporation or organization) ----------- 1010 N. Glebe Road Suite 800 Arlington, VA 22201 (703) 236-1100 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ----------- Thomas H. Sullivan Executive Vice President and Chief Financial Officer TeleCorp PCS, Inc. 1010 N. Glebe Road, Suite 800 Arlington, VA 22201 (703) 236-1122 (Name, address, including zip code, and telephone number, including area code, of agent for service) ----------- Copies to: Thomas J. Murphy William P. Rogers, Jr. David A. Cifrino Cravath, Swaine & Moore McDermott, Will & Emery 825 Eighth Avenue 28 State Street New York, New York 10019 Boston, Massachusetts 02109 (212) 474-1270 (617) 535-4000 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] ----------- The Registrant hereby amends this Registration Statement on the date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall then become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on the date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this preliminary prospectus is not complete and may be + +changed. These securities may not be sold until the registration statement + +filed with the Securities and Exchange Commission is effective. This + +preliminary prospectus is not an offer to sell nor does it seek an offer to + +buy these securities in any jurisdiction where the offer or sale is not + +permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED NOVEMBER 17, 1999. PROSPECTUS 7,800,000 Shares TeleCorp PCS, Inc. Class A Common Stock -------- We are selling 7,800,000 shares of our class A common stock. The underwriters named in this prospectus may purchase up to 1,170,000 additional shares of our class A common stock to cover over-allotments. This is our initial public offering and no public market currently exists for our shares. We currently expect that the initial public offering price will be between $16.00 and $18.00 per share. We have applied for quotation of the class A common stock on the Nasdaq National Market under the symbol "TLCP". -------- Investing in our class A common stock involves risks. See "Risk Factors" beginning on page 6. -------- Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. --------
Per Share Total --------- ----- Initial Public Offering Price $ $ Underwriting Discount $ $ Proceeds to TeleCorp (before expenses) $ $
-------- The underwriters are offering the shares subject to various conditions. The underwriters expect to deliver the shares to purchasers on or about , 1999. -------- Salomon Smith Barney Lehman Brothers Deutsche Banc Alex. Brown Merrill Lynch & Co. , 1999 [Map showing TeleCorp PCS and AT&T Wireless networks in south-central and northeast United States and Puerto Rico, and captions.] [TeleCorp and AT&T Wireless markets shaded in appropriate regions. TeleCorp and SunCom logos also displayed.] [Pictures of wireless phones and users.] You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. We are not making an offer of these securities in any state where the offer is not permitted. You should not assume that the information provided by this prospectus is accurate as of any date other than the date on the front of this prospectus. ------------ TABLE OF CONTENTS
Page ---- Prospectus Summary....................................................... 1 Risk Factors............................................................. 6 Use of Proceeds.......................................................... 17 Dividend Policy.......................................................... 17 Capitalization........................................................... 18 Dilution................................................................. 19 Selected Historical and Pro Forma Consolidated Financial Information..... 20 Management's Discussion and Analysis of Financial Conditions and Results of Operations........................................................... 22 The Wireless Communications Industry..................................... 36 Business................................................................. 38 Management............................................................... 59 Principal Stockholders and Beneficial Ownership of Management............ 68 Certain Relationships and Related Transactions........................... 72 Description of Indebtedness.............................................. 89 Description of Capital Stock............................................. 95 Shares Eligible for Future Sale.......................................... 103 Material U.S. Tax Consequences to Non-U.S. Holders....................... 105 Underwriting............................................................. 108 Legal Matters............................................................ 109 Experts.................................................................. 109 Available Information.................................................... 110 Index to Financial Statements............................................ F-1
------------ Until , 1999, all dealers that buy, sell or trade the common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. i PROSPECTUS SUMMARY TeleCorp We are the largest AT&T Wireless affiliate in the United States, with licenses covering approximately 16.5 million people. We provide wireless personal communications services in selected markets in the south-central and northeast United States and in Puerto Rico, encompassing eight of the 100 largest metropolitan areas in the United States. Commencing with the launch of our New Orleans market in February 1999, we have successfully launched our services in 20 markets, including all of our major markets, and currently have more than 100,000 subscribers. Our senior management team has substantial experience in the wireless communications industry with companies such as AT&T, Bell Atlantic and Sprint PCS. Strategic Alliance with AT&T We entered into a venture with AT&T in July 1998 under which AT&T contributed personal communications services, or PCS, licenses to us in exchange for ownership in our company. AT&T is one of our largest investors, beneficially owning approximately 16% of our class A common stock upon completion of this offering. As an AT&T Wireless affiliate, we enjoy numerous strategic benefits, including the following: . Exclusivity. We are AT&T's exclusive provider of wireless mobility services using equal emphasis co-branding with AT&T in our covered markets, subject to AT&T's right to resell services on our network. . Brand. We have the right to use the AT&T brand name and logo together with our SunCom brand name and logo in our covered markets, giving equal emphasis to each. We also benefit from AT&T's nationwide advertising and marketing campaigns. . Roaming. We are AT&T's preferred roaming partner in our markets. Our roaming revenues increased from approximately $1.9 million in the first quarter of 1999 to approximately $9.5 million in the third quarter. We believe our AT&T Wireless affiliation will continue to provide us with a valuable base of recurring roaming revenue. . Coast-to-Coast Coverage. Outside our markets, our wireless customers can place and receive calls in AT&T Wireless markets and the markets of AT&T Wireless' other roaming partners. Our ability to offer coast-to-coast coverage is a competitive advantage as users increasingly choose national rate plans. As of September 30, 1999, 19% of our customers have chosen one of our national SunRate(TM) pricing plans. Markets Our PCS licenses include several major population centers and popular vacation destinations such as: . San Juan, Puerto Rico and the U.S. Virgin Islands; . New Orleans and Baton Rouge, Louisiana; . Memphis, Tennessee; . Little Rock, Arkansas; . Manchester, Concord and Nashua, New Hampshire; and . Worcester, Cape Cod, Martha's Vineyard and Nantucket, Massachusetts. Our launched networks covered approximately 65% of our licensed population as of September 30, 1999, and by the end of 1999 we expect our network will cover approximately 75% of our licensed population. 1 Competitive Strengths Our goal is to provide our customers with simple-to-buy, easy-to-use wireless services, including coverage across the nation, superior call quality, competitive pricing and personalized customer care. In addition to our strategic alliance with AT&T, we believe we have several key business, operational and marketing advantages, including our: . Attractive Markets. Our markets have favorable demographic characteristics for personal communications services with an average population density of approximately 38% above the national average. We believe our markets are strategically important to AT&T because they are located near or adjacent to traffic corridors in and around large markets such as Boston, Houston and St. Louis. Our markets include major population and business centers and vacation destinations that attract an estimated 39 million visitors per year. Most of our markets are also adjacent to the markets of the other SunCom companies, Triton PCS, Inc. and Tritel Communications, Inc. . Experienced and Incentivized Management. Our 21 member senior management team has an average of 11 years of experience in the wireless industry. Together, they will beneficially own approximately 12% of our class A common stock on a fully-diluted basis upon completion of this offering. . Substantial Airwave Capacity. We have licenses with a minimum of 35 MHz of airwaves in our major urban markets of San Juan and New Orleans and 30 MHz in Little Rock and Memphis. Megahertz, or MHz, represents a measure of airwave capacity. These amounts are equal to or greater than those held by each of our principal competitors in each of these markets. We believe these amounts of airwaves will enable us to competitively deploy new and enhanced voice and data services. This capacity will also permit us to provide service to the increasing number of wireless users and to service increased use by subscribers. . Strong Capital Base. Upon completion of this offering, we will have approximately $1.5 billion of funded and committed capital. We believe our existing capital resources, including the proceeds of this offering, will be sufficient to fund our current business plan, including capital expenditures and operating losses, through the end of 2001. . Advanced Digital Technology. We are building our network using time division multiple access technology, which makes our network compatible with AT&T's network and other time division multiple access networks. This technology allows us to offer enhanced features and services relative to standard cellular service, including extended battery life, integrated voicemail, paging, fax and e-mail delivery, enhanced voice privacy and short-messaging capability. Risk Factors You should consider carefully all of the information described in this prospectus and, in particular, you should evaluate the specific factors under "Risk Factors" beginning on page 6. ------------ Our principal executive offices are at 1010 N. Glebe Road, Suite 800, Arlington, Virginia 22201. The telephone number at our executive offices is (703) 236-1100. This prospectus contains trademarks and registered trademarks of ours and of other companies. 2 The Offering Class A common stock offered by this 7,800,000 shares prospectus............................. Class A common stock outstanding after 81,673,889 shares this offering.......................... Class A common stock and equivalents outstanding after this offering (1)(2)............. 98,277,504 shares Use of proceeds......................... We expect to use the estimated $122.3 million in net proceeds from this offering for general corporate purposes, including capital expenditures in connection with the expansion of our personal communications services network, sales and marketing activities and working capital. See "Use of Proceeds." Proposed Nasdaq National Market symbol.. TLCP
(1) Our restated certificate of incorporation provides that, subject to the rights of specific classes of stock to vote as a class on specified matters, until ownership restrictions of the Federal Communications Commission currently applicable to us no longer apply, the holders of our class A common stock will collectively possess 49.9% of the total voting power of the outstanding common stock. Our founders, Mr. Vento and Mr. Sullivan, as the holders of our voting preference common stock, collectively possess 50.1% of the total voting power of our outstanding common stock. See, "Business--Governmental Regulation--FCC Designated Entity and Small Business Regulation," "Principal Stockholders and Beneficial Ownership of Management" and "Description of Capital Stock." (2) Includes the following number of shares of class A common stock that are issuable upon conversion of certain of our other securities that will be outstanding after this offering: . 14,912,778 shares issuable to the holders of our series F preferred stock at their option at any time, . 1,138,332 shares issuable to the holders of our class C, class D and voting preference common stock upon the consent of two-thirds of the class A common stock after the FCC ownership restrictions no longer apply to us, and . 552,505 shares issuable upon the exercise of outstanding employee and director options as of September 30, 1999 at a weighted average exercise price of $0.0065 per share, including 212,005 shares issuable within one year of completion of this offering. In addition, 1,261,816 shares of class A common stock are available for awards under our 1999 Stock Option Plan and 118,390 shares are available for grant under our 1998 Restricted Stock Plan. Excluded from equivalents presented above are shares of class A common stock issuable to holders of our series A preferred stock at their option at any time after July 17, 2006, at a conversion rate equal to the liquidation preference on those shares divided by the market price of the class A common stock at the time of conversion. At the September 30, 1999 liquidation preference of the series A preferred shares of approximately $107.0 million and a market price equal to an assumed initial public offering price of this offering of $17.00 per share, the outstanding shares of series A preferred stock would convert into 6,291,928 shares of class A common stock. See "Description of Capital Stock." Also excluded are 1,337,322 shares to be issued in connection with pending acquisitions. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Acquisition History" and "--Recent Developments." Except where otherwise indicated, the information in this prospectus: . has been restated to give effect to a 100-for-1 stock split of our common stock and series F preferred stock effected on August 27, 1999 and a 3.09-for-1 stock split of our common stock and series F preferred stock effected on November 8, 1999, and . assumes no exercise of the underwriters' over-allotment option. 3 Summary Historical Financial Information The following summary historical statements of operations and balance sheet data has been derived from our audited and unaudited consolidated financial statements included elsewhere in this prospectus. You should read this information together with our financial statements and related notes included elsewhere in this prospectus and the information under "Use of Proceeds," "Selected Historical and Pro Forma Consolidated Financial Information" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Nine Months Ended Year Ended December 31, September 30, ------------------------ ----------------------- July 29, 1996 (inception) to December 31, 1996 1997 1998 (Predecessor) (Predecessor) 1998 (unaudited) 1999 ----------------- ------------- ---------- ----------- ---------- (Dollars in thousands, except per share data) Statements of Operations Data: Service revenue....... $ -- $ -- $ -- $ -- $ 18,937 Equipment revenue..... -- -- -- -- 10,322 Roaming revenue....... -- -- 29 -- 18,942 ------- -------- ---------- ---------- ---------- Total revenue........ -- -- 29 -- 48,201 ------- -------- ---------- ---------- ---------- Operating expense: Cost of revenue....... -- -- -- -- 23,087 Operations and development.......... -- -- 9,772 3,502 25,925 Selling and marketing............ 10 304 6,325 2,488 39,720 General and administrative....... 515 2,637 26,239 15,885 38,942 Depreciation and amortization......... -- 11 1,584 643 34,799 ------- -------- ---------- ---------- ---------- Total operating expense............. 525 2,952 43,920 22,518 162,473 ------- -------- ---------- ---------- ---------- Operating loss....... (525) (2,952) (43,891) (22,518) (114,272) Interest expense...... -- 396 11,934 5,501 34,448 Interest income....... -- (13) (4,697) (2,631) (4,805) Other expense......... -- -- 27 23 160 ------- -------- ---------- ---------- ---------- Net loss............. (525) (3,335) (51,155) (25,411) (144,075) Accretion of mandatorily redeemable preferred stock.... (289) (726) (8,567) (4,026) (16,960) ------- -------- ---------- ---------- ---------- Net loss attributable to common equity.... $ (814) $ (4,061) $ (59,722) $ (29,437) $ (161,035) ======= ======== ========== ========== ========== Net loss attributable to common equity per share--basic and diluted............... $(44.45) $(111.74) $ (2.19) $ (1.45) $ (2.30) ======= ======== ========== ========== ========== Weighted average common equity shares outstanding--basic and diluted............... 18,313 36,340 27,233,786 20,367,373 70,089,141 ======= ======== ========== ========== ========== Pro forma net loss attributable to common equity per share (unaudited)--basic and diluted(a)............ $ (1.28) $ (2.43) ========== ========== Pro forma weighted average common equity shares outstanding (unaudited)--basic and diluted(a)............ 58,944,055 71,362,532 ========== ========== Other Operating Data: Subscribers (end of period)............... -- -- -- -- 75,723 Covered population (end of period)............ -- -- -- -- 10,739,000
- -------- (footnotes on following page) 4
As of September 30, 1999 ----------------------------- Pro Forma Actual As Adjusted(b) --------- -------------- (Dollars in thousands) (unaudited) Balance Sheet Data: Cash and cash equivalents....................... $ 80,410 $202,734 Working capital................................. 40,726 163,049 Property and equipment, net..................... 347,348 347,348 Personal communications services licenses and microwave relocation costs, net................ 235,760 252,660 Intangible assets--AT&T agreements, net......... 39,696 37,631 Total assets.................................... 754,783 891,942 Total debt...................................... 629,750 629,750 Mandatorily redeemable preferred stock, net..... 250,004 267,942 Total stockholders' deficit..................... (203,793) (84,572)
- -------- (a) Pro forma basic and diluted net loss attributable to common equity per share have been calculated assuming that our pending acquisitions of the remaining minority interest of Viper Wireless, Inc. that we do not currently own and of TeleCorp LMDS, Inc. and the completed acquisitions of Digital PCS, Inc., AT&T Puerto Rico and Wireless 2000, Inc. had been completed at the beginning of the periods presented. Since we had a net loss attributable to common equity in each of the periods presented, pro forma basic and diluted net loss attributable to common equity per share is the same. (b) Gives effect to completion of this offering, our pending acquisitions and adjustments relating to completed acquisitions. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Acquisition History" and "--Recent Developments" and "Unaudited Pro Forma Condensed Consolidated Financial Statements." 5 RISK FACTORS Investing in shares of our class A common stock involves a high degree of risk. You should carefully consider the risks described below as well as all the other information in this prospectus--including our financial statements and related notes--before investing in our class A common stock. Our business, operating results and financial condition could be seriously harmed due to any of the following risks. The trading price of our class A common stock could decline due to any of these risks, and you could lose all or part of your investment. We may never achieve operating profitability or generate sufficient cash flow to meet our obligations. Our operating history is limited, and we have a history of operating losses. If we do not achieve and maintain positive cash flow from operations on a timely basis, we may be unable to develop our network or conduct our business in an effective or competitive manner. As of September 30, 1999, we had incurred cumulative operating losses of approximately $199.1 million. We expect to continue to incur operating losses and to generate negative cash flow from operating activities during the next several years while we develop our business and expand our network. Additionally, our business has required and will continue to require substantial capital expenditures. We will have to dedicate a substantial portion of any cash flow from operations to make interest and principal payments on our debt, which will reduce funds available for other purposes. As a result of the offering, the value of some outstanding stock option and restricted stock awards will become fixed and a portion of them will be fully vested. Based on an assumed initial public offering price of $17.00 per share, we expect to record approximately $24.8 million of additional compensation expense in the fourth quarter of 1999 in connection with these awards. We expect to recognize an additional $46.5 million will be recognized over time as the remaining awards vest. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." We depend on our agreements with AT&T for our success, and we would have difficulty operating without them. In addition, our roaming rates with AT&T will decline over time. We have entered into a number of agreements with AT&T, including: . a license agreement; . a stockholders' agreement; . an intercarrier roamer services agreement; . a roaming administration service agreement; and . a long distance agreement. In limited situations, AT&T may withdraw from these agreements with us. If any of the agreements we have entered into with AT&T are not renewed or are terminated, we would have difficulty operating. In addition, under the roaming agreement, the roaming rate that AT&T pays to us when AT&T's customers roam onto our network will decline over each of the next several years and may be renegotiated. This may affect our roaming revenue, most of which has historically been derived from AT&T Wireless' customers traveling through our markets. We have agreements with AT&T for equipment discounts. Any disruption in our relationship with AT&T could hinder our ability to obtain the infrastructure equipment that we use in our network or harm our relationship with our vendors. Our agreements with AT&T contain stringent development requirements which, if not met, will result in the loss of some of our rights under those agreements. The agreements we have entered into with AT&T contain requirements regarding the construction of our network, which, in many instances, are more stringent than those imposed by the FCC. The construction of the 6 remainder of our network involves risks of unanticipated costs and delays. If we fail to meet AT&T's requirements, AT&T could terminate the exclusivity of our relationship. Other providers could then enter into agreements with AT&T and we could lose access to customers. See "Business--Network Development" and "Certain Relationships and Related Transactions--AT&T Agreements." AT&T could terminate its exclusive relationship with us. If AT&T combines with specified entities with over $5 billion in revenue from communications activities that have overlapping PCS or cellular licenses with us, then AT&T may terminate its exclusivity obligations with us in markets that overlap with markets of those entities. Other providers could then enter into agreements with AT&T in those markets, exposing us to increased competition, and we could lose access to customers. In addition, AT&T can at any time require us to enter into a resale agreement which would allow AT&T to sell access to, and usage of, our services in our licensed area on a nonexclusive basis using the AT&T brand. See "Certain Relationships and Related Transactions--AT&T Agreements." We rely on the use of the AT&T brand name and logo to market our services, and a loss of use of this brand and logo or a decrease in the market value of this brand and logo would hinder our ability to market our products. The AT&T brand and logo is highly recognizable and AT&T supports its brand and logo by its marketing. If we lose our rights to use the AT&T brand and logo under our license agreement, we would lose the advantages associated with AT&T's marketing efforts. If we lose the rights to use this brand and logo, customers may not recognize our brand readily and we may have to spend significantly more money on advertising to create brand recognition. See "Business--Marketing Strategy," "--Intellectual Property" and "Certain Relationships and Related Transactions--AT&T Agreements." In addition, we depend on AT&T's success as a wireless communications provider and the value of its brand and logo because many of our operations use AT&T's network. If AT&T encounters problems in developing and operating its wireless network it could adversely affect the value to us of the AT&T brand and our agreements with AT&T. In that event, we may need to invest heavily in obtaining other operating agreements and in marketing our brand to develop our business, and we may not have funds to do so. If we fail to maintain certain quality standards, AT&T could terminate its exclusive relationship with us and our rights to the AT&T brand. If we fail to meet specified customer care, reception quality and network reliability standards set forth under the stockholders' agreement, AT&T may terminate its exclusivity obligations with us and our rights to use the AT&T brand. If AT&T terminates its exclusivity obligations, other providers could then enter into agreements with AT&T, exposing us to increased competition, and we could lose access to customers. If we lose our rights to use the AT&T brand, we would lose the advantages associated with AT&T's marketing efforts. If we lose the rights to use this brand, customers may not recognize our brand readily. We may have to spend significantly more money on advertising to create a brand recognition. See "Certain Relationships and Related Transactions--AT&T Agreements." Our association with the other SunCom companies may harm our reputation if consumers react unfavorably to them. We use the SunCom brand name to market our products and services in conjunction with two other affiliates of AT&T Wireless, Triton PCS and Tritel Communications, in order to broaden our marketing exposure and share the costs of advertising. If either of those companies encounters problems in developing and operating its network, it could harm consumer perception of the SunCom brand, and in turn harm our own reputation. 7 We may not be able to manage the construction of our network or the growth of our business successfully. We have experienced rapid growth and development in a relatively short period of time and expect to continue to experience rapid growth in the future. Our financial performance will depend on our ability to manage such growth and the successful construction of our network. Our management may not be able to direct our development effectively, including implementing adequate systems and controls in a timely manner or retaining qualified employees. This inability could slow our growth and our ability to compete in the wireless communications service industry. We have substantial existing debt, and may incur substantial additional debt, that we may be unable to service. We have a substantial amount of debt and may incur substantial additional debt in the future, and we may not have sufficient funds to make interest and principal payments on our debt. As of September 30, 1999, our outstanding debt was approximately $629.8 million. Our senior credit facilities provide for total borrowings in the amount of up to $560.0 million. In addition, Lucent has committed to purchase up to an additional $75.0 million of junior subordinated notes in connection with our development of new markets. We expect to incur substantial additional debt under existing commitments in connection with the construction of our network and operation of our existing markets. In addition, if we acquire licenses in additional markets we would expect to incur substantial additional debt as part of the financing of the acquisition and the construction and operation of PCS systems in those markets. We may not have sufficient cash flow in the future to service any additional debt we incur. Our substantial amount of debt makes us especially susceptible to competition and market fluctuations, which may affect our ability to grow our business or service our debt. Our substantial amount of debt limits our ability to adjust to changing market conditions. Because we require significant amounts of cash flow to service our debt, we may not be able to discount our prices to maintain competitive pricing packages. If our business does not grow, we may not have funds to service our debt. We need to realize a significant amount of revenue to pay our debt. Our debt instruments contain restrictive covenants that may limit our operating flexibility. The documents governing our indebtedness, including the credit facility and senior subordinated note indenture, contain significant covenants that limit our ability to engage in various transactions and, in the case of the credit facility, require satisfaction of specified financial performance criteria. In addition, under each of these documents, the occurrence of specific events, in some cases after notice and grace periods, would constitute an event of default permitting acceleration of the respective indebtedness. The limitations imposed by the documents governing our outstanding indebtedness are substantial, and if we fail to comply with them, our debts could become immediately payable at a time when we are unable to pay them. If we do not pay our debt owed to the U.S. government when due, the FCC may impose financial penalties on us or terminate or modify our licenses. If we do not pay the interest and principal on any debt that we or our subsidiaries owe to the U.S. government when it is due, the FCC may: . impose substantial financial penalties; . reclaim and reauction the licenses for which we incurred the debt; . not renew any of our other licenses; and . pursue other enforcement measures. Any of these FCC actions would slow our growth and our ability to compete in the wireless communications industry. See "Description of Indebtedness-- Government Debt." 8 Some of our stockholders are obligated to make equity contributions to us in the future and we cannot guarantee that they will make those contributions. We received unconditional and irrevocable equity commitments from some of our stockholders in connection with the completion of our venture with AT&T and certain other acquisitions. In return for these commitments, these stockholders received shares of our common and preferred stock, which they pledged to us and our senior bank lenders to secure their commitments. These stockholders are required to fund $37.7 million of these commitments in 2000, $48.6 million in 2001 and the remaining $11.0 in 2002. Under certain circumstances, these stockholders can transfer their interests in our preferred stock, subject to the pledge, prior to funding their commitments. In the event any of these stockholders do not fund the remaining portions of their commitments, we could foreclose on their pledged shares, but we would likely have to obtain alternative financing to complete our network. Such financing may not be available on terms satisfactory to us. If we are unable to secure alternate financing, we may have to delay, modify or abandon some of our plans to construct the remainder of our network. We may not be able to obtain the additional financing we may need to complete our network and fund operating losses. We will make significant capital expenditures to finish the construction, testing and deployment of our network. The actual expenditures necessary to achieve these goals may differ significantly from our estimates. We cannot predict whether any additional financing we may need will be available, or what the terms of any such additional financing would be or whether our existing debt agreements will allow additional financing. We may incur variable rate debt, which would make us more vulnerable to interest rate increases. If we cannot obtain additional financing when needed, we will have to delay, modify or abandon some of our plans to construct the remainder of our network, which could slow our growth and our ability to compete in the wireless communications industry. We would have to obtain additional financing if, among other things: . any of our sources of capital are unavailable or insufficient; . we significantly depart from our business plan; . we experience unexpected delays or cost overruns in the construction of our network; . we experience increases in operating costs; . changes in technology or governmental regulations create unanticipated costs; or . we acquire additional licenses. We have many competitors that have substantial coverage of our licensed areas, which makes it difficult for us to acquire and maintain a strong competitive position and to earn profits. We compete in our markets with three or more major U.S. wireless communications services companies in each of our markets, such as: . Bell Atlantic; . BellSouth; . GTE; . SBC Communications; and . Sprint PCS. In some markets, we compete with as many as five major competitors. Many of these competitors have greater financial, marketing and sales and distribution resources than we do. In addition, some of these 9 competitors have achieved substantial coverage in portions of our licensed areas. Some of our competitors have more extensive coverage within our licensed areas than we provide and also have broader regional coverage. In order to attract customers and otherwise compete effectively, we may have to significantly discount our prices, which may reduce our revenues and make it more difficult for us to achieve positive cash flow to meet our obligations. See "Business--Competition." We may not be able to effectively compete with carriers who entered the wireless communications market before us. Competitors who entered the wireless communications services market before us may have a significant time-to-market advantage over us. As a new entrant in the market, we may have to significantly discount our prices to attract customers, which would make it more difficult for us to achieve positive cash flow to meet our obligations. See "Business--Competition." Some competitors may have different or better technology than us, and may attract more customers. We compete with companies that use other communications technologies, including paging and digital two-way paging, enhanced specialized mobile radio and domestic and global mobile satellite service. Specialized mobile radio is a digital technology system that reuses radio airwaves. These technologies may have advantages over our technology, and may attract our customers. See "Business--The Wireless Communications Industry." Competitors who offer more services than us may attract more customers. Some of our competitors market other services, such as traditional telephone service, cable television access and access to the Internet, together with their wireless communications services, which may make their services more attractive to customers. They may attract customers away from us, or prevent us from attracting customers. In addition, in the future, we expect that providers of traditional telephone services, energy companies, utility companies and cable operators who expand their services to offer communications services may compete with us and other wireless providers. See "Business--Competition." We may not be able to acquire the sites necessary to complete our network. We must lease or otherwise acquire rights to use sites for the location of network equipment and obtain zoning variances and other governmental approvals for construction of our network and to provide wireless communications services to customers in our licensed areas. If we encounter significant difficulties in leasing or otherwise acquiring rights to sites for the location of network equipment, we may need to alter the design of our network. Changes in our development plan could slow the construction of our network, which would make it harder to compete in the wireless communications industry or cause us not to meet development requirements. Difficulties in obtaining infrastructure equipment may affect our ability to construct our network and meet our development requirements. If we do not receive our network equipment in a timely manner, we may be unable to provide wireless communications services comparable to those of our competitors. We have purchased a substantial majority of our network equipment from Lucent. There is high demand for the equipment that we require to construct our network, and manufacturers of this equipment, including Lucent, could have substantial backlogs of orders. Accordingly, the lead time for the delivery of this equipment may be long. Some of our competitors purchase large quantities of communications equipment and may have established relationships with the manufacturers of this equipment, such as Lucent. Consequently, they may receive priority in the delivery of this equipment. If we fail to construct our network in a timely manner, we may not be able to compete effectively, we could lose our licenses or we could breach our agreements with AT&T. See "Business--Network Development" and "Certain Relationships and Related Transactions--AT&T Agreements." 10 Potential acquisitions may require us to incur substantial additional debt and integrate new technologies, operations and services, which may be costly and time consuming. We continually evaluate opportunities for the acquisition of licenses and properties that will compliment or extend our existing operations. If we acquire new licenses or facilities, we may encounter difficulties that may be costly and time-consuming and that may slow our growth, which could lower the market value of our class A common stock. Examples of such difficulties are that we may have to: . incur substantial additional debt to finance the acquisitions; . assume U.S. government debt related to any licenses we acquire; . integrate new technologies with our technology; . integrate new operations with our operations; . integrate new services with our offering of services; or . divert the attention of our management from other business concerns. We may experience a high rate of customer turnover which may negatively impact our business. Many providers in the personal communications services industry have experienced a high rate of customer turnover as compared to cellular industry averages. Our strategy to address customer turnover may not be successful, or the rate of customer turnover may be unacceptable. The rate of customer turnover may be the result of several factors, including network coverage, reliability issues such as blocked and dropped calls, handset problems, nonusage of phones, change of employment, affordability, customer care concerns and other competitive factors. Price competition and other competitive factors could also cause increased customer turnover. We depend upon consultants and contractors for our network services, and if any of them fail to perform its obligations to us, we may not complete our network development on a timely basis. We have retained Lucent and other consultants and contractors to help us to design, construct and support our network. See "Business--Network Development." The failure by any of these consultants or contractors to fulfill its contractual obligations could slow the construction of our network in a timely manner, which could slow our growth and our ability to compete in the wireless communications industry. We may become subject to new health and safety regulations, which may result in a decrease in demand for our services. Media reports have suggested that some radio airwave emissions from wireless handsets may be linked to health concerns. These reports could discourage the use of wireless handsets, which would decrease demand for our services. Recent studies have also suggested that hand-held phones may interfere with medical devices. Subsequent studies that raise public concern could decrease demand for our services. Governmental authorities may create new regulations concerning hand-held phones, and our handsets may not comply with rules adopted in the future. Noncompliance would decrease demand for our services. In addition, some state and local legislatures have passed or are considering restrictions on wireless phone use for drivers. The passage or proliferation of this or future legislation could decrease demand for our services. See "Business--Government Regulation." If the management agreement with TeleCorp Management is terminated, we may not be able to comply with applicable FCC rules. Under our management agreement with TeleCorp Management, Mr. Vento and Mr. Sullivan provide management services to us regarding the design, development and operation of our network. If the management agreement is terminated, we may have limited success and less ability to comply with the FCC rules regarding our licenses. See "Business--Government Regulation" and "Management--Management Agreement." 11 If we cannot retain senior management, we may not be able to effectively run our business. We depend on Mr. Vento, our Chief Executive Officer, Mr. Sullivan, our Executive Vice President and Chief Financial Officer, and Ms. Dobson, our Chief Operating Officer, for management leadership. If we lose the services of any of these executives, we may not be successful in running our business. We do not carry life insurance on Mr. Vento, Mr. Sullivan or Ms. Dobson. See "Management." Government regulation, changes in our licenses or other governmental action could affect how we do business. Congress, the FCC, the Federal Aviation Administration, state and local regulatory authorities or the courts may adopt new regulations, amend existing regulations, alter the administration of existing regulations or take other actions that might cause us to incur significant costs in making changes to our network, and such costs might affect our cash flows. As the FCC continues to implement changes to promote competition under the Communication Act of 1934, as amended by the Telecommunication Act of 1996, it may change how it regulates how our network connects with other carriers' networks. The FCC may require us to provide lower cost services to other carriers, which may lessen our revenues. Our licenses to provide wireless communications services, which are our principal assets, have terms of ten years. The FCC may revoke all of our licenses at any time for cause, which includes our failure to comply with the terms of the licenses, our failure to remain qualified under applicable FCC rules to hold the licenses, violations of FCC regulations and malfeasance and other misconduct. The FCC may not renew our licenses upon expiration of their terms. Further, the FCC could modify our licenses in a way that decreases their value or use to us or allocate unused airwaves for similar services. The nonrenewal or loss of any of our licenses would slow our growth and our ability to compete in the wireless communications industry. See "Business--Government Regulation." 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. The FCC could impose penalties on us related to our very small business status and its requirements regarding minimum construction of our network that could slow our growth and our ability to compete in the wireless communications industry. We and TeleCorp Holding acquired PCS licenses as a very small business, and TeleCorp Holding and we must remain a very small business for at least five years to comply with applicable rules of the FCC, including rules governing our capital and ownership structure and corporate governance. If the FCC determines that we violated these rules or failed to meet its minimum construction requirements, it could impose substantial penalties upon us or TeleCorp Holding. Among other things, the FCC could: . fine us; . revoke our licenses; . accelerate our installment payment obligations; or . cause us to lose bidding credits retroactively. See "Business--Government Regulation." The technologies that we use may become obsolete, which would limit our ability to compete effectively. If our technologies become obsolete, we may need to purchase and install equipment necessary to allow us to convert to new technologies to compete in the marketplace. We use the TDMA, or time division multiple access, technology standard in our network. This digital technology allocates a discrete amount of radio airwaves to each user to permit many simultaneous conversations on one radio airwave channel. Other digital 12 technologies, such as CDMA, or code division multiple access, and GSM, or global system for mobile communications, may have significant advantages over TDMA. CDMA codes and sends scrambled speech using very few information bits on a network. GSM encompasses uniform standards in Europe and Japan. Our agreements with AT&T include conditions requiring us to upgrade of our technology to match the technology of AT&T. We may not be able to purchase and install successfully the equipment necessary to allow us to convert to a new or different technology or to adopt a new or different technology at an acceptable cost, if at all. In addition, the technologies that we choose to invest in may not lead to successful implementation of our business plan. See "Business--The Wireless Communications Industry" and "Certain Relationships and Related Transactions--AT&T Agreements." We expect to incur operating costs due to fraud. Based upon the experiences of other providers of wireless communications services, we expect to incur costs as a result of the unauthorized use of our network and to lose revenues. If we are not able to control the unauthorized use of our network, or if we experience unanticipated types of fraud, we will not collect revenues owing to us and will incur costs. These costs include the capital and administrative costs associated with detecting, monitoring and reducing the incidence of fraud and the costs associated with payments to other providers of wireless communications services for unbillable fraudulent roaming on their networks. A limited number of stockholders control us, and their interests may be different from yours. Mr. Vento and Mr. Sullivan will continue to control at least 50.1% of our total voting power after the offering through their ownership of the voting preference stock and have agreed to vote their shares of this stock together on all matters. In addition, Chase Capital Partners, Equity Linked Investors-II, Hoak Communications Partners, L.P., Whitney Equity Partners, LP, Media Communications Partners, AT&T Wireless and TWR Cellular, Inc., will control approximately 36.4% of our total voting power, in the aggregate, after this offering. Mr. Vento and Mr. Sullivan together, and collectively with these stockholders, will have the power to elect all of our directors. They have agreed in a stockholders agreement to arrangements for the designation of board nominees and to vote their shares together to elect all of the nominees designated by them under the stockholders agreement. As a result of their stock ownership, these stockholders and our management will have the ability to control our future operations and strategy. They will also be able to effect or prevent a sale or merger or other change of control of us. In addition, by virtue of their ownership of voting preference stock, Mr. Vento and Mr. Sullivan can control the outcome of any matter that requires a vote of a majority of the common stock and can prevent the approval of any matter that requires a supermajority vote of the common stock. Conflicts of interest between these stockholders and management stockholders and our public stockholders may arise with respect to sales of shares of class A common stock owned by our initial investors and management stockholders or other matters. For example, sales of shares by our initial investors and management stockholders could result in a change of control under our credit facility, which would constitute an event of default under the credit facility, and under our senior subordinated discount note indenture, which would require us to offer to repurchase those notes. In addition, the interests of our initial investors and other existing stockholders regarding any proposed merger or sale may differ from the interests of our new public stockholders, especially if the consideration to be paid for the class A common stock is less than the price paid by public stockholders in this offering. Our initial investors, directors and members of our management have interests in other personal communications services companies, and conflicts of interest may arise from these investments and from other directorships held by our directors. Our initial investors, or their affiliates, currently have significant investments in personal communications services companies other than us. These initial investors may in the future invest in other entities that compete with us. In addition, several of our directors, including Mr. Vento and Mr. Sullivan, serve as directors of, own, or may acquire interests in other communications services companies. As a result, these directors may be 13 subject to conflicts of interest during their tenure as our directors. Also, Mr. Vento or Mr. Sullivan may allocate a portion of their time to managing these companies. Our interests may conflict with the interests of these companies and any conflicts may not be resolved in our favor. In addition, Mr. Vento and Mr. Sullivan own several companies that have acquired PCS licenses in markets where we do not currently operate. AT&T has provided financing for these companies. Mr. Vento and Mr. Sullivan may allocate a portion of their time to managing these companies. These relationships may result in conflicts of interest between us and Mr. Vento and Mr. Sullivan and these conflicts may not be resolved in our favor. We do not intend to pay dividends in the foreseeable future. We have never declared or paid any cash dividends on our common stock. For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock. Payment of any future dividends on our common stock will depend on our earnings and capital requirements, the terms of our debt instruments and preferred stock and other factors our board of directors considers appropriate. Our stock price is likely to be very volatile. Prior to this offering, you could not buy or sell our class A common stock publicly. The market price of the class A common stock after this offering may vary from the initial public offering price. The market price of our class A common stock is likely to be highly volatile and could be subject to wide fluctuations in response to factors such as the following, some of which are beyond our control: . quarterly variations in our operating results; . operating results that vary from the expectations of securities analysts and investors; . changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors; . changes in the status of our intellectual property and other proprietary rights; . changes in law and regulation; . announcements by third parties of significant claims or proceedings against us; . changes in market valuations of other PCS companies; . announcements of technological innovations or new services by us or our competitors; . announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments; . additions or departures of key personnel; . future sales of our class A common stock; and . stock market price and volume fluctuations. Additional shares of our class A common stock will be eligible for public sale in the future and could cause our stock price to drop, even if our business is doing well. After this offering, we will have 81,673,889 shares of class A common stock outstanding, or 82,843,889 shares if the underwriters' over-allotment option is exercised in full, and we have reserved an additional 1,814,321 shares of class A common stock for the issuance of stock options available for grant under our 1999 Stock Option Plan, 552,505 of which have been granted as of September 30, 1999, and 118,390 shares are available for grant under our 1998 Restricted Stock Plan. In addition, we anticipate issuing 1,337,322 shares of class A common stock in connection with pending acquisitions, an aggregate of 16,051,110 shares of our class A common stock may be issued upon conversion of our class C and class D and voting preference common 14 stock and our series F preferred stock, and, based on the September 30, 1999 liquidation preference of the series A preferred stock and an assumed initial public offering price of $17.00 per share, 6,291,928 shares of class A common stock are issuable upon conversion of our outstanding series A preferred stock. The shares sold in this offering, except for any shares purchased by our affiliates, may be resold in the public market immediately. The remaining shares of our outstanding class A common stock, representing approximately 90.4% of the total class A common stock outstanding, will be restricted securities and will become available for resale in the public market as shown in the chart below.
% of Date of availability for resale into public Number of shares total outstanding market ---------------- ----------------- ------------------------------------------- 101,459 0.12% After January 11, 2000, due to provisions of the federal securities laws. 3,783,362 4.63% 180 days after the date of this prospectus due to an agreement these stockholders have with the underwriters, subject to vesting requirements listed in our 1998 Restricted Stock Plan. However, the underwriters can waive this restriction and allow these stockholders to sell their shares at any time. 69,989,068 85.69% After July 17, 2001, upon lapse of restrictions on transfer under the stockholders' agreement, unless the restrictions are earlier waived by the parties thereto, in which case those shares will be subject to resale subject to volume limitations, and, in the case of non- affiliates, without restriction after July 17, 2000. In addition the 16,051,110 shares of our class A common stock issuable upon conversion of our class C and class D and voting preference common stock and our series F preferred stock and shares of class A common stock issuable upon conversion of our class A preferred stock are also subject to the restrictions on transfer under the stockholders' agreement.
We also intend to register under the Securities Act of 1933 1,814,321 shares of our class A common stock reserved for issuance under our 1999 Stock Option Plan. As restrictions on resale end, the market price could drop significantly if the holders of these restricted shares sell them or are perceived by the market as intending to sell them. See "Shares Eligible for Future Sale." We depend on our third party service providers to become year-2000 compliant and we can not assure that this will occur. We are dependent upon the ability of our third party service providers to make their software and equipment year-2000 compliant. The failure of such third party service providers to be year-2000 compliant may affect, among other things, our clearing house services and billing systems and our customers' ability to receive local access and over the air activation or to roam on other networks. We have engaged a nationwide provider of year-2000 services and initiated a year-2000 readiness program. While we expect our systems will be year-2000 compliant, we can not guarantee that this will be the case. Anti-takeover provisions affecting us could prevent or delay a change of control that you may favor. Provisions of our restated certificate of incorporation that will become effective upon closing of this offering and our bylaws, provisions of our debt instruments and other agreements, and provisions of applicable Delaware law and applicable federal and state regulations may discourage, delay or prevent a merger or other change of control that stockholders may consider favorable. The provisions of our restated certificate of incorporation or bylaws, among other things, will: . divide our board of directors into three classes, with members of each class to be elected in staggered three-year terms; . limit the right of stockholders to remove directors; 15 . regulate how stockholders may present proposals or nominate directors for election at annual meetings of stockholders; and . authorize our board of directors to issue preferred stock on one or more series, without stockholder approval. These provisions could: . have the effect of delaying, deferring or preventing a change in control of our company; . discourage bids for our class A common stock at a premium over the market price; . lower the market price of, and the voting and other rights of the holders of, our class A common stock; or . impede the ability of the holders of our class A common stock to change our management. In addition, our stockholders' agreement, credit facility and our senior subordinated notes indenture contain limitations on our ability to enter into change of control transactions. See "Certain Relationships and Related Transactions," "Description of Indebtedness" and "Description of Capital Stock--Anti-Takeover Provisions." Our business is subject to regulation by the FCC and state regulatory commissions or similar state regulatory agencies in the states in which we operate. This regulation may prevent some investors from owning our securities, even if that ownership may be favorable to us. The FCC and some states have statutes or regulations that would require an investor who acquires a specified percentage of our securities or the securities of one of our subsidiaries to obtain approval to own those securities from the FCC or the applicable state commission. You will experience immediate and substantial dilution. We expect the initial public offering price will be substantially higher than the net tangible book value of each outstanding share of common stock. Purchasers of common stock in this offering will suffer immediate and substantial dilution. Based on our net tangible book deficit as of September 30, 1999, the dilution in net tangible book deficit will be $21.60 per share of the class A common stock at an assumed initial public offering price of $17.00 per share, which is the midpoint of the initial public offering price range set forth on the cover of this prospectus. This prospectus contains statements that are not statements of fact, and these statements may prove to be incorrect, which may mean we need more capital than we anticipate. All statements in this prospectus that are not statements of historical facts are forward-looking statements. Forward-looking statements are inherently speculative, and they may be incorrect. We base forward-looking statements in this prospectus upon the following assumptions, among others, and they may be incorrect: . We will not incur any unanticipated costs in the construction of our network. . We will be able to compete successfully in each of our markets. . Demand for our services will meet wireless communications industry projections. . Our network will satisfy the requirements described in our agreements with AT&T and support the services we expect to provide. . We will be successful in working with AT&T and the other SunCom companies, as well as with other providers of wireless communications services and roaming partners, to ensure effective marketing of our network and the services we intend to offer. . There will be no change in any governmental regulation or the administration of existing governmental regulations that requires a material change in the operation of our business. If one or more of these assumptions is incorrect, our actual business, operations and financial results may differ materially from the expectations, expressed or implied, in the forward-looking statements. Do not place undue reliance on any forward-looking statements. 16 USE OF PROCEEDS We estimate that the net proceeds from the sale of the 7,800,000 shares of class A common stock in this offering will be approximately $122.3 million at an assumed initial public offering price of $17.00 per share and after deducting the estimated underwriting discounts and estimated offering expenses. If the underwriters exercise their over-allotment option in full, we estimate that our net proceeds will be approximately $140.9 million. We expect to use the net proceeds of this offering for general corporate purposes, including capital expenditures in connection with the expansion of our personal communications services network, sales and marketing activities and working capital. We anticipate spending approximately $95 million in the fourth quarter of 1999 and approximately $185 million in the year 2000 on capital expenditures to continue our network construction, although actual amounts expended may vary significantly depending upon the progress of the construction and other factors. These capital expenditures are expected to be funded through a combination of the proceeds of this offering, cash on hand, available bank and vendor credit facilities and committed equity investments. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." A portion of the net proceeds may also be used for approved acquisitions. Other than the pending acquisitions of TeleCorp LMDS and additional airwaves in Louisiana, we have no agreements or commitments with respect to any such acquisition. However, we continually evaluate opportunities and enter into discussions regarding possible acquisitions of licenses and properties that will complement or extend our existing operations. We may incur substantial additional debt to finance any future acquisitions. We do not currently expect that we would acquire licenses in any new market unless we are able to extend the AT&T agreements to cover our operations in that market. Pending such uses, the net proceeds of this offering will be invested in short term, interest-bearing, investment grade securities. DIVIDEND POLICY We have never declared or paid any cash dividends on our capital stock and do not anticipate paying any cash dividends on our capital stock in the foreseeable future. We currently intend to retain future earnings, if any, to finance the expansion of our business. Any future determination to pay dividends will be at the discretion of our board of directors and will be dependent upon then existing conditions, including our financial conditions and results of operations, contractual restrictions, business prospects and other factors that the board of directors considers relevant. Our ability to pay dividends is restricted by the terms of our preferred stock, our senior subordinated notes indenture and our senior credit facilities. See "Description of Capital Stock" and "Description of Indebtedness." 17 CAPITALIZATION The following table sets forth our capitalization as of September 30, 1999: . on an actual basis, . giving pro forma effect to our pending acquisitions of TeleCorp LMDS and the remaining minority interest of Viper Wireless that we do not currently own, and adjustments related to completed acquisitions during the first nine months of 1999, and . on a pro forma as adjusted basis to give effect to the items described above and the sale of 7,800,000 shares of class A common stock in this offering at an assumed initial public offering price of $17.00 per share. This information should be read together with "Selected Historical and Pro Forma Consolidated Financial Information," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Unaudited Pro Forma Condensed Consolidated Financial Statements" and our other financial statements and related notes included elsewhere in this prospectus.
As of September 30, 1999 ----------------------------------- (In thousands) Pro Forma Actual Pro Forma(a) As Adjusted --------- ------------ ----------- Cash and cash equivalents.................. $ 80,410 $ 80,410 $ 202,734 ========= ========= ========= Long-term debt: Government license obligations, net of discounts............................... $ 17,883 $ 17,883 $ 17,883 Senior credit facilities (b)............. 225,000 225,000 225,000 Senior subordinated discount notes....... 344,351 344,351 344,351 Vendor financing (c)..................... 42,516 42,516 42,516 --------- --------- --------- Total long-term debt................... 629,750 629,750 629,750 --------- --------- --------- Mandatorily redeemable preferred stock, net....................................... 250,004 267,942 267,942 --------- --------- --------- Stockholders' equity (deficit): Series F preferred stock................. 149 149 149 Common stock............................. 750 763 841 Additional paid-in capital............... 5,379 28,306 150,551 Deferred compensation.................... (801) (3,841) (3,841) Common stock subscriptions receivable.... (191) (191) (191) Treasury stock........................... -- -- -- Accumulated deficit...................... (209,079) (232,081) (232,081) --------- --------- --------- Total stockholders' equity (deficit)... (203,793) (206,895) (84,572) --------- --------- --------- Total capitalization................... $ 675,961 $ 690,797 $ 813,120 ========= ========= =========
- -------- (a) Includes, in addition to the Viper Wireless and TeleCorp LMDS transactions, adjustments resulting from the amortization of the extension of a network membership license agreement which increases the accumulated deficit, and the accretion of mandatorily redeemable preferred stock issued in connection with asset acquisitions which were completed, or are to be issued in connection with completed and pending acquisitions, which increases the mandatorily redeemable preferred stock, net, and the accumulated deficit. (b) Our senior credit facilities provide up to $560.0 million of term loan and revolving credit financing. See "Description of Indebtedness--Senior Credit Facilities." (c) Our vendor arrangements with Lucent Technologies have an aggregate additional commitment of up to $75.0 million. See "Description of Indebtedness--Vendor Financing." 18 DILUTION If you invest in our class A common shares, your interest will be diluted by an amount equal to the difference between the initial public offering price per class A common share and the net tangible book value per class A common share after this offering. We calculate net tangible book value, which is total assets less intangible assets, total liabilities and net mandatorily redeemable preferred stock, by the number of outstanding class A common shares. Our net tangible book deficit as of September 30, 1999, was approximately $(497,632,810) or approximately $(6.74) per class A common share. After the sale of the 7,800,000 class A common shares we are offering under this prospectus, at an assumed initial public offering price per class A common share of $17.00, and after deducting underwriting discounts and our estimated expenses in connection with this offering, our net tangible book deficit as of September 30, 1999, would have been approximately $(375,309,310) or approximately $(4.60) per class A common share. This represents an immediate decrease in net tangible book deficit of $2.14 per class A common share to existing shareholders and an immediate dilution of $(21.60) per class A common share to new investors. The following table illustrates this dilution on a per class A common share basis: Assumed initial public offering price per class A common share.................................................... $ 17.00 Net tangible book deficit per class A common share at September 30, 1999..................................... $(6.74) Decrease in net tangible book deficit per class A common share attributable to new investors.................... $ 2.14 ------ Net tangible book deficit per class A common share after the offering............................................. $ (4.60) ------- Dilution in net tangible book deficit per class A common share to new investors................................... $(21.60) =======
The following table summarizes on an unaudited pro forma basis as of November 17, 1999, the differences between the number of class A common shares purchased from us, the total consideration paid and the average price per share paid by existing shareholders and by the new investors in the offering before deducting the underwriting discounts and estimated offering expenses payable by us, at an assumed public offering price of $17.00 per share.
Shares Purchased Total Consideration ------------------ -------------------- Average Price Number Percent Amount Percent Per Share ---------- ------- ------------ ------- ------------- Existing Stockholders... 73,873,889 90.4% $ 19,280,585 12.7% $ 0.26 New Investors........... 7,800,000 9.6% 132,600,000 87.3% $17.00 ---------- ----- ------------ ----- Total................. 81,673,889 100.0% $151,880,585 100.0% ========== ===== ============ =====
The foregoing discussion and table assumes no exercise of outstanding options and no conversion of our outstanding preferred or common stock after September 30, 1999 into class A common stock. An aggregate of 16,051,110 shares of class A common stock are issuable upon conversion of our outstanding class C, class D and voting preference common stock and our series F preferred stock, subject to FCC ownership restrictions no longer being applicable to us, and, based on the September 30, 1999 liquidation preference of our series A preferred stock of approximately $107.0 million and an assumed initial public offering price of $17.00 per share, 6,291,928 shares of our class A common stock would be issuable upon conversion of our series A preferred stock. As of September 30, 1999, an aggregate of 552,505 shares of class A common stock were issuable upon the exercise of options outstanding under our 1999 Stock Option Plan at a weighted average exercise price of $0.0065 per share. If all such shares of capital stock were converted to class A common shares and all such options were exercised, the net tangible book deficit per share immediately after completion of the offering would be $(2.57). This represents an immediate dilution in net tangible book deficit of $19.57 per share to purchasers of class A common shares in the offering. 19 SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION The selected historical statements of operations and balance sheet data presented on the following page for the period from inception on July 29, 1996 to December 31, 1996, for the years ended December 31, 1997 and 1998, and as of and for the nine months ended September 30, 1999, has been derived from our audited consolidated financial statements included elsewhere in this prospectus. "Other Operating Data" is not directly derived from our historical consolidated financial statements, and has been presented to provide additional information. The unaudited pro forma balance sheet data as of September 30, 1999 give effect to our pending acquisition of the remaining minority interest of Viper Wireless that we do not currently own and our pending acquisition of TeleCorp LMDS as if each of these transactions had occurred on January 1, 1998. The unaudited pro forma statement of operations data for the year ended December 31, 1998 and the nine months ended September 30, 1999 give effect to our Viper Wireless and TeleCorp LMDS transactions as if they had occurred at the beginning of the periods presented. The unaudited pro forma as adjusted balance sheet data as of September 30, 1999 give effect to Viper Wireless and TeleCorp LMDS transactions and the completion of this offering as if each had occurred on September 30, 1999. We have provided the pro forma information for informational purposes only and you should not assume that our results would actually have been as shown as if we had completed the transactions on the dates indicated. You should read this information together with our financial statements and related notes included elsewhere in this prospectus and the information under "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." 20
Year Ended December 31, Nine Months Ended September 30, July 29, 1996 ------------------------------------- ------------------------------------ (inception) to 1998 1999 December 31, ----------------------- ----------------------- 1996 1997 Pro Forma 1998 Pro Forma (Predecessor) (Predecessor) Actual (unaudited) (unaudited) Actual (unaudited) -------------- ------------- ---------- ----------- ----------- ---------- ----------- (Dollars in thousands, except per share data) Statements of Operations Data: Service revenue....... $ -- $ -- $ -- $ -- $ -- $ 18,937 $ 18,937 Equipment revenue..... -- -- -- -- -- 10,322 10,322 Roaming revenue....... -- -- 29 29 -- 18,942 18,942 ------- -------- ---------- ---------- ---------- ---------- ---------- Total revenue......... -- -- 29 29 -- 48,201 48,201 ------- -------- ---------- ---------- ---------- ---------- ---------- Operating expense: Cost of revenue....... -- -- -- -- -- 23,087 23,087 Operations and development.......... -- -- 9,772 9,772 3,502 25,925 25,925 Selling and marketing............ 10 304 6,325 6,325 2,488 39,720 39,720 General and administrative....... 515 2,637 26,239 31,780 15,885 38,942 44,456 Depreciation and amortization......... -- 11 1,584 2,764 643 34,799 35,684 ------- -------- ---------- ---------- ---------- ---------- ---------- Total operating expense.............. 525 2,952 43,920 50,641 22,518 162,473 168,872 ------- -------- ---------- ---------- ---------- ---------- ---------- Operating loss........ (525) (2,952) (43,891) (50,612) (22,518) (114,272) (120,671) Other (income) expense: Interest expense...... -- 396 11,934 11,934 5,501 34,448 34,448 Interest income....... -- (13) (4,697) (4,760) (2,631) (4,805) (4,815) Other expense......... -- -- 27 27 23 160 160 ------- -------- ---------- ---------- ---------- ---------- ---------- Net loss.............. (525) (3,335) (51,155) (57,813) (25,411) (144,075) (150,464) Accretion of mandatorily redeemable preferred stock................ (289) (726) (8,567) (17,897) (4,026) (16,960) (23,026) ------- -------- ---------- ---------- ---------- ---------- ---------- Net loss attributable to common equity..... $ (814) $ (4,061) $ (59,722) $ (75,710) $ (29,437) $ (161,035) $ (173,490) ======= ======== ========== ========== ========== ========== ========== Net loss attributable to common equity per share--basic and diluted............... $(44.45) $(111.74) $ (2.19) $ (1.28)(a) $ (1.45) $ (2.30) $ (2.43)(a) ======= ======== ========== ========== ========== ========== ========== Weighted average common equity shares outstanding--basic and diluted............... 18,313 36,340 27,233,786 58,944,055(a) 20,367,373 70,089,141 71,362,532(a) ======= ======== ========== ========== ========== ========== ========== Other Operating Data: Subscribers (end of period).............. -- -- -- -- -- 75,723 75,723 Covered population (end of period)...... -- -- -- -- -- 10,739,000 10,739,000
As of September 30, 1999 ------------------------------------- Pro Forma Pro Forma As Adjusted(b) Actual (unaudited) (unaudited) --------- ----------- -------------- Balance Sheet Data: Cash and cash equivalents............... $ 80,410 $ 80,410 $202,734 Working capital......................... 40,726 40,726 163,049 Property and equipment, net............. 347,348 347,348 347,348 Personal communications services licenses and microwave relocation costs, net............................. 235,760 252,660 252,660 Intangible assets--AT&T agreements, net.................................... 39,696 37,631 37,631 Total assets............................ 754,783 769,618 891,942 Total debt.............................. 629,750 629,750 629,750 Mandatorily redeemable preferred stock, net.................................... 250,004 267,942 267,942 Total stockholders' deficit............. (203,793) (206,895) (84,572)
- -------- (a) Pro forma basic and diluted net loss attributable to common equity per share have been calculated assuming that completion of our pending acquisitions of the remaining minority interest of Viper Wireless, Inc. that we do not currently own and of TeleCorp LMDS, Inc. and the completed acquisitions of Digital PCS, LLC, AT&T Puerto Rico and Wireless 2000, Inc. had been completed at the beginning of periods presented. Since we had a net loss attributable to common equity in each of the periods presented, pro forma basic and diluted net loss attributable to common equity per share is the same. (b) Gives effect to completion of this offering, our pending acquisitions and adjustments relating to completed acquisitions. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Acquisition History" and "Recent Developments" and "Unaudited Pro Forma Condensed Consolidated Financial Statements." 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. . 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. 22 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. 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 23 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. As a result of the offering, 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 will record approximately $71.3 million on our balance sheet as deferred compensation and additional paid-in capital, based on an assumed initial public offering price of $17.00 per share. This 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 this offering, we will record a charge of approximately $24.8 million of the $71.3 million 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 intercarrier 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. 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. 24 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 Puerto 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 $3.5 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 $15.9 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 $34.8 million, as compared to $0.6 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. Interest expense, net of interest income, for the nine months ended September 30, 1999 was $29.6 million, as compared to $2.9 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. Year ended December 31, 1998 Compared to Year ended December 31, 1997 Revenue for the year ended December 31, 1998 was approximately $29,200. This revenue resulted from servicing AT&T's roaming customers in our Louisiana markets. We began offering wireless services in most of our major markets in the first quarter of 1999. We generated no revenue for the year ended 1997. Operations and development expense for the year ended December 31, 1998, was approximately $9.8 million. This expense was primarily related to an increase in engineering and operating staff devoted to the implementation of future operations of our network. There was no operations and development expense for the year ended December 31, 1997. Selling and marketing expenses for the year ended December 31, 1998, was approximately $6.3 million, as compared to approximately $0.3 million for the year ended December 31, 1997. The year-over-year increase was due to the increase in corporate and regional sales and marketing staff in order to prepare for domestic market launches in the first quarter of 1999. 25 General and administrative expense for the year ended December 31, 1998, was approximately $26.2 million, as compared to approximately $2.6 million for the year ended December 31, 1997. The year-over-year increase was due to the development and growth of infrastructure and staffing related to information technology, customer care and other administrative functions incurred in the preparation for commercial launch of our markets in the first quarter of 1999. Depreciation and amortization expense for the year ended December 31, 1998, was approximately $1.6 million, as compared to approximately $11,000 for the year ended December 31, 1997. This expense was related to depreciation of furniture, fixtures and office equipment, as well as the initiation of amortization on AT&T agreements. Interest expense, net of interest income, for the year ended December 31, 1998, was approximately $7.2 million, as compared to approximately $0.4 million for the year ended December 31, 1997. This interest expense was related to notes payable to shareholders and affiliates. This increase in interest expense was related to borrowings under the senior credit facilities of $225.0 million since July 1998 and the issuance of $10.0 million aggregate principal amount of notes under the vendor financing provided by Lucent. From July 29, 1996 (inception) to December 31, 1996 Selling and marketing expense and general and administrative expense for the period from July 29, 1996 (inception), to December 31, 1996, was approximately $0.5 million, which were associated with salary, benefits and expenses of administrative personnel, as well as legal and other costs associated with our formation. 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, 26 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. Recent Developments Since September 30, 1999, we have recently 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, LLC. As consideration for the additional airwaves we will pay Gulf Telecomm $362,844 in cash, assume approximately $2.3 million in FCC debt related to the license and reimburse Gulf Telecomm for all interest it paid to the FCC on debt related to the license from June, 1998 until the date the transaction is completed. 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 PCS auction; . initiating research and development; 27 . 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 incoming 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 and investing activities. During the nine months ended September 30, 1999, we increased long-term debt by $386.4 million and received $87.4 million of preferred stock proceeds and receipt of preferred stock subscriptions receivable net of direct issuance costs. Cash outlays for capital expenditures required to develop and construct our network totaled $245.5 million. We spent $72.4 million to purchase PCS licenses. In addition, we were required to deposit $43.6 million with the FCC for other 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 $0.3 million. 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 totaling $2.8 million to our stockholders. We converted these notes into mandatorily redeemable preferred stock in July 1998. 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 our equity in July 1998 in connection with the completion of the venture with AT&T. From inception through November 15, for aggregate cash payments of $105.7 million and other consideration, we have issued 97,473 shares of series A preferred stock, 210,608 shares of series C preferred stock, 49,417 shares of series D preferred stock, 25,041 shares of series E preferred stock, 14,912,778 shares of series F preferred stock, 73,873,889 shares of class A common stock, 283,813 shares of class C common stock, 851,429 shares of class D common stock; and 3,090 shares of voting preference stock. The class C, class D and voting preference common stock are convertible into an aggregate of 1,138,332 shares of class A common stock. The issuances have been in connection with capital infusions as well as with acquisition of licenses and other assets by the company, as described below. The primary recipients of these shares were CB Capital Investors, L.P; Equity-Linked Investors--II; Hoak Communications Partners, L.P; Whitney Equity Partners. L.P; Media/Communications Partners; AT&T Wireless PCS, LLC; TWR Cellular, Inc; as well as Gerald Vento and Thomas Sullivan and other management. See "Principal Stockholders and Beneficial Ownership of Management." Our preferred stock is convertible into shares of our common stock at various times and following various events as follows: . our series A preferred stock is convertible into shares of our class A common stock after July 17, 2006 at a conversion rate equal to the liquidation preference, which was approximately $107.0 million as of September 30, 1999, divided by the market price of the class A common stock at the time of conversion; . our series F preferred stock is convertible at any time into shares of our class A or class B common stock on a share for share basis. 28 We may redeem: . shares of our series A preferred stock after the tenth anniversary of its issuance; and . shares of our series B, series C and series D preferred stock at any time; at the liquidation preference for the shares being redeemed. The holders of our series A, series B, series C, series D and series E preferred stock have the right to require us to redeem their shares after the twentieth anniversary of their issuance time at the liquidation preference for the shares being redeemed. Holders of our series A preferred stock are entitled to a quarterly dividend equal to 10% per annum of that stock's accumulated liquidation preference. The accumulated liquidation preference of our series A preferred stock was approximately $107.0 million in aggregate as of September 30, 1999. We may defer payment of this dividend until December 31, 2008, and we are currently doing so. Holders of our series C, D and E preferred stock are not entitled to a dividend except to the extent declared by our board. Those series of stock, however, are entitled to an accumulated liquidation preference, which was approximately $275.8 million in aggregate as of September 30, 1999. The liquidation preference accretes at a rate of 6% per annum, compounded quarterly. See "Description of Capital Stock" for additional information on the dividends, liquidation preferences, rankings and voting rights of the capital stock. Equity Commitments In connection with completion of the venture with AT&T, we received unconditional and irrevocable equity commitments from our stockholders in the aggregate amount of $128.0 million in return for the issuance of preferred and common stock. As of September 30, 1999, approximately $55.5 million of the equity commitments had been funded. The remaining equity commitments are required to be funded in an installment of $36.3 million in July 2000 and $36.2 million in July 2001. We received additional irrevocable equity commitments from our stockholders in the aggregate amount of $5.0 million in return for the issuance of preferred and common stock in connection with the Digital PCS acquisition. Our stockholders funded $2.2 million of these equity commitments on April 30, 1999, and are required to fund $1.4 million in each of July 2000 and July 2001. We have received additional irrevocable equity commitments from our stockholders in the aggregate amount of approximately $40.0 million in return for the issuance of preferred and common stock in connection with the Puerto Rico acquisition. We received $12.0 million of these commitments on May 24, 1999, and $6.0 million are required to be funded in December 1999 and $11.0 million are required to 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 approximately $32.3 million in connection with Viper Wireless' participation in the FCC's reauction of PCS licenses. We received approximately $6.5 million of these equity commitments on May 14, 1999, approximately $11.0 million on July 15, 1999 and approximately $14.8 million on September 29, 1999. In the aggregate, we have obtained $205.3 million of equity commitments, of which $102.0 million had been funded as of September 30, 1999. These equity commitments cannot be amended without our consent and the consent of AT&T and all of the other initial investors. In addition, the terms of our senior subordinated discount notes and our bank and vendor credit facilities restrict us from waiving or amending these commitments. The foregoing equity commitments are also secured by pledges of the shares of our capital stock issued to each initial investor, other 29 than certain shares of preferred stock. Those pledges have been assigned to our senior lenders as security for our senior credit facilities. Transfers of shares of our capital stock pledged to secure an equity commitment remain subject to such pledge until the equity commitment is funded in full. In addition, pursuant to the stockholders' agreement between our initial investors, Mr. Vento and Mr. Sullivan and us, the initial investors are restricted from transferring their shares of common stock prior to July 2001, except to affiliates. Any transfers by them of class A common stock are subject to rights of first offer and tag-along and drag-along rights in favor of AT&T and the other initial investors. In addition to the approval of our senior lenders, the terms of the stockholders' agreement may be amended only if agreed to in writing by us and the beneficial holders of a majority of the class A common stock party to the stockholders' agreement, including AT&T Wireless, 66 2/3% of the class A common stock beneficially owned by our initial investors other than AT&T, and 66 2/3% of the class A common stock beneficially owned by Mr. Vento and Mr. Sullivan. Following the offering and the expiration or waiver of the 180 day restriction on transfers described under "Underwriting," shares of preferred stock may be transferred, subject, however, to the pledge described above and to the continuing obligation of the investor to fund its commitment. Senior Subordinated Discount Notes On April 20, 1999, we sold $575.0 million aggregate principal amount at maturity of 11 5/8% senior subordinated discount notes due April 15, 2009. Cash interest on these notes will not accrue or be payable prior to April 15, 2004. From April 15, 2004, cash interest will accrue at a rate of 11 5/8% per annum on the principal amount at maturity of the notes through and including the maturity date and will be payable semi-annually on April 15 and October 15 of each year. In connection with the sale of these notes, we received net proceeds of approximately $317 million after deducting initial purchasers' discount and issuance expenses of approximately $10 million. Senior Credit Facilities In July 1998, we entered into senior credit facilities with a group of lenders for an aggregate amount of $525.0 million. In October 1999 we entered into amendments to the senior credit facilities under which the amount of credit available to us was increased to $560.0 million. Our senior credit facilities currently provide for: . a $150.0 million senior secured term loan that matures in January 2007, . a $225.0 million senior secured term loan that matures in January 2008, . a $150.0 million senior secured revolving credit facility that matures in January 2007, and . a $35.0 million senior secured term loan that matures in May 2009. We must repay the term loans in quarterly installments, beginning in September 2002, and the commitments to make loans under the revolving credit facility automatically and permanently reduce beginning in April 2005. As of September 30, 1999, $225.0 million had been drawn under the senior credit facilities and was then accruing interest at an annual rate of 8.29%. See "Description of Indebtedness--Senior Credit Facilities." Vendor Financing In May 1998, we entered into a vendor procurement contract with Lucent, under which we agreed to purchase radio, call connecting and related equipment and services for the development of our network. We also entered into a note purchase agreement with Lucent under which Lucent agreed to provide us with $80.0 million of junior subordinated vendor financing. This $80.0 million consisted of $40.0 million aggregate principal amount of increasing rate Lucent series A notes and $40.0 million aggregate principal amount of increasing rate Lucent series B notes. We borrowed $40.0 million under the series B note facility and repaid 30 this amount and accrued interest thereon in April 1999 from proceeds of our sale of senior subordinated discount notes. This amount cannot be reborrowed. As of September 30, 1999, we had outstanding approximately $42.5 million of our Lucent series A notes, including $1.6 million of Lucent series A notes issued as payment of interest in kind, plus $0.9 million of additional accrued interest and accruing interest at a rate per annum of 8.5% as of September 30, 1999. The amount outstanding under these series A notes and any future series A note borrowings is subject to mandatory prepayment in an amount equal to 50% of the excess of $198.0 million in net proceeds we receive from an equity offering other than the issuance of capital stock used to acquire related business or assets. In October 1999 we entered into an amended and restated note purchase agreement with Lucent under which Lucent has agreed to purchase up to $12.5 million of new series A notes and up to $12.5 of new series B notes under a vendor expansion facility in connection with our prior acquisition of licenses in the San Juan, Puerto Rico, Evansville Indiana, Paducah, Kentucky and Alexandria and Lake Charles, Louisiana markets. The obligation of Lucent to purchase notes under this vendor expansion facility is subject to a number of conditions, including that we commit to purchase one wireless call connection equipment site and 50 network equipment sites for each additional market from Lucent. In addition, pursuant to the amended and restated note purchase agreement Lucent has agreed to make available up to an additional $50.0 million of new vendor financing not to exceed an amount equal to 30% of the value of equipment, software and services provided by Lucent in connection with any additional markets we acquire. This $50.0 million of availability is subject to a reduction up to $20 million on a dollar for dollar basis of any additional amounts Lucent otherwise lends to us for such purposes under our senior credit facilities, exclusive of amounts Lucent lends to us under its existing commitments under our senior credit facilities. Any notes purchased under this facility would be divided equally between Lucent series A and series B notes. The terms of Lucent series A and series B notes issued under these expansion facilities would be identical to the terms of the original Lucent series A and series B notes as amended, including a maturity date of October 23, 2009. Any Lucent series B notes issued under these expansion facilities will mature and will be subject to mandatory prepayment on a dollar for dollar basis out of the net proceeds of any future public or private offering or sale of debt securities, exclusive of any private placement notes issued to finance any additional market and borrowings under the senior credit facilities or any replacement facility. See "Description of Indebtedness--Vendor Financing." Capital Commitments Below is a table of capital commitments to us:
Amounts Funded Capital Commitments Committed Amounts Through September 30, 1999 ------------------- ----------------- -------------------------- (in millions) (in millions) Senior credit facility........ $ 560.0 $225.0 Senior subordinated discount notes........................ 327.6 327.6 Vendor financing.............. 115.0 40.0 Redeemable preferred stock: Issuable for cash........... 205.3 76.2 Issuable for property....... 148.9 148.9 -------- ------ Total....................... $1,356.8 $817.7
31 The senior subordinated discount notes represent a large portion of our capital resources that do not have required scheduled payments of principal or interest for five years from their issue date. Accordingly, they represent a significant source of our liquidity without creating a capital requirement in the near term. Capital Expenditures From inception through December 31, 1998, cash outlays for capital expenditures were approximately $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 be highly leveraged. We estimate that our capital commitments will be sufficient to meet our total capital requirements through December 31, 2001, although if we acquire additional licenses or properties, we may need to incur substantial additional debt to meet our capital requirements. 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. Capital expenditures from inception to September 30, 1999, were approximately $354.2 million. Capital expenditures were approximately $245.5 for the first nine months of 1999. We estimate capital expenditures for year ended December 31, 1999, and December 31, 2000, will be approximately $355.0 million and $185.0 million, respectively. As of September 30, 1999, we have approximately $20.5 million of debt owed to the U.S. government related to some of our 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. As of September 30, 1999, we owe the U.S. government $9.2 million less a discount of $1.2 million, for the acquisition of PCS licenses in New Orleans, Memphis, Beaumont and Little Rock obtained during the 1997 auction. The terms of the notes include: an interest rate of 6.25%, quarterly interest payments which commenced in July 1998 and continued for the one year thereafter, then quarterly principal and interest payments for the remaining nine years. The promissory notes are collateralized by the underlying PCS licenses. As of September 30, 1999, we have approximately $7.7 million of liabilities for microwave relocation obligations. Approximately $5.3 million is required to be paid within the next year, and the remaining $2.4 million is required to be paid in the following year. We do not expect to incur significant additional microwave relocation costs for our existing markets. Other During the nine months ended September 30, 1999, we completed the acquisition of additional PCS licenses from Digital PCS, LLC and Wireless 2000, Inc. As part of these acquisitions, we assumed additional U.S. government financing with the FCC amounting to $11.3 million, less a discount of $1.4 million. The terms of the notes include an interest rate of 6.125% for notes assumed from Digital PCS, LLC. and 7.00% for notes assumed from Wireless 2000, Inc., quarterly interest payments for a two--year period and then quarterly principal and interest payments for the remaining eight years. In May 1998, we entered into a vendor procurement contract with Lucent under which we are permitted to purchase up to $285.0 million of radio, call connecting and related equipment and services for the development of our wireless communications network. Through September 30, 1999, we have purchased approximately $140.0 million of equipment and services from Lucent. 32 We have operating leases primarily related to retail store locations, distribution outlets, office space and rent for our network development. The terms of some of the leases include a reduction of rental payments and scheduled rent increases at specified intervals during the term of the leases. We are recognizing rent expense on a straight-line basis over the life of the lease, which establishes deferred rent on the balance sheet. As of September 30, 1999, the aggregate minimum rental commitments under non-cancelable operating leases are as follows: October to December 1999....................................... $ 3,794,049 For the year ending December 31: 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 $2,000, $157,000, $3.2 million and $9.7 million for the period ended December 31, 1996 and for the years ended December 31, 1997, 1998, and for the nine months ended September 30, 1999 respectively. We own more than 163 communications towers situated on leased sites in all of our markets. We are considering entering into sale/leaseback transactions and may do so if we can obtain terms acceptable to us. We have entered into a series of agreements for software licenses, consulting, transition support and maintenance with various vendors. The total future commitments under the agreements is approximately $4.0 million as of September 30, 1999. We have entered into letters of credit to facilitate local business activities. We are liable under the letters of credit for nonperformance of certain criteria under the individual contracts. The total amount of outstanding letters of credit was $1.5 million at September 30, 1999. The outstanding letters of credit reduce the amount available to be drawn under our senior credit facility. We believe that the net proceeds of this offering, the capital we have raised to date and the other capital resources currently available to us, which includes the funding of the irrevocable equity commitments from our initial investors, will be sufficient to meet our projected capital requirements through December 31, 2001. If we acquire additional licenses or properties, we may need to incur substantial additional debt to complete the acquisitions and construct and operate the acquired properties. The network development requirements imposed by our agreements with AT&T create significant capital requirements much of which will be covered by indebtedness we incur. Our ability to meet our capital requirements is subject to our ability to construct our network and obtain customers in accordance with our plans and assumptions and a number of other risks and uncertainties including those discussed under the heading "Risk Factors." The development of our network may not be completed as projected and we may not be able to generate positive cash flow. If any of our projections are incorrect, we may not be able to meet our projected capital requirements. 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. 33 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 $225.0 million to convert our variable rate debt to fixed rate debt. The interest rate swaps had no material impact on our consolidated financial statements as of and for the year ended December 31, 1998 or the nine month period ended September 30, 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. Our non-information technology systems may also be susceptible to the year-2000 issues. In particular, our network equipment that connects calls contains 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. We recently engaged Cayenta.com, a nation-wide provider of year-2000 services. We and Cayenta.com formed a year-2000 committee, and initiated a year-2000 readiness program that: . is developing an enterprise plan for addressing the year-2000 situation; . is providing an inventory of all hardware, software, and network assets; . has reviewed vendor contracts to determine if year-2000 language is included; . is conducting an assessment of year-2000 readiness of TeleCorp technology assets; and . will recommend further testing and remediation, if applicable. The scope of this effort includes our Virginia headquarters as well as our locations in Arkansas, Louisiana, New England, Tennessee, and Puerto Rico. The Cayenta.com engagement will address wireless network infrastructure, internally developed and third party vender-developed applications, information technology networks, and issues at our data centers, call centers, and call connection sites. We also depend upon the ability of AT&T, AT&T's roaming partners and Electronic Data Systems 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 Electronic Data Systems to provide clearinghouse services. Our costs with respect to year-2000 compliance have been approximately $0.4 million through September 30, 1999, and we anticipate that our total costs in evaluating our information technology system will not exceed $1.5 million, including costs to build the necessary redundancy into our systems. 34 Although we expect our systems will be year-2000 compliant on a timely basis, they may not be, and the systems of other parties may not be year-2000 compliant on a timely basis or be compatible with our systems. We believe that the greatest risk to our ability to provide communications services is the failure of our service providers to be year-2000 compliant, especially those service providers that provide local access and some of the billing systems upon which our long distance communications service relies. In the event one of our vendors is not year-2000 compliant and their noncompliance affects us, we believe that this effect will cause only a temporary disruption of our service, if at all. Although we cannot estimate the material lost revenue due to this worst case scenario, we do not believe that such losses, if any, will be significant. 35 THE WIRELESS COMMUNICATIONS INDUSTRY Wireless communications systems use a variety of radio airwaves to transmit voice and data. The wireless communications industry includes one-way radio applications, such as paging or beeper services, and two-way radio applications, such as personal communications services, or PCS, cellular telephone and other technologies. Each application is licensed and operates in a distinct radio airwave block. Since the introduction of commercial cellular service in 1983, the wireless communications industry has experienced dramatic growth. The number of wireless subscribers in the United States has increased from an estimated 340,000 at the end of 1985 to over 69 million as of December 31, 1998, according to the Cellular Telecommunications Industry Association, an international association for the wireless industry. Paul Kagan Associates, an independent media and telecommunications association, estimates that the number of wireless users will increase to 142 million by 2003, with PCS users representing nearly 34% of total users, a significant increase over the approximately 11% of total users represented by PCS today. The following chart illustrates the estimated annual growth in U.S. wireless communications customers, who use cellular, PCS or other two-way wireless services through December 31, 1998:
Year Ended December 31, ------------------------------------------------------ 1992 1993 1994 1995 1996 1997 1998 ------ ------ ------ ------ ------ ------ ------ Wireless Industry Statistics(1) Total service revenues (in billions).......... $ 7.8 $ 10.9 $ 14.2 $ 19.1 $ 23.6 $ 27.5 $ 33.1 Wireless subscribers at end of period (in millions).............. 11.0 16.0 24.1 33.8 44.0 55.3 69.2 Subscriber growth....... 45.9% 45.1% 50.8% 40.0% 30.4% 25.6% 25.1% Average monthly wireless bill................... $68.68 $61.49 $56.21 $51.00 $47.70 $42.78 $39.43 Ending penetration...... 4.4% 6.2% 9.4 13.0% 16.3% 20.7% 25.7% Digital subscribers (in millions).............. -- -- -- -- -- -- 18.3
- -------- Sources: Cellular Telecommunications Industry Association and Paul Kagan Associates. (1) Reflects domestic commercially operational cellular, enhanced special mobile radio and PCS and enhanced specialized mobile radio technology providers. In the wireless communications industry, there are two principal services licensed by the FCC for transmitting voice and data signals: PCS and cellular. Personal communications services, or PCS, is a term commonly used in the United States to refer to service carried over the 1850 MHz to 1990 MHz portion of the radio airwaves. Megahertz, or MHz, is a method of measuring radio airwaves. Cellular is a term commonly used in the United States to refer to service carried over the 824 MHz to 893 MHz portion of the radio airwaves. Cellular service is the predominant form of wireless voice communications service available. Cellular systems were originally analog-based systems, although digital technology has been introduced in some markets. PCS systems use digital technology. Analog technology currently has several limitations, including lack of privacy and limited capacity. Digital systems convert voice or data signals into a stream of digits that is compressed before transmission, enabling a single radio channel to carry multiple simultaneous signal transmissions. This enhanced capacity, along with improvements in digital signaling, allows digital-based wireless technologies to offer new and enhanced services, such as greater call privacy and robust data transmission features, including mobile office applications like facsimile, e-mail and wireless connections to computer/data networks and including the Internet. See "Business--Government Regulation" for a discussion of the FCC auction process and allocation of wireless licenses. Operation of Wireless Communications Systems Wireless communications system service areas, whether PCS, cellular or other technologies, are divided into multiple units. Each unit contains a transmitter, a receiver and signaling equipment to transmit wireless signals to individual phones. This equipment is connected by telephone lines or microwave signals to call connection equipment that uses computers to control the operation of the communications system for the entire service area. The call connection equipment controls the connection of calls and the connection of the wireless 36 network to local telephone systems and long distance carriers. The system controls the transfer of calls from equipment site to equipment site as a subscriber's handset travels, coordinates calls to and from handsets, allocates calls among the network equipment sites within the system and connects calls to the local telephone system or to a long distance telephone carrier. Wireless communications providers must establish agreements with local and long distance carriers that allow them to pass calls, or interconnect, thereby integrating their system with the existing communications system. Because the signal strength of a transmission between a handset and a network equipment site declines as the handset moves away from the network equipment site, the wireless network monitors the signal strength of calls in progress. When the signal strength of a call declines to a predetermined level, the call connection equipment may transfer the call to another network equipment site where the signal is stronger. If a handset leaves the service area of a PCS or cellular system, the call is disconnected unless there is a technical connection with the adjacent system. If there is a technical connection with the adjacent system, the customer may roam onto the adjacent system. Analog handsets that use the cellular portion of the airwaves are functionally compatible with cellular systems in all markets in the United States. As a result, these handsets may be used wherever a subscriber is located, as long as a cellular system is operational in the area and either the service provider's system covers such area or a roaming arrangement exists with a provider covering the area. Although PCS and cellular systems use similar technologies and hardware, they operate on different portions of the airwaves and use different technical and network standards. Use of advanced handsets makes it possible for users of one type of system to roam on a different type of system outside of their service area, and to transfer calls from one type of system to another if the appropriate agreements are in place and the networks are properly configured to transfer calls from one system to the next. Currently, PCS systems operate under one of three principal digital signal transmission technological standards that various operators and vendors have proposed for use in PCS systems: TDMA, CDMA or GSM. TDMA and GSM are both time division-based standards but are incompatible with each other and with CDMA. Accordingly, a subscriber of a system that uses TDMA technology is unable to use a TDMA handset when travelling in an area not served by TDMA-based PCS operators, unless the subscriber carries a special handset that permits the subscriber to use the analog or digital system on the cellular portion of the airwaves in that area and the appropriate agreements are in place. With an advanced handset, a user can place or receive calls using: . a PCS system using the technological standard with which the handset is compatible; . a digital system on the cellular portion of the airwaves using the corresponding technological standard; or . an analog system on the cellular portion of the airwaves. If a PCS system operated by the service provider or covered by a roaming agreement is operating in the area, the call will be placed via this system. If there is no PCS system providing coverage, the call will be placed through a digital system on the cellular portion of the airwaves operating in the area and providing coverage to the user, and if no digital system on the cellular portion of the airwaves is providing coverage, the call will be connected over an analog system that uses the cellular portion of the airwaves providing coverage. These handsets allow for a call in progress to be handed off to an adjacent system, whether the same mode or band or otherwise, without interruption if the appropriate agreements are in place. Prior generations of handsets would cut off the call when the handset left the coverage of one system and would require the customer to place the call again using the adjacent system. 37 BUSINESS We are the largest AT&T Wireless affiliate in the United States, with licenses covering approximately 16.5 million people. We provide wireless PCS in selected markets in the south-central and northeast United States and in Puerto Rico, encompassing eight of the 100 largest metropolitan areas in the United States. Commencing with the launch of our New Orleans market in February 1999, we have successfully launched our services in 20 markets, including all of our major markets, and currently have more than 100,000 subscribers. Our senior management team has substantial experience in the wireless communications industry with companies such as AT&T, Bell Atlantic and Sprint PCS. We entered into a venture with AT&T in July 1998 under which AT&T contributed PCS licenses to us in exchange for ownership in our company. We are AT&T's exclusive provider of wireless mobility services using equal emphasis co-branding with AT&T in our covered markets, subject to AT&T's right to resell services on our network. We have the right to use the AT&T brand name and logo together with our SunCom brand name and logo, giving equal emphasis to each. We are AT&T's preferred roaming partner for digital subscribers in our markets. Additionally, our relationship with AT&T allows us to provide coast-to-coast coverage to our customers. Our PCS licenses include several major population centers and popular vacation destinations such as: . San Juan, Puerto Rico and the U.S. Virgin Islands; . New Orleans and Baton Rouge, Louisiana; . Memphis, Tennessee; . Little Rock, Arkansas; . Manchester, Concord and Nashua, New Hampshire; and . Worcester, Cape Cod and Martha's Vineyard, Massachusetts. Our launched networks covered approximately 65% of our licensed population as of September 30, 1999, and by the end of 1999 we expect our network will cover approximately 75% of our licensed population. Our goal is to provide our customers with simple-to-buy, easy-to-use wireless services, including coverage across the nation, superior call quality, competitive pricing and personalized customer care. We market our services through company stores, retail outlets, through our direct corporate and telemarketing sales forces, and on the Internet through our website. We have a strong distribution presence in our markets with 35 company-owned stores and more than 500 retail outlets where consumers can purchase our services, including Best Buy, Circuit City, Office Depot, Office Max, Staples and Radio Shack. As of September 30, 1999, we employed approximately 340 sales employees, 84 of whom were dedicated to business-to- business sales activities. Our affiliation with AT&T enables us to leverage its marketing and sales efforts in our markets. Strategic Alliance with AT&T One of our most important competitive advantages is our strategic alliance with AT&T. In order to rapidly develop some of its wireless communications markets, AT&T Wireless has focused on constructing its own network in selected cities and has entered into agreements with independent wireless operators, such as us, to construct and operate wireless networks in other markets. Our strategic alliance with AT&T Wireless provides us with many business, operational and marketing advantages, including: . Exclusivity. We are AT&T's exclusive provider of wireless mobility services using equal emphasis co-branding with AT&T in our covered markets, subject to AT&T's right to resell services on our network. 38 . Brand. We have the right to use the AT&T brand name and logo together with our SunCom brand name and logo in our markets, giving equal emphasis to each. . Roaming. We are AT&T's preferred roaming partner for digital subscribers in our markets. Our roaming revenues increased from approximately $1.9 million in the first quarter of 1999 to approximately $9.5 million in the third quarter. We believe our AT&T affiliation will continue to provide us with a valuable base of recurring roaming revenue. . Coast-to-Coast Coverage. Outside our markets, our wireless customers can place and receive calls in AT&T Wireless' markets and the markets of AT&T Wireless' other roaming partners. We believe our ability to offer coast-to-coast coverage is a competitive advantage as users increasingly choose national rate plans. As of September 30, 1999, 19% of our customers have chosen one of our national SunRate pricing plans. . Products and Services. We receive preferred terms on selected products and services, including handsets, infrastructure equipment and back office support from companies who provide these products and services to AT&T. . Marketing. We benefit from AT&T's nationwide marketing and advertising campaigns, including the success of the AT&T Digital One Rate SM plans, in the marketing of our own national SunRate plans. In addition, we are working with AT&T's national sales representatives to jointly market our wireless services to AT&T corporate customers located in our markets. Competitive Strengths In addition to the advantages provided by our strategic alliance with AT&T, we have the following competitive strengths: . Attractive Markets. Our markets have favorable demographic characteristics for personal communications services. According to industry analysts, the average population density of our markets is approximately 38% above the national average. We believe our markets are strategically important to AT&T because they are located near or adjacent to traffic corridors in and around large markets such as Boston, Houston and St. Louis. Our markets include major population and business centers and vacation destinations that attract an estimated 39 million visitors per year. Most of our markets are also adjacent to the markets of the other SunCom companies. . Experienced and Incentivized Management. Our 21 member senior management team has an average of 11 years of experience with companies such as AT&T, Bell Atlantic, BellSouth, SBC Communications, ALLTEL and Sprint PCS. Together, they will beneficially own approximately 12% of our class A common stock on a fully-diluted basis upon completion of this offering. Our top three executives are: . Gerald Vento, our co-founder and Chief Executive Officer, who has 20 years of experience in communications and previously served as Chief Executive Officer of Sprint Spectrum/American PCS, L.P., leading the development of the first PCS network launched in North America. . Thomas Sullivan, our co-founder, Executive Vice President and Chief Financial Officer, who formerly served as President of TeleCorp Holding, our predecessor company, and co-head of the telecommunications law practice at McDermott, Will & Emery. . Julie Dobson, our Chief Operating Officer, who has extensive operating experience in the telecommunications industry, including 18 years at Bell Atlantic, most recently as President of the New York region of Bell Atlantic Mobile Systems. . Substantial Airwave Capacity. We have licenses with a minimum of 35 MHz of airwaves in our major urban markets of San Juan and New Orleans and 30 MHz in Little Rock and Memphis. These 39 amounts are equal to or greater than those held by each of our principal competitors in each of these markets. We believe these amounts of airwaves will enable us to competitively deploy new and enhanced voice and data services. This capacity will also permit us to provide service to the increasing number of wireless users and to service increased use by subscribers. . Strong Capital Base. Upon completion of this offering we will have approximately $1.5 billion of funded and committed capital. We believe our capital resources, including the proceeds of this offering, will be sufficient to fund our current business plan, including capital expenditures and operating losses, through December 31, 2001. Our initial investors included AT&T, Chase Capital, Desai Associates, Hoak Capital Corporation, J.H. Whitney & Co., M/C Partners, One Liberty Fund, Toronto Dominion Investments, and Northwood Capital Partners. . Advanced Digital Technology. We are building our network using TDMA technology, which makes our network compatible with AT&T's network and other TDMA networks. TDMA technology allows enhanced features and services relative to analog cellular service, including extended battery life, integrated voicemail, paging, fax and e-mail delivery, enhanced voice privacy and short-messaging capability. Investment in TDMA product development has led to the development of an advanced generation of handsets capable of delivering stand-by battery life of up to 14 days. We believe that wireless users place great value on the convenience and reliability afforded by this technological advance. TDMA provides high network call clarity and in-building penetration. TDMA provides network capacity at least three times greater than existing analog cellular networks, which results in operating cost advantages. The increased volume of TDMA users has driven down handset prices and has increased the importance of TDMA as an industry standard. Business Strategy Our goal is to become the leading provider of wireless personal communications services in each of our markets, by providing our customers with simple-to-buy and easy-to-use wireless services, including coverage across the nation, superior call quality, competitive pricing and personalized customer care. The elements of our strategy to achieve these objectives are: . Leverage AT&T Relationship. We receive numerous benefits from AT&T, including market exclusivity, co-branding, roaming and coast-to-coast coverage, and preferred terms on selected products and services. Also, we benefit from AT&T's nationwide marketing and advertising campaigns, including those for the AT&T Digital One Rate SM plans, in the marketing of our national SunRate plans. In addition, we are working with AT&T's national sales representatives to jointly market our wireless services to AT&T corporate customers located in our markets. . Provide Coast-to-Coast Coverage. Our market research indicates that scope and quality of coverage are extremely important to customers in their choice of a wireless service provider. We have designed extensive local calling areas, and we offer coast-to-coast coverage through our arrangements with AT&T Wireless and its roaming partners. Our network covers those areas where people are most likely to take advantage of wireless coverage, such as suburbs, metropolitan areas and vacation locations: the places where they live, work and play. . Offer Superior Call Quality. We are committed to making the capital investment required to develop a superior network. We intend to invest approximately $55 per covered person in our licensed markets for the construction of our currently planned network, which we believe will ensure consistent quality performance and result in a high level of customer satisfaction. Our capital investment is designed to provide a highly reliable network as measured by performance factors such as percentage of call completion and number of dropped calls. We maintain a state-of-the-art network operations center and, to ensure continuous monitoring and maintenance of our network, we have a disaster recovery plan. 40 . Provide Enhanced Value at Low Cost. We offer our customers advanced services and features at competitive prices. Our pricing plans are designed to promote the use of wireless services by enhancing the value of our services to our customers. We include usage enhancing features such as call waiting, three-way conference calling, and short message service in our basic packages. We market our service with a simple, all- in-one focus: digital phone, pager and voice mail. We offer our customers affordable, simple calling plans, and we take advantage of the coast-to-coast reach of AT&T and its roaming partners. Our national SunRate plans are similar to AT&T Digital One Rate SM plans in which minutes can generally be used throughout the United States without paying additional roaming fees or long distance charges. We believe we can offer competitive services because of the cost advantages provided by our agreements with AT&T and the other SunCom companies, the cost- effective characteristics of TDMA and our centralized administrative functions and efficient distribution. . Deliver Quality Customer Care. We serve our customers from our state-of- the-art facility in Memphis, Tennessee, which houses our customer service, collections and anti-fraud personnel. Convergys, a leading provider of outsourced call center services, provides backup call center support and, for our Spanish speaking customers, bilingual customer service from two facilities in Florida. We have implemented a "one call resolution" approach to customer care through the use of customer support tools such as an advanced diagnostic mechanism and access to online reference information. In addition, we emphasize proactive and timely customer service, including welcome packages and anniversary calls. Finally, we support our customer care initiatives through employee compensation plans based on subscriber satisfaction and retention. 41 Market Overview We have basic trading area licenses within the following eight major trading areas:
Amount of Markets 1998 Population* Launch Date Airwaves - ------- ---------------- ----------- --------- (in thousands) (in MHz) San Juan, Puerto Rico Puerto Rico/San Juan........... 2,719 June 1999 35 Mayaguez Aguadilla............. 1,089 First Quarter 2000 20 Virgin Islands................. 106 Second Quarter 2000 20 ------ Total......................... 3,914 New Orleans, Louisiana New Orleans.................... 1,402 February 1999 35 Baton Rouge.................... 676 February 1999 20 Lafayette...................... 531 June 1999 20 Lake Charles................... 279 Second Quarter 2000 30(a) Houma.......................... 272 First Quarter 2000 25 Alexandria..................... 265 Third Quarter 2000 30 Hammond........................ 107 September 1999 10 ------ Total......................... 3,532 Little Rock, Arkansas Little Rock.................... 926 March 1999 30 Fort Smith..................... 312 Second Quarter 2000 20 Fayetteville................... 291 April 1999 20 Jonesboro...................... 174 November 1999 20 Pine Bluff..................... 148 Third Quarter 2000 20 Hot Springs.................... 133 March 1999 20 El Dorado...................... 103 Fourth Quarter 2002 20 Russellville................... 95 Second Quarter 2000 20 Harrison....................... 88 Fourth Quarter 2001 20 ------ Total......................... 2,270 Memphis, Tennessee Memphis........................ 1,493 March 1999 30 Jackson........................ 276 September 1999 35 Dyersburg...................... 116 Third Quarter 2000 20 Blytheville, AR................ 70 Third Quarter 2000 20 ------ Total......................... 1,955 Boston, Massachusetts Worcester, MA.................. 727 April 1999 20 Manchester, NH................. 584 April 1999 20 Boston, MA (b)................. 383 April 1999 20 Hyannis, MA.................... 231 April 1999 20 ------ Total......................... 1,925 St. Louis, Missouri Springfield (c)................ 283 Fourth Quarter 2001 20 Carbondale, IL................. 216 Fourth Quarter 2000 20 Columbia....................... 209 Third Quarter 2000 20 Cape Giradeau.................. 189 Fourth Quarter 2000 20 Quincy......................... 181 Fourth Quarter 2001 20 Jefferson City................. 156 Third Quarter 2000 20 Poplar Bluff................... 155 Fourth Quarter 2002 20 Mt. Vernon, IL................. 121 Fourth Quarter 2000 20 Rolla.......................... 98 Fourth Quarter 2002 20 West Plains.................... 76 Fourth Quarter 2002 20 Kirksville..................... 56 Fourth Quarter 2002 20 ------ Total......................... 1,740 Houston, Texas Beaumont....................... 459 Fourth Quarter 2000 40 ------ Total......................... 459 Louisville, Kentucky Evansville, Indiana............ 518 Fourth Quarter 2000 20 Paducah, Kentucky.............. 231 Fourth Quarter 2000 20 ------ Total......................... 749 ====== Population Total................ 16,544 ======
- -------- * Sources: The 1998 PCS Atlas & Databook, Paul Kagan Associates, Inc.; 1990 U.S. Census. (a) Includes 15 MHz to be acquired under pending agreement. (b) Rockingham and Strafford counties only. (c) Camden, Cedar, Dallas, Douglas, Hickory, Laclede, Polk, Stone, Taney, Texas, Webster and Wright counties only. 42 Marketing Strategy We believe that our affiliation with the AT&T brand name and the distinctive advantages of our TDMA network, combined with our simple-to-buy and easy-to-use philosophy, will allow us to expand our customer base by capturing significant market share from existing providers of wireless services in our markets. Additionally, we expect to attract new users to wireless. We developed our marketing strategy on the basis of extensive market research in each of our markets. This research indicates that limited coverage of existing wireless systems, relatively high costs, inconsistent performance and overall confusion about wireless services drive subscriber dissatisfaction and reduce the attractiveness of wireless services for potential new subscribers. We are focusing our marketing efforts on four primary market segments: . corporate accounts; . current wireless users; . individuals with the intent to purchase a wireless product within six months; and . prepaid subscribers. For each segment, we are creating a specific marketing program, including a service package, pricing plan and promotional strategy. We believe that targeted service offerings will increase customer loyalty and satisfaction, reducing customer turnover. The following are key components of our marketing strategy: Branding We market our wireless services as "SunCom, Member of the AT&T Wireless Network" and use the globally recognized AT&T brand name and logo in equal size and prominence with the SunCom brand name and logo. We believe that consumers associate the AT&T brand with reliability and quality. We have entered into agreements with Triton PCS and Tritel Communications, other companies similarly affiliated with AT&T, to adopt a common regional brand, SunCom. We and the other SunCom companies are establishing the SunCom brand as a strong local presence with a service area covering a population of approximately 43.0 million. We enjoy preferred pricing on equipment, handset packaging and distribution by virtue of our affiliation with AT&T and the other SunCom companies. Advertising/Promotion We believe that the most successful marketing strategy is to establish a strong local presence in each of our markets. We are directing our media efforts at the community level by advertising in local publications and sponsoring local and regional events. We combine these local efforts with mass market media, including television, radio, newspaper, magazine, outdoor and Internet advertisements, to promote the SunCom and AT&T brands in the markets we serve. Outside advertising agencies support our brand campaigns, and also develop newspaper, radio and web page advertisements to promote specific product offerings and direct marketing programs for targeted audiences. All of our advertising materials use the SunCom and AT&T names and the tagline "SunCom, Member of the AT&T Wireless Network." Pricing Our pricing plans are designed to be competitive and straightforward, offering large buckets of minutes, large local calling areas and usage enhancing features. We offer pricing plans tailored for our market segments, including local, regional and national pricing plans. We also offer shared minute pools that are available for businesses and families who have multiple wireless users who want to share the bucket of minutes. Through September 30, 1999 our average usage per subscriber was approximately 420 minutes per month. 43 We believe the pre-paid subscriber segment represents a large market opportunity, and we offer pricing plans that will drive growth in these categories. Pre-pay plans provide an opportunity for individuals whose credit profiles would not otherwise allow them access to wireless communications to take advantage of our services. In addition, our pre-pay plans provide an attractive alternative for families and business users to control the usage of family members or employees. We also structure our plans to be attractive to the youth market, who we believe want to pay as they use the service. We believe we differentiate ourselves from existing wireless competitors by providing our pre-paid subscribers the same digital services and features available to other customer segments. Our customers can use pre-pay service virtually anywhere in the United States on our network, on AT&T's network or through AT&T's extensive network of roaming agreements. Additionally, our pre- pay customers hear a "whispered" announcement of time remaining in their account before each call they place, which allows them to control usage and reduce balance inquiries to customer service. By contrast, typical pre-pay plans of our competitors limit service to their networks and usually provide fewer features and a narrow selection of handsets. As of September 30, 1999, prepay customers represented 25% of our total subscribers. AT&T introduced AT&T Digital One Rate SM in May 1998, a suite of rate plans that allows customers to purchase a large bucket of minutes per month that can be used locally, or across the U.S., on AT&T's wireless network and its extensive network of roaming partners for a fixed price with no additional roaming or long distance charges. We believe AT&T Digital One Rate SM and other competing flat rate plans are causing shifts in calling patterns in the wireless industry. As of June 30, 1999, AT&T has reported over 1.5 million subscribers on the AT&T Digital One Rate SM plans, and reported they were adding an additional 100,000 subscribers a month. We believe growth in this category will provide us a valuable roaming revenue stream as AT&T Digital One Rate SM subscribers use their minutes while visiting our networks. We are able to offer a similar national SunRate plan by virtue of our relationship with AT&T. Competing flat rate plans often limit flat rate usage to the competitor's own networks. We are able to offer a differentiated national rate plan by virtue of our roaming arrangements with AT&T and its roaming partners. Through September 30, 1999, 19% of our subscribers had chosen a national SunRate price plan. We believe our pricing policies differentiate us from our competition through simplicity and design. We offer 12 price plans per region, on average, and we design our plans to encourage customers to enter into long-term agreements. As of September 30, 1999, approximately 50% of our total subscribers, and approximately 75% of our total subscribers other than pre-pay customers, were on annual contracts. Handsets We sell our service exclusively with handsets that are compatible with wireless communications systems that operate using digital service on the PCS portion of the airwaves, as well as digital and analog service on the cellular portion of the airwaves. Through the use of technologically advanced Nokia, Ericsson and Motorola handsets, our customers can use their phones across a variety of wireless networks. Service and Features Wireless Calling Our primary service is wireless calling, which features advanced handsets, enhanced voice clarity, improved protection from eavesdropping and a broad feature set. Our basic wireless service offering includes caller identification, three-way conference calling, call waiting, voicemail, paging and short-messaging. Feature-Rich Handsets As part of our basic service offering, we provide easy-to-use, interactive menu-driven handsets that can be activated over the air. These handsets primarily feature word prompts and easy-to-use menus rather than numeric codes to operate handset functions. These handsets allow mobile access to e-mail and other Internet services. 44 Extended Battery Life Our advanced handsets offer significantly extended battery life over earlier technologies, providing up to 14 days of stand-by battery life. Handsets operating on a digital system are capable of "sleep-mode" while turned on but not in use, improving efficiency and extending battery life. We expect that this feature will increase usage, especially for incoming calls, as users will be able to leave the phone on for significantly longer periods. The use of these handsets further extends battery life by using a digital system for roaming when in areas covered by digital systems. Improved Voice Quality We believe the version of TDMA we are using offers significantly improved voice quality, more powerful error correction, less susceptibility to call fading and enhanced interference rejection, which results in fewer dropped calls compared to earlier versions of TDMA. Voice Privacy and Call Security Digital technology is inherently more secure than analog technologies. This security provides increased voice privacy and enhanced fraud protection for our customers. Wireless Services Inside Buildings As the use of wireless devices becomes more widespread, consumers increasingly are demanding wireless services which extend into office buildings, subways, airports, shopping centers and private homes. We use large numbers of small network equipment sites to offer corporate users full coverage inside buildings of outside calls. We also provide intra-office wireless communications capabilities letting the user dial office extensions without the need to dial the complete telephone number. In addition, we are working with a number of hardware and software suppliers to develop next generation wireless office services including the use of small network equipment sites within a building that circumvent the local carrier. Data and Internet Services Because of the quality of digital signal transmission, wireless communications systems are suitable for the transmission of wireless data services such as applications providing weather reports, sports summaries, stock quotes, monitoring of alarm systems and Internet access. Bundling and Affinity Marketing We may bundle our wireless communications services with other communications services, including discounted long distance services, through strategic alliances and resale agreements with AT&T and others. We also may offer service options in partnership with local business and affinity marketing groups. Examples of these arrangements include offering wireless services with utility services, banking services, cable television, Internet access or alarm monitoring services in conjunction with local information services. These offerings provide the customer access to information, such as account status, weather and traffic reports, stock quotes, sports scores and text messages from any location. Sales and Distribution Our sales strategy is to use a balanced mix of distribution channels to maximize penetration within our licensed service area while minimizing customer acquisition costs. Our channels include a network of company stores, nationally recognized retailers, a direct sales force for corporate and business customers, regional and local mass merchandisers, telesales, direct mail and on-line sales. We also work with AT&T's sales channels to cooperatively exchange leads and develop new business. 45 We invest in training to ensure that knowledgeable staff is communicating with customers and potential customers. We also take advantage of over-the-air activation features available through our digital technology. Our goal is to let customers use their phone within ten minutes of deciding to purchase the handset. We provide point of sale materials and tools to educate customers on their coverage areas and how to use the handset. We differentiate ourselves from our competition by letting customers participate in the selection of their phone number, and we offer a variety of custom faceplates to make a customer's phone unique. We believe these tools, along with educating the customer, will lead to reduced customer turnover. Company Stores We have opened 35 company stores for the distribution and sale of our handsets and services. We believe that company stores offer a considerable competitive advantage by providing a strong local presence. We also believe that company stores offer one of the lowest customer acquisition costs among our different distribution channels. Sales representatives in company stores receive in-depth training to allow them to explain wireless communications services simply and clearly. We believe this process distinguishes us from our competitors and will increase subscribership within our markets. Our stores range in size from small kiosks to 3600 square foot stores in the principal retail district in each market. We expect to have a total of 45 SunCom stores open by the end of 1999. Retail Outlets We have negotiated distribution agreements with national and regional mass merchandisers and consumer electronics retailers, including Circuit City, Cellular Warehouse, Metrocall, Office Depot, Staples, Best Buy and Office Max. In Puerto Rico, we have relationships with Farmacia El Amal, Let's Talk Wireless and Beeper Connections and Radio Shack. We currently have over 500 retail outlet locations where customers can purchase our services. We chose these distributors based upon their ability to reach our target customers in our service area. In some of these retail store locations, we are implementing a store-within-a-store concept, which uses visual merchandising to leverage the brand awareness created by both SunCom and AT&T advertising. The ease of distribution of shrink-wrapped handsets appeals to mass merchandisers who have altered their in-store merchandising to reflect the changing wireless marketplace. Direct Sales We focus our direct sales distribution channel on high-revenue, high-profit corporate users. Our direct corporate sales force consists of approximately 85 dedicated professionals targeting the wireless decision maker within large corporations. We also benefit from AT&T's national corporate accounts sales force. AT&T, in conjunction with us, supports marketing of our services to AT&T's large national accounts located in our service areas. We have formed regional advisory groups as an additional way to interface with corporate customers in our markets. These advisory groups are comprised of local business leaders, who are also wireless users or prospective users, and are designed to provide timely feedback regarding our proposed wireless offerings and establish a customer base prior to launch. We expect our direct sales force to grow to approximately 135 business account executives by year end 1999. Direct Marketing We use direct marketing efforts such as direct mail and telemarketing. These efforts are used to generate leads and stimulate prospects. Direct marketing allows us to maintain low selling costs and to offer our customers additional features or customized services. We employ 21 telesales representatives in our Memphis call center, and we contract for 11 Spanish speaking telesales representatives in Convergys' Fort Lauderdale operation. 46 E-Commerce Our web page provides current information about us, our markets and our product offerings. We are establishing an online store on our website, located at www.suncom1.com. The web page conveys our marketing message and we expect it will generate customers through online purchasing. All information that is required to make a purchasing decision is available through our website. Customers are able to choose any of our rate plans, features, handsets and accessories. The online store will provide a secure environment for transactions, and customers purchasing through the online store will experience a similar business process to that of customers purchasing service through other channels. We expect to add electronic bill viewing and online bill payment capabilities to our website by year end 1999. Information on our website is not part of this prospectus. Customer Care We are committed to building strong customer relationships by providing customers with prompt and helpful service. We serve our customers from our state of the art facility in Memphis, Tennessee. Convergys, a leading provider of outsourced call center services, provides back up call center support and bilingual customer service, for our Spanish speaking customers, from two facilities in Florida. As of September 30, 1999, the three centers employed 193 customer care representatives including 65 of our employees. The three center structure allows us to distribute customer service calls between the centers to promote cost effective 24 hour/seven days a week customer service. We have strict quality standards in our care operation, including a commitment to handling at least 80% of calls within twenty seconds. All of our centers have sophisticated infrastructure and information systems including Lucent automated call distributors, Vantive Software, and diagnostic tools for one call trouble resolution. We emphasize proactive and responsive customer service, including welcome packages and first bill, three months and one year anniversary calls. We also are expanding web-based services to include online account information to allow customers to check billing, modify service or otherwise manage their accounts. We use a highly selective recruiting process, train our consultants for four weeks before they take live customer calls, and provide a sophisticated set of on-line tools for our representatives. Our experience with call forecasting and our three center design provide us with the resources to serve our customer base. We believe these initiatives will result in higher levels of customer satisfaction and reduce customer turnover. Network Development We launched commercial operations in February 1999 and have commenced our services in each of our major markets. Consistent with our strategy, we launched in markets which have attractive characteristics for a high volume of wireless communications usage, including metropolitan "downtown" areas, the surrounding suburbs, commuting and travel corridors, and popular leisure and vacation destinations. Immediately upon launch, subscribers had access to coast-to-coast coverage through roaming arrangements with AT&T and its roaming partners, both inside and outside our licensed areas. Within each market, geographic coverage will be based upon changes in wireless communications usage patterns, demographic changes within our licensed areas and our experiences in those markets. We currently provide coverage to approximately 65% of the population of our licensed area. We define coverage to include an entire basic trading area if we have a significantly developed system in that basic trading area. 47 Construction of our network is scheduled for multiple phases. In the first half of 1999, we completed the first phase and successfully launched service in the following 15 markets: . Baton Rouge . Lafayette . Cape Cod . Little Rock . Nantucket . Nashua . Concord . Martha's Vineyard . New Orleans . Fayetteville . Manchester . San Juan . Hot Springs . Memphis . Worcester Our network currently covers a population of 10.7 million. Our subscriber base and the number of minutes generated on our network have grown rapidly since we commenced service. Since February 1999, our subscriber base has grown to more than 100,000 customers. We are in the process of completing the second phase, covering ten additional markets and 1.6 million additional potential customers. To date, we have launched five of these ten markets, Jackson, Tennessee, Hammond, Louisiana, Jonesboro, Arkansas, and Ponce and Arecibo, Puerto Rico. We expect to complete the second phase by the end of the second quarter 2000. Our network includes five call connection sites and 613 network equipment sites. We expect that by the end of the second quarter 2000 our network will cover a total of 25 markets and a population of 12.3 million, and will include approximately 780 network equipment sites and five connection sites. The third and fourth phases of the plan will focus on expanding our coverage to a total of 46 markets including a population of 3.3 million, and entail launching service in Beaumont, Alexandria, Evansville, Paducah, Columbia, Jefferson City, Pine Bluff, Fort Smith, and the Virgin Islands. Upon completion of the fourth phase, which we expect by the end of 2001, we expect our network will be available to a population of 15.6 million, and our network will include 8 call connection sites and 1,215 network equipment sites. Additional network construction will further expand our coverage to all of our markets, except Monroe. In the event we acquire additional licenses, we may modify our network development plan, and we may need to incur substantial additional debt. We are committed to making the capital investment required to develop a superior network. We intend to invest approximately $55 per covered person for the construction of our network through 2001, which we believe will ensure consistent quality performance and result in a high level of customer satisfaction. Our capital investment is designed to provide a highly reliable network as measured by performance factors such as percentage of call completion and number of dropped calls. We intend to continue to meet our network development plan by using the expertise of vendors recognized in the industry for providing high quality services. Lucent is providing the necessary radio, call connecting and related equipment for construction of our network. In addition, a number of other experienced wireless vendors are assisting us in deploying our network. We have entered into an agreement with Lucent to purchase up to $285 million of equipment, software and services for the development of our network. We pay Lucent for equipment and software at Lucent's list prices less a discount on the items purchased. Lucent has agreed to provide specified technical support at no cost, and to provide us with incentive discount bonuses upon our completing markets. The agreement provides for cooperative marketing of our services. Lucent has agreed that the prices we pay and payment terms for equipment, software and services will be no less favorable than those offered by Lucent to any other affiliate of AT&T Wireless purchasing similar volumes. We have the right to terminate the agreement at any time subject to paying for materials already shipped. Lucent may terminate the agreement sixty days following our material breach. The agreement contains indemnities and limitations on liabilities for specific damages. Lucent provides us with warranties on products they produce for specified periods of between 12 and 60 months. Lucent has agreed to provide us with vendor financing. See "Description of Indebtedness--Vendor Financing." The network development requirements imposed by our agreements with AT&T create significant capital requirements much of which will be covered by indebtedness we incur. We believe that the capital we have 48 raised to date as well as the other capital resources currently available to us under our senior credit facilities, our committed cash equity and the proceeds of this offering will be sufficient to meet our projected capital requirements through December 31, 2001. If we acquire additional licenses or properties, we may need to incur substantial additional debt to complete the acquisition and construct and operate the acquired properties. Network Construction As of September 30, 1999, we had leased approximately 735 network equipment sites and we had built and now operate five sites containing network call connection sites in four locations. We develop the network design, including frequency planning for our network equipment sites. We designed our network to allow us to use existing sites, which minimizes the construction of new towers and significantly reduces our need to obtain zoning approvals. We use two experienced vendors, WFI and Divine, to perform property acquisition, construction and installation of our sites. Network Operations We maintain a state-of-the-art network operations center and, to ensure continuous monitoring and maintenance of our network, we have a disaster recovery plan. The effective operation of our network requires: . connection agreements and agreements to transmit signals from network equipment sites to call connection equipment with other communications providers; . long distance connection; . the implementation of roaming arrangements; . the development of network monitoring systems; and . the implementation of information technology systems. Connection Our network is connected to the public telephone network to facilitate the origination and termination of traffic between our network and both the local and long distance carriers. We have signed agreements with numerous carriers, including, among others: . BellSouth in New Orleans and Memphis; . SBC Communications in Little Rock; . Bell Atlantic in New England; and . Puerto Rico Telephone in Puerto Rico. These agreements are standard agreements entered into with all qualifying carriers on generally the same terms. Each party pays the other for the carrying or completion of calls on the other's network. Long Distance We have executed a wholesale long distance agreement with AT&T providing for preferred rates for long distance services. See "Certain Relationships and Related Transactions--AT&T Agreements." Roaming Through our arrangements with AT&T and via the use of advanced handsets, our customers have roaming capabilities on AT&T's wireless network and AT&T's customers have roaming capability on our wireless network. Further, we have the benefit of AT&T's roaming agreements with third party carriers at AT&T's preferred pricing. These agreements, together with AT&T's wireless network, cover approximately 98% of the U.S. population, including in-region roaming agreements covering all of our launched service areas. AT&T has recently experienced significant growth in roaming traffic in our markets as a result of the success of the AT&T Digital One Rate SM plan. 49 Network Monitoring Systems Our network operations center provides around-the-clock monitoring and maintenance of our entire network. The network operations center is equipped with sophisticated electronics that constantly monitor the status of all network equipment sites and call connection equipment and record network traffic. The network operations center provides continuous monitoring of system quality for blocked or dropped calls, call clarity and evidence of tampering, cloning or fraud. We designed our network operations center to oversee the interface between customer usage, data collected by call connection equipment and our billing systems. Our network operations center is located in the Memphis site containing call connection equipment, and we also have back-up network operations center capabilities in our Arlington, Virginia data center. Information Technology We operate management information systems to handle customer care, billing, network management and financial and administrative services. The systems focus on three primary areas: . network management, including service activation, pre-pay systems, traffic and usage monitoring, trouble management and operational support systems; . customer care, including billing systems and customer service and support systems; and . business systems, including financial, purchasing, human resources and other administrative systems. We have incorporated sophisticated network management and operations support systems to facilitate network fault detection, correction and management, performance and usage monitoring and security. System capabilities have been developed to allow over-the-air activation of handsets and implement fraud protection measures. We maintain stringent controls for both voluntary and involuntary deactivations. Subscriber disconnections initiated by us are minimized by: . preactivation screening to identify any prior fraudulent or bad debt activity; . credit review; and . call pattern profiling to identify where activation and termination policy adjustments are needed. We entered into a long-term software license, development and implementation agreement with LHS Communications Systems and CAP Gemini America to support our established billing system, and we have engaged a variety of industry leaders such as Lucent and Lightbridge to provide activation, fraud management and support systems. Technology TDMA Digital Technology We have chosen digital TDMA technology for our network. TDMA technology allows for: . the use of advanced handsets which allow for roaming across the PCS and cellular portion of the airwaves, including both analog and digital technologies; . enhanced services and features, such as short-messaging, extended battery life, added call security and improved voice quality; and . network equipment sites that are small and that improve network coverage with low incremental investment. TDMA technology is the digital technology choice of two of the largest wireless communications companies in the United States, AT&T and SBC Communications. This technology served an estimated 19 million subscribers worldwide and nine million subscribers in North America as of December 31, 1998, according to the Universal Wireless Communications Consortium, an association of TDMA providers and manufacturers. We believe that the increased volume of TDMA has increased the probability that this technology will remain an industry standard. TDMA equipment is available from leading telecommunication vendors such as Lucent, Ericsson and Northern Telecom, Inc. 50 Future Technology Development Our advanced TDMA technology provides us the ability to offer new services, including information services, wireless service applications inside buildings, two-way text messaging, voice-activated dialing, audio e-mail retrieval and web browsing. In addition, TDMA technology provides us with a strong foundation for the introduction of high-speed wireless data. The mobile data market is projected to grow at 30% annually over the next seven years, leading to a vast array of new services. Today, we participate in the data market through our short message service, one-way paging broadcasts, and Internet e-mails sent to our mobile phones. These applications are provided through the signaling capabilities of TDMA. We expect to introduce a suite of information services, including news, sports, stock quotes and weather, in January 2000. Our next series of offerings are scheduled for the second quarter of 2000, using two-way short message service and handsets capable of accessing the Internet. Our planned evolution to higher speed data applications, including video conferencing, is through the implementation of enhanced data rates for global evolution, which is expected to be available in 2001. With our TDMA architecture, we expect to be able to support faster transmission speeds with limited software and hardware upgrades. We are working with AT&T to plan for an evolution to these third generation services in 2002, and with Lucent to understand the implications on our network development. Competition We believe subscribers choose a wireless communications service provider principally based upon network coverage, pricing, quality of service and customer care. We compete directly with at least two cellular providers and other PCS providers in each of our markets and against enhanced special mobile radio operations in some of our markets. We compete with at least one analog, one CDMA and one GSM operator in each of our markets other than Puerto Rico and New Orleans where there is no GSM system currently in operation. Most of the existing cellular providers in our markets have an infrastructure in place and have been operational for a number of years, with some of these competitors having greater financial and technical resources than we do. These cellular operators may upgrade their networks to provide services comparable to those offered by us. We also compete with other PCS license holders in each of our markets: . in New Orleans, we compete primarily against Radiofone and BellSouth for cellular services, Sprint PCS and PrimeCo Personal Communications for PCS, and Nextel for enhanced special mobile radio; . in Memphis, we compete primarily against GTE and BellSouth for cellular services, Powertel and Sprint PCS for PCS and Nextel for enhanced special mobile radio; . in Little Rock, we compete primarily against ALLTEL and SBC Communications for cellular services and Sprint PCS for PCS; . in New England, we compete primarily against SBC Communications and Bell Atlantic for cellular services and Sprint PCS, Omnipoint Technologies for PCS and Nextel for enhanced special mobile radio; . in Puerto Rico, we compete primarily against Puerto Rico Telephone Company and Cellular One for cellular services and Centennial Cellular and NewCom Wireless Services, Inc. for PCS. We also compete with resellers of wireless communications services in each of our markets. Resellers purchase large volumes of services on a wireless operator's network, usually at a discount, and resell the services to end users under the reseller's own brand name. While the network operator receives some revenue from the sale of services to the reseller, the operator is competing with its own customer for sales to the end users. The principal resellers in our markets include MCI in New England and Motorola in Puerto Rico. We have agreed to resell services to AT&T in each of our markets should AT&T desire to do so. We have not yet entered into any such arrangements with AT&T or any other party. The FCC informally limits the amount of our minutes AT&T can resell in our market to less than a majority of the minutes they sell in our market. If we allow AT&T to resell more than a majority of our minutes, the FCC may question our compliance with FCC license requirements. 51 As the most recent entrant into the market for wireless communications services, we do not believe that we have obtained a significant share of the market in any of our areas of operation. As a recent entrant, we face significant competition from operators who have already established strong market positions and have signed up many customers. Most of the existing cellular operators have developed systems that have larger local and regional coverage than we currently have or anticipate developing. We seek to compete by offering a competitive product with attractive pricing plans and through our extensive access to roaming, including in-region roaming, which gives us an effective coverage area competitive with that of our principal competitors. We have developed our pricing plans to be competitive and to emphasize the advantages of our offerings. We have and may continue to discount our pricing in order to obtain customers or in response to downward pricing in the market for wireless communications services. We do not believe that we are at a significant competitive disadvantage to competitors that can market wireless communications services together with other services, such as traditional telephone service, cable television access or Internet access. We may face such disadvantages in the future as a result of modified offerings by our competitors or changes in consumer expectations if such bundled offerings become common. If we were to become disadvantaged, we would be forced to respond by modifying our pricing or seeking to offer competitive bundled services. We may not be able to do so on profitable terms. Our ability to compete successfully will depend, in part, upon our ability to anticipate and respond to various competitive factors affecting the industry, including the introduction of new services, changes in consumer preferences, demographic trends, economic conditions and competitors' discount pricing strategies, all of which could adversely affect our operating margins. We expect that once deployed, our extensive digital network will provide cost- effective means to react appropriately to any price competition. Additionally, we believe we have invested in network and information technology which provides us scaleable cost effective capabilities to combat competition. Government Regulation We are subject to substantial regulation by the FCC, state public utility commissions and, in some cases, local authorities. Our principal operations are classified as commercial mobile radio service by the FCC, subject to regulation under Title II of the Communications Act of 1934, as amended by the Telecommunications Act of 1996, as a common carrier and subject to regulation under Title III of the Communications Act as a radio licensee. The states are preempted from regulating our entry into and rates for commercial mobile radio service offerings, but remain free to regulate other terms and conditions of our commercial mobile radio service services and to regulate other intrastate offerings by us. Congress and the states regularly enact legislation, and the FCC, state commissions and local authorities regularly conduct rulemaking and adjudicatory proceedings that could have a material adverse effect on us and other similarly situated carriers. In addition, our nature as a regulated entity may adversely affect our ability to engage in, or rapidly complete, transactions and may require us to expend additional resources in due diligence and filings related to FCC and other requirements, as compared to unregulated entities. FCC Common Carrier Regulation Under Title II Under Title II of the Communications Act, among other things, we are: . required to offer service upon reasonable request; . prohibited from imposing unjust or unreasonable rates, terms or conditions of service; . proscribed from unjustly or unreasonably discriminating among customers; . required to reserve communications capacity for law enforcement surveillance operations and to make technical network changes to facilitate this surveillance; . required to make our services and products accessible to, and usable by, Americans with disabilities, if readily achievable; and 52 . required to comply with limitations on our use of customer proprietary network information. Under the Telecommunications Act, we are entitled to benefits when negotiating interconnection arrangements with other communications carriers, such as resale rights, our customers being able to keep their old numbers when switching to us and compensation equal to that of the carriers, but we are subject to those same requirements when other carriers seek to interconnect with our network. The FCC is still in the process of implementing some of these benefits. While the rates of common carriers are subject to the FCC's jurisdiction, the FCC forbears from requiring commercial mobile radio service carriers to file tariffs for their services. Common carriers, including commercial mobile radio service providers, are also prohibited under the Communications Act from unreasonably restricting the resale of their services and are required to offer unrestricted resale. There can be no assurance that the FCC will not choose to regulate common carriers more comprehensively to promote competition under the Telecommunications Act, which could have an adverse effect on our operations. FCC Radio License Regulation Under Title III Among other things, Title III of the Communications Act: . does not permit licenses to be granted or held by entities that have been subject to the denial of federal benefits; . requires us to seek prior approval from the FCC to transfer control of us or to assign our radio authorizations, including subdividing our radio airwaves or partitioning geographic license areas, except in very limited circumstances; and . limits foreign ownership in radio licensees, including PCS providers. While we believe that we comply with Title III, any future violation of these limitations could result in license revocation, forfeiture or the forced restructuring of our ownership to comply with the rules, any of which could have a material adverse effect on us. The Title III restrictions could also materially adversely affect our ability to attract additional equity financing. FCC Commercial Mobile Radio Service Regulation The FCC rules and policies impose substantial regulations on commercial mobile radio service providers. Among other regulations, commercial mobile radio service providers such as us: . incur costs as a result of required contributions to federal programs; . are prohibited from acquiring or holding an attributable interest in PCS, cellular or special mobile radio licenses with more than 45MHz of airwaves in the same metropolitan area, and more than 55 MHz in rural markets; . are required to provide manual roaming service to enable a customer of one provider to obtain service while roaming in another carrier's service area; . are required to route emergency calls to public safety centers and provide the public safety centers with information regarding the originating number and the location of the caller; and . will be required to allow subscribers to retain their telephone numbers when changing service providers after March 31, 2000, in some circumstances. While we believe we comply with these regulations, any violation of the commercial mobile radio service regulations could result in a revocation or forfeiture of our licenses that would have a material adverse effect on us. In addition, there can be no assurance that the FCC will not choose to regulate commercial mobile radio service providers more comprehensively, which could have an adverse effect on our operations. 53 FCC Personal Communications Services Regulation We are subject to service-specific regulations under the FCC's rules. Among other things, these regulations provide that PCS licensees, such as us, are granted licenses for a 10-year term, subject to renewal. Under these policies, we will be granted a renewal expectancy that would preclude the FCC from considering competing applications if we have: . provided "substantial" performance, that is "sound, favorable and substantially above a level of mediocre service just minimally justifying renewal;" and . substantially complied with FCC rules and policies and the Communications Act. While we intend to structure our operations to secure a renewal expectancy, there can be no assurance that a renewal expectancy will be granted and, if the renewal expectancy is not granted, that our licenses will be renewed. Our failure to obtain renewal of our licenses would have a material adverse effect on our operations. These regulations also govern the transmission characteristics of PCS handsets and network equipment sites and other technical requirements. PCS licensees are required to comply with limits intended to ensure that these operations do not interfere with radio services in other markets or in other portions of the airwaves and to ensure emissions from mobile transmitters do not cause adverse health effects. We are also subject to minimum construction requirements that will require us to deploy facilities with service coverage of a particular amount of the population of our licensed area within specified time periods. While we believe we comply with all PCS regulations in effect, any violation of the PCS regulations could result in a revocation or forfeiture that would have a material adverse effect on us. In addition, there can be no assurance that the FCC will not choose to regulate PCS licensees more comprehensively, which could have an adverse effect on our operations. Relocation of Fixed Microwave Licensees Because PCS carriers use airwaves occupied by existing microwave licensees, the FCC has adopted special regulations governing the relocation of incumbent systems and cost-sharing among licensees that pay to relocate microwave incumbents. Relocation usually requires a PCS operator to compensate an incumbent for the costs of system modifications and new equipment required to move the incumbent to new portions of the airwaves, including possible premium costs for early relocation to alternate portions of the airwaves. The transition plan allows most microwave users to operate in the PCS portion of the airwaves for a one-year voluntary negotiation period and an additional one- year mandatory negotiation period following the issuance of the PCS license. These periods are longer for public safety entities. We have entered into all necessary agreements for microwave relocation. Relocated licensees may exercise their rights to move back to their original sites in the event the new sites are inadequate. Any delay in the relocation of microwave users to other portions of the airwaves also may affect adversely our ability to operate our network. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." FCC and Federal Aviation Administration Facilities Regulation Because we acquire and operate antenna sites for use in our network, we are subject to FCC and Federal Aviation Administration regulations governing registration of towers, the marking and lighting of structures and regulations governing compliance with the National Environmental Policy Act of 1969, which requires carriers to assess the impact of their operations on the environment, including the health effects of radio airwave radiation on humans. FCC Designated Entity and Small Business Regulation Each of TeleCorp Holding, TeleCorp LMDS and Viper Wireless was the winning bidder of licenses in the auction of PCS licenses. Viper Wireless also acquired six licenses in the recent designated entity PCS reauction. 54 With respect to those licenses granted by the FCC, and additional designated entity licenses acquired and to be acquired through auctions and later transactions, we: (1) believe we qualify as a very small business and as an entrepreneurs, and (2) intend to diligently pursue and maintain our qualification as a very small business and as an entrepreneur in a manner intended to ensure compliance with the applicable FCC rules. We rely on representations of our investors to determine our compliance with the FCC's rules applicable to PCS licenses. There can be no assurance, however, that our investors or we will continue to satisfy these requirements during the term of any PCS license granted to TeleCorp Holding or TeleCorp PCS, LLC, our wholly owned subsidiary, or that we will be able successfully to implement divestiture or other mechanisms included in our corporate charter that are designed to ensure compliance with FCC rules. Any non-compliance with the FCC very small business and entrepreneur rules could subject us to penalties, including a fine, revocation of our PCS licenses, acceleration of installment payment obligations or retroactive loss of bidding credits. Entrepreneurs. In order to hold some of our PCS licenses, the qualifying entity, an entrepreneur, and its affiliates must have had less than $125 million in average gross revenues in the last two years and less than $500 million in total assets at the time it filed its application to acquire the licenses. In calculating revenues and assets for these purposes, the FCC includes the gross revenues and total assets of our affiliates, those entities that hold attributable interests in us and the affiliates of the entities. However, the revenues and assets of affiliates are not attributable to the licensee if the licensee maintains an organizational structure that satisfies entrepreneur requirements. For at least five years after the initial licensing of a these licenses, a licensee must continue to meet the control group requirements to continue to qualify for the installment payment program and must continue to meet the very small business requirements to continue to qualify for the bidding credits received in the auction, although normal business growth as a result of holding the licenses will not disqualify a licensee. Very Small Business. We are also structured under the FCC's rules to qualify as a very small business. A very small business is an entity that, together with its affiliates and entities that hold interests in the applicant and their affiliates, has average annual gross revenues of not more than $15 million for the previous three calendar years. As a result of our classification as a very small business, we were eligible for both a 25% bidding credit and for a preferential installment payment program. In the more recent reauction, Viper Wireless qualified as a very small business, eligible for the same bidding credit, but the FCC has ceased to provide installment payment financing. Control Group Requirements. To avoid attribution of the revenues and assets of some of our investors, we are required to maintain a conforming control group and to limit the amount of equity held by these entities on a fully- diluted basis. These requirements mandate that the control group, among other things, have and maintain both actual and legal control of the licensee. Under these control group requirements: . an established group of investors meeting the financial qualifications must own at least three-fifths of the control group's equity, or 15% of the licensee's overall equity, on a fully-diluted basis and at least 50.1% of the voting power, in the licensee entity; and . additional members of the control group must hold, on a fully-diluted basis, the remaining 10% equity interest in the licensee entity. Additional members may be non-controlling institutional investors, including most venture capital firms. A licensee must have met the requirements at the time it filed its application to acquire these licenses and must 55 continue to meet the requirements for five years following the date that a license is granted, although normal business growth is permitted. Beginning the fourth year of the license term, the FCC rules: . eliminate the requirement that additional members hold the 10% equity interest; and . allow the qualifying investors to reduce the minimum required equity interest from 15% to 10%. If the FCC were to determine that we did not comply with the regulations, we would be required to attribute the revenues of additional stockholders, which would likely cause the loss of our status both as an entrepreneur and a very small business. Loss of this status would have a materially adverse effect on us. FCC Transfer Restrictions. During the first five years of their license terms, some PCS licensees may only transfer or assign their license, in whole or in part, to other qualified entrepreneurs. The acquiring entities would take over the license, or any portion of the license, subject to separately established installment payment obligations. After five years, licenses are transferable to entrepreneurs and non-entrepreneurs alike, subject to unjust enrichment penalties. If transfer occurs during years six through ten of the initial license term to a company that does not qualify for the same level of auction preferences as the transferor, the sale would be subject to immediate payment of the outstanding balance of the government installment payment debt and payment of any unjust enrichment assessments as a condition of transfer. The FCC has also initiated transfer disclosure regulations that require licensees who transfer control of or assign a PCS license within the first three years to file associated contracts for sale, option agreements, management agreements or other documents disclosing the total consideration that the applicant would receive in return for the transfer or assignment of its license. If the FCC determines that a transferor or assignor is being unjustly enriched by a proposed sale or transfer of a license, it may condition its approval of the transaction on payment of money to the U.S. Treasury, accelerate installment payments or require repayment of bidding credits. State and Local Regulation The FCC permits the states to: . regulate terms and conditions of our commercial mobile radio service services other than rates and entry and may regulate all aspects of our intrastate toll services; . regulate the intrastate portion of services offered by local telephone carriers, and therefore the rates we must pay to acquire critical facilities from other common carriers; . administer numbering resources, subject to federal oversight; and . have other responsibilities that impact the nature and profitability of our operations, including the ability to specify cost-recovery mechanisms for network modifications to support emergency public safety services. States and localities also regulate construction of new antenna site facilities and are responsible for zoning and developmental regulations that can materially impact our timely acquisition of sites critical to our radio network. The states and localities regularly conduct legislative, rulemaking and adjudicatory proceedings on matters within their jurisdiction that could have a material adverse effect on us and other similarly situated carriers. States may petition the FCC to expand their jurisdiction over commercial mobile radio service rates and entry. There can be no assurance that a state in which we operate will not attempt to engage in more comprehensive regulation of our operations, which could increase the costs of providing service and materially affect our ability to operate in that state. Emission and Hands-Free Regulation Media reports have suggested that some radio airwave emissions from wireless handsets may be linked to health concerns, including the incidence of cancer. Data gathered in studies performed by manufacturers of wireless communications equipment dispute these media reports. Further, a major industry trade association and governmental agencies have stated publicly that the use of wireless handsets does not pose any undue health 56 risks. Nevertheless, concerns regarding radio airwave emissions could have the effect of discouraging the use of wireless handsets, which would decrease demand for our services. The FCC adopted rules specifying the methods to be used in evaluating radio airwave emissions from radio equipment, including wireless handsets. The hand- held digital telephones that we offer to our customers comply with the standards adopted under the new rules. These handsets may not comply with any rules adopted by the FCC in the future. The failure of these handsets to remain in compliance with applicable FCC rules and standards would decrease demand for our services. Recent studies have shown that hand-held digital telephones interfere with medical devices, including hearing aids and pacemakers. The University of Oklahoma Center for the Study of Wireless Electromagnetic Compatibility, together with industry trade associations and other interested parties, are currently studying the extent of, and possible solutions to, this interference. If these studies demonstrate significant interference or create public concern about interference, the results of these studies could decrease demand for our services. Measures that would: . require hands free use of cellular phones while operating motor vehicles; . ban cellular phone use while driving; . limit the length of calls while driving; or . require people to pull to the side of the road to use cellular phones while driving, have been proposed or are being considered in 12 state legislatures. In addition, some gas stations have banned the use of mobile phones on their premises. We cannot predict the success of the proposed laws concerning car phone use or the effect on the use of cellular phones as a result of the publicity surrounding or passage of these laws. In addition, more restrictive measures or measures aimed at wireless services companies as opposed to users may be proposed or passed in state legislatures in the future. The passage or proliferation of this legislation could decrease demand for our services. Intellectual Property The AT&T and globe design logo is a service mark registered with the U.S. Patent and Trademark Office. AT&T owns the service mark. We use the AT&T and globe design logo, on a royalty free basis, with equal emphasis on our SunCom brand and logo, solely within our licensed area in connection with marketing, offering and providing licensed services to end-users and resellers of our services. Our license agreement with AT&T grants us the right and license to use licensed marks on permitted mobile phones. This license agreement contains numerous restrictions with respect to the use and modification of licensed marks. See "Certain Relationships and Related Transactions--AT&T Agreements." We, Triton PCS and Tritel Communications have adopted a common brand, SunCom, that is co-branded with equal emphasis with the AT&T brand name and logo. Each of the SunCom companies owns one-third of Affiliate License Co., which owns the SunCom name. We and the other SunCom companies license the SunCom name from Affiliate License Co. We use the brand to market, offer and provide services to end-users and resellers of our PCS. See "--Marketing Strategy," "Certain Relationships and Related Transactions--Other Related Party Transactions." Employees As of September 30, 1999, we employed approximately 793 people. None of our employees currently are represented by a union. We believe that our relations with our employees are good. 57 Properties We lease space for our call connection equipment in New Orleans, Boston and Puerto Rico and for our network operations center, our call connection equipment, our customer care and our data center in Memphis. Further, we have operating leases primarily related to our headquarters, regional offices, retail store locations, distribution outlets, office space and network equipment sites. Legal Proceedings We are not a party to any lawsuit or proceeding which is likely, in the opinion of management, to have a material adverse effect on our financial position, results of operations and cash flows. We are a party to routine filings and customary regulatory proceedings with the FCC relating to our operations. 58 MANAGEMENT The table below sets forth our directors and executive officers and their ages as of September 30, 1999.
Name Age Position - ---- --- -------- Gerald T. Vento......... 52 Chief Executive Officer and Chairman Thomas H. Sullivan...... 37 Executive Vice President, Chief Financial Officer and Director Julie A. Dobson......... 43 Vice President and Chief Operating Officer Scott Anderson.......... 41 Director Rohit M. Desai.......... 60 Director Michael R. Hannon....... 39 Director Gary Fuqua.............. 48 Director James M. Hoak........... 55 Director Mary Hawkins-Key........ 48 Director William Kussell......... 40 Director William Laverack, Jr.... 42 Director Joseph O' Donnell....... 57 Director Michael Schwartz........ 35 Director James F. Wade........... 43 Director Mr. Wade, Mr. Laverack, Mr. Fuqua and Mr. O'Donnell have agreed to resign as directors upon completion of the offering. The table below sets forth our five regional general managers and their ages as of September 30, 1999: Name Age Position - ---- --- -------- Raul Burgos............. 35 Vice President/General Manager, Puerto Rico Steven Chandler......... 46 Vice President/General Manager, South Central Region Andrew Hearn............ 36 Vice President/General Manager, New Orleans Mitchell Johnson........ 37 Vice President/General Manager, New England Randall Johnson......... 39 Vice President/General Manager, Little Rock
Executive Officers and Directors Gerald T. Vento is our co-founder and the co-founder of our predecessor company and has been Chief Executive Officer and a director since the inception. He has been Chairman of our board since June 1999. From December 1993 to March 1995, Mr. Vento was Vice Chairman and Chief Executive Officer of Sprint Spectrum/American PCS, L.P. Under Mr. Vento's leadership, that partnership developed the first PCS network in the United States. From April 1995 to March 1998, Mr. Vento was Chairman of Entel Technologies, Inc., a wireless site acquisition and construction management company. From April 1996 to October 1996, Mr. Vento also served as the Chief Executive Officer of National Fiber Networks, Inc. Mr. Vento also served as managing partner in a joint venture with the Washington Post Company to build and operate the company's systems in the United Kingdom prior to its sale in 1993 to TCI/US West Communications. Mr. Vento has spent over twenty years in cable, telephone and wireless businesses. Mr. Vento was the founder and Managing General Partner for several communications companies, which he developed from inception, including wireless and cable television properties throughout the United States and Puerto Rico. Thomas H. Sullivan is our co-founder and the co-founder of our predecessor company and has been Executive Vice President and one of our directors since our inception, and Chief Financial Officer since March 1999. Mr. Sullivan served as President of TeleCorp Holding from 1996 to 1998 and has served as a senior executive and founder of several wireless and wireline companies for the past five years. From 1992 to 1999, Mr. Sullivan was a partner of and counsel to McDermott, Will & Emery, where he served as co-head of its telecommunications practice and co-chairman of its Boston corporate department. In 11 years at McDermott, Will & Emery, he counseled several of the country's largest cellular and PCS operators including Sprint Spectrum/American PCS, L.P., Aerial Communications, NorthCoast Communications and Bell Atlantic Mobile. 59 Julie A. Dobson has served as our Chief Operating Officer since July 1998. Prior to joining us, Ms. Dobson was President of Bell Atlantic Mobile Systems New York/New Jersey Metro Region. She was responsible for sales, marketing, customer service and the continued expansion of that company's wireless communications network in the region. She also oversaw more than 1,500 employees and an extensive retail store network in 22 counties in New York and northern and central New Jersey. Ms. Dobson had been with Bell Atlantic since 1980, when she began her career as an account executive in sales at Bell Atlantic-Pennsylvania, and served in a variety of positions in sales, marketing and operations over two decades. Scott Anderson has served as one of our directors since July 1998. Since 1997, Mr. Anderson has served as Principal in Cedar Grove Partners, an investment and consulting/advisory partnership, and since 1998 as Principal in Cedar Grove Investments, a small "angel" capital investment fund. Mr. Anderson was an independent board member of PriCellular Corp from March 1997 through June 1998. He is a board member and advisory board member of Tegic, a wireless technology licensing company, a board member of Tritel Communications, a board member of Triton PCS and a board member of Xypoint, a private emergency safety service company. He was employed by McCaw Cellular Communications and AT&T from 1986 until 1997, where he last served as Senior Vice President of the Acquisitions and Development group. Rohit M. Desai has served as one of our directors since July 1998. He has been the Chairman, President and Chief Investment Officer of Desai Capital Management Incorporated, an equity investment firm with approximately $1 billion under management, since 1984. Desai Capital Management is the investment advisor to Equity-Linked Investors II and Private Equity Investors III, L.P., of which Mr. Desai is the managing general partner. Mr. Desai currently sits on the board of The Rouse Company, Sunglass Hut International, Finlay Fine Jewelry Holdings and Independence Community Bankcorp. Michael R. Hannon has been one of our directors since July 1998. Mr. Hannon has been a General Partner of Chase Capital Partners, a subsidiary of Chase Manhattan Corporation, since January 1988. Mr. Hannon is currently a director of Formus Communications, Entertainment Communications and Financial Equity Partners. Gary Fuqua has served as one of our directors since July 1998. Mr. Fuqua is the President and Chief Executive Officer of Utility Engineering, an architecture and engineering firm, since August 1999. From July 1998 to July 1999, Mr. Fuqua managed corporate development activities at Entergy and oversaw Entergy's non-regulated domestic retail businesses, including District Energy, Entergy Security and Entergy's various telecommunications businesses. Before he joined Entergy, Mr. Fuqua served as a Vice President with Enron Ventures Corporation in London from January 1998 to July 1998. He also founded and managed his own company prior to joining Enron in 1988. Mr. Fuqua is also a member of the board of Tritel Communications. James M. Hoak, Jr., has served as one of our directors since July 1998. Mr. Hoak has served as Chairman and a Principal of Hoak Capital Corporation, a private equity investment firm, since September 1991. He has also served as Chairman of HBW Holdings, an investment bank, since July 1996. He served as Chairman of Heritage Media Corporation, a broadcasting and marketing services firm, from its inception in August 1987 to its sale in August 1997. From February 1991 to January 1995, he served as Chairman and Chief Executive Officer of Crown Media, a cable television company. From 1971 to 1987, he served as President and Chief Executive Officer of Heritage Communications, a diversified communications company, and as its Chairman and Chief Executive Officer from August 1987 to December 1990. He is also a director of PanAmSat Corporation, Pier 1 Imports and Texas Industries. Mary Hawkins-Key has served as one of our directors since March 1999. She has been Senior Vice President of Partnership Operations for AT&T Wireless since July 1998. Ms. Hawkins-Key joined AT&T's Messaging Division in April 1995, and subsequently became Chief Operating Officer for the 1100 employee division until its sale in late 1998. Ms. Hawkins-Key is on the board of Triton PCS and is a partner committee member for CMT Partners, the partnership which owns the Bay Area Cellular Telephone. 60 William Kussell has served as one of our directors since July 1998. Mr. Kussell has served as President of Dunkin' Donuts marketing office since 1994, as well as Retail Concept Officer for Allied Domecq Retailing USA since 1997. He was Vice President of worldwide marketing for Reebok from November 1991 to March 1994. William Laverack, Jr. has served as one of our directors since July 1998. He has been a General Partner of J. H. Whitney & Co., an investment firm focused on private equity and mezzanine capital investments, since May 1993. Prior to May 1993, he was with Gleacher & Co., Morgan Stanley and J.P. Morgan. He is currently a director of Steel Dynamics, and several private companies. Joseph O'Donnell has served as one of our directors since July 1998. He is the former Chairman and Chief Executive Officer of two major advertising agencies: J. Walter Thompson Company Worldwide and Campbell-Mithum-Esty Advertising. Since leaving the advertising business in 1991, Mr. O'Donnell has founded several marketing and communication related businesses, principally Osgood, O'Donnell & Walsh LLC, a communications consulting company serving companies such as Equitable Insurance, Chase Manhattan Bank, PricewaterhouseCoopers LLP, Ford and Teligent. Michael Schwartz has served as one of our directors since November 1998. Mr. Schwartz joined AT&T in September of 1996. He is currently a Vice President in AT&T's Acquisitions and Development group. From September 1996 through September 1998, Mr. Schwartz was Vice President and Chief Counsel of AT&T's Messaging Division. Prior to joining AT&T, Mr. Schwartz was in private law practice in the Seattle office of Graham & James. James F. Wade has served as one of our directors since July 1998. He is currently the Managing Partner of M/C Venture Partners, a $250 million private equity fund and has been a General Partner in a series of predecessor funds since 1987. M/C Venture Partners invests solely in the telecommunications and information technology sectors. Regional General Managers Raul Burgos joined us in May 1999 as the Vice President/General Manager of the Puerto Rico Region. Prior to joining us, Mr. Burgos served as General Manager/VP of Operations for Nextel International in Sao Paulo, Brazil from May 1998 to April 1999. Mr. Burgos also served as Director of Marketing and New Business Development for Nextel Communications in Orlando, Florida from October 1996 to May 1998. From August 1995 to September 1996, Mr. Burgos was a Marketing Analyst with Motorola Network Ventures and from March 1993 to August 1995, he was a Senior Marketing Analyst with Cellular One. Steven Chandler joined us in October 1997 as the Vice President/General Manager of the Southcentral Region. Prior to joining us, Mr. Chandler was the General Manager of Bell South Mobility PCS in Greenville, South Carolina from January 1996 to October 1997. Mr. Chandler also worked in Memphis, Tennessee and Louisville, Kentucky as General Manager for Bell South Mobility from 1988 through 1995. Andrew Hearn joined us in December 1998 as the Vice President/General Manager for the New Orleans Region. Prior to joining us, Mr. Hearn was the Vice President/General Manager for ALLTEL Communications in South Carolina from September 1996 to December 1998. Mr. Hearn also served as Retail Operations Manager for ALLTEL Communications in Charlotte, North Carolina from October 1994 to September 1996. Mitchell Johnson joined us in June 1999 as the Vice President/General Manager of the New England Region. Prior to joining us, Mr. Johnson was Vice President/General Manager for ALLTEL Communications throughout the Las Vegas, Nevada Region from August 1998 to June 1999. Mr. Johnson also served as Vice President/General Manager for the Western Arkansas and Eastern Oklahoma market from October 1996 to October 1998. From April 1994 to October 1996, Mr. Johnson was the Regional Customer Service Manager with ALLTEL Communications. 61 Randall Johnson joined us in November 1997 as the Vice President/General Manager of the Little Rock Region. Prior to joining us, Mr. Johnson was Vice President/General Manager for ALLTEL Communications in Little Rock from April 1997 to October 1997. Mr. Johnson also served as Director of Marketing for ALLTEL Communications Cellular Operations throughout the Southeastern US from January 1995 to March 1997. From September 1989 to January 1995, Mr. Johnson served as Vice President/General manager with ALLTEL Communications for the Missouri Region. Selection of Directors Upon completion of this offering, our board will consist of nine directors. Our directors are elected to serve until they resign or are removed or are otherwise disqualified to serve or until their successors are elected and qualified. Our directors are elected at the annual meeting of stockholders. The stockholders' agreement provides that any action of our board be approved by the affirmative vote of a majority of our entire board, except in circumstances where voting by particular classes of directors is required. Upon completion of this offering, the parties to the stockholders' agreement have agreed to vote all of the shares of class A voting common stock and voting preference stock to cause the election of the following nine individuals to our board: . Mr. Vento and Mr. Sullivan so long as each remains an officer and the management agreement with TeleCorp Management remains in effect; . two individuals selected by holders of a majority in interest of the common stock beneficially owned by our initial investors other than AT&T; . two additional individuals selected by Mr. Vento and Mr. Sullivan, so long as they remain officers, who must be acceptable to the holders of a majority in interest of the common stock beneficially owned by our initial investors other than AT&T on the one hand, and AT&T Wireless on the other hand; . one individual nominated by AT&T Wireless in its capacity as the holder of series A preferred stock so long as AT&T has the right to nominate one director in accordance with our restated certificate of incorporation; . one individual selected by Mr. Vento and Mr. Sullivan, so long as they remain officers, who must be acceptable to AT&T Wireless; and . one individual selected by Mr. Vento and Mr. Sullivan, so long as they remain officers, who must be acceptable to the holders of a majority in interest of the class A voting common stock beneficially owned by our initial investors other than AT&T. The stockholders agreement provides that when FCC ownership restrictions no longer apply to us, our board will have seven members and the right of Mr. Vento and Mr. Sullivan to appoint the individuals set forth in the last two items above will expire. Effective upon completion of the offering, the board of directors will be divided into three classes, as nearly equal in number as possible. Each director will serve a three-year term, and one class will be elected at each year's annual meeting of stockholders. Messrs. Vento, Sullivan and Kussell will be in the class of directors whose term will expire at our 2000 annual meeting of stockholders. Ms. Hawkins-Key and Messrs. Hannon and Desai will be in the class of directors whose term will expire at our 2001 annual meeting of stockholders. Messrs. Anderson, Hoak and Schwartz will be in the class of directors whose term will expire at our 2002 annual meeting of stockholders. At each annual meeting of stockholders, successors to the class of directors whose terms expire at the meeting will be elected to serve for three-year terms and until their successors are elected and qualified. 62 Compensation of Directors Representatives of our initial investors who serve on our board or any committee of our board, do not receive cash compensation for their service on our board. Other non-management members of our board or its committees receive a quarterly stipend of $1,875, $1,000 for attending each board or committee meeting and $500 for participating in each teleconference. The directors are also eligible to receive stock options. All members of our board or any committee of our board, including our management members, will be reimbursed for out-of-pocket expenses in connection with attendance at meetings. Committees of the Board of Directors Our bylaws provide that our board may establish committees to exercise powers delegated by our board. Under that authority, our board has established an audit committee and a compensation committee. Upon completion of the offering, the audit committee will be comprised of Mr. Hoak, Mr. Kussell and Mr. Schwartz. Upon completion of the offering, the compensation committee will be comprised of Mr. Anderson, Mr. Desai, Mr. Hannon and Mr. Schwartz. Executive Compensation The following table contains information about the cash and other compensation that we paid in the 1998 fiscal year to Mr. Vento, our Chief Executive Officer, and the four other most highly paid executive officers. In addition to salary, our employees are eligible for annual cash bonuses. These bonuses are generally earned in the year prior to which they are paid based upon achievement of corporate and individual performance objectives; however some bonuses are specified in employment agreements. The bonuses earned in 1997 were paid in 1998 and are not included in this table. The bonuses in the table were earned in 1998 and were paid in 1999. Other annual compensation consists of amounts reimbursed for relocation expenses and any taxes that we paid on behalf of the executive for the reimbursement. Summary Compensation Table
Long-Term Compensation Annual Compensation Awards ---------------------------------- -------------------- Other Annual Name and Principal Compensation Restricted Stock Position Salary($) Bonus($) ($) Awards($) - ------------------ --------- -------- ------------ ---------------- Gerald T. Vento......... $213,461(a) $157,500 $ 4,664(b) $ 0 Chief Executive Officer and Chairman Thomas H. Sullivan...... 206,931(c) 125,000 106,637(d) 0 Executive Vice President and Chief Financial Officer Julie A. Dobson......... 114,423(e) 155,000 66,134(f) 4,746(g) Vice President and Chief Operating Officer Robert Dowski(h)........ 181,196(i) 101,251 5,005(j) 2,170(k) Chief Financial Officer Steven Chandler......... 118,808(l) 45,000 114,109(m) 776(n) General Manager
- -------- (a) This amount consists of $111,538 that TeleCorp Management paid to Mr. Vento out of amounts we paid to TeleCorp Management under the management agreement and $101,923 that TeleCorp Holding paid to Mr. Vento. (b) Represents an amount paid on behalf of Mr. Vento into our 401(k) plan. 63 (c) This amount consists of $92,947 that TeleCorp Management paid to Mr. Sullivan out of amounts we paid to TeleCorp Management under the management agreement and $113,984 that TeleCorp Holding paid to Mr. Sullivan. (d) This amount consists of $103,637 in relocation expenses that TeleCorp Management paid to Mr. Sullivan out of amounts that we paid to TeleCorp Management under the management agreement and $3,000 that we paid on behalf of Mr. Sullivan in our 401(k) plan. (e) This amount consists of $114,423 that TeleCorp Communications paid to Ms. Dobson. (f) This amount consists of $66,134 in relocation expenses that TeleCorp Communications paid to Ms. Dobson. (g) Consists of 2,287 shares of series E preferred stock, valued at $1.00 per share, and 1,068,971 shares of class A common stock, valued at $.003 per share, issued under our restricted stock grant plan on July 17, 1998. (h) Mr. Dowski ceased to be employed with us as of March 8, 1999, except for transition support. (i) This amount consists of $72,692 that TeleCorp Holding paid to Mr. Dowski and $108,504 that TeleCorp Communications paid to Mr. Dowski. (j) Represents an amount paid on behalf of Mr. Dowski into our 401(k) plan. (k) Consists of 714 shares of series E preferred stock, valued at $1.00 per share, and 449,877 shares of class A common stock, valued at $.003 per share, issued under our restricted stock grant plan on July 17, 1998. On March 8, 1999, we repurchased 577 of Mr. Dowski's shares of series E preferred stock and 406,786 of Mr. Dowski's shares of class A common stock for a total of approximately $19, which is not reflected in the table. (l) This amount consists of $54,519 that TeleCorp Holding paid to Mr. Chandler and $64,288 that TeleCorp Communications paid to Mr. Chandler. (m) This amount consists of $111,995 in relocation expenses that TeleCorp Communications paid to Mr. Chandler and $2,114 that we paid on behalf of Mr. Chandler into our 401(k) plan. (n) Consists of 255 shares of series E preferred stock, valued at $1.00 per share, and 160,965 shares of class A common stock, valued at $.003 per share, issued under our restricted stock grant plan on July 17, 1998. 1998 Restricted Stock Plan In July 1998 we established the TeleCorp PCS, Inc. 1998 Restricted Stock Plan to award key employees shares of our series E preferred stock and class A common stock. Each award is subject to a five- or six-year vesting schedule that depends on the employee's date of hire, with unvested shares being redeemed by us for $.003 per share upon termination of employment. The shares granted are subject to the same transfer restrictions and repurchase rights as our shares held by AT&T and our other initial investors. See "Description of Capital Stock." As of September 30, 1999, 6,687 shares of series E preferred stock and 3,799,832 shares of class A common stock are outstanding under this plan. We repurchased an additional 1,155 shares of series E preferred stock and 813,712 shares of class A common stock from our stockholders, which we had granted under this plan, and we have regranted some of these repurchased shares under this plan. 1999 Stock Option Plan On July 22, 1999, we implemented the 1999 Stock Option Plan to award employees and members of our board options to acquire shares of our class A common stock. Our board has the discretion to determine the terms of any options granted under this plan. We have reserved 1,814,321 shares of our class A common stock for issuance under this plan. On July 22, 1999, our board approved the grant of options to virtually all our employees and three of our directors to purchase 552,505 shares of class A common stock under our plan at an exercise price of $.0065 per share, the estimated fair value of the class A common stock on the date of grant. We effected these grants on August 31, 1999. These options vest ratably over a three to four year period. Upon the closing of the offering, the option holders will be able to exercise any vested options. 64 Management Agreement Under a management agreement dated July 17, 1998, as amended, TeleCorp Management, under our oversight, review and ultimate control and approval, assists us with: . administrative services, such as accounting, payment of all bills and collection; . operational services, such as engineering, maintenance and construction; . marketing services, such as sales, advertising and promotion; . regulatory services, such as tax compliance, FCC applications and regulatory filings; and . general business services, such as supervising employees, budgeting and negotiating contracts. Mr. Vento and Mr. Sullivan own TeleCorp Management. TeleCorp Management has agreed to provide the services of Mr. Vento and Mr. Sullivan in connection with the performance of TeleCorp Management's obligations under the management agreement. Mr. Vento and Mr. Sullivan have agreed to devote their entire business time and attention to providing these services, provided that they may devote reasonable periods of time to other enumerated activities. We reimburse TeleCorp Management for all out of pocket expenses it incurs for the retention of third parties on our behalf. We pay TeleCorp Management fees of $550,000 per year, payable in monthly installments. TeleCorp Management is also entitled to a potential annual bonus based upon the achievement of objectives established by the compensation committee of our board for a particular calendar year. In 1998, we paid bonuses totaling approximately $285,000 to TeleCorp Management. The management agreement has a five-year term. We may terminate the management agreement immediately in certain circumstances including: . indictment of Mr. Vento or Mr. Sullivan for a felony; . a material breach which remains uncured after 30 days written notice; . the failure of TeleCorp Management to provide to us the services of Mr. Vento and Mr. Sullivan; . an event of default on any of our credit agreements for borrowings of $25.0 million or more; or . acceleration of any of our indebtedness over $25.0 million. TeleCorp Management may terminate the agreement voluntarily upon 30 days written notice to us. TeleCorp Management may also terminate the agreement immediately if: . Mr. Vento and Mr. Sullivan are removed as directors or are demoted or removed from their respective offices or there is a material diminishment of Mr. Vento's and Mr. Sullivan's responsibilities, duties or status, which diminishment is not rescinded within 30 days after the date of receipt by our board from Mr. Vento and Mr. Sullivan of their respective written notice referring to the management agreement and describing the diminishment; or . we relocate our principal offices without TeleCorp Management's consent to a location more than 50 miles from our principal offices in Arlington, Virginia. If TeleCorp Management terminates the agreement for the two preceeding reasons or if we terminate the agreement because of a breach by TeleCorp Management or we fail to comply with any of our credit agreements for borrowed money in the amount of $25.0 million or more, TeleCorp Management will be entitled to their management fee and annual bonus. Their annual bonus will be determined as follows: . if the date of termination is on or prior to June 30 or any applicable calendar year, the annual bonus will be equal to a pro rata portion of the annual bonus in respect of that year, as determined based upon our achievement of the objectives for that year; 65 . if the date of termination is after June 30 of any applicable calendar year, the annual bonus will be equal to the annual bonus payable in respect of that year, as determined based upon our achievement of the objectives for that year, in either instance payable upon the later to occur of 30 days after certification of our financial statements for that year and the last day of the month after which a new management service provider is retained by us, and conditioned upon TeleCorp Management having nominated a successor person or persons, who are acceptable to our board, and: . who would not cause a significant and detrimental effect on our eligibility to hold our PCS licenses and to realize the benefits, if any, that we derive from TeleCorp Management's status as a very small business; and . to whom our voting preference common stock and class C common stock will be transferred by Mr. Vento and Mr. Sullivan. The management agreement protects us if TeleCorp Management does not nominate an acceptable person or persons to provide management services to us. The shares of class A common stock and series E preferred stock that Mr. Vento and Mr. Sullivan received under the securities purchase agreement vest in accordance with the following schedule, which is contained in the management agreement:
Vesting Date Percent of Shares ------------ ----------------- July 17, 1998.......................................... 20% July 17, 2000.......................................... 15% July 17, 2001.......................................... 15% July 17, 2002.......................................... 15% July 17, 2003.......................................... 15%
The remaining shares vest according to the completion of different steps in our minimum construction plan. We are obligated to repurchase from Mr. Vento and Mr. Sullivan, and they are required to sell to us, following the termination of the management agreement for any reason, the amount of our class A common stock, up to 5,764,704 shares, and our series E preferred stock, up to 18,219 shares, that have not yet vested. During the term of the management agreement, and under limited circumstances for a period following termination, TeleCorp Management, Mr. Vento and Mr. Sullivan are prohibited from assisting or becoming associated with any person or entity, other than as a holder of up to 5% of the outstanding voting shares of any publicly traded company, that is actively engaged in the business of providing mobile wireless communications services in our territory, and from employing any person who was employed by us unless that person was not employed by us for a period of at least six months. Employee Agreement On July 17, 1998, we entered into an employee agreement with Ms. Dobson, under which she serves as our Chief Operating Officer at a base annual salary of $250,000. Ms. Dobson is eligible under the employee agreement, at our board's discretion, to receive a potential annual bonus based upon the achievement of objectives established by the compensation committee of our board. Ms. Dobson's employee agreement provides that she is an employee-at-will. We will reimburse the reasonable expenses that she incurs while performing her services under her employee agreement and she may participate in our employee benefit plans available to employees of comparable status and position. 66 If Ms. Dobson should die, we will pay any amounts that we owe her under her employee agreement accrued prior to her death to her estate, heirs and beneficiaries. All family medical benefits under the employee agreement for the benefit of Ms. Dobson will continue for six months after death. Termination for cause is: . engaging in misconduct which has caused demonstrable and serious injury, financial or otherwise, to us or our reputation; . being convicted of a felony or misdemeanor as evidenced by a judgment, order or decree of a court of competent jurisdiction; . failing to comply with our board's directions, or neglecting or refusing to perform the executive's duties or responsibilities, unless changed significantly without the executive's consent; or . violating the employee agreement or restricted stock grant plan. If we terminate Ms. Dobson for cause, or she voluntarily quits, we will pay her any amounts that we owe her accrued prior to the cessation of employment. If we terminate her other than for cause, we will pay Ms. Dobson an amount equal to her then annual base salary, at normal payroll intervals, as well as continue to cover her under our employee benefit plans for 12 months. Under her employee agreement, Ms. Dobson is subject to confidentiality provisions, and has agreed, for one year after cessation of employment with us, to non-competition and non-solicitation provisions and to limit public statements concerning us. Separation Agreement On March 8, 1999, we entered into a separation agreement with Mr. Dowski, under which we agreed to pay Mr. Dowski: . $17,500 per month for 12 months; . a lump sum of $105,000, representing a 1998 bonus; . a lump sum equal to earned but unpaid or unused vacation; . $4,300 as reimbursement for relocation expenses, including taxes payable by Mr. Dowski on the sum; and . a lump sum equal to outstanding travel and expense reimbursement. We also agreed to continue covering Mr. Dowski under our employee benefit plans for 12 months. In addition, we repurchased 577 shares of Mr. Dowski's series E preferred stock and 406,786 of Mr. Dowski's shares of class A common stock for an aggregate amount of approximately $19 in accordance with his share grant agreement concerning such restricted stock. The separation agreement contained mutual releases by Mr. Dowski and us of each other. In addition, in the separation agreement, Mr. Dowski confirmed his confidentiality agreements with us, and his one-year non-competition, non- solicitation and limitation on public speaking agreements. 67 PRINCIPAL STOCKHOLDERS AND BENEFICIAL OWNERSHIP OF MANAGEMENT The following table describes, as of September 30, 1999, the number of shares of each class of our voting stock beneficially owned by: . each of our directors; . executive officers named in the summary compensation table above, . each person known by us to beneficially own more than 5% of the outstanding shares of any class of our voting capital stock at such date, and . all of our current directors and executive officers, as a group. Except as otherwise indicated, the address for each director and executive officer is c/o TeleCorp, 1010 N. Glebe Road, Suite 800, Arlington, Virginia 22201. The following table shows the beneficial ownership of our class A common stock on the assumption that FCC restrictions on the conversion of some classes of our capital stock into class A common stock no longer apply to us and any required stockholder approvals have been obtained. Under the terms of our restated certificate of incorporation that will become effective upon completion of this offering, until the occurrence of defined events, and subject to specific rights granted to holders of other classes of our capital stock, Mr. Vento and Mr. Sullivan, as the holders of voting preference common stock, possess 50.1% of the voting power of all shares of our capital stock, and the holders of class A common stock possess 49.9% of the voting power of all shares of our capital stock. If, under circumstances described under "Description of Capital Stock," we receive FCC approval for the class A common stock and voting preference common stock to vote as a single class, the class A common stock and the voting preference common stock will vote as a single class on all matters and be granted one vote per outstanding share. Holders of some of our other classes of capital stock have been granted voting rights regarding matters specifically affecting those classes. Finally, so long as AT&T continues to own not less than two-thirds of the shares of series A preferred stock it owned on July 17, 1998, it will have the right to nominate one member of our board. 68
Percentage of Class A Class A Common Stock Percentage of Common Beneficially Total Voting Stock Owned(a) Power ---------- ----------------- Beneficially Number of Before After Owned After Stockholder Shares Offering Offering Offering(b) - ----------- ---------- -------- -------- ------------- Chase Capital Partners.......... 15,370,014(c) 20.7% 18.8% 7.8% Equity-Linked Investors-II...... 14,591,225(d) 19.7 17.8 7.4 Hoak Communications Partners, L.P............................ 10,943,188(e) 14.8 13.4 5.6 Whitney Equity Partners, L.P.... 9,119,127(f) 12.3 11.1 4.6 Media/Communications Partners... 5,861,555(g) 7.9 7.2 3.0 AT&T Wireless PCS, LLC.......... 15,838,417(h) 17.8 16.4 8.0 TWR Cellular, Inc............... 15,838,417(h) 17.8 16.4 8.0 Gerald T. Vento................. 5,094,396(i) 6.9 6.2 52.7 Thomas H. Sullivan.............. 3,298,393(j) 4.5 4.0 51.8 Michael R. Hannon............... 15,370,014(k) 20.7 18.8 7.8 Rohit M. Desai.................. 14,591,225(l) 19.7 17.8 7.4 James M. Hoak................... 10,943,188(m) 14.6 13.4 5.6 William Laverack, Jr............ 9,119,127(n) 12.3 11.2 4.6 Gary Fuqua...................... -- -- -- -- James F. Wade................... 5,861,555(o) 7.9 7.2 3.0 Scott Anderson.................. 511,155(p) * * * William Kussell................. 7,725(q) * * * Joseph O'Donnell................ 7,725(r) * * * Michael Schwartz................ 15,838,417(h) 17.8 16.4 8.0 Mary Hawkins-Key................ 15,838,417(h) 17.8 16.4 8.0 Julie A. Dobson................. 1,601,278 2.2 2.0 * Robert Dowski................... 43,090 * * * Steven Chandler................. 177,187(s) * * * All directors and executive officers, as a group, 14 persons..................... 81,237,341(t) 90.4 83.2 91.4
- -------- * Less than one percent. (a) Pursuant to SEC rules, percentages of beneficial ownership of the class A common stock are calculated assuming that shares of class A common stock issuable upon conversion of securities convertible into class A common stock are outstanding for purposes of each respective stockholder or group, but not outstanding for purposes of computing the percentage of any other person. Included in the calculation of beneficial ownership are shares of class A common stock issuable upon conversion of securities within 60 days of September 30, 1999 and conversion of our class C, class D and voting preference common stock upon lapse of FCC ownership restrictions. (b) Mr. Vento and Mr. Sullivan each own 1,545 shares of class A voting preference stock. Together, the voting preference stock possesses 50.1% of the voting power of all shares of our capital stock. Mr. Vento and Mr. Sullivan are required to vote their shares of voting preference stock together on all matters. The total voting power assumes conversion of all of our outstanding series F preferred stock, class C and class D common stock and the issuance of 552,505 shares issuable under outstanding options, subject in some cases to vesting. Percentage of total voting power is calculated on a fully-diluted basis assuming in all cases for all persons exercise of outstanding options and conversion of series F preferred stock and class C and class D common stock into shares of class A common stock. (c) Consists of 352,956 shares of class A common stock, 575 shares of class C common stock and 3,780 shares of class D common stock held by TeleCorp Investment Corp., LLC. and 14,785,692 shares of class A common stock, 27,489 shares of class C common stock and 199,522 shares of class D common stock held by Chase Capital Partners. The shares of class C and D common stock under some circumstances are convertible into shares of class A common stock on a one for one basis. These shares may also be deemed to be beneficially owned by Mr. Hannon, who disclaims beneficial ownership of all of these shares. The address of the stockholders is 380 Madison Avenue, 12th Floor, New York, New York 10017. (d) Consists of 8,615,818 shares of class A common stock, 13,457 shares of class C common stock and 105,947 shares of class D common stock held by Private Equity Investors III, L.P. and 5,754,205 shares of class A common stock, 13,457 shares of class C common stock and 88,341 shares of class D common 69 stock held by Equity-Linked Investors-II. The shares of class C and D common stock under some circumstances are convertible into shares of class A common stock on a one for one basis. These shares may also be deemed to be beneficially owned by Mr. Desai. Mr. Desai disclaims beneficial ownership of all these shares. The address of these stockholders is 540 Madison Avenue, 36th Floor, New York, New York 10022. (e) Consists of 903,331 shares of class A common stock, 1,691 shares of class C common stock and 12,212 shares of class D common stock held by HCP Capital Fund, L.P. and 9,873,950 shares of class A common stock, 18,494 shares of class C common stock and 133,510 shares of class D common stock held by Hoak Communications Partners, L.P. The shares of class C and D common stock under some circumstances are convertible into shares of class A common stock on a one for one basis. These shares may also be deemed to be beneficially owned by Mr. Hoak. The address of the stockholders is One Galleria Tower, 13355 Noel Road, Suite 1050, Dallas, Texas 75240. (f) Consists of 6,138,683 shares of class A common stock, 11,498 shares of class C common stock and 83,004 shares of class D common stock held by J. H. Whitney III, L.P.; 147,922 shares of class A common stock, 279 shares of class C common stock and 2,003 shares of class D common stock held by Whitney Strategic Partners III, L.P.; and 2,694,260 shares of class A common stock, 5,046 shares of class C common stock and 36,432 shares of class D common stock held by Whitney Equity Partners, L.P. The shares of class C and D common stock under some circumstances are convertible into shares of class A common stock on a one for one basis. These shares may also be deemed to be beneficially owned by Mr. Laverack. The address of the stockholders is 177 Broad Street, 15th Floor, Stamford, Connecticut 06901. (g) Consists of 5,513,726 shares of class A common stock, 10,241 shares of class C common stock and 73,604 shares of class D common stock held by Media/Communications Partners III Limited Partnership and 259,793 shares of class A common stock, 427 shares of class C common stock and 3,764 shares of Class D common stock held by Media/Communications Investors Limited Partnership. The shares of class C and D common stock under some circumstances are convertible into shares of class A common stock on a one for one basis. These shares may also be deemed to be beneficially owned by Mr. Wade. The address of the stockholders is 75 State Street, Suite 2500, Boston, Massachusetts 02109. (h) Consists of 904,737 shares of class A common stock, 20,902 shares of class D common stock and 9,339,511 shares of series F preferred stock held by AT&T Wireless PCS, LLC and 5,573,267 shares of series F preferred stock held by TWR Cellular. The shares of series F preferred stock and class D common stock under some circumstances are convertible into shares of class A common stock on a one for one basis. These shares may also be deemed to be held by Mr. Schwartz, Ms. Hawkins-Key and various AT&T affiliates. Mr. Schwartz and Ms. Hawkins-Key disclaim beneficial ownership of all of these shares. The address of the stockholders is c/o AT&T Wireless PCS, LLC 7277 164th Avenue, N.E., Redmond, Washington 98052. (i) Consists of 492,064 shares of class A common stock and 11,366 shares of class D common stock held by TeleCorp Investment Corp. II, L.L.C. and 4,482,385 shares of class A common stock, 105,444 shares of class C common stock and 3,137 shares of class D common stock held by Mr. Vento. The shares of class C and D common stock under some circumstances are convertible into shares of class A common stock on a one for one basis. Mr. Vento serves as a manager and is a stockholder of this entity. (j) Consists of 492,064 shares of class A common stock and 11,366 shares of class D common stock held by TeleCorp Investment Corp. II, L.L.C. and 2,728,891 shares of class A common stock, 65,373 shares of class C common stock and 699 shares of class D common stock held by Mr. Sullivan. The shares of class C and D common stock under some circumstances are convertible into shares of class A common stock on a one for one basis. Mr. Sullivan serves as a manager and is a stockholder of this entity. (k) Consists of 352,956 shares of class A common stock, 575 shares of class C common stock and 3,780 shares of class D common stock held by TeleCorp Investment Corp., LLC. and 14,785,692 shares of class A common stock, 27,489 shares of class C common stock and 199,522 shares of class D common stock held by Chase Capital Partners. Mr. Hannon serves as Vice President of CB Capital Investors, L.P. The shares of class C and D common stock under some circumstances are convertible into shares of class A common stock on a one for one basis. Mr. Hannon disclaims beneficial ownership of all of these shares. 70 The address of the stockholder is c/o CB Capital Investors, L.P., 380 Madison Avenue, 12th Floor, New York, New York 10017. (l) Consists of 8,615,818 shares of class A common stock, 13,457 shares of class C common stock and 105,947 shares of class D common stock held by Private Equity Investors III, L.P. and 5,754,205 shares of class A common stock, 13,457 shares of class C common stock and 88,341 shares of class D common stock held by Equity-Linked Investors-II. Mr. Desai serves as managing general partner of each of these stockholders. The shares of class C and D common stock under some circumstances are convertible into shares of class A common stock on a one for one basis. Mr. Desai disclaims beneficial ownership of all of these shares. The address of this stockholder is 540 Madison Avenue, 36th Floor, New York, New York 10022. (m) Consists of 903,331 shares of class A common stock, 1,691 shares of class C common stock and 12,212 shares of class D common stock held by HCP Capital Fund, L.P. and 9,873,950 shares of class A common stock, 18,494 shares of class C common stock and 133,510 shares of class D common stock held by Hoak Communications Partners, L.P. Mr. Hoak serves as Principal and Chairman of the manager of these stockholders, shareholder of the manager and General Partner of Hoak Communications Partners, L.P. and limited partner and shareholder of the General Partner of HCP Capital Fund, L.P. The shares of class C and D common stock under some circumstances are convertible into shares of class A common stock on a one for one basis. The address of these stockholders is c/o Hoak Communications Partners, L.P., One Galleria Tower, 13355 Noel Road, Suite 1050, Dallas, Texas 75240. (n) Consists of 6,138,683 shares of class A common stock, 11,498 shares of class C common stock and 83,004 shares of class D common stock held by J.H. Whitney III, L.P., 147,922 shares of class A common stock, 279 shares of class C common stock and 2,003 shares of Class D common stock held by Whitney Strategic Partners III, L.P.; and 2,694,260 shares of class A common stock, 5,046 shares of class C common stock and 36,432 shares of class D common stock held by Whitney Equity Partners, L.P. Mr. Laverack serves as Managing Member of J.H. Whitney Equity Partners, L.L.C., which is a General Partner in Whitney Equity Partners, L.P., Managing Member of J.H. Whitney Equity Partners III, L.L.C., which is a General Partner in J.H. Whitney III, L.P., and Whitney Strategic Partners III, L.P. The class C and class D shares, under some circumstances, are convertible into shares of class A common stock on a one for one basis. The address of these stockholders is c/o Whitney Equity Partners, L.P., 177 Broad Street, 15th Floor, Stamford, Connecticut 06901. (o) Consists of 5,513,726 shares of class A common stock, 10,241 shares of class C common stock and 73,604 shares of class D common stock held by Media/Communications Partners III Limited Partnership and 259,793 shares of class A common stock, 427 shares of class C common stock and 3,764 shares of class D common stock held by Media/Communications Investors Limited Partnership. Mr. Wade serves as President of M/C Investor General Partner-J, Inc., which is a General Partner in Media Communications Investors Limited Partnerships and Manager of M/C III, L.L.C., which is a General Partner in Media Communications Partners III Limited Partnership. The shares of class C and D common stock under some circumstances are convertible into shares of class A common stock on a one for one basis. The address of these stockholders is c/o Media/Communications Partners, 75 State Street, Suite 2500, Boston, Massachusetts 02109. (p) Consists of 492,064 shares of class A common stock and 11,366 shares of class D common stock owned by TeleCorp Investment Corp. II, L.L.C., of which Cedar Grove Partners, LLC owns 4.49%, and vested options to purchase 7,725 shares of class A common stock held by Mr. Anderson. Mr. Anderson is a principal of Cedar Grove Partners, LLC. The shares of class D common stock under some circumstances are convertible into shares of class A common stock on a one for one basis. (q) Consists of vested options to purchase 7,725 shares of class A common stock held by Mr. Kussell. (r) Consists of vested options to purchase 7,725 shares of class A common stock held by Mr. O'Donnell. (s) Includes vested options to purchase 773 shares of class A common stock held by Mr. Chandler. (t) Consists of shares held by members of management and our initial investors that may be deemed to be beneficially owned by members of our board. These members of our board disclaim beneficial ownership. Does not include shares held by Mr. Dowski, whom we no longer employ. Does not include options that have been approved but not granted under our 1999 Stock Option Plan. 71 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AT&T Agreements On January 23, 1998, we and AT&T announced the formation of a venture under which we are financing, constructing and operating a wireless communications network using the AT&T and SunCom brand names and logos together, giving equal emphasis to both. AT&T contributed licenses to us in exchange for an equity interest in us. The venture provides the basis for an alliance between us and AT&T to provide wireless communications services in particular markets. These agreements are unique and were heavily negotiated by the parties. The parties entered into these agreements as a whole, and, taken as a whole, we believe that the terms of these agreements were no more favorable to any of the parties than could have been obtained from third parties negotiated at arms' length. AT&T, as a result of these agreements, owns shares of our capital stock. The terms of the venture and the alliance are described in a number of agreements, summaries of which are set forth below. These summaries are qualified by reference to the agreements, which are exhibits to the registration statement that we filed with the SEC, including this prospectus. Securities Purchase Agreement Under a securities purchase agreement, dated as of January 23, 1998, as amended, among our initial investors, the former stockholders of TeleCorp Holding, Mr. Vento and Mr. Sullivan and us, we received PCS licenses from AT&T Wireless and TWR Cellular, Inc. in exchange for shares of our series A preferred stock, series D preferred stock and series F preferred stock and $21.0 million in cash. Our initial investors include AT&T Wireless, TWR Cellular, Chase Capital Partners, Desai Associates, Hoak Capital Corporation, J. H. Whitney & Co., M/C Partners, One Liberty Fund III, L.P., Toronto Dominion Investments, Inc. and Northwood Capital Partners. Under the securities purchase agreement, the initial investors other than AT&T agreed to contribute $128.0 million to us in exchange for shares of our series C preferred stock, class A common stock, class C common stock, and class D common stock. In addition, the securities purchase agreement provides that, upon the closing by us of an acquisition of PCS licenses covering populations of one million or more people, our initial investors other than AT&T will contribute an additional $5.0 million to us in exchange for additional shares of our series C preferred stock and class A common stock. This obligation was satisfied in connection with our purchase of the Digital PCS licenses. Approximately $39.0 million of the contributions to be made by our initial investors other than AT&T were made upon the closing of the transactions contemplated by the securities purchase agreement, which occurred on July 17, 1998, and the remainder of the contributions will be made over a three-year period. The obligations of such initial investors to make its remaining contributions are: . irrevocable and unconditional, and not subject to counterclaim, set-off, deduction or defense, or to abatement, suspension, deferment, diminution or reduction for any reason whatsoever; and . secured by a pledge of the shares of our capital stock issued to each such initial investor under the securities purchase agreement. See "Management Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." Under the securities purchase agreement, Mr. Vento and Mr. Sullivan exchanged their shares of stock in TeleCorp Holding for shares of our series E preferred stock, class A common stock, class C common stock and class D common stock. Mr. Vento and Mr. Sullivan also each received 1,545 shares of our voting preference stock in exchange for shares of stock we previously issued to them. The other former stockholders of TeleCorp Holding exchanged their shares of stock in TeleCorp Holding for shares of our series C preferred stock, class A common stock, class C common stock and class D common stock. The table below indicates each of the parties to the securities purchase agreement, their contribution and the consideration received: 72
Stockholder Contribution Consideration Received . AT&T Wireless PCS, LLC . PCS licenses covering some of the . 30,650 shares of our series A basic trading areas or other areas preferred stock within the St. Louis major trading . 15,741 shares of our series D area, the Louisville-Lexington- preferred stock Evansville major trading area, and . 4,735,410 shares of our series F the Boston-Providence major preferred stock trading area - ---------------------------------------------------------------------------------------------------- . TWR Cellular, Inc. . PCS licenses covering the Little . 36,073 shares of our series A Rock, Arkansas major trading area preferred stock and covering some of the basic . 18,526 shares of our series D trading areas or other areas within preferred stock the Memphis-Jackson major . 5,573,267 shares of our series F trading area preferred stock - ---------------------------------------------------------------------------------------------------- . Chase Capital Partners . $27,782,016 . 28,942 shares of our series C . 363 class A shares of TeleCorp preferred stock Holding . 8,500,982 shares of our class A . 2,296 class C shares of TeleCorp common stock Holding . 27,489 shares of our class C . 58 series A preferred shares of common stock TeleCorp Holding . 180,459 shares of our class D common stock - ---------------------------------------------------------------------------------------------------- . Desai Associates . $27,782,016 . 27,782 shares of our series C preferred stock . 8,148,027 shares of our class A common stock . 26,914 shares of our class C common stock . 176,680 shares of our class D common stock - ---------------------------------------------------------------------------------------------------- . Hoak Capital . $20,836,512 . 20,837 shares of our series C Corporation preferred stock . 6,111,022 shares of our class A common stock . 20,184 shares of our class C common stock . 132,512 shares of our class D common stock - ---------------------------------------------------------------------------------------------------- . J.H. Whitney & Co. . $17,363,760 . 17,364 shares of our series C preferred stock . 5,092,518 shares of our class A common stock . 16,822 shares of our class C common stock . 110,427 shares of our class D common stock
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Stockholder Contribution Consideration Received . Entergy Technology Holding . $13,891,008 . 15,051 shares of our series C Company, who has since . 1,974 class B shares of TeleCorp preferred stock transferred all of our Holding . 4,426,969 shares of our class A capital stock it owned to others . 685 class C shares of TeleCorp common stock of our initial investors Holding . 106,151 shares of our class D . 58 series A preferred shares of common stock TeleCorp Holding - ------------------------------------------------------------------------------------------------------------- . M/C Partners and M/C . $10,418,256 . 11,578 shares of our series C Investors . 363 class A shares of TeleCorp preferred stock Holding . 3,408,462 shares of our class A . 2,296 class C shares of TeleCorp common stock Holding . 10,667 shares of our class C . 58 series A preferred shares of common stock TeleCorp Holding . 70,035 shares of our class D common stock - ------------------------------------------------------------------------------------------------------------- . One Liberty Fund III, L.P. . $3,472,752 . 5,004 shares of our series C . 837 class A shares of TeleCorp preferred stock Holding . 1,431,461 shares of our class A . 2,273 class C shares of TeleCorp common stock Holding . 4,039 shares of our class C . 77 series A preferred shares of TeleCorp common stock Holding . 26,506 shares of our class D common stock - ------------------------------------------------------------------------------------------------------------- . Toronto Dominion . $3,472,752 . 3,473 shares of our series C Investments, Inc. preferred stock . 1,018,504 shares of our class A common stock . 3,365 shares of our class C common stock . 22,084 shares of our class D common stock - ------------------------------------------------------------------------------------------------------------- . Northwood Capital Partners .$2,430,928 .3,591 shares of our series C and Northwood Ventures .363 class A shares of TeleCorp preferred stock Holding .1,065,908 shares of our class A .2,296 class C shares of TeleCorp common stock Holding .2,929 shares of our class C .58 series A preferred shares of common stock TeleCorp Holding .19,241 shares of our class D common stock - ------------------------------------------------------------------------------------------------------------- . Gilde Investment Fund B.V. .8 class A shares of TeleCorp .15 shares of our series C Holding preferred stock .23 class C shares of TeleCorp .4,168 shares of our class A Holding common stock .1 series A preferred share of TeleCorp .6 shares of our class C Holding common stock .43 shares of our class D common stock - -------------------------------------------------------------------------------------------------------------
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Stockholder Contribution Consideration Received . TeleCorp Investment Corp., .2,659 class C shares of TeleCorp .352,956 shares of our class A L.L.C. Holding common stock .58 series A preferred shares of TeleCorp .575 shares of our class C Holding common stock .3,780 shares of our class D common stock .1,160 shares of our series C preferred stock - -------------------------------------------------------------------------------------------------------------- . Gerald T. Vento .$450,000 .1545 shares of our voting preferred .1,788 class A shares of TeleCorp common stock Holding .450 shares of our series C preferred stock .8,729 shares of our series E preferred stock .3,462,725 shares of our class A common stock .105,443 shares of our class C common stock .2,861 shares of our class D common stock - -------------------------------------------------------------------------------------------------------------- . Thomas H. Sullivan .$100,000 .1545 shares of our voting preferred .1,112 class A shares of TeleCorp common stock Holding .100 shares of our series C preferred stock .5,426 shares of our series E preferred stock .2,099,927 shares of our class A common stock .65,372 shares of our class C common stock .637 shares of our class D common stock
Our initial investors other than AT&T also committed in the securities purchase agreement to make additional irrevocable equity contributions in the aggregate amount of $5.0 million in return for the issuance of preferred and common stock in connection with the Digital PCS acquisition. In addition, upon the closing of the transactions contemplated by the securities purchase agreement, we also issued to other members of management shares of our series E preferred stock and class A common stock. Up to 35.71% of the class A common stock issued to members of management are under our restricted stock plan. Shares issued under the restricted stock plan are subject to forfeiture according to a schedule if employment of such stockholder with us is terminated within six years after the closing of the securities purchase agreement. Stockholders' Agreement General. The stockholders' agreement, as amended, among our initial investors, Messrs. Vento and Sullivan and us sets guidelines for our management and operations and restricts the sale, transfer or other disposition of our capital stock. Board of Directors. The stockholders' agreement provides that any action of our board be approved by the affirmative vote of a majority of our entire board, except in circumstances where voting by particular classes of directors is required. The stockholders' agreement also provides that, upon closing of this offering, our board will consist of nine directors. 75 The parties to the stockholders' agreement have agreed to vote all of the shares of class A voting common stock and voting preference stock to cause the election of the following nine individuals to our board: . Mr. Vento and Mr. Sullivan so long as each remains an officer and the management agreement with TeleCorp Management remains in effect; . two individuals selected by holders of a majority in interest of the common stock beneficially owned by our initial investors other than AT&T; . two additional individuals selected by Mr. Vento and Mr. Sullivan, so long as they remain officers, who must be acceptable to the holders of a majority in interest of the common stock beneficially owned by our initial investors other than AT&T on the one hand, and AT&T Wireless on the other hand; . one individual nominated by AT&T Wireless in its capacity as the holder of series A preferred stock so long as AT&T has the right to nominate one director in accordance with our restated certificate of incorporation; . one individual selected by Mr. Vento and Mr. Sullivan, so long as they remain officers, who must be acceptable to AT&T Wireless; and . one individual selected by Mr. Vento and Mr. Sullivan, so long as they remain officers, who must be acceptable to the holders of a majority in interest of the class A voting common stock beneficially owned by our initial investors other than AT&T. The stockholders agreement provides that when FCC ownership restrictions no longer apply to us, our board will have seven members and the right of Mr. Vento and Mr. Sullivan to appoint the individuals set forth in the last two items above will expire. Exclusivity. The parties to the stockholders' agreement have agreed that, during the term of the stockholders' agreement, neither they nor any of their respective affiliates will provide or resell, or act as the agent for any person offering, within the areas covered by our licenses, wireless communications services initiated or terminated using TDMA and portions of the airwaves licensed by the FCC, except that AT&T and its affiliates may: . resell or act as agent for us in connection with mobile wireless communications services; . provide or resell wireless communications services only to or from specific locations, provided that any equipment sold in connection with the service must be capable of providing our wireless communications services; and . resell mobile wireless communications services from another person in any area where we have not placed a system into commercial service. Additionally, with respect to some markets identified in the intercarrier roamer services agreement with AT&T Wireless Services, each of us and AT&T Wireless has agreed to cause our respective affiliates in their home carrier capacities to: . program and direct the programming of customer equipment so that the other party, in its capacity as the serving carrier, is the preferred provider in these markets; and . refrain from inducing any of its customers to change such programming. 76 AT&T Wireless has retained some PCS licenses within the areas covered by our licenses for which we have a right of negotiation in the event of a proposed transfer. If we materially breach any of our obligations, AT&T Wireless may terminate its exclusivity obligations under the stockholders' agreement and may terminate our rights to the AT&T brand and logo under the license agreement if a default continues after the applicable cure periods lapse. These material breaches include: . AT&T Wireless and its affiliates decide to adopt a new technology standard other than TDMA in a majority of its markets, and we decline to adopt the new technology; . each portion of our network does not, within one year after being placed into service, meet or exceed technical standards that AT&T has developed regarding voice quality and performance of network and call completion equipment. Each portion of our network must, within one year after being placed into service, perform on a level, as measured by these standards manuals, that meets or exceeds the levels achieved by the average of all comparable wireless communications networks owned and operated by AT&T; . we fail to satisfy specific percentages that our entire network, measured as a single system, must meet, including as to percentage of calls completed, percentage of established calls that are dropped, percentages of calls that are not successfully transferred from one network equipment site to another as a handset moves, as well as technical standards regarding the functioning of network and call connection equipment; or . we fail to meet specified customer care, reception quality and network reliability standards. In all of our launched markets, we believe we currently meet all of the standards that we are required to satisfy by the first anniversary of each launch date. The exclusivity provisions in the stockholders' agreement do not apply to approximately 100,000 people that overlapped with the coverage area of licenses AT&T purchased from Vanguard Cellular in Strafford, New Hampshire. We have agreed with AT&T to exchange our licenses covering these people for licenses covering other people. These exchanged populations will be covered under the scope of our agreements with AT&T. Construction. The stockholders' agreement requires us to construct a PCS system in the areas covered by our licenses according to a minimum construction plan, which requires us to construct a system in areas covering: . 20% of the total 1995 population of the area covered by our licenses in the mainland United States by July 17, 1999, focusing on designated areas of Memphis and New Orleans; . 30% of the total 1995 population of the area covered by our licenses in Puerto Rico and the U.S. Virgin Islands by May 25, 2000, focusing on the core urban and suburban cities of the San Juan metropolitan area; . 40% of the total 1995 population of the area covered by our licenses in Puerto Rico and U.S. Virgin Islands by May 25, 2001, and also focusing on secondary cities throughout Puerto Rico; . 40% of the total 1995 population of the area covered by our licenses by July 17, 2000, and also focusing on designated areas of New England, Little Rock and Missouri and enhancing coverage in all markets; . 55% of the total 1995 population of the area covered by our licenses in the mainland United States by July 17, 2001 and also focusing on secondary cities and the important associated connecting highways; . 55% of the total 1995 population of the area covered by our licenses in Puerto Rico and the U.S. Virgin Islands by May 25, 2002, and continuing to expand the secondary cities of Puerto Rico and key cities to the U.S. Virgin Islands and the important associated connected highways; 77 . 70% of the total 1995 population of the area covered by our licenses in the mainland United States by July 17, 2002, and continuing to expand the secondary cities and enhancing coverage of the core areas; . 70% of the total 1995 population of the area covered by our licenses in Puerto Rico and the U.S. Virgin Islands by May 25, 2003, and continuing to expand secondary cities and enhancing coverage and capacity of core areas; . 75% of the total 1995 population of the area covered by our licenses in the mainland United States by July 17, 2003, and also focusing on adding capacity sites and filling in the remaining suburban areas; and . 75% of the total 1995 population of the area covered by our licenses in Puerto Rico and the U.S. Virgin Islands by May 25, 2004, and also focusing on adding capacity sites and filling in the remaining suburban areas. In addition to the minimum construction plan, we are bound to do the following: . arrange for all necessary microwave relocation for our licenses and AT&T's retained licenses; . ensure compatibility of our systems with the majority of systems in Louisiana, Oklahoma, Minnesota, Illinois and Texas, excluding Houston; . satisfy the FCC construction requirements in the areas covered by our licenses and AT&T's retained licenses; . offer service features such as call forwarding, call waiting and voicemail with respect to our systems, causing our systems to comply with AT&T's network, audio and system performance quality standards; and . refrain from providing or reselling services other than long distance services that constitute mobile wireless communications services initiated or terminated using TDMA and portions of the airwaves licensed by the FCC or that are procured from AT&T. Disqualifying Transaction. If AT&T and an entity that: . derives annual revenues from communications businesses in excess of $5 billion; . derives less than one-third of its aggregate revenues from wireless communications; and . owns FCC licenses to offer, and does offer, mobile wireless communications services serving more than 25% of the residents, as determined by Equifax Marketing Decision Systems Inc., within the areas covered by our licenses merge, consolidate, acquire or dispose of assets to each other, or otherwise combine, then AT&T, upon written notice to us, may terminate its exclusivity obligations where the territory covered by our licenses overlaps with commercial mobile radio service licenses of the business combination partner. Upon such termination, we have the right to cause AT&T, TWR Cellular, or any transferee that acquired any shares of series A preferred stock, series D preferred stock or series F preferred stock owned by AT&T Wireless on July 17, 1998, and any shares of our common stock into which any of these shares are converted, to exchange their shares into shares of series B preferred stock. If we decide to convert their shares into shares of series B preferred stock AT&T may terminate its exclusivity obligations in all of our markets. Once so converted, we may redeem the shares of series B preferred stock at any time in accordance with our restated certificate of incorporation. Currently, only Sprint, SBC Communications, Bell Atlantic and BellSouth satisfy the criteria for a business combination partner. Under some circumstances, if AT&T proposes to sell, transfer or assign to any person that is not an affiliate of AT&T Wireless, any PCS system owned and operated by AT&T Wireless and its affiliates in any of the St. Louis, Missouri, Louisville, Kentucky, or Boston, Massachusetts basic trading areas, then AT&T must provide us with the opportunity to offer our network for sale jointly with AT&T for a 90-day period. 78 Acquisition of Licenses. The stockholders' agreement provides that we may acquire any cellular license that our board has determined is a demonstrably superior alternative to constructing a PCS system within the corresponding areas covered by our licenses, if: . a majority of the population covered by the license is within the areas covered by our licenses; . AT&T Wireless and its affiliates do not own commercial mobile radio service licenses in the area covered by the license; and . our ownership of the license will not cause AT&T Wireless or any affiliate to be in breach of any law or contract. Vendor Discounts; Roaming Agreements. AT&T Wireless has agreed in the stockholders' agreement that, if we so request, and if such request shall not result in any adverse impact to AT&T Wireless PCS, it will use all commercially reasonable efforts: . to assist us in obtaining discounts from any AT&T Wireless vendor with whom we are negotiating for the purchase of any infrastructure equipment or billing services; and . to enable us to become a party to the roaming agreements between AT&T Wireless and its affiliates and operators of other cellular and PCS systems. Resale Agreements. We, upon the request of AT&T Wireless, will enter into resale agreements relating to the areas covered by our licenses under which AT&T may resell our services. The rates, terms and conditions of service that we provide are to be at least as favorable, and to the extent permitted by applicable law, more favorable, to AT&T Wireless, taken as a whole, as the rates, terms and conditions that we provide to other customers. Subsidiaries. The stockholders' agreement provides that all of our subsidiaries must be direct or indirect wholly owned subsidiaries. The stockholders' agreement also provides that, without the prior written consent of, or right of first offer to, AT&T Wireless, we and our subsidiaries may not: . sell or dispose of a substantial portion of our assets or the assets of any of our subsidiaries; or . liquidate, merge or consolidate until we meet minimum construction requirements. Restrictions on Transfer. The stockholders' agreement restricts the sale, transfer or other disposition of our capital stock, such as by giving rights of first offer, drag along and tag along rights and providing demand and piggyback registration rights. If one of our stockholders who is a party to the stockholders' agreement desires to transfer any or all of its shares of preferred or common stock, other than voting preference stock and class C common stock, the selling stockholder must first give written notice to us and: . if the selling stockholder is one of our initial investors other than AT&T or any other stockholder who is a party to the stockholders' agreement, to AT&T Wireless; and . if the selling stockholder is AT&T Wireless or TWR Cellular, to every other initial investor. The stockholders who receive notice from the selling stockholders may acquire all, but not less than all, of the shares offered to be sold at the price offered by the selling stockholder. If none of the stockholders opt to purchase the shares of the selling stockholder, the selling stockholder can sell its shares to any other person on the same terms and conditions as originally offered to the stockholders. The right of first offer does not apply to our repurchase of any shares of our class A voting common stock or class E preferred stock from one of our employees in connection with the termination of the employee's employment with us. 79 A stockholder subject to the stockholders' agreement may not transfer 25% or more of any of the following shares of our capital stock, whether alone or with other stockholders or whether in one transaction or a series of transactions: . series A preferred stock; . series C preferred stock; . series D preferred stock; . series E preferred stock; . series F preferred stock; . voting preference stock; . class A voting common stock; . class B non-voting common stock; . class C common stock; or . class D common stock, unless the proposed transfer includes an offer to our initial investors and Mr. Vento and Mr. Sullivan to join in the transfer. Class C common stock and class D common stock will count as one class of stock for purposes of the 25% test. If a selling stockholder receives an offer from a bona fide purchaser to transfer a selling stockholder's shares, the selling stockholder must follow procedures included in the stockholders' agreement to include the other stockholders in the proposed transfer. In addition to the foregoing restrictions, the initial investors have agreed not to transfer any shares of their common stock until July 17, 2001 except to affiliates, and Mr. Vento and Mr. Sullivan have agreed not to transfer any shares of common stock prior to July 17, 2003, subject to limited exceptions, including that 25% of their common stock may be transferred after July 17, 2001. In addition, some of our stockholders, including our initial investors, Mr. Vento and Mr. Sullivan, are subject to restrictions imposed by the underwriters prohibiting them from transferring any shares of their capital stock for 180 days. Our stockholders who are subject to the stockholders' agreement also have demand and piggyback registration rights. In some circumstances, stockholders may demand that we register some or all of their securities with the SEC under the Securities Act. See "Shares Eligible for Resale." Also, if we propose to register any shares of our class A voting common stock or securities convertible into or exchangeable for class A voting common stock with the SEC under the Securities Act, we must notify all stockholders of our intention to do so, and our stockholders may include in our registration their shares of class A voting stock or securities convertible into or exchangeable for class A voting common stock. Amendments. In addition to the approval of our senior lenders, the terms of the stockholders' agreement may be amended only if agreed to in writing by us and the beneficial holders of a majority of the class A common stock party to the stockholders' agreement, including AT&T Wireless, 66 2/3% of the class A common stock beneficially owned by our initial investors other than AT&T, and 66 2/3% of the class A common stock beneficially owned by Mr. Vento and Mr. Sullivan. Termination. The stockholders' agreement will terminate upon the earliest to occur of: . the receipt of the written consent of each party; . July 17, 2009; and . under specified circumstances, the date on which a single stockholder beneficially owns all of the outstanding shares of class A common stock. 80 Network Membership License Agreement Under a network license agreement dated as of July 17, 1998 between AT&T and us, AT&T granted to us a royalty-free, non-transferable, non-sublicensable, non-exclusive, limited license to use some of their licensed marks in our markets, including: . the logo containing the AT&T name and globe design; . the expression "Member, AT&T Wireless Services Network"; and . AT&T colors, graphics and overall configurations, The licensed marks may only be used in connection with licensed activities. These licensed activities include: . providing to our customers and resellers of our wireless services, solely within the areas covered by our licenses, mobile wireless communications services; and . marketing and offering the licensed services within the areas covered by our licenses with limited advertising outside our licensed area. The license agreement also grants to us the right to use licensed marks on specified mobile phones distributed to our customers. Except in specified instances, AT&T has agreed not to grant to any other person a right to provide or resell, or act as agent for any person offering, mobile wireless communications services under the licensed marks in our licensed markets. AT&T retains all rights of ownership in the licensed marks, subject to its exclusivity obligations to us, in both the areas covered by our licenses and all other areas. The license agreement restricts our use and modification of any of the licensed marks. Although we may develop our own marks, we may not use them together with the licensed marks without the prior approval of AT&T. Any services we market or provide using the licensed marks must be of comparable quality to similar services that AT&T markets and provides in areas that are comparable to the areas covered by our licenses. We may take into account commercial reasonableness and the relative stage of development of the licensed areas, to determine what is comparable service. We must also provide sufficiently high quality services to provide maximum enhancement to and protect licensed marks, such as attaining specified levels of network quality, audio quality, system performance and meeting customer care standards. The license agreement also defines specific testing procedures to determine compliance with these standards and affords us with a grace period to cure any instances of noncompliance. Following the cure period, we must stop using the licensed marks until we comply with the standards, or we may be deemed to be in breach of the license agreement and we may lose our rights to the licensed marks. We may not assign, sublicense or transfer, by change of control or otherwise, any of our rights under the license agreement, except that the license agreement may be, and has been, assigned to our lenders under our senior credit facilities. After the expiration of any applicable grace and cure periods under our senior credit facilities, the lenders may then enforce our rights under the license agreement and assign the license agreement to any person with AT&T's consent. The initial term of the license agreement is for a period of five years, which will be automatically renewed for an additional five-year period if each party gives written notice to the other party of our election to renew the license agreement and neither party gives notice of non-renewal. The license agreement may be terminated by AT&T at any time in the event of our significant breach and the exhaustion of any applicable cure periods, which include: . our misuse of any licensed marks; 81 . our bankruptcy; . our licensing or assignment of any of our rights under the license agreement, except as permitted by the terms of the license agreement; . our loss of the licenses acquired from AT&T; . our failure to maintain AT&T's quality standards in any material respect; or . our change of control, which is defined as a transaction, other than a transfer by AT&T, that results in any person other than our initial stockholders or our senior lenders acquiring beneficial ownership of more than 50% of our voting stock, or 33.3% of our voting stock if the person acquiring our stock acquires more than our initial stockholders hold at that time. Also included is a transaction that results in any of the three largest telecommunications carriers, excluding AT&T and any wireless carrier using TDMA technology, or any regional bell operating company, or Microsoft acquiring more than 15% of our voting stock, excluding acquisitions through open market transactions or a majority of our directors are removed in a proxy contest. Our rights under the license agreement are also subject to the minimum construction plan set forth in the stockholders' agreement. For more information concerning the minimum construction plan, see the discussion under "Stockholders' Agreement" under the heading "A&T Agreements." After the initial term, AT&T may also terminate the license agreement in connection with a disqualifying transaction. Upon closing of the Digital PCS acquisition, the license agreement was automatically amended to include the Baton Rouge, Houma, Hammond and Lafayette, Louisiana basic trading areas under its scope. Upon closing of the Puerto Rico acquisition, the license agreement was automatically amended to include the San Juan major trading area under its scope. Upon the closing of the Wireless 2000 acquisition, the license agreement was automatically amended to include the Alexandria and Lake Charles, Louisiana basic trading areas and certain other counties under the Monroe, Louisiana basic trading area under its scope. Intercarrier Roamer Service Agreement/Roaming Administration Service Agreement Intercarrier Roamer Service Agreement. We entered into the intercarrier roamer services agreement dated as of July 17, 1998 with AT&T Wireless Services and several of its affiliates. We have agreed with AT&T Wireless that each party, in its capacity as a serving provider, will provide services to each others customers where it has a license or permit to operate a wireless communications system. Each home carrier whose customers receive service from a serving provider will pay to the serving provider all of the serving provider's charges for wireless service and all of the applicable charges. Each serving provider's service charges per minute or partial minute for use for the first three years will be fixed at a declining rate. The intercarrier roamer service agreement has a term of 20 years, which is automatically renewed on a year-to-year basis unless terminated by either party upon 90 days prior written notice after 10 years. The intercarrier roamer service agreement may be terminated immediately by either party upon written notice to the other of a default of the other party. A party will be in default under the intercarrier roamer service agreement upon any of the following: . material breach of any material term of the intercarrier roamer service agreement by a party that continues for thirty days after receipt of written notice of the breach from the nonbreaching party; . voluntary liquidation or dissolution or the approval by the management or owners of a party of any plan or arrangement for the voluntary liquidation or dissolution of the party; or . bankruptcy or insolvency of a party. The intercarrier roamer service agreement may also be suspended by either party immediately upon written notice to the other party of the existence of a breach of the agreement, whether or not the breach constitutes a default, if the breach materially affects the service being provided to the customers of the non- 82 breaching party. While the suspension is in effect, either in whole or in part, the parties will work together to resolve as quickly as possible the difficulty that caused the suspension. When the party who originally gave notice of suspension concludes that the problem causing the suspension has been resolved, that party will give to the other written notice to this effect, and the agreement will resume in full effect within five business days after the parties have mutually agreed that the problem has been resolved. Neither party may assign or transfer its rights and obligations under the intercarrier roamer service agreement without the written consent of the other party, except to an affiliate or an assignee of its license. Roaming Administrative Service Agreement. Under the roaming administrative service agreement dated as of July 17, 1998 between AT&T Wireless and us, AT&T Wireless has agreed to make available to us the benefits of the intercarrier roaming services agreements it has entered into with other wireless carriers, subject to the consent of the other wireless carriers and to our remaining a member in good standing of the North American Cellular Network. The roaming administrative service agreement has an initial term of two years, which is automatically renewed on a year-to-year basis unless terminated by either party upon 90 days prior written notice. Either party may terminate the roaming administrative service agreement for any reason at any time upon 180 days prior written notice. Either party may also terminate the roaming administrative service agreement: . upon a material breach of the other party that is not cured or for which cure is not reasonably begun within 30 days after written notice of the claimed breach; or . immediately by either party, after reasonable prior notice, if the other party's operations materially and unreasonably interfere with its operations and the interference is not eliminated within 10 days. AT&T Wireless can terminate the roaming administrative service agreement if: . we are no longer a member in good standing of the North American Cellular Network; or . the agreement under which AT&T Wireless receives roaming administration services is terminated or expires; provided, however, that AT&T Wireless will offer to resume its services in the event that it extends or continues that agreement. Neither party may assign or transfer its rights and obligations under the roaming administrative service agreement without the written consent of the other party, except to an affiliate or an assignee of its license, except that AT&T Wireless may subcontract its duties. Resale Agreement The stockholders' agreement provides that, from time to time, at AT&T Wireless' request, we are required to enter into a resale agreement with AT&T Wireless PCS or other of its affiliates. The resale agreement would grant to AT&T Wireless the right to purchase from us our wireless services on a non- exclusive basis within a designated area and resell access to, and use of, our services. AT&T Wireless must pay charges for any services that are resold, including usage, roaming, directory assistance and long distance charges, and taxes and tariffs. Any resale agreement would have an initial term of ten years that would be automatically renewed on a year-to-year basis unless terminated by either party upon 90 days prior written notice. In addition, AT&T Wireless would be able to terminate any resale agreement for any reason at any time upon 180 days prior written notice. Long Distance Agreement Under the long distance agreement dated as of December 21, 1998 between AT&T Wireless and us, we purchase interstate and intrastate long distance services from AT&T Wireless at preferred rates. We then resell these long distance services to our customers. We can only obtain these preferred rates if we continue our affiliation with AT&T Wireless. The long distance agreement has a term of up to three years. The long distance agreement requires that we meet a minimum traffic volume during the term of the agreement, which are adjusted at least once each calendar year at the time specified by AT&T Wireless. The 83 minimum traffic volume commitments may be adjusted more frequently upon mutual agreement by AT&T Wireless and us. During the first year, we set the minimum traffic volume commitment in our sole discretion. After the first calendar year, the commitment may be increased by any amount or decreased by any amount up to ten percent at our discretion. We may reduce the minimum traffic volume commitments by more than ten percent with AT&T Wireless' permission. If we fail to meet the volume commitments, we must pay to AT&T Wireless the difference between the expected fee based on the volume commitment and the fees based on actual volume. The long distance services we purchase from AT&T Wireless may only be used in connection with: . our commercial mobile radio services; . calls that originate on our network; and . those commercial mobile radio services that share our call connection equipment. Puerto Rico License In a series of transactions, we acquired a license and related assets covering the San Juan major trading area from AT&T Wireless on May 25, 1999. The following transactions took place ultimately to effect the acquisition of the license and related assets from AT&T Wireless: . on May 24, 1999, we sold to AT&T for $40.0 million 30,750 shares of our series A preferred stock, 10,250 shares of our series D preferred stock, and 3,090,000 shares of our series F preferred stock under a preferred stock purchase agreement; . on May 25, 1999, we sold to our initial investors other than AT&T 39,997 shares of our series C preferred stock and 12,358,950 shares of our class A common stock in exchange for an aggregate amount of $40.0 million in cash under a stock purchase agreement, which will be funded over a three-year period. . on May 25, 1999, we purchased the license for the San Juan major trading area and related assets, which included 27 constructed network equipment sites, call connection equipment and leases for additional network equipment sites, from AT&T for $95.0 million in cash under an asset purchase agreement; and . we reimbursed AT&T $3.2 million for microwave relocation and $1.5 million for other expenses it incurred in connection with this acquisition. In addition, Mr. Vento and Mr. Sullivan were issued fixed and variable awards of 5,244 and 2,334,186 restricted shares of our series E preferred stock and class A common stock, respectively, in exchange for their interest in Puerto Rico Acquisition Corporation. Puerto Rico Acquisition Corporation was an entity wholly-owned by Mr. Vento and Mr. Sullivan that was created for the special purpose of acquiring the license and related assets of the San Juan major trading area. The fixed awards typically vest over a five-year period. The variable awards vest based upon certain events taking place, including our reaching milestones in our minimum construction plan. The stockholders' agreement sets forth network development requirements for the Puerto Rico license. See "Certain Relationships and Related Transactions-- Stockholders Agreement--Construction." The San Juan major trading area covers a population of approximately 3.9 million in Puerto Rico, as well as the U.S. Virgin Islands. Our agreements with AT&T were automatically amended to include the San Juan major trading area under the scope of those agreements. 1999 Stock Option Plan On July 22, 1999, we implemented a 1999 Stock Option Plan to award employees and members of the board options to acquire shares of our class A common stock. Our board granted options to purchase 552,505 shares of class A common stock under the plan with an exercise price equal to the fair market value of the underlying stock at the date of the grant. For information regarding grants under the plan, see "Management--1999 Stock Option Plan." 84 Management Agreement As of July 17, 1998, we entered into a management agreement with TeleCorp Management, a company owned by Mr. Vento and Mr. Sullivan under which TeleCorp Management provides to us administrative, operational, marketing, regulatory and general business services. For information regarding compensation payable under the management agreement, see "Management--Management Agreement." The terms of this agreement were no more favorable to the parties than they could have obtained from third parties negotiated at arms' length. Other Related Party Transactions Relationship with Entel Technologies and other Site Acquisition Service Providers We receive site acquisition, construction management, program management, microwave relocation and engineering services under a master services agreement with Wireless Facilities, Inc. Payments under the agreement were approximately $30.7 million in the 1998 fiscal year. At the time of entering into the master services agreement, Mr. Vento was a senior officer, and he and Mr. Sullivan were the controlling stockholders, of Entel Technologies. In February 1998, they sold their interests in Entel Technologies to Wireless Facilities, Inc. The terms of this agreement were no more favorable to the parties than they could have obtained from third parties negotiated at arms' length. American Towers, Inc. provides us with network site leases for PCS deployment under a master site lease agreement. Chase Capital Partners, one of our beneficial owners, has a noncontrolling interest in American Towers. The terms of these lease agreements were no more favorable to the parties than they could have obtained from third parties negotiated at arms' length. Relationship with the Initial Purchasers of the Senior Subordinated Discount Notes Chase Securities Inc. was one of the initial purchasers of the outstanding notes. Chase Securities Inc. and its affiliates perform various investment banking and commercial banking services from time to time for us and our affiliates. Chase Securities Inc. acted as our lead manager for our offering of our senior subordinated discount notes. The Chase Manhattan Bank, an affiliate of Chase Securities Inc., is the agent bank and a lender under our senior credit facilities. Michael R. Hannon, a member of our board, is a General Partner of Chase Capital Partners, an affiliate of Chase Securities Inc. In addition, CB Capital Investors, L.P., an affiliate of Chase Capital Partners, is one of our initial investors and owns shares of our common and preferred stock. For further information concerning these relationships, see "Management," "Principal Stockholders and Beneficial Ownership of Management" and "Underwriting." The terms of our senior credit facilities were no more favorable to the parties than they could have obtained from third parties negotiated at arms' length. Relationships with Tritel Communications and Triton PCS We have formed Affiliate License Co. with Triton PCS and Tritel Communications to adopt a common brand, SunCom, that is co-branded with AT&T on an equal emphasis basis. Under the agreement, we, Triton PCS and Tritel Communications each own one third of Affiliate License Co., the owner of the SunCom name. We and the other SunCom companies license the SunCom name from Affiliate License Co. Mr. Sullivan is a director of Affiliate License Co. The terms of this agreement were no more favorable to the parties than they could have obtained from third parties negotiated at arms' length. 85 AT&T owns stock in us and in Tritel Communications, and we may be deemed affiliates by virtue of common ownership. Mr. Anderson and Mr. Fuqua, two of our directors, also serve as directors of Tritel Communications. See "Management." AT&T, CB Capital Investors and Equity-Linked Investors own stock in us and in Triton PCS, and we may be deemed affiliates by virtue of common ownership. Ms. Hawkins-Key, our director nominated by AT&T Wireless, and Mr. Anderson also serve as directors of Triton PCS. See "Management." Tritel Communications owned a controlling interest in Digital PCS at the time we acquired licenses from Digital PCS. Tritel Communications may be deemed an affiliate of Digital PCS. In addition, at the time we acquired licenses from Digital PCS, Mr. Anderson and Mr. Fuqua were directors of Tritel Communications. See "Business--Recent Developments." The terms of this agreement were no more favorable to the parties than they could have obtained from third parties negotiated at arms' length. Relationship with Other Entities TeleCorp Holding. TeleCorp Holding, our predecessor company, was incorporated to participate in the FCC's auction of licenses in April 1997. TeleCorp Holding raised money from investors to develop any licenses it obtained in the auction. TeleCorp Holding successfully obtained licenses in the New Orleans, Memphis, Beaumont, Little Rock, Houston, Tampa, Melbourne and Orlando basic trading areas. In August 1997, TeleCorp Holding transferred the Houston, Tampa, Melbourne and Orlando basic trading area licenses to four newly-formed entities created by TeleCorp Holding's stockholders: . THC of Houston; . THC of Tampa; . THC of Melbourne; and . THC of Orlando; and issued notes in the aggregate amount of approximately $2.7 million to these entities to develop these licenses. These licenses were transferred along with the related operating assets and liabilities in exchange for investment units consisting of class A, B and C common stock and series A preferred stock in August 1997. Concurrently, TeleCorp Holding distributed the investment units, on a pro rata basis, in a partial stock redemption to TeleCorp Holding's existing stockholder group. As a result of this distribution, TeleCorp Holding no longer retains any ownership equity interest in the newly formed entities. TeleCorp Holding performed administrative and management services and paid costs on behalf of these entities for the year ended December 31, 1997 worth the aggregate amount of $0.7 million. In 1998, upon the closing of the agreements with AT&T, TeleCorp Holding paid approximately $2.0 million to the four THC entities as payment of the notes, offset by the approximately $0.7 million in services and costs. The terms of these transactions were no more favorable to the parties than they could have obtained from third parties negotiated at arms' length. TeleCorp WCS. On May 5, 1997, TeleCorp Holding lent approximately $3.0 million to TeleCorp WCS, Inc. in exchange for interest-free notes from TeleCorp WCS. On May 5, 1997, TeleCorp Holding received equity investments in exchange for the right to receive: . the notes from TeleCorp WCS; . any cash, notes or other assets received by TeleCorp Holding on behalf of the notes; or . any capital stock into which the notes were converted. TeleCorp WCS repaid approximately $2.7 million of the notes with cash to TeleCorp Holding, and TeleCorp Holding forwarded this cash to the equity investors. TeleCorp WCS issued a note in the amount of approximately $0.3 million directly to the investors on behalf of the remaining $0.3 million outstanding under the notes. TeleCorp WCS converted these notes into capital stock issued to the investors in 1998. 86 Mr. Sullivan and Mr. Vento own 2,875 and 4,625 shares of class C common stock of TeleCorp WCS, respectively, which represents 60% of its outstanding class A common stock. At the time of entering into the transactions with TeleCorp WCS, Mr. Sullivan and Mr. Vento were stockholders in TeleCorp Holding. The terms of these transactions were no more favorable to the parties than they could have obtained from third parties negotiated at arms' length. TeleCorp Investment Corp.; TeleCorp Investment Corp. II. TeleCorp Investment Corp. owns 352,956 shares of our class A common stock, 575 shares of our class C common stock, 3,780 shares of our class D common stock and 1,160.17 shares of our series C preferred stock. Some of our stockholders own stock in TeleCorp Investment Corp., as follows: . Chase Capital Partners, one of our initial investors, owns an 80% equity interest; . Mr. Sullivan and Mr. Vento each own a 2.4% equity interest; . Mr. Chandler owns a 2.0% equity interest; and . Mr. Dowski owns a 1.6% equity interest. In addition, TeleCorp Investment Corp. II was formed to purchase from Entergy Technology Holding Corporation 492,064 shares of class A common stock and 11,366 shares of class D common stock. The purchase of shares was concluded on July 15, 1999. Mr. Vento, Mr. Sullivan and Ms. Dobson each own 5.99% of TeleCorp Investment Corp. II. Mr. Vento and Mr. Sullivan serve as managers of TeleCorp Investment Corp. II. The terms of these transactions were no more favorable to the parties than they could have obtained from third parties negotiated at arms' length. Viper Wireless. Viper Wireless was formed to participate in the FCC's reauction of PCS licenses in most of our markets. TeleCorp Holding owns 85% of Viper Wireless, and Mr. Vento and Mr. Sullivan collectively own the remaining 15%. Mr. Vento and Mr. Sullivan collectively have voting control over Viper Wireless. On September 30, 1999, we solicited the approval of the FCC for the transfer of the shares of Viper Wireless we do not yet own to TeleCorp Holding. AT&T and some of our other initial investors have funded an aggregate of approximately $32.3 million in exchange for additional shares of our preferred and common stock in connection with the Viper Wireless reauction. AT&T received one share each of our series D preferred stock and our series F preferred stock, and each of the other participating initial investors received one share each of our class A common stock and our series C preferred stock, for each $1,000 of the pro rata portion of the amount we invested in Viper Wireless, which is based upon their portion of the aggregate amount. Additionally, upon approval of the FCC, some of our employees, Mr. Vento and Mr. Sullivan will receive a total of 1,111 shares of series E preferred stock and 503,022 shares of class A common stock. Our employees will receive their shares as restricted stock that will vest ratably over 5 years. Mr. Vento and Mr. Sullivan will receive their shares in exchange for shares they hold in Viper Wireless, and their shares will vest immediately. The estimated value of the series E preferred stock is $57,772, and of the class A common stock is $3,907. As part of this financing, we paid approximately $0.5 million to Chase Securities, Inc., an initial purchaser and an affiliate of one of our initial investors, for placement advice. The terms of these transactions were no more favorable to the parties than they could have obtained from third parties negotiated at arms' length. On April 20, 1999, the FCC announced that the reauction ended, and Viper Wireless was the higher bidder for additional portions of the airwaves in New Orleans, Houma and Alexandria, Louisiana, San Juan, Puerto Rico, Jackson, Tennessee and Beaumont, Texas. The FCC has granted us all of these licenses. AT&T and the investors funded a total of approximately $32.3 million to satisfy Viper Wireless' payment to the FCC. 87 TeleCorp LMDS 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 LMDS licenses covering airwaves in Little Rock, Arkansas, Beaumont, Texas, New Orleans, Louisiana, San Juan and Mayaguez, Puerto Rico, and the U.S. Virgin Islands. See "Principal Stockholders and Beneficial Ownership of Management." Relationship with Toronto Dominion Toronto Dominion Investments, one of our initial investors, and TD Securities (USA), an affiliate of Toronto Dominion Investments, which is a lender under our senior credit facilities, may be deemed to be under common control by virtue of their relationship to each other and to us. The terms of our senior credit facilities were no more favorable to the parties than they could have obtained from third parties negotiated at arms' length. Relationships with Stockholders From inception through June 1998, our primary source of financing was notes issued to some of our initial investors. In July 1996, we issued $0.5 million of subordinated promissory notes to such investors. These notes were converted into 50 shares of our series A preferred stock in April 1997. In December 1997, we issued various promissory notes to some of our initial investors. These notes were converted into mandatorily redeemable preferred stock in July 1998. From January 1, 1998 to June 30, 1998, we borrowed approximately $22.5 million in the form of promissory notes to existing and prospective investors to satisfy working capital needs. These notes were converted into equity in July 1998 in connection with the completion of the venture with AT&T. The terms of these transactions were no more favorable to the parties than they could have obtained from third parties negotiated at arms' length. Relationship with McDermott, Will & Emery We use the services of a law firm, McDermott, Will & Emery, to which Mr. Sullivan, our executive vice president, was counsel until October 1999 and a partner prior to July 1998. The terms of these arrangements were no more favorable to McDermott, Will & Emery than could have been obtained from third parties negotiated at arms' length. 88 DESCRIPTION OF INDEBTEDNESS Senior Credit Facilities Our credit agreement, as amended, provides for senior credit facilities for $560.0 million with several lenders, including The Chase Manhattan Bank, as administrative agent and issuing bank, TD Securities (USA) Inc., as syndication agent, and Bankers Trust Company, as documentation agent. The senior credit facilities provide for: . a $150.0 million senior secured term loan, the tranche A term loan, which matures in January 2007; . a $225.0 million senior secured term loan, the tranche B term loan, which matures in January 2008; . a $150.0 million senior secured revolving credit facility, which matures in January 2007; and . a $35.0 million senior secured term loan, the tranche C term loan, established under an expansion facility, which matures in May 2009. The tranche A term loan is required to be repaid, beginning in September 2002, in 18 consecutive quarterly installments. The amount of each of the first six installments is $3.75 million. The amount of each of the next four installments is approximately $9.4 million. The amount of each of the last eight installments is $11.25 million. The tranche B term loan is required to be repaid, beginning in September 2002, in 22 consecutive quarterly installments. The amount of each of the first 18 installments is approximately $0.6 million. The amount of each of the last four installments is approximately $54.0 million. The tranche C term loan is required to be repaid in May 2009. The commitments to make loans under the revolving credit facility automatically and permanently reduce, beginning in April 2005, in eight consecutive quarterly reductions. The amount of each of the first four reductions is $12.5 million. The amount of each of the last four reductions is $25.0 million. We may select the rate at which interest accrues on all loans. We may choose a eurodollar loan, which accrues at a reserve-adjusted London Interbank Offering Rate, with a margin equal to: . between 1.25% and 2.75% per annum, depending upon our leverage ratio, with respect to the tranche A Term loan and the revolving credit loans; and . 3.0% per annum, with respect to the tranche B term loan. Alternatively, we may choose an alternative rate loan, which accrues at the higher of (a) the administrative agent's prime rate and (b) the federal funds rate plus 0.50% plus, in each case, . a rate between 0.25% and 1.75% per annum, depending on our leverage ratio with respect to the tranche A term loan and the revolving credit loans; and . 2.0% per annum, with respect to the tranche B term loan. . 2.0% per annum, with respect to the tranche C term loan. Interest on any overdue amounts will accrue at a rate per annum equal to 2.00% plus the rate otherwise applicable to these amounts. The terms of the senior credit facilities require us to pay a commitment fee accruing at an annual rate of between 0.50% and 1.25% on the unused portion of the revolving credit and tranche A term loan facilities, depending on the percentage of undrawn tranche A and revolving credit commitments. The commitment fees are payable quarterly in arrears, and a separate agent's fee is payable to the administrative agent. The senior credit facilities also require us to purchase an interest rate hedging contract covering an amount equal to at least 50% of the total amount of our outstanding indebtedness, excluding indebtedness that bears interest at a fixed rate. As of December 31, 1998 and September 30, 1999, we hedged 100% of our outstanding indebtedness under our senior credit facilities of $225,000,000 to take advantage of favorable interest rate swaps. The six outstanding interest rate swap contracts fix LIBOR at annual interest rates from 5.20% to 5.26%. The contracts mature in September of 2003. 89 The tranche A term loan automatically will be reduced to the extent its undrawn portion exceeds $50.0 million in July 2000 by the amount of the excess. The term loans will be prepaid, and commitments under the revolving credit facility will be reduced, in an aggregate amount equal to: (1) 50% of the excess cash flow of each fiscal year beginning with the fiscal year ending December 31, 2001; (2) 100% of the net proceeds of asset sales outside of the ordinary course of business, in excess of a $1.0 million annual threshold, or unused insurance proceeds; (3) 100% of the net cash proceeds of issuances of debt obligations, other than debt obligations permitted by the senior credit agreement, including the issuance of the notes; and (4) 50% of the net cash proceeds of issuances of equity securities, other than in connection with our equity investments and other than the proceeds of this offering, and, provided that, this clause (4) shall not apply at any time we have a class of equity securities publicly held; provided that the prepayments and reductions described under clauses (3) and (4) will not be required if, after giving effect to the issuance: (A) our leverage ratio would be less than 5.0 to 1.0; and (B) in the case of clause (4), we would be in pro forma compliance with each covenant contained in the senior credit agreement. Each of our existing and future domestic subsidiaries unconditionally guarantees all our obligations under the senior credit facilities. The facilities and the credit facility subsidiary guarantees, and any related hedging contracts provided by the lenders under the senior credit facilities, are secured by substantially all of our assets and the assets of each of our existing and future domestic subsidiaries, including a first priority pledge of all of the capital stock held by us or any of our subsidiaries. Under the senior credit facilities, no action may be taken against our licenses unless and until the requisite approval is obtained from the FCC. The senior credit agreement contains financial and other covenants customary for senior credit agreements. The senior credit agreement also contains customary representations, warranties, indemnities, conditions precedent to borrowing and events of default. Borrowings under the senior credit facilities are available to finance capital expenditures related to the construction of our network, the acquisition of related businesses, working capital needs and subscriber acquisition costs. Senior Subordinated Discount Notes On April 20, 1999, we sold $575,000,000 aggregate principal amount at maturity of 11 5/8% senior subordinated discount notes due April 15, 2009. Cash interest on these notes will not accrue or be payable prior to April 15, 2004. From April 15, 2004, cash interest will accrue at a rate of 11 5/8% per annum on the principal amount at maturity of the notes through and including the maturity date and will be payable semi-annually on April 15 and October 15 of each year. In connection with the sale of these notes, we received net proceeds of approximately $317 million after deducting initial purchasers' discount and issuance expenses of approximately $10 million. These notes are general senior unsecured obligations subordinate to all of our existing and future senior debt and will rank equally in right of payment with all our existing and future unsecured and unsubordinated indebtedness and senior in right of payment to any of our subordinated indebtedness. The notes are guaranteed by our subsidiary, Telecorp Communications, Inc., and may be guaranteed by future subsidiaries. The notes are redeemable at any time and from time to time at our option, in whole or in part on or after April 15, 2004, plus 90 accrued and unpaid interest. The redemption prices for the senior subordinated discount notes, if redeemed during the 12-month period beginning on April 15 of the years described below are as follows:
Redemption Year Price ---- ---------- 2004........................................................... 105.813% 2005........................................................... 103.875% 2006........................................................... 101.938% 2007 and thereafter............................................ 100.000%
In addition, on or prior to April 15, 2002, we may redeem, at our option, up to 35% of the aggregate principal amount at maturity of the notes with the net proceeds of one or more equity offerings, at 111.625% of the accreted value thereof, as long as notes representing at least 65% of the aggregate initial accreted value of the notes originally issued remain outstanding after each redemption and that the redemption occurs within 60 days of the closing of any equity offering. If we experience a change of control, each holder of senior subordinated discount notes will have the right to require us to repurchase all or any part of the holder's notes at a purchase price in cash equal to: (1) 101% of the accreted value on the purchase date, if the date is on or before April 15, 2004; or (2) 101% of the principal amount at maturity, plus accrued and unpaid interest, if any, to the purchase date, if the date is after April 15, 2004. A change of control would occur under the indenture if any of the following occurs: . any person or group, as the terms are used in the applicable provisions of the Securities Exchange Act of 1934, other than some permitted holders, becomes the beneficial owners, as defined in the beneficial ownership provisions under the Exchange Act, except that a person shall be deemed to have beneficial ownership of all the securities that the person has the right to acquire within one year, upon the happening of an event or otherwise, directly or indirectly, of our securities representing 50% or more of the combined voting power of our then outstanding voting stock; . the following individuals cease for any reason to constitute more than a majority of the number of directors then serving on our board: individuals who, on April 23, 1999, constituted our board and any new director, other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including, but not limited to, a consent solicitation relating to the election of our directors, whose appointment or election by our board or nomination for election by our stockholders was approved by the vote of at least two- thirds of the directors then still in office or whose appointment, election or nomination was previously so approved or recommended or made in accordance with the terms of the stockholders' agreement; or . our stockholders shall approve any plan of liquidation, whether or not otherwise in compliance with the provisions of the indenture. The indenture under which the notes were issued restricts, among other things, our ability to: . incur debt; . create levels of debt that are senior to the notes but junior to our senior debt; . pay dividends on or redeem capital stock; . make some investments or redeem other subordinated debt; . make particular dispositions of assets; 91 . engage in transactions with affiliates; . engage in particular business activities; and . engage in mergers, consolidations and particular sales of assets. The indenture provides for acceleration of payments under the senior subordinated discount notes upon customary events of default, including cross defaults, judgment defaults and events of bankruptcy. Vendor Financing In May 1998, we entered into a vendor procurement contract with Lucent, under which we agreed to purchase radio, call connecting and related equipment and services for the development of our network. We also entered into a note purchase agreement with Lucent under which Lucent agreed to provide us with $80.0 million of junior subordinated vendor financing. This $80.0 million consisted of $40.0 million aggregate principal amount of increasing rate Lucent series A notes and $40.0 million aggregate principal amount of increasing rate Lucent series B notes. We borrowed $40.0 million under the series B note facility and repaid this amount and accrued interest of $227,778 in April 1999 from proceeds of our sale of senior subordinated discount notes. This amount cannot be reborrowed. As of September 30, 1999, we had outstanding approximately $42.5 million of our Lucent series A notes, including $1.6 million of Lucent series A notes issued as payment of interest in kind, plus $0.9 million of additional accrued interest and accruing interest at a rate per annum of 8.5% as of September 30, 1999. Proceeds from the sale of these notes have been used to develop our network in designated areas. The Lucent series A notes as amended mature in October 2009 and amounts outstanding under these series A notes and any future series A note borrowings are subject to mandatory prepayment in an amount equal to 50% of the excess of $198.0 million in net proceeds we receive from an equity offering other than the issuance of capital stock used to acquire related businesses or assets. In October 1999 we entered into an amended and restated note purchase agreement with Lucent under which Lucent has agreed to purchase up to $12.5 million of new series A notes and up to $12.5 of new series B notes under a vendor expansion facility in connection with our prior acquisition of licenses in the San Juan, Puerto Rico, Evansville Indiana, Paducah, Kentucky and Alexandria and Lake Charles, Louisiana markets. The obligation of Lucent to purchase notes under this vendor expansion facility is subject to a number of conditions, including that we commit to purchase one wireless call connection equipment site and 50 network equipment sites for each additional market from Lucent. In addition, pursuant to the amended and restated note purchase agreement Lucent has agreed to make available up to an additional $50.0 million of new vendor financing not to exceed an amount equal to 30% of the value of equipment, software and services provided by Lucent in connection with any additional markets we acquire. This $50.0 million of availability is subject to a reduction up to $20 million on a dollar for dollar basis of any additional amounts Lucent otherwise lends to us for such purposes under our senior credit facilities. Any notes purchased under this facility would be divided equally between Lucent series A and series B notes. The terms of Lucent series A and series B notes issued under these expansion facilities would be identical to the terms of the original Lucent series A and series B notes as amended, including a maturity date of October 23, 2009. In addition, any Lucent series B notes issued under the vendor expansion facility will mature and will be subject to mandatory prepayment on a dollar for dollar basis out of the net proceeds of any future public or private offering or sale of debt securities, exclusive of any private placement of notes issued to finance any additional markets and borrowings under the senior credit facilities or any replacement facility. 92 Lucent series A notes, including any Lucent series A notes issued under the vendor expansion facility, initially accrue interest at a rate of 8.5% per annum. If the Lucent series A notes are not redeemed in full on or prior to January 1, 2001, the rate will increase by 1.5% per annum on each January 1 thereafter, beginning January 1, 2001, provided that the maximum interest rate will not exceed 12 1/8%. Interest on the Lucent series A notes will be payable semi-annually, provided that prior to May 11, 2004, interest will be payable in additional Lucent series A notes and subsequently will be payable in cash, unless prohibited by the senior credit facilities or the indenture. Any Lucent series B notes issued under the vendor expansion facility will initially accrue interest at a rate of 10% per annum. If the Lucent series B notes are not redeemed in full on or prior to January 1, 2000, the rate will increase by 1.5% per annum on each January 1 beginning on January 1, 2000, provided that the maximum interest rate will not exceed 12 1/8%. Interest on the Lucent series B notes will be payable semi-annually, provided that prior to May 11, 2004, interest will be payable in additional Lucent series B notes and subsequently will be payable in cash unless prohibited by the terms of the senior credit facilities or the indenture. Upon a change of control, we must offer to repay the Lucent series A and series B notes at their principal amount plus a premium, unless prohibited by our senior credit facilities or the senior subordinated notes indenture. In the event a change of control occurs prior to May 1, 2002 in the case of the Lucent series A notes, or in the case of the Lucent series B notes, May 1, 2000, the Company may elect to prepay all of the Lucent series A or series B notes in accordance with the optional prepayment provisions, but that such time restrictions do not apply to any notes held by Lucent or its affiliates. The Lucent Series A and Series B notes may not be prepaid, however, if prohibited by the terms of the senior credit facilities, the senior subordinated notes indenture or other indebtedness that ranks senior to the Lucent series A and series B notes. The Lucent series A notes may be prepaid without payment of a premium at any time prior to May 1, 2002. In addition, the Lucent series A notes may be prepaid at any time after May 1, 2002 without payment of a premium to the extent Lucent or its affiliates have retained them. The Lucent series B notes may be prepaid without payment of a premium at any time prior to May 1, 2000. In addition, the Lucent series B notes may be prepaid at any time after May 1, 2000 without payment of a premium to the extent Lucent or its affiliates have retained them. We cannot redeem the series A Notes that Lucent has assigned or participated to a third party from May 1, 2002 through April 30, 2007 and any redemption thereafter will require the payment of a premium. We cannot redeem the series B Notes that Lucent has assigned or participated to a third party from May 1, 2000 through April 30, 2005 and any redemption thereafter will require the payment of a premium. The premiums decrease in each year after the first year in which the premiums first become payable. The Lucent series A and series B Notes may not be prepaid, however, if prohibited by the terms of our senior credit facilities, the senior subordinated notes indenture or other indebtedness that ranks senior to the Lucent series A and series B Notes. If Lucent has not completed specified resales in respect of the Lucent series A or series B notes then outstanding prior to January 1, 2003, we must pay Lucent up to 3% of the then outstanding principal amount of all the Lucent series A and series B notes to defray any actual marketing distribution and other costs incurred by Lucent in connection with any resales of series A and series B notes. Government Debt In connection with our purchase of our licenses, we issued to the FCC secured installment payment plan notes in an aggregate principal amount of $9.2 million. This debt is shown on our balance sheet at a value of $8.0 million reflecting a discount of $1.2 million reflecting the below market interest rate on the debt. The FCC notes are due April 28, 2007, and bear interest at a rate of 6.25% per annum. In addition, we assumed $4.1 million in aggregate principal amount of additional secured installment payment plan notes in connection with the Digital PCS acquisition. This debt is shown on our balance sheet at a value of $3.0 million reflecting a 93 discount of $1.1 million reflecting the below market interest rate on the debt. The Digital PCS notes are due August 21, 2007, and bear interest at a rate of 6.125% per annum. In connection with the Wireless 2000 acquisition, we assumed $7.4 million in aggregate principal amount of additional secured installment payment plan notes. This debt is shown on our balance sheet at a value of $6.1 million reflecting a discount of $1.3 million reflecting the below market interest rate on the debt. The Wireless 2000 notes are due September 17, 2006, and bear interest at a rate of 7.0% per annum. A security agreement secures the FCC notes, Wireless 2000 notes and Digital PCS notes, which grants the FCC a first priority security interest in the license for which the applicable note was issued. In the event of a default under the FCC notes, Wireless 2000 notes or Digital PCS notes, the FCC may revoke the licenses for which the defaulted notes were issued. 94 DESCRIPTION OF CAPITAL STOCK Our authorized capital stock, as set forth in our restated certificate of incorporation that will become effective upon closing of this offering, will consist of: . 918,339,090 shares of common stock, par value $0.01 per share, consisting of: . 608,550,000 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 . 3,090 shares of voting preference common stock . 17,045,000 shares of preferred stock, par value $0.01 per share, 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 . 1,000,000 undesignated shares As of September 30, 1999 our outstanding capital stock consisted of: . 73,835,264 shares of class A common stock . 283,813 shares of class C common stock . 851,429 shares of class D common stock . 3,090 shares of voting preference common stock . 97,473 shares of series A preferred stock . 210,608 shares of series C preferred stock . 49,417 shares of series D preferred stock . 24,980 shares of series E preferred stock . 14,912,778 shares of series F preferred stock Subject to any required approval of holders of any shares of any class or series of preferred stock, our board has the power, by resolution, to issue additional shares of preferred stock with the preferences, rights and designations as it determines. Voting Rights Subject to the rights of specific classes of stock to vote as a class on some matters, regardless of the number of shares outstanding, the holders of the class A common stock are entitled to an aggregate 4,990,000 votes and the holders of voting preference common stock are entitled to an aggregate 5,010,000 votes of all outstanding capital stock. Each holder of class A common stock shall have the number of votes equal to 4,990,000 divided by the number of outstanding shares of class A common stock multiplied by the number of shares of class A common stock held by such stockholder. No other class of capital stock has the right to vote on any matter except as required by law. In addition, for so long as AT&T and its affiliates continue to hold at least two- thirds of the shares of series A preferred stock they held as of May 14, 1999, they will be entitled, but not obliged, to nominate one of our directors. 95 Our restated certificate of incorporation that will become effective upon closing of this offering provides that, except where a class of capital stock has the right to vote as a class, a quorum will be present so long as a majority of the outstanding voting preference common stock and shares representing at least 5,010,000 votes are present. When a class vote is required, a majority of that class must also be present. Any further action not requiring a class vote may be approved by the affirmative vote of a majority of voting preference common stock present at any meeting where a quorum is present. The holders of each class of preferred stock have the right to vote as a class on any measure to: . authorize or issue any shares senior to or on a parity with the class; . amend our restated certificate of incorporation to change any of the characteristics of the class; or . authorize or issue any security convertible into, exchangeable for or granting the right to purchase or otherwise receive any shares of stock senior to or on a parity with the class. The majority of each class of preferred stock must affirmatively vote to act. Subject to any class voting requirements, shares of common stock representing at least two-thirds of the votes entitled to be cast for the election of our directors must affirmatively vote for any amendment, alteration or repeal of our certificate of incorporation or bylaws, unless any amendment, alteration or repeal is proposed and declared advisable by our board, in which case only the affirmative vote of a majority of these shares is required. If: . we receive an opinion of regulatory counsel that class A common stock and voting preference common stock can vote and be treated as a single class of stock for quorum purposes and have one vote per share; . not less than two-thirds of the outstanding class A common stock affirmatively vote for the single class status; and . our board determines that it is not likely to be detrimental to us, we will seek the approval of the FCC to have class A common stock and voting preference common stock vote and be treated together as a single class with one vote per share. Some of our stockholders have entered into agreements regarding the voting of their shares on particular matters, including the election of directors. These agreements include the stockholders' agreement and the investors stockholders' agreement among our initial investors and the management stockholders. See "Certain Relationships and Related Transactions--AT&T Agreements." Conversion After July 17, 2006, holders of series A preferred stock may convert their shares into shares of class A common stock at a conversion rate equal to the liquidation preference of series A preferred stock divided by the market price of class A common stock. If we receive an opinion of regulatory counsel that class A common stock and voting preference common stock can vote and be treated as a single class of stock with one vote per share, then, unless our board determines that it is likely to be detrimental to us, holders of class C common stock and class D common stock may convert their shares into shares of class A common stock or class B common stock upon the affirmative vote of the holders of 66 2/3% or more of the class A common stock. We expect that in 2004, the FCC ownership restrictions will no longer apply to us, allowing regulatory counsel to deliver this opinion. 96 At any time, holders of series F preferred stock may convert each share into one share of class A or class B common stock; provided, that, until the class C common stock and class D common stock is convertible into class A common stock as set forth in the preceding paragraph, the first 195,063 of these shares to be converted are convertible into shares of class D common stock. At any time, holders of class A common stock and class B common stock may convert their shares into shares of the other class. All conversions are subject to obtaining any required FCC approvals. Holders of preferred or common stock may elect to convert any or all of their shares by giving written notice to us prior to the requisite FCC approvals. This conversion will not become effective until the final receipt of all necessary FCC approvals. Redemption We have the right to redeem our capital stock as follows: . shares of series A preferred stock: following 30 days after the 10th anniversary of issuance at the liquidation preference of the series A preferred stock; . shares of series B preferred stock: at any time at the liquidation preference of the series B preferred stock; and . shares of series C preferred stock and series D preferred stock: at any time at the liquidation preferences of series C preferred stock and series D preferred stock; provided, that if we redeem any shares of either series C preferred stock or series D preferred stock, we must redeem a proportionate number of shares of the other. In addition, the holders of some classes of capital stock have the right to require us to redeem their shares as follows: . holders of series A preferred stock or series B preferred stock: following the 30th day after the 20th anniversary of issuance at the liquidation preference of the series A preferred stock or series B preferred stock; and . holders of series C preferred stock, series D preferred stock or series E preferred stock: following the 30th day after the 20th anniversary of issuance at the liquidation preference of the series C preferred stock, series D preferred stock and series E preferred stock. Neither we nor any holder of shares of any class of our capital stock may cause us to redeem our capital stock if, at that time: . we are insolvent or will be rendered insolvent by the redemption; or . law or any of our agreements prohibits the redemption. Further, our restated certificate of incorporation restricts our ability to redeem any shares of capital stock to the extent shares of capital stock ranking senior to or on a parity with the shares remain outstanding or dividends on the senior or parity shares have not been paid in full. Our restated certificate of incorporation also provides for our redemption of any shares of our capital stock that is held by stockholders whose holding of the shares, in the opinion of our board, may result in the loss of, or failure to obtain the reinstatement of, any of our licenses or franchises. The management agreement provides for the redemption by us of specific shares of class A common stock and series E preferred stock held by Mr. Vento and Mr. Sullivan in particular circumstances. See "Management--Management Agreement." 97 Ranking With respect to the payment of dividends and distributions upon our liquidation, dissolution or winding up, classes of our preferred stock rank as follows:
Class of Stock Parity with Junior to Senior to - -------------------------------------------------------------------------------------------- series A series B preferred none series C preferred preferred series D preferred series E preferred series F preferred common stock - -------------------------------------------------------------------------------------------- series B series A preferred none series C preferred preferred series D preferred series E preferred series F preferred common stock - -------------------------------------------------------------------------------------------- series C series D preferred-- series A preferred and series E preferred preferred except when a statutory series B preferred series F preferred liquidation series D preferred-- common stock-- common stock-- only upon a statutory only with respect to only with respect to liquidation dissolution, liquidation dividends and winding up - -------------------------------------------------------------------------------------------- series D series C preferred-- series A preferred series C preferred-- preferred except when a statutory series B preferred only upon a statutory liquidation liquidation common stock-- series E preferred only with respect to series F preferred dividends common stock-- only with respect to dissolution, liquidation and winding up - -------------------------------------------------------------------------------------------- series E series A preferred series F preferred preferred series B preferred common stock series C preferred series D preferred - -------------------------------------------------------------------------------------------- series F common stock-- series A preferred common stock-- preferred except when a statutory series B preferred only upon a statutory liquidation series C preferred liquidation series D preferred series E preferred
Dividends The holders of series A preferred stock and series B preferred stock are entitled to receive annual dividends equal to 10% of the liquidation preference related to their shares; provided that so long as any shares of series A preferred stock or series B preferred stock are outstanding, no dividends may be paid on any shares of any class of capital stock ranking junior to series A preferred stock or series B preferred stock. Dividends accrue from the date of issuance of the shares and are payable quarterly, provided that we have the option to defer payments for up to ten and one-half years from the date of issuance. 98 The holders of series C preferred stock, series D preferred stock, series E preferred stock and series F preferred stock are entitled to dividends as declared by our board. The dividend rights of our outstanding preferred stock are summarized below:
Series of Aggregate Preferred Liquidation Preference Stock Amount of Dividend Payment Dates as of June 30, 1999 - ---------------------------------------------------------------------------------------------------- series A 10% of liquidation preference Quarterly commencing $104,303,999 annually, accruing daily from September 30, 1998; may July 17, 1998 be deferred until December 31, 2008 on which date all past unpaid dividends become due - ---------------------------------------------------------------------------------------------------- series C As declared by our board, up to When and if declared by $197,099,048, accreting the liquidation preference our board at 6% per annum, compounded quarterly. - ---------------------------------------------------------------------------------------------------- series D As declared by our board, up to When and if declared by our $47,564,935, accreting the liquidation preference board 6% per annum, compounded quarterly. - ---------------------------------------------------------------------------------------------------- series E As declared by our board, up to When and if declared by our $1,186,066, accreting the liquidation preference board at 6% per annum, compounded quarterly. - ---------------------------------------------------------------------------------------------------- series F As declared by our board When and if declared by our $443 board
Subject to the rights of the holders of the preferred stock, our board may declare dividends on the common stock; provided, that dividends on class C common stock and class D common stock may only be paid up to the amount by which funds legally available for the dividends exceed the excess of: (1) fair market value of the assets of TeleCorp Holding less TeleCorp Holding's liabilities over (2) the aggregate par value of class C common stock and class D common stock, at our board's discretion. Dividends may only be paid on the other classes of common stock up to the amount legally available after subtracting the maximum amount payable in respect of class C common stock and class D common stock, at our board's discretion. We may not pay dividends on any shares of any class of our capital stock if, at the time: . we are insolvent or will be rendered insolvent by the payments; or . law or any of our agreements prohibits the dividend payments. Further, our restated certificate of incorporation restricts our ability to pay any dividends on any class of capital stock to the extent shares of capital stock ranking senior to or on a parity with the class remain outstanding or dividends on the senior or parity shares have not been paid in full. 99 Liquidation Preference The holders of preferred stock are entitled to preferences with respect to distributions upon our liquidation, dissolution or winding up as follows: . holders of series A preferred stock and series B preferred stock are entitled to a preference per share equal to $1,000 plus accrued and unpaid dividends on the shares; . holders of series C preferred stock are entitled to a preference per share equal to the paid-in capital per share of series C preferred stock together with interest on $1,000 from the date of issuance at a rate of 6% per annum, compounded quarterly, less the amount of any dividends paid on the share, plus accrued and unpaid dividends; . holders of series D preferred stock are entitled to a preference per share equal to $1,000 together with interest from the date of issuance at rate of 6% per annum, compounded quarterly, less the amount of any dividends paid on the share, plus accrued and unpaid dividends; . holders of series E preferred stock are entitled to a preference per share equal to the amount of accrued and unpaid dividends on the share, together with interest on $1,000 from the date of issuance at a rate of 6% per annum, compounded quarterly, less the amount of any dividends declared and paid on the share; and . holders of series F preferred stock are entitled to a preference equal to $.000032 plus accrued and unpaid dividends on the shares. Following payment of all amounts payable to the holders of preferred stock upon our liquidation, dissolution or winding up, the holders of class C common stock and class D common stock will be entitled to receive the fair market value of the assets of TeleCorp Holding less TeleCorp Holding's liabilities. The holders of the other classes of common stock will be entitled to receive the remaining amounts available for distribution. Transfer Restriction Some of our stockholders have entered into agreements that restrict transfer of their shares and provide for the happening of specified events, such as share conversions. See "Certain Relationships and Related Transactions--AT&T Agreements" and "--Management Agreement." Our restated certificate of incorporation provides that, upon the happening of specified events described in the stockholders' agreement, we have the right to exchange all or some of the shares of series A preferred stock, series D preferred stock, series F preferred stock and common stock held by AT&T for an equal number of shares of series B preferred stock. See "Certain Relationships and Related Transactions--AT&T Agreements." Anti-Takeover Effects of Certain Provisions of Delaware Law and our Amended and Restated Certificate of Incorporation and Bylaws We are subject to the provisions of Section 203 of the Delaware General Corporation Law. Generally, Section 203 prohibits a publicly-held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the interested stockholder attained that status with the approval of the board of directors or unless the business combination is approved in a prescribed manner. A "business combination" includes mergers, asset sales and other transactions resulting in a financial benefit to the interested stockholder. Generally, an "interested stockholder" is a person who, together with affiliates and associates, owns, or within three years did own, 15% or more of a corporation's voting stock. This statute could prohibit or delay the accomplishment of mergers or other takeovers or changes in control with respect to us and, accordingly, may discourage attempts to acquire us. 100 In addition, provisions of our restated certificate of incorporation and bylaws, which provisions will be in effect upon the closing of the offering and are summarized in the following paragraphs, may be deemed to have an anti- takeover effect. These provisions may delay, defer or prevent a tender offer or takeover attempt that a stockholder might consider to be in its best interest, including those attempts that might result in a premium over the market price for the shares held by stockholders. Nomination and Election of Directors. Our restated certificate of incorporation provides that following completion of this offering, our nine member board of directors will be divided into three classes of directors. Each class will serve a staggered three-year term where one-third of the board of directors will be elected each year. In general, this means that a director will stand for election only once every three years. The classified board provision could have the effect of discouraging a third party from making a tender offer or otherwise attempting to obtain control of us, even though the attempt might be beneficial to us and our stockholders. In addition, the classified board provision could delay the stockholders who do not agree with the policies of the board from removing a majority of the board for two years. Board of Directors Removal and Vacancies. Our restated certificate of incorporation provides that directors may be removed only for cause and only by the affirmative vote of the holders of a majority of the outstanding shares of voting stock cast, at an annual or special meeting, except that any director nominated by any holder of our preferred stock having the right to nominate such director may be removed and replaced by such holder with or without cause. In addition, our bylaws authorize the board of directors to fill vacant directorships or increase the size of the board of directors except that any vacancy that was left by a nominee of a stockholder entitled to nominate the nominee will be filled by a new director selected by the holder, subject to any required approvals. This may prevent a stockholder from removing incumbent directors and simultaneously gaining control of the board of directors by filling the resulting vacancies created by such removal with its own nominees. Special Meetings of Stockholders. Our bylaws provide that special meetings of our stockholders may be called only by the Chairman, the President or a majority of the board of directors or stockholders holding 35% of our outstanding voting shares. Authorized But Unissued Shares. The authorized but unissued shares of common stock and preferred stock are available for future issuance without stockholder approval, subject to the limitations imposed by the Nasdaq National Market. These additional shares may be used for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued and unreserved common stock and preferred stock could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise. Amendment to Our Certificate of Incorporation. Amendments to our restated certificate of incorporation which are not proposed by our board must be approved by the affirmative vote of at least two-thirds of our outstanding shares of capital stock entitled to vote in the election of directors. Any amendment proposed by the board requires only the minimum vote required by law or any applicable terms of our capital stock. Our bylaws may be amended in the same manner as our restated certificate of incorporation or, alternatively, by a majority vote of our board of directors. Stockholder Proposals. The bylaws require that stockholders wishing to bring any business, including the nomination of directors, before an annual meeting of stockholders, deliver written notice to us not less than 90 days prior to the date of the annual meeting of stockholders. If, however, the date of the meeting is scheduled to occur more than 30 days before or more than 90 days after the anniversary of the prior year's annual meeting, notice by the stockholder must be delivered to us not later than the close of business on the tenth day following the day on which we publicly announce the date of our annual meeting. The foregoing provisions regarding director nomination procedures do not apply to holders of our capital stock who have the right to nominate directors under our stockholders' agreement or restated certificate of incorporation. These provisions may discourage or make more difficult the acquisition of control of us by means of a tender offer, open market purchase, proxy contest or otherwise. 101 The Delaware General Corporation Law provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation's certificate of incorporation, or bylaws, unless a corporation's certificate of incorporation or bylaws, as the case may be, requires a greater percentage. Indemnification of Directors and Executive Officers and Limitation of Liability Our restated certificate of incorporation includes a provision that eliminates the personal liability of our directors and executive officers for monetary damages for breach of fiduciary duty as a director or executive officer, except: . for any breach of the director's or executive officer's duty of loyalty to us or our stockholders; . for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; . for unlawful dividends and stock purchases under the Delaware General Corporation Law; or . for any transaction from which the director derived an improper personal benefit. Our bylaws provide that: . we must indemnify our directors and officers to the fullest extent permitted by Delaware law, subject to very limited exceptions; . we may indemnify our other employees and agents to the same extent that we indemnify our officers and directors, unless otherwise required by law, our amended and restated certificate of incorporation, our bylaws or agreements; and . we must advance expenses, as incurred, to our directors and executive officers in connection with any legal proceeding to the fullest extent permitted by Delaware law, subject to limited exceptions. We have entered into indemnity agreements with each of our directors and executive officers to give them additional contractual assurances regarding the scope of the indemnification described above and to provide additional procedural protections. In addition, we have obtained directors' and officers' insurance providing indemnification for our directors, officers and key employees for various liabilities. We believe that these indemnification provisions and agreements are necessary to attract and retain qualified directors and officers. The limitation of liability and indemnification provisions in our restated certificate of incorporation and bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of stockholder derivative litigation against directors and officers, even though a derivative action, if successful, might otherwise benefit us and our stockholders. Furthermore, a stockholder's investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers under these indemnification provisions. At present, there is no pending litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought, nor are we aware of any threatened litigation that my result in claims for indemnification. Transfer Agent and Registrar The transfer agent and registrar for our class A common stock is State Street Bank and Trust Company. Listing We have applied for quotation of our class A common stock on the Nasdaq National Market under the trading symbol "TLCP." 102 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no public market for our class A common stock. As described below, only a limited number of shares will be available for sale shortly after this offering due to contractual and legal restrictions on resale. Sales of substantial amounts of our class A common stock in the public market after the restrictions lapse or are waived could cause the market price of our class A common stock to drop significantly. Upon completion of this offering, we will have outstanding an aggregate of 81,673,889 shares of class A common stock assuming no exercise of the underwriters' over-allotment option and no exercise of outstanding options. Of these shares, all of the shares sold in this offering, other than shares held by our "affiliates" and certain of our other key employees other than 390,000 shares sold pursuant to the directed share program, will be freely tradable without restriction or further registration under the Securities Act. The remaining class A common shares held by existing shareholders are "restricted securities" as that term is defined in Rule 144 under the Securities Act. These shares are eligible for public sale only if registered under the Securities Act or sold under an exemption to registration under the Securities Act. There are also contractual restrictions on some of the holders of these shares which restrict their ability to sell the shares. The following table summarizes approximately when the 73,873,889 shares of class A common stock that are not being sold in this offering, but which will be outstanding at the time this offering is complete, will be eligible for sale into the public market:
Date of availability for resale into Number of shares % of total outstanding public market ---------------- ---------------------- ------------------------------------ 101,459 0.12% After January 11, 2000, due to provisions of the federal securities laws. 3,783,362 4.63% 180 days after the date of this prospectus due to an agreement these stockholders have with the underwriters, subject to vesting requirements listed in our 1998 Restricted Stock Plan. However, the underwriters can waive this restriction and allow these stockholders to sell their shares at any time. 69,989,068 85.69% After July 17, 2001 upon lapse of restrictions on transfer under the stockholders' agreement, unless such restrictions are earlier waived by the parties thereto, in which case all such shares will be subject to resale subject to volume limitations and, in the case of non-affiliates, without restriction after July 17, 2000. In addition the 16,051,110 shares of our class A common stock issuable upon conversion of our class C and class D and voting preference common stock and our series F preferred stock and shares of class A common stock issuable upon conversion of our class A preferred stock are also subject to the restrictions on transfer under the Stockholders' agreement.
These rules and contractual restrictions governing the shares' eligibility for public sale are as follows: Rule 144 In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person who has beneficially owned class A common stock for at least one year would be entitled to sell within any three-month period a number of shares that does not exceed the greater of: . 1% of the number of class A common shares then outstanding, which will equal approximately816,739 class A common shares immediately after this offering; or . the average weekly trading volume of the class A common shares on the Nasdaq National Market during the four calendar weeks preceding the filing of a notice of Form 144 with respect to such sale. Sales under Rule 144 are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us. 103 Rule 144(k) Under Rule 144(k), a person who is not deemed to have been one of our affiliates at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner other than an affiliate, is entitled to sell these shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Unless otherwise restricted, these shares may be sold immediately upon the completion of this offering. Rule 701 As of October 18, 1999, we have granted to our employees and certain directors and officers options to purchase an aggregate of 552,505 shares of class A common stock, of which options to purchase 75,844 of class A common stock had vested. In general, under Rule 701, any of our employees, directors, officers, consultants or advisors who purchase class A common shares from us in connection with a compensatory stock or option plan or other written agreement before the effective date of this offering is entitled to resell these shares 90 days after the effective date of this offering in reliance on Rule 144, without having to comply with certain restrictions, including the holding period contained in Rule 144. The SEC has indicated that Rule 701 will apply to typical stock options granted by an issuer before it becomes subject to the reporting requirements of the Securities Exchange Act of 1934, along with the shares acquired upon exercise of these options, including exercises after the date of this prospectus. Securities issued in reliance on Rule 701 are restricted securities and, subject to the contractual restrictions described below, may be sold: . beginning 90 days after the date of this prospectus; . by persons other than affiliates subject only to the manner of sale provisions of Rule 144; and . by affiliates under Rule 144 without compliance with its one year minimum holding period requirement. Lock-up Agreements Our executive officers, directors, other key employees and our initial investors have signed lock-up agreements under which they agreed not to dispose of or hedge any capital stock or any securities convertible into or exchangeable for capital stock for a period of 180 days from the date of this prospectus. Stock Options Following the completion of this offering, we intend to file a registration statement on Form S-8 under the Securities Act covering the shares of class A common shares reserved for issuance under our stock option plan and other options issued to our employees, directors and officers. We expect the registration statement to be filed soon after the date of this prospectus and automatically to become effective upon filing. Accordingly, class A common stock registered under the registration statement will, subject to vesting provisions and volume limitations under the Securities Act applicable to our affiliates, be available for sale in the open market immediately, or, in the case of certain directors and other key employees, immediately after the 180- day lock-up agreements expire. Registration Rights Commencing on the first anniversary of the completion of this offering, stockholders beneficially holding 86,037,088 shares of class A common stock prior to completion of this offering are entitled to request that we register their shares of class A common stock under the Securities Act. After these shares are registered, they will become freely tradable without restriction under the Securities Act. However, under the stockholders' agreement, these stockholders have agreed not to transfer their shares until at least July 17, 2001. 104 MATERIAL U.S. TAX CONSEQUENCES TO NON-U.S. HOLDERS Following is a general discussion of material U.S. federal income and estate tax consequences of the ownership and disposition of the class A common stock applicable to non-U.S. holders of class A common stock. For purposes of this discussion, a non-U.S. holder is any holder of class A common stock that, for U.S. federal income tax purposes, is not a U.S. person. This discussion does not address all aspects of U.S. federal income and estate taxation that may be relevant in light of a non-U.S. holder's particular facts and circumstances, such as being a U.S. expatriate, and does not address any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction. Furthermore, the following discussion is based on current provisions of the Internal Revenue Code of 1986, as amended, and administrative and judicial interpretations thereof, all as in effect on the date hereof, and all of which are subject to change, possibly with retroactive effect. We have not and will not seek a ruling from the Internal Revenue Service with respect to the U.S. federal income and estate tax consequences described below, and as a result, there can be no assurance that the Internal Revenue Service may disagree with or challenge any of the conclusions set forth in this discussion. For purposes of this discussion, the term U.S. person means: . a citizen or resident of the United States; . a corporation, partnership or other entity created or organized in the United States or under the laws of the United States or any political subdivision thereof; . an estate whose income is included in gross income for U.S. federal income tax purposes regardless of its source; or . a trust whose administration is subject to the primary supervision of a U.S. court and which has one or more U.S. persons who have the authority to control all substantial decisions of the trust. Dividends A dividend paid to a non-U.S. holder generally will be subject to U.S. withholding tax either at a rate of 30% of the gross amount of the dividend or such lower rate as may be specified by an applicable income tax treaty. Dividends received by a non-U.S. holder that are effectively connected with a U.S. trade or business conducted by the non-U.S. holder are exempt from that withholding tax. However, those effectively connected dividends, net of certain deductions and credits, are taxed at the same graduated rates applicable to U.S. persons. In addition to the graduated tax described above, dividends received by a corporate non-U.S. holder that are effectively connected with a U.S. trade or business of the corporate non-U.S. holder may also be subject to a branch profits tax at a rate of 30% or such lower rate as may be specified by an applicable income tax treaty. A non-U.S. holder that is eligible for a reduced rate of withholding tax pursuant to an applicable income tax treaty may be required to submit documentation to avail itself of that treaty and may be able to obtain a refund of any excess amounts withheld by us by filing an appropriate claim for refund with the Internal Revenue Service. Gain on Disposition of Class A Common Stock A non-U.S. holder generally will not be subject to U.S. federal income tax on any gain realized upon the sale or other disposition of class A common stock unless: . the gain is effectively connected with a U.S. trade or business of the non-U.S. holder, which gain, in the case of a corporate non-U.S. holder, must also be taken into account for branch profits tax purposes; 105 . the non-U.S. holder is an individual who holds his or her class A common stock as a capital asset, which generally means as an asset held for investment purposes, and who is present in the United States for a period or periods aggregating 183 days or more during the calendar year in which the sale or disposition occurs and certain other conditions are met; or . We are or we have been a United States real property holding corporation for U.S. federal income tax purposes at any time within the shorter of the five-year period preceding the disposition or the holder's holding period for its class A common stock. We believe that we are not and will not become a United States real property holding corporation for U.S. federal income tax purposes. Backup Withholding and Information Reporting Generally, we would be required to report annually to the Internal Revenue Service the amount of dividends, if any, paid on the class A common stock, the name and address of the recipient, and the amount, if any, of tax withheld. A similar report would be sent to the recipient. Pursuant to applicable income tax treaties or other agreements, the Internal Revenue Service may make its reports available to tax authorities in the recipient's country of residence. Dividends paid to a non-U.S. holder at an address within the United States may be subject to backup withholding at a rate of 31% if the non-U.S. holder fails to establish that it is entitled to an exemption or to provide a correct taxpayer identification number and other information to the payer. Backup withholding will generally not apply to dividends paid to non-U.S. holders at an address outside the United States on or prior to December 31, 2000 unless the payer has knowledge that the payee is a U.S. person. Under the recently finalized Treasury Regulations regarding withholding and information reporting, payment of dividends to non-U.S. holders at an address outside the United States after December 31, 2000 may be subject to backup withholding at a rate of 31% unless such non-U.S. Holder satisfies various certification requirements. Under current treasury regulations, the payment of the proceeds of the disposition of class A common stock to or through the U.S. office of a broker is subject to information reporting and backup withholding at a rate of 31% unless the holder certifies its non-U.S. status under penalties of perjury or otherwise establishes an exemption. Generally, the payment of the proceeds of the disposition by a non-U.S. holder of class A common stock outside the United States to or through a foreign office of a broker will not be subject to backup withholding but will be subject to information reporting requirements if the broker is: . a U.S. person; . a controlled foreign corporation for U.S. federal income tax purposes; or . a foreign person 50% or more of whose gross income for certain periods is from the conduct of a U.S. trade or business unless the broker has documentary evidence in its files of the holders' non- U.S. status and certain other conditions are met, or the non-U.S. holder otherwise establishes an exemption. Neither backup withholding nor information reporting generally will apply to a payment of the proceeds of a disposition of class A common stock by or through a foreign office of a foreign broker not subject to the preceding sentence. In general, the recently finalized treasury regulations, described above, do not significantly alter substantive withholding and information reporting requirements but would alter procedures for claiming benefits of an income tax treaty and change the certifications procedures relating to the receipt by intermediaries of payments on behalf of the beneficial owner of shares of class A common stock. Non-U.S. holders should consult their tax advisors regarding the effect, if any, of those final treasury regulations on an investment in the class A common stock. Those final treasury regulations are generally effective for payments made after December 31, 2000. 106 Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained, provided that the required information is furnished to the Internal Revenue Service. Estate Tax An individual non-U.S. holder who owns class A common stock at the time of his or her death or had made certain lifetime transfers of an interest in class A common stock will be required to include the value of that class A common stock in his or her gross estate for U.S. federal estate tax purposes, unless an applicable estate tax treaty provides otherwise. The foregoing discussion is a summary of the principal U.S. federal income and estate tax consequences of the ownership, sale or other disposition of class A common stock by non-U.S. holders. Accordingly, investors are urged to consult their own tax advisors with respect to the income and estate tax consequences of the ownership and disposition of class A common stock, including the application and effect of the laws of any state, local, foreign or other taxing jurisdiction. 107 UNDERWRITING Subject to the terms and conditions stated in the underwriting agreement dated the date of this prospectus, each underwriter named below has severally agreed to purchase and we have agreed to sell to each underwriter, the number of shares set forth opposite the name of each underwriter.
Number of Underwriter Shares ----------- --------- Salomon Smith Barney Inc. ......................................... Lehman Brothers Inc. .............................................. Deutsche Bank Securities Inc. ..................................... Merrill Lynch, Pierce, Fenner & Smith Incorporated........................................... --------- Total............................................................ 7,800,000 =========
The underwriting agreement provides that the obligations of the several underwriters to purchase the shares included in this offering are subject to approval of various legal matters by counsel and to certain other conditions. The underwriters are obligated to purchase all the shares, other than those covered by the over-allotment option described below, if they purchase any of the shares. The underwriters, for whom Salomon Smith Barney Inc., Lehman Brothers Inc., Deutsche Bank Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated are acting as representatives, propose to offer some of the shares directly to the public at the public offering price listed on the cover page of this prospectus and some of the shares to various dealers at the public offering price less a concession not in excess of $ per share. The underwriters may allow, and these dealers may reallow, a concession not in excess of $ per share on sales to other dealers. If all of the shares are not sold at the initial offering price, the representatives may change the public offering price and the other selling terms. The representatives have advised us that the underwriters do not intend to confirm any sales to any accounts over which they exercise discretionary authority. We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to 1,170,000 additional shares of class A common stock at the public offering price less the underwriting discount. The underwriters may exercise their option solely for the purpose of covering over-allotments, if any, in connection with this offering. To the extent this option is exercised, each underwriter will be obligated, subject to various conditions, to purchase a number of additional shares approximately proportionate to its initial purchase commitment. At our request, the underwriters will reserve up to approximately 390,000 shares of class A common stock to be sold, at the initial public offering price, to our directors, officers and employees and their friends and family members. This directed share program will be administered by Merrill Lynch, Pierce, Fenner & Smith Incorporated. The number of shares of common stock available for sale to the general public will be reduced to the extent these individuals purchase reserved shares. Any reserved shares which are not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered hereby. Our executive officers, directors, other key employees and initial investors have agreed that, for a period of 180 days from the date of this prospectus, they will not, without the prior written consent of Salomon Smith Barney Inc., dispose of any of our capital stock, or any securities convertible into or exchangeable for our capital stock, except for shares of our class A common stock acquired in the public market following the offering by persons other than our officers and directors. Prior to this offering, there has been no public market for the class A common stock. Consequently, the initial public offering price for the shares was determined by negotiations between us and the representatives. Among the factors considered in determining the initial public offering price were our record of operations, our 108 current financial condition, our future prospects, our markets, the economic conditions in and future prospects for the industry in which we compete, our management, and currently prevailing general conditions in the equity securities markets, including current market valuations of publicly traded companies considered comparable to us. We cannot assure you, however, that the prices at which the shares will sell in the public market after this offering will not be lower than the price at which they are sold by the underwriters or that an active trading market in the class A common stock will develop and continue after this offering. The following table shows the underwriting discounts and commissions we must pay to the underwriters in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional shares of class A common stock to cover over-allotments.
Paid by TeleCorp ----------------- No Full Exercise Exercise -------- -------- Per share.................................................. $ $ Total...................................................... $ $
We have agreed to indemnify the underwriters against various liabilities, including liabilities under the Securities Act of 1933, or to contribute to payments the underwriters may be required to make in respect of any of those liabilities. In connection with the offering, Salomon Smith Barney Inc., on behalf of the underwriters, may over-allot, or engage in syndicate covering transactions, stabilizing transactions and penalty bids. Over-allotment involves syndicate sales of class A common stock in excess of the number of shares to be purchased by the underwriters in the offering, which creates a syndicate short position. Syndicate covering transactions involve purchases of the class A common stock made for the purpose of preventing or retarding a decline in the market price of the class A common stock while the offering is in progress. Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when Salomon Smith Barney Inc., in covering syndicate short positions or making stabilizing purchases, repurchases shares originally sold by that syndicate member. These activities may cause the price of the class A common stock to be higher than the price that would otherwise would exist in the open market in the absence of these transactions. These transactions may be effected on the Nasdaq national market or in the over-the-counter market, or otherwise and, if commenced, may be discontinued at any time. Deutsche Bank Securities Inc. and Lehman Brothers Inc. have performed investment banking and advisory services for us from time to time for which they have received customary compensation and reimbursement of expenses. Among other services, they have acted as underwriters and arrangers for our senior subordinated discount notes offering and as agents and lenders under our senior credit facilities. LEGAL MATTERS Certain legal matters in connection with the common stock we are offering under this prospectus are being passed upon for us by McDermott, Will & Emery. The underwriters have been represented by Cravath, Swaine & Moore. Wiley, Rein & Fielding are also advising us on regulatory matters under the Federal communications laws. EXPERTS The consolidated balance sheets as of December 31, 1997 and 1998 and September 30, 1999, and the consolidated statements of operations, changes in stockholders' equity (deficit), and cash flows for the period July 29, 1996, date of our inception, to December 31, 1996, for the years ended December 31, 1997 and 1998 and for the nine months ended September 30, 1999, included in this prospectus, have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of the firm as experts in accounting and auditing. 109 AVAILABLE INFORMATION We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the class A common shares. As permitted by the rules and regulations of the SEC, this prospectus omits some information, exhibits and undertakings contained in the registration statement. For further information with respect to us and the class A common shares, you should review the registration statement, including the exhibits and the financial statements to the registration statement, notes and schedules filed as a part of the registration statement. We are subject to the informational requirements of the Exchange Act. The registration statement and the exhibits and schedules to the registration statement, as well as the periodic reports and other information filed with the SEC, may be inspected and copied at the Public Reference Section of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, NW, Washington, DC 20549 and at the regional offices of the SEC located at 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of these materials may be obtained from the Public Reference Section of the SEC, Room 1024, Judiciary Plaza, 450 Fifth Street, NW, Washington DC 20549, and its public reference facilities in New York, New York at the prescribed rates. You may obtain information as to the operation of the Public Reference Room by calling the SEC at 1-800-SEC- 0330. The SEC maintains a website at http://www.sec.gov that contains periodic reports, proxy and information statements and other information regarding registrants that file documents electronically with the SEC. Statements contained in this prospectus as to the contents of any contract or other document are not necessarily complete, and in each instance reference is made to the copy of the contract or document filed as an exhibit to the registration statement, each statement being qualified in all respects by reference. 110 INDEX TO FINANCIAL STATEMENTS TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
Page ---- Report of Independent Accountants........................................ F-2 Consolidated Balance Sheets.............................................. F-3 Consolidated Statements of Operations.................................... F-4 Consolidated Statement of Changes in Stockholders' Equity (Deficit)...... F-5 Consolidated Statements of Cash Flows.................................... F-6 Notes to Consolidated Financial Statements............................... F-8 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Description of Unaudited Pro Forma Condensed Consolidated Financial Statements.............................................................. F-43 Unaudited Pro forma Condensed Consolidated Balance Sheet as of September 30, 1999................................................................ F-44 Unaudited Pro forma Condensed Consolidated Statement of Operations for the Nine Months Ended September 30, 1999................................ F-45 Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31, 1998........................................ F-46 Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements.............................................................. F-47
F-1 Report of Independent Accountants To the Board of Directors and Stockholders TeleCorp PCS Inc. and Subsidiaries and Predecessor Company: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, changes in stockholders' equity (deficit) and cash flows present fairly, in all material respects, the financial position of TeleCorp PCS Inc. and Subsidiaries and Predecessor Company (the Company) at December 31, 1997 and 1998 and September 30, 1999 and the consolidated results of their operations and their cash flows for the period July 29, 1996 (date of inception) to December 31, 1996, for the years ended December 31, 1997 and 1998 and for the nine month period ended September 30, 1999, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP McLean, Virginia November 16, 1999 F-2 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY CONSOLIDATED BALANCE SHEETS
December 31 ------------------------- September 30, 1997 1998 1999 ----------- ------------ ------------- ASSETS Current assets: Cash and cash equivalents........... $ 2,566,685 $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................ 73,468 1,218,263 231,747 ----------- ------------ ------------- Total current assets............... 2,640,153 115,914,783 112,888,753 Property and equipment, net......... 3,609,274 197,468,622 347,348,394 PCS licenses and microwave relocation costs, net.............. 10,018,375 118,107,256 235,759,502 Intangible assets -- AT&T agreements, net.................... -- 26,285,612 39,696,161 Deferred financing costs, net....... -- 8,584,753 18,384,404 Other assets........................ 26,673 283,006 705,964 ----------- ------------ ------------- Total assets....................... $16,294,475 $466,644,032 $ 754,783,178 =========== ============ ============= LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable.................... $ 3,202,295 $ 14,591,922 $ 21,962,774 Accrued expenses.................... 824,164 94,872,262 38,794,385 Microwave relocation obligation, current portion.................... -- 6,636,369 5,297,484 Long-term debt, current portion..... 4,881,073 -- 1,340,378 Accrued interest.................... 389,079 4,490,553 3,635,106 Deferred revenue.................... -- -- 1,133,018 ----------- ------------ ------------- Total current liabilities.......... 9,296,611 120,591,106 72,163,145 Long-term debt....................... 7,727,322 243,385,066 628,409,693 Microwave relocation obligation...... -- 2,481,059 2,364,544 Accrued expenses..................... -- -- 5,028,943 Deferred rent........................ -- 196,063 605,496 ----------- ------------ ------------- Total liabilities.................. 17,023,933 366,653,294 708,571,821 ----------- ------------ ------------- Mandatorily redeemable preferred stock, issued 367, 255,999 and 382,478 shares, respectively; and outstanding, 367, 255,215 and 382,478 shares, respectively, (liquidation preference $382,802,874 as of September 30, 1999)........... 4,144,340 240,408,879 353,014,125 Deferred compensation................ -- (4,111) (9,482) Treasury stock, none, 784 shares, and none, respectively, at cost......... -- (8) -- Preferred stock subscriptions receivable.......................... -- (75,914,054) (103,000,543) ----------- ------------ ------------- Total mandatorily redeemable preferred stock, net.............. 4,144,340 164,490,706 250,004,100 ----------- ------------ ------------- Commitments and contingencies........ Stockholders' equity (deficit): Series F preferred stock, par value $.01 per share, none, 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 none, for December 31, 1997, $.01 per share for December 31, 1998 and September 30, 1999, issued 19,335, 49,357,658 and 74,973,596 shares, respectively; and outstanding 19,335, 48,805,184 and 74,973,596 shares, respectively............... 856 493,576 749,704 Additional paid-in capital.......... -- -- 5,379,062 Deferred compensation............... -- (7,177) (801,083) Common stock subscriptions receivable......................... -- (86,221) (190,991) Treasury stock, none, 552,474 shares and none, respectively, at cost.... -- (18) -- Accumulated deficit................. (4,874,654) (65,003,215) (209,078,563) ----------- ------------ ------------- Total stockholders' equity (deficit)......................... (4,873,798) (64,499,968) (203,792,743) ----------- ------------ ------------- Total liabilities, mandatorily redeemable preferred stock and stockholders' equity (deficit).... $16,294,475 $466,644,032 $ 754,783,178 =========== ============ =============
The accompanying notes are an integral part of these consolidated financial statements. F-3 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS
For the period July 29, 1996 (date of For the year ended For the nine months ended inception) to December 31, September 30, December 31, ------------------------- --------------------------- 1996 1997 1998 1998 1999 -------------- ----------- ------------ ------------ ------------- (unaudited) Revenue: Service revenue....... $ -- $ -- $ -- $ -- $ 18,937,031 Equipment revenue..... -- -- -- -- 10,321,594 Roaming revenue....... -- -- 29,231 -- 18,942,080 --------- ----------- ------------ ------------ ------------- Total revenue....... -- -- 29,231 -- 48,200,705 --------- ----------- ------------ ------------ ------------- Operating expenses: Cost of revenue....... -- -- -- -- 23,086,816 Operations and development.......... -- -- 9,772,485 3,501,647 25,925,009 Selling and marketing............ 9,747 304,062 6,324,666 2,488,497 39,719,864 General and administrative....... 515,146 2,637,035 26,239,119 15,884,861 38,942,446 Depreciation and amortization......... 75 10,625 1,583,864 643,026 34,799,411 --------- ----------- ------------ ------------ ------------- Total operating expenses........... 524,968 2,951,722 43,920,134 22,518,031 162,473,546 --------- ----------- ------------ ------------ ------------- Operating loss...... (524,968) (2,951,722) (43,890,903) (22,518,031) (114,272,841) Other (income) expense: Interest expense...... -- 396,362 11,934,263 5,500,733 34,447,452 Interest income....... -- (12,914) (4,697,233) (2,630,576) (4,805,133) Other expense......... -- -- 27,347 23,193 160,188 --------- ----------- ------------ ------------ ------------- Net loss............ (524,968) (3,335,170) (51,155,280) (25,411,381) (144,075,348) Accretion of mandatorily redeemable preferred stock.................. (288,959) (725,557) (8,566,922) (4,026,459) (16,959,618) --------- ----------- ------------ ------------ ------------- Net loss attributable to common equity...... $(813,927) $(4,060,727) $(59,722,202) $(29,437,840) $(161,034,966) ========= =========== ============ ============ ============= Net loss attributable to common equity per share--Basic and Diluted................ $ (44.45) $ (111.74) $ (2.19) $ (1.45) $ (2.30) ========= =========== ============ ============ ============= Weighted average common equity shares outstanding--Basic and Diluted................ 18,313 36,340 27,233,786 20,367,373 70,089,141 ========= =========== ============ ============ ============= Pro forma net loss attributable to common equity (unaudited)..... $(75,710,500) $(173,489,966) ============ ============= Pro forma net loss attributable to common equity per share (unaudited)--Basic and Diluted................ $ (1.28) $ (2.43) ============ ============= Pro forma weighted average common equity shares outstanding (unaudited)--Basic and Diluted................ 58,944,055 71,362,532 ============ =============
The accompanying notes are an integral part of these consolidated financial statements. F-4 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
Series F preferred stock Common stock Additional Common stock Treasury stock ------------------- -------------------- paid-in Deferred subscriptions ---------------- Shares Amount Shares Amount capital compensation receivable Shares Amount ---------- -------- ---------- -------- ----------- ------------ ------------- -------- ------ Initial capitalization for cash........ -- $ -- 8,750 $ 2,000 $ -- $ -- $ -- -- $-- Issuance of common stock for cash............ -- -- 34,374 -- -- -- -- -- -- Accretion of mandatorily redeemable preferred stock........... -- -- -- -- -- -- -- -- -- Net loss........ -- -- -- -- -- -- -- -- -- ---------- -------- ---------- -------- ----------- --------- --------- -------- ---- Balance, December 31, 1996............ -- -- 43,124 2,000 -- -- -- -- -- Issuance of common stock for cash............ -- -- 6,875 -- -- -- -- -- -- Accretion of mandatorily redeemable preferred stock........... -- -- -- -- -- -- -- -- -- Noncash redemption of equity interests....... -- -- (30,664) (1,144) -- -- -- -- -- Net loss........ -- -- -- -- -- -- -- -- -- ---------- -------- ---------- -------- ----------- --------- --------- -------- ---- Balance, December 31, 1997............ -- -- 19,335 856 -- -- -- -- -- Noncash redemption of equity interests....... -- -- (19,335) (856) -- -- -- -- -- Issuance of preferred and common stock for cash, licenses and AT&T agreements...... 10,308,676 103,087 46,262,185 462,622 -- -- (86,221) -- -- Accretion of mandatorily redeemable preferred stock........... -- -- -- -- -- -- -- -- -- Noncash issuance of restricted stock to employees....... -- -- 3,095,473 30,954 -- (10,018) -- -- -- Repurchase of common stock for cash............ -- -- -- -- -- 1,787 -- (552,473) (18) Amortization of deferred compensation.... -- -- -- -- -- 1,054 -- -- -- Net loss........ -- -- -- -- -- -- -- -- -- ---------- -------- ---------- -------- ----------- --------- --------- -------- ---- Balance, December 31, 1998............ 10,308,676 103,087 49,357,658 493,576 -- (7,177) (86,221) (552,473) (18) Issuance of preferred stock and common stock for cash and licenses........ 4,604,102 46,041 23,231,330 232,313 21,550,730 -- (104,770) -- -- Accretion of mandatorily redeemable preferred stock........... -- -- -- -- (16,959,618) -- -- -- -- Noncash issuance of restricted stock to employees....... -- -- 2,384,607 23,815 787,950 (800,792) -- 959,259 31 Amortization of deferred compensation.... -- -- -- -- -- 5,582 -- -- -- Repurchase of common stock for cash............ -- -- -- -- -- 1,304 -- (406,786) (13) Net loss........ -- -- -- -- -- -- -- -- -- ---------- -------- ---------- -------- ----------- --------- --------- -------- ---- Balance, September 30, 1999 ........... 14,912,778 $149,128 74,973,595 $749,704 $ 5,379,062 $(801,083) $(190,991) -- $-- ========== ======== ========== ======== =========== ========= ========= ======== ==== Accumulated deficit Total -------------- -------------- Initial capitalization for cash........ $ -- $ 2,000 Issuance of common stock for cash............ -- -- Accretion of mandatorily redeemable preferred stock........... (288,959) (288,959) Net loss........ (524,968) (524,968) -------------- -------------- Balance, December 31, 1996............ (813,927) (811,927) Issuance of common stock for cash............ -- -- Accretion of mandatorily redeemable preferred stock........... (725,557) (725,557) Noncash redemption of equity interests....... -- (1,144) Net loss........ (3,335,170) (3,335,170) -------------- -------------- Balance, December 31, 1997............ (4,874,654) (4,873,798) Noncash redemption of equity interests....... -- (856) Issuance of preferred and common stock for cash, licenses and AT&T agreements...... (383,636) 95,852 Accretion of mandatorily redeemable preferred stock........... (8,566,922) (8,566,922) Noncash issuance of restricted stock to employees....... (20,936) -- Repurchase of common stock for cash............ (1,787) (18) Amortization of deferred compensation.... -- 1,054 Net loss........ (51,155,280) (51,155,280) -------------- -------------- Balance, December 31, 1998............ (65,003,215) (64,499,968) Issuance of preferred stock and common stock for cash and licenses........ -- 21,724,314 Accretion of mandatorily redeemable preferred stock........... -- (16,959,618) Noncash issuance of restricted stock to employees....... -- 11,004 Amortization of deferred compensation.... -- 5,582 Repurchase of common stock for cash............ 1,291 Net loss........ (144,075,348) (144,075,348) -------------- -------------- Balance, September 30, 1999 ........... $(209,078,563) $(203,792,743) ============== ==============
The accompanying notes are an integral part of these consolidated financial statements. F-5 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS ------------
For the period July 29, 1996 For the year (date of ended For the nine months ended inception) to December 31 September 30, December 31, --------------------------- ----------------------------- 1996 1997 1998 1998 1999 -------------- ------------ ------------- ------------- -------------- (unaudited) Cash flows from operating activities: Net loss............... $ (524,968) $ (3,335,170) $ (51,155,280) $ (25,411,381) $ (144,075,348) Adjustment to reconcile net loss to net cash used in operating activities: Depreciation and amortization.......... 75 10,625 1,583,864 643,026 34,799,411 Noncash compensation expense associated with the issuance of restricted common stock and preferred stock................. -- -- 1,664 -- -- Noncash interest expense associated with issuance of Lucent Notes and senior subordinated discount notes........ -- -- 460,400 247,900 19,533,603 Allowance for bad debt expense............... -- -- -- -- 1,022,267 Noncash general and administrative expense charge by affiliates.. -- -- 196,622 -- -- Amortization of deferred financing costs................. -- -- 524,924 232,398 1,199,642 Amortization of discount on notes payable............... -- 134,040 197,344 142,696 261,796 Changes in cash flow from operations resulting from changes in assets and liabilities: Accounts receivable.... -- -- -- -- (17,923,554) Inventory.............. -- -- (778,235) -- (11,347,415) Prepaid expenses....... -- -- (2,185,444) (885,463) (83,392) Other current assets... (21,877) (51,591) (1,144,795) (135,573) 997,337 Other assets........... -- (26,673) (256,333) (210,413) 715,246 Accounts payable....... 98,570 618,889 11,389,627 7,831,768 11,137,988 Accrued expenses....... -- -- 9,145,111 7,636,992 15,591,173 Deferred rent.......... -- -- 196,063 105,388 409,433 Accrued interest....... -- 257,682 2,046,432 569,409 (946,588) Deferred revenue....... -- -- -- -- 1,133,018 ---------- ------------ ------------- ------------- -------------- Net cash used in operating activities........... (448,200) (2,392,198) (29,778,036) (9,233,253) (87,575,383) ---------- ------------ ------------- ------------- -------------- Cash flows from investing activities: Expenditures for network under development, wireless network and property and equipment......... (904) (1,134,234) (107,542,189) (38,502,943) (245,528,171) Capitalized interest on network under development and wireless network...... -- -- (227,000) -- (4,478,356) Expenditures for microwave relocation.. -- -- (3,339,410) (1,966,669) (5,678,837) Purchase of PCS licenses.............. -- -- (21,000,000) (21,000,000) (72,390,417) Deposit on PCS licenses.............. (7,500,000) -- -- -- (43,647,343) Partial refund of deposit on PCS licenses.............. -- 1,561,702 -- -- 11,361,351 Purchase of intangibles--AT&T agreements............ -- -- -- -- (16,144,725) ---------- ------------ ------------- ------------- -------------- Net cash (used in) provided by investing activities........... (7,500,904) 427,468 (132,108,599) (61,469,612) (376,506,498) ---------- ------------ ------------- ------------- -------------- Cash flows from financing activities: Proceeds from sale of mandatorily redeemable preferred stock....... 7,500,000 1,500,000 26,661,420 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) (1,027,694) (2,500,000) Proceeds from sale of common stock.......... 2,000 -- 38,305 38,305 21,724,314 Proceeds from long-term debt.................. 498,750 2,808,500 257,491,500 255,390,954 397,635,000 Purchases of treasury shares................ -- -- (26) (7) (19) Payments on notes payable............... -- -- (2,072,573) (2,072,573) (40,223,611) Payments of deferred financing costs....... -- -- (9,109,677) (9,109,677) (10,999,293) Net increase (decrease) in amounts due to affiliates............ -- 171,269 (928,464) (824,164) (1,138,213) ---------- ------------ ------------- ------------- -------------- Net cash provided by financing activities........... 8,000,750 4,479,769 271,052,791 256,431,844 432,759,148 ---------- ------------ ------------- ------------- -------------- Net increase (decrease) in cash and cash equivalents............ 51,646 2,515,039 109,166,156 185,728,979 (31,322,733) Cash and cash equivalents at the beginning of period.... -- 51,646 2,566,685 2,566,685 111,732,841 ---------- ------------ ------------- ------------- -------------- Cash and cash equivalents at the end of period.............. $ 51,646 $ 2,566,685 $ 111,732,841 $ 188,295,664 $ 80,410,108 ========== ============ ============= ============= ==============
The accompanying notes are an integral part of these consolidated financial statements. F-6 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued) ------------
For the period July 29, 1996 For the nine months (date of For the year ended ended inception) to December 31, September 30, December 31, ----------------------- ----------------------- 1996 1997 1998 1998 1999 -------------- ---------- ------------ ----------- ----------- (unaudited) Supplemental disclosure of cash flow information: Cash paid for income taxes................ $ -- $ -- $ -- $ -- $ -- Cash paid for interest............. $ -- $ -- $ 9,785,829 $ -- $14,569,654 Supplemental disclosure of non-cash investing and financing activities: Network under development and microwave relocation costs included in accounts payable and accrued expenses..... $ -- $2,484,836 $ 98,091,667 $27,000,000 $14,857,198 Issuance of mandatorily redeemable preferred stock and preferred stock in exchange for PCS licenses and AT&T agreements........... $ -- $ -- $100,900,000 $ -- $ 2,674,130 Issuance of mandatorily redeemable preferred stock and common stock in exchange for stock subscriptions receivable.......... $ -- $ -- $ 76,000,275 $ -- $27,191,259 U.S. Government financing of PCS licenses............. $ -- $9,192,938 $ -- $ -- $11,550,645 Discount on U.S. Government financing............ $ -- $1,599,656 $ -- $ -- $ 1,630,562 Conversion of notes payable to stockholders into preferred stock...... $ -- $ 498,750 $ 25,300,000 $ -- $ -- Accretion of preferred stock dividends...... $288,959 $ 725,557 $ 8,566,922 $ 4,026,459 $16,959,618 Elimination of equity interests in Holding for equity interests in TeleCorp.......... $ -- $ -- $ 4,369,680 $ -- $21,886,073 Redemption of equity interests............ $ -- $6,370,070 $ -- $ -- $ -- Distribution of net assets to affiliates........... $ -- $3,644,602 $ -- $ -- $ -- Notes payable to affiliates........... $ -- $2,725,468 $ -- $ -- $ -- Capitalized interest.. $ -- $ 131,397 $ 2,055,043 $ -- $ 4,542,033
The accompanying notes are an integral part of these consolidated financial statements. F-7 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------ The consolidated financial statements and the Notes have been adjusted to give effect to the stock split as described in Note 16. 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 exchange 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 (see Note 5) 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 (see Note 14). 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, Holding became a wholly-owned subsidiary of TeleCorp (see Note 6). TeleCorp has various wholly-owned subsidiaries which includes TeleCorp Communications, Inc., TeleCorp LLC and Holding. TeleCorp receives services from TeleCorp Management Corp., an affiliate company owned by two officers and stockholders of TeleCorp (see Note 14). 2. Summary of Significant Accounting Policies Basis of presentation Holding was formed to explore various business opportunities in the wireless telecommunications industry. TeleCorp was formed to continue the activity of Holding through its strategic alliance with AT&T. Since inception, Holding's and TeleCorp's activities have consisted principally of hiring a management team, raising capital, negotiating strategic business relationships, participating in the Auction and operating wireless networks. Consequently, for purposes of the accompanying financial statements, Holding has been treated as a "predecessor" entity. Therefore, the financial statements as of December 31, 1997 and for the period July 29, 1996 to December 31, 1996 and for the year ended December 31, 1997 include the historical financial information of Holding, the predecessor entity. The financial statements as of and for the year ended December 31, 1998 and for all periods thereafter, include the historical financial information of Holding and TeleCorp. The Chief Executive Officer and President of Holding maintain the positions of Chief Executive Officer and Executive Vice President and Chief Financial Officer, respectively, of TeleCorp. In addition, these F-8 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ------------ officers own a majority of the voting stock of TeleCorp and, prior to the finalization of the AT&T Transaction, owned a majority of the voting stock of Holding. As a result of this relationship, certain financing relationships and the similar nature of business activities, Holding and TeleCorp are considered companies under common control. Therefore, the accompanying financial statements incorporate the combined business activities of Holding and TeleCorp. Collectively, TeleCorp and Holding are referred to as the Company in the accompanying consolidated financial statements. Unaudited Interim Financial Information The unaudited consolidated statements of operations and cash flows for the nine months ended September 30, 1998, 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 of the information and footnotes required by generally accepted accounting principles. In the opinion of management, the interim data includes all adjustments (consisting of only normal recurring adjustments) necessary for a fair statement of the results for the interim period. Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, which includes TeleCorp Communications, Inc., TeleCorp LLC and Holding. All intercompany accounts and transactions have been eliminated in consolidation. For the nine months ended September 30, 1999, the Company has consolidated the results of Viper Wireless, Inc. since the Company's absence of voting control is considered temporary (see Notes 7 and 17). Development Stage Company Prior to January 1, 1999, the Company's activities principally have been planning and participation in the Auction, initiating research and development, conducting market research, securing capital and developing its proposed service and network. Since the Auction, the Company has been relying on the borrowing of funds and the issuance of common and preferred stock rather than recurring revenues, for its primary sources of cash flow. Accordingly, the Company's financial statements for all periods prior to January 1, 1999 were presented as a development stage enterprise, as prescribed by Statement of Financial Accounting Standards No. 7, "Accounting and Reporting by Development Stage Enterprises." In the first quarter of 1999, the Company commenced operations in the New Orleans, Memphis and Little Rock BTA's and began providing wireless mobility services for its customers. As a result, the Company exited the development stage in the quarter ended March 31, 1999. The Company incurred cumulative losses through September 30, 1999 of approximately $199,000,000. The Company expects to continue to incur significant operating losses and to generate negative cash flow from operating activities for at least the next several years while it constructs its network and develops its customer base. The Company's ability to eliminate operating losses and to generate positive cash flow from operations in the future will depend upon a variety of factors, many of which it is unable to control. These factors include: (1) the cost of constructing its network, (2) changes in technology, (3) changes in governmental regulations, (4) the level of demand for wireless communications services, (5) the product offerings, pricing strategies and other competitive factors of the Company's competitors and (6) general economic conditions. If the Company's is unable to implement its business plan successfully, it may not be able to eliminate operating losses, generate F-9 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ------------ positive cash flow or achieve or sustain profitability which would materially adversely affect its business, operations and financial results as well as its ability to make payments on its debt obligations. Fair Value of Financial Instruments The Company believes that the carrying amount of its financial instruments approximate fair value. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities on the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Concentration of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents. The Company has invested its excess cash in overnight sweep accounts and U.S. Treasury obligations. The Company has not experienced any losses on its cash and cash equivalents. Cash Equivalents The Company considers all highly liquid instruments with a maturity from purchase date of three months or less to be cash equivalents. Cash equivalents consist of overnight sweep accounts and U.S. Treasury obligations. Revenue Recognition The Company earns revenue by providing wireless mobility services to both its subscribers and subscribers of other wireless carriers traveling in the Company's service area, as well as sale of equipment and accessories. Wireless mobility services revenue consists of monthly service fees, activation fees, airtime and long distance revenue. Generally, access fees, airtime and long distance charges are billed monthly and are recognized when service is provided. Prepaid service revenue is collected in advance, is recorded as deferred revenue and recognized as service is provided. Roaming revenue consists of the airtime and long distance charged to the subscribers of other wireless carriers for use of the Company's network while traveling in the Company's service area and is recognized when the service is rendered. Equipment revenue is recognized upon delivery of the equipment to the customer and when future obligations are no longer significant. PCS Licenses and Microwave Relocation Costs PCS licenses include costs incurred, including capitalized interest related to the U.S. Government financing, to acquire FCC licenses in the 1850-1990 MHz radio frequency band. Interest capitalization on the F-10 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ------------ U.S. Government financing began when the activities necessary to get the Company's network ready for its intended use were initiated and concluded when the wireless networks were ready for intended use. The PCS licenses are issued conditionally for ten years. Historically, the FCC has granted license renewals providing the licensees have complied with applicable rules, policies and the Communications Act of 1934, as amended. The Company believes it has complied with and intends to continue to comply with these rules and policies. As a condition of each PCS license, the FCC requires each license-holder to relocate existing microwave users (Incumbents) within the awarded spectrum to microwave frequencies of equal capacity. Microwave relocation costs include the actual and estimated costs incurred to relocate the Incumbent's microwave links affecting the Company's licensed frequencies. PCS licenses, microwave relocation costs, and capitalized interest consist of the following:
December 31, September 30, 1997 1998 1999 ----------- ------------ ------------- PCS licenses......................... $ 9,886,978 $104,736,978 $220,873,613 Microwave relocation costs........... -- 12,456,838 15,597,399 Capitalized interest................. 131,397 913,440 1,004,581 ----------- ------------ ------------ 10,018,375 118,107,256 $237,475,593 Accumulated amortization............. -- -- (1,716,091) ----------- ------------ ------------ $10,018,375 $118,107,256 $235,759,502 =========== ============ ============
The Company began amortizing the cost of the PCS licenses, microwave relocation costs, and capitalized interest in March 1999, when PCS services commenced in certain BTAs. Amortization is calculated using the straight-line method over 40 years. Amortization expense for the nine months ended September 30, 1999 was $1,716,091. Property and Equipment and Network Under Development Property and equipment are recorded at cost and depreciation is computed using the straight-line method over the following estimated useful lives: Computer equipment.............. 3 to 5 years Network under development and wireless network............... 5 to 10 years upon commencement of service Internal use software........... 3 years Furniture, fixtures and office equipment...................... 5 years Leasehold improvements.......... Lesser of useful life or lease term
Expenditures for repairs and maintenance are charged to operations when incurred. Gains and losses from disposals, if any, are included in the statements of operations. Network under development includes all costs related to engineering, cell site acquisition, site development, interest expense and other development costs being incurred to ready the Company's wireless network for use. Internal and external costs incurred to develop the Company's billing, financial systems and other internal applications during the application development stage are capitalized as internal use software. All costs incurred prior to the application development stage are expensed as incurred. Training costs and all post implementation internal and external costs are expensed as incurred. F-11 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ------------ Intangible assets--AT&T Agreements The AT&T Agreements consist of the fair value of various agreements with AT&T (see Note 6) exchanged for mandatorily redeemable preferred stock and Series F preferred stock (see notes 6 and 7). The AT&T Agreements are amortized on a straight-line basis over the related contractual terms, which range from three to ten years. Amortization on the AT&T Exclusivity Agreement, Long Distance Agreement and the Intercarrier 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. During 1999, the Company completed acquisitions for additional licenses (see Note 7). Inventory Inventory consists of the following:
December 31, ------------- September 30, 1997 1998 1999 ---- -------- ----------- Handsets.............................................. $-- $778,235 $11,355,389 Accessories........................................... -- -- 770,261 ---- -------- ----------- Total inventory..................................... $-- $778,235 $12,125,650 ==== ======== ===========
Inventory is valued at the lower of cost or market and is recorded net of an allowance for obsolescence. No allowance for obsolescence has been recorded as of December 31, 1998 and September 30, 1999. Deferred Financing Costs In connection with entering into the credit facility and the senior- subordinated discount rates (see Note 5), the Company incurred certain debt issuance costs. The Company has capitalized financing costs of $9,109,677 and $20,108,970, as of December 31, 1998 and September 30, 1999, respectively. The financing costs are being amortized using the straight line method over the term of the credit facility. For the year ended December 31, 1998 and for the nine months ended September 30, 1999, the Company recorded interest expense related to the amortization of the deferred financing costs of $524,924 and $1,199,642, respectively. Long-Lived Assets The Company periodically evaluates the recoverability of the carrying value of property and equipment, network under development, intangible assets, PCS licenses and microwave relocation costs. The Company considers historical performance and anticipated future results in its evaluation of potential impairment. Accordingly, when indicators of impairment are present, the Company evaluates the carrying value of these assets in relation to the operating performance of the business and future and undiscounted cash flows expected to result from the use of these assets. Impairment losses are recognized when the sum of the present value of expected future cash flows are less than the assets' carrying value. No such impairment losses have been recognized to date. Income Taxes The Company accounts for income taxes in accordance with the liability method. Deferred income taxes are recognized for tax consequences in future years for differences between the tax bases of assets and F-12 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ------------ liabilities and their financial reporting amounts at each year-end, based on enacted laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce net deferred tax assets to the amount expected to be realized. The provision for income taxes consists of the current tax provision and the change during the period in deferred tax assets and liabilities. Start-Up and Advertising Costs Start-up costs are expensed as incurred. The Company expenses production costs of print, radio and television advertisements and other advertising costs as such costs are incurred. Advertising expenses in selling and marketing for 1996, 1997, and 1998 were insignificant. Advertising expenses in selling and marketing were $9,331,592 for the nine months ended September 30, 1999. Interest Rate Swaps The Company uses interest swaps to hedge the effects of fluctuations in interest rates from their Senior Credit Facility (see Note 5). These transactions meet the requirements for hedge accounting, including designation and correlation. The interest rate swaps are managed in accordance with the Company's policies and procedures. The Company does not enter into these transactions for trading purposes. The resulting gains or losses, measured by quoted market prices, are accounted for as part of the transactions being hedged, except that losses not expected to be recovered upon the completion of hedged transactions are expensed. Gains or losses associated with interest rate swaps are computed as the difference between the interest expense per the amount hedged using the fixed rate compared to a floating rate over the term of the swap agreement. As of December 31, 1998, the Company has entered into six interest rate swap agreements with various commercial lenders totaling a notional amount of $225,000,000 to convert the Company's variable rate debt of LIBOR plus 3.25% to fixed rate debt. The six outstanding interest rate swap contracts fix LIBOR at annual interest rates from 5.20% to 5.26%. The contracts mature in September of 2003. The interest rate swaps had no material impact on the consolidated financial statements as of and for the year ended December 31, 1998 and as of and for the nine months ended September 30, 1999. Segment Reporting The Company presently operates in a single business segment as a provider of wireless mobility services in its licensed regions primarily in the south- central and northeastern United States. The Company operates in various MTAs including New Orleans, LA, Memphis, TN, Little Rock, AK, Boston, MA and Puerto Rico. Stock Compensation The Company periodically issues restricted stock awards to its employees. Upon reaching a measurement date, the Company records deferred compensation equal to the estimated fair value of the stock award. Deferred compensation is amortized to compensation expense over the related vesting period. Recently Issued Accounting Standards In July 1999, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 137, "Deferral of the Effective Date of FAS 133" which defers the effective date of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company has not determined the effect of adopting this standard. F-13 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ------------ Net Loss Attributable to Common Equity Per Share and Pro Forma Net Loss Attributable to Common Equity Per Share The Company computes net loss attributable to common equity per share in accordance with SFAS No. 128, "Earnings Per Share," and SEC Staff Accounting Bulletin No. 98 (SAB 98). Under the provisions of SFAS No. 128 and SAB 98, basic net loss attributable to common equity per share is computed by dividing the net loss attributable to common equity for the period by the weighted average number of common equity shares outstanding during the period, which includes Series F Preferred Stock and all classes of Common Stock. Diluted net loss attributable to common equity per share is computed by dividing the net loss attributable to common equity for the period by the weighted average number of common and dilutive common equivalent shares outstanding during the period. As the Company had a net loss attributable to common equity in each of the periods presented, basic and diluted net loss attributable to common equity per share are the same. Pro forma basic and diluted net loss attributable to common equity per share has been calculated assuming the completion of our pending acquisitions of Telecorp LMDS, Inc., the finalization of the share issuance of Viper Wireless, Inc. (see Note 17) and the completed acquisitions (see Note 7) as if these acquisitions were in effect in the periods presented. As the Company had a net loss attributable to common equity in each of the periods presented, pro forma basic and diluted net loss attributable to common equity per share is the same. 3. Property and Equipment Property and equipment consists of the following:
December 31, ------------------------ September 30, 1997 1998 1999 ---------- ------------ ------------ Wireless network................... $ -- $ -- $306,052,853 Network under development.......... 3,269,793 170,885,628 17,736,768 Computer equipment................. 328,875 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......................... 21,306 2,924,233 8,574,678 Land............................... -- -- 48,800 ---------- ------------ ------------ 3,619,974 198,290,689 377,349,610 Accumulated depreciation........... (10,700) (822,067) (30,001,216) ---------- ------------ ------------ $3,609,274 $197,468,622 $347,348,394 ========== ============ ============
F-14 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ------------ 4. Accrued Expenses Accrued expenses consist of the following:
December 31, -------------------- September 30, 1997 1998 1999 -------- ----------- ----------- Property and equipment..................... $ -- $85,634,829 $14,947,063 Sales taxes................................ -- -- 9,759,041 Consulting services........................ -- 4,237,411 3,279,878 Bonuses and vacation....................... -- 2,386,317 4,425,633 Engineering................................ -- 676,893 1,079,395 Selling and marketing...................... -- 346,552 2,009,731 Inventory.................................. -- -- 3,381,724 Legal fees................................. -- 402,893 809,956 Other...................................... 824,164 1,187,367 4,130,907 -------- ----------- ----------- 824,164 94,872,262 43,823,328 Less: non-current portion.................. -- -- 5,028,943 -------- ----------- ----------- $824,164 $94,872,262 $38,794,385 ======== =========== ===========
5. Long-term Debt Long-term debt consists of the following:
December 31, ------------------------- September 30, 1997 1998 1999 ----------- ------------ ------------ Senior subordinated discount notes............................. $ -- $ -- $344,351,212 Senior credit facilities........... -- 225,000,000 225,000,000 Lucent notes payable............... -- 10,460,400 42,515,924 U.S. Government financing.......... 7,727,322 7,924,666 17,882,935 Notes payable to stockholders...... 2,808,500 -- -- Notes payable to affiliates........ 2,072,573 -- -- ----------- ------------ ------------ 12,608,395 243,385,066 629,750,071 Less: current portion.............. (4,881,073) -- 1,340,378 ----------- ------------ ------------ $ 7,727,322 $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 F-15 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ------------ are subordinate to all of the Company's existing and future senior debt and ranks equally with all other senior subordinated debt, and ranks senior to all of the Company's existing and future subordinated debt. The Notes are guaranteed by the Company's wholly owned subsidiary, TeleCorp Communications, Inc. (see Note 16). As of September 30, 1999 accrued interest added to the principal was $16,716,212. Senior Credit Facilities In July 1998, the Company entered into a credit facility (the Senior Credit Facility) with a group of commercial lenders, under which the Company may borrow up to $525,000,000, 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 8.75% and interest incurred for the year ended December 31, 1998 was $9,210,187 of which $7,710,187 was expensed and $1,500,000 was capitalized. At September 30, 1999, the interest rate applicable to the Tranche B Term Loan was 8.48%, and for the nine months ended September 30, 1999 interest incurred on the Tranche B Term Loan was $14,093,750 of which $9,615,395 was expensed and $4,478,355 was capitalized. The loans from the Senior Credit Facility are subject to an annual commitment fee which ranges from 0.50% to 1.25% of the available portion of the Tranche A Term Loan and the Senior Revolving Credit Facility. The Company has expensed $3,305,905 and $2,863,252, for the year ended December 31, 1998 and for the nine months ended September 30, 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 F-16 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ------------ 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. The six outstanding interest rate swap contracts fix LIBOR at annual interest rates from 5.20% to 5.26%. The contracts mature in September of 2003. Initially, borrowings under the Senior Credit Facility are subject to a maximum Senior Debt to Total Capital ratio, as defined, of 50%. This ratio 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 Agreements 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 $42,515,924 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. Interest expense for the year ended December 31, 1998 and for the nine months ended September 30, 1999 was $460,000 and $2,283,302, respectively. The Series A and Series B Notes will not amortize and will have a maturity date six months after the final maturity of the Company's high yield debt offering, but in no event later than May 1, 2012. The Series A Notes will have a mandatory redemption at par plus accrued interest from the proceeds of a subsequent equity offering to the extent the net proceeds exceed an amount identified in the Lucent Note Agreement. If the Series A Notes and Series B Notes are not redeemed in full by January 2001 and January 2000, respectively, the interest rate on each note will increase by 1.5% per annum on January 1. However, the interest rate applicable to the Subordinated Notes shall not exceed 12.125%. Interest payable on the Series A Notes and the Series B Notes on or prior to May 11, 2004 shall be payable in additional Series A and Series B Notes. Thereafter, interest shall be paid in arrears in cash on each six month and yearly anniversary of the Series A and Series B closing date or, if cash interest payments are prohibited under the Senior Credit Facility and/or the Senior Subordinated Discount Notes, in additional Series A and Series B Notes. As of December 31, 1998 and September 30, 1999, interest accrued under the Series A Notes of $460,400 and $2,515,924, respectively has been included in long-term debt. F-17 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ------------ 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 As of December 31, 1998 and September 30, 1999, the Company owes the U.S. Government $9,192,938 and $20,519,972, less a discount of $1,268,272 and $2,637,037, respectively, for the acquisition of PCS licenses in New Orleans, Memphis, Beaumont and Little Rock obtained during the 1997 F-Block auction. 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, LLC and Wireless 2000, Inc. (see Note 7). As part of these acquisitions, the Company assumed additional U.S. Government financing with the FCC amounting to $11,550,645, less a discount of $1,630,562. The terms of the notes include an interest rate of 6.125% for notes assumed from Digital PCS, LLC and 7.00% for notes assumed from Wireless 2000, Inc., quarterly interest payments for a two-year period and then quarterly principal and interest payments for the remaining eight years. The notes were discounted using management's best estimate of the prevailing market interest rate at the time of issuance of 10.25%. Notes payable to stockholders In July 1996, the Company issued $498,750 of subordinated promissory notes to two stockholders. The notes bore interest at a rate of 10%, compounded semi- annually, and were due in full in July 2002. In April 1997, these notes were converted into 50 shares of Series A preferred stock. In December 1997, the Company issued various promissory notes totaling $2,808,500 to stockholders. The notes bore interest at a rate of 6% and were converted into mandatorily redeemable preferred stock of the Company in July 1998. The notes were discounted using management's best estimate of the prevailing market interest rate at the time of issuance of 10.25%. The effect on the Company's 1997 financial statements of discounting these notes was not material. F-18 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ------------ From January 1, 1998 to June 30, 1998, the Company borrowed approximately $22,491,500 in the form of promissory notes from existing and prospective stockholders to satisfy the working capital needs of the Company. The promissory notes bore interest at the rate of 6.25% per annum compounded quarterly and were payable in one lump sum on August 31, 1998. In July 1998, these notes were converted to mandatorily redeemable preferred stock of the Company (see Note 11) in connection with the AT&T Transaction. As of September 30, 1999, minimum required annual principal repayment (undiscounted) under all of the Company's outstanding debt obligations were as follows: October-December 1999.......................................... $ 327,389 For the year ending December 31: 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 ============
6. AT&T Transaction In January 1998, the Company entered into a Securities Purchase Agreement (the Securities Purchase Agreement) with AT&T Wireless PCS, Inc. and TWR Cellular, Inc. (both subsidiaries of AT&T Corporation and collectively referred to as AT&T PCS), the stockholders of Holding and various venture capital investment firms (the Cash Equity Investors). The Securities Purchase Agreement provides the Company will be a provider of wireless mobility services in its licensed regions utilizing the AT&T brand name. Upon the receipt of FCC approval in July 1998, the Company finalized the transaction contemplated in the Securities Purchase Agreement (the AT&T Transaction). As a result, the Company (i) issued preferred stock and paid AT&T $21,000,000 in exchange for 20 MHz PCS licenses with a fair value of $94,850,000 and certain operating agreements with AT&T for exclusivity, network membership, long distance and roaming with a fair value of $27,050,000; (ii) issued preferred and common stock for 100% of the outstanding ownership interests in Holding, which includes 10 MHz PCS licenses which was recorded at historical cost; and (iii) issued preferred and common stock for a cash commitment from the Cash Equity Investors of $128,000,000 to be paid over a three year term (see Note 11) plus an additional $5,000,000 upon the closing of the Digital PCS, Inc. transaction (see Note 7). The general terms of the operating agreements with AT&T are summarized below: . AT&T Exclusivity: The Company will be AT&T's exclusive facilities-based provider of mobile wireless telecommunications services within the Company's BTAs for an initial ten year period. This agreement will automatically renew for a one-year term and then operate on a year-to- year basis unless one party terminates at least ninety (90) days prior to the end of any one-year term. The Company has determined the fair value of this agreement to be $11,870,000 and is amortizing this value over the initial 10 year term. . Network Membership License Agreement: The Network Membership License Agreement (the License Agreement) defines that AT&T will make available to the Company use of the AT&T logo and the right to refer to itself as a "Member of the AT&T Wireless Network" to market its PCS services. Through the use of these rights, the Company expects to participate in and benefit from AT&T F-19 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ------------ promotional and marketing efforts. The License Agreement has an initial five-year term with a five-year renewal term if both the Company and AT&T elect to renew at least ninety 90 days prior to the expiration of the initial term. The Company has determined the fair value of this agreement to be $8,480,000 and is amortizing this value over the initial five year term. . Intercarrier Roamer Services Agreement: AT&T and the Company have entered into a twenty-year reciprocal roaming agreement provided that their customers who own tri-mode phones will roam on the other's mobile wireless systems at commercially reasonable rates to the extent commercially and technologically feasible. Thereafter, this agreement shall renew automatically on a year-to-year basis unless either the Company or AT&T terminates this agreement by written notice at least 90 days prior to the conclusion of the original or any subsequent term. After ten years, this agreement may be terminated by the Company or AT&T at any time upon 90 days prior written notice. The Company has determined the value of this roaming agreement to be $3,500,000 and is amortizing this value over the initial 10 year term. . Long Distance Agreement: The long distance agreement provides that AT&T will be the exclusive provider for long distance services to the Company's customers within the Company's licensed regions for an initial three year period. The long distance agreement requires that the Company meet a minimum traffic volume commitment during the term of the agreement. If the Company fails to meet such volume commitments, the Company must pay to AT&T the difference between the expected fee based on the volume of the commitment and the fees based on actual volume. The Company had determined the fair value of this agreement to be $3,200,000 and is amortizing this value over the initial three year term. Triton PCS, Inc. (Triton), Tritel Communications (Tritel), and the Company have adopted a common brand, SunCom, which is co-branded with equal emphasis with the AT&T brand name and logo. On April 16, 1999, Triton, Tritel and TeleCorp Communications formed a new company, Affiliate License Co., L.L.C., to own, register and maintain the marks SunCom, SunCom Wireless and other SunCom and Sun formative marks (SunCom Marks) and to license the SunCom marks to Triton, Tritel and the Company. Triton, Tritel and TeleCorp Communications each have a 33% membership interest in Affiliate License Co., L.L.C. On April 16, 1999, Triton entered into an agreement to settle a potential dispute regarding prior use of the SunCom brand. In connection with this settlement, Triton agreed to pay $975,000 to acquire the SunCom Marks which were contributed to Affiliate License Co., L.L.C. The Company paid $325,000 in royalty payments to reimburse Triton for the contributed SunCom marks. 7. 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 license. F-20 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ------------ 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 plus legal fees of $252,340. The purchase price has been allocated to the assets acquired, based upon their estimated fair value as follows: PCS licenses................................................... $70,421,295 Intangible assets--AT&T Agreements............................. 17,310,000 Cell sites site acquisition, switching facility assets and other assets.................................................. 9,015,100 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 (see Note 5) increased by $15,000,000 ($7,500,000 of Series A and $7,500,000 of Series B) and certain Cash Equity Investors committed $39,996,600 in cash in exchange for mandatorily redeemable preferred and common stock. 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. As a part of obtaining this additional preferred and common stock financing, the Company paid $2,000,000 to a Cash Equity Investor upon the closing of the transaction. In addition, certain officers, the Chief Executive Officer and the Executive Vice President and Chief Financial Officer of the Company were issued fixed and variable awards of 5,318 and 2,380,536 restricted shares of mandatorily redeemable Series E preferred stock and Class A common stock, respectively, in exchange for their interest in Puerto Rico Acquisition Corporation. Puerto Rico Acquisition Corporation was a special purpose entity wholly-owned by the Company's Chief Executive Officer and Executive Vice President and Chief Financial Officer. The fixed awards typically vest over a five-year period. The estimated fair value of these shares has been recorded as deferred compensation and is being amortized over the related vesting periods. The variable awards vest based upon certain future events taking place, such as build-out milestone POP coverage, the completion of our initial public offering and other events. Upon the occurrence of these future events, the Company will remeasure the variable awards and record compensation expense, deferred compensation and additional paid-in-capital. 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 reauction for additional spectrum in most of the Company's markets. Viper was initially capitalized for $100 and was equally- owned by the Company's Chief Executive Officer and Executive Vice President- Chief F-21 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ------------ Financial Officer. In order to participate in the reauction, 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. On April 15, 1999, the FCC announced Viper was the high bidder for 15 MHz licenses in New Orleans, Houma and Alexandria, Louisiana, San Juan, Puerto Rico and Jackson, Tennessee and 30 MHz licenses in Beaumont, Texas. The total auction price is $32,286,000 plus legal fees 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 the certain Cash Equity Investors on September 29, 1999. 8. Mandatorily Redeemable Preferred Stock and Stockholders' Equity Holding Holding's authorized capital stock consisted of 6,000 shares of no par value mandatorily redeemable Series A preferred stock, 125,000 shares of no par value Class A common stock, 175,000 shares of no par value Class B common stock and 175,000 shares of no par value Class C common stock. This capital stock was in existence during 1996, 1997, and through July 1998, the closing of the AT&T Transaction, at which time Holding became a wholly-owned subsidiary of the Company. Subsequent to the AT&T Transaction, the authorized and outstanding shares of Holding were cancelled and replaced with 1,000 authorized shares of common stock of which 100 shares were issued to the Company. F-22 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ------------ TeleCorp On May 14, 1999, TeleCorp restated its Certificate of Incorporation, which was subsequently amended. The Restated Certificate of Incorporation, as amended, provides the Company with the authority to issue 656,014,090 shares of stock, consisting of the following:
Par Shares Preferred Stock Value authorized - --------------- ----- ---------- Mandatorily redeemable Series A................. $0.01 100,000 Mandatorily redeemable Series B................. $0.01 200,000 Mandatorily redeemable Series C................. $0.01 215,000 Mandatorily redeemable Series D................. $0.01 50,000 Mandatorily redeemable Series E................. $0.01 30,000 Series F........... $0.01 15,450,000 ---------- Total............ 16,045,000 ==========
Par Shares Common Stock Value authorized - ------------------ ----- ----------- Senior............ $0.01 21,630,000 Class A........... $0.01 308,550,000 Class B........... $0.01 308,550,000 Class C tracked... $0.01 309,000 Class D tracked... $0.01 927,000 Voting Preference....... $0.01 3,090 ----------- Total........... 639,969,090 ===========
F-23 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ------------ The following schedules represent the transactions that took place with respect to Holding's mandatorily redeemable preferred stock and common stock for the period from July 29, 1996 (date of inception) to December 31, 1998.
Series A preferred stock ------------------ Shares Amount ------ ----------- Mandatorily redeemable preferred stock Initial capitalization for cash............................. 750 $ 7,500,000 Accretion of preferred stock dividends...................... -- 288,959 ---- ----------- Balance, December 31, 1996.................................. 750 7,788,959 Issuance of preferred stock for cash........................ 150 1,500,000 Accretion of preferred stock dividends...................... -- 725,557 Conversion of promissory note to preferred stock............ 50 498,750 Noncash redemption of equity interests (see Note 14)........ (583) (6,368,926) ---- ----------- Balance, December 31, 1997.................................. 367 4,144,340 Accretion of preferred stock dividends...................... -- 224,484 Recapitalization of Holding................................. (367) (4,368,824) ---- ----------- Balance, December 31, 1998.................................. -- $ -- ==== ===========
Class A Class B Class C common stock common stock common stock Common stock -------------- -------------- --------------- ------------- Shares Amount Shares Amount Shares Amount Shares Amount Total ------ ------ ------ ------ ------- ------ ------ ------ ------ Common stock Initial capitalization for cash............... 8,750 $2,000 -- $-- 25,520 $-- -- $-- $2,000 Issuance of common stock.................. 3,750 -- 5,104 -- -- -- -- -- -- ------ ------ ------ ---- ------- ---- ---- ---- ------ Balance, December 31, 1996................... 12,500 2,000 5,104 -- 25,520 -- -- -- 2,000 Issuance of common stock for cash............... -- -- -- -- 6,875 -- -- -- -- Noncash redemption of equity interests (See Note 14)............... (7,666) (1,144) (3,130) -- (19,868) -- -- -- (1,144) ------ ------ ------ ---- ------- ---- ---- ---- ------ Balance, December 31, 1997................... 4,834 856 1,974 -- 12,527 856 Recapitalization of Holding................ (4,834) (856) (1,974) -- (12,527) -- 100 -- (856) Elimination of 100% of equity interests in Holding................ -- -- -- -- -- -- (100) -- -- ------ ------ ------ ---- ------- ---- ---- ---- ------ Balance, December 31, 1998................... -- $ -- -- $-- -- $-- -- $-- $ -- ====== ====== ====== ==== ======= ==== ==== ==== ======
F-24 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ------------ The following schedule represents the transactions that took place with respect to TeleCorp's mandatorily redeemable preferred stock, Series F preferred stock and common stock for the period July 1998 to September 30, 1999:
Series A Series C Series D Series E preferred stock Preferred stock preferred stock preferred stock ------------------- -------------------- ------------------ ------------------ Shares Amount Shares Amount Shares Amount Shares Amount Total ------ ------------ ------- ------------ ------ ----------- ------ ---------- ------------ Mandatorily redeemable preferred stock Issuance of preferred stock to AT&T PCS for licenses and AT&T Agreements............. 66,723 $ 66,723,000 -- $ -- 34,267 $34,143,639 -- $ -- $100,866,639 Issuance of preferred stock to Cash Equity Investors, net of issuance costs of $1,027,695............. -- -- 128,000 126,847,780 -- -- -- -- 126,847,780 Accretion of preferred stock dividends........ -- 3,039,603 -- 3,818,827 -- 945,788 -- 541,038 8,345,256 Noncash issuance of restricted stock....... -- -- -- -- -- -- 5,505 5,505 5,505 Repurchase of restricted stock for cash......... -- -- -- -- -- -- (784) (792) (792) Noncash issuance of preferred stock for equity of Holding...... -- -- 7,348 4,334,276 -- -- 14,156 10,215 4,344,491 ------ ------------ ------- ------------ ------ ----------- ------ ---------- ------------ Balance, December 31, 1998................... 66,723 69,762,603 135,348 135,000,883 34,267 35,089,427 18,877 555,966 240,408,879 Issuance of preferred stock for cash, net of issuance costs of $2,500,000............. 30,750 30,454,218 72,382 51,089,023 15,150 11,079,951 -- -- 92,623,192 Issuance of preferred stock for PCS licenses and operating agreements............. -- -- 2,878 2,674,130 -- -- -- -- 2,674,130 Accretion of preferred stock dividends........ -- 6,450,160 -- 7,633,135 -- 1,865,758 -- 1,010,565 16,959,618 Noncash issuance of restricted stock....... -- -- -- -- -- -- 6,680 348,883 348,883 Repurchase of restricted stock for cash......... -- -- -- -- -- -- (577) (577) (577) ------ ------------ ------- ------------ ------ ----------- ------ ---------- ------------ Balance, September 30, 1999................... 97,473 $106,666,981 210,608 $196,397,171 49,417 $48,035,136 24,980 $1,914,837 $353,014,125 ====== ============ ======= ============ ====== =========== ====== ========== ============
F-25 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ------------
Class C Class D Voting Series F Class A tracked common tracked common preference preferred stock common stock stock stock common stock ------------------- -------------------- -------------- -------------- ------------- Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Total ---------- -------- ---------- -------- ------- ------ ------- ------ ------ ------ -------- Series F preferred and common stock Issuance of common stock to Cash Equity Investors for cash..... -- $ -- 37,540,390 $375,404 110,549 $1,105 827,487 $8,275 -- $-- $384,784 Issuance of preferred stock to AT&T PCS for licenses and AT&T agreements............. 10,308,676 103,087 -- -- -- -- -- -- -- -- 103,087 Exchange of 100% of equity interests in Predecessor Company for equity in the Company.. -- -- 7,583,463 75,834 173,264 1,733 23,942 239 3,090 31 77,837 Noncash issuance of restricted stock....... -- -- 3,095,473 30,955 -- -- -- -- -- -- 30,955 Repurchase of restricted stock for cash......... -- -- (552,474) (18) -- -- -- -- -- -- (18) ---------- -------- ---------- -------- ------- ------ ------- ------ ----- ---- -------- Balance, December 31, 1998................... 10,308,676 103,087 47,666,852 482,175 283,813 2,838 851,429 8,514 3,090 31 596,645 Issuance of common stock and preferred stock for cash................... 4,604,102 46,041 22,366,242 223,662 -- -- -- -- -- -- 269,703 Issuance of common stock for PCS licenses and operating agreements... -- -- 865,089 8,651 -- -- -- -- -- -- 8,651 Noncash issuance of restricted stock....... -- -- 3,343,868 23,846 -- -- -- -- -- -- 23,846 Repurchase of restricted stock for cash......... -- -- (406,787) (13) -- -- -- -- -- -- (13) ---------- -------- ---------- -------- ------- ------ ------- ------ ----- ---- -------- Balance, September 30, 1999................... 14,912,778 $149,128 73,835,264 $738,321 283,813 $2,838 851,429 $8,514 3,090 $ 31 $898,832 ========== ======== ========== ======== ======= ====== ======= ====== ===== ==== ========
F-26 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ------------ There are no issued or outstanding shares of Series B preferred stock, Senior common stock or Class B common stock as of September 30, 1999. The conversion features and conversion prices of the Company's issued stock are summarized below:
Convertible Security Convertible Into Conversion Price - -------------------- ---------------- ---------------- Series A preferred stock After July 2006, at the The Series A conversion rate is equal to holders' option, into the liquidation preference of the Series A Class A common stock preferred stock on the conversion date divided by the market price of the Class A common stock on the conversion date. Series C preferred stock At the option of the The liquidation preference of the Series C Company at the IPO date preferred stock divided by the IPO price. into either Class A or B common stock Series D and Series F If Series C preferred The liquidation preference divided by the preferred stock stock is converted then IPO price. automatically at the IPO date into Senior common stock Series E preferred stock At the option of the The liquidation preference of the Series E Company at the IPO date preferred stock divided by the IPO price. into either Class A or Class B common stock Series F preferred stock At the holders' option, One share of Series F preferred stock or and Senior common stock into Class A, Class B or Senior common stock for one share of either Class D common stock, Class A, Class B or Class D common stock. depending upon the occurrence of certain defined events Class A common stock At the holders' option One share of Class B common stock for one into Class B common share of Class A common stock. stock Class C tracked common Subject to FCC One share of Class A or Class B common stock constraints and Board stock for one share of Class C tracked approval, at the common stock. holders' option and by affirmative vote of at least 66 2/3% of Class A common stock into Class A or Class B common stock Class D tracked common Subject to FCC One share of Class A or Class B common stock constraints and Board stock for one share of Class D tracked approval, at the common stock. holders' option and by affirmative vote of at least 66 2/3% of Class A common stock into Class A or Class B common stock
F-27 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ------------ The conversion features and conversion prices of the Company's issued stock are summarized below: Liquidation rights In the event of any liquidation, dissolution or winding up of the Company, as defined, the stockholders of the Company are entitled to liquidation preferences as follows:
Order of Distribution Stock Classification Distribution Preference - --------------------- -------------------- ----------------------- First Series A and Series B $1,000 per share plus accrued and unpaid preferred stock dividends. Second Series C and Series D Series C: actual paid-in capital per share preferred stock plus accrued and unpaid dividends plus interest of 6% per annum on the actual paid-in capital, compounded quarterly, less amount of dividends declared and paid. Series D: $1,000 per share plus accrued and unpaid dividends plus an amount equal to interest on $1,000 per share at a rate of 6% per annum, compounded quarterly, less amount of dividends declared and paid. Third Series E preferred stock Accrued and unpaid dividends, plus an amount equal to interest on $1,000 per share at 6% per annum, compounded quarterly, less dividends declared and paid. Fourth Series F preferred stock and Series F preferred: $0.000032 per share Senior common stock plus accrued and unpaid dividends. Senior common stock: The sum of the liquidation preference of each share of Series D and Series F preferred stock converted in Senior common stock divided by the aggregate number of shares of Senior common stock issued upon conversion of shares of Series D and Series F preferred stock
Dividends and voting rights The holders of the Series A and Series B preferred stock are entitled to cumulative quarterly cash dividends at an annual rate of 10% of the liquidation preference of the then outstanding shares. The holders of the remaining shares of preferred and common stock are entitled to dividends if and when declared. The Class A common stock has 15,419,100 voting rights and the Voting Preference common stock has 15,480,900 voting rights. The remaining shares of preferred and common stock shall have no voting rights, except as provided by law or in certain limited circumstances. Call and Redemption features The preferred stock is callable at the option of the Company at a price equal to the liquidation preference on the redemption date. The Series A preferred stock is callable thirty days after the 10th anniversary of the issuance of such shares. The Series B preferred stock is callable at any time. The Series C and Series D preferred stock are callable at any time, provided that the Series C and Series D Preferred Stock are called concurrently. The Series A, Series B, Series C, Series D and Series E preferred stock are redeemable thirty days after the 20th anniversary of the issuance of such shares at the option of the holder at a price equal to the liquidation preference on the redemption date. The Series F preferred stock is not redeemable. Pursuant to a Management F-28 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ------------ Agreement, the Company may redeem certain shares of Class A common stock and Series E preferred stock held by the Company's Chief Executive Officer and Executive Vice President (the TMC officers). For the period from the finalization of the AT&T Transaction to December 31, 1998, the Company accreted $8,345,248 of dividends in connection with this redemption feature. Tracked common stock The Class C and Class D common stock have been designated as Tracked common stock. The holders of the Tracked common stock are entitled to a dividend, when available, equal to the excess of the fair value of the net assets of Holding over the aggregate par value of the outstanding shares of the Tracked common stock. After all other preferential liquidating distributions have been made, the holders of the Tracked common stock will be entitled to a liquidation preference equal to the excess of the fair value of the net assets of Holding. Participating stock The Series F preferred stock, the Senior common stock and the Class A and B common stock are participating stock, and the Board of Directors may not declare dividends on or redeem, purchase or otherwise acquire for consideration any shares of the Participating Stock, unless the Board of Directors makes such declaration or payment on the same terms with respect to all shares of participating stock, ratably in accordance with each class and series of participating stock then outstanding. 9. Restricted Stock Plan In July 1998, the Company adopted a Restricted Stock Plan (the Plan) to attract and retain key employees and to reward outstanding performance. Key employees selected by management may elect to become participants in the Plan by entering into an agreement which provides for issuance of fixed and variable units consisting of Series E mandatorily redeemable preferred stock and Class A common stock. The fixed units typically vest over a five or six year period. The variable units vest based upon certain events taking place, such as buildout milestones, Pop coverage, the completion of an initial public offering and other events. Unvested shares are forfeited upon termination of employment. The shares issued under the Plan shall consist of units transferred to participants without payment as additional compensation for their services to the Company. The total number of units that may be awarded to key employees shall not exceed 7,085 units or a defined number of shares of Series E preferred stock and Class A common stock, respectively, as determined upon award. Any units not granted on or prior to July 17, 2003 shall be awarded to two officers of the Company. Each participant has voting, dividend and distribution rights with respect to all shares of both vested and unvested common stock. Prior to the Class A shares becoming publicly traded, the Company retains the right of first offer to buy the employees' vested shares at the offer price. After the Class A shares become publicly traded, the right of first offer will no longer exist for the Series E preferred shares. In addition the shares contain rights of inclusion and first negotiation. The Company may repurchase unvested shares, and under certain circumstances, vested shares of participants whose employment with the Company terminates. The repurchase price is equal to $0.01 and $0.00003 per share for the Series E preferred and common stock, respectively. F-29 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ------------ Activity under the Plan is as follows:
Series E Estimated Estimated preferred fair value Class A fair value stock per share common stock per share --------- ------------- ------------ ------------ Shares awarded.............. 5,505 $ 1.00 3,095,473 $ .003 Repurchases................. (784) -- (552,474) -- ----- ------------- --------- ------------ Balance, December 31, 1998.. 4,721 $ 1.00 2,542,999 $ .003 Shares awarded.............. 2,616 $52.00-$72.98 1,709,984 $.003-$17.00 Repurchases................. (577) -- (406,787) -- ----- ------------- --------- ------------ Balance, September 30, 1999....................... 6,760 $ 1.00-$72.98 3,846,196 $.003-$17.00 ===== =========
Deferred compensation and compensation expense related to the issuance of restricted stock to employees, based on the estimated fair value of the preferred and common stock, was immaterial for the year ended December 31, 1998 and for the nine months ended September 30, 1999. Some of the awards granted under the Plan are variable awards. When it is probable the future events will occur, the Company determines the fair value of the variable awards of the Series E preferred stock and Class A common stock, subject to a final measurement date upon the occurrence of defined events. Outstanding fixed awards and variable awards as of December 31, 1998 and September 30, 1999 for each class of stock are as follows:
December 31, September 30, 1998 1999 ------------ ------------- Series E preferred stock: Fixed awards.................................... 3,664 5,339 Variable awards................................. 1,057 1,421 --------- --------- Total Series E awards......................... 4,721 6,760 ========= ========= Class A common stock: Fixed awards.................................... 1,152,605 1,731,493 Variable awards................................. 1,390,394 2,114,703 --------- --------- Total Class A awards.......................... 2,542,999 3,846,196 ========= =========
10. Employee and Director Stock Option Plan On July 22, 1999, the Company implemented the 1999 Stock Option Plan to allow employees and members of the Board of Directors to acquire shares of Class B common stock. The options will have an option term of 10 years, ratable vesting over a three to four year period, exercise prices equal to the estimated fair value of the underlying Class B common stock on the date of award and restrictions on exercisability until (i) a qualified initial public offering (IPO) to which the Class A voting common stock has been registered under the Securities Act of 1933 for aggregate proceeds of $20,000,000, (ii) the sale of all or substantially all of the assets of the Company or (iii) the sale of all or substantially all of the outstanding capital stock of the Company. The Company has reserved 1,814,321 shares of Class A common stock for issuance under this plan. On July 22, 1999, the Company granted 552,505 stock options at an exercise price of $.0065 per share. The stock options awarded during the nine month period ended September 30, 1999 represent variable awards F-30 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ------------ since their exercisability is restricted until the completion of an initial public offering, sale of assets or sale of the Company. Therefore, the measurement date will occur when the exercisability restrictions are relieved, upon the initial public offering. 11. Preferred and Common Stock Subscriptions Receivable In connection with the AT&T Transaction described in Note 6 and the acquisitions described in Note 7, the Company received cash commitments of $172,996,600 from the Cash Equity Investors in exchange for Series C preferred stock and various classes of common stock. The agreements require the Cash Equity Investors to fund their unconditional and irrevocable obligations in installments in accordance with the following schedules:
Due Date Amount - -------- ------------ AT&T Transaction: Initial closing (July 17, 1998)................................... $ 39,375,005 December 31, 1998................................................. 16,125,005 Second anniversary of initial closing............................. 36,250,005 Third anniversary of initial closing.............................. 36,249,985 ------------ $128,000,000 ============
The initial contributions were provided in the form of short-term interest bearing promissory notes (see Note 5). These notes were converted to mandatorily redeemable preferred and common stock of the Company as partial satisfaction of the $128,000,000 of committed contributions in connection with the closing of the AT&T Transaction.
Due Date Amount - -------- ----------- Digital PCS, LLC Transaction: Initial closing (April 20, 1999)................................... $ 2,200,000 July 2000.......................................................... 1,400,000 July 2001.......................................................... 1,400,000 ----------- $ 5,000,000 =========== Due Date Amount - -------- ----------- Puerto Rico Transaction: Initial closing (May 24, 1999)..................................... $11,996,600 December 31, 1999.................................................. 6,000,000 March 30, 2001..................................................... 11,000,000 March 30, 2002..................................................... 11,000,000 ----------- $39,996,600 ===========
Through December 31, 1998, the Company received $51,999,725 of the above committed equity and received an additional $14,196,600 during the nine months ended September 30, 1999. The Company has recorded a preferred stock subscription receivable of $75,914,054 and $103,000,543 as of December 31, 1998 and September 30, 1999, respectively, as a reduction to the mandatorily redeemable preferred stock and a common stock subscription receivable of $86,221 and $190,991 as of December 31, 1998 and September 30, 1999, respectively, as a reduction to stockholders equity (deficit) for the unpaid commitment. F-31 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ------------ 12. Income Taxes The tax effect of temporary differences which gives rise to significant portions of the deferred tax assets as of December 31, 1997 and 1998 and September 30, 1999, respectively, are as follows:
December 31, September 30, 1997 1998 1999 ----------- ------------ ------------- Capitalized start-up costs............. $ 1,321,340 $ 17,599,251 $14,362,330 Net operating losses................... 145,710 3,634,809 61,014,328 Depreciation and amortization.......... -- 288,985 (6,757,195) Deferred rent.......................... -- 74,504 230,088 Capitalized interest................... -- (917,107) (2,598,058) Original Issue Discount................ (4,220) 174,952 7,189,515 Accrued expenses....................... -- -- 388,447 Bad debt allowance..................... -- -- 1,910,998 Deferred compensation.................. -- -- (232,289) Other.................................. -- -- 23,275 ----------- ------------ ----------- 1,462,830 20,855,394 75,531,439 Less valuation allowance............... (1,462,830) (20,855,394) (75,531,439) ----------- ------------ ----------- $ -- $ -- $ -- =========== ============ ===========
For federal income tax purposes, start-up costs are being amortized over five years starting January 1, 1999 when active business operations commenced. As of September 30, 1999, the Company had approximately $161 million of net operating losses. The net operating losses will begin to expire in 2017. There may be a limitation on the annual utilization of net operating losses and capitalized start-up costs as a result of certain ownership changes that have occurred since the Company's inception. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. Based on the Company's financial results, management has concluded that a full valuation allowance for all of the Company's deferred tax assets is appropriate. 13. 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 December 31, 1998 and September 30, 1999, the Company has purchased approximately $90,900,000 and $194,500,000, respectively, of equipment and services from Lucent since the inception of the Vendor Procurement Contract. F-32 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ------------ The Company has operating leases primarily related to retail store locations, distribution outlets, office space, and rent for the Company's network build-out. The terms of some of the leases include a reduction of rental payments and scheduled rent increases at specified intervals during the term of the leases. The Company is recognizing rent expense on a straight-line basis over the life of the lease, which establishes deferred rent on the balance sheet. As of September 30, 1999, the aggregate minimum rental commitments under non-cancelable operating leases are as follows: October-December 1999................ $ 3,794,049 For the year ending December 31; 2000............................... 18,786,811 2001............................... 18,587,171 2002............................... 18,311,199 2003............................... 15,976,624 2004............................... 8,982,627 Thereafter......................... 24,347,399 ------------ Total............................ $108,785,880 ============
Rental expense was approximately $2,000, $157,000, $3,193,000 and $9,675,500 for the period ended December 31, 1996 and for the years ended December 31, 1997 and 1998, and nine months ended September 30, 1999, respectively. 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 $6,000,000 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 $1,425,000 and $1,476,000 at December 31, 1998 and September 30, 1999, respectively. The outstanding letters of credit reduce the amount available to be drawn under the Senior Credit Facility (see Note 5). The Company is unaware of any events that would have resulted in nonperformance of a contract during the year ended December 31, 1998 or the nine months ended September 30, 1999. 14. Related Parties The Company utilizes the services of a law firm in which the Executive Vice President and Chief Financial Officer of the Company was also a partner. The Company incurred expenses of approximately $110,000, $250,000, $2,123,000 and $1,868,300 for the period ended December 31, 1996, for the years ended December 31, 1997 and 1998 and for the nine months ended September 30, 1999, respectively, for legal services. As of December 31, 1997, 1998 and September 30, 1999, the Company owed the law firm $70,464, $160,000 and $306,087, respectively. Subsequent to December 31, 1997, the officer resigned from the law firm but continues as special counsel. The Company receives site acquisition, construction management, program management, microwave relocation, and engineering services pursuant to a Master Services Agreement with WFI/Entel Technologies, Inc. (Entel). The Chief Executive Officer and Executive Vice President and Chief Financial Office of the Company were formerly stockholders and senior officers of Entel. Fees for the above services are as follows: $12,000 per site for site acquisition services, $7,000 per site for construction management services, $9,000 per F-33 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ------------ site for program management and $1,100,000 for microwave relocation services for all of the Company's existing regions. Fees for engineering services are based upon Entel's customary hourly rates. For the period ended December 31, 1996 and for the years ended December 31, 1997 and 1998 and for the nine months ended September 30, 1999, the Company paid $30,829, $1,939,795, $30,719,865 and $63,310,066, respectively, to Entel for these services. As of December 31, 1997 and 1998 and September 30, 1999, the Company owed Entel $170,596, $21,177,516 and $10,981,097, respectively. Subsequent to December 31, 1997, the Chief Executive Officer and Executive Vice President sold 100% of their interests in Entel. In April 1997, Holding entered into an agreement to transfer PCS licenses, operating assets, liabilities and U.S. Government financing, for the Houston, Tampa, Melbourne and Orlando BTAs to four newly-formed entities created by Holding's existing stockholder group: THC of Houston, Inc.; THC of Tampa, Inc.; THC of Melbourne, Inc.; and THC of Orlando, Inc. (the THC entities). These assets and liabilities were transferred in exchange for investment units of the newly-formed THC entities which consisted of Class A, B and C common stock and Series A preferred stock in August 1997. The carrying amount of the total assets and liabilities transferred was $15,678,814 and $12,034,212, respectively. Simultaneously, Holding reacquired shares of its preferred and common stock in a $6,370,070 partial stock redemption through the exchange of the investment units in the newly-formed companies of $3,644,602, which represented the net difference between the cost of the assets and liabilities transferred and the issuance of an aggregate of $2,725,468 of notes payable to those newly-formed THC entities. Summarized below is a reconciliation of this activity: PCS licenses and other assets....... $ 15,678,814 U.S. Government financing and other liabilities........................ (12,034,212) ------------ Investment units in the THC enti- ties............................... 3,644,602 Notes payable to the THC entities... 2,725,468 ------------ Partial preferred and common stock redemption......................... $ 6,370,070 ============
As a result of this transfer, Holding no longer retains any ownership interest in the THC entities. Because this transaction was nonmonetary in nature and occurred between entities with the same stockholder group, the transaction was recorded at historical cost. Subsequent to the transfer, the Company reduced the notes payable by $652,895, which represented certain costs incurred by the Company on behalf of the THC entities for the year ended December 31, 1997 pursuant to Transfer Agreements and Management Agreements. The combined amounts owed THC Houston, Inc., THC Tampa, Inc., THC Melbourne, Inc., and THC Orlando, Inc. of $2,072,573 as of December 31, 1997 were repaid in full during 1998. As of December 31, 1998 and September 30, 1999, the combined amounts owed by the Company to THC Houston, Inc., THC Tampa, Inc., THC Melbourne, Inc., and THC Orlando, Inc. were $547,047 and $2,491, respectively. As of December 31, 1997, the Company had amounts payable of $824,164 to TeleCorp WCS, Inc. (WCS), an affiliate, formerly TeleCorp Management Corporation, Inc. The amount payable to WCS represented $1,200,000 of funds received by the Company on behalf of WCS related to wireless communications service licenses owned by WCS reduced by expenses and other payments owed by WCS to the Company. The entire balance due WCS as of December 31, 1997 was repaid during 1998. Pursuant to a Management Agreement, TeleCorp Management Corp. (TMC) provides assistance to the Company in the form of administrative, operational, marketing, regulatory and general business services. For these services, beginning in July 1998, the Company pays a management fee to TMC of $550,000 per year plus reimbursement of certain business expenses, payable in equal monthly installments, plus an annual bonus. The F-34 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ------------ management agreement has a five-year term, but may be terminated by the Company upon the occurrence of certain defined events. TMC may terminate the agreement at any time with proper notice. The Officers of TMC own all of the ownership interest in TMC. For the year ended December 31, 1998, the Company paid approximately $250,000 to TMC for these services plus $282,500 in bonuses to TMC officers. For the nine months ended September 30, 1999, the Company paid approximately $1,073,000 to TMC for these services. The Company has entered into a Master Site Lease Agreement with American Towers, Inc., a company partially owned by certain stockholders of the Company. Under this arrangement American Towers provides network site leases for PCS deployment. The Company has incurred $16,862 and $77,460 expense for the year ended December 31, 1998 and the nine months ended September 30, 1999, respectively. 15. Defined Contribution Plan During 1998, the Company established the TeleCorp Communications, Inc. 401(k) Plan (the 401(k) Plan), a defined contribution plan in which all employees over the age of 21 are immediately eligible to participate in the 401(k) Plan. TeleCorp Communications, Inc. is a wholly-owned subsidiary of the Company. Under the 401(k) Plan, participants may elect to withhold up to 15% of their annual compensation, limited to $160,000 of total compensation as adjusted for inflation. The Company may make a matching contribution based on a percentage of the participant's contributions. Participants vest in the Company's matching contributions as follows: 20% after one year; 60% after two years and 100% after three years. Total Company contributions to the 401(k) Plan were $505,495 and $628,262 for the year ended December 31, 1998 and for the nine months ended September 30, 1999, respectively. 16. 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 December 31, 1998 and September 30, 1999, and for the year ended December 31, 1998 and for the nine months ended September 30, 1999 are as follows: F-35 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ------------ 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........ -- -- -- -- -- Deferred rent........... -- -- 196,063 -- 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 ============ ============ ============ ============= ============
F-36 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ------------ Balance Sheet as of September 30, 1999:
TeleCorp Communications, Inc.-- Non-Guarantor TeleCorp Guarantor Subsidiary Subsidiaries Eliminations Consolidated ------------ ---------------------- ------------- -------------- ------------- ASSETS Current assets: Cash and cash equivalents........... $ 93,203,433 $(10,164,328) $ (2,628,997) $ -- $ 80,410,108 Accounts receivable, net................... -- 17,823,462 28,950 -- 17,852,412 Inventory.............. -- 12,125,650 -- -- 12,125,650 Intercompany receivables........... 701,489,565 -- -- (701,489,565) -- Prepaid expenses....... -- 784,848 1,483,988 -- 2,268,836 Other current assets... 31,053 196,248 4,446 -- 231,747 ------------ ------------ ------------ -------------- ------------- Total current assets.............. 794,724,051 20,765,880 (1,111,613) (701,489,565) 112,888,753 Property and equipment, net.................... 5,513,458 163,707,122 178,198,908 (71,094) 347,348,394 PCS licenses and microwave relocation costs.................. 1,292,605 117,306,326 117,160,571 -- 235,759,502 Intangible assets--AT&T agreements............. -- -- 39,696,161 -- 39,696,161 Deferred financing costs, net............. 18,080,655 303,749 -- -- 18,384,404 FCC deposit............. -- (32,285,994) 32,285,994 -- -- Other assets............ 4,369,680 322,671 17,899,686 (21,886,073) 705,964 ------------ ------------ ------------ -------------- ------------- Total assets......... $823,980,449 $270,119,754 $384,129,707 $ (723,446,732) $ 754,783,178 ============ ============ ============ ============== ============= LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY (DEFICIT) Current liabilities: Due to affiliates...... $ -- $327,455,847 $374,033,718 $ (701,489,565) -- Accounts payable....... -- 8,069,648 13,893,126 -- $ 21,962,774 Accrued expenses....... 24,751 35,078,700 3,690,934 -- $ 38,794,385 Long-term debt, current portion....... -- -- 1,340,378 -- 1,340,378 Microwave relocation obligation............ -- 5,297,484 -- -- 5,297,484 Accrued interest....... 3,163,174 -- 471,932 -- 3,635,106 Deferred Revenue....... -- 1,133,018 -- -- 1,133,018 ------------ ------------ ------------ -------------- ------------- Total current liabilities......... 3,187,925 377,034,697 393,430,088 (701,489,565) 72,163,145 Long-term debt.......... 611,867,136 -- 16,542,557 -- 628,409,693 Microwave relocation obligation............. -- 2,364,544 -- -- 2,364,544 Accrued expenses........ -- -- 5,028,943 -- 5,028,943 Deferred rent........... -- -- 605,496 -- 605,496 ------------ ------------ ------------ -------------- ------------- Total liabilities.... 615,055,061 379,399,241 415,607,084 (701,489,565) 708,571,821 ------------ ------------ ------------ -------------- ------------- Mandatorily redeemable preferred stock........ 353,014,125 -- -- -- 353,014,125 Deferred compensation... (5,371) (4,111) -- -- (9,482) Treasury stock.......... -- -- -- -- -- Preferred stock subscriptions receivable............. (103,000,543) -- -- -- (103,000,543) ------------ ------------ ------------ -------------- ------------- Total mandatorily redeemable preferred stock, net.......... 250,008,211 (4,111) -- -- 250,004,100 ------------ ------------ ------------ -------------- ------------- Series F preferred stock.................. 149,128 -- -- -- 149,128 Common stock............ 749,704 -- -- -- 749,704 Additional paid in capital................ 5,379,060 -- 21,886,075 (21,886,073) 5,379,062 Deferred compensation... (793,906) (7,177) -- -- (801,083) Common stock subscriptions receivable............. (190,991) -- -- -- (190,991) Treasury stock.......... -- -- -- -- -- Accumulated deficit..... (46,375,818) (109,268,199) (53,363,452) (71,094) (209,078,563) ------------ ------------ ------------ -------------- ------------- Total shareholders' equity (deficit).... (41,082,823) (109,275,376) (31,477,377) (21,957,167) (203,792,743) ------------ ------------ ------------ -------------- ------------- Total liabilities and shareholders' equity (deficit)........... $823,980,449 270,119,754 $384,129,707 $ (723,446,732) $ 754,783,178 ============ ============ ============ ============== =============
F-37 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ------------ Statement of Operations Information for the year ended December 31, 1998:
TeleCorp Communications, Inc.-- Non-Guarantor TeleCorp Guarantor Subsidiary Subsidiaries Eliminations Consolidated ------------ ---------------------- ------------- ------------ ------------ Revenue: Service revenue........ $ -- $ -- $ -- $ -- $ -- Equipment revenue...... -- 777,187 260,509 (1,037,696) -- Roaming revenue........ -- 29,231 -- -- 29,231 ------------ ------------ ------------ ----------- ------------ Total revenue.......... -- 806,418 260,509 (1,037,696) 29,231 ------------ ------------ ------------ ----------- ------------ Operating expenses: Cost of revenue........ -- -- -- -- -- Operations and development........... -- 5,218,225 4,675,429 (121,169) 9,772,485 Selling and marketing............. -- 4,920,442 1,404,224 6,324,666 General and administrative........ 974,761 16,136,799 10,027,554 (899,995) 26,239,119 Depreciation and amortization.......... -- 458,704 1,125,160 -- 1,583,864 ------------ ------------ ------------ ----------- ------------ Total operating expense............. 974,761 26,734,170 17,232,367 (1,021,164) 43,920,134 ------------ ------------ ------------ ----------- ------------ Operating loss....... (974,761) (25,927,752) (16,971,858) (16,532) (43,890,903) Other (income) expense: Interest expense....... 11,922,994 -- 11,269 -- 11,934,263 Interest income........ (4,426,810) (86,517) (183,906) -- (4,697,233) Other expense.......... 21,000 4,553 1,794 -- 27,347 ------------ ------------ ------------ ----------- ------------ Net loss............. (8,491,945) (25,845,788) (16,801,015) (16,532) (51,155,280) Accretion of mandatorily redeemable preferred stock.................. (8,566,922) -- -- -- (8,566,922) ------------ ------------ ------------ ----------- ------------ Net loss attributable to common equity.... $(17,058,867) $(25,845,788) $(16,801,015) $ (16,532) $(59,722,202) ============ ============ ============ =========== ============
Statement of Operations Information for the nine months ended September 30, 1999:
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.......... 542,745 12,959,402 21,297,264 -- 34,799,411 ------------ ------------ ------------ ----------- ------------- Total operating expense............. 1,285,633 131,381,045 32,455,258 (2,648,390) 162,473,546 ------------ ------------ ------------ ----------- ------------- Operating loss....... (1,285,633) (83,268,773) (29,663,873) (54,562) (114,272,841) Other (income) expense: Interest expense....... 32,649,508 76 1,797,868 -- 34,447,452 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) Accretion of mandatorily redeemable preferred stock.................. (16,959,618) -- -- -- (16,959,618) ------------ ------------ ------------ ----------- ------------- Net loss attributable to common equity.... $(46,277,162) $(83,239,938) $(31,463,304) $ (54,562) $(161,034,966) ============ ============ ============ =========== =============
F-38 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ------------ December 31, 1998 Cash Flow Information:
TeleCorp Communications, Inc.-- TeleCorp Guarantor Subsidiary ------------- ---------------------- Cash flows from operating activities: Net loss................................ $ (8,495,787) $(26,644,880) Adjustment to reconcile net loss to net cash used in operating activities: Depreciation and amortization........... -- 581,120 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...................... 460,400 -- Noncash general administrative expense charged by affiliates.................. -- -- Amortization of deferred financing costs.................................. 524,924 -- Amortization of discount on notes payable................................ -- -- Changes in cash flow from operations resulting from changes in assets and liabilities: Accounts receivable..................... (56,689) (472,572) Inventory............................... -- (778,235) Prepaid expenses........................ -- (816,020) Other current assets.................... (580,413) (104,568) Other assets............................ -- (6,944) Accounts payable........................ -- 2,260,294 Accrued expenses........................ 13,414 16,211,148 Deferred rent........................... -- -- Accrued interest........................ 3,991,500 -- ------------- ------------ Net cash used in operating activities........................... (4,142,651) (9,770,657) ------------- ------------ Cash flows from investing activities: Expenditures for network under development, wireless network and property and equipment................. -- (58,205,039) Capitalized interest on network under development and wireless network....... (227,000) -- Expenditures for microwave relocation... -- (3,339,410) Purchase of PCS licenses................ (21,000,000) Deposit on PCS licenses................. -- -- Partial refund of deposit on PCS licenses............................... ------------- ------------ Net cash used in investing activities........................... (21,227,000) (61,544,449) ------------- ------------ Cash flows from financing activities: Proceeds from sale of mandatorily redeemable preferred stock............. 26,661,420 -- Receipt of preferred stock subscription receivable............................. -- -- Direct issuance costs from sale of mandatorily redeemable preferred stock.................................. (1,027,694) -- Proceeds from sale of common stock...... 38,305 -- Proceeds from long-term debt............ 235,000,000 -- Purchases of treasury shares............ (26) -- Payments on notes payable............... -- -- Payments of deferred financing costs.... (9,109,677) -- Proceeds from cash transfers from and expenses paid by affiliates............ 1,064,858 121,750,000 Payments on behalf of and transfers to affiliates............................. (134,210,920) (28,994,174) ------------- ------------ Net cash provided by financing activities........................... 118,416,266 92,755,826 ------------- ------------ Net increase in cash and cash equivalents............................ 93,046,615 21,440,720 Cash and cash equivalents at the beginning of period.................... -- -- ------------- ------------ Cash and cash equivalents at the end of period................................. $ 93,046,615 $ 21,440,720 ============= ============
F-39 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ------------ September 30, 1999 Cash Flow Information:
TeleCorp Communications, Inc.--Guarantor TeleCorp 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 12,959,536 Noncash compensation expense associated with the issuance of restricted common stock and preferred stock............................... -- -- Noncash accretion of Series E preferred stock.. Noncash interest expense associated with Lucent Notes and High Yield facility................. 19,033,533 -- Noncash general and administrative expense charged by affiliates......................... -- 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 (16,968,748) 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 ------------- ------------ Net cash used in operating activities......... (7,694,000) (78,539,899) ------------- ------------ 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) ============= ============
F-40 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ------------ 17. 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 variable stock option awards (see Note 10) will reach their measurement date. At that point, the Company will record deferred compensation expense based 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, of 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 (see Note 9). 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. Certain employees, the Chief Executive Officer and the Executive Vice President of the Company will be issued a total of 1,111 shares and 503,022 shares of mandatorily redeemable Series E preferred stock and Class A common stock, respectively, pending final FCC approval of the share issuance related to the Viper Wireless transaction. The Chief Executive Officer's and the Executive Vice President's shares vest immediately and the employees' shares vest ratably over five years. The total estimated fair value of these shares is approximately $8,600,000, which will be recorded as deferred compensation, of which $5,500,000 will be recorded as compensation expense in the fourth quarter of 1999 if final share transfer approval is received from 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. Pending Acquisitions On October 18, 1999, the Company agreed to acquire TeleCorp LMDS, Inc. (TeleCorp LMDS) through a purchase of all of the outstanding stock of TeleCorp LMDS for an estimated aggregate purchase price of approximately $16,900,000. The consideration will be comprised of Series C preferred stock and Class A common stock. TeleCorp LMDS' only assets are LMDS licenses. The purchase price has been preliminarily allocated to the acquired licenses, subject to adjustment, based on a final valuation. TeleCorp LMDS' F-41 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ------------ stockholders are Mr. Vento, Mr. Sullivan and three of our Cash Equity Investors. By acquiring TeleCorp LMDS, the Company will gain local multipoint distribution service, or LMDS. The LMDS licenses will provide the Company with additional airwaves to use as back-haul portions of the Company's PCS network traffic in several of the Company's markets. On October 14, 1999, the Company agreed to purchase 15 MHz of additional airwaves in the Lake Charles, Louisiana basic trading area from Gulfstream Telecomm, L.L.C. Total consideration approximates $2,700,000 and consists of approximately $400,000 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, but no assurance can be given that they will be closed 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 $12,500,000 of new series A notes and up to $12,500,000 of new series B notes under a vendor expansion facility in connection with prior acquisitions of licenses in certain markets. The terms of these notes issued under these facilities are identical to the original Lucent series A and series B notes. In addition, pursuant to the amended and restated note purchase agreement, Lucent has agreed to make available up to an additional $50.0 million of new vendor financing not to exceed an amount equal to 30% of the value of equipment, software and services provided by Lucent in connection with any additional markets we acquire. This $50.0 million of availability is subject to a reduction up to $20 million on a dollar for dollar basis of any additional amounts Lucent otherwise lends to us for such purposes under our senior credit facilities. Any notes purchased under this facility would be divided equally between Lucent series A and series B notes. The terms of Lucent series A and series B notes issued under these expansion facilities would be identical to the terms of the original Lucent series A and series B notes as amended, including a maturity date of October 23, 2009. In addition, any Lucent series B notes issued under the vendor expansion facility will mature and will be subject to mandatory prepayment on a dollar for dollar basis out of the net proceeds of any future public or private offering or sale of debt securities, exclusive of any private placement of notes issued to finance any additional markets and borrowings under the senior credit facilities or any replacement facility. F-42 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY Description of Unaudited Pro Forma Condensed Consolidated Financial Statements The following unaudited pro forma condensed consolidated financial statements are based upon the historical consolidated financial statements of the Company. The unaudited pro forma adjustments are based upon available information and certain assumptions that management of the Company believes are reasonable. The unaudited pro form condensed consolidated balance sheet as of September 30, 1999 has been prepared to illustrate the effects of the issuance of mandatorily redeemable preferred stock and common stock to certain employees, the Chief Executive Officer and the Executive Vice President of the Company related to Viper Wireless, the acquisition of TeleCorp LMDS, Inc. and certain adjustments related to the asset acquisitions which completed in the first nine months of 1999 as if these transactions had occurred on January 1, 1998. The unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 1998 and for the nine months ended September 30, 1999 have been prepared to illustrate the effects of the issuance of mandatorily redeemable preferred stock and common stock to certain employees, the Chief Executive Officer and the Executive Vice President of the Company related to Viper Wireless, and the acquisition of TeleCorp LMDS, Inc. as if these transactions occurred on January 1, 1998. The unaudited pro forma condensed consolidated financial statements and accompanying notes thereto should be read in conjunction with the historical consolidated financial statements of the Company and the other financial information included elsewhere in this Prospectus. The unaudited pro forma condensed consolidated financial statements are provided for informational purposes only and do not purport to be indicative of what the Company's consolidated financial position would actually have been had the issuance of mandatorily redeemable preferred stock, preferred stock, and common stock to certain employees, the Chief Executive Officer and the Executive Vice President of the Company related to Viper Wireless and the acquisition of TeleCorp LMDS, Inc. occurred on such date or to project the Company's consolidated financial position for any future period. F-43 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of September 30, 1999 (unaudited) ------------------------------------------------------ Historical TeleCorp PCS, Inc. and Subsidiaries and Predeces- Telecorp Proforma sor Company LMDS Adjustments Pro Forma ------------- ----------- ------------ ------------- Assets Current assets: Cash and cash equivalents........... $ 80,410,108 $ -- $ -- $ 80,410,108 Accounts receivable, net................... 17,852,412 -- -- 17,852,412 Inventory.............. 12,125,650 -- -- 12,125,650 Prepaid expenses....... 2,268,836 -- -- 2,268,836 Other current assets... 231,747 -- -- 231,747 ------------- ----------- ------------ ------------- Total current assets.. 112,888,753 -- -- 112,888,753 Property and equipment, net................... 347,348,394 -- -- 347,348,394 PCS licenses and microwave relocation costs................. 235,759,502 16,900,000 -- 252,659,502 Intangible assets -- AT&T agreements....... 39,696,161 -- (2,065,000) 37,631,161 Deferred financing costs, net............ 18,384,404 -- -- 18,384,404 Other assets........... 705,964 -- -- 705,964 ------------- ----------- ------------ ------------- Total assets.......... $ 754,783,178 $16,900,000 $ (2,065,000) $ 769,618,178 ============= =========== ============ ============= Liabilities, Mandatorily Redeemable Preferred Stock and Stockholders' Equity (Deficit) Current liabilities: Accounts payable....... $ 21,962,774 $ -- $ -- $ 21,962,774 Accrued expenses....... 38,794,385 -- -- 38,794,385 Microwave relocation obligation, current portion............... 5,297,484 -- -- 5,297,484 Long-term debt, current portion............... 1,340,378 -- -- 1,340,378 Accrued interest....... 3,635,106 -- -- 3,635,106 Deferred revenue....... 1,133,018 -- -- 1,133,018 ------------- ----------- ------------ ------------- Total current liabilities.......... 72,163,145 -- -- 72,163,145 ------------- ----------- ------------ ------------- Long-term debt......... 628,469,693 -- -- 628,409,693 Microwave relocation obligation............ 2,364,544 -- -- 2,364,544 Accrued expenses....... 5,028,943 -- -- 5,028,943 Deferred rent.......... 605,496 -- -- 605,496 ------------- ----------- ------------ ------------- Total liabilities..... 708,571,821 -- -- 708,571,821 ------------- ----------- ------------ ------------- Mandatorily redeemable preferred stock....... 353,014,125 2,500,000 15,453,775 370,967,900 Deferred compensation.. (9,482) -- (16,172) (25,654) Treasury stock, at cost.................. -- -- -- -- Preferred stock subscriptions receivable............ (103,000,543) -- -- (103,000,543) ------------- ----------- ------------ ------------- Total mandatorily redeemable preferred stock, net........... 250,004,100 2,500,000 15,437,603 267,941,703 ------------- ----------- ------------ ------------- Commitments and contingencies......... Stockholders' equity (deficit): Series F preferred stock................. 149,128 -- -- 149,128 Common stock........... 749,704 8,343 5,030 763,077 Additional paid-in- capital............... 5,379,062 14,391,657 8,534,970 28,305,689 Deferred compensation.. (801,083) -- (3,040,000) (3,841,083) Common stock subscriptions receivable............ (190,991) -- -- (190,991) Treasury stock, at cost.................. -- -- -- -- Accumulated deficit.... (209,078,563) (23,002,603) (232,081,166) ------------- ----------- ------------ ------------- Total stockholders' equity (deficit)..... (203,792,743) 14,400,000 (17,502,603) (206,895,346) ------------- ----------- ------------ ------------- Total liabilities, mandatorily redeemable preferred stock and stockholders' equity (deficit)............ $ 754,783,178 $16,900,000 $ (2,065,000) $ 769,618,178 ============= =========== ============ =============
See accompanying notes to unaudited pro forma condensed consolidated financial statements. F-44 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY UNAUDITED PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the nine months September 30, 1999 (Unaudited) ------------------------------------------------------------ Historical TeleCorp PCS, Inc and Predecessor TeleCorp Pro Forma Company LMDS Adjustments Pro Forma ----------------- -------- ------------ ------------- Revenue: Service revenue....... $ 18,937,031 $ -- $ -- $ 18,937,031 Equipment revenue..... 10,321,594 -- -- 10,321,594 Roaming revenue....... 18,942,080 -- -- 18,942,080 ------------- ------- ------------ ------------- Total revenue....... 48,200,705 -- -- 48,200,705 ------------- ------- ------------ ------------- Operating expenses: Cost of revenue....... 23,086,816 -- -- 23,086,816 Operations and development.......... 25,925,009 -- -- 25,925,009 Selling and marketing............ 39,719,864 -- -- 39,719,864 General and administrative....... 38,942,446 13,258 5,500,000 44,455,704 Depreciation and amortization......... 34,799,411 -- 885,000 35,684,411 ------------- ------- ------------ ------------- Total operating expenses........... 162,473,546 13,258 6,385,000 168,871,804 ------------- ------- ------------ ------------- Operating loss.......... (114,272,841) (13,258) (6,385,000) (120,671,099) Other (income) expense: Interest expense...... 34,447,452 -- -- 34,447,452 Interest income....... (4,805,133) (9,667) -- (4,814,800) Other expense......... 160,188 -- -- 160,188 ------------- ------- ------------ ------------- Net loss............ (144,075,348) (3,591) (6,385,000) (150,463,939) Accretion of mandatorily redeemable preferred stock.................. (16,959,618) -- (6,066,409) (23,026,027) ------------- ------- ------------ ------------- Proforma net loss attributable to common equity...... $(161,034,966) $(3,591) $(12,451,409) $(173,489,966) ============= ======= ============ =============
See accompanying notes to unaudited pro forma condensed consolidated financial statements. F-45 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 1998 (unaudited) ------------------------------------------------------- Historical TeleCorp PCS, Inc. and Predecessor TeleCorp ProForma Company LMDS Adjustments Pro Forma ------------------ -------- ------------ ------------ Revenue: Service revenue....... $ -- $ -- $ -- $ -- Equipment revenue..... -- -- -- -- Roaming revenue....... 29,231 -- -- 29,231 ------------ -------- ------------ ------------ Total revenue....... 29,231 -- -- 29,231 ------------ -------- ------------ ------------ Operating expenses: Cost of revenue....... -- -- -- Operations and development.......... 9,772,485 -- -- 9,772,485 Selling and marketing............ 6,324,666 -- -- 6,324,666 General and administrative....... 26,239,119 40,996 5,500,000 31,780,115 Depreciation and amortization......... 1,583,864 -- 1,180,000 2,763,864 ------------ -------- ------------ ------------ Total operating expenses........... 43,920,134 40,996 6,680,000 50,641,130 ------------ -------- ------------ ------------ Operating loss...... (43,890,903) (40,996) (6,680,000) (50,611,899) Other (income) expense: Interest expense...... 11,934,263 -- -- 11,934,263 Interest income....... (4,697,233) (62,292) -- (4,759,525) Other expense......... 27,347 -- -- 27,347 ------------ -------- ------------ ------------ Net (loss) income... (51,155,280) 21,296 (6,680,000) (57,813,984) Accretion of mandatorily redeemable preferred stock.................. (8,566,922) -- (9,329,594) (17,896,516) ------------ -------- ------------ ------------ Proforma net (loss) income attributable to common equity..... $(59,722,202) $ 21,296 $(16,009,594) $(75,710,500) ============ ======== ============ ============
See accompanying notes to unaudited pro forma condensed consolidated financial statements. F-46 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ------------ On October 18, 1999, the Company agreed to acquire TeleCorp LMDS, Inc. through a purchase of all of the outstanding stock of TeleCorp LMDS for an aggregate purchase price of approximately $16,900,000. The consideration will be comprised of Series C preferred stock and Class A Common Stock. TeleCorp LMDS' only assets are LMDS licenses. The purchase price has been preliminarily allocated to the acquired licenses, subject to adjustment based upon 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. The LMDS licenses will provide the Company with additional airwaves the Company can use to back- haul portions of its PCS network traffic in several of its markets. On October 14, 1999, the Company agreed to purchase 15 MHz of additional airwaves from Gulf Telecomm, LLC for $362,844 in cash, the assumption of approximately $2.3 million of FCC debt and the reimbursement of Gulf Telecomm for all interest paid to the FCC from June 1998 until the transaction is completed. This acquisition has not been included in the unaudited pro forma condensed consolidated financial statements due to its immateriality. The proforma adjustments result from the following: (i) The amortization of the extension of the Network Membership License Agreement related to the AT&T Puerto Rico acquisition as if the transaction occurred on January 1, 1998, and (ii) The accretion of manditorily redeemable preferred stock issued related to asset acquisitions which have completed (AT&T Puerto Rico, Wireless 2000, Digital PCS and Viper Wireless) or to be issued related to pending acquisitions (TeleCorp LMDS) as if the transactions occurred on January 1, 1998. (iii) Certain employees, the Chief Executive Officer and the Executive Vice President of the Company will be issued a total of 1,111 shares and 503,022 shares of mandatorily redeemable Series E preferred stock and Class A common stock, respectively, pending final FCC approval of the share issuance related to the Viper Wireless transaction. The Chief Executive Officer and the Executive Vice President's shares vest immediately and the employees' shares vest ratably over five years. The total estimated fair value of these shares is approximately $8,600,000 which will be recorded as deferred compensation of which $5,500,000 will be recorded as compensation expense in the fourth quarter of 1999 if final share transfer approval is received from the FCC. F-47 [Pictures of company stores, customers using handsets and customer care center.] - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 7,800,000 Shares TeleCorp PCS, Inc. Class A Common Stock -------- PROSPECTUS , 1999 -------- Salomon Smith Barney Lehman Brothers Deutsche Banc Alex. Brown Merrill Lynch & Co. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the expenses expected to be incurred in connection with the issuance and distribution of common stock registered hereby, all of which expenses, except for the Securities and Exchange Commission registration fee, the National Association of Securities Dealers, Inc. filing fee, and the Nasdaq National Market listing application fee, are estimated. Securities and Exchange Commission registration fee................. $ 44,886 National Association of Securities Dealers, Inc. filing fee......... 14,875 Nasdaq National Market listing fee.................................. 95,000 Printing and engraving fees and expenses*........................... 250,000 Legal fees and expenses*............................................ 550,000 Accountants' fees and expenses*..................................... 250,000 Transfer Agent and Registrar fees and expenses*..................... 5,000 Miscellaneous expenses*............................................. 116,239 ---------- Total*............................................................ $1,326,000 ==========
- -------- * Estimated ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. As permitted by Section 101(b)(7) of the DGCL, our restated certificate of incorporation includes a provision that eliminates the personal liability of our directors and executive officers for monetary damages for breach of fiduciary duty as a director or executive officer, except: (1) for any breach of the director's or executive officer's duty of loyalty to us or our stockholders; (2) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; (3) for unlawful dividends and stock purchases under the DGCL; or (4) for any transaction from which the director derived an improper personal benefit. In addition, Section 145 of the General Corporation Law of the State of Delaware ("DGCL") provides that a corporation may indemnify a director, officer, employee or agent against expenses (including attorneys' fees), judgements, fines and for amounts paid in settlement in respect of or in successful defense of any action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Our bylaws provide that: (1) we must indemnify our directors and officers to the fullest extent permitted by Delaware law, subject to very limited exceptions; (2) we may indemnify our other employees and agents to the same extent that we indemnify our officers and directors, unless otherwise required by law, our amended and restated certificate of incorporation, our bylaws or agreements; and (3) we must advance expenses, as incurred, to our directors and executive officers in connection with any legal proceeding to the fullest extent permitted by Delaware law, subject to limited exceptions. Prior to the closing of this offering, we intend to enter into indemnity agreements with each of our directors and executive officers to give them additional contractual assurances regarding the scope of the indemnification described above and to provide additional procedural protections. In addition, we have obtained directors' and officers' insurance providing indemnification for our directors, officers and key employees for various liabilities. II-1 ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. Since our inception, we sold shares of our common stock and preferred stock in the amounts (restated to account for our 100-to-1 stock split effected on August 27, 1999 and 3.09-to-1 stock split effected on November 8, 1999), 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. On July 17, 1998, we issued, in the aggregate, 66,722.81 shares of series A preferred stock, 135,347.76 shares of series C preferred stock, 34,266.97 shares of series D preferred stock, 3,336,141 shares of series F preferred stock, 12,855,107 shares of class A common stock, 36,738 shares of class C common stock, 275,539 shares of class D common stock and 1,000 shares of voting preference stock to 21 individuals and entities for an aggregate consideration of $128,000,000, ownership of all of the issued and outstanding shares of TeleCorp Holding Corp. and a PCS license. On April 20, 1999, we issued 2,332.55 shares of class C preferred stock and 226,923 shares of class A common stock to Digital PCS, LLC in consideration for the transfer of the ownership of PCS licenses. On May 14, 1999, we issued 980 shares of series D preferred stock, 98,000 shares of series F preferred stock, 5,477.2 shares of series C preferred stock and 547,720 shares of class A common stock to 15 entities for an aggregate consideration of $6,457,200. On May 25, 1999, we issued 30,750 shares of series A preferred stock, 39,996.60 shares of series C preferred stock, 4,063.35 shares of series E preferred stock and 3,999,660 shares of class A common stock to 20 individuals and entities for an aggregate consideration of $79,996,640.63 and a PCS license. On June 2, 1999, we issued 545.20 shares of series C preferred stock and 53,040 shares of class A common stock to Wireless 2000, Inc. in consideration for the transfer of the ownership of PCS licenses. 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. On September 29, 1999, we issued 2,241.56 shares of series D preferred stock, 224,156 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. II-2 ITEM 16. EXHIBITS AND FINANCIAL SCHEDULES. (a) Unless indicated otherwise below, the following exhibits were filed with registrant's Registration Statement on Form S-4 as initially filed on June 22 , 1999, or amendments thereto, and are incorporated herein by reference.
Exhibit Number Description of Document ------- ----------------------- 1.1* Draft of Underwriting Agreement 3.1.1 Fourth Amended and Restated Certificate of Incorporation of the registrant, as amended 3.1.2* Form of Fifth Amended and Restated Certificate of Incorporation to be adopted by the registrant 3.2.1 Amended and Restated Bylaws of the registrant 3.2.2* Second Amended and Restated Bylaws to be adopted by the registrant 4.1* Articles IV, V, VI, and IX of the TeleCorp PCS, Inc. Fifth Amended and Restated Certificate of Incorporation to be adopted by the registrant (contained in Exhibit 3.1.2) 4.2* Articles 1, 5, 8 and 9 of the TeleCorp PCS, Inc. Second Amended and Restated Bylaws to be adopted by the registrant (contained in Exhibit 3.22) 5.1* Opinion of McDermott, Will & Emery regarding the legality of the securities being registered 10.1.1 Note Purchase Agreement by and between TeleCorp PCS, Inc. and Lucent Technologies, Inc., dated as of May 11, 1998 10.1.2* Amended and Restated Note Purchase Agreement by and between TeleCorp PCS, Inc. and Lucent Technologies, Inc., dated as of October 29, 1999 10.2 General Agreement for Purchase of PCS Systems and Services by and between TeleCorp PCS, Inc. and Lucent Technologies, Inc., dated as of May 12, 1998, as amended 10.3 Securities Purchase Agreement by and among TeleCorp PCS, Inc., AT&T Wireless PCS Inc, TWR Cellular, Inc. and certain Cash Equity Investors, TeleCorp Investors and Management Stockholders identified, dated as of January 23, 1998 10.4.1 Network Membership License Agreement by and among AT&T Corp., including AT&T Wireless Services, Inc., and TeleCorp PCS, Inc., dated as of July 17, 1998 10.4.2 Amendment No. 1 to Network Membership License Agreement, dated March 30, 1999 10.5.1 Management Agreement by and between TeleCorp Management Corp. and TeleCorp PCS, Inc., dated as of July 17, 1998 10.5.2 Amendment No. 1 to the Management Agreement between TeleCorp Management Corp. and TeleCorp PCS, Inc., dated as of May 25, 1999 10.5.3* Amendment No. 2 to the Management Agreement between TeleCorp Management Corp. and TeleCorp PCS, Inc., dated as of October 18, 1999 10.6.1 Intercarrier Roamer Service Agreement by and between AT&T Wireless Services, Inc. and TeleCorp PCS, Inc., dated as of July 17, 1998 10.6.2 Amendment No. 1 to Intercarrier Roamer Service Agreement, dated May 25, 1999 10.7 Roaming Administration Service Agreement by and between AT&T Wireless Services, Inc. and TeleCorp PCS, Inc., dated as of July 17, 1998 10.8.1 Credit Agreement by and among TeleCorp PCS, Inc., the Lenders party to, and the Chase Manhattan Bank, as Administrative Agent and Issuing Bank, TD Securities (USA) Inc., as Syndication Agent, and Bankers Trust Company, as Documentation Agent, dated as of July 17, 1998 (the "Credit Agreement") 10.8.2 First Amendment, Consent, and Waiver to the Credit Agreement, dated as of December 18, 1998 10.8.3 Second Amendment and Waiver to the Credit Agreement, dated as of March 1, 1999
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Exhibit Number Description of Document ------- ----------------------- 10.8.4 Third Amendment to the Credit Agreement, dated as of March 30, 1999 10.8.5 Fourth Amendment to the Credit Agreement, dated as of March 31, 1999 10.8.6 Fifth Amendment and Acceptance to the Credit Agreement, dated as of April 7, 1999 10.8.7 Sixth Amendment to the Credit Agreement, dated as of April 7, 1999 10.8.8 Seventh Amendment to the Credit Agreement, dated as of May 21, 1999 10.8.9* Eighth Amendment to the Credit Agreement, dated as of October 25, 1999 10.8.10* Ninth Amendment to the Credit Agreement, dated as of October 26, 1999 10.9.1 Stock Purchase Agreement by and among TeleCorp PCS, Inc., AT&T Wireless PCS, Inc. and certain Cash Equity Investors identified in, dated as of March 22, 1999 10.9.2 Amendment No. 1 to Stock Purchase Agreement by and among TeleCorp PCS, Inc., AT&T Wireless PCS, Inc. and Cash Equity Investors, dated as of March 30, 1999. 10.9.3 Amendment No. 2 to Stock Purchase Agreement by and among TeleCorp PCS, Inc., AT&T Wireless PCS, Inc. and Cash Equity Investors, dated as of April 6, 1999. 10.9.4 Amendment No. 3 to Stock Purchase Agreement by and among TeleCorp PCS, Inc., AT&T Wireless PCS, Inc. and Cash Equity Investors, dated as of May 14, 1999. 10.9.5 Amendment No. 4 to Stock Purchase Agreement by and among TeleCorp PCS, Inc., AT&T Wireless PCS, Inc. and Cash Equity Investors, dated as of July 15, 1999. 10.10 Stock Purchase Agreement by and among Viper Wireless, Inc., TeleCorp Holding Corp., Inc. and TeleCorp PCS, Inc., dated as of March 1, 1999 10.11 Puerto Rico Stock Purchase Agreement by and among TeleCorp PCS, Inc., Puerto Rico Acquisition Corp. and certain Management Stockholders and Cash Equity Investors, dated as of March 30, 1999 10.12 Letter of Agreement by and between AT&T Wireless Services, Inc. and TeleCorp Communications, Inc., dated as of December 21, 1998 10.13 Asset Purchase Agreement, dated May 25, 1999, by and between AT&T Wireless PCS Inc. and TeleCorp PCS, Inc. 10.14 Preferred Stock Purchase Agreement, dated May 24, 1999, by and between AT&T Wireless PCS Inc. and TeleCorp PCS, Inc. 10.15 License Acquisition Agreement, dated May 15, 1998, by and between Mercury PCS II, LLC and TeleCorp PCS, Inc. 10.16 License Acquisition Agreement, dated May 15, 1998, by and between Wireless 2000, Inc. and TeleCorp PCS, Inc. 10.17.1 Stockholders' Agreement, dated as of July 17, 1998, by and among AT&T Wireless PCS, Inc., TWR Cellular, Inc., Cash Equity Investors, Management Stockholders, and TeleCorp PCS, Inc. 10.17.2 Amendment No. 1 to Stockholders' Agreement dated May 25, 1999 10.17.3* Amendment No. 2 to Stockholders' Agreement dated November 1, 1999 10.18 Purchase Agreement, dated April 20, 1999, by and among Chase Securities Inc., BT Alex. Brown Incorporated, Lehman Brothers Inc., TeleCorp PCS, Inc. and TeleCorp Communications, Inc. 10.19 Exchange and Registration Rights Agreement, dated April 23, 1999, by and among Chase Securities Inc., BT Alex. Brown Incorporated, Lehman Brothers Inc., TeleCorp PCS, Inc. and TeleCorp Communications, Inc. 10.20 Agreement, dated as of July 17, 1998, by and among AT&T Wireless PCS Inc., TWR Cellular, Inc., the Cash Equity Investors, the TeleCorp Investors and the Management Stockholders.
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Exhibit Number Description of Document ------- ----------------------- 10.21 Employee Agreement, dated as of July 17, 1998, by and between TeleCorp PCS, Inc. and Julie A. Dobson. 10.22 Share Grant Agreement, dated July 16, 1998, by and between TeleCorp PCS, Inc. and Julie A. Dobson. 10.23 Separation Agreement, dated as of March 8, 1999, by and among TeleCorp PCS, Inc., TeleCorp Communications, Inc. and Robert Dowski. 10.24 Agreement among the Parties, dated as of June 30, 1999, by and among TeleCorp PCS, Inc., the Cash Equity Investors, Entergy Technology Holding Company, AT&T Wireless PCS, Inc., TWR Cellular Inc. and other stockholders. 10.25 Amended and Restated Agreement, dated April 16, 1999, by and among TeleCorp Communications, Inc., Triton PCS, Inc., Tritel Communications, Inc. and Affiliate License Co, L.L.C. 10.26 TeleCorp PCS, Inc. 1998 Restricted Stock Plan, as amended May 20, 1999. 10.27* TeleCorp PCS, Inc. 1999 Stock Option Plan, dated June 23, 1999, as amended. 10.30 Indenture, dated as of April 23, 1999, by and between Bankers Trust Company, as trustee, and TeleCorp PCS, Inc. relating to the 11 5/8% Senior Subordinated Discount Notes due 2009 10.31* Form of Indemnification Agreement to be entered into between TeleCorp PCS, Inc. and its directors and executive officers. 21.1 Subsidiaries of TeleCorp PCS, Inc. 23.1* Consent of McDermott, Will & Emery (contained in Exhibit 5.1) 23.2* Consent of PricewaterhouseCoopers, LLP 24.1*** Power of Attorney for TeleCorp PCS, Inc. (included on signature page) 27.1**** Financial Data Schedule
- -------- *Filed herewith. **To be filed by amendment. ***Previously filed with this registration statement. ****Filed with registrant's Form 10-Q on November 15, 1999 and incorporated by reference herein. ITEM 17. UNDERTAKINGS. (a) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant under the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling persons of the registrant in the successful defense of any action suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether the indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. (b) The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Amendment No. 2 to Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Arlington, Commonwealth of Virginia, on November 17, 1999. Telecorp PCS, Inc. /s/ Gerald T. Vento By: _________________________________ Gerald T. Vento Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to Registration Statement on Form S-1 has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Gerald T. Vento Chief Executive Officer November 17, 1999 ______________________________________ (Principal Executive Gerald T. Vento Officer) and Chairman /s/ Thomas H. Sullivan Executive Vice President, November 17, 1999 ______________________________________ Chief Financial Officer Thomas H. Sullivan (Principal Financial and Accounting Officer) and Director * Director November 17, 1999 ______________________________________ Michael R. Hannon * Director November 17, 1999 ______________________________________ Scott Anderson Director November , 1999 ______________________________________ Rohit M. Desai Director November , 1999 ______________________________________ Gary S. Fuqua * Director November 17, 1999 ______________________________________ James M. Hoak * Director November 17, 1999 ______________________________________ Mary Hawkins-Key * Director November 17, 1999 ______________________________________ William Kussell
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Signature Title Date --------- ----- ---- Director November , 1999 ______________________________________ William Laverack, Jr. * Director November 17, 1999 ______________________________________ Joseph O'Donnell * Director November 17, 1999 ______________________________________ Michael Schwartz * Director November 17, 1999 ______________________________________ James F. Wade
/s/ Thomas H. Sullivan *By: ________________________________ Thomas H. Sullivan Attorney-in-fact II-7 EXHIBIT INDEX
Exhibit Number Description of Document ------- ----------------------- 1.1* Draft of Underwriting Agreement 3.1.1 Fourth Amended and Restated Certificate of Incorporation of the registrant, as amended 3.1.2* Form of Fifth Amended and Restated Certificate of Incorporation to be adopted by the registrant 3.2.1 Amended and Restated Bylaws of the registrant 3.2.2* Second Amended and Restated Bylaws to be adopted by the registrant 4.1* Articles IV, V, VI, and IX of the TeleCorp PCS, Inc. Fifth Amended and Restated Certificate of Incorporation to be adopted by the registrant (contained in Exhibit 3.1.2) 4.2* Articles 1, 5, 8 and 9 of the TeleCorp PCS, Inc. Second Amended and Restated Bylaws to be adopted by the registrant (contained in Exhibit 3.22) 5.1* Opinion of McDermott, Will & Emery regarding the legality of the securities being registered 10.1.1 Note Purchase Agreement by and between TeleCorp PCS, Inc. and Lucent Technologies, Inc., dated as of May 11, 1998 10.1.2* Amended and Restated Note Purchase Agreement by and between TeleCorp PCS, Inc. and Lucent Technologies, Inc., dated as of October 29, 1999 10.2 General Agreement for Purchase of PCS Systems and Services by and between TeleCorp PCS, Inc. and Lucent Technologies, Inc., dated as of May 12, 1998, as amended 10.3 Securities Purchase Agreement by and among TeleCorp PCS, Inc., AT&T Wireless PCS Inc, TWR Cellular, Inc. and certain Cash Equity Investors, TeleCorp Investors and Management Stockholders identified, dated as of January 23, 1998 10.4.1 Network Membership License Agreement by and among AT&T Corp., including AT&T Wireless Services, Inc., and TeleCorp PCS, Inc., dated as of July 17, 1998 10.4.2 Amendment No. 1 to Network Membership License Agreement, dated March 30, 1999 10.5.1 Management Agreement by and between TeleCorp Management Corp. and TeleCorp PCS, Inc., dated as of July 17, 1998 10.5.2 Amendment No. 1 to the Management Agreement between TeleCorp Management Corp. and TeleCorp PCS, Inc., dated as of May 25, 1999 10.5.3* Amendment No. 2 to the Management Agreement between TeleCorp Management Corp. and TeleCorp PCS, Inc., dated as of October 18, 1999 10.6.1 Intercarrier Roamer Service Agreement by and between AT&T Wireless Services, Inc. and TeleCorp PCS, Inc., dated as of July 17, 1998 10.6.2 Amendment No. 1 to Intercarrier Roamer Service Agreement, dated May 25, 1999 10.7 Roaming Administration Service Agreement by and between AT&T Wireless Services, Inc. and TeleCorp PCS, Inc., dated as of July 17, 1998 10.8.1 Credit Agreement by and among TeleCorp PCS, Inc., the Lenders party to, and the Chase Manhattan Bank, as Administrative Agent and Issuing Bank, TD Securities (USA) Inc., as Syndication Agent, and Bankers Trust Company, as Documentation Agent, dated as of July 17, 1998 (the "Credit Agreement") 10.8.2 First Amendment, Consent, and Waiver to the Credit Agreement, dated as of December 18, 1998 10.8.3 Second Amendment and Waiver to the Credit Agreement, dated as of March 1, 1999
Exhibit Number Description of Document ------- ----------------------- 10.8.4 Third Amendment to the Credit Agreement, dated as of March 30, 1999 10.8.5 Fourth Amendment to the Credit Agreement, dated as of March 31, 1999 10.8.6 Fifth Amendment and Acceptance to the Credit Agreement, dated as of April 7, 1999 10.8.7 Sixth Amendment to the Credit Agreement, dated as of April 7, 1999 10.8.8 Seventh Amendment to the Credit Agreement, dated as of May 21, 1999 10.8.9* Eighth Amendment to the Credit Agreement, dated as of October 25, 1999 10.8.10* Ninth Amendment to the Credit Agreement, dated as of October 26, 1999 10.9.1 Stock Purchase Agreement by and among TeleCorp PCS, Inc., AT&T Wireless PCS, Inc. and certain Cash Equity Investors identified in, dated as of March 22, 1999 10.9.2 Amendment No. 1 to Stock Purchase Agreement by and among TeleCorp PCS, Inc., AT&T Wireless PCS, Inc. and Cash Equity Investors, dated as of March 30, 1999. 10.9.3 Amendment No. 2 to Stock Purchase Agreement by and among TeleCorp PCS, Inc., AT&T Wireless PCS, Inc. and Cash Equity Investors, dated as of April 6, 1999. 10.9.4 Amendment No. 3 to Stock Purchase Agreement by and among TeleCorp PCS, Inc., AT&T Wireless PCS, Inc. and Cash Equity Investors, dated as of May 14, 1999. 10.9.5 Amendment No. 4 to Stock Purchase Agreement by and among TeleCorp PCS, Inc., AT&T Wireless PCS, Inc. and Cash Equity Investors, dated as of July 15, 1999. 10.10 Stock Purchase Agreement by and among Viper Wireless, Inc., TeleCorp Holding Corp., Inc. and TeleCorp PCS, Inc., dated as of March 1, 1999 10.11 Puerto Rico Stock Purchase Agreement by and among TeleCorp PCS, Inc., Puerto Rico Acquisition Corp. and certain Management Stockholders and Cash Equity Investors, dated as of March 30, 1999 10.12 Letter of Agreement by and between AT&T Wireless Services, Inc. and TeleCorp Communications, Inc., dated as of December 21, 1998 10.13 Asset Purchase Agreement, dated May 25, 1999, by and between AT&T Wireless PCS Inc. and TeleCorp PCS, Inc. 10.14 Preferred Stock Purchase Agreement, dated May 24, 1999, by and between AT&T Wireless PCS Inc. and TeleCorp PCS, Inc. 10.15 License Acquisition Agreement, dated May 15, 1998, by and between Mercury PCS II, LLC and TeleCorp PCS, Inc. 10.16 License Acquisition Agreement, dated May 15, 1998, by and between Wireless 2000, Inc. and TeleCorp PCS, Inc. 10.17.1 Stockholders' Agreement, dated as of July 17, 1998, by and among AT&T Wireless PCS, Inc., TWR Cellular, Inc., Cash Equity Investors, Management Stockholders, and TeleCorp PCS, Inc. 10.17.2 Amendment No. 1 to Stockholders' Agreement dated May 25, 1999 10.17.3* Amendment No. 2 to Stockholders' Agreement dated November 1, 1999 10.18 Purchase Agreement, dated April 20, 1999, by and among Chase Securities Inc., BT Alex. Brown Incorporated, Lehman Brothers Inc., TeleCorp PCS, Inc. and TeleCorp Communications, Inc. 10.19 Exchange and Registration Rights Agreement, dated April 23, 1999, by and among Chase Securities Inc., BT Alex. Brown Incorporated, Lehman Brothers Inc., TeleCorp PCS, Inc. and TeleCorp Communications, Inc. 10.20 Agreement, dated as of July 17, 1998, by and among AT&T Wireless PCS Inc., TWR Cellular, Inc., the Cash Equity Investors, the TeleCorp Investors and the Management Stockholders.
Exhibit Number Description of Document ------- ----------------------- 10.21 Employee Agreement, dated as of July 17, 1998, by and between TeleCorp PCS, Inc. and Julie A. Dobson. 10.22 Share Grant Agreement, dated July 16, 1998, by and between TeleCorp PCS, Inc. and Julie A. Dobson. 10.23 Separation Agreement, dated as of March 8, 1999, by and among TeleCorp PCS, Inc., TeleCorp Communications, Inc. and Robert Dowski. 10.24 Agreement among the Parties, dated as of June 30, 1999, by and among TeleCorp PCS, Inc., the Cash Equity Investors, Entergy Technology Holding Company, AT&T Wireless PCS, Inc., TWR Cellular Inc. and other stockholders. 10.25 Amended and Restated Agreement, dated April 16, 1999, by and among TeleCorp Communications, Inc., Triton PCS, Inc., Tritel Communications, Inc. and Affiliate License Co, L.L.C. 10.26 TeleCorp PCS, Inc. 1998 Restricted Stock Plan, as amended May 20, 1999. 10.27* TeleCorp PCS, Inc. 1999 Stock Option Plan, dated June 23, 1999, as amended. 10.30 Indenture, dated as of April 23, 1999, by and between Bankers Trust Company, as trustee, and TeleCorp PCS, Inc. relating to the 11 5/8% Senior Subordinated Discount Notes due 2009 10.31* Form of Indemnification Agreement to be entered into between TeleCorp PCS, Inc. and its directors and executive officers. 21.1 Subsidiaries of TeleCorp PCS, Inc. 23.1** Consent of McDermott, Will & Emery (contained in Exhibit 5.1) 23.2* Consent of PricewaterhouseCoopers, LLP 24.1*** Power of Attorney for TeleCorp PCS, Inc. (included on signature page) 27.1**** Financial Data Schedule
- -------- *Filed herewith. **To be filed by amendment. ***Previously filed with this registration statement. ****Filed with registrant's Form 10-Q on November 15, 1999 and incorporated by reference herein. EX-1.1 2 FORM OF UNDERWRITING AGREEMENT EXHIBIT 1.1 [Draft--11/15/99] TeleCorp PCS, Inc. 7,800,000 Shares/a/ - Class A Common Stock ($0.01 par value) Underwriting Agreement New York, New York , 1999 Salomon Smith Barney Inc. Lehman Brothers Inc. Deutsche Bank Securities Inc. Merrill Lynch, Pierce, Fenner & Smith Incorporated As Representatives of the several Underwriters c/o Salomon Smith Barney Inc. 388 Greenwich Street New York, New York 10013 Ladies and Gentlemen: TeleCorp PCS, Inc., a corporation organized under the laws of the State of Delaware (the "Company"), proposes to sell to the several underwriters named in Schedule I hereto (the "Underwriters"), for whom you (the "Representatives") are acting as representatives, 7,800,000 shares of class A common stock, $0.01 par value ("Common Stock") of the Company (said shares to be issued and sold by the Company being hereinafter called the "Underwritten Securities"). The Company also proposes to grant to the Underwriters an option to purchase up to 1,170,000 additional shares of Common Stock to cover over- allotments (the "Option Securities"; the Option Securities, together with the Underwritten Securities, being hereinafter called the "Securities"). To the extent there are no additional Underwriters listed on Schedule I other than you, the term Representatives as used herein shall mean you, as Underwriters, and the terms Representatives and Underwriters shall mean either the singular or plural as the context requires. Certain terms used herein are defined in Section 17 hereof. Certain terms used herein are defined in Section 17 hereof. - --------------------------- /a/ Plus an option to purchase from the Company, up to 1,170,000 additional - Securities to cover over-allotments. 2 1. Representations and Warranties. The Company represents and ------------------------------- warrants to, and agrees with, each Underwriter as set forth below in this Section 1. (a) The Company has prepared and filed with the Commission a registration statement (file number 333-89393) on Form S-1, including a related preliminary prospectus, for registration under the Act of the offering and sale of the Securities. The Company may have filed one or more amendments thereto, including a related preliminary prospectus, each of which has previously been furnished to you. The Company will next file with the Commission either (1) prior to the Effective Date of such registration statement, a further amendment to such registration statement (including the form of final prospectus) or (2) after the Effective Date of such registration statement, a final prospectus in accordance with Rules 430A and 424(b). In the case of clause (2), the Company has included in such registration statement, as amended at the Effective Date, all information (other than Rule 430A Information) required by the Act and the rules thereunder to be included in such registration statement and the Prospectus. As filed, such amendment and form of final prospectus, or such final prospectus, shall contain all Rule 430A Information, together with all other such required information, and, except to the extent the Representatives shall agree in writing to a modification, shall be in all substantive respects in the form furnished to you prior to the Execution Time or, to the extent not completed at the Execution Time, shall contain only such specific additional information and other changes (beyond that contained in the latest Preliminary Prospectus) as the Company has advised you, prior to the Execution Time, will be included or made therein. (b) On the Effective Date, the Registration Statement did or will, and when the Prospectus is first filed (if required) in accordance with Rule 424(b) and on the Closing Date (as defined herein) and on any date on which Option Securities are purchased, if such date is not the Closing Date (a "settlement date"), the Prospectus (and any supplements thereto) will, comply in all material respects with the applicable requirements of the Act and the rules thereunder; on the Effective Date and at the Execution Time, the Registration Statement did not or will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading; and, on the Effective Date, the Prospectus, if not filed pursuant to Rule 424(b), will not, and on the date of any filing pursuant to Rule 424(b) and on the Closing Date and any settlement date, the Prospectus (together with any supplement thereto) will not, include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, -------- however, that the Company makes no representations or warranties as to the ------- information contained in or omitted from the Registration Statement, or the Prospectus (or any supplement thereto) in reliance upon and in 3 conformity with information furnished in writing to the Company by or on behalf of any Underwriter through the Representatives specifically for inclusion in the Registration Statement or the Prospectus (or any supplement thereto). (c) Except as set forth an Exhibit A hereto, the Company has no subsidiaries and holds no minority interest in any entity. The Company and each of its subsidiaries have been duly incorporated or formed and are validly existing as corporations, limited liability companies or limited partnerships in good standing under the laws of their respective jurisdictions of incorporation or formation, are duly qualified to do business and are in good standing as foreign corporations, limited liability companies or limited partnerships in each jurisdiction in which their respective ownership or lease of property or the conduct of their respective businesses requires such qualification, and have all power and authority necessary to own or hold their respective properties and to conduct the businesses in which they are engaged, except where the failure to so qualify or have such power or authority would not, singularly or in the aggregate, have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Company and its subsidiaries, taken as a whole, whether or not arising from transactions in the ordinary course of business. (d) As of the Closing Date, the Company will have an authorized equity capitalization as set forth in the Prospectus under the heading "Capitalization" and "Description of Capital Stock"; all of the outstanding shares of capital stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable; and the capital stock of the Company conforms in all material respects to the description thereof contained in the Prospectus, including, in particular, under the heading "Description of Capital Stock"; the Securities have been duly and validly authorized, and, when issued and delivered to and paid for by the Underwriters pursuant to this Agreement, will be fully paid and nonassessable; the Securities have been approved by the Nasdaq National Market, Inc. for listing, subject to official notice of issuance and evidence of satisfactory distribution; the certificates for the Securities are in valid and sufficient form; the holders of outstanding shares of capital stock of the Company are not entitled to preemptive or other rights to subscribe for the Securities; and, except as set forth in the Prospectus, no options, warrants or other rights to purchase, agreements or other obligations to issue, or rights to convert any obligations into or exchange any securities for, shares of capital stock of or ownership interests in the Company are outstanding. (e) All of the outstanding shares of capital stock of each subsidiary of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and are owned directly or indirectly by the Company, free and clear of any lien, charge, encumbrance, security interest, restriction upon voting or 4 transfer or any other claim of any third party, other than (i) liens, charges, encumbrances and security interests created by the Credit Agreement dated as of July 17, 1998, as amended through the date hereof, among the Company, the Lenders identified therein, The Chase Manhattan Bank, as Administrative Agent and Issuing Bank, TD Securities (USA) Inc., as Syndication Agent, and Bankers Trust Company, as Documentation Agent, and (ii) restrictions upon voting or transfer arising under (A) the Stockholders' Agreement dated as of July 17, 1998, as amended through the date hereof, among AT&T Wireless PCS Inc., TWR Cellular, Inc. and the other investors identified therein, the individuals identified therein and the Company, (B) the Management Agreement dated as of July 17, 1999, as amended through the date hereof, between TeleCorp Management Corp. and the Company and (C) the Investors Stockholders' Agreement dated as of July 17, 1998, among AT&T Wireless PCS, Inc., CB Capital Investors, L.P., Private Equity Investors III, L.P., Equity-Linked Investors-II, Entergy Technology Holding Company, Whitney Equity Partners, L.P., Whitney Strategic Partners III, L.P., J.H. Whitney III, L.P., Media/Communications Investors Limited Partnership, Media/Communications Partners III Limited Partnership, Toronto Dominion Investments, Inc., Northwood Ventures LLC, Northwood Capital Partners LLC, One Liberty Fund III, L.P., Hoak Communications Partners, L.P., HCP Capital Fund, L.P. and the other stockholders named therein. (f) There is no franchise, contract or other document of a character required to be described in the Registration Statement or Prospectus, or to be filed as an exhibit thereto, which is not described or filed as required; and the statements in the Prospectus under the headings "Material U.S. Tax Consequences to Non-U.S. Holders" and "Business--Government Regulation" fairly summarize the matters therein described. (g) This Agreement has been duly authorized, executed and delivered by the Company and constitutes a valid and binding obligation of the Company enforceable in accordance with its terms. (h) The Company is not and, after giving effect to the offering and sale of the Securities and the application of the proceeds thereof as described in the Prospectus, will not be an "investment company" as defined in the Investment Company Act of 1940, as amended. Neither the Company nor any of its subsidiaries is a "holding company" or a "subsidiary company" of a holding company or an "affiliate" thereof within the meaning of the Public Utility Holding Company Act of 1935, as amended. (i) No consent, approval, authorization, filing with or order of any court or governmental agency or body is required in connection with the transactions contemplated herein, except such as have been obtained under the Act and such as 5 may be required under the blue sky laws of any jurisdiction in connection with the purchase and distribution of the Securities by the Underwriters in the manner contemplated herein and in the Prospectus. (j) Neither the issue and sale of the Securities nor the consummation of any other of the transactions herein contemplated nor the fulfillment of the terms hereof will conflict with, result in a breach or violation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, (i) the charter or by-laws of the Company or any of its subsidiaries, (ii) the terms of any indenture, contract, lease, mortgage, deed of trust, note agreement, loan agreement or other agreement, obligation, condition, covenant or instrument to which the Company or any of its subsidiaries is a party or bound or to which its or their property is subject, or (iii) any statute, law, rule, regulation, judgment, order or decree applicable to the Company or any of its subsidiaries of any court, regulatory body, administrative agency, governmental body, arbitrator or other authority having jurisdiction over the Company or any of its subsidiaries or any of its or their properties. (k) No holders of securities of the Company have rights to the registration of such securities under the Registration Statement that have not been waived. (l) The audited and unaudited consolidated historical financial statements and schedules of the Company and its consolidated subsidiaries included in the Prospectus and the Registration Statement present fairly in all material respects the financial condition, results of operations and cash flows of the Company as of the dates and for the periods indicated, comply as to form with the applicable accounting requirements of the Act and have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved (except as otherwise noted therein). The selected financial data set forth under the caption "Selected Historical and Pro Forma Consolidated Financial Information" in the Prospectus and Registration Statement fairly present, on the basis stated in the Prospectus and the Registration Statement, the information included therein. The historical financial information contained in the Prospectus under the headings "Capitalization", "Selected Historical and Pro Forma Consolidated Financial Information" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" is derived from the accounting records of the entities covered thereby and fairly present the information purported to be shown thereby. The pro forma financial statements included in the Prospectus and the Registration Statement include assumptions that provide a reasonable basis for presenting the significant effects directly attributable to the transactions and events described therein, the related pro forma adjustments give appropriate effect to those assumptions, and the pro forma adjustments reflect the proper application of those adjustments to the historical financial statement 6 amounts in the pro forma financial statements included in the Prospectus and the Registration Statement. The pro forma financial statements included in the Prospectus and the Registration Statement comply as to form in all material respects with the applicable accounting requirements of Regulation S-X under the Act and the pro forma adjustments have been properly applied to the historical amounts in the compilation of those statements. (m) No action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries or its or their property is pending or, to the best knowledge of the Company, threatened that (i) could reasonably be expected to have a material adverse effect on the performance of this Agreement or the consummation of any of the transactions contemplated hereby or (ii) could reasonably be expected to have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Company and its subsidiaries, taken as a whole, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Prospectus (exclusive of any supplement thereto). (n) Each of the Company and each of its subsidiaries owns or leases all such properties as are necessary to the conduct of its operations as presently conducted. (o) Neither the Company nor any subsidiary is in violation or default of (i) any provision of its charter or bylaws, (ii) the terms of any indenture, contract, lease, mortgage, deed of trust, note agreement, loan agreement or other agreement, obligation, condition, covenant or instrument to which it is a party or bound or to which its property is subject, or (iii) any statute, law, rule, regulation, judgment, order or decree of any court, regulatory body, administrative agency, governmental body, arbitrator or other authority having jurisdiction over the Company or such subsidiary or any of its properties, as applicable. (p) PricewaterhouseCoopers LLP, who have certified certain financial statements of the Company and its consolidated subsidiaries and delivered their report with respect to the audited consolidated financial statements and schedules included in the Prospectus, are independent public accountants with respect to the Company within the meaning of the Act and the applicable published rules and regulations thereunder. (q) The Company has filed all foreign, federal, state and local tax returns that are required to be filed or has requested extensions thereof (except in any case in which the failure so to file would not have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of 7 the Company and its subsidiaries, taken as a whole, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Prospectus (exclusive of any supplement thereto)) and has paid all taxes required to be paid by it and any other assessment, fine or penalty levied against it, to the extent that any of the foregoing is due and payable, except for any such assessment, fine or penalty that is currently being contested in good faith or as would not have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Company and its subsidiaries, taken as a whole, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Prospectus (exclusive of any supplement thereto). (r) No labor problem or dispute with the employees of the Company or any of its subsidiaries exists or is threatened or imminent, and the Company is not aware of any existing or imminent labor disturbance by the employees of any of its or its subsidiaries' principal suppliers, contractors or customers, that could have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Company and its subsidiaries, taken as a whole, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Prospectus (exclusive of any supplement thereto). (s) The Company and each of its subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which they are engaged; all policies of insurance and fidelity or surety bonds insuring the Company or any of its subsidiaries or their respective businesses, assets, employees, officers and directors are in full force and effect; the Company and its subsidiaries are in compliance with the terms of such policies and instruments in all material respects; and there are no claims by the Company or any of its subsidiaries under any such policy or instrument as to which any insurance company is denying liability or defending under a reservation of rights clause; neither the Company nor any such subsidiary has been refused any insurance coverage sought or applied for; and neither the Company nor any such subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Company and its subsidiaries, taken as a whole, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Prospectus (exclusive of any supplement thereto). 8 (t) The Company and its subsidiaries possess all licenses, certificates, permits and other authorizations issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, and neither the Company nor any such subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Company and its subsidiaries, taken as a whole, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Prospectus. (u) The Company and each of its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (v) The Company has not taken, directly or indirectly, any action designed to or which has constituted or which might reasonably be expected to cause or result, under the Exchange Act or otherwise, in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities. (w) The Company and its subsidiaries are (i) in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii) have received and are in compliance with all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) have not received notice of any actual or potential liability for the investigation or remediation of any disposal or release of hazardous or toxic substances or wastes, pollutants or contaminants, except where such non-compliance with Environmental Laws, failure to receive required permits, licenses or other approvals, or liability would not, individually or in the aggregate, have a material adverse change in the condition (financial or otherwise), prospects, earnings, business or properties of the Company and its subsidiaries, taken as a whole, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Prospectus (exclusive of any 9 supplement thereto). Except as set forth in the Prospectus, neither the Company nor any of the subsidiaries has been named as a "potentially responsible party" under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended. (x) In the ordinary course of its business, the Company periodically reviews the effect of Environmental Laws on the business, operations and properties of the Company and its subsidiaries, in the course of which it identifies and evaluates associated costs and liabilities (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws, or any permit, license or approval, any related constraints on operating activities and any potential liabilities to third parties). On the basis of such review, the Company has reasonably concluded that such associated costs and liabilities would not, singly or in the aggregate, have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Company and its subsidiaries, taken as a whole, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Prospectus (exclusive of any supplement thereto). (y) Each of the Company and its subsidiaries has fulfilled its obligations, if any, under the minimum funding standards of Section 302 of the United States Employee Retirement Income Security Act of 1974 ("ERISA") and the regulations and published interpretations thereunder with respect to each "plan" (as defined in Section 3(3) of ERISA and such regulations and published interpretations) in which employees of the Company and its subsidiaries are eligible to participate and each such plan is in compliance in all material respects with the presently applicable provisions of ERISA and such regulations and published interpretations. The Company and its subsidiaries have not incurred any unpaid liability to the Pension Benefit Guaranty Corporation (other than for the payment of premiums in the ordinary course) or to any such plan under Title IV of ERISA. (z) The Company and its subsidiaries own, possess, license or have other rights to use, on reasonable terms, all trade and service marks, trade and service mark registrations, trade names, copyrights, licenses, inventions, trade secrets, technology, know-how and other intellectual property (collectively, the "Intellectual Property") necessary for the conduct of the Company's business as now conducted or as proposed in the Prospectus to be conducted. Except as set forth in the Prospectus under the caption "Business--Intellectual Property," (a) there are no rights of third parties to any such Intellectual Property; (b) there is no material infringement by third parties of any such Intellectual Property; (c) there is no pending or threatened action, suit, proceeding or claim by others challenging the Company's rights in or to any such Intellectual Property, and the Company is 10 unaware of any facts which would form a reasonable basis for any such claim; (d) there is no pending or threatened action, suit, proceeding or claim by others challenging the validity or scope of any such Intellectual Property, and the Company is unaware of any facts which would form a reasonable basis for any such claim; (e) there is no pending or threatened action, suit, proceeding or claim by others that the Company infringes or otherwise violates any patent, trademark, copyright, trade secret or other proprietary rights of others, and the Company is unaware of any other fact which would form a reasonable basis for any such claim and (f) there is no U.S. patent or published U.S. patent application which contains claims that dominate or may dominate any Intellectual Property described in the Prospectus as being owned by or licensed to the Company or that interferes with the issued or pending claims of any such Intellectual Property. Neither the Company nor any of its subsidiaries own, possess, license or have any other rights to use any patents, nor does the Company or any of its subsidiaries have any patent applications pending. (aa) The Company and each of its subsidiaries have good and marketable title in fee simple to, or have valid rights to lease or otherwise use, all items of real and personal property which are material to the business of the Company and its subsidiaries, in each case free and clear of all liens, encumbrances, claims and defects and imperfections of title except such as (i) do not materially interfere with the use made and proposed to be made of such property by the Company and its subsidiaries or (ii) could not reasonably be expected to have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Company and its subsidiaries, taken as a whole, whether or not arising from transactions in the ordinary course of business. (bb) Except as described in the Prospectus, there are no outstanding subscriptions, rights, warrants, calls or options to acquire, or instruments convertible into or exchangeable for, or agreements or understandings with respect to the sale or issuance of, any shares of capital stock of or other equity or other ownership interest in the Company or any of its subsidiaries. (cc) No forward-looking statement (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) contained in the Prospectus has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith. (dd) None of the Company or any of its subsidiaries does business with the government of Cuba or with any person or affiliate located in Cuba within the meaning of Florida Statutes Section 517.075. 11 (ee) The Company and its subsidiaries have evaluated the accuracy of the representations made by (i) the vendors from whom components of the Company's internal information technology systems were purchased and (ii) the vendors from whom all network hardware was purchased regarding the risk that the products sold by such vendors may be unable to recognize and properly execute date-sensitive functions involving certain dates prior to and any dates after December 31, 1999 (the "Year 2000 Problem"); and the Company believes, after due inquiry, that each supplier, vendor, customer or financial service organization used or serviced by the Company and its subsidiaries has remedied or will remedy on a timely basis the Year 2000 Problem. (ff) Since the date as of which information is given in the Prospectus, (i) there has been no material adverse change or any development involving a prospective material adverse change in the condition, financial or otherwise, or in the earnings, business affairs, management or business prospects of the Company and its subsidiaries, taken as a whole, whether or not arising in the ordinary course of business, (ii) neither the Company nor any of its subsidiaries has incurred any material liability or obligation, direct or contingent, other than in the ordinary course of business, (iii) neither the Company nor any of its subsidiaries has entered into any material transaction other than in the ordinary course of business and (iv) except as otherwise disclosed in the Prospectus, there has not been any change in the capital stock or long-term debt of the Company or any of its subsidiaries, or any dividend or distribution of any kind declared, paid or made by the Company or any of its subsidiaries on any class of their respective capital stock. (gg) (i) The Company and its subsidiaries have the full use and benefit of all broadband personal communications services ("PCS") licenses issued by the Federal Communications Commission (the "FCC") to the Company and its subsidiaries (the "Licenses") necessary to operate assets constituting a radio communications system authorized under the rules for wireless communications services (including any license and the network, marketing, distribution, sales, customer interface and operations functions relating thereto) owned and operated by the Company or any of its subsidiaries in the Major Trading Areas (as defined in 47 C.F.R. (S)24.202) and the Basic Trading Areas (as defined in 47 C.F.R. (S)24.202) listed on Parts A, B, C, D and E of Exhibit B attached hereto and each other area in which the Company or any of its subsidiaries conducts a broadband PCS business and will have the full use and benefit of the Licenses listed on Part F of Exhibit B upon consummation of the acquisition of a [list licenses to be acquired] from [ ]; (ii) such Licenses have been duly issued by the FCC, are (in the case of Licenses listed on Parts A, B, C, D and E of Exhibit B) or will be (upon consummation of the relevant transaction in the case of Licenses listed on Part F of Exhibit B) held by a wholly owned subsidiary of the Company and are in full force and effect and (iii) the Company and its subsidiaries are in compliance in all 12 material respects with all of the provisions of each such License held by any of them. (hh) (i) The Company and each of its subsidiaries are in compliance in all material respects with the Communications Act of 1934, and any similar or successor federal statute, and the rules and regulations and published policies of the FCC thereunder, as amended and as in effect from time to time (collectively, the "Communications Act"), and all requirements of the FCC, including the "very small business" requirements; (ii) the Company has no knowledge of any investigation, notice of apparent liability, violation, forfeiture or other order or complaint issued by or before the FCC, or of any other proceedings (other than proceedings relating to the wireless communications industries generally) of or before the FCC, which could reasonably be expected to have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Company and its subsidiaries, taken as a whole, whether or not arising from transactions in the ordinary course of business; (iii) no event has occurred which (A) has resulted in, or after notice or lapse of time or both would result in, revocation, suspension, adverse modifications, non-renewal, impairment, restriction or termination of, or order of forfeiture with respect to, any License in any respect which could reasonably be expected to have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Company and its subsidiaries, taken as a whole, whether or not arising from transactions in the ordinary course of business or (B) affects or could reasonably be expected in the future to affect any of the rights of the Company or any of its subsidiaries under any License held by the Company or any of its subsidiaries in any respect which could reasonably be expected to have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Company and its subsidiaries, taken as a whole, whether or not arising from transactions in the ordinary course of business; (iv) the Company and each of its subsidiaries have duly filed in a timely manner all material filings, reports, applications, documents, instruments and information required to be filed under the Communications Act, and all such filings were when made true, correct and complete in all material respects; and (v) the Company has no reason to believe that each License of the Company or any of its subsidiaries will not be renewed in the ordinary course. (ii) The Company is in compliance with its "Minimum Build-Out Plan", as defined in the Securities Purchase Agreement dated January 23, 1998, as amended through the date hereof, among AT&T Wireless PCS Inc., TWR Cellular, Inc., the Cash Equity Investors (as identified therein), the TeleCorp Investors (as identified therein), Gerald Vento, Thomas Sullivan and the Company (the "Securities Purchase Agreement"). 13 Any certificate signed by any officer of the Company and delivered to the Representatives or counsel for the Underwriters in connection with the offering of the Securities shall be deemed a representation and warranty by the Company, as to matters covered thereby, to each Underwriter. 2. Purchase and Sale. (a) Subject to the terms and conditions and in ------------------ reliance upon the representations and warranties herein set forth, the Company agrees to sell to each Underwriter, and each Underwriter agrees, severally and not jointly, to purchase from the Company, at a purchase price of $ per share, the amount of the Underwritten Securities set forth opposite such Underwriter's name in Schedule I hereto. (b) Subject to the terms and conditions and in reliance upon the representations and warranties herein set forth, the Company hereby grants an option to the several Underwriters to purchase, severally and not jointly, up to 1,170,000 Option Securities at the same purchase price per share as the Underwriters shall pay for the Underwritten Securities. Said option may be exercised only to cover over-allotments in the sale of the Underwritten Securities by the Underwriters. Said option may be exercised in whole or in part at any time (but not more than once) on or before the 30th day after the date of the Prospectus upon written or telegraphic notice by the Representatives to the Company setting forth the number of shares of the Option Securities as to which the several Underwriters are exercising the option and the settlement date. The number of Option Securities to be purchased by each Underwriter shall be the same percentage of the total number of shares of the Option Securities to be purchased by the several Underwriters as such Underwriter is purchasing of the Underwritten Securities, subject to such adjustments as you in your absolute discretion shall make to eliminate any fractional shares. 3. Delivery and Payment. Delivery of and payment for the --------------------- Underwritten Securities and the Option Securities (if the option provided for in Section 2(b) hereof shall have been exercised on or before the third Business Day prior to the Closing Date) shall be made at 10:00 AM, New York City time, on , 1999, or at such time on such later date not more than three Business Days after the foregoing date as the Representatives shall designate, which date and time may be postponed by agreement between the Representatives and the Company or as provided in Section 9 hereof (such date and time of delivery and payment for the Securities being herein called the "Closing Date"). Delivery of the Securities shall be made to the Representatives for the respective accounts of the several Underwriters against payment by the several Underwriters through the Representatives of the purchase price thereof to or upon the order of the Company by wire transfer payable in same-day funds to an account specified by the Company. Delivery of the Underwritten Securities and the Option Securities shall be made through the facilities of The Depository Trust Company unless the Representatives shall otherwise instruct. 14 If the option provided for in Section 2(b) hereof is exercised after the third Business Day prior to the Closing Date, the Company will deliver the Option Securities (at the expense of the Company) to the Representatives, at 388 Greenwich Street, New York, New York, on the date specified by the Representatives (which shall be within three Business Days after exercise of said option) for the respective accounts of the several Underwriters, against payment by the several Underwriters through the Representatives of the purchase price thereof to or upon the order of the Company by wire transfer payable in same-day funds to an account specified by the Company. If settlement for the Option Securities occurs after the Closing Date, the Company will deliver to the Representatives on the settlement date for the Option Securities, and the obligation of the Underwriters to purchase the Option Securities shall be conditioned upon receipt of, supplemental opinions, certificates and letters confirming as of such date the opinions, certificates and letters delivered on the Closing Date pursuant to Section 6 hereof. 4. Offering by Underwriters. It is understood that the several ------------------------- Underwriters propose to offer the Securities for sale to the public as set forth in the Prospectus. 15 5. Agreements. The Company agrees with the several Underwriters ----------- that: (a) The Company will use its best efforts to cause the Registration Statement, if not effective at the Execution Time, and any amendment thereof, to become effective. Prior to the termination of the offering of the Securities, the Company will not file any amendment of the Registration Statement or supplement to the Prospectus or any Rule 462(b) Registration Statement unless the Company has furnished you a copy for your review prior to filing and will not file any such proposed amendment or supplement to which you reasonably object. Subject to the foregoing sentence, if the Registration Statement has become or becomes effective pursuant to Rule 430A, or filing of the Prospectus is otherwise required under Rule 424(b), the Company will cause the Prospectus, properly completed, and any supplement thereto to be filed with the Commission pursuant to the applicable paragraph of Rule 424(b) within the time period prescribed and will provide evidence satisfactory to the Representatives of such timely filing. The Company will promptly advise the Representatives (1) when the Registration Statement, if not effective at the Execution Time, shall have become effective, (2) when the Prospectus, and any supplement thereto, shall have been filed (if required) with the Commission pursuant to Rule 424(b) or when any Rule 462(b) Registration Statement shall have been filed with the Commission, (3) when, prior to termination of the offering of the Securities, any amendment to the Registration Statement shall have been filed or become effective, (4) of any request by the Commission or its staff for any amendment of the Registration Statement, or any Rule 462(b) Registration Statement, or for any supplement to the Prospectus or for any additional information, (5) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the institution or threatening of any proceeding for that purpose and (6) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Securities for sale in any jurisdiction or the institution or threatening of any proceeding for such purpose. The Company will use its best efforts to prevent the issuance of any such stop order or the suspension of any such qualification and, if issued, to obtain as soon as possible the withdrawal thereof. (b) If, at any time when a prospectus relating to the Securities is required to be delivered under the Act, any event occurs as a result of which the Prospectus as then supplemented would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein in the light of the circumstances under which they were made not misleading, or if it shall be necessary to amend the Registration Statement or supplement the Prospectus to comply with the Act or the rules thereunder, the Company promptly will (1) notify the Representatives of any such event, (2) prepare and file with the Commission, subject to the second sentence of paragraph (a) of this Section 5, an amendment or supplement which will correct such statement or omission or effect such 16 compliance; and (3) supply any supplemented Prospectus to you in such quantities as you may reasonably request. (c) As soon as practicable, but in any event not later than 15 months after the Effective Time, the Company will make generally available to its security holders and to the Representatives an earnings statement or statements of the Company and its subsidiaries which will satisfy the provisions of Section 11(a) of the Act and Rule 158 under the Act. (d) The Company will furnish to the Representatives and counsel for the Underwriters signed copies of the Registration Statement (including exhibits thereto) and to each other Underwriter a copy of the Registration Statement (without exhibits thereto) and, so long as delivery of a prospectus by an Underwriter or dealer may be required by the Act, as many copies of each Preliminary Prospectus and the Prospectus and any supplement thereto as the Representatives may reasonably request. (e) The Company will arrange, if necessary, for the qualification of the Securities for sale under the laws of such jurisdictions as the Representatives may reasonably designate and will maintain such qualifications in effect so long as required for the distribution of the Securities; provided that in no event shall the Company be obligated to qualify to do business in any jurisdiction where it is not now so qualified or to take any action that would subject it to service of process in suits, other than those arising out of the offering or sale of the Securities, in any jurisdiction where it is not now so subject. (f) The Company will not, without the prior written consent of Salomon Smith Barney Inc., offer, sell, contract to sell, pledge, or otherwise dispose of, (or enter into any transaction which is designed to, or might reasonably be expected to, result in the disposition (whether by actual disposition or effective economic disposition due to cash settlement or otherwise) by the Company or any affiliate of the Company or any person in privity with the Company or any affiliate of the Company) directly or indirectly, including the filing (or participation in the filing) of a registration statement with the Commission in respect of, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Exchange Act, any other shares of Common Stock or any securities convertible into, or exercisable, or exchangeable for, shares of Common Stock; or publicly announce an intention to effect any such transaction, for a period of 180 days after the date of the Underwriting Agreement, provided, however, that -------- ------- (i) the Company may issue and sell Common Stock pursuant to any director or employee stock plan of the Company in effect at the Execution Time, and may issue options to purchase or make stock awards up to an aggregate of shares of Common Stock to directors, consultants or 17 employees outside of such plans, (ii) the Company may issue Common Stock issuable upon the conversion of securities or the exercise of warrants or options outstanding at the Execution Time and (iii) the Company may issue and sell, from time to time, Common Stock or securities convertible into Common Stock up to an aggregate amount of Common Stock equal to __% of the outstanding Common Stock following the offering in one or more transactions to acquire licenses or properties that complement or extend the Company's existing operations; provided further, however that with respect to clause ---------------- ------- (iii), the entity or entities acquiring such stock agree in writing to the same extent as the Company by the restrictions set forth in this paragraph 5(f). (g) The Company will not take, directly or indirectly, any action designed to or which has constituted or which might reasonably be expected to cause or result, under the Exchange Act or otherwise, in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities. (h) The Company agrees to pay the costs and expenses relating to the following matters: (i) the preparation, printing or reproduction and filing with the Commission of the Registration Statement (including financial statements and exhibits thereto), each Preliminary Prospectus, the Prospectus, and each amendment or supplement to any of them; (ii) the printing (or reproduction) and delivery (including postage, air freight charges and charges for counting and packaging) of such copies of the Registration Statement, each Preliminary Prospectus, the Prospectus, and all amendments or supplements to any of them, as may, in each case, be reasonably requested for use in connection with the offering and sale of the Securities; (iii) the preparation, printing, authentication, issuance and delivery of certificates for the Securities, including any stamp, transfer taxes or similar fees or charges required to be paid in connection with the execution and delivery of this Agreement and the original issuance and sale of the Securities; (iv) the registration of the Securities under the Exchange Act and the listing of the Securities on the Nasdaq National Market; (vi) any registration or qualification of the Securities for offer and sale under the securities or blue sky laws of the several states (including filing fees but excluding the fees and expenses of counsel for the Underwriters relating to such registration and qualification); (vii) any filings required to be made with the National Association of Securities Dealers, Inc. (including filing fees and the reasonable fees and expenses of counsel for the Underwriters relating to such filings); (viii) the transportation and other expenses incurred by or on behalf of Company representatives in connection with presentations to prospective purchasers of the Securities; (ix) the fees and expenses of the Company's accountants and the fees and expenses of counsel (including local and special counsel) for the Company; and (x) all other costs and expenses incident to the performance by the Company of its obligations hereunder. [Notwithstanding any of the foregoing, so long as the Securities are purchased by 18 the Underwriters in accordance with the terms of this Agreement, the Underwriters agree to pay the first $ of any of the foregoing expenses that are reasonably incurred by the Company.] 6. Conditions to the Obligations of the Underwriters. The -------------------------------------------------- obligations of the Underwriters to purchase the Underwritten Securities and the Option Securities, as the case may be, shall be subject to the accuracy of the representations and warranties on the part of the Company contained herein as of the Execution Time, the Closing Date and any settlement date pursuant to Section 3 hereof, to the accuracy of the statements of the Company made in any certificates pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder and to the following additional conditions: (a) If the Registration Statement has not become effective prior to the Execution Time, unless the Representatives agree in writing to a later time, the Registration Statement will become effective not later than (i) 6:00 PM New York City time on the date of determination of the public offering price, if such determination occurred at or prior to 3:00 PM New York City time on such date or (ii) 9:30 AM on the Business Day following the day on which the public offering price was determined, if such determination occurred after 3:00 PM New York City time on such date; if filing of the Prospectus, or any supplement thereto, is required pursuant to Rule 424(b), the Prospectus, and any such supplement, will be filed in the manner and within the time period required by Rule 424(b); and no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or threatened. (b) The Company shall have requested and caused McDermott, Will & Emery, counsel for the Company, to have furnished to the Representatives their opinion, dated the Closing Date and addressed to the Representatives, to the effect that: (i) each of the Company and the subsidiaries of the Company set forth on Exhibit A hereto other than TeleCorp of Puerto Rico, Inc. and TeleCorp Puerto Rico Realty, Inc. (each individually a "Designated Subsidiary" and collectively, the "Designated Subsidiaries") has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction in which it is chartered or organized, with full corporate power and authority to own or lease, as the case may be, and to operate its properties and conduct its business as described in the Prospectus, and is duly qualified to do business as a foreign corporation and is in good standing under the laws of _____, ______ and ______ in the case of the Company and as set forth opposite the name of the respective Designated Subsidiary on Exhibit A; 19 (ii) all the outstanding shares of capital stock of each Designated Subsidiary have been duly and validly authorized and issued and are fully paid and nonassessable, and, except as otherwise set forth in the Prospectus, all outstanding shares of capital stock of the Designated Subsidiaries are owned by the Company either directly or through wholly owned subsidiaries free and clear of any perfected security interest and, to the knowledge of such counsel, after due inquiry, any other security interest, claim, lien or encumbrance, and, except as otherwise set forth in the Prospectus, all outstanding shares of capital stock of the Puerto Rico Subsidiaries (as defined below) are owned by the Company either directly or through wholly owned subsidiaries free and clear of any perfected security interest and, to the knowledge of such counsel, after due inquiry, any other security interest, claim, lien or encumbrance; (iii) upon filing of the Company's Fifth Amended and Restated Certificate of Incorporation, which filing shall take place immediately prior to the Effective Time, the Company's authorized equity capitalization shall be as set forth in the Prospectus under "Description of Capital Stock"; the capital stock of the Company conforms in all material respects to the description thereof contained in the Prospectus; the outstanding shares of Common Stock have been duly and validly authorized and issued and are fully paid and nonassessable; the Securities have been duly and validly authorized, and, when issued and delivered to and paid for by the Underwriters pursuant to this Agreement, will be fully paid and nonassessable; the certificates for the Securities are in valid and sufficient form; the holders of outstanding shares of capital stock of the Company are not entitled to preemptive or other rights to subscribe for the Securities; and, except as set forth in the Prospectus, to the best knowledge of such counsel, no options, warrants or other rights to purchase, agreements or other obligations to issue, or rights to convert any obligations into or exchange any securities for, shares of capital stock of or ownership interests in the Company are outstanding; (iv) to the knowledge of such counsel, there is no pending or threatened action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries or its or their property of a character required to be disclosed in the Registration Statement which is not adequately disclosed in the Prospectus, and there is no franchise, contract or other document of a character required to be described in the Registration Statement or Prospectus, or to be filed as an exhibit thereto, which is not described or filed as required; and the statements included in 20 the Prospectus under the heading "Material U.S. Tax Consequences to Non-U.S. Holders" fairly summarize the matters therein described; (v) the Registration Statement has become effective under the Act; any required filing of the Prospectus, and any supplements thereto, pursuant to Rule 424(b) has been made in the manner and within the time period required by Rule 424(b); to the knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement has been issued, no proceedings for that purpose have been instituted or threatened and the Registration Statement and the Prospectus (other than the financial statements and other financial information contained therein, as to which such counsel need express no opinion) comply as to form in all material respects with the applicable requirements of the Act and the rules thereunder; (vi) this Agreement has been duly authorized, executed and delivered by the Company; (vii) the Company is not and, after giving effect to the offering and sale of the Securities and the application of the proceeds thereof as described in the Prospectus, will not be, an "investment company" as defined in the Investment Company Act of 1940, as amended; (viii) no consent, approval, authorization, filing with or order of any court or governmental agency or body is required in connection with the transactions contemplated herein, other than as may be required by the National Association of Securities Dealers, Inc. or as required by state securities and blue sky laws, as to which such counsel need express no opinion, and except such as have been obtained under the Act and such other approvals (specified in such opinion) as have been obtained; (ix) neither the issue and sale of the Securities, nor the consummation of any other of the transactions herein contemplated nor the fulfillment of the terms hereof will conflict with, result in a breach or violation of or imposition of any lien, charge or encumbrance upon any property or assets of the Company or the Designated Subsidiaries pursuant to, (i) the charter or by-laws of the Company or the Designated Subsidiaries, (ii) the terms of any indenture, contract, lease, mortgage, deed of trust, note agreement, loan agreement or other agreement, obligation, condition, covenant or instrument to which the Company or the Designated Subsidiaries is a party or bound or to which its or their property is subject, or (iii) any statute, law, rule, regulation, judgment, order or decree applicable to the Company or the Designated Subsidiaries of any court, regulatory body, 21 administrative agency, governmental body, arbitrator or other authority having jurisdiction over the Company or the Designated Subsidiaries or any of its or their properties; and (x) no holders of securities of the Company have rights to the registration of such securities under the Registration Statement that have not been waived. In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws other than those of The Commonwealth of Massachusetts, the Delaware General Corporation Law or the Federal laws of the United States, to the extent they deem proper and specified in such opinion, upon the opinion of other counsel of good standing whom they believe to be reliable and who are satisfactory to counsel for the Underwriters and (B) as to matters of fact, to the extent they deem proper, on certificates or representations of responsible officers of the Company and public officials. References to the Prospectus in this paragraph (b) include any supplements thereto at the Closing Date. In addition, such counsel shall deliver a statement to the effect that, subject to customary exceptions, such counsel has participated in the preparation of the Registration Statement and the Prospectus, including review and discussion of the contents thereof, and nothing has come to such counsel's attention that has caused it to believe that (i) the Registration Statement at the time the Registration Statement became effective under the Act (but after giving effect to any modifications incorporated therein pursuant to Rule 430A under the Act) and the date of such opinion contained or contains any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or (ii) the Prospectus, as of its date and the date of such opinion, contained or contains any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; it being understood that such counsel express no comment with respect to the financial statements and the notes thereto and the schedules and other financial and statistical data (including, without limitation, summary or selected financial information) included in the Registration Statement or the Prospectus. 22 (c) The Company shall have requested and caused McConnell Valdes, special Puerto Rico counsel for the Company, to have furnished to the Representatives their opinion, dated the Closing Date and addressed to the Representatives, to the effect that: (i) each of TeleCorp Puerto Rico, Inc. and TeleCorp Puerto Rico Reality, Inc. (the "Puerto Rico Subsidiaries") has been duly incorporated and is validly existing as a corporation in good standing under the laws of Puerto Rico, with full corporate power and authority to own or lease, as the case may be, and to operate its properties and conduct its business as presently conducted[, and is duly qualified to do business as a foreign corporation and is in good standing under the laws of [list any]]; (ii) all the outstanding shares of capital stock of each of the Puerto Rico Subsidiaries have been duly and validly authorized and issued and are fully paid and nonassessable; (iii) neither the issue and sale of the Securities, nor the consummation of any other of the transactions herein contemplated nor the fulfillment of the terms hereof will conflict with, result in a breach or violation of or imposition of any lien, charge or encumbrance upon any property or assets of the Puerto Rico Subsidiaries pursuant to (i) the charter or by-laws of the Puerto Rico Subsidiaries, (ii) the terms of any indenture, contract, lease, mortgage, deed of trust, note agreement, loan agreement or other agreement, obligation, condition, covenant or instrument to which either of the Puerto Rico Subsidiaries is a party or bound or to which their property is subject, or (iii) any statute, law, rule, regulation, judgment, order or decree applicable to the Puerto Rico Subsidiaries of any court, regulatory body, administrative agency, governmental body, arbitrator or other authority having jurisdiction over the Puerto Rico subsidiaries or any of its or their properties. (d) The Company shall have requested and caused Wiley, Rein & Fielding, special telecommunications counsel to the Company, to have furnished to the Representatives their written opinion, dated the Closing Date and addressed to the Representatives, in form and substance reasonably satisfactory to the Representatives. (e) The Representatives shall have received from Cravath, Swaine & Moore, counsel for the Underwriters, such opinion or opinions, dated the Closing Date and addressed to the Representatives, with respect to the issuance and sale of the Securities, the Registration Statement, the Prospectus (together with any supplement thereto) and other related matters as the Representatives may 23 reasonably require, and the Company shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters. (f) The Company shall have furnished to the Representatives a certificate of the Company, signed by the Chief Executive Officer and the Executive Vice President and Chief Financial Officer of the Company, dated the Closing Date, to the effect that the signers of such certificate have carefully examined the Registration Statement, the Prospectus, any supplements to the Prospectus and this Agreement and that: (i) the representations and warranties of the Company in this Agreement are true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date and the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing Date; (ii) [to the Company's knowledge], no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or[, to the Company's knowledge,] threatened; and (iii) since the date of the most recent financial statements included in the Prospectus (exclusive of any supplement thereto), there has been no material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Company and its subsidiaries, taken as a whole, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Prospectus (exclusive of any supplement thereto). 24 (g) The Company shall have requested and caused PricewaterhouseCoopers LLP to have furnished to the Representatives, at the Execution Time and at the Closing Date, letters, dated respectively as of the Execution Time and as of the Closing Date, in form and substance satisfactory to the Representatives, confirming that they are independent accountants within the meaning of the Act and the applicable rules and regulations adopted by the Commission thereunder, and stating in effect that: (i) in their opinion the audited financial statements and financial statement schedules and pro forma financial statements included in the Registration Statement and the Prospectus and reported on by them comply as to form in all material respects with the applicable accounting requirements of the Act and the related rules and regulations adopted by the Commission; (ii) on the basis of carrying out certain specified procedures (but not an examination in accordance with generally accepted auditing standards) which would not necessarily reveal matters of significance with respect to the comments set forth in such letter; a reading of the minutes of the meetings of the stockholders, directors and executive, audit and compensation committees of the Company and the Subsidiaries; and inquiries of certain officials of the Company who have responsibility for financial and accounting matters of the Company and its subsidiaries as to transactions and events subsequent to September 30, 1999, nothing came to their attention which caused them to believe that: (1) with respect to the period subsequent to September 30, 1999, there were any changes, at a specified date not more than five days prior to the date of the letter, in the long-term debt of the Company and its subsidiaries or capital stock of the Company or decreases in the stockholders' equity of the Company as compared with the amounts shown on the September 30, 1999 consolidated balance sheet included in the Registration Statement and the Prospectus, or for the period from October 1, 1999 to such specified date there were, as compared with the corresponding period in the preceding quarter, any decrease in total revenues or any increase in the total or per share amount of net loss of the Company, except in all instances for changes or decreases set forth in such letter, in which case the letter shall be accompanied by an explanation by the Company as to the significance thereof unless said explanation is not deemed necessary by the Representatives; or 25 (2) the information included in the Registration Statement and Prospectus in response to Regulation S-K, Item 301 (Selected Financial Data), and Item 402 (Executive Compensation) is not in conformity with the applicable disclosure requirements of Regulation S-K; and (iii) they have performed certain other specified procedures as a result of which they determined that certain information of an accounting, financial or statistical nature (which is limited to accounting, financial or statistical information derived from the general accounting records of the Company and its subsidiaries) set forth in the Registration Statement and the Prospectus, including the information set forth under the captions in the Prospectus, agrees with the accounting records of the Company and its subsidiaries, excluding any questions of legal interpretation. References to the Prospectus in this paragraph (f) include any supplement thereto at the date of the letter. (h) The Company shall have received from PricewaterhouseCoopers LLP (and furnished to the Representatives) a report with respect to a review of unaudited interim financial information of the Company for the nine-month period ended September 30, 1998, in accordance with Statement on Auditing Standards No. 71. (i) Subsequent to the Execution Time or, if earlier, the dates as of which information is given in the Registration Statement (exclusive of any amendment thereof) and the Prospectus (exclusive of any supplement thereto), there shall not have been (i) any change or decrease specified in the letter or letters referred to in paragraph (f) of this Section 6 or (ii) any change, or any development involving a prospective change, in or affecting the condition (financial or otherwise), earnings, business or properties of the Company and its subsidiaries taken as a whole, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Prospectus (exclusive of any supplement thereto) the effect of which, in any case referred to in clause (i) or (ii) above, is, in the sole judgment of the Representatives, so material and adverse as to make it impractical or inadvisable to proceed with the offering or delivery of the Securities as contemplated by the Registration Statement (exclusive of any amendment thereof) and the Prospectus (exclusive of any supplement thereto). (j) Prior to the Closing Date, the Company shall have furnished to the Representatives such further information, certificates and documents as the Representatives may reasonably request. 26 If any of the conditions specified in this Section 6 shall not have been fulfilled in all material respects when and as provided in this Agreement, or if any of the opinions and certificates mentioned above or elsewhere in this Agreement shall not be in all material respects reasonably satisfactory in form and substance to the Representatives and counsel for the Underwriters, this Agreement and all obligations of the Underwriters hereunder may be canceled at, or at any time prior to, the Closing Date by the Representatives. Notice of such cancelation shall be given to the Company in writing or by telephone or facsimile confirmed in writing. The documents required to be delivered by this Section 6 shall be delivered at the office of Cravath, Swaine & Moore, counsel for the Underwriters, at Worldwide Plaza, 825 Eighth Avenue, New York, NY 10019, on the Closing Date. 7. Reimbursement of Underwriters' Expenses. If the sale of the ---------------------------------------- Securities provided for herein is not consummated because any condition to the obligations of the Underwriters set forth in Section 6 hereof is not satisfied, [because of any termination pursuant to Section 10 hereof or ]because of any refusal, inability or failure on the part of the Company to perform any agreement herein or comply with any provision hereof other than by reason of a default by any of the Underwriters, the Company will reimburse the Underwriters severally through Salomon Smith Barney on demand for all out-of-pocket expenses (including reasonable fees and disbursements of counsel) that shall have been incurred by them in connection with the proposed purchase and sale of the Securities. 8. Indemnification and Contribution. (a) The Company agrees to --------------------------------- indemnify and hold harmless each Underwriter, the directors, officers, employees and agents of each Underwriter and each person who controls any Underwriter within the meaning of either the Act or the Exchange Act against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Act, the Exchange Act or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement for the registration of the Securities as originally filed or in any amendment thereof, or in any Preliminary Prospectus or the Prospectus, or in any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and agrees to reimburse each such indemnified party, as incurred, for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the -------- ------- Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Underwriter through the 27 Representatives specifically for inclusion therein; and provided further, -------- ------- however, that the Company shall not be liable to any Underwriter under this - ------- paragraph of Section 7 to the extent that any such loss, claim, damage or liability results solely from an untrue statement of a material fact contained in, or the omission of a material fact from, a Preliminary Prospectus if (i) such untrue statement or omission was completely corrected in the Prospectus prior to the written confirmation of the sale of the Securities giving rise to such liability, (ii) such Underwriter sold Securities to the person alleging such loss, claim, damage or liability without (to the extent required by applicable law) sending or giving the Prospectus at or prior to the written confirmation of the sale of the Securities giving rise to such liability, (iii) the Company had furnished copies of the Prospectus to such Underwriter prior to the written confirmation of the sale of the Securities giving rise to such liability and (iv) such Underwriter would not have been subject to such liability if it had delivered the Prospectus to such person at or prior to the written confirmation of such sale. This indemnity agreement will be in addition to any liability which the Company may otherwise have. (b) Each Underwriter severally and not jointly agrees to indemnify and hold harmless the Company, each of its directors, each of its officers who signs the Registration Statement, and each person who controls the Company within the meaning of either the Act or the Exchange Act, to the same extent as the foregoing indemnity from the Company to each Underwriter, but only with reference to written information relating to such Underwriter furnished to the Company by or on behalf of such Underwriter through the Representatives specifically for inclusion in the documents referred to in the foregoing indemnity. This indemnity agreement will be in addition to any liability which any Underwriter may otherwise have. The Company acknowledges that the statements set forth (i) in the last paragraph of the cover page regarding delivery of the Securities and (i) under the heading "Underwriting" (A) the list of Underwriters and their respective participation in the sale of the Securities, (B) the sentences related to concessions and reallowances and (C) the paragraph related to stabilization, syndicate covering transactions and penalty bids in any Preliminary Prospectus and the Prospectus constitute the only information furnished in writing by or on behalf of the several Underwriters for inclusion in any Preliminary Prospectus or the Prospectus. (c) Promptly after receipt by an indemnified party under this Section 8 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 8, notify the indemnifying party in writing of the commencement thereof; but the failure so to notify the indemnifying party (i) will not relieve it from liability under paragraph (a) or (b) above unless and to the extent it did not otherwise learn of such action and such failure results in the forfeiture by the indemnifying party of substantial rights and defenses and (ii) will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a) or (b) above. The indemnifying party shall be entitled to appoint counsel of the indemnifying party's choice at 28 the indemnifying party's expense to represent the indemnified party in any action for which indemnification is sought (in which case the indemnifying party shall not thereafter be responsible for the fees and expenses of any separate counsel retained by the indemnified party or parties except as set forth below); provided, however, that such counsel shall be satisfactory to the indemnified - -------- ------- party. Notwithstanding the indemnifying party's election to appoint counsel to represent the indemnified party in an action, the indemnified party shall have the right to employ separate counsel (including local counsel), and the indemnifying party shall bear the reasonable fees, costs and expenses of such separate counsel if (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would present such counsel with a conflict of interest, (ii) the actual or potential defendants in, or targets of, any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, (iii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of the institution of such action or (iv) the indemnifying party shall authorize the indemnified party to employ separate counsel at the expense of the indemnifying party. An indemnifying party will not, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding. (d) In the event that the indemnity provided in paragraph (a) or (b) of this Section 8 is unavailable to or insufficient to hold harmless an indemnified party for any reason, the Company and the Underwriters severally agree to contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending same) (collectively "Losses") to which the Company and one or more of the Underwriters may be subject in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and by the Underwriters on the other from the offering of the Securities; provided, however, that in no case shall any Underwriter (except as may be - -------- ------- provided in any agreement among underwriters relating to the offering of the Securities) be responsible for any amount in excess of the underwriting discount or commission applicable to the Securities purchased by such Underwriter hereunder. If the allocation provided by the immediately preceding sentence is unavailable for any reason, the Company and the Underwriters severally shall contribute in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company on the one hand and of the Underwriters on the other in connection with the statements or omissions which resulted in such Losses as well as any other relevant equitable considerations. Benefits received by the Company shall be deemed to be equal 29 to the total net proceeds from the offering (before deducting expenses) received by it, and benefits received by the Underwriters shall be deemed to be equal to the total underwriting discounts and commissions, in each case as set forth on the cover page of the Prospectus. Relative fault shall be determined by reference to, among other things, whether any untrue or any alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information provided by the Company on the one hand or the Underwriters on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contribution were determined by pro rata allocation or any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph (d), no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 8, each person who controls an Underwriter within the meaning of either the Act or the Exchange Act and each director, officer, employee and agent of an Underwriter shall have the same rights to contribution as such Underwriter, and each person who controls the Company within the meaning of either the Act or the Exchange Act, each officer of the Company who shall have signed the Registration Statement and each director of the Company shall have the same rights to contribution as the Company, subject in each case to the applicable terms and conditions of this paragraph (d). 9. Default by an Underwriter. If any one or more Underwriters shall -------------------------- fail to purchase and pay for any of the Securities agreed to be purchased by such Underwriter or Underwriters hereunder and such failure to purchase shall constitute a default in the performance of its or their obligations under this Agreement, the remaining Underwriters shall be obligated severally to take up and pay for (in the respective proportions which the amount of Securities set forth opposite their names in Schedule I hereto bears to the aggregate amount of Securities set forth opposite the names of all the remaining Underwriters) the Securities which the defaulting Underwriter or Underwriters agreed but failed to purchase; provided, however, that in the event that the aggregate amount of -------- ------- Securities which the defaulting Underwriter or Underwriters agreed but failed to purchase shall exceed 10% of the aggregate amount of Securities set forth in Schedule I hereto, the remaining Underwriters shall have the right to purchase all, but shall not be under any obligation to purchase any, of the Securities, and if such nondefaulting Underwriters do not purchase all the Securities, this Agreement will terminate without liability to any nondefaulting Underwriter or the Company. In the event of a default by any Underwriter as set forth in this Section 9, the Closing Date shall be postponed for such period, not exceeding five Business Days, as the Representatives shall determine in order that the required changes in the Registration Statement and the Prospectus or in any other documents or arrangements may be effected. Nothing contained in this Agreement shall 30 relieve any defaulting Underwriter of its liability, if any, to the Company and any nondefaulting Underwriter for damages occasioned by its default hereunder. 10. Termination. This Agreement shall be subject to termination in ------------ the absolute discretion of the Representatives, by notice given to the Company prior to delivery of and payment for the Securities, if at any time prior to such time (i) trading in the Company's Common Stock shall have been suspended by the Commission or the Nasdaq National Market or trading in securities generally on the New York Stock Exchange or the Nasdaq National Market shall have been suspended or limited or minimum prices shall have been established on such Exchange or the Nasdaq National Market, (ii) a banking moratorium shall have been declared either by Federal or New York State authorities or (iii) there shall have occurred any outbreak or escalation of hostilities, declaration by the United States of a national emergency or war, or other calamity or crisis the effect of which on financial markets is such as to make it, in the sole judgment of the Representatives, impractical or inadvisable to proceed with the offering or delivery of the Securities as contemplated by the Prospectus (exclusive of any supplement thereto). 11. Representations and Indemnities to Survive. The respective ------------------------------------------- agreements, representations, warranties, indemnities and other statements of the Company or its officers and of the Underwriters set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or the Company or any of the officers, directors, employees, agents or controlling persons referred to in Section 8 hereof, and will survive delivery of and payment for the Securities. The provisions of Sections 7 and 8 hereof shall survive the termination or cancelation of this Agreement. 12. Notices. All communications hereunder will be in writing and -------- effective only on receipt, and, if sent to the Representatives, will be mailed, delivered or telefaxed to the Salomon Smith Barney Inc. General Counsel (fax no.: (212) 816-7912) and confirmed to the General Counsel, Salomon Smith Barney Inc., at 388 Greenwich Street, New York, New York, 10013, Attention: General Counsel; or, if sent to the Company, will be mailed, delivered or telefaxed to Thomas H. Sullivan, Executive Vice President and Chief Financial Officer, (fax number: (703) 236-1376) and confirmed to the Company at 1010 N. Glebe Road, Suite 800, Arlington, VA 22201, attention of the Legal Department. 13. Successors. This Agreement will inure to the benefit of and be ----------- binding upon the parties hereto and their respective successors and the officers, directors, employees, agents and controlling persons referred to in Section 8 hereof, and no other person will have any right or obligation hereunder. 14. Applicable Law. This Agreement will be governed by and construed --------------- in accordance with the laws of the State of New York applicable to contracts made and to be performed within the State of New York. 31 15. Counterparts. This Agreement may be signed in one or more ------------ counterparts, each of which shall constitute an original and all of which together shall constitute one and the same agreement. 16. Headings. The section headings used herein are for convenience --------- only and shall not affect the construction hereof. 17. Definitions. The terms which follow, when used in this ------------ Agreement, shall have the meanings indicated. "Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. "Business Day" shall mean any day other than a Saturday, a Sunday or a legal holiday or a day on which banking institutions or trust companies are authorized or obligated by law to close in New York City. "Commission" shall mean the Securities and Exchange Commission. "Effective Date" shall mean each date and time that the Registration Statement, any post-effective amendment or amendments thereto and any Rule 462(b) Registration Statement became or become effective. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder. "Execution Time" shall mean the date and time that this Agreement is executed and delivered by the parties hereto. "Preliminary Prospectus" shall mean any preliminary prospectus referred to in paragraph 1(a) above and any preliminary prospectus included in the Registration Statement at the Effective Date that omits Rule 430A Information. "Prospectus" shall mean the prospectus relating to the Securities that is first filed pursuant to Rule 424(b) after the Execution Time or, if no filing pursuant to Rule 424(b) is required, shall mean the form of final prospectus relating to the Securities included in the Registration Statement at the Effective Date. "Registration Statement" shall mean the registration statement referred to in paragraph 1(a) above, including exhibits and financial statements, as amended at the Execution Time (or, if not effective at the Execution Time, in the form in which it shall become effective) and, in the event any post-effective amendment thereto or any Rule 462(b) Registration Statement becomes effective prior to the 32 Closing Date, shall also mean such registration statement as so amended or such Rule 462(b) Registration Statement, as the case may be. Such term shall include any Rule 430A Information deemed to be included therein at the Effective Date as provided by Rule 430A. "Rule 424", "Rule 430A" and "Rule 462" refer to such rules under the Act. "Rule 430A Information" shall mean information with respect to the Securities and the offering thereof permitted to be omitted from the Registration Statement when it becomes effective pursuant to Rule 430A. "Rule 462(b) Registration Statement" shall mean a registration statement and any amendments thereto filed pursuant to Rule 462(b) relating to the offering covered by the registration statement referred to in Section 1(a) hereof. If the foregoing is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicate hereof, whereupon this letter and your acceptance shall represent a binding agreement among the Company and the several Underwriters. Very truly yours, TeleCorp PCS, Inc. By: -------------------------------------- Name: Title: 33 The foregoing Agreement is hereby confirmed and accepted as of the date first above written. Salomon Smith Barney Inc. Lehman Brothers Inc. Deutsche Bank Securities Inc. Merrill Lynch, Pierce, Fenner & Smith Incorporated By: Salomon Smith Barney Inc., By: ------------------------------------------------------------ Name: Title: For themselves and the other several Underwriters named in Schedule I to the foregoing Agreement. SCHEDULE I ---------- Number of Underwritten Securities to be Underwriters Purchased - ------------ ------------------------------- Salomon Smith Barney Inc. Lehman Brothers Inc. Deutsche Bank Securities Inc. Merrill Lynch & Co. [ ] [ ] ------------------ Total............. ================== EXHIBIT A TeleCorp PCS, Inc. Subsidiaries -------------------------------
State or Subsidiary Name Territory of Qualified in: Incorporation - ----------------------------------------------------------------------------------------- 1. TeleCorp Communications, Inc. DE AR, DC, IL, IN, LA, MA, MS, NH, TN, TX, VA - ----------------------------------------------------------------------------------------- 2. TeleCorp Holding Corp., Inc. DE None - ----------------------------------------------------------------------------------------- 3. TeleCorp Limited Holdings, DE AR, DC, IL, MA, MS Inc. - ----------------------------------------------------------------------------------------- 4. TeleCorp Realty Holdings, Inc. DE None - ----------------------------------------------------------------------------------------- 5. TeleCorp PCS, L.L.C. (Sole DE None Member is: TeleCorp PCS, Inc.) - ----------------------------------------------------------------------------------------- 6. TeleCorp Realty, L.L.C. DE AR, DC, IL, LA, MA, MO, MS, NH, (Managing Member is: TeleCorp TN, TX Communications, Inc.) - ----------------------------------------------------------------------------------------- 7. TeleCorp Equipment Leasing, DE AR, DC, IL, IN, LA, MA, MO, MS, L.P. (General partner is: NH, TN, TX TeleCorp Limited Holdings, Inc.) - ----------------------------------------------------------------------------------------- 8. Viper Wireless, Inc./1/ DE - ----------------------------------------------------------------------------------------- 9. Affiliate License Co., DE None L.L.C./2/ - ----------------------------------------------------------------------------------------- 10. TeleCorp of Puerto Rico, Inc. PR [ ? ] - ----------------------------------------------------------------------------------------- 11. TeleCorp of Puerto Rico PR [ ? ] Realty, Inc. =========================================================================================
- ------------------------ /1/ TeleCorp Holding Corp. owns 85% of Viper Wireless, and Mr. Vento and Mr. - Sullivan together own the remaining 15% and have voting control. Mr. Vento and Mr. Sullivan have agreed to sell their minority interest to TeleCorp Holding Corp. /2/ The Company owns one-third of the outstanding stock of this entity. - EXHIBIT B Network Area/Licenses Part A: Licenses contributed by AT&T Wireless PCS Inc. pursuant to the Securities Purchase Agreement Market Number Frequency Block License Description - ------------------------------------------------------------------------------- M008 A Boston-Providence/b/c/ - ------------------------------------------------------------------------------- M019 A St. Louis/1/,/2/ - ------------------------------------------------------------------------------- M026 A Louisville-Lexington- Evansville/1/,/2/ - ------------------------------------------------------------------------------- M040 A Little Rock/2/ - ------------------------------------------------------------------------------- M028 B Memphis-Jackson/1/,/2/ - ------------------------------------------------------------------------------- Part B: Licenses held by TeleCorp Holding Market Number Frequency Block License Description - ------------------------------------------------------------------------------- B034 F Beaumont-Port Arthur, TX - ------------------------------------------------------------------------------- B257 F Little Rock, AR - ------------------------------------------------------------------------------- B290 F Memphis, TN - ------------------------------------------------------------------------------- - --------------------------------------- /b/ Contribution includes only a portion of the geographic area in the - referenced market as detailed in Schedule 2.1 to the Securities Purchase Agreement. /c/ Contribution includes only a portion of the spectrum in the referenced - frequency block. - ------------------------------------------------------------------------------- B320 F New Orleans, LA - ------------------------------------------------------------------------------- 3 Part C: Licenses purchased from AT&T Wireless PCS Inc. pursuant to the License Purchase Agreement dated as of January 23, 1998, between the Company and AT&T Wireless PCS Inc. Market Number Frequency Block License Description - ------------------------------------------------------------------------------- B032 D Baton Rouge, LA - ------------------------------------------------------------------------------- B236 D Lafayette-New Iberia - ------------------------------------------------------------------------------- B320 D New Orleans, LA - ------------------------------------------------------------------------------- Part D: Licenses acquired from Digital PCS, L.L.C. Market Number Frequency Block License Description - ------------------------------------------------------------------------------- B032 F Baton Rouge, LA - ------------------------------------------------------------------------------- B180 F Hammond, LA - ------------------------------------------------------------------------------- B195 F Houma-Thibodeaux, LA - ------------------------------------------------------------------------------- B236 F Lafayette-New Iberia, LA - ------------------------------------------------------------------------------- Part E: License acquired from AT&T Corporation Market Number Frequency Block License Description - ------------------------------------------------------------------------------- M025 A Puerto Rico - U.S. Virgin Islands/2/ - ------------------------------------------------------------------------------- Part F: [TO BE UPDATED] EX-3.1.2 3 FORM OF 5TH AMENDED & RESTATED CERTIF. OF INCORP. Exhibit 3.1.2 FORM OF FIFTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF TELECORP PCS, INC. TeleCorp PCS, Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: FIRST: The name of the corporation is TeleCorp PCS, Inc. (the "Corporation"). The original Certificate of Incorporation of the Corporation - ------------ was filed with the Secretary of State of the State of Delaware (the "Secretary of State") on November 14, 1997 and was amended and restated pursuant to a Restated Certificate of Incorporation filed with the Secretary of State on July 16, 1998, a Second Amended and Restated Certificate of Incorporation filed with the Secretary of State on April 20, 1999, a Third Amended and Restated Certificate of Incorporation filed with the Secretary of State on May 14, 1999 and amended by Amendment No. 1 to the Third Amended and Restated Certificate filed with the Secretary of State on August 27, 1999 (the "Third Amended and Restated Certificate"), a Fourth Amended and Restated Certificate of Incorporation filed with the Secretary of State on August 27, 1999, and amended by Amendment No. 1 to the Fourth Amended and Restated Certificate filed with the Secretary of State on November 8, 1999 (the "Fourth Amended and Restated Certificate"). SECOND: This Fifth Amended and Restated Certificate of Incorporation (the "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 Fourth Amended and Restated Certificate as amended by amending Articles IV and VI and by adding Article IX, all as set forth in this Restated Certificate of Incorporation. ARTICLE I The name of the Corporation shall be TeleCorp PCS, Inc. ARTICLE II The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company. ARTICLE III The purpose of the Corporation is to engage in, carry on and conduct any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the "GCL"). --- ARTICLE IV 4.1 Classes of Stock. The total number of shares of all classes of stock ---------------- which the Corporation shall have authority to issue is 935,384,090, consisting of (a) 17,045,000 shares of preferred stock, par value $.01 per share (the "Preferred Stock"), consisting of 100,000 shares designated "Series A - ----- Convertible Preferred Stock" (the "Series A Preferred Stock"), 200,000 shares ------------------------ designated "Series B Preferred Stock" (the "Series B Preferred Stock"), 215,000 ------------------------ shares designated "Series C Preferred Stock" (the "Series C Preferred Stock"), ------------------------ 50,000 shares designated "Series D Preferred Stock" (the "Series D Preferred ------------------ Stock"), 30,000 shares designated "Series E Preferred Stock" (the "Series E - ----- Preferred Stock"), 15,450,000 shares designated "Series F Preferred Stock" (the - --------------- "Series F Preferred Stock"), and 1,000,000 undesignated shares available for ------------------------ designation and issuance pursuant to Section 4.2, and (b) 918,339,090 shares of common stock, par value $0.01 per share (the "Common Stock"), consisting of ------------ 608,550,000 shares designated "Class A Voting Common Stock" (the "Class A Common -------------- Stock"), 308,550,000 shares designated "Class B Non-Voting Common Stock" (the - ------ "Class B Common Stock"), 309,000 shares designated "Class C Common Stock" (the -------------------- "Class C Common Stock"), 927,000 shares designated "Class D Common Stock" (the -------------------- "Class D Common Stock") and 3,090 shares designated "Voting Preference Common -------------------- Stock" (the "Voting Preference Common Stock"). (Capitalized terms used herein ------------------------------ and not otherwise defined shall have the meanings set forth in Section 4.13.) 4.2 Additional Series of Preferred Stock. ------------------------------------ (a) Subject to approval by holders of shares of any class or series of Preferred Stock to the extent such approval is required by its terms, the Board of Directors of the Corporation (the "Board of Directors") is hereby expressly ------------------ authorized, by resolution or resolutions, to provide, out of the unissued shares of Preferred Stock, for series of Preferred Stock in addition to the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock, the Series E Preferred Stock, and the Series F Preferred Stock. Before any shares of any such series are issued, the Board of Directors shall fix, and hereby is expressly empowered to fix, by resolutions, the following provisions of the shares thereof: (i) the designation of such series, the number of shares to constitute such series and the stated value thereof if different from the par value thereof; (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 -2- be general or limited; (iii) the dividends, if any, payable on such series, whether any such dividends shall be cumulative, and, if so, from what dates, the conditions and dates upon which such dividends shall be payable, the preference or relation which such dividends shall bear to the dividends payable on any shares of stock of any other class or any other series of this class; (iv) whether the shares of such series shall be subject to redemption by the Corporation, and, if so, the times, prices and other conditions of such redemption; (v) the amount or amounts payable upon shares of such series upon, and the rights of the holders of such series in, the voluntary or involuntary liquidation, dissolution or winding up, or upon any distribution of the assets, of the Corporation; (vi) whether the shares of such series shall be subject to the operation of a retirement or sinking fund and, if so, the extent to and manner in which any such retirement or sinking fund shall be applied to the purchase or redemption of the shares of such series for retirement or other corporate purposes and the terms and provisions relative to the operation thereof; (vii) whether the shares of such series shall be convertible into, or exchangeable for, shares of stock of any other class or any other series of this class or any other securities and, if so, the price or prices or the rate or rates of conversion or exchange and the method, if any, of adjusting the same, and any other terms and conditions of conversion or exchange; (viii) the limitations and restrictions, if any, to be effective while any shares of such series are outstanding upon the payment of dividends or the making of other distributions on, and upon the purchase, redemption other acquisition by the Corporation of, the Common Stock or shares of stock of any other class or any other series of this class; (ix) the conditions or restrictions, if any, upon the creation of indebtedness of the Corporation or upon the issue of any additional stock, including additional shares of such series or of any other series of this class or of any other class; and (x) any other powers, preferences and relative, participating, optional and other special rights, and any qualifications, limitations and restrictions thereof. (b) The powers, preferences and relative, participating, optional and other special rights of each series of Preferred Stock, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding. 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. -3- (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, 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. -4- (iv) Dividends Pro Rata. All dividends paid with respect to shares of ------------------ Series A Preferred Stock pursuant to this Section 4.3(b) shall be paid pro rata to the holders entitled thereto. In the event that the funds legally available therefor shall be insufficient for the payment of the entire amount of cash dividends payable at any Dividend Payment Date, subject to Section 4.3(c), such funds shall be allocated for the payment of dividends with respect to the shares of Series A Preferred Stock and Series B Preferred Stock pro rata based upon the Liquidation Preference of the outstanding shares. (c) Certain Restrictions. -------------------- (i) Notwithstanding the provisions of Sections 4.3(b), (e) and (f), cash dividends on the Series A Preferred Stock may not be declared, paid or set apart for payment, nor may the Corporation redeem, purchase or otherwise acquire any shares of Series A Preferred Stock, if (A) the Corporation is not solvent or would be rendered insolvent thereby or (B) at such time the terms and provisions of any law or agreement of the Corporation, including any agreement relating to its indebtedness, specifically prohibit such declaration, payment or setting apart for payment or such redemption, purchase or other acquisition, or provide that such declaration, payment or setting apart for payment or such redemption, purchase or other acquisition would constitute a violation or breach thereof or a default thereunder. (ii) So long as shares of Series A Preferred Stock are outstanding or dividends payable on shares of Series A Preferred Stock have not been paid in full in cash, then the Corporation shall not declare or pay cash dividends on, or redeem, purchase or otherwise acquire for consideration, any shares of Common Stock or other shares of Junior Stock, except with the prior written consent of holders of a majority of the outstanding shares of Series A Preferred Stock, except that the Corporation may acquire, in accordance with the terms of any agreement between the Corporation and its employees, shares of Common Stock or Preferred Stock at a price not greater than the Market Price as of such date. (iii) The Corporation shall not permit any Subsidiary of the Corporation, or cause any other Person, to make any distribution with respect to, or purchase or otherwise acquire for consideration, any shares of capital stock of the Corporation, unless the Corporation could, pursuant to paragraph (ii) above, make such distribution or purchase or otherwise acquire such shares at such time and in such manner. (d) Voting Rights; Election of Directors. ------------------------------------ (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). -5- (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 otherwise receive any shares of any class or classes of Senior Stock or Parity Stock. (iii) So long as the Initial Holders own in the aggregate at least two-thirds (2/3) of the number of shares of Series A Preferred Stock owned by them on July 17, 1998, holders of shares of Series A Preferred Stock shall have the exclusive right, voting separately as a single class, to nominate one director of the Corporation. The foregoing right to nominate one director may be exercised at any annual meeting of stockholders or a special meeting of stockholders or holders of Series A Preferred Stock held for such purpose or any adjournment thereof, or by the written consent, delivered to the Secretary of the Corporation, of the holders of a majority of the issued and outstanding shares of Series A Preferred Stock. Notwithstanding the foregoing, the Initial Holders shall have the right, exercisable at any time by written notice delivered to the Secretary of the Corporation, to surrender and cancel irrevocably such right to nominate one director of the Corporation. So long as the Initial Holders own in the aggregate at least two-thirds (2/3) of the number of shares of Series A Preferred Stock owned by them on July 17, 1998, in the event any director so nominated by the Initial Holders ceases to be a director of the Corporation during such director's term (whether or not such director resigns, is removed from the Board of Directors with or without cause or ceases to be a director by reason of death, disability or for any other reason), the Initial Holders shall have the right to designate a replacement for such director, and the Corporation shall cause to be elected or appointed for the remainder of the term of any director so replaced any person designated by the Initial Holders, upon written notice to the Corporation and the other members of the Board of Directors which notice shall set forth the name of the member being replaced and the name of the new member. (e) Redemption at Option of the Corporation. The Corporation shall have the --------------------------------------- right to redeem shares of Series A Preferred Stock pursuant to the following provisions: (i) The Corporation shall not have any right to redeem shares of the Series A Preferred Stock prior to, with respect to any share of the Series A Preferred Stock, the -6- 30th day after the tenth anniversary of the issuance of such share. Thereafter, subject to the restrictions in Section 4.3(c)(i), the Corporation shall have the right, at its sole option and election, to redeem the shares of the Series A Preferred Stock, in whole but not in part, at any time at a redemption price (the "Series A Redemption Price") per share equal to the ------------------------- Liquidation Preference as of the redemption date; (ii) Notice of any redemption of the Series A Preferred Stock shall be mailed at least ten, but not more than 60, days prior to the date fixed for redemption to each holder of Series A Preferred Stock to be redeemed, at such holder's address as it appears on the books of the Corporation. In order to facilitate the redemption of the Series A Preferred Stock, the Board of Directors may fix a record date for the determination of holders of Series A Preferred Stock to be redeemed, or may cause the transfer books of the Corporation to be closed for the transfer of the Series A Preferred Stock, not more than 60 days prior to the date fixed for such redemption; (iii) Within two Business Days after the redemption date specified in the notice given pursuant to paragraph (ii) above and the surrender of the certificate(s) representing shares of Series A Preferred Stock, the Corporation shall pay to the holder of the shares being redeemed the Series A Redemption Price therefor. Such payment shall be made by wire transfer of immediately available funds to an account designated by such holder or by overnight delivery (by a nationally recognized courier) of a bank check to such holder's address as it appears on the books of the Corporation; and (iv) Effective upon the date of the notice given pursuant to paragraph (ii) above, notwithstanding that any certificate for such shares shall not have been surrendered for cancellation, the shares represented thereby shall no longer be deemed outstanding, the rights to receive dividends thereon shall cease to accrue from and after the date of redemption designated in the notice of redemption and all rights of the holders of the shares of the Series A Preferred Stock called for redemption shall cease and terminate, excepting only the right to receive the Series A Redemption Price therefor in accordance with paragraph (iii) above and the right to convert such shares into shares of Class A Common Stock until the close of business on the third Business Day preceding the redemption date, as provided in Section 4.3(i). (f) Redemption at Option of Holder. ------------------------------ (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 -7- such holder's right to require the Corporation to redeem such shares by surrendering for such purpose to the Corporation, at its principal office or at such other office or agency maintained by the Corporation for that purpose, certificates representing the shares of Series A Preferred Stock to be redeemed, accompanied by a written notice stating that such holder elects to require the Corporation to redeem all (but not less than all) of such shares in accordance with the provisions of this Section 4.3(f), which notice may specify an account for delivery of the Series A Redemption Price; (iii) Within two Business Days after the surrender of such certificates, the Corporation shall pay to the holder of the shares being redeemed the Series A Redemption Price therefor. Such payment shall be made by wire transfer of immediately available funds to an account designated by such holder or by overnight delivery (by a nationally recognized courier) of a bank check to such holder's address as it appears on the books of the Corporation; and (iv) Such redemptions shall be deemed to have been made at the close of business on the date of the receipt of such notice and of such surrender of the certificates representing the shares of the Series A Preferred Stock to be redeemed and the rights of the holder thereof, except for the right to receive the Series A Redemption Price therefor in accordance herewith, shall cease on such date of receipt and surrender. (g) Reacquired Shares. Any shares of the Series A Preferred Stock ----------------- redeemed or purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued pursuant to Section 4.2(c) as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions or restrictions on issuance set forth herein. (h) Liquidation, Dissolution or Winding Up. -------------------------------------- (i) In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, before any distribution or payment to holders of Junior Stock, the holders of shares of Series A Preferred Stock shall be entitled 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 -8- 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 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 required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his or its attorney duly authorized in writing. Within ten Business Days after the Series A Conversion Date (or, if at the time of such surrender the shares of Class A Common Stock are not listed or admitted for trading on any national securities exchange and are not quoted on NASDAQ or any similar service, within ten Business Days of the determination of the Market Price pursuant to the Appraisal Procedure), the Corporation shall issue to such holder a number of shares of Class A Common Stock into which such shares of Series A Preferred Stock are convertible pursuant to paragraph (ii) above. Certificates representing such shares of Class A Common Stock -9- shall be delivered to such holder at such holder's address as it appears on the books of the Corporation. (v) Termination of Rights. All shares of Series A Preferred Stock which --------------------- shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares, including the rights, if any, to receive notices and to vote, shall immediately cease and terminate on the Series A Conversion Date, except only the right of the holders thereof to receive shares of Class A Common Stock in exchange therefor and payment of any declared and unpaid dividends thereon. (vi) No Conversion Charge or Tax. The issuance and delivery of --------------------------- certificates for shares of Class A Common Stock upon the conversion of shares of Series A Preferred Stock shall be made without charge to the holder of shares of Series A Preferred Stock for any issue or transfer tax, or other incidental expense in respect of the issuance or delivery of such certificates or the securities represented thereby, all of which taxes and expenses shall be paid by the Corporation. (vii) Reorganization, Reclassification and Merger Adjustment. If there ------------------------------------------------------ occurs any capital reorganization or any reclassification of the Class A Common Stock of the Corporation, the consolidation or merger of the Corporation with or into another Person (other than a merger or consolidation of the Corporation in which the Corporation is the continuing corporation and which does not result in any reclassification or change of outstanding shares of its Class A Common Stock) or the sale or conveyance of all or substantially all of the assets of the Corporation to another Person, then each share of Series A Preferred Stock shall thereafter be convertible into the same kind and amounts of securities (including shares of stock) or other assets, or both, which were issuable or distributable to the holders of outstanding Class A Common Stock of the Corporation upon such reorganization, reclassification, consolidation, merger, sale or conveyance, in respect of that number of shares of Class A Common Stock into which such share of 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, -10- President or one of the Vice Presidents of the Corporation, and by its Chief Financial Officer, Treasurer or one of its Assistant Treasurers, stating the securities or other property deliverable per share of Series A Preferred Stock calculated to the nearest cent or to the nearest one-hundredth of a share and setting forth in reasonable detail the method of calculation and the facts requiring such adjustment and upon which such calculation is based. Each adjustment shall remain in effect until a subsequent adjustment hereunder is required. (ix) Reservation of Class A Common Stock. The Corporation shall at all ----------------------------------- times reserve and keep available for issuance upon the conversion of the shares of Series A Preferred Stock the maximum number of its authorized but unissued shares of Class A Common Stock as is reasonably anticipated to be sufficient to permit the conversion of all outstanding shares of Series A Preferred Stock, and shall take all action required to increase the authorized number of shares of Class A Common Stock if at any time there shall be insufficient authorized but unissued shares of Class A Common Stock to permit such reservation or to permit the conversion of all outstanding shares of Series A Preferred Stock. (j) Qualified Transfer. If at any time an Initial Holder or Qualified ------------------ Transferee desires to sell, transfer or otherwise dispose of shares of Series A Preferred Stock pursuant to a Qualified Transfer, it shall, with respect to each such proposed transfer, give written notice (a "Qualified Transfer Notice") to ------------------------- the Corporation at its principal executive office specifying up to ten prospective transferees. Upon receipt of such notice, the Corporation shall have ten days to give written notice to the Initial Holders or Qualified Transferee specifying its disapproval of (A) any or all of such prospective transferees if it has good reason for such disapproval and specifying such reason and (B) up to two of such prospective transferees with or without good reason. (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, -11- 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 4.11, (d) holders of Series B Preferred Stock shall not, pursuant to Section 4.3(d) or otherwise, have the right to elect any directors of the Corporation and (e) the words "Series B Preferred Stock" and "Series A Preferred Stock" shall be substituted for all references in Section 4.3 to Series A Preferred Stock and Series B Preferred Stock, respectively. 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 -12- Preference be declared or paid. So long as shares of Series C Preferred Stock are outstanding or dividends payable on shares of Series C Preferred Stock have not been paid in full in cash, the Corporation shall not declare or pay cash dividends on, or redeem, purchase or otherwise acquire for consideration, any shares of any class of common stock or series of preferred stock ranking junior to or on a parity with the Series C Preferred Stock, except that the Corporation may acquire, in accordance with the terms of any agreement between the Corporation and its employees, shares of Common Stock or Preferred Stock at a price not greater than the Market Price as of such date. The Corporation shall not declare or pay cash dividends on, or redeem, purchase or otherwise acquire for consideration, any shares of Series D Preferred Stock unless concurrently therewith the Corporation shall declare or pay cash dividends on, or redeem, purchase or otherwise acquire for consideration, as the case may be, shares of Series C Preferred Stock ratably in accordance with the number of shares of Series C Preferred Stock and Series D Preferred Stock then outstanding. (c) Liquidation Preference. ---------------------- (i) In the event of any liquidation, dissolution or winding up of the Corporation, the holders of Series C Preferred Stock shall be entitled to receive out of the assets of the Corporation, whether such assets are capital or surplus of any nature, after payment is made to holders of all series of preferred stock ranking senior to the Series C Preferred Stock with respect to rights on liquidation, dissolution or winding up (including, in the case of a Statutory Liquidation, the Series D Preferred Stock), but before any payment shall be made or any assets distributed to the holders of Common 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 -13- 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. (e) Redemption at Option of the Corporation. The Corporation shall have the --------------------------------------- right to redeem shares of Series C Preferred Stock pursuant to the following provisions: (i) Subject to the restrictions set forth in Section 4.5(g)(i), the Corporation shall have the right, at its sole option and election, to redeem the shares of the Series C Preferred Stock, in whole but not in part, at any time at a redemption price per share equal to the Liquidation Preference thereof as of the redemption date; provided, that concurrently with such redemption, the Corporation shall redeem the shares of Series D Preferred Stock, in whole and not in part, at a redemption price per share equal to the Liquidation Preference thereof as of the redemption date; provided, further, that if the funds legally available to the Corporation are insufficient to effect the redemption of the Series C Preferred Stock and the Series D Preferred Stock in full, such funds shall be allocated among the shares of Series C Preferred Stock and Series D Preferred Stock ratably in accordance with the number of shares of each Series outstanding as of the redemption date; (ii) Notice of any redemption of the Series C Preferred Stock and Series D Preferred Stock shall be mailed at least ten but not more than 60 days prior to the date fixed for redemption to each holder of Series C Preferred Stock and Series D Preferred Stock to be redeemed, at such holder's address as it appears on the books of the Corporation. In order to facilitate the redemption of the Series C Preferred Stock and Series D Preferred Stock, the Board of Directors may fix a record date for the determination of holders of Series C Preferred Stock and Series D Preferred Stock to be -14- 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. (f) Redemption at Option of Holder. ------------------------------ (i) No holder of shares of Series C Preferred Stock shall have any right to require the Corporation to redeem any shares of Series C Preferred Stock prior to, with respect to any share of Series C Preferred Stock, the 30th day after the twentieth anniversary of the issuance of such share. Thereafter, subject to the restrictions set forth in Section 4.5(g)(i), each holder of shares of Series C Preferred Stock shall have the right, at the sole option and election of such holder, to require the Corporation to redeem all (but not less than all) of the shares of Series C Preferred Stock owned by such holder at a price per share equal to the Series C Redemption Price; (ii) The holder of any shares of the Series C Preferred Stock may exercise such holder's right to require the Corporation to redeem such shares by surrendering for such purpose to the Corporation, at its principal office or at such other office or agency maintained by the Corporation for that purpose, certificates representing the shares of Series C Preferred Stock to be redeemed, accompanied by a written notice stating that such holder elects to require the Corporation to redeem all (but not less than all) of such shares in accordance with the provisions of this Section 4.5(f), which notice may specify an account for delivery of the Series C Redemption Price; (iii) Within two Business Days after the surrender of such certificates, the Corporation shall pay to the holder of the shares being redeemed the Series C Redemption Price therefor. Such payment shall be made by wire transfer of immediately -15- available funds to an account designated by such holder or by overnight delivery (by a nationally recognized courier) of a bank check to such holder's address as it appears on the books of the Corporation; and (iv) Such redemptions shall be deemed to have been made at the close of business on the date of the receipt of such notice and of such surrender of the certificates representing the shares of the Series C Preferred Stock to be redeemed and the rights of the holder thereof, except for the right to receive the Series C Redemption Price therefor in accordance herewith, shall cease on such date of receipt and surrender. (g) Certain Restrictions. -------------------- (i) Notwithstanding the provisions of Sections 4.5(b) or (f), cash dividends on the Series C Preferred Stock may not be declared, paid or set apart for payment, nor may the Corporation redeem, purchase or otherwise acquire any shares of Series C Preferred Stock, if (A) the Corporation is not solvent or would be rendered insolvent thereby or (B) at such time the terms and provisions of any law or agreement of the Corporation, including any agreement relating to its indebtedness, specifically prohibit such declaration, payment or setting apart for payment or such redemption, purchase or other acquisition, or provide that such declaration, payment or setting apart for payment or such redemption, purchase or other acquisition would constitute a violation or breach thereof or a default thereunder. (ii) So long as shares of Series C Preferred Stock are outstanding or dividends payable on shares of Series C Preferred Stock have not been paid in full in cash, the Corporation shall not declare or pay cash dividends on, or redeem, purchase or otherwise acquire for consideration, any shares of Common Stock or other shares of capital stock of the Corporation ranking junior to or on a parity basis with the Series C Preferred Stock, except with the prior written consent of holders of a majority of the outstanding shares of Series C Preferred Stock, except that the Corporation may acquire, in accordance with the terms of any agreement between the Corporation and its employees, shares of Common Stock from its employees at a price equal to such employee's purchase price therefor without such consent. (iii) The Corporation shall not permit any Subsidiary of the Corporation, or cause any other Person, to make any distribution with respect to, or purchase or otherwise acquire for consideration, any shares of Common Stock or other shares of capital stock of the Corporation ranking junior to or on a parity basis with the Series C Preferred Stock unless the Corporation could, pursuant to paragraph (i) above, make such distribution or purchase or otherwise acquire such shares at such time and in such manner. 4.6 Powers, Preferences and Rights of the Series D Preferred Stock. -------------------------------------------------------------- (a) General. The powers, preferences and rights of the Series D Preferred ------- Stock, and the qualifications, limitations, and restrictions thereof, shall be identical to those of the Series C Preferred Stock, except that (i) the Series D Preferred Stock shall rank with -16- respect to the other series and classes of capital stock of the Corporation as provided in paragraph (b) below, (ii) the shares of Series D Preferred Stock shall be subject to redemption, pro rata with the Series C Preferred Stock, in accordance with Section 4.5(e), and (iii) the words "Series D Preferred Stock" and "Series C Preferred Stock" shall be substituted for all references in Section 4.5 to Series C Preferred Stock and Series D Preferred Stock, respectively. (b) Ranking. The Series D Preferred Stock shall rank (i) junior to the Series ------- A Preferred Stock and the Series B Preferred Stock with respect to the payment of dividends and the distribution of assets on liquidation, dissolution or winding up, (ii) senior to the Series C Preferred Stock with respect to the distribution of assets on a Statutory Liquidation, (iii) on a parity with the Series C Preferred Stock with respect to the distribution of assets on liquidation, dissolution or winding up (other than on a Statutory Liquidation), (iv) on a parity with the Series C Preferred Stock and the Common Stock with respect to the payment of dividends, and (v) senior to the Common Stock and any series or class of the Corporation's common or preferred stock, now or hereafter authorized (other than Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock), with respect to the distribution of assets on liquidation, dissolution and winding up. 4.7 Powers, Preferences and Rights of the Series E Preferred Stock. The -------------------------------------------------------------- powers, preferences and rights of the Series E Preferred Stock, and the qualifications, limitations and restrictions thereof, shall be identical to those of the Series C Preferred Stock, except that (a) the Series E Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets on liquidation, dissolution or winding up, (i) junior to the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock and (ii) senior to the Series F Preferred Stock and the Common Stock and any series or class of the Corporation's common or preferred stock, now or hereafter authorized (other than the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock), (b) the provisos to Section 4.5(e)(i) shall not apply to a redemption of the Series E Preferred Stock, and (c) the words "Series E Preferred Stock" and "Series C Preferred Stock" shall be substituted for all references in Section 4.5 to Series C Preferred Stock and Series E Preferred Stock, respectively. 4.8 Powers, Preferences and Rights of the Series F Preferred Stock. The -------------------------------------------------------------- powers, preferences and rights of the Series F Preferred Stock, and the qualifications, limitations and restrictions thereof are as follows: (a) Ranking. The Series F Preferred Stock shall rank (i) junior to the Series ------- A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock and the Series E Preferred Stock with respect to the payment of dividends and the distribution of assets on liquidation, dissolution or winding up, (ii) on a parity with the Common Stock with respect to the distribution of assets on liquidation, dissolution or winding up (other than on a Statutory Liquidation), (iii) senior to the Common Stock with respect to the distribution of assets on a Statutory Liquidation (iv on a parity with the Common Stock with respect to the payment of dividends, and (v) senior to any series or class of the Corporation's common or preferred stock hereafter -17- authorized (other than Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, or Common Stock), with respect to the payment of dividends and the distribution of assets on liquidation, dissolution and winding up. (b) Dividends. Holders of Series F Preferred Stock shall be entitled to --------- dividends in cash or property when, as and if, declared by the Board of Directors of the Corporation. (c) Liquidation Preference. ---------------------- (i) In the event of any liquidation, dissolution or winding up of the Corporation, the holders of Series F Preferred Stock shall be entitled to receive out of the assets of the Corporation, whether such assets are capital or surplus of any nature, after payment is made to holders of all series of preferred stock ranking senior to the Series F Preferred Stock with respect to rights on liquidation, dissolution or winding up, but before any payment shall be made or any assets distributed to the holders of Common Stock or any series of preferred stock ranking junior to the Series F Preferred Stock with respect to rights on liquidation, dissolution or winding up, an amount equal to the Liquidation Preference and no more. (ii) If upon any liquidation, dissolution or winding up of the Corporation the assets of the Corporation to be distributed are insufficient to permit the payment to all holders of Series F Preferred Stock and any other series of preferred stock ranking on a parity with Series F Preferred Stock with respect to rights on liquidation, dissolution or winding up, to receive their full preferential amounts, the entire assets of the Corporation shall be distributed among the holders of Series F Preferred Stock and all such other series ratably in accordance with their respective Liquidation Preference. (iii) After payment to the holders of Series F Preferred Stock of the amounts set forth in paragraph (i) above, the entire remaining assets and funds of the Corporation legally available for distribution, if any, shall be distributed among the holders of the Participating Stock in proportion to the shares of Participating Stock then held by them as of the date of the liquidation, dissolution or winding up of the Corporation. (iv) Neither the consolidation or merger of the Corporation with or into any other Person nor the sale or other distribution to another Person of all or substantially all the assets, property or business of the Corporation, shall be deemed to be a liquidation, dissolution or winding up of the Corporation for purposes of this Section 4.8(c). (d) Voting Rights. ------------- (i) The holders of shares of Series F Preferred Stock shall not have any right to vote on any matters to be voted on by the stockholders of the Corporation, except as otherwise provided in paragraph (ii) below or as provided by law, and the shares of Series F Preferred Stock shall not be included in determining the number of shares voting or -18- 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 as follows: (i) Optional Conversion. Each share of Series F Preferred Stock shall be ------------------- convertible, at the option of the holder thereof, at any time and from time to time, into one fully paid and non-assessable share of Non-Tracked Common Stock; provided that, unless and until the Tracked Common Stock shall be convertible into Class A Common Stock in accordance with Section 4.9(e)(i), each of the first 63,127 shares of Series F Preferred Stock converted pursuant to this paragraph shall be convertible into one fully paid and non-assessable share of Class D Common Stock. (ii) Mechanics of Optional Conversion. In order for a holder of Series F -------------------------------- Preferred Stock to convert such shares into shares of Common Stock, such holder shall surrender the certificate(s) for such shares of Series F Preferred Stock at the office of the transfer agent for the Series F Preferred Stock (or if the Corporation serves as its own transfer agent, at the principal office of the Corporation), together with written notice that such holder elects to convert all or any number of the shares of the Series F Preferred Stock represented by such certificate(s). If required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his or its attorney duly authorized in writing. The date of receipt of such certificates and notice by the transfer agent (or by the Corporation if the Corporation serves as its own transfer agent) shall be the conversion date (the "Optional Conversion Date"). The Corporation shall, within ------------------------ ten Business Days after the Optional Conversion Date, issue and deliver at such office to such holder of Series F Preferred Stock, or to his or its nominees, one or more certificates for the number of whole shares of Common -19- Stock (and any shares of Series F Preferred Stock represented by the certificate delivered to the Corporation by the holder thereof that are not converted into Common Stock) issuable upon such conversion in accordance with the provisions hereof. (iii) Reservation of Shares. The Corporation shall at all times when the --------------------- Series F Preferred Stock shall be outstanding, reserve and keep available out of its authorized but unissued stock, for the purpose of effecting the conversion of the Series F Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Series F Preferred Stock. Before taking any action which would cause Common Stock upon the conversion of Series F Preferred Stock, to be issued below the then par value of the shares of Common Stock the Corporation will take any corporate action that may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and non-assessable shares of Common Stock, as the case may be, to the holders of Series F Preferred Stock. (iv) Adjustments for Dividends. Upon any conversion of Series F Preferred ------------------------- Stock, no adjustment to the conversion ratio shall be made for declared and unpaid dividends on the Series F Preferred Stock surrendered for conversion or on the Common Stock delivered upon conversion. (v) Termination of Rights. All shares of Series F Preferred Stock which --------------------- shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares, including the rights, if any, to receive notices and to vote, shall immediately cease and terminate on the Optional Conversion Date, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor and payment of any declared and unpaid dividends thereon. On and as of the Optional Conversion Date, the shares of Common Stock issuable upon such conversion shall be deemed to be outstanding, and the holder thereof shall be entitled to exercise and enjoy all rights with respect to such shares of Common Stock including the rights, if any, to receive notices and to vote. Shares of Series F Preferred Stock converted into Common Stock will be restored to the status of authorized but unissued shares of Common Stock or preferred stock without designation as to class or series, and may thereafter be issued, whether or not designated as shares of Class A Common Stock or Series F Preferred Stock. (vi) No Conversion Charge or Tax. The issuance and delivery of certificates --------------------------- for shares of Common Stock upon the conversion of shares of Series F Preferred Stock shall be made without charge to the holder of shares of Series F Preferred Stock for any issue or transfer tax, or other incidental expense in respect of the issuance or delivery of such certificates or the securities represented thereby, all of which taxes and expenses shall be paid by the Corporation. (vii) Reorganization, Reclassification and Merger Adjustment. If there occurs any capital reorganization or any reclassification of the Common Stock of the Corporation, the consolidation or merger of the Corporation with or into another Person -20- (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. (f) Certain Restrictions. -------------------- (i) Notwithstanding the provisions of Sections 4.8(b), cash dividends on the Series F Preferred Stock may not be declared, paid or set apart for payment, nor may the Corporation redeem, purchase or otherwise acquire any shares of Series F Preferred Stock, if (A) the Corporation is not solvent or would be rendered insolvent thereby or (B) at such time the terms and provisions of any law or agreement of the Corporation, including any agreement relating to its indebtedness, specifically prohibit such declaration, payment or setting apart for payment or such redemption, purchase or other acquisition, or provide that such declaration, payment or setting apart for payment or such redemption, purchase or other acquisition would constitute a violation or breach thereof or a default thereunder. (ii) The Corporation shall not permit any Subsidiary of the Corporation, or cause any other Person, to make any distribution with respect to, or purchase or otherwise acquire for consideration, any shares of Common Stock or other shares of capital stock of the Corporation ranking junior to or on a parity basis with the Series F Preferred Stock unless the Corporation could, pursuant to paragraph (i) above, make such distribution or purchase or otherwise acquire such shares at such time and in such manner. (g) Redemption. The Series F Preferred Stock is not redeemable. ---------- (h) Sinking Fund. There shall be no sinking fund for the payment of dividends ------------ or Liquidation Preferences on the Series F Preferred Stock. 4.9 Common Stock. ------------ (a) General. Except as otherwise provided herein, all shares of Common Stock ------- issued and outstanding shall be identical, and shall entitle the holders thereof to the same -21- rights, powers and privileges of stockholders under Delaware law. For purposes of this Section 4.9 (and the definitions relating thereto), the Class A Common Stock and the Class B Common Stock are herein collectively referred to as the "Non-Tracked Common Stock" and the Class C Common Stock and the Class D Common Stock are herein collectively referred to as the "Tracked Common Stock". (b) Dividends. Subject to Section 4.10(b) and the express terms of any --------- outstanding series of Preferred Stock, dividends may be paid in cash or otherwise with respect to each class of Common Stock out of the assets of the Corporation, upon the terms, and subject to the limitations, provided in this Section 4.9(b), as the Board of Directors may determine. (i) Dividends on the Non-Tracked Common Stock. Dividends on the Non-Tracked ----------------------------------------- Common Stock may be declared and paid only out of the excess of (A) the funds of the Corporation legally available therefor over (B) the Tracked Business Available Dividend Amount (the "Non-Tracked Business Available Dividend --------------------------------------- Amount"). - ------ (ii) Dividends on Tracked Common Stock. Dividends on the Tracked Common Stock --------------------------------- may be declared and paid only out of the lesser of (A) the funds of the Corporation legally available therefor and (B) the Tracked Business Available Dividend Amount. The Corporation shall not declare or pay cash dividends on, or redeem, purchase or otherwise acquire for consideration, any shares of Tracked Common Stock unless concurrently therewith the Corporation shall declare or pay cash dividends on, or redeem, purchase or otherwise acquire for consideration, as the case may be, on the same terms, all shares of Tracked Common Stock ratably in accordance with the number of shares of each class of Tracked Common Stock then outstanding. (iii) Discrimination in Dividends Among the Tracked and Non-Tracked Common -------------------------------------------------------------------- Stock. The Board of Directors may at any time, subject to the provisions ------ of Sections 4.9(b)(i) and (ii) and Section 4.10, declare and pay dividends exclusively on the Non-Tracked Common Stock, exclusively on the Tracked Common Stock or on both such categories of Common Stock in equal or unequal amounts, notwithstanding the relative amounts of the Non-Tracked Business Available Dividend Amount and the Tracked Business Available Dividend Amount. (c) Voting. ------ (i) The holders of shares of Common Stock shall be entitled to such voting rights as hereinafter provided, and shall be entitled to notice of any stockholders' meeting and to vote upon such matters as provided herein and in the Bylaws of the Corporation, and as may be provided by law. Holders of any class of Common Stock shall not be entitled to cumulate their votes for any purpose. Except as otherwise required by law or provided herein, regardless of the number of shares of any class of Common Stock then outstanding, each class of Common Stock shall be entitled to the number of votes enumerated below and the number of votes or fractional votes to which each share of a particular class of Common Stock shall be entitled shall be the quotient determined by -22- 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 from the FCC to permit the Class A Common Stock and Voting Preference Common Stock to vote and act as a single class in the manner described above. From and after the date that such consent is obtained, the Class A Common Stock and the Voting Preference Common Stock shall be voted as a single class on all matters, shall be treated as a single class for purposes of all quorum requirements, and shall have one vote per share; provided, that the voting rights of the the Class B Common Stock, Class C Common Stock and Class D Common Stock and the Preferred Stock shall remain unaffected. (v) The holders of shares of Class B Common Stock shall be entitled to vote -23- 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-assessable share of Class A Common Stock or or Class B Common Stock, and (y) each share of Class D Common Stock may, at the option of the holder thereof, be converted into one fully paid and non-assessable share of Class A Common Stock or Class B Common Stock. 4.10 Participating Stock. ------------------- (a) Changes in Capital Stock. The Corporation shall not effect any change in ------------------------ or reclassification of any class or series of the outstanding Participating Stock, whether through stock dividends, stock splits, reverse stock splits, combinations or otherwise, without the payment to the Corporation of any consideration therefor in money, services -24- 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. 4.11 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, LLC terminates its obligations under Section 8.6 of the Stockholders Agreement pursuant to Section 8.8(c) thereof with respect to any Overlap Territory (as defined therein) (any such termination being referred to hereinafter as the "Exchange Event"), the following provisions shall apply: -------------- (a) Right to Exchange. The Corporation shall have the right, exercisable in ----------------- its sole discretion by written notice (the "Exchange Notice") given to the --------------- Initial Holders and Section 4.11 Transfers within 60 days after the Exchange Event, to: (i) require the Initial Holders and each Section 4.11 Transferee to exchange for an equivalent number of shares of Series B Preferred Stock either (A) all of the shares of Series A Preferred Stock then owned by the Initial Holders and each Section 4.11 Transferee or (B) a number of shares of Series A Preferred Stock then owned by each such holder equal to the product of (x) the number of shares of Series A Preferred Stock then owned by such holder multiplied by (y) a fraction, the numerator of which is equal to the number of POPs (as defined in the Stockholders Agreement) in the Overlap Territory and the denominator of which is equal to the total number of POPs in the Territory (as defined in the Stockholders Agreement); and (ii) require the Initial Holders and each Section 4.11 Transferee to exchange, for a number of shares of Series B Preferred Stock determined in accordance with paragraph (b) below, either (A) all of the shares of Series D Preferred Stock, Series F Preferred Stock and Common Stock owned by the Initial Holder on July 17, 1998 (or shares of Common Stock into which such shares of Series D Preferred Stock, and Series F Preferred Stock shall have been converted) and that the Initial Holders or a Section 4.11 Transferee continues to own on the date of delivery of the Exchange Notice (any such shares of Series D Preferred Stock, Series F Preferred Stock or Common Stock being referred to hereinafter collectively as "Original Shares") or (B) a number of Original --------------- Shares of Series D Preferred Stock, Series F Preferred Stock and Common Stock equal to the product of (x) the number of Original Shares of Series D Preferred Stock, -25- Series F Preferred Stock and Common Stock, as the case may be, then owned by each such holder, multiplied by (y) a fraction, the numerator of which is equal to the number of POPs in the Overlap Territory and the denominator of which is equal to the total number of POPs in the Territory; provided, that (x) if the Corporation exercises its right under clause (i)(A) of this paragraph (a), it shall be required to exercise its right under clause (ii)(A) of this paragraph (a), and vice-versa; and if the Corporation exercises its right under clause (i)(B) of this paragraph (a), it shall be required to exercise its right under clause (ii)(B) of this paragraph (a), and vice-versa and (y) the provisions of this Section 4.11(a) shall not apply to any Section 4.11 Transferee which is a Cash Equity Investor. (Shares of Series A Preferred Stock, Series D Preferred Stock, Series F Preferred Stock and Series G Preferred Stock (and shares of Common Stock into which such shares shall have been converted) and shares of Common Stock subject to exchange pursuant to this Section 4.11 are hereinafter referred to collectively as "Exchange Shares.") --------------- (b) Number of Shares of Series B Preferred Stock Issuable in Exchange. The ----------------------------------------------------------------- number of shares of Series B Preferred Stock issuable in exchange for Original Shares pursuant to clause (ii) of paragraph (a) above shall be equal to the quotient of the aggregate purchase price paid by the Initial Holders for the Original Shares being exchanged, divided by $1,000. (c) Fractional Shares. Notwithstanding any other provision of this Restated ----------------- Certificate of Incorporation, the Corporation shall not be required to issue fractions of shares upon exchange of any Exchange Shares or to distribute certificates which evidence fractional shares. In lieu of fractional shares, the Corporation may pay therefor, at the time of any exchange of Exchange Shares as herein provided, an amount in cash equal to such fraction multiplied by the Market Price of a share of Common Stock on such date. (d) Mechanics of Exchange. The Exchange Notice shall specify the date fixed --------------------- for the exchange (the "Exchange Date"), which shall be at least ten but no more ------------- than 60 days following delivery of the Exchange Notice, and the place designated for exchange of the Exchange Shares pursuant to this Section 4.11. Such notice will be sent by first class or registered mail, postage prepaid, to the Initial Holders and each Section 4.11 Transferee at such holder's address last shown on the records of the transfer agent for the Exchange Shares (or the records of the Corporation if it serves as its own transfer agent). On or before the Exchange Date, the Initial Holders and each Section 4.11 Transferee shall surrender its certificate or certificates for all such shares to the Corporation at the place designated in such notice. If required by the Corporation, certificates surrendered for exchange shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the Initial Holders and each Section 4.11 Transferee or its attorney duly authorized in writing. (e) Termination of Rights. On and after the Exchange Date (whether or not --------------------- the applicable certificates have theretofore been surrendered), all rights with respect to the Exchange Shares, including the rights, if any, to receive notices and to vote, will -26- terminate, except only the rights of the Initial Holders and Section 4.11 Transferees to receive certificates for the number of shares of Series B Preferred Stock into which such Exchange Shares have been exchanged, upon surrender of its certificate or certificates therefor, and payment of any declared but unpaid dividends thereon (which shall accrue and be payable at the times and on the other terms applicable to such dividends when declared) and payment of any deferred dividends in respect of Series A Preferred Stock which shall be payable as set forth in Section 4.3(b)(iii). Within ten Business Days after the Exchange Date, the Corporation shall issue and deliver to the Initial Holders and each Section 4.11 Transferee, or on its written order to its nominees, a certificate or certificates for the number of whole shares of Series B Preferred Stock issuable upon such exchange in accordance with the provisions hereof, together with cash in lieu of fractional shares calculated in accordance with paragraph (c) of this Section 4.11. (f) Reservation of Shares. The Corporation shall at all times reserve and --------------------- keep available for issuance upon the exchange of Exchange Shares the maximum number of its authorized but unissued shares of Series B Preferred Stock as is reasonably anticipated to be sufficient to permit the exchange of all outstanding Exchange Shares, and shall take all action required to increase the authorized number of shares of Series B Preferred Stock if at any time there shall be insufficient authorized but unissued shares of Series B Preferred Stock to permit such reservation or to permit the exchange of all outstanding Exchange Shares. (g) Adjustments for Dividends. Upon any exchange of Exchange Shares, no ------------------------- adjustment to the rate of conversion shall be made for accrued and unpaid dividends (whether or not declared) on the Exchange Shares, as the case may be, surrendered for exchange or on the Series B Preferred Stock delivered upon exchange. (h) No Exchange Charge or Tax. The issuance and delivery of certificates ------------------------- for shares of Series B Preferred Stock upon the exchange of Exchange Shares shall be made without charge to the Initial Holder for any issue or transfer tax, or other incidental expense in respect of the issuance or delivery of such certificates or the securities represented thereby, all of which taxes and expenses shall be paid by the Corporation. 4.12 Redemption of Capital Stock; FCC Approval. ----------------------------------------- (a) Redemption. Notwithstanding any other provision of this 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: -27- (i) the redemption price of the shares to be redeemed pursuant to this Section 4.12 shall be equal to the lesser of (x) the Market Price or (y) if such stock was purchased by such Disqualified Holder within one year of the Section 4.12 Redemption Date, such Disqualified Holder's purchase price for such shares; (ii) the redemption price of such shares may be paid in cash, Redemption Securities or any combination thereof; (iii) if less than all the shares held by Disqualified Holders are to be redeemed, the shares to be redeemed shall be selected in such manner as shall be determined by the Board of Directors, which may include selection first of the most recently purchased shares thereof, selection by lot or selection in any other manner determined by the Board of Directors; (iv) at least 30 days' written notice of the Section 4.12 Redemption Date shall be given to the record holders of the shares selected to be redeemed (unless waived in writing by any such holder); provided, however, that only 10 days' written notice of the Redemption Date shall be given to record holders if the cash or Redemption Securities necessary to effect the redemption shall have been deposited in trust for the benefit of such record holders and subject to immediate withdrawal by them upon surrender of the stock certificates for their shares to be redeemed; provided, further, that the record holders of the shares selected to be redeemed may transfer such shares prior to the Section 4.12 Redemption Date to any holder that is not a Disqualified Holder and, thereafter, for so long as such shares are not held by a Disqualified Holder, such shares shall not be subject to redemption by the Corporation; (v) from and after the Section 4.12 Redemption Date, any and all rights of whatever nature (including without limitation any rights to vote or participate in dividends declared on stock of the same class or series as such shares) with respect to the shares selected from redemption held by Disqualified Holders on the Section 4.12 Redemption Date shall cease and terminate and such Disqualified Holders thenceforth shall be entitled only to receive the cash or Redemption Securities payable upon redemption; and (vi) such other terms and conditions as the Board of Directors shall determine. (b) FCC Approval. Notwithstanding anything herein to the contrary, if ------------ Federal Communications Commission or other regulatory approval is required to be obtained prior to the conversion of shares of any series or class of Preferred Stock or Common Stock, the holder thereof may nevertheless elect to convert any or all of its shares by written notice given to the Corporation in accordance with the applicable provision hereof, provided, that such conversion shall not become effective until the close of 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 -28- Preferred Stock, no dividends shall be payable in respect of the period following the Series A Conversion Date, unless the required approvals are not obtained and the conversion has not been effected within one year of the Series A Conversion Date and the applicable conversion notice is withdrawn, in which event the obligation to pay dividends from and after the Series A Conversion Date shall be payable in accordance with the terms of Section 4.3(b). 4.13 Definitions. For the purposes of this Restated Certificate of ----------- Incorporation, the following terms shall have the meanings indicated: "Affiliate" means, with respect to any Person, any other Person that --------- directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with that Person. For purposes of this definition, "control" (including the terms "controlling" and "controlled") means the power to direct or cause the direction of the management and policies of a Person, directly or indirectly, whether through the ownership of securities or partnership or other ownership interests, by contract or otherwise. "Appraisal Procedure" means the following procedure for determining ------------------- the Market Price, for the purpose of calculating the Series A Conversion Rate, in the event that the shares of Class A Common Stock are not listed or admitted for trading on any national securities exchange and are not quoted on NASDAQ or any similar service: (i) Two independent accounting or investment banking firms of nationally recognized standing (each, an "Appraiser"), one chosen by the Corporation and --------- one by the holders of a majority of the outstanding shares of Series A Preferred Stock, shall each determine and attempt to mutually agree upon, the Market Price. Each party shall deliver a notice to the other appointing its Appraiser within 15 days after the applicable notice and surrender pursuant to Section 4.3(iv). If either the Corporation or such holders fail to appoint an appraiser within such 15-day period, the Market Price shall be determined by the Appraiser that has been so appointed. (ii) If within 30 days after appointment of the two Appraisers they are unable to agree upon the Market Price, an independent accounting or investment banking firm of nationally recognized standing shall within ten days thereafter be chosen to serve as a third Appraiser by the mutual consent of such first two Appraisers. The determination of the Market Price by the third Appraiser so appointed and chosen shall be made within 30 days after the selection of such third Appraiser. (iii) If three Appraisers shall be appointed and the determination of one Appraiser is disparate from the middle determination by more than twice the amount by which the other determination is disparate from the middle determination, then the 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. -29- (iv) In connection with any appraisal conducted pursuant to this Appraisal Procedure, the Appraiser shall adhere to the guidelines provided in the definition of "Market Price" set forth below, including the proviso thereto. (v) The fees and expenses of each Appraiser shall be borne by the Corporation. "Board of Directors" has the meaning specified in Section 4.2(a). ------------------ "Business Day" shall mean any day other than a Saturday, Sunday or ------------ other day on which commercial banks in the City of New York are authorized or required by law or executive order to close. "Class A Common Stock" has the meaning specified in Section 4.1. -------------------- "Class B Common Stock" has the meaning specified in Section 4.1. -------------------- "Class C Common Stock" has the meaning specified in Section 4.1. -------------------- "Class D Common Stock" has the meaning specified in Section 4.1. -------------------- "Closing Price" shall mean, with respect to each share of any class ------------- or series of capital stock for any day, (i) the last reported sale price regular way or, in case no such sale takes place on such day, the average of the closing bid and asked prices regular way, in either case as reported on the principal national securities exchange on which such class or series of capital stock is listed or admitted for trading or (ii) if such class or series of capital stock is not listed or admitted for trading on any national securities exchange, the last reported sale price or, in case no such sale takes place on such day, the average of the highest reported bid and the lowest reported asked quotation for such class or series of capital stock, in either case as reported on NASDAQ or a similar service if NASDAQ is no longer reporting such information. "Common Stock" has the meaning specified in Section 4.1. ------------ "Disqualified Holder" shall mean any holder of shares of capital ------------------- stock of the Corporation whose holding of such stock, either individually or when taken together with the holding of shares of capital stock of the Corporation by any other holders, may result, in the judgment of the Board of Directors, in the loss of, or the failure to secure the reinstatement of, any license or franchise from any governmental agency held by the Corporation or any of its 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 -30- all outstanding convertible securities (other than the Series A Preferred Stock) and the exercise of all outstanding warrants, options or other rights to subscribe for or purchase any shares of Common Stock. "Initial Holder" means AT&T Wireless PCS, LLC, a Delaware limited -------------- liability company, TWR Cellular, Inc., a Delaware corporation, and/or any of their respective Affiliates that is a Subsidiary of AT&T Corp. "Invested Amount" means, as of any date with respect to each share of --------------- Series C Preferred Stock held by any stockholder, an amount equal to the quotient of (i) the aggregate paid-in capital actually paid with respect to all shares of Series C Preferred Stock held by such stockholder as of such date divided by (ii) the total number of shares of Series C Preferred Stock held by such stockholder. "Junior Stock" shall mean, with respect to shares of Series A ------------ Preferred Stock or Series B Preferred Stock, any capital stock of the Corporation, including without limitation the Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock, Series G Preferred Stock and the Common Stock, ranking junior to the Series A Preferred Stock or Series B Preferred Stock, as the case may be, with respect to dividends, distribution in liquidation or any other preference, right or power. "Liquidation Preference" shall mean, as of any date, and subject to ---------------------- adjustment for subdivisions or combinations affecting the number of shares of the applicable series of Preferred Stock: (i) with respect to each share of Series A Preferred Stock and Series B Preferred Stock, $1,000 plus accrued and unpaid dividends thereon; (ii) with respect to each share of Series C Preferred Stock, the Invested Amount plus accrued and unpaid dividends on such share (if any), plus an amount equal to interest on the Invested Amount at the rate of six percent (6%) per annum, compounded quarterly, less the amount of dividends (if any) theretofore declared and paid in respect of such share; (iii) with respect to each share of Series D Preferred Stock, $1,000 plus accrued and unpaid dividends thereon (if any), plus an amount equal to interest on $1,000 at the rate of six percent (6%) per annum, compounded quarterly, from the date of issuance of such share to and including the date of the calculation, less the amount of dividends (if any) theretofore declared and paid in respect of such share; (iv) with respect to each share of Series E Preferred Stock, accrued and unpaid dividends thereon (if any), plus an amount equal to interest on $1,000 at the rate of six percent (6%) per annum, compounded quarterly, from the date of issuance of such share to and including the date of the calculation, less the amount of dividends (if any) theretofore declared and paid in respect of such share; and (v) with respect to each share of Series F Preferred Stock, $.00003 -31- plus accrued and unpaid dividends thereon. "Market Price" shall mean, with respect to each share of any class or ------------ series of capital stock for any day, (i) the average of the daily Closing Prices for the ten consecutive trading days commencing 15 days before the day in question or (ii) if on such date the shares of such class or series of capital stock are not listed or admitted for trading on any national securities exchange and are not quoted on NASDAQ or any similar service, the cash amount that a willing buyer would pay a willing seller (neither acting under compulsion) in an arm's-length transaction without time constraints per share of such class or series of capital stock as of such date, viewing the Corporation on a going concern basis, as determined (A) in the case of a determination of "Market Price" for the purpose of calculating the Series A Conversion Rate, pursuant to the Appraisal Procedure and (B) in the case of a determination of Market Price for any other purpose, in good faith by the Board of Directors, whose determination shall be conclusive; provided that, in determining such cash amount, the following shall be ignored: (i) any contract or legal limitation in respect of shares of Common Stock or Preferred Stock, including transfer, voting and other rights, (ii) the "minority interest" or "control" status of shares of Common Stock into which shares of Series A Preferred Stock would be converted, and (iii) any illiquidity arising by contract in respect of the shares of Common Stock and any voting rights or control rights amongst the stockholders. "NASDAQ" shall mean the National Association of Securities Dealers ------ Automated Quotations System. "Non-Tracked Common Stock" has the meaning specified in Section ------------------------ 4.9(a). "Non-Tracked Business Available Dividend Amount" has the meaning ---------------------------------------------- specified in Section 4.9(b)(i). "Optional Conversion Date" has the meaning specified in 4.8(e)(ii). ------------------------ "Parity Stock" shall mean, with respect to shares of Series A ------------ Preferred Stock or Series B Preferred Stock, any capital stock of the Corporation ranking on a parity with the Series A Preferred Stock or Series B Preferred Stock, as the case may be, with respect to dividends, distribution in liquidation or any other preference, right or power. "Participating Stock" shall mean, collectively, the Series F ------------------- Preferred Stock and the Non-Tracked Common Stock. "Person" shall mean any individual, firm, corporation, partnership, ------ trust, incorporated or unincorporated association, joint venture, joint stock company, governmental agency or political subdivision thereof or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. "Preferred Stock" has the meaning specified in Section 4.1. --------------- "Qualified Transfer" shall mean a sale, transfer or other disposition ------------------ of shares of Series A Preferred Stock to any prospective transferee specified in a Qualified Transfer Notice, -32- other than a prospective transferee as to which the Corporation disapproves in accordance with the terms of the second sentence of Section 4.3(j), provided such sale, transfer or other disposition is made pursuant to a binding agreement entered into no later than 180 days after the applicable Qualified Transfer Notice is given. "Qualified Transferee" shall mean, with respect to any shares of -------------------- Series A Preferred Stock, (i) any Cash Equity Investor that acquired such shares pursuant to Section 4.2 of the Stockholders Agreement or (ii) any other holder that acquired such shares in a Qualified Transfer from an Initial Holders or Qualified Transferee. "Qualified Transfer Notice" has the meaning specified in Section ------------------------- 4.3(i)(x). "Redemption Securities" shall mean any debt or equity securities of --------------------- the Corporation, any of its subsidiaries or affiliates or any other corporation, or any combination thereof, having such terms and conditions as shall be approved by the Board of Directors and which, together with any cash to be paid as part of the redemption price payable pursuant to Section 4.12, in the opinion of any nationally recognized investment banking firm selected by the Board of Directors (which may be a firm which provides investment banking, brokerage or other services to the Corporation), has a value, at the time notice of redemption is given pursuant to Section 4.12(d) at least equal to the price required to be paid pursuant to Section 4.12(a) (assuming, in the case of Redemption Securities to be publicly traded, that such Redemption Securities were fully distributed and subject only to normal trading activity). "Section 4.11 Transferee" shall mean any transferee of shares of ------------------------ Series A Preferred Stock, Series D Preferred Stock and Series F Preferred Stock issued to the Initial Holder on July 17, 1998 (or any shares of Common Stock into which any such shares are converted) that are acquired in a private transaction. "Section 4.12 Redemption Date" shall mean the date fixed by the Board ---------------------------- of Directors for the redemption of any shares of stock of the Corporation pursuant to Section 4.12. "Senior Stock" shall mean, with respect to shares of Series A ------------ Preferred Stock or Series B Preferred Stock, as the case may be, any capital stock of the Corporation ranking senior 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). -33- "Series B Preferred Stock" has the meaning specified in Section 4.1. ------------------------ "Series C Preferred Stock" has the meaning specified in Section 4.1. ------------------------ "Series D Preferred Stock" has the meaning specified in Section 4.1. ------------------------ "Series E Preferred Stock" has the meaning specified in Section 4.1. ------------------------ "Series F Preferred Stock" has the meaning specified in Section 4.1. ------------------------ "Statutory Liquidation" means the liquidation of the Corporation --------------------- pursuant to Section 275 of the GCL, as amended. "Stockholders Agreement" means the July 1998 Stockholders Agreement ---------------------- by and among the Corporation, the Initial Holders and the other stockholders of the Corporation named therein, as the same may be amended, modified or supplemented in accordance with the terms thereof, a copy of which is available for inspection by any stockholder at the principal executive offices of the Corporation. "Subsidiary" shall mean, with respect to any Person, a corporation or ---------- other entity of which 50% or more of the voting power of the voting equity securities or equity interest is owned, directly or indirectly, by such Person. "Tracked Business Available Dividend Amount" shall mean, on any date, ------------------------------------------ the excess (if any) of (i) the fair market value of the total assets of Tracked Subsidiary (including, without limitation, investments held by Tracked Subsidiary), less the total amount of the liabilities of Tracked Subsidiary, in each case as of such date determined in accordance with generally accepted accounting principles, over (ii) the aggregate par value of, or any greater amount determined in accordance with GCL to be capital in respect of, all outstanding shares of the Tracked Common Stock. "Tracked Business Available Liquidation Amount" shall mean, on any --------------------------------------------- date, the fair market value of the total assets of Tracked Subsidiary (including, without limitation, investments held by Tracked Subsidiary, less the total amount of the liabilities of Tracked Subsidiary, in each case as of such date determined in accordance with generally accepted accounting principles. "Tracked Common Stock" has the meaning specified in Section 4.9(a). -------------------- "Tracked Subsidiary" shall mean TeleCorp Holding Corp., Inc. ------------------ ARTICLE V Election of Directors need not be by written ballot. ARTICLE VI -34- 6.1 Amendment of Restated Certificate of Incorporation. Subject to the -------------------------------------------------- separate class vote requirements relating to any class or series of Preferred Stock, the holders of shares of capital stock representing at least two-thirds (2/3) of the votes entitled to be cast for the election of directors of the Corporation, voting together as a single class, in person or by proxy, at a special or annual meeting of stockholders called for the purpose, or by written consent, may amend, alter or repeal this Restated Certificate of Incorporation. 6.2 Amendment of the Bylaws. Except as otherwise provided by law or by this ----------------------- Certificate of Incorporation, the Bylaws of the Corporation, as from time to time altered or amended, may be made, altered or amended by the holders of shares of capital stock representing at least two-thirds (2/3) of the votes entitled to be cast for the election of directors of the Corporation, voting together as a single class, in person or by proxy at any annual or special meeting of the stockholders called for such purpose, of which the notice shall specify the subject matter of the proposed alteration or amendment or new bylaw or the article or articles to be affected thereby, or by written consent of such holders of such number of shares. If this Certificate of Incorporation so provides, these Bylaws may also be made, altered or amended by a majority of the whole number of directors. Notwithstanding anything to the contrary contained in this Section 6.2, the rights of any Stockholder (as such term is defined in the Stockholders Agreement) or group of Stockholders under Section 2.11(b) of the Bylaws shall not be amended, altered or repealed without the prior written approval of any such Stockholder or group of Stockholders at any annual or special meeting of the stockholders called for such purpose, of which the notice shall specify the subject matter of the proposed alteration or amendment or new bylaw or the article or articles to be affected thereby, as the case may be. ARTICLE VII 7.1 Indemnification. Any person who was or is a party or is threatened to --------------- be made a party to any threatened, pending, or completed action, suit, or proceeding (a "Proceeding"), whether civil, criminal, administrative, or ---------- investigative (whether or not by or in the right of the Corporation), by reason of the fact that such person, or a person of whom such person is the legal 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 -35- 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 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 -36- Corporation. Neither the failure of the Corporation (including its Board of Directors, its independent legal counsel and its stockholders) to have made a determination prior to the commencement of such action that such indemnification or reimbursement or advancement of expenses is proper in the circumstances nor an actual determination by the Corporation (including its Board of Directors, its independent legal counsel and its stockholders) that such person is not entitled to such indemnification or reimbursement or advancement of expenses shall constitute a defense to the action or create a presumption that such person is not so entitled. Such a person shall also be indemnified for any expenses incurred in connection with successfully establishing his or her right to such indemnification or reimbursement or advancement of expenses, in whole or in part, in any such Proceeding. 7.8 Service at the Request of the Corporation. Any Director or officer of ----------------------------------------- the Corporation serving in any capacity in (a) another corporation of which a majority of the shares entitled to vote in the election of its directors is held, directly or indirectly, by the Corporation or (b) any employee benefit plan of the Corporation or any corporation referred to in clause (a) shall be deemed to be doing so at the request of the Corporation. 7.9 Right to Be Covered by Applicable Law. Any person entitled to be ------------------------------------- indemnified or to reimbursement or advancement of expenses as a matter of right pursuant to this Article VII may elect to have the right to indemnification or reimbursement or advancement of expenses interpreted on the basis of the applicable law in effect at the time of the occurrence of the event or events giving rise to the applicable Proceeding, to the extent permitted by law, or on the basis of the applicable law in effect at the time such indemnification or reimbursement or advancement of expenses is sought. Such election shall be made, by a notice in writing to the Corporation, at the time indemnification or reimbursement or advancement of expenses is sought; provided, however, that if no such notice is given, the right to indemnification or reimbursement or advancement of expenses shall be determined by the law in effect at the time indemnification or reimbursement or advancement of expenses is sought. ARTICLE VIII -37- 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. ARTICLE IX 9.1 Number, Terms and Election of Directors. --------------------------------------- (a) Subject to the rights, if any, of the holders of any class or series of Preferred Stock to elect additional directors under specified circumstances, the number of directors of the Corporation shall be fixed and may be increased or decreased from time to time by the Board of Directors, but in no case shall the number be less than one nor more than fifteen. (b) Upon the closing of an offer and sale of the Class A Common Stock of the Corporation to the public (a "Public Offering") pursuant to an effective Registration Statement under the Securities Act of 1933, as amended (the "1933 Act"), in which (i) the aggregate gross proceeds received by the Corporation in connection with such Registration Statement(s) equals or exceeds $20 million, and (ii) the Class A Common Stock shall have been listed for trading on the New York Stock Exchange or the American Stock Exchange or authorized for trading on NASDAQ, including without limitation its National Market System, the then current directors and any new directors taking office upon such closing shall be divided into three classes, as nearly equal in number as possible, by the affirmative vote (which vote may be taken prior to such closing) of a majority of the directors then holding office. One class of directors shall be appointed to the Board of Directors for a term expiring at the first annual meeting of stockholders to be held after the closing date of the Public Offering, another class of directors shall be appointed to the Board of Directors for a term expiring at the second annual meeting of stockholders to be held after the closing date of the Public Offering, and another class of -38- directors shall be appointed to the Board of Directors for a term expiring the third annual meeting of stockholders to be held after the closing date of the Public Offering, with members of each class to hold office until their successors are elected and qualified. At each succeeding annual meeting of the stockholders of the Corporation, the successors of the class of directors whose term expires at that meeting shall be elected by plurality vote of all votes cast at such meeting to hold office for a term expiring at the annual meeting of stockholders held in the third year following their year of election. 9.2 Newly Created Directorships and Vacancies. Subject to the rights, if ----------------------------------------- any, of the holders of any and all series of Preferred Stock to elect additional directors pursuant to the terms and conditions of such Preferred Stock, newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled solely by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the board of directors, or by a sole remaining director. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified. No decrease in the number of directors constituting the Board of Directors shall shorten the term of an incumbent director. 9.3 Removal. Subject to the rights, if any, of the holders of any and all ------- series of Preferred Stock to elect additional directors pursuant to the terms and conditions of such Preferred Stock, any director may be removed from office by the stockholders only for cause and only in the following manner. At any annual meeting or special meeting of the stockholders of the Corporation, the notice of which shall state that the removal of a director or directors is among the purposes of the meeting, the affirmative vote of the holders of at least a majority of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of the directors, voting together as a single class, may remove such director or directors for cause. 9.4 Additional Rights of Certain Stockholders Regarding Directors. ------------------------------------------------------------- Notwithstanding anything to the contrary contained in this Article IX, so long as a Stockholder (as such term is defined in the Stockholders' Agreement) or group of Stockholders has the right to nominate one or more of the directors of the Corporation pursuant to the terms of the Stockholders' Agreement or this Fifth Amended and Restated Certificate of Incorporation (including, without limitation, the right of the Initial Holders to nominate a director pursuant to Section 4.3(d)(iii) hereof), then, with respect to any directors so nominated by such Stockholder or group of Stockholders, such Stockholder or group of Stockholders, as the case may be, shall have the right to cause the Corporation to remove any director so nominated by such Stockholder or group of stockholders, as the case may be, with or without cause, and any vacancy caused by the removal of such director or otherwise during the term of such director (whether or not such director resigns, is removed from the Board of Directors with or without cause or ceases to be a director by reason of death, disability or for any other reason) shall be filled in accordance with the terms of the -39- Stockholders' Agreement or this Fifth Amended and Restated Certificate of Incorporation, as the case may be. IN WITNESS WHEREOF, the undersigned officer of the Corporation has executed this Fifth Amended and Restated Certificate of Incorporation this ___ day of ___________, 1999. _________________________________ Name: Thomas H. Sullivan Title: Executive Vice President -40- EX-3.2.2 4 2ND AMENDED AND RESTATED BYLAWS Exhibit 3.2.2 FORM OF TELECORP PCS, INC. SECOND AMENDED AND RESTATED BYLAWS ADOPTED AS OF NOVEMBER ____, 1999 TABLE OF CONTENTS Page ARTICLE 1. STOCKHOLDERS.................................. 1 1.1 Annual Meeting................................ 1 1.2 Special Meetings.............................. 2 1.3 Notice of Meetings; Waiver.................... 2 1.4 Quorum; Voting................................ 3 1.5 Voting by Ballot.............................. 3 1.6 Adjournment................................... 3 1.7 Proxies....................................... 4 1.8 Organization; Procedure....................... 4 1.9 Consent of Stockholders in Lieu of Meeting.... 4 ARTICLE 2. BOARD OF DIRECTORS............................ 4 2.1 General Powers................................ 4 2.2 Number; Election; Term of Office; Removal..... 4 2.3 Annual and Regular Meetings................... 5 2.4 Special Meetings; Notice...................... 5 2.5 Quorum; Voting................................ 5 2.6 Adjournment................................... 5 2.7 Action Without a Meeting...................... 5 2.8 Regulations; Manner of Acting................. 6 2.9 Action by Telephonic Communications........... 6 2.10 Resignation................................... 6 2.12 Compensation.................................. 7 2.13 Reliance on Accounts and Reports, etc......... 7 ARTICLE 3. EXECUTIVE COMMITTEE AND OTHER COMMITTEES...... 7 3.1 How Constituted............................... 7 3.2 Powers........................................ 7 3.3 Quorum; Voting................................ 8 3.4 Action without a Meeting...................... 8 3.5 Regulations; Manner of Acting................. 8 3.6 Action by Telephonic Communications........... 8 -i- TABLE OF CONTENTS (continued) Page 3.7 Resignation................................... 8 3.8 Removal....................................... 8 3.9 Vacancies..................................... 8 ARTICLE 4. OFFICERS...................................... 8 4.1 Titles........................................ 8 4.2 Election...................................... 9 4.3 Salaries...................................... 9 4.4 Removal and Resignation; Vacancies............ 9 4.5 Authority and Duties.......................... 9 4.6 The Chairman of the Board..................... 9 4.7 The President................................. 9 4.8 Vice President/Chief Operating Officer........ 9 4.9 Executive Vice President/General Counsel...... 10 4.10 The Vice Presidents........................... 10 4.11 The Secretary................................. 10 4.12 The Treasurer................................. 10 4.13 Additional Officers........................... 10 4.14 Security...................................... 10 ARTICLE 5. CAPITAL STOCK................................. 10 5.1 Certificates of Stock, Uncertificated Shares.. 10 5.2 Signatures; Facsimile......................... 11 5.3 Lost, Stolen or Destroyed Certificates........ 11 5.4 Transfer of Stock............................. 11 5.5 Record Date................................... 11 5.6 Registered Stockholders....................... 12 5.7 Transfer Agent and Registrar.................. 12 ARTICLE 6. INDEMNIFICATION............................... 12 6.1 Indemnification............................... 12 6.2 Definition.................................... 12 ARTICLE 7. OFFICES....................................... 12 -ii- TABLE OF CONTENTS (continued) Page 7.1 Registered Office............................. 13 7.2 Other Offices................................. 13 ARTICLE 8. GENERAL PROVISIONS............................ 13 8.1 Dividends..................................... 13 8.2 Reserves...................................... 13 8.3 Execution of Instruments...................... 13 8.4 Corporate Indebtedness........................ 13 8.5 Deposits...................................... 14 8.6 Checks........................................ 14 8.7 Sale, Transfer, etc. of Securities............ 14 8.8 Voting as Stockholder......................... 14 8.9 Fiscal Year................................... 14 8.10 Seal.......................................... 14 8.11 Books and Records............................. 14 ARTICLE 9. AMENDMENT OF BYLAWS........................... 15 9.1 Amendment..................................... 15 ARTICLE 10. CONSTRUCTION................................. 15 10.1 Construction.................................. 15 -iii- SECOND AMENDED AND RESTATED BYLAWS TeleCorp PCS, Inc. ARTICLE 1. STOCKHOLDERS 1.1 Annual Meeting. The annual meeting of the stockholders of the -------------- Corporation for the election of directors and for the transaction of such other business as may properly come before such meeting shall be held at such place, either within or without the State of Delaware, at 9:00 A.M. on the second Wednesday of each April of each year (or, if such day is a legal holiday, then on the next succeeding business day), or at such other date and hour, as may be fixed from time to time by resolution of the Board of Directors and set forth in the notice or waiver of notice of the meeting. At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before an annual meeting. To be properly brought before an annual meeting, business must be (i) specified in the notice of the meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (ii) otherwise properly brought before the meeting by or at the direction of the Board of Directors or (iii) otherwise properly brought before the meeting by a stockholder of the Corporation who was stockholder of record at the time of giving of notice provided for in this Section, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation at the principal executive office of the corporation. To be timely, a stockholder's notice shall be delivered not less than 90 days prior to the first anniversary of the preceding year's meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date, notice by the stockholder, to be timely, must be so delivered not later than the 10th day following the day on which public announcement (as defined herein) of the date of such meeting is first made. Such stockholder's notice shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (ii) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the proposal is made (A) the name and address of such stockholder, as they appear on the Corporation's books, and the name and address of such beneficial owner and (B) the class and number of shares of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner; and (iii) in the event that such business includes a proposal to amend either the Certificate of Incorporation or the Bylaws of the Corporation, the language of the proposed amendment. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the preceding paragraph, and the Chairman of the Board or other person presiding at an annual meeting of stockholders, may refuse to permit any business to be brought before an annual meeting without compliance with the foregoing procedures. "Public Announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In addition to the provisions of this paragraph, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth herein. Nothing in these Bylaws shall be deemed to affect any rights of the Stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act. 1.2 Special Meetings. Special meetings of the stockholders may be called at ---------------- any time by the Chairman of the Board (or, in the event of his absence or disability, by the President). A special meeting shall be called by the Chairman of the Board (or, in the event of his absence or disability, by the President), or by the Secretary, immediately upon receipt of a written request therefor by stockholders holding in the aggregate not less than 35% of the outstanding shares of the Corporation at the time entitled to vote at any meeting of the stockholders or by a request of a majority of the Board of Directors. If such officers shall fail to call such meeting within 20 days after receipt of such request, any stockholder or member of the Board of Directors executing such request may call such meeting. Any such special meeting of the stockholders shall be held at such place, within or without the State of Delaware, as shall be specified in the notice or waiver of notice thereof. 1.3 Notice of Meetings; Waiver. The Secretary or any Assistant Secretary -------------------------- shall cause written notice of the place, date and hour of each meeting of the stockholders, and, in the case of a special meeting, the purpose or purposes for which such meeting is called, to be given personally or by mail, not less than ten nor more than 60 days before the date of the meeting, to each stockholder of record entitled to vote at such meeting. If such notice is mailed, it shall be deemed to have been given to a stockholder when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the record of stockholders of the Corporation, or, if he shall have filed with the Secretary a written request that notices to him be mailed to some other address, then directed to him at such other address. Such further notice shall be given as may be required by law. 2 Whenever notice is required to be given to stockholders hereunder, a written waiver, signed by a stockholder, whether before or after the time stated therein, shall be deemed equivalent to notice. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in a written waiver of notice. The attendance of any stockholder at a meeting of stockholders shall constitute a waiver of notice of such meeting, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting is not lawfully called or convened. 1.4 Quorum; Voting. Except as otherwise required by law or by the -------------- Corporation's Certificate of Incorporation, as then amended and in effect (the "Certificate of Incorporation"), at any meeting of the stockholders, a majority of all shares issued and outstanding and entitled to vote upon a question to be considered at the meeting shall constitute a quorum when represented at such meeting by the holders thereof in person or by their duly constituted and authorized attorney or attorneys, but holders of a lesser interest may adjourn any meeting from time to time, and the meeting may be held as adjourned without further notice. When a quorum is present at any meeting, a majority of the stock so represented thereat and voting on any question brought before such meeting shall be determinative, except where a larger vote is required by law, by the Certificate of Incorporation or by these by-laws, and except that the vote required for the election of directors shall be as set forth in the Certificate of Incorporation. Except as set forth in the Certificate of Incorporation, if, pursuant to Section 5.5 of these Bylaws, a record date has been fixed, every holder of record of shares entitled to vote at a meeting of stockholders shall be entitled to one vote for each share outstanding in his name on the books of the Corporation at the close of business on such record date. If no record date has been fixed, then every holder of record of shares entitled to vote at a meeting of stockholders shall be entitled to one vote for each share of stock standing in his name on the books of the Corporation at the close of business on the day next preceding the day on which notice of the meeting is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. 1.5 Voting by Ballot. No vote of the stockholders need be taken by written ---------------- ballot or conducted by inspectors of election, unless otherwise required by law. Any vote which need not be taken by ballot may be conducted in any manner approved by the meeting. 1.6 Adjournment. If a quorum is not present at any meeting of the ----------- stockholders, the stockholders present in person or by proxy shall have the power to adjourn any such meeting from time to time until a quorum is present. Notice of any adjourned meeting of the stockholders of the Corporation need not be given if the place, date and hour thereof are announced at the meeting at which the adjournment is taken, provided, however, that if the adjournment is for more than 30 days, or if after the adjournment a new record date for the adjourned meeting is fixed pursuant to Section 5.5 of these Bylaws, a notice of the adjourned meeting, conforming to the requirements of Section 1.3 hereof, shall be given to each stockholder of record entitled to vote at such 3 meeting. At any adjourned meeting at which a quorum is present, any business may be transacted that might have been transacted on the original date of the meeting. 1.7 Proxies. Any stockholder entitled to vote at any meeting of the ------- stockholders or to express consent to or dissent from corporate action without a meeting may, by a written instrument signed by such stockholder or his attorney- in-fact, authorize another person or persons to vote at any such meeting and express such consent or dissent for him by proxy. No such proxy shall be voted or acted upon after the expiration of three years from the date of such proxy, unless such proxy provides for a longer period. Every proxy shall be revocable at the pleasure of the stockholder executing it, except in those cases where applicable law provides that a proxy shall be irrevocable. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or by filing another duly executed proxy bearing a later date with the Secretary. 1.8 Organization; Procedure. At every meeting of stockholders the presiding ----------------------- officer shall be the Chairman of the Board or, in the event of his absence or disability, the President or, in the event of his absence or disability, a presiding officer chosen by a majority of the stockholders present in person or by proxy. The Secretary, or in the event of his absence or disability, the Assistant Secretary, if any, or if there be no Assistant Secretary, in the absence of the Secretary, an appointee of the presiding officer, shall act as Secretary of the meeting. The order of business and all other matters of procedure at every meeting of stockholders may be determined by such presiding officer. 1.9 Consent of Stockholders in Lieu of Meeting. To the fullest extent ------------------------------------------ permitted by law, whenever the vote of the stockholders at a meeting thereof is required or permitted to be taken for or in connection with any corporate action, such action may be taken without a meeting, without prior notice and without a vote of stockholders, if the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted shall consent in writing to such corporate action being taken. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not so consented in writing. ARTICLE 2. BOARD OF DIRECTORS 2.1 General Powers. Except as may otherwise be provided by law, by the -------------- Certificate of Incorporation or by these Bylaws, the property, affairs and business of the Corporation shall be managed by or under the direction of the Board of Directors and the Board of Directors may exercise all the powers of the Corporation. 2.2 Number; Election; Term of Office; Removal. The classification of the ----------------------------------------- board of directors, the term of each class of directors, the manner of election and removal of directors and the filling of newly created directorships and vacancies on the Board 4 shall be as set forth in the Certificate of Incorporation. Each Director (whenever elected) shall hold office until his successor has been duly elected and qualified, or until his earlier death, resignation or removal. 2.3 Annual and Regular Meetings. The annual meeting of the Board of --------------------------- Directors for the purpose of electing officers and for the transaction of such other business as may come before the meeting shall be held as soon as possible following adjournment of the annual meeting of the stockholders at the place of such annual meeting of the stockholders. Notice of such annual meeting of the Board of Directors need not be given. The Board of Directors from time to time may by resolution provide for the holding of regular meetings and fix the place (which may be within or without the State of Delaware) and the date and hour of such meetings. Notice of regular meetings need not be given, provided, however, that if the Board of Directors shall fix or change the time or place of any regular meeting, notice of such action shall be mailed promptly, or sent by telegram, facsimile or cable, to each Director who shall not have been present at the meeting at which such action was taken, addressed to him at his usual place of business, or shall be delivered to him personally. Notice of such action need not be given to any Director who attends the first regular meeting after such action is taken without protesting the lack of notice to him, prior to or at the commencement of such meeting, or to any Director who submits a signed waiver of notice, whether before or after such meeting. 2.4 Special Meetings; Notice. Special meetings of the Board of Directors ------------------------ shall be held whenever called by the Chairman of the Board or, in the event of his absence or disability, by the President, at such place (within or without the State of Delaware), date and hour as may be specified in the respective notices or waivers of notice of such meetings. Special meetings of the Board of Directors may be called on 24 hours' notice, if notice is given to each Director personally or by telephone or facsimile, or on five days' notice, if notice is mailed to each Director, addressed to him at his usual place of business. Notice of any special meeting need not be given to any Director who attends such meeting without protesting the lack of notice to him, prior to or at the commencement of such meeting, or to any Director who submits a signed waiver of notice, whether before or after such meeting, and any business may be transacted thereat. 2.5 Quorum; Voting. At all meetings of the Board of Directors, the presence -------------- of a majority of the total authorized number of Directors shall constitute a quorum for the transaction of business. Except as otherwise required by law or the Certificate of Incorporation, the vote of a majority of the Directors present at any meeting at which a quorum is present shall be the act of the Board of Directors. 2.6 Adjournment. A majority of the Directors present, whether or not a ----------- quorum is present, may adjourn any meeting of the Board of Directors to another time or place. No notice need be given of any adjourned meeting unless the time and place of the adjourned meeting are not announced at the time of adjournment, in which case notice conforming to the requirements of Section 2.5 shall be given to each Director. 5 2.7 Action Without a Meeting. Any action required or permitted to be taken ------------------------ at any meeting of the Board of Directors may be taken without a meeting if all members of the Board of Directors consent thereto in writing, and such writing or writings are filed with the minutes of proceedings of the Board of Directors. 2.8 Regulations; Manner of Acting. To the extent consistent with applicable ----------------------------- law, the Certificate of Incorporation and these Bylaws, the Board of Directors may adopt such rules and regulations for the conduct of meetings of the Board of Directors and for the management of the property, affairs and business of the Corporation as the Board of Directors may deem appropriate. The Directors shall act only as a Board, and the individual Directors shall have no power as such. 2.9 Action by Telephonic Communications. Members of the Board of Directors ----------------------------------- may participate in a meeting of the Board of Directors by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this provision shall constitute presence in person at such meeting. 2.10 Resignation. Any Director may resign at any time by delivering a ----------- written notice of resignation, signed by such Director, to the Chairman of the Board, the President or the Secretary. Unless otherwise specified therein, such resignation shall take effect upon delivery. No director need be a stockholder 2.11 Nominations. Except as otherwise provided by law or by the Certificate ------------ of Incorporation, the business and affairs of the Corporation shall be managed by the board of directors. Subject to the rights of holders of the Corporation's preferred stock, nominations for the election of directors may be made by the board of directors or a committee appointed by the board of directors or by any stockholder entitled to vote in the election of directors generally. However, any stockholder entitled to vote in the election of directors may nominate one or more persons for election as directors at a meeting only if written notice of such stockholder's intent to make such nomination or nominations has been given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the corporation not later than 90 days prior to the date of any annual or special meeting. In the event that the date of such annual or special meeting was not made by a Public Announcement (as defined in Section 1.1) more than 90 days prior to the meeting, notice by the stockholder to be timely must be delivered to the Secretary of the Corporation not later than the close of business on the tenth day following the day on which such announcement of the date of the meeting was communicated to the stockholders. Each such notice shall set forth: (a) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or 6 nominations are to be made by the stockholder; (d) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, by the board of directors; and (e) the consent of each nominee to serve as a director of the Corporation if so elected. 2.12 Compensation. The amount, if any, which each Director shall be ------------ entitled to receive as compensation for his services as such shall be fixed from time to time by resolution of the Board of Directors. 2.13 Reliance on Accounts and Reports, etc. A member of the Board of -------------------------------------- Directors, or a member of any Committee designated by the Board of Directors, shall, in the performance of his duties, be fully protected in relying in good faith upon the records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of the Corporation's officers or employees, or Committees of the Board of Directors, or by any other person as to matters the member reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation, including without limitation independent certified public accountants and appraisers. ARTICLE 3. EXECUTIVE COMMITTEE AND OTHER COMMITTEES 3.1 How Constituted. The Board of Directors may designate one or more --------------- Committees, including an Executive Committee, each such Committee to consist of such number of Directors as from time to time may be fixed by the Board of Directors. The Board of Directors may designate one or more directors as alternate members of any such Committee, who may replace any absent or disqualified member or members at any meeting of such Committee. In addition, unless the Board of Directors has so designated an alternate member of such Committee, in the absence or disqualification of a member of such Committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Thereafter, members (and alternate members, if any) of each such Committee may be designated at the annual meeting of the Board of Directors. Any such Committee may be abolished or redesignated from time to time by the Board of Directors. Each member (and each alternate member) of any such Committee (whether designated at an annual meeting of the Board of Directors or to fill a vacancy or otherwise) shall hold office until his successor shall have been designated or until he shall cease to be a Director, or until his earlier death, resignation or removal. 3.2 Powers. Each Committee shall have and may exercise such powers of the ------ Board of Directors as may be provided by resolution of the Board, provided, that neither the Executive Committee nor any such other Committee shall have the power or authority to (i) approve or adopt, or recommend to the stockholders, any action or matter expressly 7 required by the General Corporation Law to be submitted to stockholders for approval or (ii) adopt, amend or repeal any of these Bylaws. Each Committee may be granted by the Board of Directors power to authorize the seal of the Corporation to be affixed to any or all papers which may require it. 3.3 Quorum; Voting. Except as may be otherwise provided in the resolution -------------- creating such Committee, at all meetings of any Committee the presence of members (or alternate members) constituting a majority of the total authorized membership of such Committee shall constitute a quorum for the transaction of business. The act of a majority of the members present at any meeting at which a quorum is present shall be the act of such Committee. 3.4 Action without a Meeting. Any action required or permitted to be taken ------------------------ at any meeting of any such Committee may be taken without a meeting, if all members of such Committee shall consent to such action in writing and such writing or writings are filed with the minutes of the proceedings of the Committee. 3.5 Regulations; Manner of Acting. Each such Committee may fix its own ----------------------------- rules of procedure and may meet at such place (within or without the State of Delaware), at such time and upon such notice, if any, as it shall determine from time to time. Each such Committee shall keep minutes of its proceedings and shall report such proceedings to the Board of Directors at the meeting of the Board of Directors next following any such proceeding. The members of any such Committee shall act only as a Committee, and the individual members of such Committee shall have no power as such. 3.6 Action by Telephonic Communications. Members of any Committee ----------------------------------- designated by the Board of Directors may participate in a meeting of such Committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this provision shall constitute presence in person at such meeting. 3.7 Resignation. Any member (and any alternate member) of any Committee may ----------- resign at any time by delivering a written notice of resignation, signed by such member, to the Chairman of the Board or the President. Unless otherwise specified therein, such resignation shall take effect upon delivery. 3.8 Removal. Any member (any alternate member) of any Committee may be ------- removed at any time, with or without cause, by resolution adopted by a majority of the whole Board of Directors. 3.9 Vacancies. If any vacancy shall occur in any Committee, by reason of --------- death, resignation, removal or otherwise, the remaining members (and any alternate members) shall continue to act, and any such vacancy may be filled by the Board of Directors or the remaining members of the Committee as provided in Section 3.1 hereof. 8 ARTICLE 4. OFFICERS 4.1 Titles. The officers of the Corporation shall be chosen by the Board of ------ Directors and shall be a Chairman of the Board, the President, an Vice President/Chief Operating Officer, an Executive Vice President/General Counsel, one or more Vice Presidents, a Secretary and a Treasurer. The Board of Directors also may elect one or more Assistant Secretaries and Assistant Treasurers in such numbers as the Board of Directors may determine, and shall also elect a Chairman of the Board. Any number of offices may be held by the same person. No officer need be a Director of the Corporation. 4.2 Election. Unless otherwise determined by the Board of Directors, the -------- officers of the Corporation shall be elected by the Board of Directors at the annual meeting of the Board of Directors, and shall be elected to hold office until the next succeeding annual meeting of the Board of Directors. In the event of the failure to elect officers at such annual meeting, officers may be elected at any regular or special meeting of the Board of Directors. Each officer shall hold office until his successor has been elected and qualified, or until his earlier death, resignation or removal. 4.3 Salaries. The salaries of all officers of the Corporation shall be -------- fixed by the Board of Directors. 4.4 Removal and Resignation; Vacancies. Any officer may be removed with or ---------------------------------- without cause at any time by the Board of Directors. Any officer may resign at any time by delivering a written notice of resignation, signed by such officer, to the Board of Directors or the Chairman of the Board. Unless otherwise specified therein, such resignation shall take effect upon delivery. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise, shall be filled by the Board of Directors. 4.5 Authority and Duties. The officers of the Corporation shall have such -------------------- authority and shall exercise such powers and perform such duties as may be specified in these Bylaws, except that in any event each officer shall exercise such powers and perform such duties as may be required by law. 4.6 The Chairman of the Board. The Chairman of the Board shall preside at ------------------------- all meetings of the stockholders and directors. He shall also perform all duties and exercise all powers usually pertaining to the office of a Chairman of the Board of a corporation. He shall see that all orders and resolutions of the Board of Directors are carried into effect. The Chairman of the Board shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. 4.7 The President. The President shall be the chief executive officer of ------------- the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. In the absence of the Chairman of the Board, the President shall 9 preside at all meetings of the stockholders and directors. He shall manage and administer the Corporation's business and affairs and shall also perform all duties and exercise all powers usually pertaining to the office of a chief executive officer of a corporation. 4.8 Vice President/Chief Operating Officer. The Vice President/Chief -------------------------------------- Operating Officer shall, subject to the direction of the Board of Directors and the President, perform all duties and exercise all powers usually pertaining to the office of a chief operating officer of a corporation. 4.9 Executive Vice President/General Counsel. The Executive Vice ---------------------------------------- President/General Counsel shall, subject to the directions of the Board of Directors, have general control and supervision of legal and regulatory policies and operations of the Corporation. He shall also be the chief business development officer of the Corporation and in connection therewith shall perform all duties and exercise all powers usually pertaining to the office of a chief business development officer. 4.10 The Vice Presidents. Each Vice President shall perform such duties ------------------- and exercise such powers as may be assigned to him from time to time by the President. In the absence of the President, the duties of the President shall be performed and his powers may be exercised by such Vice President as shall be designated by the President, or failing such designation, such duties shall be performed and such powers may be exercised by each Vice President in the order of their election to that office; subject in any case to review and superseding action by the President. 4.11 The Secretary. The Secretary shall perform, in general, all duties ------------- incident to the office of secretary and such other duties as may be specified in these Bylaws or as may be assigned to him from time to time by the Board of Directors or the President. 4.12 The Treasurer. The Treasurer shall be the chief financial officer of ------------- the corporation and shall perform, in general, all duties incident to the office of treasurer and such other duties as may be specified in these Bylaws or as may be assigned to him from time to time by the Board of Directors, or the President. 4.13 Additional Officers. The Board of Directors may appoint such other ------------------- officers and agents as it my deem appropriate, and such other officers and agents shall hold their offices for such terms and shall exercise such powers and perform such duties as may be determined from time to time by the Board of Directors. The Board of Directors from time to time may delegate to any officer or agent the power to appoint subordinate officers or agents and to prescribe their respective rights, terms of office, authorities and duties. Any such officer or agent may remove any such subordinate officer or agent appointed by him, with or without cause. 4.14 Security. The Board of Directors may direct that the Corporation -------- secure the fidelity of any or all of its officers or agents by bond or otherwise. 10 ARTICLE 5. CAPITAL STOCK 5.1 Certificates of Stock, Uncertificated Shares. The shares of the -------------------------------------------- Corporation shall be represented by certificates, provided that the Board of Directors may provide by resolution that some or all of any or all classes or series of the stock of the Corporation shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until each certificate is surrendered to the Corporation. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock in the Corporation represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the Corporation, by the Chairman of the Board, President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, representing the number of shares registered in certificate form. Such certificate shall be in such form as the Board of Directors may determine, to the extent consistent with applicable law, the Certificate of Incorporation and these Bylaws. 5.2 Signatures; Facsimile. All of such signatures on the certificate may --------------------- be a facsimile, engraved or printed, to the extent permitted by law. In case any officer, transfer agent or registrar who has signed, or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. 5.3 Lost, Stolen or Destroyed Certificates. The Secretary of the -------------------------------------- Corporation may cause a new certificate of stock or uncertificated shares in place of any certificate therefor issued by the Corporation, alleged to have been lost, stolen or destroyed, upon delivery to the Secretary of an affidavit of the owner or owners of such certificate, or his or their legal representative setting forth such allegation. The Secretary may require the owner or owners of such lost, stolen or destroyed certificate, or his or their legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of any such new certificate or uncertificated shares. 5.4 Transfer of Stock. Upon surrender to the Corporation or the transfer ----------------- agent of the Corporation of a certificate for shares, duly endorsed or accompanied by appropriate evidence of succession, assignment or authority to transfer, the Corporation shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Within a reasonable time after the transfer of uncertificated stock, the Corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to Section 151, 156, 202(a) or 218(a) of the General Corporation Law. Subject to the provisions of the Certificate of Incorporation and these Bylaws, the Board of Directors may prescribe such additional rules and regulations as it may deem appropriate relating to the issue, transfer and registration of shares of the Corporation. 11 5.5 Record Date. In order to determine the stockholders entitled to notice ----------- of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than 60 nor less than ten days before the date of such meeting, nor more than 60 days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting, provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. 5.6 Registered Stockholders. Prior to due surrender of a certificate for ----------------------- registration of transfer, the Corporation may treat the registered owner as the person exclusively entitled to receive dividends and other distributions, to vote, to receive notice and otherwise to exercise all the rights and powers of the owner of the shares represented by such certificate, and the Corporation shall not be bound to recognize any equitable or legal claim to or interest in such shares on the part of any other person, whether or not the Corporation shall have notice of such claim or interest. Whenever any transfer of shares shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of the transfer if, when the certificates are presented to the Corporation for transfer or uncertificated shares are requested to be transferred, both the transferor and transferee request the Corporation to do so. 5.7 Transfer Agent and Registrar. The Board of Directors may appoint one ---------------------------- or more transfer agents and registrars, and may require all certificates representing shares to bear the signature of any such transfer agents or registrars. ARTICLE 6. INDEMNIFICATION 6.1 Indemnification. The Corporation shall, to the fullest extent --------------- permitted by applicable law from time to time in effect, indemnify any and all persons who may serve or who have served at any time as Directors or officers of the Corporation, or who at the request of the Corporation may serve or at any time have served as Directors or officers of another corporation (including subsidiaries of the Corporation) or of any partnership, joint venture, trust or other enterprise, from and against any and all of the expenses, liabilities or other matters referred to in or covered by said law. Such indemnification shall continue as to a person who has ceased to be a Director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person. The Corporation may also indemnify any and all other persons whom it shall have power to indemnify under any applicable law from time to time in effect to the extent authorized by the Board of Directors and permitted by such law. The indemnification provided by this Article shall not be deemed exclusive of any other rights to which any person may be entitled under any provision of the Certificate of Incorporation, other Bylaw, agreement, vote of 12 stockholders or disinterested Directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. 6.2 Definition. For purposes of this Article, the term "Corporation" shall ---------- include constituent corporations referred to in Subsection (h) of Section 145 of the General Corporation Law (or any similar provision of applicable law at the time in effect). ARTICLE 7. OFFICES 7.1 Registered Office. The registered office of the Corporation in the ----------------- State of Delaware shall be located at Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801, and the Corporation's registered agent shall be The Corporation Trust Company. 7.2 Other Offices. The Corporation may maintain offices or places of ------------- business at such other locations within or without the State of Delaware as the Board of Directors may from time to time determine or as the business of the Corporation may require. ARTICLE 8. GENERAL PROVISIONS 8.1 Dividends. Subject to any applicable provisions of law and the --------- Certificate of Incorporation, dividends upon the shares of the Corporation may be declared by the Board of Directors at any regular or special meeting of the Board of Directors and any such dividend may be paid in cash, property, or shares of the Corporation. 8.2 Reserves. There may be set aside out of any funds of the Corporation -------- available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, thinks proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation or for such other purpose as the Board of Directors shall think conducive to the interest of the Corporation, and the Board of Directors may similarly modify or abolish any such reserve. 8.3 Execution of Instruments. The President, any Executive Vice President, ------------------------ any Vice President, the Secretary or the Treasurer may enter into any contract or execute and deliver any instrument in the name and on behalf of the Corporation. The Board of Directors or the President may authorize any other officer or agent to enter into any contract or execute and deliver any instrument in the name and on behalf of the Corporation. Any such authorization may be general or limited to specific contracts or instruments. 13 8.4 Corporate Indebtedness. No loan shall be contracted on behalf of the ---------------------- Corporation, and no evidence of indebtedness shall be issued in its name, unless authorized by the Board of Directors. Such authorization may be general or confined to specific instances. Loans so authorized may be effected at any time for the Corporation from any bank, trust company or other institution, or from any firm, corporation or individual. All bonds, debentures, notes and other obligations or evidences of indebtedness of the Corporation issued for such loans shall be made, executed and delivered as the Board of Directors shall authorize. When so authorized by the Board of Directors, any part of or all the properties, including contract rights, assets, business or good will of the Corporation, whether then owned or thereafter acquired, may be mortgaged, pledged, hypothecated or conveyed or assigned in trust as security for the payment of such bonds, debentures, notes and other obligations or evidences of indebtedness of the Corporation, and of any interest thereon, by instruments executed and delivered in the name of the Corporation. 8.5 Deposits. Any funds of the Corporation may be deposited from time to -------- time in such banks, trust companies or other depositaries as may be determined by the Board of Directors or the President, or by such officers or agents as may be authorized by the Board of Directors or the President to make such determination. 16 8.6 Checks. All checks or demands for money and notes of the Corporation ------ shall be signed by such officer or officers or such agent or agents of the Corporation, and in such manner, as the Board of Directors, the Chairman of the Board, or the President from time to time may determine. 8.7 Sale, Transfer, etc. of Securities. To the extent authorized by the ---------------------------------- Board of Directors or by the President, any Vice President, the Secretary or the Treasurer, or any other officers designated by the Board of Directors, the Chairman of the Board, or the President may sell, transfer, endorse, and assign any shares of stock, bonds or other securities owned by or held in the name of the Corporation, and may make, execute and deliver in the name of the Corporation, under its corporate seal, any instruments that may be appropriate to effect any such sale, transfer, endorsement or assignment. 8.8 Voting as Stockholder. Unless otherwise determined by resolution of --------------------- the Board of Directors, the President or any Vice President shall have full power and authority on behalf of the Corporation to attend any meeting of stockholders of any corporation in which the Corporation may hold stock, and to act, vote (or execute proxies to vote) and exercise in person or by proxy all other rights, powers and privileges incident to the ownership of such stock. Such officers acting on behalf of the Corporation shall have full power and authority to execute any instrument expressing consent to or dissent from any action of any such corporation without a meeting. The Board of Directors may by resolution from time to time confer such power and authority upon any other person or persons. 8.9 Fiscal Year. The fiscal year of the Corporation shall commence on the ----------- first day of January of each year (except for the Corporation's first fiscal year which shall commence on the date of incorporation) and shall end in each case on December 31. 14 8.10 Seal. The seal of the Corporation shall be circular in form and shall ---- contain the name of the Corporation, the year of its incorporation and the words "Corporate Seal" and "Delaware". The form of such seal shall be subject to alteration by the Board of Directors. The seal may be used by causing it or a facsimile thereof to be impressed, affixed or reproduced, or may be used in any other lawful manner. 8.11 Books and Records. Except to the extent otherwise required bylaw, the ----------------- books and records of the Corporation shall be kept at such place or places within or without the State of Delaware as may be determined from time to time by the Board of Directors. ARTICLE 9. AMENDMENT OF BYLAWS 9.1 Amendment. Except as otherwise provided by law or by the Certificate --------- of Incorporation, these by-laws, as from time to time altered or amended, may be made, altered or amended at any annual or special meeting of the stockholders called for the purpose, of which the notice shall specify the subject matter of the proposed alteration or amendment or new by-law or the article or articles to be affected thereby, by the holders of the shares of common stock representing at least two-thirds (2/3) of the votes entitled to be cast at such annual or special meeting. If the Certificate of Incorporation so provides, these by-laws may also be made, altered or amended by a majority of the whole number of directors. ARTICLE 10. CONSTRUCTION 10.1 Construction. In the event of any conflict between the provisions of ------------ these Bylaws as in effect from time to time and the provisions of the Certificate of Incorporation as in effect from time to time, the provisions of the Certificate of Incorporation shall be controlling. 15 EX-5.1 5 OPINION OF MCDERMOTT, WILL & EMERY EXHIBIT 5.1 [LETTERHEAD OF McDERMOTT, WILL & EMERY] November 15, 1999 TeleCorp PCS, Inc. 1010 N. Glebe Road Arlington, Virginia 22201 Ladies and Gentlemen: We refer to the Registration Statement (the "Registration Statement") on Form S-1 (File No. 333-89393), filed by TeleCorp PCS, Inc., a Delaware corporation (the "Company"), with the Securities and Exchange Commission (the "Commission"), for the purpose of registering under the Securities Act of 1933, as amended (the "Securities Act"), shares of the Company's Class A Common Stock, par value $.01 per share (the "Class A Common Stock"), to be offered to the public pursuant to an Underwriting Agreement (the "Underwriting Agreement") among the Company and Salomon Smith Barney Inc., Lehman Brothers Inc., Deutsche Bank Securities Inc., Merrill Lynch, Pierce Fenner & Smith Incorporated, as representatives of the underwriters. In connection with the foregoing registration, we have acted as counsel for the Company and have examined originals or copies, certified or otherwise identified to our satisfaction, of all such records of the Company and all such agreements, certificates of public officials, certificates of officers or representatives of the Company and others, and such other documents, certificates and corporate or other records as we have deemed necessary or appropriate as a basis for the opinion set forth herein. In our examination we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such latter documents. We are members of the Bar of The Commonwealth of Massachusetts and do not purport to be experts on, or generally familiar with, or certified to express legal conclusions based upon, the laws of any other jurisdiction, other than the corporate laws of the State of Delaware and the laws of the United States to the extent applicable hereto. Accordingly, as to matters of law set forth below, our opinion is limited to matters of law under the laws of the District of Columbia, the laws of the United States to the extent applicable hereto and the corporate laws of the State of Delaware, and we express no opinion as to the laws of any states or jurisdictions other than as specified above. Based upon the foregoing and subject to the other qualifications stated herein, we are of the opinion that the shares of Class A Common Stock being registered by the Company pursuant to the Registration Statement have been duly authorized and, when issued and delivered in accordance with the terms of the Underwriting Agreement, will be legally issued, fully paid and non-assessable. We hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement and any abbreviated registration statements relating thereto that may be filed to register additional securities identical to those covered by the Registration Statement (including a registration statement filed pursuant to Rule 462(b) under the Securities Act), and to the reference to this firm under the caption "Legal Matters" contained in the prospectus filed as a part thereof. In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act. Very truly yours, /s/ McDermott, Will & Emery EX-10.1.2 6 AMENDED & RESTATED NOTE PURCHASE AGREEMENT EXHIBIT 10.1.2 EXECUTION COPY -------------- ================================================================================ TELECORP PCS, INC. Increasing Rate Subordinated Notes Series A Due 2009 Increasing Rate Subordinated Notes Series B Due 2009 AMENDED AND RESTATED NOTE PURCHASE AGREEMENT Dated as of October 29, 1999 ================================================================================ TABLE OF CONTENTS
Page 1. Authorization of Notes...................................................2 2. Sale and Purchase of Notes...............................................3 2.1 Sale of Series A Notes..........................................3 2.2 Sale of Series B Notes..........................................3 3. Closings; Fees...........................................................3 3.1 Series A Closings...............................................3 3.2 Series B Closings...............................................3 3.3 Payments........................................................4 3.4 Legal Fees......................................................4 4. Terms of the Notes.......................................................4 4.1 Scheduled Payment of Notes......................................4 4.2 Interest on Series A Notes......................................5 4.3 Interest on Series B Notes......................................5 5. Conditions to Effectiveness..............................................6 5.1 Effective Date..................................................6 5.2 Initial Series B Closing........................................8 5.3 Conditions to Closings..........................................8 6. Representations and Warranties, etc......................................9 6.1 Organization, Standing, etc.....................................9 6.2 Authorization; Enforceability..................................10 6.3 Qualification..................................................10 6.4 Financial Statements...........................................10 6.5 Changes, etc...................................................10 6.6 Compliance with Other Instruments, etc.........................11 6.7 Governmental Consents, etc.....................................11 6.8 Capital Stock and Related Matters..............................11 6.9 Debt...........................................................12 6.10 Title to Properties; Liens.....................................12 6.11 Litigation.....................................................12 6.12 Patents, Trademarks, Authorizations, etc.......................12 6.13 Requirements of Law............................................13 6.14 Federal Reserve Regulations....................................13 6.15 Status Under Certain Federal Statutes..........................13 6.16 Compliance with ERISA..........................................13 6.17 Offer of Securities............................................13 6.18 Use of Proceeds................................................14 6.19 Solvency of the Company........................................14 6.20 Certain Fees...................................................14 6.21 Regulatory Compliance..........................................14 6.22 Disclosure.....................................................15
-ii-
6.23 Subsidiaries...............................................................15 6.24 Licenses...................................................................16 6.25 Transaction Documents......................................................16 7. Purchase Intent; Investor Status....................................................17 7.1 Purchase Intent............................................................17 7.2 Accredited Investor........................................................17 8. Furnishing of Information...........................................................17 8.1 Financial Statements and Other Information.................................17 9. Inspection; Confidentiality.........................................................19 9.1 Inspection.................................................................19 9.2 Confidentiality............................................................19 10. Prepayment of Notes.................................................................20 10.1 Optional Prepayments.......................................................20 10.2 Contingent Prepayments Upon Change of Control..............................21 10.3 Premium....................................................................22 10.4 Mandatory Redemption of Series A Notes.....................................22 10.5 Mandatory Redemption of Series B Notes.....................................23 10.6 Notice of Optional Prepayments; Officers' Certificate......................23 10.7 Allocation of Partial Prepayments..........................................23 10.8 Maturity; Surrender, etc...................................................24 10.9 Acquisition of Notes.......................................................24 11. Covenants...........................................................................24 11.1 Payment of Notes...........................................................24 11.2 Payment of Taxes and Claims................................................24 11.3 Liens, etc.................................................................24 11.4 Restricted Payments........................................................25 11.5 Consolidation, Merger, Sale of Assets, etc.................................25 11.6 Requirements of Law........................................................26 11.7 Transactions with Affiliates...............................................26 11.8 Corporate Existence, etc.; Business........................................27 11.9 Limitation on Designation of Unrestricted Subsidiaries.....................27 11.10 Limitation on Activities of the Company and the Restricted Subsidiaries.............28 12. Events of Default; Acceleration.....................................................28 13. Remedies on Default, etc............................................................30 14. Subordination.......................................................................31 14.1 Notes Subordinate to Senior Debt...........................................31 14.2 Payment of Proceeds Upon Dissolution, Etc..................................31 14.3 No Payment When Senior Debt in Default.....................................33 14.4 Acceleration of Subordinated Debt..........................................34 14.5 Payment Permitted If No Default............................................35 14.6 Subrogation To Rights of Holders of Senior Debt............................35 14.7 Provisions Solely To Define Relative Rights................................35 14.8 No Waiver of Subordination Provisions......................................35
-iii- 14.9 Reliance On Judicial Order or Certificate of Liquidating Agent.............36 15. Definitions.........................................................................36 16. Tax Matters.........................................................................52 16.1 Taxes......................................................................52 17. Notes held by Company, etc., Deemed Not Outstanding.................................55 18. Payments on Notes...................................................................55 18.1 Place of Payment...........................................................55 18.2 Home Office Payment........................................................56 18.3 Expenses, etc..............................................................56 19. Survival of Representations and Warranties..........................................57 20. Amendments and Waivers..............................................................57 21. Notices, etc........................................................................57 22. Indemnification.....................................................................58 23. Successors and Assigns; Participations; Assignments; Replacement of Notes...........58 23.1 Successors and Assigns.....................................................58 23.2 Participations.............................................................59 23.3 Assignments................................................................59 23.4 Register...................................................................60 23.5 Disclosure of Information in Connection with a Transfer....................60 23.6 Assignment to Federal Reserve Bank.........................................60 23.7 Replacement of Notes.......................................................60 24. Remarketing.........................................................................61 25. Adjustments.........................................................................62 26. Miscellaneous.......................................................................62 27. Submission To Jurisdiction; Waivers.................................................62 28. Expansion Notes.....................................................................63 29. Waivers of Jury Trial...............................................................65 30. Series B Notes.............................................................65
-iv- SCHEDULE A Purchaser Information SCHEDULE B Disclosure Schedule SCHEDULE 6.23 Subsidiaries EXHIBIT A Form of Increasing Rate Notes Series A due 2009 EXHIBIT B Form of Increasing Rate Notes Series B due 2009 ANNEX I Designated Areas ANNEX II SLE Expansion Areas -v- TeleCorp PCS, Inc. 1010 N. Glebe Road Arlington, VA 22201 Increasing Rate Subordinated Notes Series A due October 23, 2009 Increasing Rate Subordinated Notes Series B due October 23, 2009 As of October 29, 1999 Lucent Technologies Inc. 600 Mountain Avenue Murray Hill, New Jersey 07974 Ladies and Gentlemen: TeleCorp PCS, Inc., a Delaware corporation (the "Company"), and its Subsidiaries intend to develop personal communications services ("PCS") Systems serving portions of the areas listed on Annex I hereto (the "Designated Areas"), as well as additional MTAs and BTAs from time to time designated by the Company. The Company has entered into a General Agreement for Purchase of Personal Communication Systems and Services effective as of May 12, 1998 between the Company and you (in such capacity, the "Vendor") (the "General Agreement") (the General Agreement as so amended and as further amended, modified or supplemented from time to time, being referred to herein as the "Procurement Contract") as amended by Amendment No. 1 thereto dated as of November 20, 1998; Amendment No. 2 thereto dated as of September 18, 1998, Amendment No. 3 thereto dated as of November 10, 1998, Amendment No. 5 thereto dated as of January 27, 1999, Amendment No. 6 thereto dated as of August 9, 1999, and Amendment No. 7 thereto ("Amendment No. 7") dated as of July 1, 1999, pursuant to which the Company shall purchase and the Vendor shall provide certain telecommunications systems and services for the development of the Company's PCS Systems in the Designated Areas all on the terms and conditions therein set forth. In order to finance a portion of the development costs of such PCS Systems and certain working capital requirements (a) on May 11, 1998, the Company and you entered into a Note Purchase Agreement (the "Existing Note Agreement") pursuant to which the Company agreed to issue and you agreed to purchase, from time to time, two series of increasing rate subordinated notes consisting of up to $40,000,000 aggregate initial principal amount of its Series A Notes (as defined below) and up to $40,000,000 aggregate initial principal amount of its Increasing Rate Series B Notes due 2012 (the "Initial Series B Notes"), (b) the Company obtained from the Cash Equity Investors contributions which, together with amounts previously funded, aggregate $40,000,000, (c) the Company entered into the Credit Agreement pursuant to which the lenders party thereto committed to provide loans in an aggregate principal amount of up to $525,000,000 and (d) the Company issued $575,000,000 face amount of 11 5/8% Senior Subordinated Discount Notes Due 2009 (the "High Yield Notes") pursuant to the Indenture dated April 23, 1999 among the Company, TeleCorp Communications, Inc. and Bankers Trust Company, as trustee (the "Indenture"). Concurrent with the issuance of the High Yield Notes, the Company repaid the Initial Series B Notes and the Initial Series B Commitment was terminated. The Company desires to develop PCS Systems in the MTAs and BTAs set forth in Annex II (such MTAs and BTAs being grouped into three Expansion Areas as set forth in such Annex and collectively referred to herein as the "SLE Expansion Area"). In connection therewith, the Company has entered into Amendment No. 7 with the Vendor pursuant to which the Company shall purchase and the Vendor shall provide certain telecommunications systems and services for the development of the Company's Systems in the SLE Expansion Area. The transactions contemplated under the Procurement Contract and the financings contemplated by the foregoing paragraph are referred to as the "Financing Transactions". The Company and you desire to amend and restate the Existing Note Agreement as follows: Certain capitalized terms used in this Agreement are defined in section 15; references to a "Schedule" or an "Exhibit" are, unless otherwise specified, to a Schedule or an Exhibit attached to this Agreement. The Company hereby agrees with you as follows: 1. Authorization of Notes. The Company has previously authorized ---------------------- the issue and sale of its Increasing Rate Subordinated Notes Series A due October 23, 2009 in an initial aggregate principal amount not to exceed $40,000,000 and will authorize the issue and sale of such Notes in an additional initial principal amount not to exceed $12,500,000 (the "Series A Notes" such term to include any notes issued in substitution therefor pursuant to section 23.7 and any Additional Series A Notes) to be substantially in the form of Exhibit A with such changes therefrom, if any, as may be approved by you and the Company. The Company will authorize the issue and sale of its Increasing Rate Subordinated Notes Series B due October 23, 2009 in an initial aggregate principal amount not to exceed $12,500,000 (the "Series B Notes"; such term to include any notes issued in substitution therefor pursuant to section 23.7 and any Additional Series B Notes), and to be substantially in the form of Exhibit B, with such changes therefrom, if any, as may be approved by you and the Company. The Series A Notes and Series B Notes are -2- collectively referred to as the "Notes"; the Additional Series A Notes and Additional Series B Notes are collectively referred to as the "Additional Notes." 2. Sale and Purchase of Notes. -------------------------- 2.1 Sale of Series A Notes. From time to time through and including ---------------------- the Series A Note Commitment Termination Date, the Company will issue and sell to you and, subject to the terms and conditions of this Agreement, you will purchase from the Company, Series A Notes in an aggregate initial principal amount not to exceed the Series A Note Commitment. 2.2 Sale of Series B Notes. From time to time commencing on the ---------------------- Initial Series B Closing Date and ending on the Series B Note Commitment Termination Date, the Company will issue and sell to you and, subject to the terms and conditions of this Agreement, you will purchase from the Company, Series B Notes in an aggregate initial principal amount not to exceed the Series B Note Commitment. 3. Closings; Fees. -------------- 3.1 Series A Closings. (a) The initial sale of the Series A Notes ----------------- to be purchased by you shall take place at a closing (the "Initial Series A Closing") on the Initial Series A Closing Date at such location as the Company and you may agree. At the Initial Series A Closing, the Company will deliver to you the Series A Notes to be purchased by you (which amount shall be specified by the Company to you in a notice delivered not less than five Business Days prior to such Initial Series A Closing Date) in the form of a single Series A Note (or such greater number of Series A Notes in denominations of at least $100,000 as you may request not less than two Business Days prior to the Initial Series A Closing Date) dated the Initial Series A Closing Date and registered in your name (or in the name of your nominee). (b) From time to time after the Initial Series A Closing Date but prior to the Series A Note Commitment Termination Date, the Company may issue to you, in accordance with the terms of this Agreement, additional Series A Notes (each, a "Series A Closing"). The Company shall deliver a notice to you setting forth the principal amount of the Series A Notes to be issued (which shall be in an amount equal to the lesser of (i) $5,000,000 or an integral multiple of $1,000,000 in excess thereof and (ii) the remaining amount of the Series A Note Commitment) and stating the date (which shall be not less than five Business Days after the date of such notice) on which the Company desires that you purchase such Series A Notes (each, a "Series A Closing Date"). At each Series A Closing, the Company will deliver to you the Series A Notes to be purchased by you in the form of a single Series A Note (or such greater number of Series A Notes in denominations of at least $100,000 as you may request not less than two Business Days prior to such Series A Closing Date) dated the date of such Series A Closing and registered in your name (or in the name of your nominee). -3- 3.2 Series B Closings. (a) The initial sale of the Series B Notes ----------------- to be purchased by you shall take place at a closing (the "Initial Series B Closing") on the Initial Series B Closing Date at such time during the Series B Availability Period and at such location as the Company and you may agree. At the Initial Series B Closing, the Company will deliver to you the Series B Notes to be purchased by you (which amount shall be specified by the Company to you in a notice delivered not less than five Business Days prior to such Initial Series B Closing Date) in the form of a single Series B Note (or such greater number of Series B Notes in denominations of at least $100,000 as you may request not less than two Business Days prior to the Initial Series B Closing Date) dated the Initial Series B Closing Date and registered in your name (or in the name of your nominee). (b) From time to time after the Initial Series B Closing Date but prior to the Series B Note Commitment Termination Date, the Company may issue to you, in accordance with the terms of this Agreement, additional Series B Notes (each, a "Series B Closing"). The Company shall deliver a notice to you setting forth the principal amount of the Series B Notes to be issued (which shall be in an amount equal to the lesser of (i) $5,000,000 or an integral multiple of $1,000,000 in excess thereof and (ii) the remaining amount of the Series B Note Commitment) and stating the date (which shall be not less than five Business Days after the date of such notice) on which the Company desires that you purchase such Series B Notes (each, a "Series B Closing Date"). At each Series B Closing, the Company will deliver to you the Series B Notes to be purchased by you in the form of a single Series B Note (or such greater number of Series B Notes in denominations of at least $100,000 as you may request not less than two Business Days prior to such Series B Closing Date) dated the date of such Series B Closing and registered in your name (or in the name of your nominee). 3.3 Payments. Payment for each of the Notes shall be in -------- immediately available funds or, if you elect, by notice to the Company not less than three Business Days prior to the Closing in respect of such Notes, by means of a credit against amounts due to the Vendor under the Procurement Contract; provided that, if you elect to credit amounts under the Procurement Contract, - -------- (i) you shall specify by notice to the Company one Business Day prior to such Closing which invoices will be so credited and (ii) on the date of such Closing, you shall deliver copies of such invoices marked "paid" against presentation of the Notes to be delivered by the Company. 3.4 Legal Fees. On the Effective Date, the Company will pay the ---------- reasonable fees and disbursements of your special counsel (with evidence of time recorded as your special counsel may customarily provide) in connection with the transactions contemplated by this Agreement and thereafter the Company will promptly pay additional reasonable fees and disbursements of such special counsel, incurred in connection with such transactions. 40 Terms of the Notes. ------------------ -4- 4.1 Scheduled Payment of Notes. The Company shall pay in full the -------------------------- outstanding aggregate principal amount of the Series A Notes, together with any accrued interest and other amounts with respect to such Notes no later than the Series A Final Maturity Date. The Company shall pay in full the outstanding aggregate principal amount of the Series B Notes, together with any accrued interest and other amounts with respect to such Notes no later than the Series B Final Maturity Date. 4.2 Interest on Series A Notes. The Series A Notes shall bear -------------------------- interest at an initial rate of 8.50% per annum; provided that if the Company -------- does not redeem all (but not less than all) the Series A Notes on or prior to January 1, 2001, such initial rate shall increase on each January 1, beginning January 1, 2001 and continuing thereafter, by an amount equal to 1.50% per annum or such lesser amount as will result in the Series A Notes bearing interest at the Maximum Rate (the "Series A Coupon Rate"). Interest on the Series A Notes shall be paid in arrears in cash on each six-month and yearly anniversary of the Initial Series A Closing Date (each, a "Series A Payment Date"), commencing with the date of initial issuance; provided, that (i) interest payable on the Series -------- A Notes on or prior to May 11, 2004 shall be payable in Additional Series A Notes and (ii) thereafter at any time that payment of interest on the Series A Notes in cash shall be prohibited under the terms of the Credit Agreement or the High Yield Debt of the Company interest on the Series A Notes shall be payable in Additional Series A Notes. Any principal payments on the Series A Notes not paid when due and, to the extent permitted by applicable law, any interest payment on the Series A Notes not paid when due, in each case whether at stated maturity, by notice of prepayment, by acceleration or otherwise, shall thereafter bear interest payable upon demand at a rate which is 2.00% per annum in excess of the rate of interest otherwise payable under this Agreement for the Series A Notes. Interest on the Series A Notes shall be computed on the basis of a 360-day year and twelve 30-day months. In computing interest on the Series A Notes, the date of the making of the Series A Notes shall be included and the date of payment shall be excluded. 4.3 Interest on Series B Notes. The Series B Notes shall bear -------------------------- interest at an initial rate of 10% per annum (the "Series B Coupon Rate"); provided that if the Company does not redeem all (but not less than all) the - -------- Series B Notes on or prior to January 1, 2000, such initial rate shall increase on each January 1, beginning January 1, 2000 and continuing thereafter, by an amount equal to 1.50% per annum or such lesser amount as will result in the Series B Notes bearing interest at the Maximum Rate (the "Series B Coupon Rate"). Interest on the Series B Notes shall be paid in arrears in cash on each six-month and yearly anniversary of the Initial Series B Closing Date (each, a "Series B Payment Date"), commencing with the date of initial issuance; provided, that (i) interest payable on the Series B Notes on or prior to May 11, - -------- 2004 shall be payable in Additional Series B Notes and (ii) thereafter at any time that payment of interest on the Series B Notes in cash shall be prohibited under the terms of the Credit Agreement, or the High Yield Debt of the Company interest on the Series B Notes shall be payable in Additional Series B Notes. Any principal payments on the Series B Notes not paid when due and, to the extent permitted by applicable law, any interest payment on the Series B Notes not paid when due, in each case whether at stated maturity, by notice of prepayment, by -5- acceleration or otherwise, shall thereafter bear interest payable upon demand at a rate which is 2.00% per annum in excess of the rate of interest otherwise payable under this Agreement for the Series B Notes. Interest on the Series B Notes shall be computed on the basis of a 360-day year and twelve 30-day months. In computing interest on the Series B Notes, the date of the making of the Series B Notes shall be included and the date of payment shall be excluded. 5 Conditions to Effectiveness. --------------------------- 5.4 Effective Date. Your obligation to perform your obligations on -------------- the Effective Date is subject to the fulfillment to your satisfaction, prior to or concurrently with the Effective Date, of the following conditions: (a) Representations and Warranties. The representations and ------------------------------ warranties of the Company contained in this Agreement which are not qualified by Material Adverse Effect shall be correct in all material respects when made and at the time of such Closing and the representations and warranties contained in this Agreement that are qualified by Material Adverse Effect shall be correct when made and at the time of such Closing. (b) Performance; No Default. The Company shall have performed and ----------------------- complied in all material respects with all agreements and conditions contained in this Agreement required to be performed or complied with by it prior to or at such Closing and, at the Effective Date, no Event of Default or Potential Event of Default shall have occurred and be continuing. (c) Compliance Certificate. The Company shall have delivered to you ---------------------- an Officers' Certificate, dated the Effective Date, certifying that the conditions specified in paragraphs (a) and (b) of this section 5.1 have been fulfilled. (d) Replacement Notes. The Company shall have delivered a Series A ----------------- Note dated the Effective Date in an aggregate principal amount equal to $41,583,479.16 and you shall have returned to the Company the Series A Notes issued on each Series A Closing Date prior to the date hereof and any Additional Series A Notes issued to you prior to the Effective Date. (e) Opinions of Counsel. You shall have received from McDermott, Will ------------------- & Emery, counsel for the Company, favorable opinions covering such matters as you may reasonably request, each addressed to you, dated the Effective Date and reasonably satisfactory in substance and form to you. (f) Procurement Contract. The Company shall have executed and -------------------- delivered Amendment No. 7. The Procurement Contract shall be a legal, valid and binding obligation of the Company enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization or similar laws affecting the enforcement of creditor's rights generally and to general equitable principles (whether enforcement is sought by proceedings in equity or at -6- law), shall be in full force and effect and no default or breach by the Company shall have occurred thereunder which is continuing. (g) Consents, Agreements. The Company shall have obtained all -------------------- consents and waivers under any term of any agreement or instrument to which it is a party or by which it or any of its properties or assets are bound including, without limitation, any consents or waivers required under the Credit Agreement, or any term of any applicable law, ordinance, rule or regulation of any Governmental Authority or any term of any applicable order, judgment or decree of any court, arbitrator or Governmental Authority, necessary or appropriate in connection with this Agreement, the Securities Purchase Agreement and the Procurement Contract, and such consents and waivers shall be in full force and effect on the Effective Date. A complete and correct copy of each such consent and waiver shall have been delivered to you. (h) Compliance with Securities Laws. The offering and sale of the ------------------------------- Notes (including any Notes to be issued after the Effective Date) to you shall have complied with all applicable requirements of federal and state securities laws and you shall have received evidence thereof in form and substance satisfactory to you. (i) No Actions Pending. There shall be no suit, action, ------------------ investigation, inquiry or other proceeding by or before any Governmental Authority or any other Person or any other legal or administrative proceeding, pending or, to the Company's knowledge, threatened, which questions the validity or legality of the Financing Transactions or the payment, prepayment, administration, sale or other disposition of the Notes or performance by the Company of its obligations under this Agreement and seeks damages or injunctive or other equitable relief in connection therewith. (j) Proceedings and Documents. All corporate and other proceedings in ------------------------- connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be satisfactory to you and your special counsel, and you and your special counsel shall have received all such counterpart originals or certified or other copies of such documents as you or they may reasonably request. (k) Credit Agreement. The Credit Agreement shall be in full force and ---------------- effect and no Default or Event of Default (each as defined in the Credit Agreement) shall have occurred which is continuing. (l) Fees. The fees required to be paid on the Effective Date under ---- section 3.4 shall have been paid. (m) Additional Matters. All corporate and other proceedings, and all ------------------ documents, instruments, and other legal matters in connection with the transactions contemplated by this Agreement and the Financing Transactions (to the extent the agreements evidencing such Financing Transactions have been or are required to have been completed as of the Effective -7- Date) shall be satisfactory to you in form and substance and you shall have received any other documents, instruments and legal opinions in respect of any aspect or consequence of the transactions contemplated hereby or thereby as you may reasonably request. 5.5 Initial Series B Closing. Your obligation to purchase and pay ------------------------ for the Series B Notes to be sold to you at the Initial Series B Closing is subject to the fulfillment to your satisfaction, prior to or concurrently with such Closing, of the following conditions: (a) Representations and Warranties: The representations and ------------------------------ warranties of the Company contained in this Agreement which are not qualified by Material Adverse Effect shall be correct in all material respects when made and at the time of such Closing and the representations and warranties of the Company contained in this Agreement that are qualified by Material Adverse Effect shall be correct when made and at the time of such Closing. (b) No Default. No Potential Default or Event of Default shall have ---------- occurred and be continuing on such date or after giving effect to the issuance of the Series B Notes to be issued on such date. (c) Compliance Certificate. The Company shall have delivered to you ---------------------- an Officers' Certificates, dated the date of such Closing, certifying that the conditions specified in paragraphs (a) and (b) of this section 5.2 have been fulfilled. (d) Delivery of Notes. The Company shall have delivered to you the ----------------- Series B Notes to be purchased by you at such Closing, which shall be duly authorized, executed and delivered and shall be in such denominations as you shall have previously requested pursuant to section 3. (e) Disclosure Schedule. If necessary, the Company shall have ------------------- delivered to you a revised section 6.8(b) setting forth the capitalization of each Subsidiary of the Company, section 6.9 of the Disclosure Schedule setting forth the Debt of the Company and its Subsidiaries outstanding, or for which the Company has any commitments on such Closing Date, and section 6.23 setting forth the identity of each Subsidiary of the Company other than TeleCorp PCS, LLC and TeleCorp Holdings. (f) Additional Matters. All corporate and other proceedings, and all ------------------ documents, instruments and other legal matters in connection with the transactions contemplated by this Agreement and the Financing Transactions (to the extent the agreements evidencing such Financing Transactions have been or are required to have been completed as of the date of such Closing) shall be satisfactory to you in form and substance and you shall have received any other documents, instruments and legal opinions in respect of any aspect or consequence of the transactions contemplated hereby or thereby as you may reasonably request. -8- 5.6 Conditions to Closings: Your obligation to purchase and pay ---------------------- for any Notes to be sold to you at any Closing (other than the Initial Series B Closing) is subject to the fulfillment to your satisfaction, prior to or concurrently with such Closing, of the following conditions: (a) Representations and Warranties: The representations and ------------------------------ warranties of the Company contained in this Agreement which are not qualified by Material Adverse Effect shall be correct in all material respects when made and at the time of such Closing and the representations and warranties of the Company contained in this Agreement that are qualified by Material Adverse Effect shall be correct when made and at the time of such Closing. (b) No Default. No Potential Default or Event of Default shall have ---------- occurred and be continuing on such date or after giving effect to the issuance of the Notes to be issued on such date. (c) Compliance Certificate. The Company shall have delivered to you ---------------------- an Officers' Certificates, dated the date of such Closing, certifying that the conditions specified in paragraphs (a) and (b) of this section 5.3 have been fulfilled. (d) Delivery of Notes. The Company shall have delivered to you the ----------------- Notes to be purchased by you at such Closing, which shall be duly authorized, executed and delivered and shall be in such denominations as you shall have previously requested pursuant to section 3. (e) Disclosure Schedule. If necessary, the Company shall have ------------------- delivered to you a revised section 6.8(b) setting forth the capitalization of each subsidiary of the Company, section 6.9 of the Disclosure Schedule setting forth the Debt of the Company and its Subsidiaries outstanding, or for which the Company has any commitments on such Closing Date, and section 6.23 setting forth the identity of each Subsidiary of the Company other than TeleCorp PCS, LLC and TeleCorp Holdings. (f) Additional Matters. All corporate and other proceedings, and all ------------------ documents, instruments, and other legal matters in connection with the transactions contemplated by this Agreement and the Financing Transactions (to the extent the agreements evidencing such Financing Transactions have been or are required to have been completed as of the date of such Closing) shall be reasonably satisfactory to you in form and substance and you shall have received any other documents, instruments and legal opinions in respect of any aspect or consequence of the transactions contemplated hereby or thereby as you may reasonably request. 60 Representations and Warranties, etc. The Company represents and ------------------------------------ warrants as follows: 6.1 Organization, Standing, etc. Each of the Company and its ---------------------------- Subsidiaries is a corporation, limited liability company or limited partnership duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation and has all requisite entity -9- power and authority to own, lease and operate its properties, to carry on its business as now conducted and as proposed to be conducted following the Financing Transactions. The Company has all requisite corporate power and authority to enter into this Agreement, to issue and sell the Notes and to carry out the transactions contemplated by this Agreement and the Financing Transactions. 6.2 Authorization; Enforceability. The Company has taken all ----------------------------- necessary corporate action to execute, deliver and perform this Agreement and the Notes and has validly executed and delivered each of such documents. Each of this Agreement and the Notes delivered prior to the Effective Date constitutes, and each of the Notes to be delivered after the Effective Date and any other documents upon execution and delivery will constitute, the legal, - valid and binding obligation of the Company, enforceable against the Company in accordance with its terms except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally or general equitable principles or principles of good faith and fair dealing. 6.3 Qualification. Each of the Company and its Subsidiaries is, ------------- and, after giving effect to the Financing Transactions, will be, duly qualified and in good standing as a foreign corporation authorized to do business in each jurisdiction (other than the jurisdiction of its incorporation) in which the nature of its activities or the character of the properties it owns or leases makes such qualification necessary, except where the failure so to qualify would not have a Material Adverse Effect. 6.4 Financial Statements. (a) The Company has delivered to you -------------------- complete and correct copies of the unaudited consolidated balance sheet of the Company and its Subsidiaries dated as of September 30, 1999, and the related statements of income, stockholders' equity and cash flows for the nine-month period then ended (the "Financial Statements"). The Financial Statements have been prepared in accordance with GAAP, applied on a consistent basis throughout the periods specified, and present fairly in all material respects the financial position of the Company and its Subsidiaries as of the respective dates specified and the consolidated results of their operations and changes in financial position for the respective periods specified subject to normal year- end adjustments and footnote disclosure. (b) The forecast of the Company and its Subsidiaries contained in the business plan entitled "TeleCorp PCS Bank Plan" dated May 5, 1998 as revised on October 19, 1999 for the period commencing January 1, 1998 to and including December 31, 2009, prepared by a Responsible Officer of the Company presented on a consolidated basis has been prepared in good faith and utilizing reasonable assumptions; provided that nothing contained therein shall be deemed a -------- representation that the results set forth in such Plan will be achieved. 6.5 Changes, etc. Except as set forth in section 6.5 of the ------------- Disclosure Schedule, since December 31, 1998, (a) there has been no change in the assets, liabilities or financial condition of the Company and its Subsidiaries, other than changes which have not been, in any case or in the aggregate, materially adverse to any of them, and (b) other than TeleCorp -10- Holdings, neither the business, operations or affairs nor any of the properties or assets of the Company or its Subsidiaries has been affected by any occurrence or development (whether or not insured against) which has been, either in any case or in the aggregate, materially adverse to any of them. 6.6 Compliance with Other Instruments, etc. Neither the Company --------------------------------------- nor any Subsidiary is, and, after giving effect to the Financing Transactions, neither the Company nor any Subsidiary will be, in violation of its certificate of incorporation or by-laws. Neither the Company nor any Subsidiary is, and, after giving effect to the Financing Transactions, neither the Company nor any Subsidiary will be, in material violation of any term of any agreement or instrument to which it is a party or by which it or any of its properties or assets is bound, or any term of any applicable law, ordinance, rule or regulation of any Governmental Authority or any term of any applicable order, judgment or decree of any court, arbitrator or Governmental Authority, the consequences of any which violation (or all such violations in the aggregate) would reasonably be expected to have a Material Adverse Effect; and the execution, delivery and performance of this Agreement and the Notes will not result in any material violation of or be in material conflict with or constitute a default under any such term or result in the creation of (or impose any obligation on the Company to create) any Lien upon any of the properties or assets of the Company pursuant to any such term. 6.7 Governmental Consents, etc. No consent, approval or --------------------------- authorization of, or declaration or filing with, any Governmental Authority on the part of any of the Company or any of its Subsidiaries is required for the valid execution and delivery of this Agreement or the consummation of the transactions contemplated hereby or the valid offer, issue, sale and delivery of the Notes, other than those which have been obtained or made and are unconditional and in full force and effect. 6.8 Capital Stock and Related Matters. --------------------------------- (a) The authorized Capital Stock of the Company is as set forth in section 6.8 of the Disclosure Schedule. Except in each case as specified therein, the Company does not have outstanding securities convertible into or exchangeable for any shares of its Capital Stock, nor will it have outstanding any rights to subscribe for or to purchase, or any options for the purchase of, or any agreements providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to, any shares of its Capital Stock or any securities convertible into or exchangeable for any shares of its Capital Stock. (b) The authorized Capital Stock of each Subsidiary of the Company, and the number of shares issued and outstanding, is as set forth in section 6.8 of the Disclosure Schedule. Except as set forth in section 6.8 of the Disclosure Schedule, no Subsidiary of the Company has any outstanding securities convertible into or exchangeable for any shares of its Capital Stock, nor will it have outstanding any rights to subscribe for or to purchase, or any options for the purchase of, or any agreements providing for the issuance (contingent or otherwise) of, or any -11- calls, commitments or claims of any character relating to, any shares of its Capital Stock or any securities convertible into or exchangeable for any shares of its Capital Stock. (c) Except as set forth on Schedule 6.8(c), the Company is not subject --------------- to any obligation (contingent or otherwise) to repurchase or otherwise to acquire or retire any shares of its Capital Stock. 6.9 Debt. Section 6.9 of the Disclosure Schedule (as revised, if ---- necessary pursuant to section 5.2(e) or section 5.3(e)) correctly describes all Debt of the Company and its Subsidiaries outstanding, or for which the Company or any Subsidiary has commitments on the date hereof and all Debt of the Company and its Subsidiaries to be outstanding, or for which the Company or any Subsidiary will have commitments, on the Effective Date and the Initial Series B Closing Date, in each case, after giving effect to the Financing Transactions. 6.10 Title to Properties; Liens. Each of the Company and its -------------------------- Subsidiaries has good and marketable title to all its material owned properties and assets, and none of such properties or assets will be subject to any Liens other than the Liens in favor of the Administrative Agent for the benefit of the Lenders and other Liens permitted under the Credit Agreement including any Liens as to which the Lenders shall have granted their consent or waived any objection and other Liens which could not reasonably be expected to have a Material Adverse Effect. On each Closing Date and after giving effect to the Financing Transactions, each of the Company and its Subsidiaries will enjoy peaceful and undisturbed possession under all leases necessary for the operation of its business, and all such leases will be valid and subsisting and will be in full force and effect except where such failure could not reasonably be expected to have a Material Adverse Effect. No Lien currently exists which would require the Company to equitably and ratably secure the obligations hereunder and under the Notes pursuant to section 11.3. 6.11 Litigation. Except as set forth in section 6.11 to the ---------- Disclosure Schedule, there is no action, proceeding or investigation pending or, to the knowledge of the Company, threatened which questions the validity or legality of the Financing Transactions or this Agreement or the Notes, or any action taken or to be taken pursuant to this Agreement or the Notes or which would reasonably be expected to have a Material Adverse Effect. 6.12 Patents, Trademarks, Authorizations, etc. Each of the Company ----------------------------------------- and its Subsidiaries owns or is licensed to use all patents, trademarks, service marks, trade names, copyrights, technology, know-how and processes necessary for the conduct of its business, without any known conflict with the rights of others except to the extent that the failure to be in compliance could not reasonably be expected to have a Material Adverse Effect. The transactions under the Securities Purchase Agreement and the Related Agreements have been consummated and the Company is licensed to market under the AT&T brand name and to use the trademarks, service marks, logo and trade dress licensed thereunder for a period of not less than five years from the date of such Related Agreements. -12- 6.13 Requirements of Law. Each of the Company and its Subsidiaries ------------------- is in compliance with all Requirements of Law applicable to it and its business, except to the extent that the failure to be in compliance could not reasonably be expected to have a Material Adverse Effect. 6.14 Federal Reserve Regulations. The Company will not use any of --------------------------- the proceeds of the sale of the Notes for the purpose, whether immediate, incidental or ultimate, of buying a "margin stock" or of maintaining, reducing or retiring any indebtedness originally incurred to purchase a stock that is currently a "margin stock", or for any other purpose which might constitute this transaction a "purpose credit", in each case, within the meaning of Regulation U of such Board (12 C.F.R. 221, as amended), or otherwise take or permit to be taken any action which would involve a violation of such Regulation U or of Regulation T (12 C.F.R. 220, as amended) or Regulation X (12 C.F.R. 224, as amended) or any other regulation of such Board. No Debt of the Company or any Subsidiary being reduced or retired out of the proceeds of the sale of the Notes was incurred for the purpose of purchasing or carrying any such "margin stock" and neither the Company nor any Subsidiary owns or has any present intention of acquiring any such "margin stock". 6.15 Status Under Certain Federal Statutes. Neither the Company ------------------------------------- nor any Subsidiary is, and after giving effect to the Financing Transactions none of them will be, (a) an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended; (b) a "holding company" or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935, as amended; (c) a "public utility", as such term is defined in the Federal Power Act, as amended; or (d) a "rail carrier or a person controlled by or affiliated with a rail carrier", within the meaning of Title 49, U.S.C., or a "carrier" to which 49 U.S.C. 11301(b)(1) is applicable. Neither the Company nor any Subsidiary is subject to regulation under any Federal or state statute, regulation, decree or order which limits its ability to incur Debt or conditions such ability upon any act, approval or consent of any Governmental Authority. 6.16 Compliance with ERISA. Neither the acquisition of the Notes --------------------- by you nor the consummation of any of the other transactions contemplated by this Agreement is or will constitute a "prohibited transaction" within the meaning of Section 4975 of the Code, or Section 406 of ERISA. 6.17 Offer of Securities. The sale of the Notes in accordance with ------------------- the terms of this Agreement (a) is exempt from the registration requirements of the Securities Act and applicable state securities or blue sky laws and (b) does not require the qualification of an indenture under the Indenture Act. Neither the Company nor any financial advisor of the -13- Company has directly or indirectly offered the securities to be purchased by you pursuant to this Agreement or any part thereof or any similar securities for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with any Person other than you. Neither the Company nor anyone acting on its behalf has taken or will take any action which would subject the issuance and sale of the Notes to the registration and prospectus delivery provisions of the Securities Act. 6.18 Use of Proceeds. The Company will apply the proceeds of the --------------- sale of the Notes solely to develop PCS Systems in the Designated Areas and the SLE Expansion Area. 6.19 Solvency of the Company. As of each Closing Date, (a) the ----------------------- aggregate value of all the assets of the Company and its Subsidiaries taken as a whole, at a fair valuation, will exceed the total liabilities of such Person (including contingent, subordinated, unmatured and unliquidated liabilities); (b) each of the Company and its Subsidiaries will be able to pay its debts as they mature; and (c) neither the Company nor any Subsidiary will have unreasonably small capital for the business in which it is proposed to be engaged. For purposes of this section 6.19, the "fair valuation" of any asset will be that amount which may be realized within a reasonable time, either through collection or sale of such asset at fair market value, defining the latter as the amount which could be obtained for the property in question within such period by a willing seller from a willing buyer, each having reasonable knowledge of the relevant facts, neither being under any compulsion to act, with equity to both. Neither the Company nor any Subsidiary has any intent to hinder, delay or defraud any entity to which it is, or will become, on or after the Initial Series A Closing Date, indebted or to incur debts that would be beyond its ability to pay as they mature. 6.20 Certain Fees. Except for the fees referred to in section 3.4 ------------ and as disclosed on section 6.20 of the Disclosure Schedule, no broker's or finder's fee or commission has been paid or will be payable by the Company with respect to the offer, issue and sale of the Notes or with respect to the Financing Transactions and the Company hereby indemnifies you against, and will hold you harmless from, any claim, demand or liability asserted against you for broker's or finder's fees alleged to have been incurred by the Company or any other Person (other than you or your Affiliates) in connection with any such offer, issue and sale or the Financing Transactions or any of the other transactions contemplated by this Agreement. 6.21 Regulatory Compliance. (a) The Company and its Subsidiaries --------------------- are in compliance with the Communications Act and the Telecommunications Act, except to the extent that the failure to be in compliance could not reasonably be expected to have a Material Adverse Effect. (b) None of the chief executive officer, chief operating officer, chief financial officer, general counsel or any other officer or employee of the Company specifically charged with having knowledge of or monitoring FCC matters has knowledge of any investigation, notice of apparent liability, violation, forfeiture or other order or complaint issued by or before the FCC, -14- or of any other proceedings of or before the FCC, which could reasonably be expected to have a Material Adverse Effect. (c) Each of the Company and its Subsidiaries holds all Licenses necessary for the operation of its business as currently conducted except where the failure to hold such Licenses could not reasonably be expected to have a Material Adverse Effect. No event has occurred which (i) results in, or after notice or lapse of time or both would result in, revocation, suspension, adverse modification, non-renewal, impairment, restriction or termination of, or order of forfeiture with respect to, any such License in any respect that could reasonably be expected to have a Material Adverse Effect, or (ii) affects or could reasonably be expected in the future to affect any of the rights of the Borrower or its Subsidiaries under any License in any respect that could reasonably be expected to have a Material Adverse Effect. (d) The Company and its Subsidiaries have duly filed in a timely manner all material filings, reports, applications, documents, instruments and information required to be filed by it under the Communications Act, the Telecommunications Act and under any other applicable federal, state and local laws, and all such filings were when made true, correct and complete in all material respects, except to the extent that the failure of any of the foregoing to be true and correct could not reasonably be expected to have a Material Adverse Effect. (e) TeleCorp Holdings currently qualifies, and at all times since it has held any Licenses from the FCC has qualified and will qualify, as a "very small business," as defined in 47 C.F.R. 101.112(b), and neither the Company nor TeleCorp Holdings has committed or has any present intention to take any action that would result in TeleCorp Holdings not being qualified as a "very small business" other than by reason of its annual gross revenues. As a result of the closing of the transactions under Article II and Article III of the Securities Purchase Agreement the Company owns 100% of the issued and outstanding Capital Stock of TeleCorp Holdings. 6.22 Disclosure. Neither this Agreement nor any other document, ---------- certificate or instrument delivered to you by or on behalf of the Company in connection with the transactions contemplated by this Agreement taken as a whole contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein, in light of the circumstances under which they were made, not misleading (it being understood that, except as set forth in section 6.4, no representation or warranty is made with respect to any projections or other prospective financial information). There is no fact known to the Company (other than matters of a general economic or political nature which do not affect the Company uniquely) which has resulted in, or could reasonably be expected to result in, a Material Adverse Effect, which has not been set forth in this Agreement or in the other documents, certificates and instruments delivered to you by or on behalf of the Company in connection with the transactions contemplated hereby and thereby. -15- 6.23 Subsidiaries. On the Effective Date and on the date of each ------------ Closing thereafter, the Company's only Subsidiaries are as set forth on Schedule 6.23. 6.24 Licenses. (a) (i) The Company and its Subsidiaries hold all -------- Licenses necessary to operate a System in each of the MTAs in the Designated Areas and the SLE Expansion Area, (ii) such Licenses have been duly issued by the FCC and are in full force and effect and (iii) the Company and its Subsidiaries are in compliance in all material respects with all the provisions of each such License. No such License is subject to any pending or, to the knowledge of the Company, threatened revocation, adverse modification, suspension or termination proceeding or action. (b) The Company and its Subsidiaries hold all Licenses necessary to operate Systems in MTAs and BTAs covering at least 16,800,000 POPs, and such Licenses have been duly issued by the FCC, are held by the Company or any Subsidiary and are in full force and effect; and the Company and its Subsidiaries are in compliance in all material respects with all of the provisions of each such License. 6.25 Transaction Documents. (a) The Company has delivered to you --------------------- complete and correct copies of each of the Transaction Documents (including all exhibits, schedules and disclosure letters referred to therein or delivered pursuant thereto, if any) and all amendments thereto, waivers relating thereto and other side letters or agreements affecting the terms thereof, as such Transaction Documents are in effect on the date this representation is made or deemed made. Each of the Transaction Documents, as such Transaction Documents are in effect on the date this representation is made or deemed made, has been duly executed and delivered by the Company, each Subsidiary and other party thereto and is a legal, valid and binding obligation of the Company, Subsidiary and each other party thereto, enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency or other similar laws affecting the rights of creditors generally and by general principles of equity (whether enforcement is sought by proceedings in equity or at law). (b) The Transactions (as defined in the Securities Purchase Agreement) under Article II and Article III of such Agreement contemplated to be completed on the Closing Date (as defined in the Securities Purchase Agreement) including (i) the contribution by each Cash Equity Investor of its Initial Cash Contributions and its irrevocable commitment to contribute an amount equal to its Aggregate Commitment (each as defined in the Securities Purchase Agreement), (ii) the contribution by AT&T and TWR of the Contributed Licenses (as defined in the Securities Purchase Agreement) and (iii) the sale by AT&T to the Company of the Purchased Licenses (as defined in the Securities Purchase Agreement) and the actions required to be completed as of such date under the Related Agreements have been completed in accordance with the terms thereof. Each Transaction Document is in full force and effect and no breach or default under any Transaction Document shall have occurred which is continuing. -16- (c) The representations and warranties of the Company and, to the knowledge of the chief executive officer, chief operating officer, chief financial officer and the general counsel of the Company, each other party to the Transaction Documents, as such Transaction Documents are in effect on the date this representation is made or deemed made (other than representations which by their terms are limited to a specific date), are true and correct in all material respects except where the failure of such representations to be true and correct in all material respects could not reasonably be expected to have a Material Adverse Effect. Such representations and warranties, together with the definitions of all defined terms used therein, are by this reference deemed incorporated herein mutatis mutandis and you are entitled to rely on the ---------------- accuracy of such representations and warranties. 7 Purchase Intent; Investor Status. -------------------------------- 7.26 Purchase Intent. You represent that you are purchasing the --------------- Notes for your own account, not with a view to the distribution thereof or with any present intention of distributing or selling any of such Notes except in compliance with the Securities Act and any applicable state securities laws; provided that the disposition of your property shall at all times be within your - -------- control. 7.27 Accredited Investor. You are knowledgeable, sophisticated and ------------------- experienced in business and financial matters; you acknowledge that the Notes have not been registered under the Securities Act; you understand that the Notes must be held indefinitely unless they are subsequently registered under the Securities Act or such sale is permitted pursuant to an available exemption from such registration requirement; you are able to bear the economic risk of your investment in the Notes and are presently able to afford the complete loss of such investment; you are an "accredited investor" as defined in Regulation D promulgated under the Securities Act; and you have been afforded access to information about the Company and its Subsidiaries and their financial condition, results of operations, business, property, management and prospects sufficient to enable you to evaluate your investment in the Notes. You acknowledge that you have conducted your own analysis of the foregoing factors. 8 Furnishing of Information. ------------------------- 8.28 Financial Statements and Other Information. The Company will ------------------------------------------ deliver to you, so long as you shall be entitled to purchase Notes under this Agreement or you or your nominee shall be the holder of any Notes and to each other holder of any Notes: (a) within 45 days after the end of each of the first three quarterly fiscal periods in each fiscal year of the Company, unaudited consolidated and consolidating balance sheets of the Company and its Subsidiaries as at the end of such period and the related unaudited consolidated and consolidating statements of income, stockholders' equity and cash flows for such period and (in the case of the second and third quarterly periods) for the period from the beginning of the current fiscal year to the end of such quarterly period, setting forth in each case -17- in comparative form the consolidated figures for the corresponding periods of the previous fiscal year, all in reasonable detail and certified by a principal financial officer of the Company as having been prepared in accordance with GAAP (except for the absence of notes thereto) applied (except as specifically set forth therein) on a basis consistent with such prior fiscal periods, subject to changes resulting from normal year-end audit adjustments; (b) within 90 days after the end of each fiscal year of the Company, consolidated balance sheets of the Company and its Subsidiaries as at the end of such year and the related consolidated statements of income, stockholders' equity and cash flows of the Company and its Subsidiaries for such fiscal year, accompanied by a report thereon of PriceWaterhouseCoopers LLP, or other independent public accountants of recognized national standing selected by the Company (and reasonably satisfactory to the Required Holders) (subject to section 17), which report shall state that such consolidated financial statements present fairly the financial position of the Company and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except as otherwise specified in such report) and that the audit by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards together with a consolidating balance sheet and consolidating statements of income and cash flow reviewed by PriceWaterhouseCoopers LLP, and certified by a principal financial officer of the Company as presenting fairly the financial position of the Company and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated in accordance with GAAP (except as specifically set forth therein) applied on a basis consistent with prior years; (c) promptly upon receipt thereof, if provided by the Company to the holders of its High Yield Debt, copies of all reports submitted to the Company or any Subsidiary by independent public accountants in connection with each annual, interim or special audit of the books of the Company or such Subsidiary made by such accountants, including, without limitation, any comment letter submitted by such accountants to management in connection with their annual audit; (d) promptly upon their becoming available, copies of all financial statements, reports, notices and proxy statements sent or made available generally by the Company to its security holders, of all regular and periodic reports and all registration statements and prospectuses filed by the Company with any securities exchange or with the Securities and Exchange Commission or any Governmental Authority succeeding to any of its functions, and of all press releases and other statements made available generally by the Company to the public concerning material developments in the business of the Company or its Subsidiaries; (e) promptly upon any Responsible Officer obtaining knowledge of any condition or event which constitutes an Event of Default or Potential Event of Default, or that the holder of any Note has given any notice or taken any other action with respect to a claimed Event -18- of Default or Potential Event of Default under this Agreement or that any Person has given any notice to the Company or any Subsidiary or taken any other action with respect to a claimed default or event or condition of the type referred to in paragraph (f) of section 12, an Officers' Certificate describing the same and the period of existence thereof and what action the Company and its Subsidiaries have taken, are taking and propose to take with respect thereto; and (f) such information as the Company may provide to the holders of its High Yield Debt (including any certifications or statements with respect to the Company's financial condition or otherwise); provided that, solely in connection -------- with any remarketing by you of the Notes in an aggregate principal amount of not less than $10,000,000, you may request and, subject to section 9.2, the Company, solely in connection with any remarketing of the Notes, shall provide to any prospective participant or assignee such information as the Company may provide to the Lenders (or to the Administrative Agent for the benefit of the lenders) under the Credit Agreement. 9 Inspection; Confidentiality. --------------------------- 9.29 Inspection. (a) The holders of the Notes shall not be bound ---------- to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, debenture, note or other paper or document provided that -------- any holder or holders of not less than a majority in principal amount of the Notes at the time outstanding, may, in their discretion, make such further inquiry or investigation into such facts or matters as such holder or holders may see fit, and, if such holder or holders shall determine to make such further inquiry or investigation, such holder or holders shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney. (b) Except with respect to any disclosure in the Company's registration statement in the form S-1 filed with the Securities Exchange Commission on October 20, 1999 and the registration statement on form S-4 previously filed with the SEC, the Company shall use its good faith efforts to obtain from any Governmental Authority to whom this Agreement or the terms thereof must be disclosed or publicly filed confidential treatment with respect to those provisions of this Agreement and the Notes which relate to the interest rate, pricing and remarketing and such other provisions as you may reasonably designate. The Company shall cooperate with you in such manner as you may reasonably request to obtain such confidential treatment and will promptly advise you of any discussions with representatives of any Governmental Authority with respect to obtaining such treatment. 9.30 Confidentiality. (a) You (including for purposes of this --------------- section your transferees) agree to exercise all reasonable efforts (consistent with your customary methods for keeping information confidential) to keep any information delivered or made available by the Company confidential from anyone other than persons employed or retained by you who are or -19- are expected to become engaged in evaluating, approving, structuring or administering the transactions contemplated hereunder; provided, that nothing herein shall prevent you from disclosing such information (i) to any Affiliate (provided that you shall be responsible for any breach of this provision by such Affiliate) or to any other holder of the Notes, (ii) upon the order of any court or administrative agency, (iii) upon the request or demand of any regulatory agency or Governmental Authority having jurisdiction over you, (iv) that has been publicly disclosed, (v) in connection with any litigation relating to the Notes, this Agreement or any transaction contemplated hereby to which any of you, the Company or any Subsidiary may be a party, (vi) to the extent reasonably required in connection with the exercise of any remedy hereunder, (vii) to your legal counsel and independent auditors and (viii) to any proposed participant or assignee of all or any part of the Notes hereunder, if such other Person, prior to such disclosure, agrees, in writing, for the benefit of the Company to comply with the provisions of this section 9.2 (it being understood that prior to any disclosure under clause (ii), (iii) or (v) of this proviso, you shall, if reasonably practicable and if such action could not reasonably be expected to subject you to any civil or criminal sanction or penalty, notify the Company of such potential disclosure so as to afford the Company the opportunity to contest such disclosure). You and any recipient of the information set forth in section 8.1(f) will not use such information for any purpose other than the remarketing contemplated by section 8.1(f) and without limiting the generality of the foregoing, you and any recipient of such information will not use such information in connection with the offer, sale or purchase of any securities of the Company or any Affiliate of the Company. (b) The Company shall use its good faith efforts to obtain from any Governmental Authority to whom this Agreement or the terms thereof must be disclosed or publicly filed confidential treatment with respect to those provisions of this Agreement and the Notes which relate to the interest rate, pricing and remarketing and such other provisions as you may reasonably designate. The Company shall cooperate with you in such manner as you may reasonably request to obtain such confidential treatment and will promptly advise you of any discussions with representatives of any Governmental Authority with respect to obtaining such treatment. 10 Prepayment of Notes. ------------------- 10.1 Optional Prepayments. -------------------- (a) The Company, at its option, upon notice as provided in section 10.6, may redeem at any time, in whole or in part (in a minimum amount of $10,000,000 and in integral multiples of $1,000,000 in excess thereof), without premium, any Notes that are held by the Vendor or any Affiliate to the extent that participations have not been granted to Participants (other than Participants who are Affiliates of the Vendor) in such Notes. -20- (b) Subject to section 10.1 (a), with respect to any Series A Notes which the Vendor has either assigned or granted participations, in each case, to Persons who are not Affiliates of the Vendor, the Company, at its option, upon notice as provided in section 10.6, may redeem at any time prior to May 1, 2002 in whole or in part (in a minimum amount of $10,000,000 and in integral multiples of $1,000,000 in excess thereof), without premium, any such Series A Notes; provided, that any such Series A Notes that are not redeemed prior to -------- such date shall not be subject to redemption prior to May 1, 2007. On or after May 1, 2007, such Series A Notes shall be subject to redemption at a price equal to 100% of the aggregate principal amount being so redeemed plus a premium expressed as a percentage of the Series A Coupon Rate (determined in accordance with section 10.3(a)) multiplied by the outstanding principal balance. (c) Subject to section 10.1 (a), with respect to any Series B Notes which the Vendor has either assigned or granted participations, in each case, to Persons who are not Affiliates of the Vendor, the Company, at its option, upon notice as provided in section 10.6, may redeem at any time prior to May 1, 2000, in whole or in part (in a minimum amount of $10,000,000 and in integral multiples of $1,000,000 in excess thereof), without premium, any such Series B Notes; provided, that any such Series B Notes that are not redeemed prior to -------- such date shall not be subject to redemption prior to May 1, 2005. On or after May 1, 2005, such Series B Notes shall be subject to redemption at a price equal to 100% of the aggregate principal amount being so redeemed plus a premium expressed as a percentage of the Series B Coupon Rate (determined in accordance with section 10.3(b)) multiplied by the outstanding principal balance. 10.2 Contingent Prepayments Upon Change of Control. If a Change of --------------------------------------------- Control occurs, the Company shall give prompt written notice thereof to each holder of the Notes, by facsimile transmission (and shall confirm such notice by prompt telephonic advice to an investment officer of each such holder) or registered mail, which notice shall also contain a written, irrevocable offer by the Company to prepay, not more than 60 days and not less than 30 days after the date of such notice, the Notes held by such holder in full (and not in part); provided that such prepayment shall be permitted under the Credit Agreement and - -------- the other Funded Debt Documents of the Company. Upon the acceptance of such offer by such holder by written notice to the Company at least 10 days prior to the date of prepayment specified in the Company's offer, such prepayment of the Notes shall be made at a premium (determined in accordance with section 10.3) expressed as a percentage of the Series A Coupon Rate or Series B Coupon Rate, as applicable, together with, in each case, accrued and unpaid interest through the date of purchase. Any offer by the Company to prepay the Notes pursuant to this section 10.2 shall be accompanied by an Officers' Certificate certifying that the conditions of this section 10.2 have been fulfilled and specifying the particulars of such fulfillment. If the holder of any Notes shall accept such offer, the principal amount of such Notes shall become due and payable on the date specified in such offer. Notwithstanding the foregoing, if a Change of Control shall occur prior to May 1, 2000, in the case of the Series B Notes, or May 1, 2002, in the case of the Series A Notes, the Company may in lieu of such irrevocable offer to prepay elect to prepay the Series A -21- Notes or the Series B Notes pursuant to section 10.1; provided that (a) such prepayment shall be for all the Notes of such Series and (b) all the Notes then outstanding shall be redeemed or prepaid; provided further, that such time restrictions shall not apply to any Notes held by the Vendor or any of its Affiliates (except to the extent participations have been granted to Persons who are not Affiliates of the Vendor). 10.3 Premium. (a) For the purposes of clauses (b) and (c) of ------- section 10.1 and for purposes of section 10.2, whenever a premium is required to be paid upon prepayment of any Series A Note, the applicable premium shall be as set forth opposite the applicable twelve-month period below: Premium (% of Series A Twelve Month Period Commencing Coupon Rate) ------------------------------ ------------ May 31, 2007 50% May 31, 2008 31.67% May 31, 2009 13.33% (it being understood that there shall not be partial reductions for any portion of a year which has elapsed). (b) For the purposes of sections 10.1 and 10.2, whenever a premium is required to be paid upon prepayment of any Series B Note, the applicable premium shall be as set forth opposite the applicable twelve-month period below: Premium (% of Series B Twelve-Month Period Commencing Coupon Rate) ------------------------------ ------------ May 31, 2005 50% May 31, 2006 39.55% May 31, 2007 28.90% May 31, 2008 18.35% May 31, 2009 7.80% (it being understood that there shall not be partial reductions for any portion of a year which has elapsed). 10.4 Mandatory Redemption of Series A Notes. In the event that the -------------------------------------- Net Securities Proceeds, received by the Company from Equity Issuances shall exceed $198,000,000 as adjusted pursuant to section 28, the Company shall give prompt written notice thereof (which notice shall in any event be within 10 days after such receipt) to each holder of the Series A Notes by facsimile transmission (and shall confirm such notice by prompt telephonic advice to an investment officer of each such holder) or by registered mail. Such notice shall state that on a date specified therein (which date shall be not less than 15 days after the date of such notice) the -22- Company shall redeem, to the extent of such excess, the aggregate principal amount of the Series A Notes held by each holder for a price equal to the aggregate principal amount thereof plus accrued interest; provided that if all or any portion of such redemption of the Series A Notes shall not be permitted under the Credit Agreement (i) the Company shall redeem Series A Notes in a principal amount equal to the maximum amount of the Net Securities Proceeds permitted to be so applied under the Credit Agreement which in no event shall be less than 50% of all Net Securities Proceeds in excess of $198,000,000 as adjusted pursuant to section 28 (the "Proceeds Redemption Amount") and (ii) from time to time thereafter if the Company shall receive additional proceeds from Equity Issuances, the Company shall redeem Series A Notes in a principal amount equal to the Proceeds Redemption Amount until the Series A Notes have been redeemed in full. Any notice from the Company to redeem all or a portion of the Series A Notes pursuant to this section 10.4 shall be accompanied by an Officer's Certificate certifying that the conditions of this section 10.4 have been fulfilled. On the date specified in the Company's notice, the Company, upon receipt of an outstanding Series A Note, shall redeem all or such portion of such Series A Note together with accrued interest thereon and shall promptly mail to the holder of such Series A Note payment therefor and, if applicable, a new Series A Note in a principal amount equal to the excess of the principal amount of the Series A Note redeemed in connection with such redemption over the principal amount of such Series A Note so redeemed. 10.5 Mandatory Redemption of Series B Notes. In the event that the -------------------------------------- Company receives the Net Debt Proceeds from any High Yield Offering after the date hereof, the Company shall give prompt written notice thereof (which notice shall in any event be within 10 days after such receipt) to each holder of the Series B Notes by facsimile transmission (and shall confirm such notice by prompt telephonic advice to an investment officer of each such holder) or by registered mail. Such notice shall state that on a date specified therein (which date shall not be less than 15 days after the date of such notice) the Company, upon receipt of the outstanding Series B Note, shall redeem Series B Notes in an aggregate principal amount equal to such Net Debt Proceeds. Any notice from the Company to redeem any of the Series B Notes pursuant to this section 10.5(a) shall be accompanied by an Officer's Certificate certifying that the conditions of this section 10.5(a) have been fulfilled. On the date specified in the Company's notice, the Company, upon receipt of an outstanding Series B Note, shall redeem such portion of such Series B Note together with accrued interest thereon and shall promptly mail to the holder of such Series B Note the redemption payment therefor and a new Series B Note in a principal amount equal to the excess of the principal amount of the Series B Note submitted in connection with such redemption over the principal amount of such Series B Note so redeemed. 10.6 Notice of Optional Prepayments; Officers' Certificate. The ----------------------------------------------------- Company will give each holder of any Notes written notice of each optional prepayment under section 10.1 not less than 15 days and not more than 60 days prior to the date fixed for such prepayment, in each case specifying such date, the aggregate principal amount of the Notes to be prepaid, the principal amount of each Note held by such holder to be prepaid, and the premium, if any, applicable to such prepayment. Such notice shall be accompanied by an Officers' Certificate -23- certifying that the conditions of such section have been fulfilled and specifying the particulars of such fulfillment. 10.7 Allocation of Partial Prepayments. In the case of each --------------------------------- partial prepayment paid or to be prepaid (except a prepayment pursuant to section 10.2), the principal amount of the Notes to be prepaid shall be allocated (in integral multiples of $1,000) among all the Notes at the time outstanding in proportion, as nearly as practicable, to the respective unpaid principal amounts thereof not theretofore called for prepayment, with adjustments, to the extent practicable, to compensate for any prior prepayments not made exactly in such proportion. In the case of each partial prepayment under section 10.2, the principal amount of the Notes to be prepaid or purchased, as applicable, shall be allocated pro rata among the holders who accepted such prepayment offer or offer to tender. 10.8 Maturity; Surrender, etc. In the case of each prepayment, the ------------------------- principal amount of each Note to be prepaid shall mature and become due and payable on the date fixed for such prepayment, together with interest on such principal amount accrued to such date and the applicable premium, if any. From and after such date, unless the Company shall fail to pay such principal amount when so due and payable, together with the interest and premium, if any, as aforesaid, interest on such principal amount shall cease to accrue. Any Note paid or prepaid in full shall be surrendered to the Company and canceled and shall not be reissued, and no Note shall be issued in lieu of any prepaid principal amount of any Note. 10.9 Acquisition of Notes. The Company shall not, and shall not -------------------- permit any Subsidiary or Affiliate to, purchase, redeem or otherwise acquire any Note except upon the payment, redemption or prepayment thereof in accordance with the terms of this Agreement and such Note. 11. Covenants. The Company covenants that from the date of this --------- Agreement and so long as any of the Notes are outstanding: 11.1 Payment of Notes. The Company shall pay the principal of, ---------------- premium, if any, and interest on the Notes on the dates and in the manner provided herein and in the Notes. 11.2 Payment of Taxes and Claims. The Company shall, and shall --------------------------- cause each Subsidiary to, pay all taxes, assessments and other governmental charges imposed upon it or any of its properties or assets or in respect of any of its franchises, business, income or profits as and when due and all claims (including, without limitation, claims for labor, services, materials and supplies) for sums which have become due and payable and which by law have or might become a Lien upon any of its properties or assets; provided that (i) no -------- such charge or claim need be paid if being contested in good faith by appropriate proceedings diligently conducted, if reserves or other appropriate provision, if any, as shall be required by GAAP, shall have been made therefor and (ii) there shall be no default pursuant to this section if the failure to pay any of the foregoing could not reasonably be expected to have Material Adverse Effect. -24- 11.3 Liens, etc. The Company shall not, and shall not permit any ---------- Restricted Subsidiary to, directly or indirectly incur, issue, assume, guarantee or suffer to exist any High Yield Debt or any other Debt which ranks pari passu or junior to the Notes which is secured by any Lien on any property or assets of the Company or any Restricted Subsidiary or on any shares of Capital Stock of any Restricted Subsidiary, without effectively providing that the principal of, premium, if any, and interest on the Notes shall be secured equitably and ratably with (or prior to) such High Yield Debt or other Debt; provided that the -------- priority of such lien shall be subordinated to any Liens securing any High Yield Debt that is senior to the Notes. 11.4 Restricted Payments. Unless (a) no Event of Default or ------------------- Potential Event of Default shall exist which is continuing and (b) the Company shall have paid, in cash, all interest on the Notes on each of the prior three Payment Dates, the Company shall not declare or make any Restricted Payment; provided that the restriction set forth in clause (b) shall not apply to - -------- Restricted Payments made by the Company in respect of (i) shares of Series A Convertible Preferred Stock, $.01 par value per share, which are outstanding and held by AT&T PCS, TWR or any other wholly-owned Subsidiary of AT&T which payments shall not exceed $100 per share per year and (ii) the repurchase or redemption of any Capital Stock of the Company held by any member of management of the Company or any Subsidiary pursuant to a management subscription agreement, stock option agreement, restricted stock option agreement or other similar agreement in an amount not to exceed $4,000,000 in any twelve-month period (it being understood that any portion which is not used in any twelve- month period may be carried forward to one or more future twelve-month periods so long as the aggregate of all unused amounts that may be carried forward to any twelve-month period shall not exceed $16,000,000). 11.5 Consolidation, Merger, Sale of Assets, etc. The Company shall ------------------------------------------- not, and shall not permit any Restricted Subsidiary to, directly or indirectly: (a) consolidate with or merge into any other Person or permit any other Person to consolidate with or merge into it, except that: (i) any Restricted Subsidiary of the Company may consolidate with or merge into the Company or a Wholly-Owned Subsidiary (or any Person who, after giving effect to any such merger or consolidation would be a Wholly-Owned Subsidiary) if the Company or such Restricted Subsidiary, as the case may be, shall be the surviving corporation and if, immediately after giving effect to such transaction, no condition or event shall exist which constitutes an Event of Default or Potential Event of Default; (ii) any corporation (other than a Subsidiary) may consolidate with or merge into the Company if the Company shall be the surviving corporation and if, immediately after giving effect to such transaction, (x) substantially all the assets - -25- of the Company shall be located and substantially all its business shall be conducted within the United States and Puerto Rico, (y) the - Company's Consolidated Net Worth shall not be less than the Consolidated Net Worth of the Company immediately prior to such transaction and (z) no condition or event shall exist which - constitutes an Event of Default or Potential Event of Default; and (iii) the Company may consolidate with or merge into any other corporation if (w) the surviving corporation is a corporation - organized and existing under the laws of the United States of America or a state thereof, with substantially all its assets located and substantially all its business conducted within the United States and Puerto Rico, (x) such corporation expressly assumes, by an agreement - reasonably satisfactory in substance and form to the Required Holders (which agreement may require the delivery in connection with such assumption of such opinions of counsel as such Holders may reasonably require), the obligations of the Company under this Agreement and under the Notes, (y) immediately after giving effect to such - transaction (and such assumption), the Company's Consolidated Net Worth shall not be less than the Consolidated Net Worth of the Company immediately prior to such transaction and (z) immediately after giving - effect to such transaction no condition or event shall exist which constitutes an Event of Default or a Potential Event of Default; or (b) sell, lease, abandon or otherwise dispose of all or substantially all its assets, except that: (iv) any Restricted Subsidiary of the Company may sell, lease or otherwise dispose of all or substantially all its assets to the Company or a Wholly-Owned Subsidiary; and (v) the Company may sell, lease or otherwise dispose of all or substantially all its assets to any corporation into which the Company could be consolidated or merged in compliance with subdivision (a)(iii) of this section 11.5; provided that (x) each of the -------- - conditions set forth in such subdivision (a)(iii) shall have been fulfilled, and (y) no such disposition shall relieve the Company from - its obligations under this Agreement or the Notes. 11.6 Requirements of Law. Each of the Company and its Subsidiaries ------------------- shall comply with all applicable Requirements of Law and obtain and comply in all material respects with and maintain any and all Licenses necessary for its operations, except to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect. 11.7 Transactions with Affiliates. The Company shall not, and ---------------------------- shall not permit any Restricted Subsidiary to, directly or indirectly, engage in any transaction material to the -26- Company or any Restricted Subsidiary (including, without limitation, the purchase, lease, sale or exchange of assets or the rendering of any service) with any Affiliate, except upon fair and reasonable terms that are no less favorable to the Company or such Restricted Subsidiary, as the case may be, than those which might be obtained, in the good faith judgment of the Company, in an arm's length transaction at the time from Persons which are not Affiliates and, in the case of any transaction between the Company and any Management Stockholder(or any Affiliate of any Management Stockholder) shall have been approved by a majority of the directors (excluding any directors who are either Management Stockholders or who are selected by the Management Stockholders and are not subject to approval by any of the other holders of the Capital Stock of the Company); provided that the foregoing restrictions shall not apply to the transactions contemplated under the Transaction Documents or any transaction between the Company and any Wholly-Owned Subsidiary or between one Wholly-Owned Subsidiary and another Wholly-Owned Subsidiary. 11.8 Corporate Existence, etc.; Business. The Company shall at all ----------------------------------- times preserve and keep in full force and effect its corporate existence, rights, qualifications and franchises (including, without limitation, all Licenses) deemed material to its business and those of each of its Subsidiaries (including, in the case of TeleCorp Holdings, its qualification as a "very small business" as defined as 47 C.F.R. 101.112(b) other than by reason of its annual gross revenues), except as otherwise specifically permitted by section 11.5 and except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect. 11.9 Limitation on Designation of Unrestricted Subsidiaries. The ------------------------------------------------------ Company may designate any Subsidiary of the Company (other than the Real Property Subsidiary and the Equipment Subsidiary) as an "Unrestricted Subsidiary" under this Agreement (a "Designation") only if: (i) no Default or Event of Default shall have occurred and be continuing at the time of or after giving effect to such Designation; and (ii) the Company would be permitted under the Indenture to make an Investment at the time of Designation (assuming the effectiveness of such Designation) in an amount (the "Designation Amount") equal to the Fair Value of the aggregate amount of its Investments in such Subsidiary on such date; (iii) the Company would be permitted to incur $1.00 of additional Debt pursuant to the terms of any supplemental indenture to the Indenture at the time of Designation (assuming the effectiveness of such Designation); and (iv) such Subsidiary does not and will not own or hold any FCC licenses (other than FCC licenses in respect of cellular communications covering an area that has been built out and is, on the date of Designation, actively and continuously in operation). -27- In the event of any such Designation, the Company shall be deemed to have made an Investment constituting a Restricted Payment in an amount equal to the Designation Amount. The Company shall not, and shall not permit any Restricted Subsidiary, at any time (x) to provide direct or indirect credit support for or a guarantee of any Debt of any Unrestricted Subsidiary (including of any undertaking, agreement or instrument evidencing such Debt), (y) be directly or indirectly liable for any Debt of any Unrestricted Subsidiary or (z) be directly or indirectly liable for any Debt which provides that the holder thereof may (upon notice, lapse of time or both) declare a default thereon or cause the payment thereof to be accelerated or payable prior to its final scheduled maturity upon the occurrence of a default with respect to any Debt of any Unrestricted Subsidiary (including any right to take enforcement action against such Unrestricted Subsidiary), except, in the case of clause (x) or (y), to the extent permitted under the terms of any covenant with respect to Restricted Payments contained in a this Agreement. The Company may revoke any Designation of a Subsidiary as an Unrestricted Subsidiary (a "Revocation"), whereupon such Subsidiary shall then constitute a Restricted Subsidiary, if: (a) no Default or Event of Default shall have occurred and be continuing at the time of and after giving effect to such Revocation; and (b) all Liens and Debt of such Unrestricted Subsidiary outstanding immediately following such Revocation would, if incurred at such time, have been permitted to be incurred for all purposes of this Agreement. All Designations and Revocations must be evidenced by resolutions of the Board delivered to you certifying compliance with the foregoing provisions. 11.10 Limitation on Activities of the Company and the Restricted ---------------------------------------------------------- Subsidiaries. The Company shall not, and shall not permit any Restricted - ------------ Subsidiary to, engage in any business other than a Permitted Business, except to such extent as is not material to the Company and its Restricted Subsidiaries, taken as a whole. 12. Events of Default; Acceleration. If any of the following ------------------------------- conditions or events ("Events of Default") shall occur and be continuing: (a) if the Company shall default in the payment of any principal of or premium, if any, on or any other amount (other than interest not paid in connection with a prepayment or redemption) with respect to any Note when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise; or (b) if the Company shall default in the payment of any cash interest (other than interest paid in connection with a prepayment or redemption) or pay- in-kind interest on any Note for more than 15 days after the same becomes due and payable; or -28- (c) if the Company shall default in the performance of section 11.5; or (d) if the Company shall default in the performance of or compliance with any other term contained in this Agreement and such default shall not have been remedied within 30 days after such failure shall first have become known to any Responsible Officer of the Company or written notice thereof shall have been received by the Company from any holder of any Note; or (e) if any representation or warranty made in writing by or on behalf of the Company in this Agreement or in any instrument furnished in compliance with this Agreement shall prove to have been false or incorrect in any material respect on the date as of which made; or (f) if the Company or any Subsidiary shall default (as principal or guarantor or other surety) in the payment of any principal of or premium or interest on any Senior Debt which is outstanding in a principal amount of at least $15,000,000 (or on any one or more items of Senior Debt which are outstanding in the aggregate in a principal amount of at least $15,000,000), or if any event shall occur or condition shall exist in respect of any such Senior Debt or under any evidence of any such Senior Debt or of any mortgage, indenture or other agreement relating thereto, the effect of which default in payment event or condition is to cause the acceleration of the payment of such Senior Debt, or to require the Company or Subsidiary to repurchase such Senior Debt, before its stated maturity or before its regularly scheduled dates of payment; provided that in the event such default in payment or such event or condition is - -------- waived and any acceleration rescinded prior to the acceleration of the Notes or the commencement of any exercise of remedies under section 13 and in any event within 30 days following such occurrence by each affected holder of such Senior Debt and by each Person that acquired a remedy as a result of such default in payment or such event or condition, then such default in payment or such event or condition shall be deemed waived hereunder; or (g) if a final judgment or judgments shall be rendered against the Company or any Subsidiary for the payment of money in excess of $15,000,000 in the aggregate (excluding any such judgment covered by insurance not disputed by the carrier thereof) and any one of such judgments shall not be discharged or execution thereon stayed or bonded pending appeal within 90 days after entry thereof or, in the event of such a stay, such judgment shall not be discharged or satisfied within 90 days after such stay expires; or (h) if the Company or any Material Subsidiary shall (i) be generally not paying its debts as they become due, (ii) file, or consent by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, (iii) make an assignment for the benefit of its creditors, (iv) consent to the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, (v) be finally adjudicated insolvent or (vi) take corporate action for the purpose of any of the foregoing; or -29- (i) if a court or Governmental Authority of competent jurisdiction shall enter an order appointing, without consent by the Company or any Material Subsidiary, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, or if an order for relief shall be entered in any case or proceeding for liquidation or reorganization or otherwise to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of the Company or any Material Subsidiary, or if any petition for any such relief shall be filed against the Company or any Material Subsidiary and such petition shall not be dismissed within 60 days; or (j) the Company shall be in default of or shall breach any of its obligations under the Procurement Contract and as a result thereof such Procurement Contract shall have terminated; provided that no Event of Default -------- shall exist under this clause (j) if none of the Notes are then held by the Vendor or, if held by the Vendor, participations have been granted in such Notes (other than participations to Persons who are Affiliates), then (i) (A) upon the occurrence of any Event of Default described in paragraphs (h) and (i) of this section 12, the Commitments shall automatically terminate and (B) with respect to any other Event of Default, the Required Holders of the Notes (subject to section 17) may by notice to the Company declare the Commitments terminated forthwith whereupon the Commitments shall be terminated, and (ii) (A) upon the occurrence of any Event of Default described in paragraphs (h) and (i) of this section 12, the unpaid principal amount of and accrued interest on the Notes shall automatically be due and payable or (B) with respect to any other Event of Default (x) if such event is an Event of Default described in paragraphs (a), (b), (f) or (j), of this section 12 the Required Holders of Notes at such time outstanding (subject to section 17) may at any time (unless all defaults shall have been remedied) at its or their option, by written notice or notices to the Company, declare the Notes to be due and payable; or (y) if - such event is an Event of Default described in any other paragraph of this section 12 and such event occurs before the Credit Agreement shall have been executed and delivered and shall be in full force and effect, the Required Holders of the Notes (subject to section 17) may declare the Notes due and payable; whereupon, with reference to any such declaration, the Notes shall forthwith mature and become due and payable together with interest accrued thereon, without presentment, demand, protest or notice, all of which are hereby waived. At any time after the principal of, and interest on, all the Notes are declared due and payable, the holders of 66% or more in aggregate principal amount of the Notes then outstanding, by written notice to the Company, may rescind and annul any such declaration and its consequences if (1) the Company has paid all overdue interest on the Notes and the principal of, and premium, if any, on any Notes which have become due otherwise by reason of such declaration, and interest on such overdue principal and premium and (to the extent permitted by applicable law) any overdue interest in respect of the Notes at the rate of 2% per annum above the then effective rate of interest on the Notes, (2) all Events of Default, other than non-payment of amounts which have become due solely by reason of such declaration, and all conditions and -30- events which constitute Events of Default or Potential Events of Default have been cured or waived and (3) no judgment or decree shall have been entered for the payment of any monies due pursuant to the Notes or this Agreement that has not been vacated; but no such rescission and annulment shall extend to or affect any subsequent Event of Default or Potential Event of Default or impair any right consequent thereon. 13. Remedies on Default, etc. If any Event of Default shall occur ------------------------- and be continuing, the holder of any Note at the time outstanding may, to the extent permitted by applicable law, proceed to protect and enforce the rights of such holder by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in such Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise. No course of dealing and no delay on the part of any holder of any Note in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice such holder's rights, powers or remedies. No right, power or remedy conferred by this Agreement or by any Note upon any holder thereof shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. 14. Subordination. ------------- 14.1 Notes Subordinate to Senior Debt. The Company covenants and -------------------------------- agrees, and each holder of a Note, by its acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this section, the payment of the principal of, premium, if any, and interest on each and all the Notes and the repurchase, redemption or other retirement of the Notes is hereby expressly made subordinate and subject in right of payment to the prior payment in full in cash or cash equivalents or, as acceptable to the holders of Senior Debt, in any other manner, of all Senior Debt in the manner set forth in this section 14. The terms of this section 14 are for the benefit of, and shall be enforceable directly by, each holder of Senior Debt, and each holder of Senior Debt whether now outstanding or hereafter created, incurred, assumed or guaranteed shall be deemed to have acquired such Senior Debt in reliance upon the covenants and provisions contained in this Agreement. 14.2 Payment of Proceeds Upon Dissolution, Etc. Upon any payment or ----------------------------------------- distribution of assets of the Company to creditors upon any liquidation, dissolution, winding-up, reorganization, assignment for the benefit of creditors, marshaling of assets or liabilities or any bankruptcy, reorganization, receivership, insolvency or similar proceedings of the Company or its property, whether voluntary or involuntary (each such event, if any, herein sometimes referred to as a "Proceeding"): (a) The holders of Senior Debt shall receive payment in full in cash or cash equivalents or, as acceptable to the holders of Senior Debt, in any other manner, of all amounts due on or to become due on or in respect of all Senior Debt (including any interest accruing thereon after the commencement of any such Proceeding, whether or not allowed as a claim -31- against the Company in such Proceeding) or provision shall be made for such payment in a manner acceptable to such holders before the holders of the Notes are entitled to receive any payment or distribution whether by setoff, exercising contractual or statutory rights or otherwise and whether in the form of cash, stock or property or otherwise (excluding any payment or distribution described in the last paragraph of section 14.2(b)), on account of the principal of, premium, if any, interest on or any other obligation owing in respect of the Notes or on account of any purchase, redemption or other acquisition of Notes by the Company (all such payments, distributions, purchases, redemptions and acquisitions, whether or not in connection with a Proceeding (but excluding any payment or distribution described in the last paragraph of section 14.2(b)), being herein referred to, individually and collectively, as a "Securities Payment"); and (b) Any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, by set-off or otherwise, to which the holders of the Notes would be entitled but for the provisions of this section 14, shall be paid by the Company or the liquidating trustee or agent or other Person making such payment or distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee or otherwise, directly to the holders of Senior Debt or their representatives or trustees under any credit agreement, indenture or other agreement under which any such Senior Debt may have been issued, ratably according to the aggregate amounts remaining unpaid on account of the Senior Debt held or represented by each, to the extent necessary to make payment in full in cash or cash equivalents or, as acceptable to the holders of Senior Debt, in any other manner, of all Senior Debt remaining unpaid, after giving effect to any concurrent payment or distribution to the holders of such Senior Debt. In the event that, notwithstanding the foregoing provisions of this section, the holder of any Notes shall have received in connection with any Proceeding any Securities Payment before all Senior Debt is paid in full or payment thereof is provided for in cash or cash equivalents, then and in such event such Securities Payment shall be held in trust for the benefit of and paid over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other Person making payment or distribution of assets of the Company for application to the payment of all Senior Debt remaining unpaid, to the extent necessary to make payment in full in cash or cash equivalents or, as acceptable to the holders of the Senior Debt, in any other manner, of all Senior Debt remaining unpaid after giving effect to any concurrent payment to or for the holders of Senior Debt. For purposes of this section 14 only, the words "payment or distribution" or "any payment or distribution of any kind or character, whether in cash, property or securities" shall not be deemed to include a payment or distribution of stock or securities of the Company provided for by a plan of reorganization or readjustment authorized by an order or decree of a court of competent jurisdiction in a reorganization proceeding under any applicable bankruptcy law or of any other corporation provided for by such plan of reorganization or readjustment, which stock or securities are subordinated in right of payment to all then outstanding Senior Debt to substantially the same extent, or to a greater extent than, the Notes are so subordinated as -32- provided in this section 14. The consolidation of the Company with, or the merger of the Company into, another Person or the liquidation or dissolution of the Company following the conveyance, transfer or lease of all or substantially all of its properties and assets to another Person upon the terms and conditions set forth in section 11.5 and so long as permitted under the terms of the Senior Debt shall not be deemed a Proceeding for the purposes of this section if the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance, transfer or lease such properties and assets, as the case may be, shall, as a part of such consolidation, merger, conveyance, transfer or lease, comply with the conditions set forth in section 14. (c) To the extent any payment of Senior Debt (whether by or on behalf of the Company, as proceeds of security or enforcement of any right of setoff or otherwise) is declared to be fraudulent or preferential, set aside or required to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person under any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then if such payment is recovered by, or paid over to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person, the Senior Debt or part thereof originally intended to be satisfied shall be deemed to be reinstated and outstanding as if such payment had not occurred. 14.3 No Payment When Senior Debt in Default. In the event that any -------------------------------------- Senior Payment Default (as defined below) shall have occurred and be continuing, then no Securities Payment whether by setoff, exercising contractual or statutory rights or otherwise and whether in the form of cash, stock or property or otherwise shall be made, unless and until such Senior Payment Default shall have been cured or waived in writing or shall have ceased to exist or all amounts then due and payable in respect of such Senior Debt (including, without limitation, amounts that have become and remain due by acceleration) shall have been paid in full in cash. "Senior Payment Default" means any default in the payment of the principal of, premium, if any, or interest on any Senior Debt when due, whether at the stated maturity of any such payment or by declaration of acceleration, call for redemption, notice of the exercise of an option to require such repayment, mandatory payment or prepayment or otherwise. In the event that any Senior Nonmonetary Default (as defined below) shall have occurred and be continuing, then, upon the receipt by the Company of written notice of such Senior Nonmonetary Default from the Administrative Agent to which such Senior Nonmonetary Default relates or, if no loans or other amounts are then outstanding under the Credit Agreement or any renewal, extension or refunding thereof, and the Credit Agreement and any such renewal, extension or refunding have been terminated, upon receipt of such notice by or on behalf of any other holder or holders of Senior Debt in an aggregate amount in excess of $25,000,000, no Securities Payment shall be made whether by setoff, exercising contractual or statutory rights or otherwise and whether in the form of cash, stock or property or otherwise during the period (the "Payment Blockage Period") commencing on the date of such receipt by the Company of such written notice and ending on the earlier of (a) the date, if any, on which the Senior Debt to which such Senior Nonmonetary Default relates is discharged or such Senior Nonmonetary Default -33- shall have been cured or waived in writing or shall have ceased to exist and any acceleration of Senior Debt to which such Senior Nonmonetary Default relates shall have been rescinded or annulled and (b) the 179th day after the date of receipt of such written notice. No more than one Payment Blockage Period may be commenced with respect to the Notes during any period of 360 consecutive days and there shall be a period of at least 181 consecutive days in each period of 360 consecutive days when no Payment Blockage Period is in effect. Following the commencement of any Payment Blockage Period, the holders of Senior Debt shall be precluded from commencing a subsequent Payment Blockage Period until the conditions set forth in the preceding sentence shall have been satisfied. For all purposes of this paragraph, no Senior Nonmonetary Default that existed and was continuing on the date of commencement of any Payment Blockage Period with respect to the Senior Debt initiating such Payment Blockage Period shall be, or may be made, the basis for the commencement of a subsequent Payment Blockage Period by any holder of Senior Debt or any representative or trustee under any indenture under which any such Senior Debt may have been issued unless such Senior Nonmonetary Default shall have been cured for a period of not less than 90 consecutive days. "Senior Nonmonetary Default" means any default (other than a Senior Payment Default), under the terms of any instrument or agreement pursuant to which any Senior Debt is outstanding, permitting one or more holders of such Senior Debt or any representative or trustee under any indenture under which any such Senior Debt may have been issued to declare such Senior Debt due and payable prior to the date on which it would otherwise become due and payable. In the event that, notwithstanding the foregoing, the Company shall make any Securities Payment to any holder prohibited by the foregoing provisions of this section 14.3, then in such event such Securities Payment shall be held in trust and paid over and delivered forthwith to the representatives or trustee under any indenture under which any such Senior Debt may have been issued ratably according to the aggregate amounts remaining unpaid on account of the Senior Debt held or represented by under the Senior Debt or, if there is no such representative or trustee with respect to such Senior Debt, to the holders of such Senior Debt. The provisions of this section 14.3 shall not apply to any Securities Payment with respect to which section 14.2 hereof would be applicable. 14.4 Acceleration of Subordinated Debt. If an Event of Default --------------------------------- shall have occurred and be continuing (other than an Event of Default pursuant to paragraphs (h) or (i) of section 12), the holders of the Notes shall give the holders of the Senior Debt not less than 30 days prior written notice before accelerating the Notes which notice shall state it is a "Notice of Intent to Accelerate". Upon such declaration, the holders of Senior Debt outstanding at the time such Subordinated Debt so becomes due and payable shall be entitled to receive payment in full in cash, cash equivalents or, as acceptable to the holders of the Senior Debt, in any other manner on all amounts due or to become due on or in respect of such Senior Debt, before the Company may make, and before any holder of Subordinated Debt is entitled to receive, any payment or distribution of assets of the Company of any kind or character, whether in cash, securities or other property on account of any Subordinated Debt. All payments in respect of the -34- Subordinated Debt postponed under this section 14.4 shall be immediately due and payable upon the termination of such postponement; the remittance in full of such payments by the Company in accordance with the terms of the this Agreement and the acceptance thereof by the holders of the Notes shall be deemed to constitute a cure by the Company and a waiver by the holders of the Notes of any Event of Default that existed immediately prior to such remittance and acceptance to the extent that such Event of Default existed solely as a consequence of the previous non-payment of such postponed payments during such period of postponement. 14.5 Payment Permitted If No Default. Nothing contained in this ------------------------------- section 14 or elsewhere in this Agreement or in any of the Notes shall prevent the Company, at any time except during the pendency of any Proceeding referred to in section 14.2 or under the conditions described in section 14.3, from making Securities Payments in accordance with the terms of this Agreement. Nothing in this section 14 shall have any effect on the right of the holders to accelerate the maturity of the Notes upon the occurrence of an Event of Default, but, in that event, no payment may be made in violation of the provisions of this section 14 with respect to the Notes. If payment of the Notes is accelerated because of an Event of Default, the Company shall promptly notify the holders of the Senior Debt (or their representatives) of such acceleration. 14.6 Subrogation To Rights of Holders of Senior Debt. Subject to ----------------------------------------------- the payment in full in cash or cash equivalents, or as acceptable to the holders of Senior Debt, in any other manner, of all Senior Debt, the holders of the Notes shall be subrogated to the rights of the holders of such Senior Debt to receive payments and distributions of cash, property and securities applicable to the Senior Debt until the principal of, premium, if any, and interest on the Notes shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of the Senior Debt of any cash, property or securities to which the holders of the Notes would be entitled except for the provisions of this section 14, and no payments pursuant to the provisions of this section 14 to the holders of Senior Debt by holders of the Notes, shall, as among the Company, its creditors other than holders of Senior Debt and the holders of the Notes, be deemed to be a payment or distribution by the Company to or on account of the Senior Debt. 14.7 Provisions Solely To Define Relative Rights. The provisions ------------------------------------------- of this section 14 are and are intended solely for the purpose of defining the relative rights of the holders of the Notes on the one hand and the holders of Senior Debt on the other hand. Nothing contained in this section 14 or elsewhere in this Agreement or in the Notes is intended to or shall (a) impair, as among the Company, its creditors other than holders of Senior Debt and the holders of the Notes, the obligation of the Company, which is absolute and unconditional (and which, subject to the rights under this section 14 of the holders of Senior Debt, is intended to rank equally with all other general obligations of the Company), to pay to the holders of the Notes the principal of, premium, if any, and interest on the Notes as and when the same shall become due and payable in accordance with their terms; or (b) affect the relative rights against the Company of the holders of the Notes and creditors of the Company other than the holders of Senior Debt; or (c) prevent the holder of any Note from exercising all remedies otherwise permitted by -35- applicable law upon default under this Agreement, subject to this section 14, including the rights, if any, under this section 14 of the holders of Senior Debt to receive cash, property and securities otherwise payable or deliverable to such holder or, under the conditions specified in section 14.3, to prevent any payment prohibited by such section or enforce their rights pursuant to the penultimate paragraph in section 14. 14.8 No Waiver of Subordination Provisions. No right of any ------------------------------------- present or future holder of any Senior Debt to enforce the subordination provisions provided herein shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Agreement, regardless of any knowledge thereof that any such holder may have or be otherwise charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Debt may, at any time and from time to time, without the consent of or notice to the holders of the Notes, without incurring responsibility to the holders of the Notes and without impairing or releasing the subordination provided in this section 14 or the obligations hereunder of the holders of the Notes to the holders of Senior Debt, do any one or more of the following: (a) change the manner, place or terms of payment or extend the time of payment of, or renew, refinance or alter, Senior Debt, or otherwise amend or supplement in any manner Senior Debt or any instrument evidencing the same or any agreement under which Senior Debt is outstanding; (b) permit the Company to borrow, repay and then reborrow any or all the Senior Debt; (c) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Debt; (d) release any Person liable in any manner for the collection of Senior Debt; (e) exercise or refrain from exercising any rights against the Company and any other Person; and (f) apply any sums received by such holders to Senior Debt. 14.9 Reliance On Judicial Order or Certificate of Liquidating Agent. -------------------------------------------------------------- Upon any payment or distribution of assets of the Company referred to in this section 14, the holders of the Notes shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such Proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the holders of Notes, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Senior Debt, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this section 14; provided that the foregoing shall apply -------- only if such court has been apprised of the provisions of this section 14. 15. Definitions. As used herein the following terms have the ----------- following respective meanings: Additional Notes: the meaning specified in section 1. ---------------- -36- Additional Series A Notes: the additional Series A Notes issued by the ------------------------- Company in lieu of payment of cash interest on the Series A Notes. Additional Series B Notes: the additional Series B Notes issued by ------------------------- the Company in lieu of payment of cash interest on the Series B Notes. Administrative Agent: The Chase Manhattan Bank in its capacity as -------------------- administrative agent for the Lenders under the Credit Agreement and any successor thereto. Affiliate: any Person directly or indirectly controlling or --------- controlled by or under common control with another Person or any Subsidiary of such other Person; provided that, for purposes of this definition, "control" -------- (including, with correlative meanings, the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise. Amendment No. 7: the meaning specified in the introduction. --------------- Asset Purchase Agreement: the Asset Purchase Agreement dated as of ------------------------ May 24, 1999 between AT&T PCS and the Company. Assignee: the meaning specified in section 23.3. -------- Assignment and Acceptance: the meaning specified in section 23.3. ------------------------- AT&T: AT&T Corp. ---- AT&T PCS: AT&T Wireless PCS, Inc. -------- AT&T Stock Purchase Agreement: the Preferred Stock Purchase Agreement ----------------------------- dated as of May 24, 1999 between the Company and AT&T PCS. Base Case: the meaning specified in section 28. --------- Benefitted Holder: the meaning specified in section 25. ----------------- Board: the Board of Directors of the Company. ----- BTA: a Basic Trading Area as defined in 47 C.F.R. 24.202, as amended --- from time to time. -37- Business Day: any day except a Saturday, a Sunday or other day on ------------ which commercial banks in New York City are required or authorized by law to be closed. C Block: frequencies designated as Block C by the FCC in 47 C.F.R. ------- 24.229(b) or any successor provision thereof. Capital Lease: as applied to any Person, any lease of any property ------------- (whether real, personal or mixed) by such Person as lessee which would, in accordance with GAAP, be required to be classified and accounted for as a capital lease on a balance sheet of such Person. Capital Lease Obligation: with respect to any Capital Lease, the ------------------------ amount of the obligation of the lessee thereunder which would, in accordance with GAAP, appear on a balance sheet of such lessee in respect of such Capital Lease. Capital Stock: any and all shares, interests, participations or other ------------- equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants or options to purchase any of the foregoing. Cash Equity Investors: the investors referred to on Schedule I to the --------------------- Securities Purchase Agreement. Change of Control: the occurrence of any of the following events: ----------------- (1) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than a Permitted Holder or Permitted Holders or a person or group controlled by a Permitted Holder or Permitted Holders, became the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all such securities that such person has the right to acquire within one year, upon the happening of an event or otherwise) directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding Voting Stock; (2) the following individuals cease for any reason to constitute more than a majority of the number of directors then serving on the board of directors of the Company: individuals who, on April 23, 1999, constitute the board of directors of the Company and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including, but not limited to, a consent solicitation relating to the election of directors of the Company) whose appointment or election by the board of directors of the Company or nomination for election by the Company's stockholders was approved by the vote of at least two-thirds of the directors then still in office or whose appointment, election or nomination was -38- previously so approved or recommended or made in accordance with the terms of the Stockholders' Agreement; or (3) the stockholders of the Company shall approve any Plan of Liquidation (whether or not otherwise in compliance with the provisions of the Indenture). Closing: the reference to any Series A Closing or Series B Closing, ------- as the context may require. Code: the Internal Revenue Code of 1986, as amended from time to ---- time. Commitments: the collective reference to the Series A Note Commitment ----------- and the Series B Note Commitment. Commonly Controlled Entity: an entity, whether or not incorporated, -------------------------- which is under common control with the Company within the meaning of Section 4001 of ERISA or is part of a group which includes the Company and which is treated as a single employer under Section 414 of the Code. Communications Act: The Communications Act of 1934 and the rules and ------------------ regulations thereunder, as amended from time to time. Company: TeleCorp PCS, Inc. ------- Competitor: any Person which is engaged directly or indirectly in the ---------- ownership or operation of a wireless telecommunications system encompassing at least one MTA; provided that a Person (a) which is solely a passive investor in -------- companies engaged in the same or related business as the Company or (b) which purchases or to whom the Company or any agent of the Company offers Senior Debt of the Company shall not be a Competitor. Consolidated Net Worth: the total of the amounts shown on the balance ---------------------- sheet of such Person and its consolidated Subsidiaries, determined on a consolidated basis in accordance with GAAP, as (a) the par or stated value of all outstanding Capital Stock of such Person plus (b) paid-in capital or capital surplus relating to such Capital Stock plus (c) any retained earnings or earned surplus less (i) any accumulated deficit, (ii) any amounts attributable to Redeemable Stock and (iii) any amounts attributable to Exchangeable Stock. Credit Agreement: Credit Agreement dated as of July 17, 1998 among ---------------- the Company, the Lenders, the Administrative Agent, TD Securities (USA) Inc. as Syndication Agent and Bankers Trust Company, as Documentation Agent, as amended by First Amendment, Consent and Waiver, dated as of December 18, 1998, Second Amendment and Waiver, dated as of March 1, 1999, Third Amendment, dated as of March 30, 1999, Fourth Amendment, dated as -39- of March 31, 1999, Fifth Amendment and Acceptance, dated as of April 7, 1999, Sixth Amendment, dated as of April 7, 1999 and Seventh Amendment, dated as of May 21, 1999. Debt: as applied to any Person (without duplication): ---- (a) any indebtedness for borrowed money which such Person has directly or indirectly created, incurred or assumed; and (b) any other indebtedness of such Person which is evidenced by a note, bond, debenture or similar instrument; and (c) any indebtedness, whether or not for borrowed money, secured by any Lien in respect of property owned by such Person, whether or not such Person has assumed or become liable for the payment of such indebtedness; and (d) any indebtedness, whether or not for borrowed money, including any Capital Lease Obligation, with respect to which such Person has become directly or indirectly liable and which represents or has been incurred to finance the purchase price (or a portion thereof) of any property or services or business acquired by such Person, whether by purchase, consolidation, merger or otherwise (excluding accounts payable incurred in the ordinary course of business, if such accounts payable are not more than 90 days past due); (e) any indebtedness owing to the FCC with respect to payments for Licenses; and (f) any indebtedness of any other Person of the character referred to in subdivision (a), (b), (c), (d) or (e) of this definition with respect to which the Person whose Debt is being determined has become liable by way of a Guaranty. Default: any event or occurrence that with the passing of time or ------- giving of notice or both would be an Event of Default. Designated Areas: the meaning specified in the introduction. ---------------- Designation: the meaning specified in Section 11.9. ----------- Designation Amount: the meaning specified in Section 11.9 ------------------ Digital PCS: Digital PCS, L.L.C., a Mississippi limited liability ----------- company. Disclosure Schedule: the Disclosure Schedule attached as Schedule B ------------------- to this Agreement. -40- EBITDA: shall mean, for any period of determination, an amount equal ------ to the sum of (without duplication) (a) Net Income for such period, after deduction of (i) all items which should be classified as extraordinary, all determined in accordance with GAAP; (ii) all insurance proceeds (other than proceeds of business interruption insurance) received during such period to the extent, if any, included in Net Income and (iii) tax adjusted gains (or inclusion of tax adjusted losses) incurred in connection with the disposition of capital assets, plus (b) all amounts deducted in computing such Net Income in respect of (i) Interest Expense (after giving effect to all Hedging Agreements and payments and receipts thereunder), (ii) noncash amortization expense (including amortization of financing costs, noncurrent assets and non-cash charges), (iii) depreciation, (iv) income taxes and (v) all other non-cash expenses. Effective Date: the date on which all the conditions set forth in -------------- Section 5.1 are satisfied or waived. Eligible Assignee: any Person who is either an accredited investor ----------------- (as defined in Rule 501 under the Securities Act) or a Qualified Institutional Buyer (as defined in Rule 144A under the Securities Act) and is (a) a commercial bank having total assets in excess of $250,000,000, an insurance company or other similar financial institution, (b) any other entity which is (or which is managed by a manager which manages funds which are) primarily engaged in making, purchasing or otherwise investing in commercial loans or extending, or investing in extensions of, credit for its own account in the ordinary course of its business, which has total assets in excess of $250,000,000, (c) a fund principally engaged in investing in commercial loans, debt securities or other extensions of credit or (d) a Person which is not a Competitor and has total assets in excess of $250,000,000. Equipment Subsidiary: TeleCorp Equipment Leasing L.P. and/or any -------------------- other Wholly-Owned Subsidiary of the Company designated as an Equipment Subsidiary under the Credit Agreement. Equity Issuance: the issuance after the Initial Series A Closing Date --------------- of any Capital Stock or the receipt of any capital contribution (other than capital contributions in an aggregate amount equal to $133,000,000 pursuant to the Securities Purchase Agreement, $32,300,000 in connection with the acquisition of certain C Block Licenses by Viper Wireless, Inc., $79,900,000 in connection with the San Juan Acquisition (as defined in the Credit Agreement) and other than any private placement of Capital Stock of the Company the proceeds of which are applied substantially concurrently to acquire assets or Capital Stock of a Permitted Business as defined in clause (i) or (ii) of the definition thereof, or to pay or reimburse costs incurred in connection therewith) by the Company. ERISA: the Employee Retirement Income Security Act of 1974, as ----- amended from time to time. Event of Default: the meaning specified in section 12. ---------------- -41- Exchange Act: the Securities Exchange Act of 1934. ------------ Exchangeable Stock: any Capital Stock which is exchangeable or ------------------ convertible into a debt security of the issuer or any of its subsidiaries. Existing Note Agreement: the meaning specified in the introduction. ----------------------- Expansion Areas: the meaning specified in section 28. --------------- Expansion Notes: the meaning specified in section 28. --------------- Fair Value: with respect to any asset or property, the price that ---------- could be negotiated in an arm's-length transaction, for cash, between a willing seller and a willing buyer, neither of whom is under pressure or compulsion to complete the transaction. Unless otherwise specified in this Agreement, Fair Value shall be determined by the Board acting in good faith. FCC: The Federal Communications Commission or any successor thereto. --- Financial Statements: the meaning specified in section 6.4(a). -------------------- Financing Transactions: the meaning specified in the introduction. ---------------------- Five-Year No-Call: the meaning specified in section 24(c). ----------------- Funded Debt: all Debt of the Company and its Subsidiaries other than ----------- Debt that ranks pari passu or junior to the Notes. Funded Debt Documents: any loan or credit agreement, note, security --------------------- document or other agreement or instrument evidencing, setting forth the terms of, or creating a lien on or security interest in property or assets which secures any Funded Debt of a Person. GAAP: shall mean generally accepted accounting principles in the ---- United States of America consistent with those utilized in preparing the audited financial statements referred to in section 8.1. General Agreement: the meaning specified in the introduction. ----------------- Governing Documents: as to any Person, its articles or certificate of ------------------- incorporation and by-laws, its partnership agreement, its certificate of formation and operating agreement, or the other organizational or governing documents of such Person. -42- Governmental Authority: any nation or government, any state or other ---------------------- political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. Guaranty: as applied to any Person, any direct or indirect liability, -------- contingent or otherwise, of such Person with respect to any indebtedness, lease, dividend or other obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed (otherwise than for collection or deposit in the ordinary course of business) or discounted or sold with recourse by such Person, or in respect of which such Person is otherwise directly or indirectly liable, including, without limitation, any such obligation in effect guaranteed by such Person through any agreement (contingent or otherwise) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), or to maintain the solvency or any balance sheet or other financial condition of the obligor of such obligation, or to make payment for any products, materials or supplies or for any transportation or services regardless of the non-delivery or nonfurnishing thereof, in any such case if the purpose or intent of such agreement is to provide assurance that such obligation will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected against loss in respect thereof. The amount of any Guaranty shall be equal to the outstanding principal amount of the obligation guaranteed. Hedging Agreements: (a) any interest rate protection agreement, ------------------ interest rate future, interest rate option, interest rate swap, interest rate cap or other interest rate hedge or arrangement under which the Company or any Subsidiary is a party or a beneficiary and (b) any other agreement or arrangement designed to limit or eliminate the risk and/or exposure of the Company or any Subsidiary to fluctuations in currency exchange rates. High Yield Debt: any Debt issued pursuant to a High Yield Offering. --------------- High Yield Offering: an offering, either in a registered public ------------------- offering or a private placement, of notes, bonds or other securities that are senior to the Notes but shall not include (a) any private placement (other than pursuant to Rule 144(a) of the Securities Act) of such notes, bonds or other securities to be issued in connection with the financing of an Expansion Area or (b) any note issued pursuant to the Credit Agreement or any replacement credit facility which is utilized to refinance the Debt under the Credit Agreement. Indemnified Party: the meaning specified in section 22. ----------------- Indenture: the meaning specified in the introduction. --------- Indenture Act: The Trust Indenture Act of 1939, as amended from time ------------- to time. -43- Initial Series A Closing Date: June 16, 1998. ----------------------------- Initial Series B Closing: the meaning specified in section 3.2(a). ------------------------ Initial Series B Closing Date: the date on which the conditions ----------------------------- contained in section 5.2 have been satisfied or waived by you. Initial Series B Commitment: your commitment to purchase Initial --------------------------- Series B Notes in an original aggregate principal amount equal to $40,000,000. Initial Series B Notes: the meaning specified in the introduction. ---------------------- Interest Expense: for any period, the sum of (a) all interest in ---------------- respect of all Funded Debt of the Company and its Subsidiaries accrued or capitalized during such period (whether or not actually paid during such period) plus (b) the net amount payable (or minus the net amount receivable) under - ---- Hedging Agreements accrued during such period plus (c) all financing or ---- commitment fees in respect of Debt (exclusive of any transaction or "up front" fees incurred in establishing or entering into any such Hedging Agreement) of the Company and its Subsidiaries accrued or capitalized during such period (whether or not actually paid during such period). IPO: the issuance by the Company in an initial registered public --- offering under the Securities Act (other than a registration statement on form S-8 or any successor form) of shares of its Capital Stock. Investment: with respect to any Person, any direct or indirect loan, ---------- advance, guarantee or other extension of credit or capital contribution to (by means of transfers of cash or other property to others or payments for property or services for the account or use of others or otherwise), or purchase or acquisition of Capital Stock, bonds, notes, debentures or other securities or evidence of Debt issued by, any other Person. Lenders: the banks and other financial institutions listed as lenders ------- from time to time under the Credit Agreement. License: any broadband personal communications license issued by the ------- FCC in connection with the operation of a System. License Purchase Agreement: the License Purchase Agreement dated -------------------------- January 23, 1998 between AT&T and the Company. Lien: any mortgage, pledge, hypothecation, assignment, deposit ---- arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement and any -44- Capital Lease having substantially the same economic effect as any of the foregoing), and the filing of any financial statement under the Uniform Commercial Code or comparable law of any jurisdiction in respect of any of the foregoing. Lucent Competitor: any Person significantly engaged directly or ----------------- indirectly in the development, manufacture and sale of telecommunications equipment and related services. Management Agreement: the Management Agreement between the Company -------------------- and TeleCorp Management Corp. dated as of July 17, 1998 as amended by Amendment No. 1 thereto dated as of May 25, 1999. Management Stockholders: Gerald T. Vento and Thomas H. Sullivan. ----------------------- Material Adverse Effect: a material adverse effect on (a) the ----------------------- business, operations, affairs, condition (financial or otherwise), properties, assets of the Company and its Subsidiaries taken as a whole, (b) the ability of the Company or any of its Subsidiaries to perform its obligations under any of the Transaction Documents to which it is a party and (c) the validity or enforceability of this Agreement or the rights or remedies of the holders of Notes. Material Subsidiary: any Restricted Subsidiary of the Company that ------------------- would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof. Maximum Rate: (a) in the case of the Series A Notes, 12% and (b) in ------------ the case of the Series B Notes, 12%. Mercury License Agreement: the License Acquisition Agreement dated as ------------------------- of May 15, 1998 between Digital PCS, formerly known as Mercury PCS II, LLC, and the Company. MTA: a Major Trading Area as defined in 47 C.F.R. 24.202, as amended --- from time to time. Multiemployer Plan: any Plan which is a multiemployer plan (as such ------------------ term is defined in section 4001(a)(3) of ERISA). Net Debt Proceeds: with respect to any High Yield Offering by the ----------------- Company or any Subsidiary after the Initial Series B Closing Date, the excess of: (a) the gross cash proceeds received by the Company or such Subsidiary from such Offering, over (b) all reasonable fees and expenses incurred in connection with such offering (including customary underwriting commissions and legal, investment banking, brokerage and accounting, trustee fees and other -45- professional fees, sales commission and disbursements) which have not been paid to Affiliates of the Company in connection therewith. Net Income: for any period, net income (or deficit) of the Company ---------- and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP. Net Securities Proceeds: with respect to any Equity Issuance by the ----------------------- Company or any Subsidiary after the Initial Series A Closing Date, the excess of: (a) the gross cash proceeds received by the Company or such Subsidiary from such Issuance over (b) all reasonable fees and expenses incurred in connection with such Issuance (including customary underwriting commissions and legal, investment banking, brokerage and accounting fees and other professional fees, sales commission and disbursements) which have not been paid to Affiliates of the Company in connection therewith. Network Membership License Agreement: the Network Membership License ------------------------------------ Agreement between AT&T and the Company dated July 17, 1998 as amended by Amendment No. 1 thereto dated as of March 30, 1999. Non-Excluded Taxes: the meaning specified in section 16.1(a). ------------------ Notes: the meaning specified in section 1. ----- Offering: any public offering or private placement of Notes or -------- Refinancing Securities, in each case, that is underwritten for resale pursuant to Rule 144A, Regulation S or otherwise under the Securities Act to 10 or more beneficial holders. Officer's Certificate: with respect to the Company, a certificate --------------------- executed on behalf of the Company by the Chairman of the Board of Directors (if an officer) or its President or one of its Vice Presidents and its Treasurer or one of its Assistant Treasurers. Participants: the meaning specified in section 23.2. ------------ Payment Blockage Period: the meaning specified in section 14.3. ----------------------- Payment Dates: the collective reference to the Series A Payment Dates ------------- and the Series B Payment Dates. PBGC: the Pension Benefit Guaranty Corporation or any governmental ---- authority succeeding to any of its functions. PCS: the meaning specified in the introduction. --- -46- Permit: any permit, approval, authorization, certificate, license, ------ variance, filing or permission required by or from any Governmental Authority. Permitted Business: (i) the delivery or distribution of ------------------ telecommunications, voice, data or video services; (ii) any business or activity reasonably related or ancillary thereto, including, without limitation, any business conducted by the Company or any Restricted Subsidiary on the date of this Agreement and the acquisition, holding or exploitation of any license relating to the delivery of the services described in clause (i) above; or (iii) any other business or activity in which the Company (and the Restricted Subsidiaries) are expressly contemplated to be engaged pursuant to the provisions of the certificate of incorporation and by-laws of the Company (and the Restricted Subsidiaries) as in effect on the date of this Agreement. Permitted Holder: (i) each of AT&T Corp., TWR, the Cash Equity ---------------- Investors, the Management Stockholders, Digital PCS, Wireless 2000 and any of their respective Affiliates and the respective successors (by merger, consolidation, transfer or otherwise) to all or substantially all of the respective businesses and assets of any of the foregoing; and (ii) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) controlled by one or more Persons identified in clause (i) above; provided -------- that in no event shall a Permitted Holder be, directly or through any Affiliate, a Lucent Competitor. Person: an individual, a partnership, an association, a joint ------ venture, a corporation, a limited liability Company, a business, a trust, an unincorporated organization or a government or any department, agency or subdivision thereof. Plan: any employee benefit plan which is covered by ERISA and in ---- respect of which the Company or any Subsidiary is an "employer" as defined in Section 3(5) of ERISA other than a Multiemployer Plan. Plan of Liquidation: with respect to any Person, a plan (including ------------------- by operation of law) that provides for, contemplates or the effectuation of which is preceded or accompanied by (whether or not substantially contemporaneously) (i) the sale, lease, conveyance or other disposition of all or substantially all the assets of such Person and (ii) the distribution of all or substantially all the proceeds of such sale, lease, conveyance or other disposition and all or substantially all the remaining assets of such Person to holders of Capital Stock of such Person. POPs: as of any date, with respect to any BTA or MTA, the population ---- of such BTA or MTA as such number is published in the then most recently issued retail marketing reports by Claritas, Inc. of Arlington, Virginia, or if Claritas, Inc. is not reasonably acceptable to -47- the Vendor or the Company, another Person mutually acceptable to the Vendor and the Company; provided, that if the definition of POPs in the Credit Agreement is amended to designate Kagan Guide, the Vendor shall amend this Agreement accordingly. Potential Event of Default: any condition or event which, with notice -------------------------- or lapse of time or both, would become an Event of Default. Proceeds Redemption Amount: the meaning specified in section 10.4. -------------------------- Proceeding: the meaning specified in section 14.2. ---------- Procurement Contract: the meaning specified in the introduction and -------------------- shall include any assignment thereof pursuant to the terms of such Agreement. Puerto Rico Stock Purchase Agreement: the Stock Purchase Agreement ------------------------------------ dated as of March 30, 1999 among the cash equity investors named therein, the management stockholders named therein, Puerto Rico Acquisition Corp., a Delaware corporation, and the Company. Qualifying High Yield Offering: a High Yield Offering that results in ------------------------------ Net Debt Proceeds to the Company of at least $100,000,000. Real Property Subsidiary: TeleCorp Realty L.L.C., TeleCorp Puerto ------------------------ Rico Realty, Inc. and/or any other Wholly-Owned Subsidiary of the Company designated by the Company as a Real Property Subsidiary under the Credit Agreement. Redeemable Stock: any Capital Stock that by its terms or otherwise is ---------------- required to be redeemed prior to the maturity of the Notes or is redeemable at the option of the holder thereof at any time prior to maturity of the Notes. Refinancing Securities: securities issued by the Company which are ---------------------- exchanged by the Company for Notes held by you upon your request in connection with a Remarketing Transfer involving at least 50% of then outstanding aggregate principal amount of the Notes and are issued pursuant to an indenture reasonably satisfactory to the Company and you. Register: the meaning specified in section 23.4. -------- Related Agreements: the collective reference to the Resale Agreement, ------------------ Management Agreement, Roaming Agreement, Roaming Administration Agreement, Network Membership License Agreement, License Purchase Agreement and Stockholders Agreement. Remarketing Notice: the meaning specified in section 24(b). ------------------ Remarketing Transfer: the meaning specified in section 24(b). -------------------- -48- Required Holders: at any time, (a) until the first date upon which ---------------- you hold Notes and Unused Commitments in an aggregate amount less than 50% of the aggregate Notes and Unused Commitments then outstanding, you and (b) thereafter, holders of Notes and Unused Commitments in an aggregate amount equal to at least a majority of the aggregate amount of Notes and Unused Commitments then outstanding. Requirement of Law: as to any Person, the Governing Documents of such ------------------ Person, and any law, treaty, rule, regulation or Permit or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. Resale Agreement: the form of Resale Agreement between the Company ---------------- and AT&T. Responsible Officer: the chief executive officer and the president of ------------------- the Company or, with respect to financial matters, the chief financial officer or treasurer of the Company. Restricted Payment: (a) any dividend or other distribution, direct or ------------------ indirect, on account of any shares of any class of stock of the Company or any Subsidiary now or hereafter outstanding, except a dividend payable solely in shares of Common Stock of the Company; (b) any redemption, retirement, purchase or other acquisition, direct or indirect, of any shares of any class of stock of the Company or any Subsidiary now or hereafter outstanding, or of any warrants, rights or options to acquire any such shares, except to the extent that the consideration therefor consists of shares of stock of the Company; and (c) any payment of any interest on or principal or premium of, and any redemption, retirement, purchase or other acquisition, direct or indirect, of, any Debt of the Company or any Subsidiary which ranks pari passu with or junior to the Notes. Restricted Subsidiary: of a Person means any Subsidiary of such --------------------- Person that is not an Unrestricted Subsidiary. Revocation: the meaning specified in section 11.9. ---------- Roaming Agreement: the Intercarrier Roamer Services Agreement between ----------------- the Company and AT&T Wireless Services, Inc. dated as of July 17, 1998 as amended by Amendment No. 1 thereto dated as of May 25, 1999. Roaming Administration Agreement: the Roaming Administration Service -------------------------------- Agreement dated as of July 17, 1998 between AT&T Wireless Services, Inc. and the Company. Securities Act: the Securities Act of 1933. -------------- Securities Payment: the meaning specified in section 14.2(a). ------------------ -49- Securities Purchase Agreement. Securities Purchase Agreement dated as ----------------------------- of January 23, 1998 among AT&T, TWR, the Cash Equity Investors, the investors referred to on Schedule II.A thereto, the investors referred to on Schedule II.B thereto and the Company. Senior Debt: (a) all Debt of the Company for money borrowed, ----------- including principal, premium, if any, interest thereon (including, without limitation, any interest accruing subsequent to the filing of a petition of other action concerning bankruptcy or other similar proceedings), reimbursements and indemnification amounts, fees, expenses or other amounts relating to such Debt (other than any such Debt which by its terms is stated to be subordinate to or pari passu with the Notes); and (b) all renewals, extensions, refundings, restructurings, amendments and modifications of any of the foregoing Debt. Senior Nonmonetary Default: the meaning specified in section 14.3. -------------------------- Senior Payment Default: the meaning specified in section 14.3. ---------------------- Series A Closing: the meaning specified in section 3.1. ---------------- Series A Closing Date: the meaning specified in section 3.1. --------------------- Series A Coupon Rate: the meaning specified in section 4.2. -------------------- Series A Final Maturity Date: October 23, 2009. ---------------------------- Series A Note Commitment: your commitment to purchase Series A Notes ------------------------ in an original aggregate principal amount not to exceed $52,500,000 which amount shall be decreased on a dollar for dollar basis to the extent the Company receives Net Securities Proceeds from Equity Issuances in an aggregate amount which exceeds $198,000,000 subject to section 28. Series A Note Commitment Termination Date: The earlier to occur of ----------------------------------------- (a) June 30, 2001 or (b) such earlier date on which the Series A Note Commitment shall terminate pursuant to the terms of the Agreement. Series A Notes: the meaning specified in section 1. -------------- Series A Payment Date: the meaning specified in section 4.2. --------------------- Series B Availability Period: the period commencing on October 29, ---------------------------- 1999 and continuing to but excluding June 30, 2001 Series B Closing: the meaning specified in section 3.2(b). ---------------- Series B Closing Date: the meaning specified in section 3.2(b). --------------------- -50- Series B Coupon Rate: as defined in section 4.3. -------------------- Series B Final Maturity Date: October 23, 2009. ---------------------------- Series B Notes: the meaning specified in section 1. -------------- Series B Note Commitment: your commitment to purchase Series B Notes ------------------------ in an original aggregate principal amount equal to $12,500,000 subject to section 28. Series B Note Commitment Termination Date: June 30, 2001 or such ----------------------------------------- earlier date on which the Series B Note Commitment shall terminate pursuant to the terms of this Agreement. Series B Payment Date: the meaning specified in section 4.3. --------------------- SLE Expansion Areas: the meaning specified in the introduction. ------------------- SLE Expansion Areas Transaction Documents: the collective reference ----------------------------------------- to the AT&T Stock Purchase Agreement, the Viper Stock Purchase Agreement, the Puerto Rico Stock Purchase Agreement, the Asset Purchase Agreement, the Mercury License Agreement and the Wireless 2000 License Agreement. Stockholders' Agreement: the Stockholders' Agreement dated as of July ----------------------- 17, 1998, among AT&T PCS, TWR, the Cash Equity Investors, the Management Stockholders and the Company, as such agreement may be amended from time to time in accordance with the provisions of such agreement, so long as the terms of any such amendment are no less favorable to the holders of the Notes than the terms of the Stockholders' Agreement in effect on the date of the Indenture. Subsidiary: with respect to any Person, any corporation or other ---------- entity at least 50% (by number of votes) of the Voting Stock or voting power of which is at the time owned by such Person or by one or more Subsidiaries or by such Person and one or more Subsidiaries. Unless otherwise indicated, all references to Subsidiaries shall be deemed references to the Company's Subsidiaries. System: as to any Person, assets constituting a radio communications ------ system authorized under the rules for wireless communications services (including any license and the network, marketing, distribution, sales, customer interface and operations functions relating thereto) owned and operated by such Person. Telecommunications Act: The Telecommunication Act of 1996 and the ---------------------- rules and regulations promulgated thereunder, as amended from time to time. -51- TeleCorp Holdings: TeleCorp Holding Corp., Inc., a Delaware ----------------- corporation. Transaction Documents: the collective reference to the Securities --------------------- Purchase Agreement, the Related Agreements, the Procurement Contract, the Credit Agreement, the SLE Expansion Area Transaction Documents and each of the other agreements, instruments or other documents delivered by the Company or any other Person in connection with the consummation of the Financing Transactions. Transferee: the meaning specified in section 23.5. ---------- TWR: TWR Cellular, Inc., a Maryland corporation. --- Unrestricted Subsidiary: means any Subsidiary of the Company (other ----------------------- than the Equipment Subsidiary or Real Property Subsidiary) designated after the Effective Date as such pursuant to and in compliance with Section 11.9. Any such designation may be revoked by a resolution of the Board delivered to you, subject to the provisions of Section 11.9. An Unrestricted Subsidiary shall not be permitted to hold any FCC licenses other than licenses in respect of cellular communication, that cover an area that has been built out and is on the date such Subsidiary is so designated actively and continuously in operation. Unused Commitment: at any time as to any holder, an amount equal to ----------------- the excess, if any, of (a) the amount of the Commitments of such holder over (b) the aggregate principal amount of Notes purchased by such holder, and in each case excluding Additional Notes. Vendor: the meaning specified in the introduction. ------ Viper Stock Purchase Agreement: the Stock Purchase Agreement dated as ------------------------------ of March 1, 1999 among Viper Wireless, Inc., a Delaware corporation, TeleCorp Holdings and the Company. Voting Stock: with reference to any corporation, stock of any class ------------ or classes (or equivalent interests), if the holders of the stock of such class or classes (or equivalent interests) are ordinarily, in the absence of contingencies, entitled to vote for the election of the directors (or Persons performing similar functions) of such corporation, even though the right so to vote has been suspended by the happening of such a contingency. Wholly-Owned: as applied to any Subsidiary, a Subsidiary all the ------------ outstanding shares (other than, if required by law, directors' qualifying shares) of every class of stock of which are at the time owned by the Company or by one or more Wholly-Owned Subsidiaries or by the Company and one or more Wholly-Owned Subsidiaries. -52- Wireless 2000: Wireless 2000, Inc., a Louisiana corporation. ------------- "Wireless 2000 License Agreement": the License Acquisition Agreement ------------------------------- dated as of December 2, 1998 between Wireless 2000 and the Company. 16. Tax Matters. ----------- 16.1 Taxes. (a) All payments made by the Company under this ----- Agreement and the Notes shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding net income taxes and franchise or overall gross receipts taxes imposed on any holder (or Transferee) as a result of a present or former connection between such holder (or Transferee) and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from such holder (or Transferee) having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement or the Notes). If any such non-excluded taxes, levies, imposts, duties, charges, fees, deductions or withholdings ("Non-Excluded Taxes") are ------------------ required to be withheld from any amounts payable to any holder (or Transferee) hereunder or under the Notes, the amounts so payable to such holder (or Transferee) shall be increased to the extent necessary to yield to such holder (or Transferee) (after payment of all Non-Excluded Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement and the Notes; provided that the Company shall not be required to -------- increase any such amounts payable to any holder (or Transferee) that is not organized under the laws of the United States of America or a state thereof if such holder (or Transferee) fails to comply with the requirements of paragraph (b) of this section. Whenever any Non-Excluded Taxes are payable by the Company, as promptly as possible thereafter, the Company shall send to such holder (or Transferee) a certified copy of an original official receipt received by the Company showing payment thereof. If the Company fails to pay any Non- Excluded Taxes when due to the appropriate taxing authority or fails to remit to the holder (or Transferee) the required receipts or other required documentary evidence, the Company shall indemnify such holder or (Transferee) for any incremental taxes, interest or penalties that may become payable by any holder or (Transferee) as a result of any such failure. The covenants in this section shall survive the termination of this Agreement and the payment of the Notes and payment of the Obligations hereunder. (b) Each holder (or Transferee) of any Notes shall: (iv) in the case of a holder (or Transferee) that is a "bank" under Section 881(c)(3)(A) of the Code; (A) on or before the date on which the first payment becomes payable to it hereunder or under any Note (or in the case of a Participant, on or before the -53- date such Participant becomes a Participant hereunder) deliver to the Company (1) in the case of a holder (or Transferee) that is not incorporated under the laws of the United States or any State thereof, two duly completed copies of United States Internal Revenue Service Form 1001 or 4224, or successor applicable form, as the case may be, and an Internal Revenue Service Form W-8 or W-9, or successor applicable form, as the case may be, and (2) in the case of any other holder (or Transferee), an Internal Revenue Service Form W-9, or successor applicable form; (B) deliver to the Company two further copies of any such form or certification on or before the date that any such form or certification expires or becomes obsolete and after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Company, and (C) obtain such extensions of time for filing and timely complete and deliver such forms or certifications as may reasonably be requested by the Company; (v) in the case of a holder (or Transferee) that is not a "bank" under Section 881(c)(3)(A) of the Code: (A) on or before the date on which the first payment becomes payable to it hereunder or under any Note (or, in the case of a Participant, on or before the date such Participant becomes a Participant hereunder) deliver to the Company (1) in the case of a holder (or Transferee) that is not organized under the laws of the United States or any state thereof, (I) a statement under penalties of perjury that such holder (or Transferee) (x) is not a "bank" under Section 881(c)(3)(A) of the Code, is not subject to regulatory or other legal requirements as a bank in any jurisdiction, and has not been treated as a bank for purposes of any tax, securities law or other filing or submission made to any Governmental Authority, any application made to a rating agency or qualification for any exemption from tax, securities law or other legal requirements, (y) is not a 10- percent shareholder of the Company within the meaning of Section 881(c)(3)(B) of the Code and (z) is not a controlled foreign corporation receiving interest from a related person within the meaning of Section 881(c)(3)(C) of the Code and (II) a properly completed and duly executed Internal Revenue Service Form W-8 or applicable successor form, and where applicable, an Internal Revenue Form W-9 or applicable successor form, and (2) in the case of any other holder (or Transferee), an Internal Revenue Service Form W-9 or successor applicable form. (B) deliver to the Company two further properly completed and duly executed copies of said form or certification or any successor applicable form or certification on or before the date that any such form or certification expires or -54- becomes obsolete or after the occurrence of any event requiring a change in the most recent form or certification previously delivered by it to the Company or upon the request of the Company; and (C) obtain such extensions of time for filing and timely complete and deliver such forms or certifications as may be reasonably requested by the Company; unless in any such case any change in treaty, law or regulation has occurred subsequent to the date such holder (or Transferee) became a party to this Agreement (or, in the case of a Participant, the date such Participant became a Participant hereunder) which renders all such forms inapplicable or which would prevent such holder from properly completing and executing any such form with respect to it and such holder (or Transferee) so advises the Company in writing no later than 15 calendar days before any payment hereunder or under any Note is due. Each such holder (and each Transferee) shall certify (i) in the case of a Form 1001 or 4224 or in the case of a holder providing certification pursuant to section 16.1(b)(ii), that it is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes and (ii) in the case of a Form W-8 or W-9 delivered pursuant to section 16.1(b), that it is entitled to an exemption from United States backup withholding tax. Each Person that shall become a holder or a Participant pursuant to section 23 shall, upon the effectiveness of the related transfer, provide all of the forms and statements required pursuant to this section; provided that, in the case of a Participant, such Participant shall furnish all - -------- such required forms and statements to the holder from which the related participation shall have been purchased. (c) Notwithstanding the foregoing paragraphs (a) and (b) of this section 16.1, the Company shall only be required to pay any additional amounts to any holder (or Transferee) in respect of any amounts pursuant to such paragraph (a) if such holder (or Transferee), in addition to complying with the requirements of paragraph (b), shall have taken such other steps as such holder or Transferee may determine in the exercise of its business judgment (utilizing criteria it determines to be appropriate) are reasonably available to it under applicable laws and any applicable tax treaty or convention to obtain an exemption from, or reduction (to the lowest applicable rate) of, such tax (it being understood that no holder shall be required to take any action that it concludes could subject it to heightened audit scrutiny or extend the period that such holder's tax returns remain open for review by any taxing authority). (d) Any claim by a holder (or Transferee) for payment from the Company of any amounts under this section 16.1 shall be made within ninety (90) days after such holder (or Transferee) determines the exact amount of any such claim. 17. Notes held by Company, etc., Deemed Not Outstanding. For the --------------------------------------------------- purposes of determining whether the holders of the Notes of the requisite principal amount at the time outstanding have taken any action authorized by this Agreement with respect to the giving of -55- consents or approvals or with respect to acceleration upon an Event of Default, any Notes directly or indirectly owned by any of the Company or any Subsidiary or Affiliates shall be disregarded and deemed not to be outstanding. 18. Payments on Notes. ----------------- 18.1 Place of Payment. Payments of principal, premium, if any, and ---------------- interest becoming due and payable on the Notes shall be made at the principal office of Chase Manhattan Bank, in the Borough of Manhattan, the City and State of New York, unless the Company, by written notice to each holder of any Notes, shall designate the principal office of another bank or trust company in such Borough as such place of payment, in which case the principal office of such other bank or trust company shall thereafter be such place of payment. 18.2 Home Office Payment. So long as you or your nominee shall be ------------------- the holder of any Note, and notwithstanding anything contained in section 18.1 or in such Note to the contrary, the Company, at its election, shall pay all sums becoming due on such Note for principal, premium, if any, and interest (including pay-in-kind interest) by the method and at the address specified for such purpose in Schedule A, or by such other method or at such other address as you shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of such Note or the making of any notation thereon, except that any Note paid or prepaid in full shall be surrendered to the Company at its principal office or at the place of payment maintained by the Company pursuant to section 18.1 for cancellation. Prior to any sale or other disposition of any Note held by you or your nominee you will, at your election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender such Note to the Company in exchange for a new Note or Notes pursuant to section 23.7. Each transferee of a Note, as a condition to completing such transfer shall agree that the Company, at its election, may make payments to such transferee in the manner contemplated in the first sentence hereof. The Company will afford the benefits of this section 18.2 to any institutional investor which is the direct or indirect transferee of any Note purchased by you under this Agreement and which has made the same agreement relating to such Note as you have made in this section 18.2. 18.3 Expenses, etc. Whether or not the transactions contemplated -------------- by this Agreement shall be consummated, the Company will pay all reasonable expenses in connection with such transactions and in connection with any amendments or waivers (whether or not the same become effective) under or in respect of this Agreement, the Notes, including, without limitation: (a) the cost and expenses of preparing and reproducing this Agreement and the Notes, of furnishing all opinions by counsel for the Company (including any opinions requested by your special counsel as to any legal matter arising hereunder) and all certificates on behalf of the Company, and of the Company's performance of and compliance with all agreements and conditions contained herein on its part to be performed or complied with; (b) the cost of delivering to your principal office, insured to your satisfaction, the Notes sold to you hereunder and any Notes delivered to you upon any substitution of Notes pursuant to section 23 of this -56- Agreement, and of your delivering any Notes, insured to your satisfaction, upon any such substitution; (c) the reasonable expenses and disbursements of special counsel for the holders of the Notes in connection with such transactions and any such amendments or waivers; and (d) the reasonable out-of-pocket expenses incurred by you in connection with such transactions and any such amendments or waivers. The Company also will pay, and will save you and each holder of any Notes harmless from, all claims in respect of the fees, if any, of brokers and finders and, subject to section 16, any and all liabilities with respect to any taxes (including interest and penalties but excluding taxes measured by or payable with respect to gross or net income) which may be payable in respect of the execution and delivery of this Agreement, the issue of the Notes and any amendment or waiver under or in respect of this Agreement and the Notes. The obligation of the Company under this section 18.3 shall survive any disposition or payment of the Notes and the termination of this Agreement. 19. Survival of Representations and Warranties. All representations ------------------------------------------ and warranties contained in this Agreement or made in writing by or on behalf of the Company in connection with the transactions contemplated by this Agreement shall survive the execution and delivery of this Agreement, any investigation at any time made by you or on your behalf, the purchase of the Notes by you under this Agreement and any disposition or payment of the Notes. All statements contained in any certificate or other instrument delivered by or on behalf of the Company pursuant to this Agreement shall be deemed representations and warranties of the Company under this Agreement. 20. Amendments and Waivers. Any term of this Agreement or of the ---------------------- Notes may be amended and the observance of any term of this Agreement or of the Notes may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the Required Holders (subject to section 17); provided that, without the -------- prior written consent of the holders of all the Notes at the time outstanding (subject to section 17), no such amendment or waiver shall (a) change the maturity or the principal amount of, or reduce the rate or change the time of payment of interest on, or change the amount or the time of payment of any principal or premium payable on any prepayment of, any Note, (b) reduce the percentage of the principal amount of the Notes the holders of which are required to consent to any such amendment or waiver, or (c) change the percentage of the principal amount of the Notes the holders of which may declare the Notes to be due and payable as provided in section 12. Any amendment or waiver effected in accordance with this section 20 shall be binding upon each holder of any Note at the time outstanding, each future holder of any Note and the Company. 21. Notices, etc. Except as otherwise provided in this Agreement, ------------- notices and other communications under this Agreement shall be in writing and shall be delivered by hand or courier service, or mailed by registered or certified mail, return receipt requested, addressed, (a) if to you, at the address set forth in Schedule A or at such other address as you shall have furnished to the Company in writing, except as otherwise provided in section 18 with respect to payments on Notes held by you or your nominee, or (b) if to any other holder of any Note, at -57- such address as such other holder shall have furnished to the Company in writing, or, until any such other holder so furnishes to the Company an address, then to and at the address of the last holder of such Note who has furnished an address to the Company, or (c) if to the Company, at its address set forth at the beginning of this Agreement, to the attention of General Counsel and Chief Financial Officer, with copies to McDermott, Will & Emery, 28 State Street, Boston, Massachusetts, Attention: John B. French, Esq. or at such other address, or to the attention of such other officer, as the Company shall have furnished to you and each such other holder in writing. Any notice so addressed and delivered by hand or courier shall be deemed to be given when received, and any notice so addressed and mailed by registered or certified mail shall be deemed to be given three Business Days after being so mailed. 22. Indemnification. The Company will indemnify and hold harmless --------------- each holder of Notes and each person who controls a holder within the meaning of the Securities Act or the Exchange Act and each of the holder's subsidiaries and each holder's respective directors, officers, employees, agents and advisors (any and all of whom are referred to as the "Indemnified Party") from and against any and all losses, claims, damages and liabilities, whether joint or several (including all legal fees or other expenses reasonably incurred by counsel for any Indemnified Party in connection with the preparation for or defense of any pending or threatened third party claim, action or proceeding, whether or not resulting in any liability), to which such Indemnified Party may become subject (whether or not such Indemnified Party is a party thereto) under any applicable federal or state law or otherwise, caused by or arising out of, the Financing Transactions, or this Agreement or any transaction contemplated hereby or thereby (including, without limitation, any of the foregoing relating to the violation of, non-compliance with or liability under any Environmental Law applicable to the operations of the Company or its Subsidiaries), other than, with respect to any Indemnified Party, losses, claims, damages or liabilities that are the result of the gross negligence or willful misconduct of such Indemnified Party. Promptly after receipt by an Indemnified Party of notice of any claim, action or proceeding with respect to which an Indemnified Party is entitled to indemnity hereunder, such Indemnified Party will notify the Company of such claim or the commencement of such action or proceeding; provided that the -------- failure of an Indemnified Party to give notice as provided herein shall not relieve the Company of its obligations under this section 22 with respect to such Indemnified Party, except to the extent that the Company is actually prejudiced by such failure. The Company will assume the defense of such claim, action or proceeding and will employ counsel reasonably satisfactory to the Indemnified Party and will pay the fees and expenses of such counsel. Notwithstanding the preceding sentence, the Indemnified Party will be entitled, at the expense of the Company, to employ counsel separate from counsel for the Company and for any other party in such action if the Indemnified Party reasonably determines that a conflict of interest or other reasonable basis exists which makes representation by counsel chosen by the Company not advisable, but the Company will not be obligated to pay the fees and expenses of more than one counsel for all Indemnified Parties. -58- The agreements in this section shall survive repayment of the Notes and all other amounts payable hereunder. 23. Successors and Assigns; Participations; Assignments; Replacement ---------------------------------------------------------------- of Notes. - -------- 23.1 Successors and Assigns. This Agreement shall be binding upon ---------------------- and inure to the benefit of the Company, the holders and their respective successors and assigns, except that the Company may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each holder. 23.2 Participations. Subject to section 24, any holder may, in -------------- accordance with applicable law, including compliance with applicable federal and state securities and "blue sky" laws and regulations, at any time sell to one or more Eligible Assignees ("Participants") participating interests in any Note owned by such holder, the Commitments of such holder or any other interest of such holder hereunder. In the event of any such sale by a holder of a participating interest to a Participant, such holder's obligations under this Agreement to the Company and any other holder shall remain unchanged, such holder shall remain solely responsible for the performance thereof, such holder shall remain the holder of any such Note for all purposes under this Agreement, and the Company shall continue to deal solely and directly with such holder in connection with such holder's rights and obligations under this Agreement. No holder shall be entitled to create in favor of any Participant, in the participation agreement pursuant to which such Participant's participating interest shall be created or otherwise, any right to vote on, consent to or approve any matter relating to this Agreement except for those specified in clauses (a) and (b) of section 20. The Company also agrees that each Participant shall be entitled to the benefits of section 16 with respect to its participation in the Commitments and the Notes outstanding from time to time as if it were a holder; provided that, in the case of section 16, such Participant -------- shall have complied with the requirements of such section and provided, -------- further, that no Participant shall be entitled to receive any greater amount - ------- pursuant to such section than the transferor holder would have been entitled to receive in respect of the amount of the participation transferred by such transferor holder to such Participant had no such transfer occurred. 23.3 Assignments. Subject to section 24, any holder may, in ----------- accordance with applicable law, including compliance with applicable federal and state securities and "blue sky" laws and regulations, at any time and from time to time assign to any other holder or to an Eligible Assignee (an "Assignee") all or any part of its Notes and Commitments pursuant to an assignment and acceptance executed by such Assignee and such assigning holder and delivered to the Company for acceptance and recording in the Register (an "Assignment and Acceptance"); provided that, in the case of any such assignment to an Eligible -------- Assignee, the sum of the aggregate principal amount of the Notes and the aggregate amount of Unused Commitment being assigned is not less than $5,000,000 (or such lesser amount as constitutes the assigning holder's entire aggregate principal amount of Notes and Unused Commitment) and, if such assignment is -59- of less than all the Notes and Commitments of the assigning holder, the sum of the aggregate principal amount of the assigning holder's remaining Notes and the aggregate amount of Unused Commitment is not less than $5,000,000 (or such lesser amount as may be agreed to by the Company). Upon such execution, delivery, acceptance and recording, from and after the effective date determined pursuant to such Assignment and Acceptance, (i) the Assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a holder hereunder, and (ii) the assigning holder thereunder shall, to the extent provided in such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning holder's rights and obligations under this Agreement, such assigning holder shall cease to be a party hereto but shall be entitled to the benefits of section 16 in respect of the period prior to such assignment). 23.4 Register. The Company shall maintain a copy of each Assignment -------- and Acceptance delivered to it and a register (the "Register") for the recordation of the names and addresses of the holders, the registered owners of the Obligations evidenced by the Notes and the principal amount of the Notes owing to each holder from time to time. The entries in the Register shall be prima facie evidence of the accuracy thereof, and the Company and the holders shall treat each Person whose name is recorded in the Register as the owner of a Note hereunder as the owner thereof for all purposes of this Agreement, notwithstanding any notice to the contrary. Any assignment or transfer of all or part of any Note shall be registered on the Register only upon surrender for registration of assignment or transfer of such Note, duly endorsed by (or accompanied by a written instrument of assignment or transfer duly executed by) the holder thereof, and thereupon one or more new Note(s) in the same aggregate principal amount shall be issued to the designated Assignee(s) and the old Note shall be returned to the Company marked "canceled". The Register shall be available for inspection by any holder at any reasonable time and from time to time upon reasonable prior notice. 23.5 Disclosure of Information in Connection with a Transfer. The ------------------------------------------------------- Company authorizes each holder to disclose to any Participant or Assignee (each, a "Transferee") and any prospective Transferee and its advisers and agents, any and all information in such holder's possession concerning the Company and its Subsidiaries which has been delivered to such holder by or on behalf of the Company pursuant to this Agreement or which has been delivered to such holder by or on behalf of the Company in connection with such holder's credit evaluation of the Company and its Subsidiaries prior to becoming a party to this Agreement; provided that no such disclosure may be made unless such Transferee or - -------- prospective Transferee and its advisers and agents shall have executed and delivered to the Company an agreement reasonably acceptable to the Company to keep such information confidential. 23.6 Assignment to Federal Reserve Bank. Nothing contained herein ---------------------------------- shall prohibit assignments creating security interests, including, without limitation, any pledge or assignment by a holder of any Note to any Federal Reserve Bank in accordance with applicable law. -60- 23.7 Replacement of Notes. Upon receipt of evidence reasonably -------------------- satisfactory to the Company of the loss, theft, destruction or mutilation of any Note and, in the case of any such loss, theft or destruction of any Note, upon delivery of an indemnity bond in such reasonable amount as the Company may determine (or, in the case of any Note held by you or another institutional holder or your or its nominee, of an indemnity agreement from you or such other holder) or, in the case of any such mutilation, upon the surrender of such Note for cancellation to the Company at its principal office, the Company at its expense will execute and deliver, in lieu thereof, a new Note in the unpaid principal amount of such lost, stolen, destroyed or mutilated Note, dated so that there will be no loss of interest on such Note and otherwise of like tenor. Any Note in lieu of which any such new Note has been so executed and delivered by the Company shall not be deemed to be an outstanding Note for any purpose of this Agreement. 24. Remarketing ----------- (a) You shall not engage in any remarketing efforts (i) prior to October 23, 1999, with respect to any assignment of any Unused Commitment related to the Series A Note Commitment or any Series A Notes and (ii) prior to October 23, 1999, with respect to any assignment of any Unused Commitment related to the Series B Note Commitment or any Series B Notes except as provided in this section. Prior to such time, you may request that the Company shorten the period in which you are restricted from remarketing the Notes. The Company will consider any such request and will not object to any such request if it concludes (in the exercise of its business judgement based on such criteria as it considers appropriate) that any such remarketing will not impair the ability of the Company to any High Yield Offering. The restrictions set forth in this section 24 shall not apply to any remarketing of the Notes to any of your Affiliates. (b) You shall provide the Company at least with 60 days prior written notice (a "Remarketing Notice") if you wish the Company to assist in any transfer or assignment of any amount of the Commitments or the Notes or if the Five-Year No-Call (as defined below) will be applicable to the Notes being so assigned (a "Remarketing Transfer"). Upon receipt of a Remarketing Notice, the Company and its Subsidiaries shall cooperate with you and your underwriters or agents in each remarketing effort undertaken by you. Such cooperation shall include, if requested by you, (i) the Company providing customary information in respect of the Company and its Subsidiaries and making customary representations and warranties with respect to such information in connection with any Offering and, if required by the Securities Act, the Company acting as co-registrant, issuer or co-issuer of such Offering, (ii) senior officers of the Company and its Subsidiaries participating to a reasonable degree and upon reasonable prior notice, in the "road show" for any Offering or in meetings with prospective transferees or assignees of the Notes and, (iii) appropriate personnel from the Company and its Subsidiaries assisting in the drafting of a registration statement or offering circular used in marketing of any Offering; provided that -------- the Company may elect to combine the registration of such Offering with the registration of any of the Company's other High Yield Debt. The Company will promptly -61- after delivery of a Remarketing Notice, upon your request, direct its counsel (i) to prepare required documentation for Refinancing Securities and/or any required amendments to this Agreement to permit a Remarketing Transfer or (ii) to review any such documentation prepared by your counsel, and the Company will work diligently with you to finalize such documentation and issue such Refinancing Securities in the manner you request. (c) In connection with any Remarketing Transfer involving a sale of Notes, the holders of the Notes or Refinancing Securities that are the subject of such Remarketing Transfer shall, if you so request, be granted the right to decline any optional or mandatory prepayments of such Notes or Refinancing Securities (excluding regularly scheduled installments of principal) for a period of up to five years from the date of consummation of such Remarketing Transfer (the "Five-Year No-Call"). (d) If you have not completed a Remarketing Transfer for all the Series A Notes and the Series B Notes then outstanding prior to January 1, 2003, then the Company will pay you up to 3% of the then outstanding principal amount of all Notes to defray any actual marketing and other distribution costs incurred by you in connection with any such remarketing. (e) At any time after the earlier to occur of (i) the disposition by you of more than 50% of the aggregate principal amount of the Series A Notes or Series B Notes then outstanding and (ii) January 1, 2001, you or the Required Holders may request the issuance of Refinancing Securities in place of such Series A Notes or Series B Notes, as applicable. 25. Adjustments. If any holder (a "Benefitted Holder") shall at ----------- any time receive any payment of all or part of its Notes, or interest thereon, (whether voluntarily or involuntarily) in a greater proportion than any such payment to any other holder, if any, in respect of such other holder's Notes, or interest thereon, such Benefitted Holder shall purchase for cash from the other holders a participating interest in such portion of each such other holder's Notes, Notes as shall be necessary to cause such Benefitted Holder to share the excess payment ratably with each of the other holders; provided, that if all or -------- any portion of such excess payment is thereafter recovered from such Benefitted Holder, such purchase shall be rescinded, and the purchase price returned, to the extent of such recovery, but without interest. 26. Miscellaneous. This Agreement shall be binding upon and inure ------------- to the benefit of and be enforceable by the respective successors and assigns of the parties hereto, whether so expressed or not, and, in particular, shall inure to the benefit of and be enforceable by any holder or holders at the time of the Notes or any part thereof. Except as stated in section 19, this Agreement embodies the entire agreement and understanding between you and the Company and supersedes all prior agreements and understandings relating to the subject matter hereof. This Agreement and the Notes shall be construed and enforced in accordance with and governed by the law of the State of New York. The headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect the meaning hereof. This Agreement may be executed -62- in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 27. Submission To Jurisdiction; Waivers. The Company hereby ----------------------------------- irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Agreement, and the Notes, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Company at its address set forth in section 18 or at such other address of which you shall have been notified pursuant thereto; (d) agrees that nothing contained herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this section any special, exemplary, punitive or consequential damages. 28. Expansion Notes. If the Company obtains the right to develop --------------- or operate PCS networks serving BTAs or MTAs in addition to those contained in the Designated Areas (such additional BTAs or MTAs, the "Expansion Areas"), you agree to provide financing related to such Expansion Areas through the purchase of Notes having the same terms and conditions as the Series A Notes and Series B Notes (such Notes, the "Expansion Notes") in an aggregate principal amount representing 30% of the software, hardware and services to be provided by the Vendor for such Expansion Area as set forth in a definitive business plan with respect to such Expansion Area as approved by the board of directors of the Company (the "Base Case"). Fifty percent of the Notes purchased by you shall have the same terms as the Series A Notes and the remainder shall have the same terms as the Series B Notes; provided that (i) you shall not be obligated to -------- purchase more than an aggregate principal amount of $50,000,000 of Expansion Notes (exclusive of the additional Series A Notes in an initial aggregate principal amount of $12,500,000 and the Series B Notes in an initial aggregate principal amount of $12,500,000 to be -63- issued and purchased by you pursuant to this Agreement) and (ii) such $50,000,000 aggregate principal amount shall be decreased on a dollar for dollar basis up to a maximum reduction of $20,000,000 to the extent that you provide any Commitments for Expansion Term Loans (as such terms are defined in the Credit Agreement) (it being understood that you have agreed to provide $35,000,000 of such Commitments which shall not be utilized to decrease such $50,000,000 aggregate principal amount). The expiration date for the Expansion Notes issued to finance a particular Expansion Area shall be October 23, 2009. The Company acknowledges that your obligation to purchase Expansion Notes is contingent on: (a) the Company irrevocably committing to purchase one mobile switching center and fifty base stations for such Expansion Area from the Vendor either pursuant to the Procurement Contract or under a new procurement contract acceptable to the Company and the Vendor; (b) the Company having entered into one or more agreements with AT&T and AT&T PCS on terms substantially equivalent, in your determination, as those entered into with AT&T, AT&T PCS and TWR with respect to the Designated Areas which relate to the use of the AT&T brand name, trademarks and service marks, roaming, access to the AT&T network with seamless integration for customers; (c) an agreement among AT&T PCS, TWR and the other parties to the Stockholders' Agreement (in each case together with the Affiliated Successors (as defined in the Stockholders' Agreement) that none of them will offer any Company Communications Services (as defined in the Stockholders' Agreement) in such Expansion Area (other than the right of AT&T PCS to offer resale services similar to those set forth in Section 8.6 of the Stockholders' Agreement); (d) the Company having received either cash equity contributions or irrevocable commitments to provide, over a time frame acceptable to you, cash equity contributions, per POP in such Expansion Area in an amount of not less than $10; (e) the Company having Licenses covering such Expansion Area that (i) are in full force and effect with no pending appeal, and (ii) are not subject to any pending or, to the knowledge of the Company, threatened revocation or termination proceeding or action; (f) the Company being in compliance with all Licenses covering such Expansion Area in all material respects; and (g) the Company and the Vendor having into a new procurement contract or amendment of the Procurement Contract, as described above. -64- Your exclusivity rights under the Procurement Contract with respect to the Expansion Area shall not terminate if any of these conditions are not satisfied and as a result you do not purchase any Expansion Notes. The Company's and your obligations under this section 28 shall expire June 30, 2001. In connection with any such purchase of Expansion Notes for an Expansion Area, the Company and you will agree to: (i) modify the threshold amount of Net Securities Proceeds under section 10.4 to an amount not to exceed the product of (X) $198,000,000 multiplied by (Y) a fraction the numerator of which is the sum of (A) 16,800,000 plus (B) the number of POPs in Expansion Areas for which Expansion Notes have been or concurrent therewith are being issued and the denominator of which is 16,800,000; and (ii) enter into an agreement and/or an amendment to this Agreement related to the purchase of the Expansion Notes. 29. Waivers of Jury Trial. THE COMPANY AND YOU HEREBY IRREVOCABLY --------------------- AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR, THE NOTES AND FOR ANY COUNTERCLAIM THEREIN. 30. Series B Notes. The parties hereto intend that as promptly as -------------- practicable after the date hereof, this Agreement (including the form of Series B Notes issued under this Agreement) shall be modified to provide that the Series B Notes shall have the same covenants (other than Section 4.02, Section 4.08, Section 4.09, Section 4.10 and Section 4.11 as to which the corresponding provisions of this Agreement, if any, shall apply) as those contained in Article 4 and Article 5 of the Indenture (including, to the extent applicable and solely for the purposes of applying and interpreting such covenants, all defined terms contained therein) and the same events of default as those contained in Article 6 of the Indenture (including, to the extent applicable and solely for the purposes of applying and interpreting such provisions, all defined terms contained therein), in each case, with such conforming changes as may be necessary or appropriate to reflect that the Series B Notes are not being issued under the Indenture and do not have the benefit of any guarantees by the Subsidiaries and with such other modifications as the parties may agree. 31. Existing Events of Default; Effectiveness. Prior to the date ----------------------------------------- hereof, the Company has delivered a Series A Note in the principal amount of $1,583,479.16 representing all Additional Notes due and owing under the Existing Note Agreement and has delivered all financial and other information required to be delivered under section 8.1(a) and 8.1(d). You have agreed to waive late delivery of such Note and such financial and other information as required under the Existing Note Agreement. On the Effective Date, the Existing Note Agreement shall be amended and restated in its entirety by this Agreement and the Existing Note -65- Agreement shall thereafter be of no further force and effect. Notwithstanding any provision of this Section 31 to the contrary, any obligations of the Company which accrued on or prior to the Effective Date under the Existing Note Agreement shall not be released or terminated by the effectiveness of this Agreement. The terms and conditions of this Agreement and your rights and remedies under this Agreement, shall apply to all the obligations incurred under the Existing Note Agreement. It is expressly understood and agreed by the parties hereto that (a) this Agreement is in no way intended to constitute a novation of the obligations and liabilities existing under the Existing Note Agreement or evidence payment of all or any of such obligations and liabilities and (b) the obligations and liabilities under the Notes evidence obligations and liabilities incurred under the Existing Note Agreement. If you are in agreement with the foregoing, please sign the form of agreement on the accompanying counterparts of this letter and return one of the same to the Company, whereupon this letter shall become a binding agreement between you and the Company. Very truly yours, TELECORP PCS, INC. By: /s/ Thomas H. Sullivan ---------------------------- Title: Executive Vice President The foregoing Agreement is hereby agreed to as of the date thereof. LUCENT TECHNOLOGIES INC. By: /s/ Leslie L. Rogers ---------------------- Title: Managing Partner -66- SCHEDULE A PURCHASER INFORMATION --------------------- Lucent Technologies Inc. 600 Mountain Avenue Murray Hill, New Jersey 07974 SCHEDULE B DISCLOSURE SCHEDULE ------------------- Revised Disclosure Schedules pursuant to Section 5 of the Note Purchase Agreement by and between TeleCorp PCS, Inc. and Lucent Technologies, Inc. Revised as of October 29, 1999 Schedule 6.5 Changes. - -------------------- The Company has certain financial obligations under the Company's 11 5/8 % Senior Subordinated Discount Notes due 2009 issued in the aggregate principal amount of $575,000,000. Section 6.8 Capital Stock and Related Matters. - ---------------------------------------------- (a) The Company's capitalization is as follows:
Type of Stock, $.01 par value Shares Authorized Shares Issued and Outstanding - ----------------------------------------------------------------------------------------------- Series A Convertible Preferred 100,000 97,472.84 Stock ("Series A Preferred Stock") - ----------------------------------------------------------------------------------------------- Series B Convertible Preferred 200,000 0 Stock - ----------------------------------------------------------------------------------------------- Series C Preferred Stock 215,000 210,608.09 - ----------------------------------------------------------------------------------------------- Series D Preferred Stock 50,000 49,416.98 - ----------------------------------------------------------------------------------------------- Series E Preferred Stock 30,000 24,979.70 - ----------------------------------------------------------------------------------------------- Series F Preferred Stock 5,000,000 4,826,141.20 - ----------------------------------------------------------------------------------------------- Senior Common Stock 7,000,000 0 - ----------------------------------------------------------------------------------------------- Class A Voting Common Stock 95,000,000 23,907,399 ("Class A Common Stock") - ----------------------------------------------------------------------------------------------- Class B Non-Voting Common Stock 95,000,000 0 - ----------------------------------------------------------------------------------------------- Class C Common Stock 100,000 91,846 - ----------------------------------------------------------------------------------------------- Class D Common Stock 300,000 275,539 - ----------------------------------------------------------------------------------------------- Voting Preference Common Stock 1,000 1,000 - -----------------------------------------------------------------------------------------------
See (c) below (b) The capitalization of each of the Company's corporate Subsidiaries is as follows:
Subsidiary Shares Authorized Shares Issued and Outstanding - ------------------------------------------------------------------------------------------------ TeleCorp Holding Corp., Inc. 1,000 of common stock, no par 100 value - ------------------------------------------------------------------------------------------------ TeleCorp Communications, Inc. 1,000 of common stock, no par 100 value - ------------------------------------------------------------------------------------------------ TeleCorp Limited Holdings, Inc. 1,000 of common stock, no par 100 value - ------------------------------------------------------------------------------------------------ TeleCorp Realty Holdings, Inc. 1,000 of common stock, no par 100 value - ------------------------------------------------------------------------------------------------ Viper Wireless, Inc. 15,000 of class A common 7,500 class A common stock, $.01 par value, 85,000 42,500 class B common of class B common stock, $.01 71,274 series A preferred par value, 100,000 of series A preferred stock, $.01 par value - ------------------------------------------------------------------------------------------------ TeleCorp of Puerto Rico, Inc. 100,000 of common stock, 100 $.01 par value - ------------------------------------------------------------------------------------------------ TeleCorp Puerto Rico Realty, Inc. 100,000 of common stock, $.01 1,000 par value - ------------------------------------------------------------------------------------------------
(c) 1. Stock Option Plan. As of October 19, 1999, the Company has granted to ----------------- certain of its employees and directors options to purchase 178,735 shares of its Class B Common Stock pursuant to its 1999 Stock Option Plan. Upon the completion of a qualified initial public offering, the Company will exchange the options to purchase Class B Common Stock for options to purchase Class A Common Stock. These options are subject to a three or four year vesting schedule, during which time the Company is obligated to issue shares of its Class A (or Class B) Common Stock to employees and/or directors who exercise any of their vested shares. 2. Restricted Stock Plan. As of October 19, 1999 the Company has issued 6,678 --------------------- shares of Series E Preferred Stock and 1,229,719 shares of Class A Common Stock to certain employees pursuant to the Company's 1998 Restricted Stock Plan, as amended. Each award is subject to a five or six year vesting schedule, and the Company is obligated to repurchase certain amounts of such granted shares for $0.01 per share if any employee holding restricted shares terminates his/her employment with the Company. 3. LMDS Transaction. The Company shall issue to OneLiberty Fund IV, L.P., ---------------- Northwood Ventures LLC and Northwood Capital Partners LLC (the "LMDS Investors") an aggregate of 2,700 shares of Series C Preferred Stock and to the LMDS Investors, Gerald T. Vento and Thomas H. Sullivan, an aggregate of 270,000 shares of Class A Voting Common Stock, upon the closing of the transaction contemplated by the Stock Purchase Agreement by and among the Company, TeleCorp Holding Corp., Inc., Gerald T. Vento and Thomas H. Sullivan, and the LMDS Investors, dated as of October 18, 1999. 4. Viper Transaction. The Company shall (i) issue 64,535 shares of Voting ----------------- Common Stock and 493.33 shares of Series E Preferred Stock to Gerald T. Vento, (ii) issue 40,116 shares of Voting Common Stock and 306.67 shares of Series E Preferred Stock to Thomas H. Sullivan and (iii) fund into its 1998 Restricted Stock Plan 58,140 shares of Class A Common Voting Stock and 311.11 shares of Series E Preferred Stock, upon the closing of the transaction contemplated by the Plan of Reorganization and Agreement of Merger by and among the Company, TeleCorp Holding Corp., Inc., Viper Wireless, Inc., Gerald T. Vento and Thomas H. Sullivan, dated as of October 18, 1999. 5. Initial Public Offering. On October 20, 1999 the Company filed an S-1 ----------------------- registration statement with the Securities and Exchange Commission registering shares of its Class A Common Stock for sale to the public. The aggregate offering price including the underwriters overallotment is $143,520,000. 6. Management Agreement. Pursuant to a Management Agreement between the -------------------- Company and TeleCorp Management Corp., dated July 17, 1998, as amended, following the termination of the Management Agreement for any reason, the Company is obligated to repurchase from Gerald Vento and Thomas Sullivan up to 1,865,600 unvested shares of Class A Common Stock and up to 18,219 unvested shares of Series E Preferred Stock. Section 6.9 Debt. - ---------------- 1. The Company has certain financial obligations under the following: (a) Credit Agreement, dated as of July 17, 1998, by and among TeleCorp PCS, Inc., The Chase Manhattan Bank, TD Securities (USA) Inc., and Bankers Trust Company, and all agreements related thereto; (b) Increasing Rate Subordinated Notes (Series A) issued to Lucent by the Company under the Series A and B Note Purchase Agreement plus any interest accrued thereon; (c) Certain Letters of Credit in an aggregate amount of approximately $1,500,000; and (d) The Company's 11 5/8% Senior Subordinated Discount Notes Due 2009. 2. TeleCorp Holding Corp., Inc. is obligated to pay certain debt to the United States Department of Treasury in the outstanding principal amount of approximately $20,700,000 with respect to certain F and C Block licenses it holds. Section 6.11 Litigation. None - ----------------------- Section 6.20 Broker's Fee. None - ------------------------- Section 6.23 Subsidiaries. - ------------------------- In addition to TeleCorp Holding Corp., Inc. and TeleCorp PCS, L.L.C., the Company has the following Subsidiaries: 1. TeleCorp Communications, Inc. 2. TeleCorp Limited Holdings, Inc. 3. TeleCorp Realty Holdings, Inc. 4. TeleCorp Realty, L.L.C. (managing member is TeleCorp Communications, Inc.) 5. TeleCorp Equipment Leasing, L.P. (the general partner is TeleCorp Limited Holdings, Inc. and the limited partner is TeleCorp Communications, Inc.) 6. TeleCorp of Puerto Rico, Inc. 7. TeleCorp Puerto Rico Realty, Inc. 8. Viper Wireless, Inc. 9. Affiliate License Co., L.L.C. (The Company is a 1/3 owner) SCHEDULE 6.23 SUBSIDIARIES ------------ See Schedule B. EXHIBIT A FORM OF INCREASING RATE SUBORDINATED NOTE (SERIES A) ---------------------------------------------------- $___________________ [ issue date ] --------------- FOR VALUE RECEIVED, TeleCorp PCS, Inc., a Delaware corporation ( the "Company"), promises to pay to the order of Lucent Technologies Inc.("Payee"), on October 23, 2009 or such earlier date as may be provided pursuant to the Purchase Agreement referred to below, the principal amount of _________________________ ($___________). The Company also promises to pay interest on the unpaid principal amount hereof from the date hereof until paid in full at a rate equal to 8.50% per annum (the "Initial Rate"). If the Series A Notes (as defined in the Purchase Agreement referred to below) are not redeemed in their entirety by January 1, 2001, the Initial Rate will increase for the calendar year 2001, commencing January 1, 2001, to a rate per annum equal to 10.0%; the Initial Rate will increase for the calendar year 2002, commencing January 1, 2002, to a rate per annum equal to 11.5%; and the Initial Rate will increase for the calendar year 2003 and for all times thereafter, commencing January 1, 2003, to a rate per annum equal to 12.125%. Interest shall be payable semiannually on June 16 and December 16 of each year; provided that during the period from the date -------- hereof to May 11, 2004, the Company may pay the interest on any interest payment date during such period by issuing to the Payee an additional Note, identical to this Note (other than the date thereof, which shall be the date such interest payment is due) in the principal amount of the interest payable on such payment date. Commencing May 12, 2004 and at all times thereafter, interest shall be payable in cash unless there exists at the time such interest payment is due restrictions on such cash interest payment in any document evidencing Senior Debt. This Note is issued pursuant to and entitled to the benefits of the Amended and Restated Note Purchase Agreement dated as of October 29, 1999, as the same may at any time be amended, modified or supplemented and in effect (the "Purchase Agreement") between the Company and the Payee, to which reference is hereby made for a more complete statement of the terms and conditions under which the Notes were purchased and are to be repaid. Capitalized terms used herein without definition shall have the meanings set forth in the Purchase Agreement. All payments of principal and interest in respect of this Note shall be made in lawful money of the United States of America in same day funds to Payee at the office of Chase Manhattan Bank in the Borough of Manhattan, the City and State of New York or at such other place as shall be designated in writing for such purpose in accordance with the terms of the Purchase Agreement. Each of Payee and any subsequent holder of this Note agrees, by its acceptance hereof, that before disposing of this Note or any part hereof it will make a notation hereon of all principal payments previously made hereunder and of the date to which interest hereon has been paid; provided, however, that the failure to make a notation of any payment made on this Note shall not limit or otherwise affect the obligation of the Company hereunder with respect to payments of principal or interest on this Note. Whenever any payment on this Note shall be stated to be due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of the payment of interest on this Note. This Note is subject to prepayment at the option of the Company as provided in subsection 10.1 of the Purchase Agreement. The Company is obligated to prepay or make an offer to purchase all or part of this Note under the circumstances described in subsections 10.2 and 10.4 of the Purchase Agreement. This Note is subordinated in right of payment to Senior Debt as and to the extent provided in Section 14 of the Purchase Agreement. THIS NOTE SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS. Upon the occurrence of an Event of Default, the unpaid balance of the principal amount of this Note, together with all accrued but unpaid interest thereon, may become, or may be declared to be, due and payable in the manner, upon the conditions and with the effect provided in the Purchase Agreement. The terms of this Note are subject to amendment only in the manner provided in the Purchase Agreement. No reference herein to the Purchase Agreement and no provisions of this Note or the Purchase Agreement shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Note at the place, at the respective times, and in the currency herein prescribed. The Company promises to pay all costs and expenses, including all reasonable attorneys' fees, expenses and disbursements, incurred in the collection and enforcement of this Note. The Company and endorsers of this Note hereby consent to renewals and extensions of time at or after the maturity hereof, without notice, and hereby waive diligence, presentment, protest, demand and notice of every kind and, to the full extent permitted by law, the right to plead any statute of limitations as a defense to any demand hereunder. IN WITNESS WHEREOF, the Company has caused this Note to be executed and delivered by its duly authorized officer, as of the day and year and at the place first above written. TELECORP PCS, INC. By:_________________________________ Title: EXHIBIT B FORM OF INCREASING RATE SUBORDINATED NOTE (SERIES B) ---------------------------------------------------- $___________ __________, 1999 FOR VALUE RECEIVED, Telecorp PCS, Inc., a Delaware corporation ( the "Company"), promises to pay to the order of Lucent Technologies Inc.("Payee"), on October 23, 2009 or such earlier date as may be provided pursuant to the Purchase Agreement referred to below, the principal amount of _____________ Dollars ($__________). The Company also promises to pay interest on the unpaid principal amount hereof from the date hereof until paid in full at a rate equal to 10% per annum (the "Initial Rate"). If the Series B Notes (as defined in the Purchase Agreement referred to below) are not redeemed in their entirety by January 1, 2000, the Initial Rate will increase for the calendar year 2000, commencing January 1, 2000, to a rate per annum of 11.5%; the Initial Rate will increase for each calendar year thereafter, commencing January 1, 2001, to a rate per annum equal to 12.125%. Interest shall be payable semiannually on _________ and _________ of each year, commencing on ________; provided that during the period -------- from the date hereof to May 11, 2004, the Company may pay the interest on any interest payment date during such period by issuing to the Payee an additional Note, identical to this Note (other than the date thereof, which shall be the date such interest payment is due)in the principal amount of the interest payable on such payment date. After May 11, 2004, interest shall be payable in cash unless there exists at the time such interest payment is due restrictions on such cash interest payment in any document evidencing Senior Debt. This Note is issued pursuant to and entitled to the benefits of the Amended and Restated Note Purchase Agreement dated as of October 29, 1999, as the same may at any time be amended, modified or supplemented and in effect (the "Purchase Agreement") between the Company and the Payee, to which reference is hereby made for a more complete statement of the terms and conditions under which the Notes were purchased and are to be repaid. Capitalized terms used herein without definition shall have the meanings set forth in the Purchase Agreement. All payments of principal and interest in respect of this Note shall be made in lawful money of the United States of America in same day funds to Payee at the office of Chase Manhattan Bank in the Borough of Manhattan, the City and State of New York or at such other place as shall be designated in writing for such purpose in accordance with the terms of the Purchase Agreement. Each of Payee and any subsequent holder of this Note agrees, by its acceptance hereof, that before disposing of this Note or any part hereof it will make a notation hereon of all principal payments previously made hereunder and of the date to which interest hereon has been paid; provided, however, that the failure to make a notation of any payment made on this Note shall not limit or otherwise affect the obligation of the Company hereunder with respect to payments of principal or interest on this Note. Whenever any payment on this Note shall be stated to be due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of the payment of interest on this Note. This Note is subject to prepayment at the option of the Company as provided in subsection 10.1 of the Purchase Agreement. The Company is obligated to prepay or make an offer to purchase all or part of this Note under the circumstances described in subsections 10.2 and 10.5 of the Purchase Agreement. This Note is subordinated in right of payment to Senior Debt as and to the extent provided in Section 14 of the Purchase Agreement. THIS NOTE SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS. Upon the occurrence of an Event of Default, the unpaid balance of the principal amount of this Note, together with all accrued but unpaid interest thereon, may become, or may be declared to be, due and payable in the manner, upon the conditions and with the effect provided in the Purchase Agreement. The terms of this Note are subject to amendment only in the manner provided in the Purchase Agreement. No reference herein to the Purchase Agreement and no provisions of this Note or the Purchase Agreement shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Note at the place, at the respective times, and in the currency herein prescribed. The Company promises to pay all costs and expenses, including all reasonable attorneys' fees, expenses and disbursements, incurred in the collection and enforcement of this Note. The Company and endorsers of this Note hereby consent to renewals and extensions of time at or after the maturity hereof, without notice, and hereby waive diligence, presentment, protest, demand and notice of every kind and, to the full extent permitted by law, the right to plead any statute of limitations as a defense to any demand hereunder. IN WITNESS WHEREOF, the Company has caused this Note to be executed and delivered by its duly authorized officer, as of the day and year and at the place first above written. TELECORP PCS, INC. BY:____________________________________ Title: ANNEX I DESIGNATED AREAS ---------------- Little Rock, Arkansas MTA and the following BTAs: Blytheville, AR; Dyersburg-Union City, TN; Memphis, TN; Jackson, TN; Baton Rouge, LA; Lafayette New Iberia, LA; New Orleans, LA; Houma & Hammond, LA; Beaumont, TX; Cape Girardeau-Sikeston, MO; Columbia, MO; Jefferson City, MO; Kirksville, MO; Poplar Bluff, MO; Rolla, MO; Springfield (excluding Springfield MSA & MA 14 Barton 1v), MO; West Plains, MO; Carbondale-Marion, IL; Mt. Vernon-Centralia, IL; Quincy, IL-Hannibal, MO; Boston, MA; Hyannis, MA; Manchester-Nashua-Concord, NH; Worcester, MA; and San Juan, Puerto Rico ANNEX II -------- SLE EXPANSION AREAS ------------------- San Juan Expansion Area - ----------------------- San Juan, Puerto Rico MTA Lake Charles Expansion Area - --------------------------- Lake Charles, Louisiana BTA Monroe, Louisiana BTA Alexandria, Louisiana BTA Beaumont, Texas BTA Indiana Expansion Area - ---------------------- Evansville, Indiana BTA Paducah, Kentucky BTA EX-10.5.3 7 AMENDMENT NO. 2 TO THE MANAGEMENT AGREEMENT Exhibit 10.5.3 AMENDMENT NO. 2 TO MANAGEMENT AGREEMENT Between TELECORP MANAGEMENT CORP. and TELECORP PCS, INC. Dated as of October 18, 1999 AMENDMENT NO. 2 TO ------------------ MANAGEMENT AGREEMENT -------------------- This Amendment No. 2 to Management Agreement (the "Amendment") is entered into as of October 18, 1999 by and between TELECORP MANAGEMENT CORP., a Delaware corporation ("Manager"), and TELECORP PCS, INC., a Delaware corporation (the "Company"), and is effective only upon the IPO Date. WITNESSETH: WHEREAS, the Company and Manager entered into that certain Management Agreement dated as of July 17, 1998, which was amended on May 25, 1999 by Amendment No. 1 to Management Agreement (as amended, the "Management Agreement"); WHEREAS, the Company and Manager wish to amend the Management Agreement in order to remove certain repurchase provisions; NOW, THEREFORE, for and in consideration of the premises, the covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are acknowledged by the execution and delivery hereof, the parties agree as follows: Amendment 1. Sections 7(a) and 7(b) of the Management Agreement are ----------- hereby amended and restated in their entirety as follows: "Section 7. Vesting and Repurchase of Restricted Shares, Etc. ------------------------------------------------- (a) General. Each of Vento and Sullivan hereby agrees that the Shares ------- shall be subject to the vesting schedules set forth on Schedule B, and are subject to repurchase by the Company at a repurchase price of $.01 per share in accordance with the terms of this Section 7. As used in this Section 7, the following terms have the following meanings: (i) "Extraordinary Event Shares" means a number of Shares equal to 466,392 shares of Class A Voting Common Stock. (ii) "Restricted Holder" means each of Vento and Sullivan. (b) Repurchase of Shares Upon Termination. Following the termination ------------------------------------- of this Agreement for any reason, each Restricted Holder shall sell to the Company, and the Company shall purchase from each Restricted Holder: (x) first, such Restricted Holder's Shares that have not theretofore vested pursuant to Schedule B and (y) second, the number of shares of Series E Preferred Stock and Class A Common Stock subject to repurchase pursuant to Sections 5(f) and 6(e). The Shares repurchased pursuant to this Section 7(b) are sometimes referred to, collectively, as the "Repurchased Shares." Amendment 2. Schedule A to the Management Agreement is hereby amended ----------- and restated in its entirety as attached hereto. Amendment 3. Schedule B to the Management Agreement is hereby amended ----------- and restated in its entirety as attached hereto. All other terms and conditions of the Management Agreement shall remain in full force and effect. Capitalized terms used herein, but not otherwise defined herein, shall have the meaning set forth in the Management Agreement. IN WITNESS WHEREOF, the parties have set their hands effective as of the date first written above. COMPANY: TELECORP PCS, INC. By: /s/ Thomas H. Sullivan ---------------------------------- Name: Thomas H. Sullivan Title: Executive Vice President and Chief Financial Officer MANAGER: TELECORP MANAGEMENT CORP. By: /s/ Thomas H. Sullivan ---------------------------------- Name: Thomas H. Sullivan Title: President In order to induce the Company to execute and deliver the foregoing Amendment No. 2 to Management Agreement, by their execution in the spaces provided below each of the undersigned hereby agrees to be bound by the provisions of Amendments 1, 2 and 3 of this Amendment. /s/ Gerald T. Vento - -------------------------- Gerald Vento /s/ Thomas H. Sullivan - -------------------------- Thomas Sullivan SCHEDULE A ---------- Domestic Market Closing -----------------------
- ---------------------------------------------------------------------------------------------------------- Series E Preferred Class A Common Class C Common Voting Preference - ---------------------------------------------------------------------------------------------------------- Gerald Vento 8,729.40 1,077,982 33,983 500 - ---------------------------------------------------------------------------------------------------------- Thomas Sullivan 5,426.38 670,097 21,125 500 - ----------------------------------------------------------------------------------------------------------
Puerto Rico Market Closing --------------------------
- ---------------------------------------------------------------------------------------------------------- Series E Preferred Class A Common Class C Common Voting Preference - ---------------------------------------------------------------------------------------------------------- Gerald Vento 2,505.73 326,075 N/A N/A - ---------------------------------------------------------------------------------------------------------- Thomas Sullivan 1,557.62 202,695 N/A N/A - ----------------------------------------------------------------------------------------------------------
SCHEDULE B ---------- Vesting Schedule ---------------- Vesting of Vento's and Sullivan's Non-Extraordinary Event Shares (in aggregate, - ------------------------------------------------------------------------------- 1,865,565 shares of Class A Common Stock and 18,219.13 shares of Series E - ------------------------------------------------------------------------- Preferred Stock). - ----------------- Vento's and Sullivan's non-Extraordinary Event Shares shall vest on the Effective Date, the completion of the Minimum Build-Out Plan for each of the Domestic and Puerto Rico markets and on the specified anniversaries of the Effective Date as follows:
Vesting Date Percent of Shares ------------ ----------------- Effective Date (July 17, 1998) 20% Second Anniversary (July 17, 2000) 15% Third Anniversary (July 17, 2001) 15% Fourth Anniversary (July 17, 2002) 15% Fifth Anniversary (July 17, 2003) 15% Completion of Year I and Year 2 of 10% of the Shares issued at the Minimum Build-Out Plan of the Domestic Market Domestic Market Closing Completion of Year 3 of Minimum 10% of the Shares issued at the Build-Out Plan of the Domestic Market Domestic Market Closing plus aggregate POP coverage of 60% of total POPs in the Domestic Market (based on 1995 POPs, as defined in the Stockholder's Agreement) Completion of Year I and Year 2 of 10% of the Shares issued at the Minimum Build-Out Plan of the Puerto Rico Puerto Rico Market Closing Market Completion of Year 3 of Minimum 10% of the Shares issued at the Build-Out Plan of the Puerto Rico Market Puerto Rico Market Closing plus aggregate POP coverage of 60% of total POPs in the Puerto Rico Market (based on 1995 POPs, as defined in the Stockholder's Agreement) Total 100%
Accelerated Vesting of Vento's and Sullivan's Non-Extraordinary Event Shares. - ----------------------------------------------------------------------------- In the event of a termination of the Management Agreement by Manager pursuant to Section 5(b)(iii)(A), (B) or (C) or a termination by the Company pursuant to Section 5(b)(ii)(B), (C) or (D), in addition to any of Vento's and Sullivan's Shares that shall have theretofore vested in accordance with the above "Vesting of Vento's and Sullivan's Non-Extraordinary Event Shares" schedule, a number of each of Vento's and Sullivan's unvested non-Extraordinary Event Shares determined as set forth below shall immediately vest (and shall not be subject to repurchase by the Company): (a) in the event that the date of termination is no more than six months after the Effective Date or no more than six months after the most recent Anniversary Date, a pro rata portion (based upon the actual number of days since the Effective Date or the Anniversary Date) of the number of shares (if any) that would have vested on the immediately following Anniversary Date; and (b) in the event that the date of termination is more than six months after the Effective Date or more than six months after the most recent Anniversary Date, all of the shares (if any) that would have vested on the immediately following Anniversary Date. Vesting of Vento's and Sullivan's Extraordinary Event Shares. - ------------------------------------------------------------- Vento's and Sullivan's Extraordinary Event Shares shall vest as follows: Vesting Date Percent of Shares ------------ ----------------- *[IPO Date] 50% [First Anniversary of IPO Date] 16-2/3% [Second Anniversary of IPO DATE] 16-2/3% [Third Anniversary of IPO DATE] 16-2/3% ------- Total 100.00 * Actual date to be inserted when established EX-10.8.9 8 EIGHTH AMENDMENT TO THE CREDIT AGREEMENT EXHIBIT 10.8.9 EXECUTION COPY EIGHTH AMENDMENT, dated as of October 25, 1999 (this "Amendment"), to the Credit --------- Agreement, dated as of July 17, 1998 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among TELECORP PCS, INC., a ---------------- corporation organized under the laws of the State of Delaware (the "Borrower"), -------- the several banks and other financial institutions and entities from time to time parties thereto (the "Lenders"), and THE CHASE MANHATTAN BANK, as ------- administrative agent (the "Administrative Agent") for the Lenders. -------------------- WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to make certain loans to the Borrower; and WHEREAS the Borrower has requested that certain provisions of the Credit Agreement be modified in the manner provided for in this Amendment, and the Lenders are willing to agree to such modifications as provided for in this Amendment. NOW, THEREFORE, the parties hereto hereby agree as follows: 1. Defined Terms. Capitalized terms used and not defined herein -------------- shall have the meanings given to them in the Credit Agreement, as amended hereby. 2. Amendment to the Credit Agreement. ---------------------------------- Section 2.18 of the Credit Agreement is hereby amended by deleting the phrase: "one or more banks or other financial institutions (any such bank or other financial institution being called an 'Additional Lender')" ----------------- and substituting the following therefor: "one or more banks or other financial institutions or Lucent Technologies, Inc. (any such bank or other financial institution or Lucent Technologies, Inc. being called an 'Additional Lender'". ----------------- 3. No Other Amendments; Confirmation. Except as expressly amended, ---------------------------------- waived, modified and supplemented hereby, the provisions of the Credit Agreement are and shall remain in full force and effect. 4. Representations and Warranties. The Borrower hereby represents ------------------------------- and warrants to the Administrative Agent and the Lenders as of the date hereof: (a) No Default or Event of Default has occurred and is continuing. (b) The execution, delivery and performance by the Borrower of this Amendment have been duly authorized by all necessary corporate and other action and do not and will not require any registration with, consent or approval of, notice to or action by, any person (including any governmental agency) in order to be effective and enforceable. The Credit Agreement as amended by this Amendment constitutes the legal, valid and binding obligation of the Borrower, enforceable against it in accordance with its terms, subject only to the operation of the Bankruptcy Code and other similar statutes for the benefit of debtors generally and to the application of general equitable principles. (c) All representations and warranties of the Borrower contained in the Credit Agreement (other than representations or warranties expressly made only on and as of the Effective Date) are true and correct as of the date hereof. 5. Effectiveness. This Amendment shall become effective only upon -------------- the satisfaction in full of the following conditions precedent: (a) The Administrative Agent shall have received counterparts hereof, duly executed and delivered by the Borrower, and the Required Lenders; and (b) The Administrative Agent shall have received such opinions and certificates from the Borrower and its counsel as it may reasonably request in form reasonably satisfactory to its counsel. 6. Expenses. The Borrower agrees to reimburse the Administrative --------- Agent for its out-of-pocket expenses in connection with this Amendment, including the reasonable fees, charges and disbursements of Cravath, Swaine & Moore, counsel for the Administrative Agent. 7. Governing Law; Counterparts. (a) This Amendment and the rights ---------------------------- and obligations of the parties hereto shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York. (b) This Amendment may be executed by one or more of the parties to this Amendment on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. This Amendment may be delivered by facsimile transmission of the relevant signature pages hereof. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective proper and duly authorized officers as of the day and year first above written. TELECORP, PCS, INC. by /s/ Thomas H. Sullivan ----------------------------------- Name: Thomas H. Sullivan Title: Executive Vice President THE CHASE MANHATTAN BANK, by /s/ William E. Rottino ----------------------------------- Name: William E. Rottino Title: Vice President THE BANK OF NEW YORK, by /s/ Gerry Granovsky ----------------------------------- Name: Gerry Granovsky Title: Vice President BANK OF TOKYO-MITSUBISHI TRUST COMPANY, by /s/ Micheal Deadder ----------------------------------- Name: Micheal Deadder Title: Vice President BANKBOSTON, N.A., by /s/ Shepard D. Rainie ----------------------------------- Name: Shepard D. Rainie Title: Managing Director BANKERS TRUST COMPANY, by /s/ Gregory Shefrin ----------------------------------- Name: Gregory Shefrin Title: Principal CANADIAN IMPERIAL BANK OF COMMERCE, by CIBC Oppenheimer Corp., as Agent, by /s/ Michele E. Roller ----------------------------------- Name: Michele E. Roller Title: Executive Director CIBC World Markets Corp. as Agent. CAPTIVA III FINANCE, LTD., as advised by Pacific Investment Management Company, by ----------------------------------- Name: Title: THE CIT GROUP/EQUIPMENT FINANCING, INC., by /s/ J.E. Palmer ----------------------------------- Name: J.E. Palmer Title: Assistant Vice President DEBT STRATEGIES FUND, INC., by ----------------------------------- Name: Title: DELANO COMPANY, by Pacific Investment Management Company as its Investment Advisor, by ----------------------------------- Name: Title: FLEET NATIONAL BANK, by /s/ William Weiss ----------------------------------- Name: William Weiss Title: Assistant Vice President FRANKLIN FLOATING RATE TRUST, by ----------------------------------- Name: Title: GENERAL ELECTRIC CAPITAL CORPORATION by /s/ Mark E. Mylon ----------------------------------- Name: Mark E. Mylon Title: Manager-Operations KZH APPALOOSA LLC, by /s/ James Fevola ----------------------------------- Name: James Fevola Title: Authorized Agent KZH IV LLC, by ----------------------------------- Name: Title: KZH PAMCO LLC, by ----------------------------------- Name: Title: LEHMAN COMMERCIAL PAPER INC., by /s/ Michele Swanson ----------------------------------- Name: Michele Swanson Title: Authorized Signatory MERRILL LYNCH ASSET MANAGEMENT, by ----------------------------------- Name: Title: MERRILL LYNCH PRIME RATE PORTFOLIO, INC., by ----------------------------------- Name: Title: MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., by ----------------------------------- Name: Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, by /s/ John Kowalczuk ----------------------------------- Name: John Kowalczuk Title: Vice President MOUNTAIN CLO TRUST, by ----------------------------------- Name: Title: PAMCO CAYMAN LTD., by Highland Capital Management, L.P., as Collateral Manager, by ----------------------------------- Name: Title: SENIOR HIGH INCOME PORTFOLIO, INC., by ----------------------------------- Name: Title: SYNDICATED LOAN FUNDING TRUST, by Lehman Commercial Paper Inc., not in its individual capacity but soley as Asset Manager, by /s/ Michele Swanson ----------------------------------- Name: Michele Swanson Title: Authorized Signatory TORONTO DOMINION [TEXAS], INC., by /s/ Debbie A. Greene ----------------------------------- Name: Debbie A. Greene Title: Vice President VAN KAMPEN PRIME RATE INCOME TRUST, by /s/ Darvin D. Pierce ----------------------------------- Name: Darvin D. Pierce Title: Vice President VAN KAMPEN SENIOR FLOATING RATE FUND, by /s/ Darvin D. Pierce ----------------------------------- Name: Darvin D. Pierce Title: Vice President VAN KAMPEN SENIOR INCOME TRUST, by /s/ Darvin D. Pierce ----------------------------------- Name: Darvin D. Pierce Title: Vice President SENIOR DEBT PORTFOLIO, by Boston Management and Research, as Investment Advisor by ----------------------------------- Name: Title: ALLFIRST BANK, by /s/ W. Blake Hampson ----------------------------------- Name: W. Blake Hampson Title: Vice President BANK OF TOKYO-MITSUBISHI TRUST CO., by ----------------------------------- Name: Title: BANKERS TRUST COMPANY/DEUTSCHE BANK, by ----------------------------------- Name: Title: CAPTIVA III FINANCE, LTD., by ----------------------------------- Name: Title: CAPTIVA IV FINANCE LTD., by ----------------------------------- Name: Title: DELANO COMPANY, by ----------------------------------- Name: Title: FRANKLIN FLOATING RATE TRUST, by ----------------------------------- Name: Title: KZH APPALOOSA LLC, by ----------------------------------- Name: Title: KZH IV LLC, by ----------------------------------- Name: Title: KZH PAMCO LLC, by ----------------------------------- Name: Title: ML DEBT STRATEGIES FUND, INC., by ----------------------------------- Name: Title: MERRILL LYNCH DEBT, by ----------------------------------- Name: Title: MERRILL LYNCH DEBT STRATEGIES PORT., by ----------------------------------- Name: Title: MERRILL LYNCH PRIME RATE PORTFOLIO, by ----------------------------------- Name: Title: MERRILL LYNCH SENIOR FLOATING RATE FUND, by ----------------------------------- Name: Title: MOUNTAIN CAPITAL CLO I, LTD., by /s/ Darren P. Riley ----------------------------------- Name: Darren P. Riley Title: Director NATIONAL WESTMINSTER BANK, PLC, by ----------------------------------- Name: Title: OCTAGON INVESTMENT PARTNERS II, LLC, by ----------------------------------- Name: Title: SENIOR DEBT PORTFOLIO, by ----------------------------------- Name: Title: SENIOR HIGH INCOME PORTFOLIO, INC., by ----------------------------------- Name: Title: SYNDICATED LOAN FUNDINGTRUST, by ----------------------------------- Name: Title: TORONTO DOMINION (TEXAS), INC., by ----------------------------------- Name: Title: VAN KAMPEN PRIME RATE INCOME TRUST, by ----------------------------------- Name: Title: VAN KAMPEN SENIOR FLOATING RATE FUND, by ----------------------------------- Name: Title: EX-10.8.10 9 NINTH AMENDMENT TO THE CREDIT AGREEMENT EXHIBIT 10_8_10 EXECUTION COPY NINTH AMENDMENT, dated as of October 26, 1999 (this "Amendment"), to the Credit --------- Agreement, dated as of July 17, 1998 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among TELECORP PCS, INC., a ---------------- corporation organized under the laws of the State of Delaware (the "Borrower"), -------- the several banks and other financial institutions and entities from time to time parties thereto (the "Lenders"), and THE CHASE MANHATTAN BANK, as ------- administrative agent (the "Administrative Agent") for the Lenders. -------------------- WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to make certain loans to the Borrower; and WHEREAS the Borrower has requested that certain provisions of the Credit Agreement be modified in the manner provided for in this Amendment, and the Lenders are willing to agree to such modifications as provided for in this Amendment. NOW, THEREFORE, the parties hereto hereby agree as follows: 1. Defined Terms. Capitalized terms used and not defined herein -------------- shall have the meanings given to them in the Credit Agreement, as amended hereby. 2. Amendments to the Credit Agreement. ----------------------------------- (a) Section 1.01 of the Credit Agreement is hereby amended by: (i) deleting clause (c) of the definition of "Prepayment Event" and substituting the following therefor: "(c) the issuance by the Borrower or any Restricted Subsidiary of any equity securities, or the receipt by the Borrower or any Restricted Subsidiary of any capital contribution, other than, in the case of Borrower or any Restricted Subsidiary, any such issuance of equity securities to, or receipt of any such capital contribution from the Borrower or a Restricted Subsidiary; provided that none of the following shall constitute a -------- Prepayment Event (i) the initial $128,000,000 (or, if the Supplemental Closing (as defined in the Securities Purchase Agreement) occurs, the initial $133,000,000) contribution and commitment of capital to the Borrower pursuant to the Securities Purchase Agreement, (ii) the issuance of $39,900,000 of Common Stock and Preferred Stock to AW and $39,700,000 of Common Stock and Preferred Stock to certain of the Equity Participants in connection with the San Juan Acquisition, (iii) so long as no Default exists at the time thereof, the issuance of equity securities of the Borrower to the extent used as consideration for, or to finance, a substantially simultaneous acquisition otherwise made in accordance with the terms of this Agreement, (iv) the issuance by the Borrower of equity securities (x) in the Initial Public Offering or (y) at any time after an Initial Public Offering so long as a class of the Borrower's equity securities continues to be publicly held and (v) any issuance or receipt by the Borrower if, after giving effect to such issuance or receipt (x) Senior Leverage would be less than 5.00 to 1.00 and (y) the Borrower would be in Pro Forma Compliance; or" (ii) deleting the phrase "(d) and (e)" from clause (a) of the definition of "Prepayment Event" and substituting "(d), (e) and (f)" therefor. (iii) adding the following definitions in their appropriate alphabetical order: "'American Wireless Acquisition' means the purchase by the ----------------------------- Borrower or a Restricted Subsidiary from American Wireless, L.L.C. of 15 MHz to 20 MHz of C Block PCS Licenses for each of the Harrison, Arkansas and Jonesboro, Arkansas BTAs for approximately $702,000 in cash; provided, that such acquisition is consummated on terms and conditions satisfactory to the Administrative Agent. 'Eldorado Communications Acquisition' means the purchase by the ----------------------------------- Borrower or a Restricted Subsidiary from Eldorado Communications, L.L.C. of 10 MHz of C Block PCS Licenses for each of the Hot Springs, Arkansas and Fayettevile, Arkansas BTAs for approximately $1,020,000 in cash and in connection therewith the assumption of approximately $38,000 of FCC Debt; provided, that such acquisition is consummated on terms and conditions satisfactory to the Administrative Agent. 'Gulf Telecomm Acquisition' means the purchase by the Borrower or ------------------------- a Restricted Subsidiary from Gulf Telecomm, LLC (successor to Wireless 2000, Inc.) of 15 MHz of C Block PCS Licenses for the Lake Charles, Louisiana BTA for up to $1,000,000 in cash (or, at the Borrower's option, the same amount of stock) and in connection therewith the assumption of $2,345,000 of FCC Debt; provided, that such acquisition is consummated on terms and conditions satisfactory to the Administrative Agent. 'Industar Acquisition' means the acquisition by the Borrower or a -------------------- Restricted Subsidiary of substantially all the assets of Industar, Inc. d/b/a Industar Digital PCS ("Industar") for approximately $29,326,000 in cash and $3,000,000 of Class A Voting Common Stock (valued at the Public Offering Price if the Initial Public Offering has occurred or the Midpoint of the Range if the Initial Public Offering has not occurred) and, in connection therewith, the assumption of approximately $61,000,000 of FCC Debt and approximately $36,000,000 of other Indebtedness and microwave clearing obligations of Industar and its subsidiaries; provided, that such acquisition is consummated on terms and conditions satisfactory to the Administrative Agent; and provided further, that the total amount of consideration -------- ------- may be increased up to $140,000,000, and the portions thereof consisting of cash, stock and assumed Indebtedness may differ from those described above. 'Industar Loan' means a loan made by the Borrower or a Restricted ------------- Subsidiary to Industar or one of its subsidiaries after the execution of definitive documentation with respect to the Industar Acquisition in an aggregate principal amount not to exceed $5,000,000; 'Initial Public Offering' means an offering of the Class A Voting ----------------------- Common Stock of the Borrower to the public that is registered under the Securities Act of 1933 and from which the Borrower receives gross proceeds of at least $75,000,000. 'Midpoint of the Range' means the midpoint of the range set forth --------------------- in the offering memorandum for the Initial Public Offering or of the range under discussion with the underwriters if the Initial Public Offering has not occurred. 'Public Offering Price' means the price at which the Class A --------------------- Voting Common Stock of the Borrower is sold to the public in the Initial Public Offering." (iv) deleting the definition of "LMDS Merger" and substituting the following therefor: "'LMDS Merger' means the merger of TeleCorp LMDS, Inc. into THC ----------- or another Restricted Subsidiary or the acquisition by the Borrower or a Restricted Subsidiary of all of the Capital Stock of TeleCorp LMDS, Inc., and in connection therewith the issuance of up to $20 million of Common Stock (valued at the Public Offering Price if the Initial Public Offering has occurred and at the Midpoint of the Range if it has not) or Preferred Stock (valued at the price of the Common Stock into which it may be converted) to the existing shareholders of TeleCorp LMDS Inc. and the acquisition by THC or another Restricted Subsidiary of 1150 MHz of Block A or 150 MHz of Block B Licenses for the markets set forth in Part E of Schedule 3.14 hereto; provided, that such acquisition is consummated on terms and conditions satisfactory to the Administrative Agent." (v) deleting the definition of Contributed Equity and substituting the following therefor: "'Contributed Equity' means at any time or for any period, (x) ------------------ the sum (without duplication) of (a) $100,084,120, the agreed value of the AW Licenses set forth on Schedule I to the Securities Purchase Agreement, (b) cash proceeds from sales by the Borrower of Common Stock and Preferred Stock less any payments made by the Borrower or any Subsidiary with respect to Common Stock or Preferred Stock (other than payments of additional Common Stock or Preferred Stock), (c) cash proceeds from the sale to Lucent of the Series A Bonds (less any payments made by the Borrower or any Subsidiary with respect to the Series A Bonds (other than payments of additional Series A Bonds)), (d) after consummation of the San Juan Acquisition, $39,900,000, representing the agreed value of the stock of the Borrower acquired by AW in connection with the San Juan Acquisition, (e) $7,347,750, the agreed value of the equity interests in THC contributed to the Borrower on the Closing Date pursuant to the Securities Purchase Agreement, (f) after consummation of the THC San Diego Merger, $4,800,000, representing the agreed value of the stock issued to the existing shareholders of THC San Diego in connection with the THC San Diego Merger, (g) after consummation of the Mercury Acquisition, $2,332,645, representing the agreed value of the stock issued to Mercury PCS in connection with the Mercury Acquisition, (h) after consummation of the Wireless 2000 Acquisition, $880,000, representing the agreed value of the stock issued to Wireless 2000, Inc. in connection with the Wireless 2000 Acquisition, (i) after consummation of the LMDS Merger, the fair value of the stock issued by the Borrower in connection therewith (valuing the Common Stock at the Public Offering Price if the Initial Public Offering has occurred and at the Midpoint of the Range if it has not, and valuing Preferred Stock at the value of the Common Stock into which it may be converted), representing the agreed value of the stock of the Borrower issued to the former shareholders of Telecorp LMDS, Inc. in connection with the LMDS Merger, (j) after consummation of the Industar Acquisition, $3,000,000, representing the agreed value of the stock issued to the former shareholders of Industar, (k) after consummation of the Gulf Telecomm Acquisition, the fair value (not to exceed $1,000,000) of the stock issued by the Borrower in connection therewith (valued at the Public Offering Price if the Initial Public Offering has occurred and at the Midpoint of the Range if it has not), representing the agreed value of the stock of the Borrower issued in connection therewith and (l) the fair market value as reasonably determined by the Administrative Agent of any other assets contributed to the Borrower in exchange for Capital Stock of the Borrower minus (y) any amounts (including the fair market value of any transferred assets, as reasonably determined by the Administrative Agent) invested by the Borrower or any Restricted Subsidiary in an Unrestricted Subsidiary." (b) Section 6.01(a) of the Credit Agreement is hereby amended by: (i) deleting "350,000,000" from clause (ii) thereof and substituting "375,000,000" therefor; (ii) deleting clauses (viii) and (ix) thereof and substituting the following therefor: "(viii) FCC Debt assumed in connection with (a) the THC San Diego Merger in the amount of $8,200,000, (b) the Mercury Acquisition in the amount of $4,100,000, (c) the Wireless 2000 Acquisition in the amount of $7,449,191, (d) the Industar Acquisition in an aggregate principal amount of approximately $61,000,000, (e) the Eldorado Acquisition in an aggregate principal amount of approximately $38,000 and (f) the Gulf Telecomm Acquisition in an aggregate principal amount of approximately $2,345,000. (ix) existing Indebtedness (other than FCC Debt) of Industar and its subsidiaries assumed in connection with the Industar Acquisition and not created in contemplation thereof in an aggregate principal amount not to exceed $36,000,000. (x) Indebtedness other than Indebtedness permitted by clause (viii) or clause (ix) of any Restricted Subsidiary acquired after the date hereof; provided that (A) such Indebtedness exists at the time such Restricted Subsidiary is acquired and is not created in contemplation of or in connection with such acquisition and (B) the aggregate Indebtedness acquired in connection with all such acquisitions does not exceed $20,000,000 at any time outstanding and (C) the aggregate Indebtedness acquired which is not FCC Debt does not exceed $5,000,000." and sequentially relettering the subsequent clauses in Section 6.01(a). (c) Section 6.02 is hereby amended by inserting after clause (vi) thereof the following: "(vii) Liens in favor of the FCC on Licenses securing FCC Debt incurred in connection with the acquisition of such Licenses." (d) Section 6.03 of the Credit Agreement is hereby amended by deleting therefrom the following: "the Net Proceeds of which are used to prepay Loans pursuant to Section 2.09 (it being understood that, in calculating Net Proceeds, lease and other related payments arising in connection with any such sale and lease-back transaction shall not be deducted from the proceeds received from the sale of any tower or towers that are the subject of such sale and lease-back transaction)" and substituting therefor the following: "for gross proceeds not exceeding $70,000,000 in the aggregate". (e) Section 6.05 of the Credit Agreement is hereby amended by inserting after clause (k) thereof the following: "(l) the American Wireless Acquisition; (m) the Eldorado Communications Acquisition; (n) the Gulf Telecomm Acquisition; (o) the Industar Acquisition; (p) the Industar Loan;" and sequentially relettering the remaining clauses in Section 6.05. (f) Section 6.06 is hereby amended by inserting the following before the "." at the end of clause (e) thereof: "; and (f) sales of towers in connection with sale and lease-back transactions permitted by this Agreement." (g) Section 6.08(b) of the Credit Agreement is hereby amended by inserting the following before "." at the end of clause (vii) thereof: "; and (viii) prepayments of Indebtedness (other than FCC Debt) assumed in connection with the Industar Acquisition." (h) Section 6.12(l) is hereby deleted in its entirety and the following substituted therefor: "(l) Capital Expenditures. (1) The Borrower will not permit Capital --------------------- Expenditures of the Borrower and its Restricted Subsidiaries for any period set forth below that ends prior to the consummation of the Industar Acquisition to exceed the sum set forth opposite such period: Period Amount ------ ------ Date of formation through $320,000,000 December 31, 1998 January 1, 1999 - December 31, 1999 $180,000,000 January 1, 2000 - December 31, 2000 $250,000,000 January 1, 2001 - December 31, 2001 $115,000,000 January 1, 2002 - December 31, 2002 $ 70,000,000 January 1, 2003 and thereafter $ 50,000,000 ; provided that any permitted amount which is not expended in any of the -------- periods specified above may be carried over for expenditure in the immediately subsequent period; and (2) The Borrower will not permit Capital Expenditures of the Borrower and its Restricted Subsidiaries for any period set forth below that ends subsequent to the consummation of the Industar Acquisition to exceed the sum set forth opposite such period: Period Amount ------ ------ Date of formation through $ 320,000,000 December 31, 1998 January 1, 1999 - December 31, 1999 $ 210,000,000/1/ January 1, 2000 - December 31, 2000 $ 275,000,000 January 1, 2001 - December 31, 2001 $ 125,000,000 January 1, 2002 - December 31, 2002 $ 75,000,000 January 1, 2003 and thereafter $ 50,000,000 ; provided that any permitted amount which is not expended in any of the -------- periods specified above may be carried over for expenditure in the immediately subsequent period. 3. No Other Amendments; Confirmation. Except as expressly amended, ---------------------------------- waived, modified and supplemented hereby, the provisions of the Credit Agreement are and shall remain in full force and effect. 4. Representations and Warranties. The Borrower hereby represents ------------------------------- and warrants to the Administrative Agent and the Lenders as of the date hereof: (a) No Default or Event of Default has occurred and is continuing. (b) The execution, delivery and performance by the Borrower of this Amendment have been duly authorized by all necessary corporate and other action and do not and will not require any registration with, consent or approval of, notice to or action by, any person (including any governmental agency) in order to be effective and enforceable. The Credit Agreement as amended by this Amendment constitutes the legal, valid and binding obligation of the Borrower, enforceable against it in accordance with its terms, subject only to the operation of the Bankruptcy Code and other similar statutes for the benefit of debtors generally and to the application of general equitable principles. - ---------------------- /1/ This amount includes approximately $30,000,000 of the Industar acquisition price treated as a capital expenditure. (c) All representations and warranties of the Borrower contained in the Credit Agreement (other than representations or warranties expressly made only on and as of the Effective Date) are true and correct as of the date hereof. 5. Effectiveness. This Amendment shall become effective only upon -------------- the satisfaction in full of the following conditions precedent: (a) The Administrative Agent shall have received counterparts hereof, duly executed and delivered by the Borrower, and the Required Lenders; (b) The Administrative Agent shall have received such opinions and certificates from the Borrower and its counsel as it may reasonably request in form reasonably satisfactory to its counsel; and (c) The Borrower shall have paid to the Administrative Agent on behalf of each Lender (other than Lucent Technologies, Inc.) that duly executes and delivers a counterpart hereof on or prior to October 26, 1999 a fee equal to 0.15 percent of the aggregate amount of the outstanding Loans and Commitments of such Lender under the Credit Agreement. 6. Expenses. The Borrower agrees to reimburse the Administrative --------- Agent for its out-of-pocket expenses in connection with this Amendment, including the reasonable fees, charges and disbursements of Cravath, Swaine & Moore, counsel for the Administrative Agent. 7. Governing Law; Counterparts. (a) This Amendment and the rights ---------------------------- and obligations of the parties hereto shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York. (b) This Amendment may be executed by one or more of the parties to this Amendment on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. This Amendment may be delivered by facsimile transmission of the relevant signature pages hereof. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective proper and duly authorized officers as of the day and year first above written. TELECORP PCS, INC., by /s/ Thomas H. Sullivan ------------------------------------- Name: Thomas H. Sullivan Title: Executive Vice President THE CHASE MANHATTAN BANK, by /s/ William E. Rottino ------------------------------------- Name: William E. Rottino Title: Vice President THE BANK OF NEW YORK, by /s/ Gerry Granovsky ------------------------------------- Name: Gerry Granovsky Title: Vice President BANK OF TOKYO-MITSUBISHI TRUST COMPANY, by /s/ Michael Deadder ------------------------------------- Name: Michael Deadder Title: Vice President BANKBOSTON, N.A., by /s/ Michael A. Ashton ------------------------------------- Name: Michael A. Ashton Title: Vice President BANKERS TRUST COMPANY, by /s/ Gregory Shefrin ------------------------------------- Name: Gregory Shefrin Title: Principal CANADIAN IMPERIAL BANK OF COMMERCE, by CIBC Oppenheimer Corp., as Agent, by /s/ Laura Hom ------------------------------------- Name: Laura Hom Title: Executive Director CIBC World Market As Agent CAPTIVA III FINANCE, LTD., as advised by Pacific Investment Management Company, by ------------------------------------- Name: Title: THE CIT GROUP/EQUIPMENT FINANCING, INC., by /s/ J.E. Palmer ------------------------------------- Name: J.E. Palmer Title: Assistant Vice President DEBT STRATEGIES FUND, INC., by ------------------------------------- Name: Title: DELANO COMPANY, by Pacific Investment Management Company as its Investment Advisor, by ------------------------------------- Name: Title: FLEET NATIONAL BANK, by ------------------------------------- Name: Title: FRANKLIN FLOATING RATE TRUST, by ------------------------------------- Name: Title: GENERAL ELECTRIC CAPITAL CORPORATION by ------------------------------------- Name: Title: KZH APPALOOSA LLC, by ------------------------------------- Name: Title: KZH IV LLC, by ------------------------------------- Name: Title: KZH PAMCO LLC, by ------------------------------------- Name: Title: LEHMAN COMMERCIAL PAPER INC., by ------------------------------------- Name: Title: MERRILL LYNCH ASSET MANAGEMENT, by ------------------------------------- Name: Title: MERRILL LYNCH PRIME RATE PORTFOLIO, INC., by ------------------------------------- Name: Title: MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., by ------------------------------------- Name: Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, by /s/ John Kowalczuk ------------------------------------- Name: John Kowalczuk Title: Vice President MOUNTAIN CLO TRUST, by ------------------------------------- Name: Title: PAMCO CAYMAN LTD., by Highland Capital Management, L.P., as Collateral Manager, by ------------------------------------- Name: Title: SENIOR HIGH INCOME PORTFOLIO, INC., by ------------------------------------- Name: Title: SYNDICATED LOAN FUNDING TRUST, by Lehman Commercial Paper Inc., not in its individual capacity but soley as Asset Manager, by /s/ Michele Swanson ------------------------------------- Name: Michele Swanson Title: Authorized Signatory TORONTO DOMINION [TEXAS], INC., by /s/ Lynn Chasin ------------------------------------- Name: Lynn Chasin Title: Vice President VAN KAMPEN PRIME RATE INCOME TRUST, by /s/ Darvin D. Pierce ------------------------------------- Name: Darvin D. Pierce Title: Vice President VAN KAMPEN SENIOR FLOATING RATE FUND, by /s/ Darvin D. Pierce ------------------------------------- Name: Darvin D. Pierce Title: Vice President VAN KAMPEN SENIOR INCOME TRUST, by /s/ Darvin D. Pierce ------------------------------------- Name: Darvin D. Pierce Title: Vice President SENIOR DEBT PORTFOLIO, by Boston Management and Research, as Investment Advisor by ------------------------------------- Name: Title: ALLFIRST BANK, by /s/ W. Blake Hampson ------------------------------------- Name: W. Blake Hampson Title: Vice President BANK OF TOKYO-MITSUBISHI TRUST CO., by ------------------------------------- Name: Title: BANKERS TRUST COMPANY/DEUTSCHE BANK, by ------------------------------------- Name: Title: CAPTIVA III FINANCE, LTD., by ------------------------------------- Name: Title: CAPTIVA IV FINANCE LTD., by ------------------------------------- Name: Title: DELANO COMPANY, by ------------------------------------- Name: Title: FRANKLIN FLOATING RATE TRUST, by ------------------------------------- Name: Title: KZH APPALOOSA LLC, by ------------------------------------- Name: Title: KZH IV LLC, by ------------------------------------- Name: Title: KZH PAMCO LLC, by ------------------------------------- Name: Title: ML DEBT STRATEGIES FUND, INC., by /s/ Gilles Marchand, CFA ------------------------------------- Name: Gilles Marchand, CFA Title: Authorized Person MERRILL LYNCH DEBT, by ------------------------------------- Name: Title: MERRILL LYNCH DEBT STRATEGIES PORT., by /s/ Gilles Marchand, CFA ------------------------------------- Name: Gilles Marchand, CFA Title: Authorized Signatory MERRILL LYNCH PRIME RATE PORTFOLIO, by /s/ Gilles Marchand, CFA ------------------------------------- Name: Gilles Marchand, CFA Title: Authorized Person MERRILL LYNCH SENIOR FLOATING RATE FUND, by /s/ Gilles Marchand, CFA ------------------------------------- Name: Gilles Marchand, CFA Title: Authorized Person MOUNTAIN CAPITAL CLO I, LTD., by /s/ Darren P. Riley ------------------------------------- Name: Darren P. Riley Title: Director OCTAGON INVESTMENT PARTNERS II, LLC, by /s/ Andrew D. Gordon ------------------------------------- Name: Andrew D. Gordon Title: Portfolio Manager SENIOR DEBT PORTFOLIO, by /s/ Scott H. Page ------------------------------------- Name: Scott H. Page Title: Vice President SENIOR HIGH INCOME PORTFOLIO, INC., by /s/ Gilles ------------------------------------- Name: Title: SYNDICATED LOAN FUNDINGTRUST, by ------------------------------------- Name: Title: TORONTO DOMINION (TEXAS), INC., by ------------------------------------- Name: Title: VAN KAMPEN PRIME RATE INCOME TRUST, by ------------------------------------- Name: Title: VAN KAMPEN SENIOR FLOATING RATE FUND, by ------------------------------------- Name: Title: EX-10.17.3 10 AMENDMENT NO. 2 TO STOCKHOLDER'S AGREEMENT Exhibit 10.17.3 AMENDMENT NO. 2 TO STOCKHOLDERS' AGREEMENT AMENDMENT NO. 2 TO STOCKHOLDERS' AGREEMENT ("Amendment No. 2") dated as of November 1, 1999, by and among AT&T WIRELESS PCS, LLC, a Delaware limited liability company (together with its Affiliated Successors (as hereinafter defined), "AT&T PCS"), TWR CELLULAR, INC., a Delaware corporation (together with its Affiliated Successors, "TWR Cellular"), the investors listed under the heading "Cash Equity Investors" on the signature pages hereto (individually, each a "Cash Equity Investor" and, collectively, with any of its Affiliated Successors, the "Cash Equity Investors"), the individuals listed under the heading "Management Stockholders" on the signature pages hereto (individually, each a "Management Stockholder" and, collectively, the "Management Stockholders") and TELECORP PCS, INC., a Delaware corporation (the "Company"). Certain capitalized terms used herein and not otherwise defined have the meaning assigned to such term in the Stockholders' Agreement (as amended) referred to below. WHEREAS, each of the parties hereto (other than the Company) are stockholders of the Company; WHEREAS, the parties hereto are parties to that certain Stockholders' Agreement, dated as of July 17, 1998, as amended by that certain Amendment No. 1 to the Stockholders' Agreement dated March 30, 1999 (as amended, the "Stockholders' Agreement"), pursuant to which, among other things, the parties hereto entered into certain agreements regarding the operation of the Company's business; WHEREAS, the Stockholders desire to amend certain provisions of the Stockholders' Agreement. NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: 1. Amendments. From and after the Amendment Effectiveness Date (as ---------- hereinafter defined), without any further action on the part of the parties hereto, the following amendments shall be effective and in full force and effect as set forth below: A. Section 3.1 of the Stockholders' Agreement shall be amended and restated in its entirety as follows: "3.1 Board of Directors Upon IPO Date. Effective upon the IPO Date, the -------------------------------- Board of Directors shall consist of nine (9) directors; provided, however, that -------- ------- the number of directors constituting the Board of Directors shall be reduced in the circumstances set 1 forth in this Section 3.1. Each of the Stockholders hereby agrees that it will vote all of the shares of Class A Voting Common Stock and Voting Preference Stock Beneficially Owned or held of record by it (whether now owned or hereafter acquired), in person or by proxy, to cause the election of directors as follows: (a) Two (2) individuals selected by holders of a Majority in Interest of the Class A Voting Common Stock Beneficially Owned by the Cash Equity Investors, in their sole discretion; (b) Gerald Vento (so long as he is an officer of the Company and the Management Agreement remains in full force and effect); (c) Thomas Sullivan (so long as he is an officer of the Company and the Management Agreement remains in full force and effect); (d) One (1) individual nominated by AT&T PCS pursuant to the Restated Certificate in its capacity as holder of Series A Preferred Stock (the "Series A Preferred Director") so long as it and TWR Cellular has the right to nominate one (1) director in accordance with the Restated Certificate; (e) (i) Two (2) individuals selected by holders of the Voting Preference Stock, which two (2) individuals shall be acceptable to holders of a Majority in Interest of the Class A Voting Common Stock Beneficially Owned by the Cash Equity Investors and AT&T PCS, in the reasonable discretion of such Cash Equity Investors, on the one hand, and AT&T PCS on the other hand; (ii) one (1) individual selected by the holders of Voting Preference Stock, who shall be acceptable to holders of a Majority in Interest of the Class A Voting Common Stock Beneficially Owned by the Cash Equity Investors, in the reasonable discretion of such Cash Equity Investors; and (iii) one (1) individual selected by the holders of Voting Preference Stock, who shall be acceptable to AT&T PCS, in the reasonable discretion of AT&T PCS. On the date that the holders of shares of Voting Preference Stock shall vote as a class with holders of Class A Voting Common Stock, the Board of Directors shall consist of seven (7) directors elected in accordance with Section 3.1(a)-(d) and (e)(i). In the event that Mr. Vento or Mr. Sullivan shall cease to be an officer of the Company, or the Management Agreement shall cease to be in full force and effect, such individuals shall resign (or the holders of the Voting Preference Stock shall remove him) from the Board of Directors and the holders of the Voting Preference Stock shall select a replacement or replacements who shall be acceptable to a Majority in Interest of the Cash Equity Investors and AT&T PCS and TWR Cellular, in each case in its sole discretion. In the event that AT&T PCS shall cease to be entitled to nominate the Series A Preferred Director, such director shall resign (or the other directors or Stockholders shall remove him/her) from the Board of Directors and the remaining directors shall take such action so that the number of directors constituting the entire Board of Directors shall be reduced accordingly. In the event that any Cash Equity Investor that has an Unfunded Commitment shall fail to satisfy any such portion of its Unfunded Commitments when due 2 in accordance with Section 2.2 of the Securities Purchase Agreement or Section 3.10 hereof, and such failure is not cured by such Cash Equity Investor within thirty-five (35) days thereof, then, until such failure is cured, the member of the Board of Directors who is designated by, or Affiliated with, such Cash Equity Investor (whether as an employee, partner, member, stockholder or otherwise) shall resign from the Board of Directors and the Person(s) who designated such member shall select an individual acceptable to AT&T PCS in its sole discretion. Any nomination or designation of directors and the acceptance thereof pursuant to Section 3.1 shall be evidenced in writing." B. Effective on the IPO Date, Section 3.2 is hereby amended and restated in its entirety as follows: "3.2 Removal; Filling of Vacancies. Except as set forth in Section 3.1, ----------------------------- each Stockholder agrees it will not vote any shares of Voting Preference Stock and/or Class A Voting Common Stock Beneficially Owned by such Stockholder, and shall not permit any Affiliated Successor of such Stockholder holding any Voting Preference Stock and/or Class A Voting Common Stock, to vote for the removal without cause of any director designated by any other Stockholder in accordance with Section 3.1. Any Stockholder or group of Stockholders who has the right to designate any member(s) of the Board of Directors shall have the right to replace any member(s) so designated by it (whether or not such member is removed from the Board of Directors with or without cause or ceases to be a member of the Board of Directors by reason of death, disability or for any other reason) upon written notice to the other Stockholders, the Company and the members of the Board of Directors, which notice shall set forth the name of the member(s) being replaced and the name of the new member(s); provided, however, that if a -------- ------- director designated pursuant to Section 3.1(e) is replaced by the holders of Voting Preference Stock, the individual designated by the holders of Voting Preference Stock to replace such director must be acceptable to those Stockholders who are entitled pursuant to the terms of Section 3.1(e) to approve such director. Each of the Stockholders agrees to vote, and to cause its Affiliated Successors to vote, its shares of Voting Preference Stock and/ or Class A Voting Common Stock, or shall otherwise take any action as is necessary to cause the election of any successor director designated by any Stockholder pursuant to this Section 3.2. The holders of the Voting Preference Stock, agree that during the three (3) year period commencing on the date hereof, they will not (i) remove the individuals nominated by them pursuant to Sections 3.1(e), or (ii) nominate for election any individuals other than the individuals initially selected by them and approved in accordance with said Section 3.1(e), subject to the agreements of such individuals to serve on the Board of Directors." C. Effective on the IPO Date, the first paragraph of Section 3.6(b) is hereby amended and restated in its entirety as follows: "None of the following transactions or actions shall be entered into or taken by the Company, unless (i) voted for or consented to by the vote of at least two (2) of the three (3) directors designated pursuant to Sections 3.1(a) and (d) and (ii) four (4) of the six (6) 3 directors designated pursuant to Sections 3.1(b) , (c) and (e) of the Board of Directors of the Corporation. D. Effective upon the IPO Date, the proviso of the last sentence of Section 3.7 is hereby amended and restated as follows: "provided, however, that for purposes of this Section 3.7, the directors --------- ------- designated pursuant to Section 3.1(e)(i) shall not be deemed to have been designated by the Cash Equity Investors, AT&T PCS or the holders of the Voting Preference Stock." E. Section 12.1 is hereby amended by changing the address for notices to AT&T PCS and TWR Cellular and its counsel as follows: "c/o AT&T Wireless Services, Inc. 7277 164/th/ Ave., N.E. Redmond, WA 98052 Attention: William W. Hague Telephone: (425) 828-8461 Facsimile: (425) 828-8451 With a copy to: AT&T Corp. 295 North Maple Avenue Basking Ridge, NJ 07920 Attention: Corporate Secretary Facsimile: (908) 953-4657 and Friedman Kaplan & Seiler LLP 875 Third Avenue, 8/th/ Floor New York, New York 10022 Attention: Gregg S. Lerner Telephone: (212) 833-1100 Facsimile: (212) 833-6401" All references to Rubin Baum Levin Constant & Friedman are hereby deleted. F. Section 12.2(b) is hereby amended and restated in its entirety as follows: "No change or modification of this Agreement shall be valid, binding or enforceable unless the same shall be in writing and signed by the Company and the Beneficial Owners of a majority of the shares of Class A Voting Common Stock party to 4 this Agreement, including AT&T PCS, 66 2/3% of the Class A Voting Common Stock Beneficially Owned by the Cash Equity Investors, and 66 2/3% of the Class A Voting Common Stock Beneficially Owned by the Management Stockholders; provided, -------- however, that in the event any party hereto shall cease to own any shares of - ------- Equity Securities such party hereto shall cease to be a party to this Agreement and the rights and obligations of such party hereunder shall terminate, except to the extent otherwise provided in Section 4.7(a) with respect to any Unfunded Commitment." G. Effective on the IPO Date, Section 12.3(b) is hereby amended and restated in its entirety as follows: "Notwithstanding anything contained herein to the contrary, (i) the provisions of Sections 3 and 4 shall terminate on the earlier to occur of a termination pursuant to Section 12.3(a) and the expiration of ten (10) years from the date hereof, (ii) the provisions of Sections 3.1(e) (relating to AT&T PCS' right to approve directors selected by the holders of the Voting Preference Stock and any replacement for Messrs. Vento or Sullivan to the Board of Directors), 4.7(b), 7.4, 7.6 and 8.4(a), shall terminate, and neither the Company nor any Stockholder shall be required to obtain AT&T PCS's prior written consent as required under such Sections, on the earlier to occur of (a) a termination pursuant to Section 12.3(a) and (b) (x) with respect to the period prior to the eighth anniversary of the date hereof, the date on which AT&T PCS and TWR Cellular shall cease to Beneficially Own, in the aggregate, more than two-thirds of the number of shares of Series A Preferred Stock that AT&T PCS and TWR Cellular Beneficially Own, in the aggregate, on the date hereof and (y) with respect to the period after the eighth anniversary of the date hereof, the date on which AT&T PCS and TWR Cellular shall cease to Beneficially Own, in the aggregate, more than two-thirds of the number of shares of Class A Voting Common Stock that AT&T PCS and TWR Cellular Beneficially Owns, in the aggregate, on such eighth anniversary date, and (iii) the provisions of 3.6 shall terminate on the date that the holders of shares of Voting Preference Stock shall vote as a class with holders of Class A Voting Common Stock. Notwithstanding anything contained herein to the contrary, the provisions of Section 3.1(b)-(e) shall terminate on the earlier to occur of a termination pursuant to Section 12.3(a) and the date after the date that the holders of shares of Voting Preference Stock shall vote as a class with holders of Class A Voting Common Stock." H. Effective on the IPO Date, Section 12.3(c)(i) is hereby amended and restated in its entirety as follows: "Notwithstanding anything contained herein to the contrary, in the event the Cash Equity Investors shall Beneficially Own less than (I) one-half but more than one-quarter of the number of shares of Common Stock Beneficially Owned by the Cash Equity Investors on July 17, 1998, the number of directors the Cash Equity Investors shall be permitted to designate under Section 3.1(a) shall be reduced to one, or (II) one-quarter of the number of shares of Common Stock Beneficially Owned by the Cash Equity Investors on July 17, 1998, the provisions of Section 3.1(a) shall terminate and the provisions of Section 3.1(e) (relating to the Cash Equity Investors' right to approve the directors selected by the holders of the Voting Preference Stock pursuant to Section 3.1(e)(i) and (ii)) and the right to approve any director that replaces Messrs. Vento or Sullivan on the Board of Directors 5 shall terminate, and neither the Company nor any Stockholder shall be required to obtain the Cash Equity Investors' prior written consent as required under such Sections. In the event the number of directors the Cash Equity Investors are entitled to designate is reduced pursuant to Section 12.3(c)(i)(I), one of the directors designated by the Cash Equity Investors under Section 3.1(a) shall resign (or the other directors or Stockholders shall remove him from the Board of Directors) and the remaining directors shall take such action so that the number of directors constituting the entire Board of Directors shall be reduced accordingly. In the event the provisions of Section 3.1(a) and 3.1(e) (with respect to the rights of the Cash Equity Investors) are terminated pursuant to Section 12.3(c)(i)(II), the directors designated by the Cash Equity Investors pursuant to Section 3.1(a) and the director designated pursuant to Section 3.1(e)(ii) shall resign (or the other directors or Stockholders shall remove them from the Board of Directors) and the remaining directors shall take such action so that the number of directors constituting the entire Board of Directors is reduced to six (6) individuals. The holders of the Voting Preference Stock shall thereafter have the right to designate three (3) individuals to the Board of Directors provided each such individual is acceptable to AT&T PCS (so long as AT&T PCS and TWR Cellular continues to Beneficially Own, in the aggregate, more than two-thirds of the Common Stock Beneficially Owned by AT&T PCS and TWR Cellular, in the aggregate, on July 17, 1998). For all purposes of this Agreement all references in this Agreement to directors designated pursuant to Section 3.1(e) shall thereafter be deemed to refer to the three (3) directors designated pursuant to the immediately preceding sentence." I. Effective upon the IPO Date, the provisions of Sections 3.3, 3.4, 3.5, 3.8, 3.11, 4.1(a), 4.5 (c), 7.1, 7.2, 7.6 and 12.3(c)(ii) shall cease to be of any further force or effect, but such section numbers are hereby reserved. J. Effective upon the IPO Date, all references to "AT&T Wireless PCS, Inc., a Delaware corporation" are hereby amended to read "AT&T Wireless PCS, LLC, a Delaware limited liability company". 2. Amendment Effectiveness Date. This Amendment No. 2 shall be ---------------------------- effective on the later to occur of (i) the date that a counterpart hereof shall have been executed by each of the Company, AT&T PCS, holders of 66 2/3% of the Class A Voting Common Stock Beneficially Owned by the Cash Equity Investors and holders of 66 2/3% of the Class A Voting Stock Beneficially Owned by the Management Stockholders and (ii) the IPO Date (the "Amendment Effectiveness Date"). 3. Representation and Warranties. Each party hereto, as to itself, ----------------------------- represents and warrants, as applicable, to each of the other parties as follows: A. It is a corporation, limited liability company, general partnership or limited partnership, duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and has the requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted. B. It has the requisite power, authority and capacity to execute, deliver and perform this Amendment No. 2 6 C. The execution and delivery of this Amendment No. 2 by it have been duly and validly authorized by its Board of Directors (or equivalent body) and no other proceedings on its part which have not been taken (including, without limitation, approval of its stockholders, partners or members) are necessary to authorize this Amendment No. 2. D. This Amendment No. 2 has been duly executed and delivered by it and constitutes its valid and binding obligation, enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally and may be subject to general principles of equity. E. The execution, delivery and performance by it of this Amendment No. 2 will not (a) conflict with, or result in a breach or violation of, any provision of its organizational documents; (b) constitute, with or without the giving of notice or passage of time or both, a breach, violation or default, create a Lien, or give rise to any right of termination, modification, cancellation, prepayment or acceleration, under (i) any Law or License or (ii) any note, bond, mortgage, indenture, lease, agreement or other instrument, in each case which is applicable to or binding upon it or any of its assets; or (c) require any Consent, or the approval of its board of directors, general partner, stockholders or similar constituent bodies, as the case may be (which approvals have been obtained), except in each case, where such breach, violation, default, Lien, right, or the failure to obtain or give such Consent would not have a Material Adverse Effect on it or its ability to perform its obligations hereunder. F. There is no action, proceeding or investigation pending or, to its knowledge, threatened against it or any of its properties or assets that would be reasonably expected to have an adverse effect on its ability to enter into this Amendment No. 2 or to fulfill its obligations hereunder. 4. Severability of Provisions. Any provision of this Amendment No. 2 -------------------------- which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. 5. Agreements to Remain in Full Force and Effect. This Amendment No. --------------------------------------------- 2 shall be deemed to be an amendment to the Stockholders' Agreement. All references to the Stockholders' Agreement in any other agreements or documents shall on and after the date hereof be deemed to refer to the Stockholders' Agreement as amended hereby. Except as amended hereby, the Stockholders' Agreement shall remain in full force and effect and is hereby ratified, adopted and confirmed in all respects. 6. Heading. The headings in this Amendment No. 2 are inserted for ------- convenience and identification only and are not intended to describe, interpret, define or limit the scope, extent or intent of this Amendment No. 2 or any provision thereof. 7 7. Counterparts. This Amendment No. 2 may be executed in ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 8. Governing Law. This Amendment No. 2 shall be governed and ------------- construed in accordance with the laws of the State of Delaware. 8 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. AT&T WIRELESS PCS, LLC By: /s/ Mary Hawkins-Key ----------------------------- Name: Mary Hawkins-Key Title: Senior Vice President TWR CELLULAR, INC. By: /s/ Mary Hawkins-Key ----------------------------- Name: Mary Hawkins-Key Title: Senior Vice President TELECORP PCS, INC. By: /s/ Gerald T. Vento ----------------------------- Name: Gerald T. Vento Title: Chairman and CEO Cash Equity Investors: CB CAPITAL INVESTORS, L.P. By: CB Capital Investors, Inc. its general partner By: /s/ Michael R. Hannon ----------------------------- Name: Michael R. Hannon Title: Vice President CB Capital Investors, L.P. NORTHWOOD VENTURES LLC By: /s/ Henry T. Wilson ----------------------------- Name: Henry T. Wilson Title: Managing Director 9 NORTHWOOD CAPITAL PARTNERS LLC By: /s/ Henry T. Wilson ----------------------------- Name: Henry T. Wilson Title: Managing Director ONE LIBERTY FUND IV, L.P. By: /s/ Edwin M. Kania, Jr. ----------------------------- Name: Edwin M. Kania, Jr. Title: General Partner ONE LIBERTY FUND III, L.P. By: /s/ Edwin M. Kania, Jr. ----------------------------- Name: Edwin M. Kania, Jr. Title: General Partner MEDIA COMMUNICATIONS INVESTORS LIMITED PARTNERSHIP By: M/C Investors General Partner - J. Inc., a general partner By: /s/ James F. Wade ----------------------------- Name: James F. Wade Title: Authorized Officer MEDIA/COMMUNICATIONS PARTNERS III LIMITED PARTNERSHIP By: M/CP III General Partner - J. Inc., a general partner By: /s/ James F. Wade ----------------------------- Name: James F. Wade Title: Authorized Officer 10 EQUITY-LINKED INVESTORS-II By: ROHIT M. DESAI ASSOCIATES-II, its general partner By:________________________________ Name: Title: PRIVATE EQUITY INVESTORS III, L.P. By: ROHIT M. DESAI ASSOCIATES III, LLC, its general partner By:_____________________________ Name: Title: HOAK COMMUNICATIONS PARTNERS, L.P. By: HCP Investments, L.P., its general partner By: Hoak Partners, LLC, its general partner By: /s/ James M. Hoak ----------------------------- Name: James M. Hoak Title: Manager HCP CAPITAL FUND, L.P. By: James M. Hoak & Co., its general partner By: /s/ James M. Hoak ----------------------------- Name: James M. Hoak Title: Chairman 11 WHITNEY EQUITY PARTNERS, L.P. By: J.H. Whitney & Co., Its general partner By: /s/ Daniel J. O'Brian ----------------------------- Name: Daniel J. O'Brian Title: Member J.H. WHITNEY III, L.P. By: J.H. Whitney & Co., Its general partner By: /s/ Daniel J. O'Brian ----------------------------- Name: Daniel J. O'Brian Title: Member WHITNEY STRATEGIC PARTNERS III, L.P. By: J.H. Whitney & Co., Its general partner By: /s/ Daniel J. O'Brian ----------------------------- Name: Daniel J. O'Brian Title: Member 12 TORONTO DOMINION INVESTMENTS INC. By:_____________________________ Name: Title: GILDE INTERNATIONAL B.V., by its attorney in fact Morgan, Holland Partners L.P., by its GP Morgan, Holland Partners II, L.P. By: /s/ Edwin M. Kania, Jr. ----------------------------- Name: Edwin M. Kania, Jr. Title: General Partner WIRELESS 2000 By: /s/ Joan S. Ducote. ----------------------------- Name: Joan S. Ducote. Title: President DIGITAL PCS, LLC By:_____________________________ Name: Title: Management Stockholders: /s/ Thomas H. Sullivan -------------------------------- Thomas Sullivan 13 /s/ Gerald T. Vento ------------------- Gerald Vento 14 EX-10.27 11 TELECORP PCS, INC. 1999 STOCK OPTION PLAN Exhibit 10.27 Exhibit Number 10.27** TELECORP PCS, INC. 1999 STOCK OPTION PLAN* *Amended October 18, 1999 by the Company's Board of Directors. 1. Purpose. The TELECORP PCS, INC. 1999 Stock Option Plan (the "Plan") ------- is intended to provide incentives which will attract and retain highly competent persons as employees, officers and/or directors of TELECORP PCS, INC. or its affiliated companies (the "Company"), by providing them opportunities to acquire shares of Class A Common Stock of the Company ("Common Shares") pursuant to Stock Options described herein. 2. Administration. The Plan will be administered by the Board of -------------- Directors of the Company (the "Board"). The Board is authorized, subject to the provisions of the Plan, to establish such rules and regulations as it deems necessary for the proper administration of the Plan and to make such determinations and interpretations and to take such action or inaction in connection with the Plan and any Stock Options granted hereunder as it deems necessary or advisable. All determinations and interpretations made by the Board shall be binding and conclusive on all participants and their legal representatives. The Board may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any option agreement in the manner and to the extent it shall deem expedient to effectuate the purposes of the Plan. No member of the Board, and no officer or employee of the Company, shall be liable for any act or failure to act hereunder, by any other member of the Board or any officer or employee or by any agent to whom duties in connection with the administration of this Plan have been delegated or, except in circumstances involving his bad faith, gross negligence or fraud, for any act or failure to act by the member of the Board or any officer or employee. 3. Participants. The Board, in its sole discretion may designate ------------ employees, officers and directors of the Company and its affiliates from time to time to receive Stock Options under the Plan. Designation of a participant in any year shall not require the Board to designate such person to receive a Stock Option in any other year or, once designated, to receive the same type or amount of Stock Options as granted to the participant or any other participant in any year. The Board shall consider such factors as it deems pertinent in selecting participants and in determining the type and amount of their respective Stock Options. 4. Shares Reserved under the Plan. Subject to adjustment under ------------------------------ Section 6 below, there is hereby reserved for issuance under the Plan an aggregate of 587,159 Common Shares. Such shares may be authorized but unissued shares or may be shares issued and thereafter acquired by the Company. Any shares subject to Stock Options may thereafter be subject to new options under this Plan if there is a lapse, expiration or termination of any such options, or if shares are issued under such options and thereafter are reacquired by the Company pursuant to rights reserved by the Company upon issuance thereof. - --------------------- *Amended October 18, 1999 by the Company's Board of Directors. 5. Stock Options. Stock Options will consist of awards from the ------------- Company, in the form of agreements, which will enable the holder to purchase a specific number of Common Shares, at set terms and at a fixed purchase price. Stock Options may be "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code ("Incentive Stock Options") or Stock Options which do not constitute Incentive Stock Options ("Nonqualified Stock Options"). The Board will have the authority to grant to any participant one or more Incentive Stock Options, Nonqualified Stock Options, or both types of Stock Options. Each Stock Option shall be subject to such terms and conditions consistent with the Plan as the Board may impose from time to time, subject to the following limitations: (a) Exercise Price. Subject to Paragraph (e) below, each Stock -------------- Option granted hereunder shall have such per-share exercise price as the Board may determine at the date of grant. (b) Payment of Exercise Price. Options granted under the Plan ------------------------- may provide for the payment of the exercise price by delivery of cash or a check to the order of the Company in an amount equal to the exercise price of such options, or by delivery to the Company of Common Shares already owned by the participant having a Fair Market Value equal in amount to the exercise price of the options being exercised or by any combination of such methods of payment. The Fair Market Value of any Common Shares which may be delivered upon exercise of an option shall be determined by the Board. (c) Exercise Period. Stock Options granted under the Plan --------------- shall be exercisable at such times and subject to such terms and conditions as shall be determined by the Board. In addition, Stock Options shall not be exercisable more than ten years after the date they are granted. All Stock Options shall terminate at such earlier times and upon such conditions or circumstances as the Board shall in its discretion set forth in such option at the date of grant. (d) Exercise of Options. Each option granted under the Plan ------------------- shall be exercisable either in full or in installments at such time or times and during such period as shall be set forth in the agreement evidencing such option, subject to the provisions of paragraph (c) above. To the extent that an option to purchase Common Shares is not exercised by an optionee when it becomes initially exercisable, it shall not expire but shall be carried forward and shall be exercisable, on a cumulative basis, until the expiration of the exercise period or such earlier time as the Board shall, in its sole discretion, set forth in such option at the date of grant. (e) Limitations on Incentive Stock Options. Incentive Stock -------------------------------------- Options may be granted only to participants who are employees of the Company at the date of grant. The aggregate Fair Market Value (determined as of the time the option is granted) of the Common Shares with respect to which Incentive Stock Options are exercisable for the first time by a participant during any calendar year (under all option plans of the Company) shall not exceed $100,000. Incentive Stock Options may not be granted to any participant who, at the time of grant, owns stock possessing (after the application of the attribution rules of Section 424(d) of the -2- Internal Revenue Code) more than 10% of the total combined voting power of all classes of stock of the Company, unless the option price is fixed at not less than 110% of the Fair Market Value of the Common Shares on the date of grant and the exercise of such option is prohibited by its terms after the expiration of five years from the date of grant of such option. (f) Redesignation as Nonqualified Stock Options. Options ------------------------------------------- designated as "incentive stock options" that fail to continue to meet the requirements of Section 422 of the Internal Revenue Code shall be redesignated as nonqualified options for Federal income tax purposes automatically without further action by the Board on the date of such failure to continue to meet the requirements of Section 422 of the Internal Revenue Code. (g) Limitation of Rights in Shares. The recipient of a Stock ------------------------------ Option shall not be deemed for any purpose to be a shareholder of the Company with respect to any of the shares subject thereto except to the extent that the Stock Option shall have been exercised and, in addition, a certificate shall have been issued and delivered to the participant. 6. Adjustment Provisions. --------------------- (a) If the Company shall at any time change the number of issued Common Shares without new consideration to the Company (such as by stock dividend, stock split, recapitalization, reorganization, exchange of shares, liquidation, combination or other change in corporate structure affecting the Common Shares) or make a distribution of cash or property which has a substantial impact on the value of issued Common Shares, the total number of shares available for Stock Options under this Plan shall be appropriately adjusted, and the number of shares covered by each outstanding Stock Option and the option exercise price of each outstanding Stock Option shall be adjusted so that the net value of such Stock Option shall not be changed. (b) In the case of any sale of assets, merger, consolidation, combination or other corporate reorganization or restructuring of the Company with or into another corporation which results in the outstanding Common Shares being converted into or exchanged for different securities, cash or other property, or any combination thereof (an "Acquisition"), subject to the provisions of this Plan and any limitation applicable to the Stock Option, including without limitation, the termination of any unexercised options upon the sale of the Company's assets, any participant to whom a Stock Option has been granted shall have the right thereafter and during the term of the Stock Option, to receive upon exercise thereof the Acquisition Consideration (as defined below). The term "Acquisition Consideration" shall mean the kind and amount of securities, cash or other property or any combination thereof receivable in respect of one Common Share upon consummation of an Acquisition. (c) Notwithstanding any other provision of this Plan, the Board may authorize the issuance, continuation or assumption of Stock Options or provide for other equitable adjustments after changes in the Common Shares resulting from any merger, -3- consolidation, sale of assets, acquisition of property or stock, recapitalization, reorganization or similar occurrence upon such terms and conditions as it may deem equitable and appropriate. 7. Nontransferability. Each Stock Option granted under the Plan to a ------------------ participant shall not be transferable by him otherwise than by law or by will or the laws of descent and distribution, and shall be exercisable, during his lifetime, only by him (or his legal representative in the case of incapacitation). In the event of the death of a participant while the participant is rendering services to the Company, each Stock Option theretofore granted to him shall be exercisable during such period after his death as the Board shall in its discretion set forth in such option or right at the date of grant (but not beyond the stated duration of the option or right) and then only: (i) By the executor or administrator of the estate of the deceased participant or the person or persons to whom the deceased participant's rights under the Stock Option shall pass by will or the laws of descent and distribution; an d (ii) To the extent that the deceased participant was entitled to do so at the date of his death. 8. Other Provisions. Stock Options under the Plan may also be subject ---------------- to such other provisions (whether or not applicable to any other Stock Options under the Plan) as the Board, in its sole discretion, determines appropriate, including without limitation, provisions determining the effect that a termination of employment shall have on the participant's Stock Options, provisions for the installment purchase of Common Shares under Stock Options, provisions to assist the participant in financing the acquisition of Common Shares, provisions for the forfeiture of, or restrictions on resale or other disposition of Common Shares acquired under any form of Stock Option, provisions for the acceleration of exercisability or vesting of Stock Options in the event of a change of control of the Company, provisions for the payment of the value of Stock Options to participants in the event of a change of control of the Company, provisions for the forfeiture of, or provisions to comply with Federal and state securities laws, or understandings or conditions as to the participant's employment in addition to those specifically provided for under the Plan. Notwithstanding the foregoing, such additional provisions shall not cause any Incentive Stock Option granted under the Plan to fail to qualify as an Incentive Stock Option within the meaning of Section 422 of the Code. 9. Fair Market Value. For purposes of this Plan and any Incentive ----------------- Stock Options awarded hereunder, Fair Market Value of Common Shares shall be the amount determined in good faith by the Board from time to time as the fair market value of the Common Shares of the Company. 10. Withholding. All payments or distributions or deliveries made ----------- pursuant to the Plan shall be net of any amounts required to be withheld pursuant to applicable federal, state and local tax withholding requirements. If the Company is required to issue Common Shares pursuant -4- to the exercise of Stock Options, it may require the participant to remit to it an amount sufficient to satisfy such tax withholding requirements prior to the delivery of any certificates for such Common Shares. The Board may, in its discretion and subject to such rules as it may adopt, permit a participant to pay all or a portion of the federal, state and local withholding taxes arising in connection with the exercise of a Stock Option, by electing to have the Company withhold Common Shares having a Fair Market Value equal to the amount required to be withheld. 11. Tenure. A participant's right, if any, to continue to serve the ------ Company as an officer, employee, director or otherwise, shall not be enlarged or otherwise affected by his designation as a participant under the Plan, nor shall this Plan in any way interfere with the right of the Company, subject to the terms of any separate employment agreement to the contrary, at any time to terminate such employment or to increase or decrease the compensation of the participant from the rate in existence at the time of the grant of a Stock Option. Whether an authorized leave of absence, or absence in military or government service, shall constitute termination of employment shall be determined by the Board at the time. 12. Other Employee Benefits. The amount of any compensation that may ----------------------- be deemed to be received by an participant as a result of the grant of a Stock Option, the vesting of a Stock Option, the exercise of a Stock Option or the sale of Common Shares received upon such exercise will not constitute compensation with respect to which any other participant benefits of such employee are determined, including, without limitation, benefits under any bonus, pension, profit sharing, life insurance or salary continuation plan, unless separate provision to the contrary is contained in such other plan. 13. Duration, Amendment and Termination. No Stock Option shall be ----------------------------------- granted after December 31, 2008; provided, however, that the terms and conditions applicable to any Stock Option granted prior to such date shall continue to have force and effect in accordance with the participant's stock option agreement, and such agreement may thereafter be amended or modified by mutual agreement between the Company and the participant or such other persons as may then have an interest therein. Also, by mutual agreement between the Company and a participant hereunder, under this Plan or under any other present or future plan of the Company, Stock Options may be granted to such participant in substitution and exchange for, and in cancellation of, any Stock Options previously granted such participant under this Plan, or any other present or future plan of the Company. The Board may amend the Plan from time to time or terminate the Plan at any time. However, no action authorized by this Section 13 shall reduce the amount of any existing Stock Option or change the terms and conditions thereof without the participant's consent. 14. Governing Law. This Plan and actions taken in connection herewith ------------- shall be governed and construed in accordance with the laws of the Commonwealth of Virginia (regardless of the law that might otherwise govern under applicable Virginia principles of conflict of laws). -5- 15. Approval. The Plan was adopted by the Board of the Company on -------- June 23, 1999 and amended by the Board on October 18, 1999. -6- EX-10.31 12 FORM OF INDEMNIFICATION AGREEMENT EXHIBIT 10.31 Exhibit 10.31** Form Of INDEMNIFICATION AGREEMENT BETWEEN TELECORP PCS, INC. AND ______________________________ TABLE OF CONTENTS
Page ---- 1. Definitions.............................................................................................1 2. Indemnification.........................................................................................2 2.1 Indemnification in Third Party Actions.........................................................2 2.2 Indemnification in Proceedings By or In the Name of the Company................................2 2.3 Partial Indemnification........................................................................2 2.4 Indemnification Hereunder Not Exclusive........................................................2 2.5 Indemnification of Indemnified Costs of Successful Party.......................................3 2.6 Indemnified Costs Advanced.....................................................................3 2.7 Limitations on Indemnification.................................................................3 3. Presumptions............................................................................................3 3.1 Presumption Regarding Standard of Conduct......................................................3 3.2 Determination of Right to Indemnification......................................................4 3.2.1 Burden................................................................................4 3.2.2 Standard..............................................................................4 4. Other Agreements........................................................................................4 4.1 Change in Control Event........................................................................4 4.2 Maintenance of Liability Insurance.............................................................5 4.2.1 Affirmative Covenant of the Company...................................................5 4.2.2 Indemnitee Named as Insured...........................................................5 4.3 Agreement to Serve.............................................................................5 4.4 Effect of this Agreement on Employment Agreement...............................................5 4.5 Nature of Rights; Separability.................................................................5 4.6 Savings Clause.................................................................................5 4.7 Repayment of Indemnified Costs.................................................................6 4.8 Repayment......................................................................................6 5. Indemnification Procedure...............................................................................6 5.1 Notice.........................................................................................6 5.2 Company Participation..........................................................................6 5.3 Settlement.....................................................................................7
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5.4 Subrogation....................................................................................7 6. Miscellaneous Provisions................................................................................7 6.1 Amendments; Waivers............................................................................7 6.2 Integration....................................................................................7 6.3 Interpretation; Governing Law..................................................................7 6.4 Headings.......................................................................................7 6.5 Counterparts...................................................................................7 6.6 Successors and Assigns.........................................................................7 6.7 Expenses; Legal Fees...........................................................................7 6.8 Representation by Counsel; Interpretation......................................................7 6.9 Specific Performance...........................................................................8 6.10 Time is of the Essence.........................................................................8 6.11 Notices........................................................................................8
ii TELECORP PCS, INC. INDEMNIFICATION AGREEMENT ------------------------- This Indemnification Agreement (this "Agreement") is made as of __________, 1999, by and between TeleCorp PCS, Inc., a Delaware corporation (the "Company"), and the individual whose name appears below the word "Indemnitee" on the signature page (the "Indemnitee"). In consideration of the services of the Indemnitee, and to induce the Indemnitee to continue to serve as a director and/or officer, the Company and the Indemnitee agree as follows: R E C I T A L S A. The Indemnitee has agreed to serve as a director and/or officer of the Company and in such capacity will render valuable services to the Company. B. The Company has concluded that insurance and statutory indemnity provisions may provide inadequate protection to individuals requested to serve as its directors and officers. C. To induce and encourage the Indemnitee to serve as a director and/or officer of the Company, the Company's Board of Directors has decided that this Agreement is not only reasonable and prudent, but necessary, to promote and ensure the best interests of the Company and its stockholders. 1. Definitions ----------- As used in this Agreement: 1.1 "Agent" means a director, officer, employee or agent of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise that the Indemnitee served in any of such capacities at the request of the Company. 1.2 "Change in Control Event" means any of the following: (a) Approval by the stockholders of the Company of the dissolution or liquidation of the Company; (b) Consummation of a merger, consolidation, or other reorganization, with or into, or the sale of all or substantially all of the Company's business and/or assets as an entirety to, one or more entities that are not Subsidiaries or other affiliates of the Company (a "Business Combination"), unless (1) as a result of the Business Combination more than 50% of the outstanding voting power generally in the election of directors of the surviving or resulting entity or a parent thereof (the "Successor Entity") immediately after the reorganization are, or will be, owned, directly or indirectly, by holders of the Company's voting securities immediately before the Business Combination; and (2) no Person (excluding the Successor Entity or an Excluded Person) beneficially owns, directly or indirectly, more than 50% of the outstanding shares or the combined voting power of the outstanding voting securities of the Successor Entity, after giving effect to the Business Combination, except to the extent that such ownership existed prior to the Business Combination; and (3) at least 50% of the members of the board of directors of the entity resulting from the Business Combination were members of the Board of Directors at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for the Business Combination; (c) Any "Person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act other than an Excluded Person becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than 50% of the combined voting power of the Company's then outstanding securities entitled to then vote generally in the election of directors of the Company, other than as a result of (1) an acquisition directly from the Company, (2) an acquisition by the Company, (3) an acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or a Successor Entity, or (4) an acquisition by an entity pursuant to a transaction which is expressly excluded under clause (b) above; or (d) During any period not longer than two consecutive years, individuals who at the beginning of such period constituted the Board of Directors cease to constitute at least a majority thereof, unless the election, or the nomination for election by the Company's stockholders, of each new member of the Board of Directors was approved by a vote of at least three-fourths of the members of the Board of Directors then still in office who were members at the beginning of such period (including for these purposes, new members whose election or nomination was so approved), but excluding for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board of Directors. 1.3 "Excluded Person" means (a) any person described in and satisfying the conditions of Rule 13d-1(b)(1) under the Exchange Act, (b) the Company, (c) an employee benefit plan (or related trust) sponsored or maintained by the Company or the Successor Entity, or (d) any person who is the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of more than 10% of the outstanding shares of Common Stock at the time of adoption of this Plan (or any affiliate, successor or related party of or to any such person). 1.4 "Expenses" includes, but is not limited to, attorneys' fees, disbursements and retainers, accounting and witness fees, travel and deposition costs, expenses of investigations and amounts paid in settlement by or on behalf of the Indemnitee, and any expenses of establishing a right to indemnification pursuant to this Agreement, to the extent actually and reasonably incurred by the Indemnitee in connection with any Proceeding. "Expenses" does not include the amount of judgments, fines, penalties or ERISA excise taxes actually levied against the Indemnitee. -2- 1.5 "Indemnified Costs" means all Expenses, judgments, fines, penalties and ERISA excise taxes actually and reasonably incurred by the Indemnitee in connection with the investigation, defense, appeal, or settlement of any Proceeding. 1.6 "Person" means an individual, corporation, partnership, limited liability company, association, joint stock company, business trust, unincorporated organization, or other legal entity. 1.7 A "Potential Change in Control Event" will be deemed to have occurred if: (a) the Company enters into an agreement or arrangement that would constitute a Change in Control Event if consummated; (b) any person (including the Company) publicly announces an intention to take or to consider taking actions that would constitute a Change in Control Event if consummated; or (c) the Board of Directors adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control Event has occurred. 1.8 "Proceeding" means any threatened, pending or completed action, suit or proceeding (including appeals thereof), whether brought by or in the name of the Company or otherwise and whether of a civil, criminal or administrative or investigative nature, in which the Indemnitee is or will be a party at the time because the Indemnitee is or was an Agent, whether or not the Indemnitee is serving in such capacity at the time any liability or Expense is incurred for which indemnification or reimbursement is to be provided under this Agreement. 2. Indemnification --------------- 2.1 Indemnification in Third Party Actions. The Company will indemnify the -------------------------------------- Indemnitee if the Indemnitee becomes a party to, is threatened to be made a party to, is a witness or other participant in, or is otherwise involved in any Proceeding (other than a Proceeding by or in the name of the Company to procure a judgment in its favor), because the Indemnitee is or was an Agent, against all Indemnified Costs, to the fullest extent permitted by applicable law. Any settlement must be approved in writing by the Company. 2.2 Indemnification in Proceedings By or In the Name of the Company. The --------------------------------------------------------------- Company will indemnify the Indemnitee if the Indemnitee is a party to, is threatened to be made a party to, is a witness or other participant in, or is otherwise involved in any Proceeding by or in the name of the Company to procure a judgment in its favor because the Indemnitee was or is an Agent of the Company against all Expenses in connection with the defense or settlement of the Proceeding, to the fullest extent permitted by applicable law. -3- 2.3 Partial Indemnification. If the Indemnitee is entitled under any provision ----------------------- of this Agreement to indemnification by the Company for some or a portion of, but not the total amount of, the Indemnified Costs, the Company will nevertheless indemnify the Indemnitee for the portion of the Indemnified Costs to which the Indemnitee is entitled. 2.4 Indemnification Hereunder Not Exclusive. The indemnification provided by --------------------------------------- this Agreement is not exclusive of any other rights to which the Indemnitee may be entitled under the Company's Certificate of Incorporation, the Bylaws, any agreement, any vote of stockholders or disinterested directors, applicable law, or otherwise, both as to action in the Indemnitee's official capacity and as to action in another capacity on behalf of the Company. 2.5 Indemnification of Indemnified Costs of Successful Party. Notwithstanding -------------------------------------------------------- any other provisions of this Agreement, to the extent that the Indemnitee has been successful in defense of any Proceeding or in defense of any claim, issue or matter in the Proceeding, on the merits or otherwise, including, but not limited to, the dismissal of a Proceeding without prejudice, the Indemnitee will be indemnified against all Indemnified Costs incurred in connection therewith to the fullest extent permitted by applicable law. 2.6 Indemnified Costs Advanced. The Indemnified Costs incurred by the -------------------------- Indemnitee in any Proceeding will be paid promptly by the Company in advance of the final disposition of the Proceeding at the written request of the Indemnitee to the fullest extent permitted by applicable law. The advances to be made will be paid by the Company to the Indemnitee within 30 days following delivery of the written request by Indemnitee to the Company, accompanied by substantiated documentation. 2.7 Limitations on Indemnification. Notwithstanding anything to the contrary ------------------------------ in this Agreement, the Company is not required to make payments to: (a) indemnify or advance Indemnified Costs with respect to Proceedings initiated or brought voluntarily by the Indemnitee and not by way of defense, except with respect to Proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under applicable law; (b) indemnify the Indemnitee for any Indemnified Costs for which payment is actually made to the Indemnitee under an insurance policy, except for any excess beyond the amount of payment under the policy; (c) indemnify the Indemnitee for any Indemnified Costs sustained in any Proceeding for an accounting of profits made from the purchase or sale by the Indemnitee of securities of the Company pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder and amendments thereto or similar provisions of any federal, state or local law; -4- (d) indemnify the Indemnitee for any Indemnified Costs resulting from Indemnitee's conduct that is finally adjudged by a court of competent jurisdiction to have been willful misconduct, knowingly fraudulent or deliberately dishonest; or (e) indemnify the Indemnitee if a court of competent jurisdiction finally determines that such payment is unlawful. 3. Presumptions ------------ 3.1 Presumption Regarding Standard of Conduct. The Indemnitee will be ----------------------------------------- conclusively presumed to have met the relevant standards of conduct as defined by applicable law for indemnification pursuant to this Agreement unless a determination that the Indemnitee has not met the relevant standards is made by (a) the Board of Directors of the Company by a majority vote of a quorum consisting of directors who are not parties to the Proceeding, (b) the stockholders of the Company by majority vote, or (c) in a written opinion by independent legal counsel, selection of whom has been made by the Company's Board of Directors and approved by the Indemnitee. 3.2 Determination of Right to Indemnification. ----------------------------------------- 3.2.1 Burden. If a claim under this Agreement is not paid by the Company ------ within 30 days of receipt of written notice, the right to indemnification as provided by this Agreement will be enforceable by the Indemnitee in any court of competent jurisdiction. The burden of proving by clear and convincing evidence that indemnification or advances are not appropriate will be on the Company. Neither the failure of the directors, stockholders, or independent legal counsel to have made a determination before the commencement of the action that indemnification or advances are proper in the circumstances because the Indemnitee has met the applicable standard of conduct, nor an actual determination by the directors, stockholders or independent legal counsel that the Indemnitee has not met the applicable standard of conduct, will be a defense to the action or create a presumption that the Indemnitee has not met the applicable standard of conduct. 3.2.2 Standard. The Indemnitee's Expenses incurred in connection with -------- any Proceeding concerning the Indemnitee's right to indemnification or advances in whole or in part pursuant to this Agreement will also be indemnified by the Company regardless of the outcome of the Proceeding, unless a court of competent jurisdiction determines that each of the material assertions made by the Indemnitee in the Proceeding was not made in good faith or was frivolous. 4. Other Agreements ---------------- 4.1 Change in Control Event. If there is a Change in Control Event or a ----------------------- Potential Change in Control Event of the Company (other than a Change in Control Event or Potential Change in Control Event that has been approved by a majority of the Company's Board -5- of Directors who were directors immediately before the Change in Control Event or Potential Change in Control Event), then with respect to all matters thereafter arising concerning the rights of the Indemnitee to be indemnified for Indemnified Costs, the Company will seek legal advice only from independent counsel selected by the Indemnitee, and reasonably satisfactory to the Company, and who has not otherwise performed other services for the Company or the Indemnitee within the last three years ("Special Independent Counsel"). The Special Independent Counsel, among other things, will render its written opinion to the Company and the Indemnitee as to whether and to what extent the Indemnitee would be permitted to be indemnified under applicable law. The Company will pay the reasonable fees and expenses of the Special Independent Counsel. 4.2 Maintenance of Liability Insurance. ---------------------------------- 4.2.1 Affirmative Covenant of the Company. While the Indemnitee continues ----------------------------------- to serve as a director or officer of the Company, and thereafter while the Indemnitee is subject to any possible Proceeding, the Company will promptly obtain and maintain in full force and effect directors' and officers' liability insurance ("D&O Insurance") in reasonable amounts from reputable insurers. The Company has no obligation, however, to obtain or maintain D&O Insurance if it determines in good faith that insurance is not reasonably available, the premium costs for insurance are disproportionate to the amount of coverage provided, the coverage provided by insurance is so limited by exclusions that it provides an insufficient benefit, or the Indemnitee is covered by similar insurance maintained by a subsidiary of the Company. If at the time it receives a notice a Proceeding has commenced the Company has D&O Insurance, the Company will give prompt notice of such commencement to the insurers as required by the respective policies. The Company will thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies. 4.2.2 Indemnitee Named as Insured. In all D&O Insurance policies, the --------------------------- Indemnitee will be named as an insured in a manner that provides the Indemnitee the same rights and benefits accorded to the most favorably insured of the Company's directors and officers. 4.3 Agreement to Serve. Indemnitee will serve or continue to serve as an Agent ------------------ of the Company for so long as the Indemnitee is duly elected or appointed or until the Indemnitee voluntarily resigns. Indemnitee will give notice to the Company at least thirty (30) days before voluntarily resigning. 4.4 Effect of this Agreement on Employment Agreement. Any present or future ------------------------------------------------ employment agreement between the Indemnitee and the Company is not modified by this Agreement. Nothing contained in this Agreement creates in the Indemnitee any right of continued employment. -6- 4.5 Nature of Rights; Separability. The rights afforded to the Indemnitee by ------------------------------ this Agreement are contract rights and may not be diminished, eliminated or otherwise affected by amendments to the Company's Certificate of Incorporation, Bylaws or agreements, including D&O Insurance policies. Each provision of this Agreement is a separate and distinct agreement and independent of the others, so that if any provision of this Agreement is held to be invalid or unenforceable for any reason, the invalidity or unenforceability will not affect the validity or enforceability of the other provisions. To the extent required, any provision of this Agreement may be modified by a court of competent jurisdiction to preserve its validity and to provide the Indemnitee with the broadest possible indemnification permitted under applicable law. 4.6 Savings Clause. If this Agreement or any portion of it is invalidated on -------------- any ground by any court of competent jurisdiction, then the Company will nevertheless indemnify the Indemnitee as to Indemnified Costs with respect to any Proceeding to the full extent permitted by any applicable portion of this Agreement that is not invalidated, or by any applicable law. 4.7 Repayment of Indemnified Costs. The Indemnitee will reimburse the Company ------------------------------ for all Indemnified Costs paid by the Company in defending any Proceeding against the Indemnitee if and only to the extent that a court of competent jurisdiction finally decides that the Indemnitee is not entitled to be indemnified by the Company for such Indemnified Costs under the provisions of applicable law, the Company's Bylaws, Certificate of Incorporation, this Agreement, or otherwise. The Indemnitee will repay such amounts advanced only if, and to the extent that, it is ultimately determined that Indemnitee is not entitled to be indemnified for such Indemnified Costs by the Company pursuant to this Agreement. 4.8 Repayment. The Indemnitee will promptly repay to the Company any amounts --------- paid to the Indemnitee pursuant to other rights of indemnification or under any insurance policy, to the extent those payments are duplicative of payments under this Agreement. 5. Indemnification Procedure ------------------------- 5.1 Notice. Promptly after receipt of notice that a Proceeding has commenced, ------ the Indemnitee will, if a claim is to be made under this Agreement, notify the Company of that fact. The failure to notify the Company will not relieve it from any liability that it may have to the Indemnitee except to the extent of the Company's material damage resulting from such failure. 5.2 Company Participation. The Company will be entitled to participate in any --------------------- Proceeding at its own expense and, except as otherwise provided below, to the extent that it may wish, the Company may assume the defense of any Proceeding for which indemnification is sought hereunder, with counsel reasonably satisfactory to the Indemnitee. After the Company notifies the Indemnitee of the Company's election to assume the defense of a -7- Proceeding, during the Company's good faith active defense the Company will not be liable to the Indemnitee under this Agreement for any legal or other expenses subsequently incurred by the Indemnitee in connection with the defense of the Proceeding, other than reasonable costs of investigation or as otherwise provided below. The Indemnitee will have the right to employ the Indemnitee's counsel in any Proceeding, but the fees and expenses of the counsel incurred after the Company assumes the defense of the Proceeding will be at the expense of the Indemnitee, unless (a) the employment of counsel by the Indemnitee has been authorized by the Company, (b) the Indemnitee has reasonably concluded that there may be a conflict of interest between the Company and the Indemnitee in the conduct of the defense of a Proceeding, or (c) the Company has not in fact employed counsel to assume the defense of a Proceeding. In each of the foregoing cases the fees and expenses of the Indemnitee's counsel will be at the expense of the Company. The Company will not be entitled to assume the defense of any Proceeding brought by or on behalf of the Company or as to which the Indemnitee has made the conclusion that there may be a conflict of interest between the Company and the Indemnitee. 5.3 Settlement. The Company will not settle or compromise any Proceeding in ---------- any manner that would impose any penalty or limitation on the Indemnitee without the Indemnitee's consent. The Indemnitee will not settle or compromise any Proceeding without the Company's consent. Neither the Company nor the Indemnitee will unreasonably withhold their consent or approval under this Agreement. 5.4 Subrogation. If the Company pays Indemnified Costs, the Company will be ----------- subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee against third parties. The Indemnitee will do all things reasonably necessary to secure such rights, including the execution of documents necessary to enable the Company effectively to bring suit to enforce such rights. 6. Miscellaneous Provisions ------------------------ 6.1 Amendments; Waivers. Amendments, waivers, consents and approvals under ------------------- this Agreement must be in writing and designated as such. No failure or delay in exercising any right will be deemed a waiver of such right. 6.2 Integration. This Agreement is the entire agreement between the parties ----------- pertaining to its subject matter, and supersedes all prior agreements and understandings of the parties in connection with such subject matter. 6.3 Interpretation; Governing Law. This Agreement is to be construed as a ----------------------------- whole and in accordance with its fair meaning. This Agreement is to be interpreted in accordance with the laws of the State of Delaware relating to indemnification of Agents. 6.4 Headings. Headings of Sections and subsections are for convenience only -------- and are not a part of this Agreement. -8- 6.5 Counterparts. This Agreement may be signed in one or more counterparts, ------------ all of which constitute one agreement. 6.6 Successors and Assigns. This Agreement is binding upon and inures to the ---------------------- benefit of each party and such party's respective heirs, personal representatives, successors and assigns. Nothing in this Agreement, express or implied, is intended to confer any rights or remedies upon any other person. 6.7 Expenses; Legal Fees. Each party will pay its own expenses in the -------------------- negotiation, preparation and performance of this Agreement. The prevailing party in any action relating to this Agreement will be entitled to reasonable legal fees, costs and expenses incurred in such action. 6.8 Representation by Counsel; Interpretation. Each party acknowledges that it ----------------------------------------- has been given an opportunity to be represented by counsel in connection with this Agreement. Any rule of law, including, but not limited to, Section 1654 of the California Civil Code, or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the party that drafted it, has no application and is expressly waived. 6.9 Specific Performance. The Company acknowledges that in view of the -------------------- uniqueness of the matters contemplated by this Agreement, the Indemnitee would not have an adequate remedy at law for money damages if this Agreement is not being performed in accordance with its terms. The Company therefore agrees that the Indemnitee will be entitled to specific enforcement of the terms hereof in addition to any other remedy to which the Indemnitee may be entitled. 6.10 Time is of the Essence. Time is of the essence in the performance of each ---------------------- provision of this Agreement. 6.11 Notices. Any notice to be given hereunder must be in writing and ------- delivered as follows (or to another address designated in writing):
If to TeleCorp PCS, Inc. If to the Indemnitee: - ------------------------ --------------------- 1010 North Glebe Road, Suite 800 At the Indemnitee's most recent address on Arlington, Virginia 22201 the books and records of the Company Attention: Chief Financial Officer
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] -9- The parties have signed this Agreement as of the date on page one. INDEMNITEE ________________________________________ Print Name:_____________________________ TELECORP PCS, INC. ________________________________________ By: Title: EX-23.2 13 CONSENT OF PRICEWATERHOUSECOOPERS, LLP Exhibit 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We hereby consent to the inclusion in this Registration Statement on Form S-1 of our report dated November 16, 1999, relating to the consolidated financial statements of TeleCorp PCS, Inc. and Subsidiaries and Predecessor Company. We also consent to the reference to our firm under the headings "Experts" in such Registration Statement. PricewaterhouseCoopers LLP McLean, Virginia November 16, 1999 -----END PRIVACY-ENHANCED MESSAGE-----