-----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, WX210rWw4GADnV+Hcd1Ct5IqHT0+I7bNY8mesoIKByqZGeByZIR2eyq3Ben2dO6Y sK0BYwN96KRbMAhExLvnhA== 0000927016-00-001089.txt : 20000331 0000927016-00-001089.hdr.sgml : 20000331 ACCESSION NUMBER: 0000927016-00-001089 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TELECORP COMMUNICATIONS INC CENTRAL INDEX KEY: 0001092935 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 522105807 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-81313-01 FILM NUMBER: 587802 BUSINESS ADDRESS: STREET 1: 1010 N GLEBE ROAD STREET 2: SUITE 800 CITY: ARLINGTON STATE: VA ZIP: 22201 BUSINESS PHONE: 7032361100 MAIL ADDRESS: STREET 1: 1010 N GLEBE ROAD STREET 2: SUITE 800 CITY: ARLINGTON STATE: VA ZIP: 22201 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from__________ to __________. Commission File Number: 000-27901 TeleCorp PCS, Inc. Exact name of registrant as specified in charter DELAWARE 54-1872248 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) and the following subsidiary: TeleCorp Communications, Inc. DELAWARE 52-2105807 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) ----------------- 1010 N. Glebe Road, Suite 800 Arlington, VA 22201 (Address of principal executive office) (703) 236-1100 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Class A Voting Common Stock, par value $0.01 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the Registrant's Class A Common Stock held by non-affiliates of the Registrant (without admitting that any person whose shares are not included in such calculation is an affiliate) on March 26, 2000, was $4,530,016,950 based on the last reported sale price on the Nasdaq National Market. As of March 26, 2000, the Registrant had 86,698,889 shares of Class A Common Stock outstanding. Documents Incorporated By Reference The following documents (or parts thereof) are incorporated by reference into the following parts of this Form 10-K: Certain information required in Part III of this Form 10-K is incorporated from the Registrant's Proxy Statement for the 2000 Annual Meeting of Stockholders to be held on May 24, 2000. Forward-Looking Statements or Information This Form 10-K, future filings of the registrant, press releases of the registrant, and oral statements made with the approval of one of our authorized executive officers may contain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1955. In connection therewith, please see the cautionary statements contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Forward Looking Statements: Cautionary Statements" and elsewhere in this report which identify important factors which could cause actual results to differ materially from those in any such forward-looking statements. PART I Item 1. Business. Overview We are the largest AT&T Wireless affiliate in the United States in terms of licensed population, with licenses covering approximately 16.7 million people. We provide wireless personal communication services, or PCS, in selected markets in the south-central and northeast United States and in Puerto Rico, encompassing eight of the 100 largest metropolitan areas in the United States. Commencing with the launch of operations in the New Orleans market in February 1999, we have successfully launched our services in 26 markets. At December 31, 1999, we had more than 142,000 customers and our networks covered approximately 66% of the population where we held licenses. We entered into a venture with AT&T in July 1998 under which AT&T contributed PCS licenses to us in exchange for ownership in our company. We are AT&T's exclusive provider of wireless mobility services, using equal emphasis co-branding with AT&T, in our covered markets, subject to AT&T's right to resell services on our network. We have the right to use the AT&T brand name and logo together with our SunCom brand name and logo, giving equal emphasis to each in our covered markets. We are AT&T's preferred roaming partner for digital customers in our markets. Additionally, our relationship with AT&T allows us to provide coast-to-coast coverage to our customers. Our PCS licenses include both major population centers as well as popular vacation destinations, such as: o San Juan, Puerto Rico and the U.S. Virgin Islands; o New Orleans and Baton Rouge, Louisiana; o Memphis, Tennessee; o Little Rock, Arkansas; o Manchester, Concord and Nashua, New Hampshire; and o Worcester, Cape Cod, Martha's Vineyard and Nantucket, Massachusetts. We market our services through our own stores, retail outlets, through our direct corporate and telemarketing sales forces and on the Internet through our website. We have a strong distribution presence in our markets through our company-owned stores and retail outlets where consumers can purchase our services, including Best Buy, Circuit City, Office Depot, Office Max, Staples and Radio Shack. Our affiliation with AT&T enables us to leverage their marketing and sales efforts in our markets. Recent Developments On February 28, 2000, we agreed to merge with Tritel, Inc. through a merger of each of us and Tritel into a newly formed subsidiary of a new holding company. The new holding company, to be called TeleCorp PCS, Inc., will be controlled by our voting preference common stockholders, and we and Tritel will become subsidiaries of the holding company. In connection with the merger, AT&T Wireless agreed to contribute certain wireless rights and commitments in the Midwestern United States, cash of approximately $20 million and a two year extension of its brand license in exchange for approximately $410 million worth of common shares in the newly formed company. Additionally, in a separate transaction, we agreed to exchange our licenses in several New England markets for certain wireless properties or rights to acquire additional wireless properties of AT&T Wireless in the Milwaukee, Wisconsin and Des Moines, Iowa markets, a cash payment of approximately $80 million and the right to extend the term and geographic coverage of AT&T Wireless' license and roaming agreements with us to include the new markets, either through amending our existing agreements or entering into new agreements with the holding company on substantially the same terms as our existing agreements. AT&T has also agreed to extend its affiliation agreements to include licenses covering an additional 1.4 million people in the Midwest if we acquire them. The proposed merger has been unanimously approved by our and Tritel's board of directors, with three of our directors abstaining. In addition, shareholders with greater than 50% of the voting power of each company have agreed to vote in favor of the merger. The merger is subject to regulatory approval and other conditions and is expected to close in the last quarter of 2000. The Wireless Communications Industry Wireless communications systems use a variety of radio airwaves to transmit voice and data signals. In the wireless communications industry, applications that transmit these signals include one-way radio applications, such as paging or beeper services, and two-way radio applications, such as PCS, cellular telephone and other technologies. Each application is licensed and operates in a distinct radio airwave block. The two principal services licensed by the Federal Communications Commission, or FCC, for transmitting voice and data signals are PCS and cellular. PCS is a term commonly used to refer to service carried over the 1850 Megahertz (or MHz) to 1990 MHz portion of the radio airwaves. Megahertz is a method of measuring radio airwaves. Cellular is a term commonly used to refer to service carried over the 824 MHz to 893 MHz portion of the radio airwaves. Cellular service systems were originally analog-based systems, although digital technology has been introduced in some markets. PCS systems use digital technology. Analog technology has several limitations, including lack of privacy and limited transmission capacity. Digital systems convert voice or data signals into a stream of digits that is compressed before transmission, enabling a single radio channel to carry multiple simultaneous signal transmissions. This enhanced capacity, along with improvements in digital signaling, allows digital-based wireless technologies to offer new and enhanced services, such as greater call privacy and robust data transmission features, including mobile office applications like facsimile, e-mail and wireless connections to computer/data networks, including the Internet. Operation of Wireless Communications Systems Wireless communications system service areas, whether PCS, cellular or other technologies, are divided into multiple units, each containing a transmitter, a receiver and signaling equipment to transmit wireless signals to individual phones. This equipment is connected by telephone lines or microwave signals to call connection equipment that uses computers to control the operation of the communications system for the entire service area. The call connection equipment controls the connection of calls and the connection of the wireless network to local telephone systems and long distance carriers. As a customer's handset travels, the system 3 controls the transfer of calls from one equipment site to another, coordinates calls to and from handsets, allocates calls among the network equipment sites within the system and connects calls to the local telephone system or to a long distance telephone carrier. Wireless communications providers must establish agreements with local and long distance carriers that allow them to pass calls, or interconnect, thereby integrating their system with the existing communications system. Because the signal strength of a transmission between a handset and a network equipment site declines as the handset moves away from the originating network equipment site, the wireless network monitors the signal strength of calls in progress. When the signal strength of a call declines, the call connection equipment may transfer the call to another network equipment site where the signal is stronger. If a handset leaves the service area of a PCS or cellular system, the call is disconnected unless there is a technical connection with the adjacent system. If there is a technical connection with the adjacent system, the customer may roam onto the adjacent system. Although PCS and cellular systems use similar technologies and hardware, they operate on different portions of the airwaves and use different technical and network standards. The use of advanced handsets makes it possible for customers using one type of system to roam on a different type of system outside of their service area, and to transfer calls from one type of system to another if the appropriate agreements are in place and the networks are properly configured to transfer calls from one system to the next. Currently, PCS systems operate under one of three principal digital signal transmission technology standards that various operators and vendors have proposed for use in PCS systems: time division multiple access (or TDMA), code division multiple access (or CDMA) or global system for mobile communications (or GSM). TDMA and GSM are both time division-based technologies, but are incompatible with each other and with CDMA. Accordingly, a customer of a system that uses TDMA technology is unable to use a TDMA handset when travelling in an area not served by TDMA-based PCS operators, unless the customer carries a special handset that permits the customer to use the analog or digital system on the cellular portion of the airwaves in that area and the appropriate agreements are in place. If a PCS system operated by the service provider or covered by a roaming agreement is operating in the area, the call will be placed via this system. If there is no PCS system providing coverage, the call will be placed through a digital system on the cellular portion of the airwaves operating in the area and providing coverage to the user, and if no digital system on the cellular portion of the airwaves is providing coverage, the call will be connected over an analog system that uses the cellular portion of the airwaves providing coverage. Advanced handsets allow for a call in progress to be handed off to an adjacent system, without interruption, if appropriate agreements are in place, whereas earlier generations of handsets would cut off the call when the handset left the coverage of one system, requiring the customer to redial the call using the adjacent system. Our Revenue Sources We derive our revenue from: o Services. The various types of revenue associated with PCS for our customers include monthly recurring access charges and monthly non-recurring airtime charges for local, long distance and roaming airtime used in excess of pre-subscribed usage. Our customers' charges are rate plan-dependent, based on the number of pooled minutes included in their plans. Service revenue also includes monthly non-recurring airtime usage associated with our prepaid customers and non-recurring activation and de-activation service charges. 4 o Roaming Charges. We charge monthly, non-recurring, per minute fees to other wireless companies whose customers use our network facilities to place and receive wireless calls. o Equipment Sales. We sell wireless personal communications handsets and accessories that are used by our customers in connection with our wireless services. Strategic Alliance with AT&T We have a strategic alliance with AT&T Wireless which provides us with many business, operational and marketing advantages. We are AT&T's exclusive provider of wireless mobility services using equal emphasis co-branding with AT&T in our covered markets, subject to AT&T's right to resell services on our network. We have the right to use the AT&T brand name and logo together with the SunCom brand name and logo in our markets, giving equal emphasis to each. We are also AT&T's preferred roaming partner for digital customers in our markets and outside our markets, our customers can place and receive calls in AT&T Wireless' markets and the markets of AT&T Wireless' other roaming partners. We receive preferred terms on selected products and services, including handsets, infrastructure equipment and back office support from companies who provide these products and services to AT&T. In addition, we benefit from AT&T's nationwide marketing and advertising campaigns, including the success of the AT&T Digital One RateSM plans, in the marketing of our own national SunRate plans and we are working with AT&T's national sales representatives to jointly market our wireless services to AT&T corporate customers located in our markets. Service Our primary service is wireless calling, which features advanced handsets, enhanced voice clarity, improved protection from eavesdropping and a broad feature set. Our basic wireless service offering includes caller identification, three-way conference calling, call waiting, voicemail, paging and short-messaging. As part of our basic service offering, we sell easy-to-use, interactive menu-driven handsets that can be activated over the air. Sales and Distribution Our sales and distribution strategy is to use a balanced mix of distribution channels to maximize penetration within our licensed service area while minimizing customer acquisition costs. Our channels include a network of company stores, nationally recognized retailers, a direct sales force for corporate and business customers, regional and local mass merchandisers, telesales, direct mail and online sales. We also work with AT&T's sales channels to cooperatively exchange leads and develop new business. Company Stores. Our stores range in size from small kiosks to 3,600 square foot stores in the principal retail district in each market. Retail Outlets. We have negotiated distribution agreements with national and regional mass merchandisers and consumer electronics retailers, including Circuit City, Cellular Warehouse, Metrocall, Office Depot, Staples, Best Buy and Office Max in the U.S. and Farmacia El Amal, Let's Talk Wireless, Beeper Connections and Radio Shack in Puerto Rico. We select distributors based upon their ability to reach our target customers in our service area. In some of these retail store locations, we are implementing a store-within-a- 5 store concept, which uses visual merchandising to leverage the brand awareness created by both SunCom and AT&T advertising. Direct Sales and Marketing. Our direct corporate sales force focuses on high-revenue, high-margin corporate users. We also benefit from AT&T's national corporate accounts sales force. AT&T, in conjunction with us, supports marketing of our services to AT&T's large national accounts located in our service areas. We also employ telesales representatives in our Memphis call center and contract for Spanish speaking telesales representatives in Convergys' Fort Lauderdale, Florida operations. We use direct marketing to generate leads and stimulate prospects, allowing us to maintain low selling costs and to offer our customers additional features or customized services. Online Sales. Our web page provides current information about us, our markets and our products and services. All information that is required to make a purchasing decision is available through our website and online store. Customers are able to choose any of our rate plans, features, handsets and accessories. The online store provides a secure environment for transactions, and customers purchasing through the online store experience a similar business process to that of customers purchasing service through other channels. Customer Care We are committed to building strong customer relationships by providing customers with prompt and helpful service. We serve our customers from our state-of-the-art facility in Memphis, Tennessee. Convergys, a leading provider of outsourced call center services, provides back up call center support and bilingual customer service for our Spanish speaking customers from two facilities in Florida. The multiple center structure allows us to distribute customer service calls between the centers to promote cost effective 24 hour/seven days a week customer service. We have strict quality standards in our customer care operation, including a commitment to answering at least 80% of calls within twenty seconds. All of our centers have sophisticated infrastructure and information systems, including automated call distributors and advanced diagnostic tools for one-call trouble resolution. We emphasize proactive and responsive customer service, including welcome packages along with first bill, three months and one year anniversary calls. We are expanding our web-based services to include online account information to allow customers to check billing, modify service or otherwise manage their accounts. Network Development We launched commercial operations in February 1999 and have commenced our services in each of our major markets. We launched in markets which have attractive characteristics for a high volume of wireless communications usage, including metropolitan areas, the surrounding suburbs, commuting and travel corridors, and popular leisure and vacation destinations. Immediately upon launch, customers had access to coast-to-coast coverage through roaming arrangements with AT&T and its roaming partners, both inside and outside our licensed areas. Within each market, geographic coverage will be based upon changes in wireless communications usage patterns, demographic changes within our licensed areas and our experiences in those markets. As of December 31, 1999, we provided coverage to approximately 66% of the population of our licensed area. We define coverage to include an entire basic trading area if we have a significantly developed system in that basic trading area. 6 Construction of our network is scheduled for multiple phases. In 1999, we completed the first phase of our network build out. We expect to complete the second phase by the end of 2000. We successfully launched commercial service in the following 26 markets in 1999: Fayetteville, AR Nantucket, MA Hot Springs, AR Worcester, MA Jonesboro, AR Concord, NH Little Rock, AR Manchester, NH Baton Rouge, LA Nashua, NH Hammond, LA Portsmouth, NH Houma, LA Arecibo, PR Lafayette, LA Humacao, PR New Iberia, LA Mayaguez, PR New Orleans, LA Ponce, PR Thibodaux, LA San Juan, PR Cape Cod, MA Jackson, TN Martha's Vineyard, MA Memphis, TN The third and fourth phases of our network buildout plan will focus on expanding our coverage to over 40 markets including a population of 3.3 million, and entail launching service in Beaumont, Texas; Alexandria, Louisiana; Evansville, Indiana; Paducah, Kentucky; Columbia and Jefferson City, Missouri; Pine Bluff and Fort Smith, Arkansas and the Virgin Islands. Upon completion of the fourth phase, which we expect by the end of 2001, we expect our network to be available to a population of 15.9 million. At December 31, 1999, our network covered a population of 11.0 million and our customer base had grown to more than 142,000 customers. Network Construction We develop the network design, including frequency planning for our network equipment sites. We designed our network to allow us to use existing sites, which minimizes the construction of new towers and significantly reduces our need to obtain zoning approvals. We use two experienced vendors to perform property acquisition, construction and installation of our sites. Network Operations We maintain a network operations center to ensure continuous monitoring and maintenance of our network. The effective operation of our network requires: o connection agreements and agreements to transmit signals from network equipment sites to call connection equipment with other communications providers; o long distance connection; o the implementation of roaming arrangements; o the development of network monitoring systems; and o the implementation of information technology systems. 7 Connection Agreements Our network is connected to the public telephone network to facilitate the origination and termination of traffic between our network and both the local and long distance carriers. We have signed agreements with multiple carriers, including BellSouth, SBC Communications, Bell Atlantic and Puerto Rico Telephone. In most cases these agreements are standard agreements entered into with all qualifying carriers on generally the same terms, with each party agreeing to pay the other for the carrying or completion of calls on the other's network. Long Distance Connection We have executed a wholesale long distance agreement with AT&T providing for preferred rates for long distance services. Roaming Arrangements Through our arrangements with AT&T and via the use of advanced handsets, our customers have roaming capabilities on AT&T's wireless network and AT&T's customers have roaming capability on our wireless network. Further, we have the benefit of AT&T's roaming agreements with third party carriers at AT&T's preferred pricing. These agreements, together with AT&T's wireless network, cover approximately 98% of the U.S. population, including in-market roaming agreements covering all of our launched service areas. Network Monitoring Systems Our network operations center provides around-the-clock monitoring and maintenance of our entire network. The network operations center is equipped to constantly monitor the status of all network equipment sites and call connection equipment and to record network traffic. The network operations center provides continuous monitoring of system quality for blocked or dropped calls, call clarity and evidence of tampering, cloning or fraud. We designed our network operations center to oversee the interface between customer usage, data collected by call connection equipment and our billing systems. Our network operations center is located in the Memphis site containing call connection equipment, and we also have back-up network operations center capabilities in our Arlington, Virginia data center. Information Technology Systems We operate management information systems to handle customer care, billing, network management and financial and administrative services. The systems focus on three primary areas: o network management, including service activation, pre-pay systems, traffic and usage monitoring, trouble management and operational support systems; o customer care, including billing systems and customer service and support systems; and o business systems, including financial, purchasing, human resources and other administrative systems. We have incorporated sophisticated network management and operations support systems to facilitate network fault detection, correction and management, performance and usage monitoring and security. System capabilities have been developed to allow over-the-air activation of handsets and implement fraud protection measures. We maintain stringent controls for both voluntary and involuntary deactivations. We attempt to 8 minimize customer disconnects initiated by us by performing credit review and preactivation screening to identify prior fraudulent or bad debt activity. We use this information to identify where activation and termination policy adjustments are needed. TDMA Technology We have chosen digital TDMA technology for our network. TDMA technology allows for: o the use of advanced handsets which allow for roaming across the PCS and cellular portion of the airwaves, including both analog and digital technologies; o enhanced services and features, such as short-messaging, extended battery life, added call security and improved voice quality; and o network equipment sites that are small and that improve network coverage with low incremental investment. TDMA technology is the digital technology choice of two of the largest wireless communications companies in the United States, AT&T and SBC Communications. This technology served an estimated 35 million customers worldwide and 19 million customers in North America as of December 31, 1999, according to the Universal Wireless Communications Consortium, an association of TDMA providers and manufacturers. We believe that the increased volume of TDMA customers has increased the probability that this technology will remain an industry standard. Competition We believe that customers choose a wireless communications service provider principally based upon network coverage, pricing, quality of service and customer care. We compete directly with at least two cellular providers and other PCS providers in each of our markets and against enhanced special mobile radio operations in some of our markets. We compete with at least one analog, one CDMA and one GSM operator in each of our markets other than Puerto Rico and New Orleans. Most of the existing cellular providers in our markets have an infrastructure in place and have been operational for a number of years. These cellular operators may upgrade their networks to provide services comparable to those offered by us. We also compete with other PCS license holders in each of our markets. In addition, we compete with resellers of wireless communications services in each of our markets. Resellers purchase large volumes of services on a wireless operator's network, usually at a discount, and resell the services to end users under the reseller's own brand name. While the network operator receives some revenue from the sale of services to the reseller, the operator is competing with its own customer for sales to the end users. The principal resellers in our markets include MCI in New England and Motorola in Puerto Rico. We have agreed to resell services to AT&T in each of our markets should AT&T desire to do so. We have not yet entered into any such arrangements with AT&T or any other party. As a recent entrant into the market for wireless communications services, we do not believe that we have obtained a significant share of the market in any of our areas of operation. As a recent entrant, we face significant competition from operators who have already established strong market positions and have signed up many customers. Most of the existing cellular operators have developed systems that have larger local and regional coverage than we currently have. We seek to compete by offering a competitive product with attractive pricing plans and through our extensive access to roaming, including in-region roaming, which gives us an effective coverage area competitive with that of our principal competitors. We have developed our 9 pricing plans to be competitive and to emphasize the advantages of our offerings. We have and may continue to discount our pricing in order to obtain customers or in response to downward pricing in the market for wireless communications services. We anticipate that market prices for wireless communications services generally will decline in the future based upon increased competition. Our ability to compete successfully will depend, in part, on our ability to anticipate and respond to various competitive factors affecting the industry, including new services that may be introduced, changes in consumer preferences, demographic trends, economic conditions and competitors' discount pricing strategies, all of which could adversely affect our operating margins. We plan to use our digital feature offerings, national network through our AT&T affiliations, contiguous footprint providing an extended home calling area, and local presence in secondary markets, to combat potential competition. We believe that our extensive digital network, once deployed, will provide a cost effective means to react appropriately to any price competition. Government Regulation We are subject to substantial regulation by the FCC, state public utility commissions and, in some cases, local authorities. Our principal operations are classified as commercial mobile radio service by the FCC, subject to regulation under Title II of the Communications Act of 1934, as amended by the Telecommunications Act of 1996, as a common carrier and subject to regulation under Title III of the Communications Act as a radio licensee. The states are preempted from regulating our entry into and rates for commercial mobile radio service offerings, but remain free to regulate other terms and conditions of our commercial mobile radio services and to regulate other intrastate offerings by us. Congress and the states regularly enact legislation, and the FCC, state commissions and local authorities regularly conduct rulemaking and adjudicatory proceedings that could have a material adverse effect on us. In addition, government regulation may adversely affect our ability to engage in, or rapidly complete, transactions and may require us to expend additional resources in due diligence and filings related to FCC and other requirements, as compared to unregulated entities. FCC Common Carrier Regulation Under Title II Under Title II of the Communications Act, among other things, we are: o required to offer service upon reasonable request; o prohibited from imposing unjust or unreasonable rates, terms or conditions of service; o proscribed from unjustly or unreasonably discriminating among customers; o required to reserve communications capacity for law enforcement surveillance operations and to make technical network changes to facilitate this surveillance; o required to make our services and products accessible to, and usable by, Americans with disabilities, if readily achievable; and o required to comply with limitations on our use of customer proprietary network information. Under the Telecommunications Act, we are entitled to benefits when negotiating interconnection arrangements with other communications carriers, such as resale rights, our customers being able to keep their 10 old numbers when switching to us, and compensation equal to that of other carriers, but we are subject to many of those same requirements when other carriers seek to interconnect with our network. The FCC is still in the process of implementing some of these benefits. While the rates of common carriers are subject to the FCC's jurisdiction, the FCC forbears from requiring commercial mobile radio service carriers to file tariffs for their services. Common carriers, including commercial mobile radio service providers, are also prohibited under the Communications Act from unreasonably restricting the resale of their services and are required to offer unrestricted resale. FCC Radio License Regulation Under Title III Among other things, Title III of the Communications Act: o does not permit licenses to be granted or held by entities that have been subject to the denial of federal benefits; o requires us to seek prior approval from the FCC to transfer control of us or to assign our radio authorizations, including subdividing our radio airwaves or partitioning geographic license areas, except in very limited circumstances; and o limits foreign ownership in radio licensees, including PCS providers. FCC Commercial Mobile Radio Service Regulation The FCC rules and policies impose substantial regulations on commercial mobile radio service providers. Among other regulations, commercial mobile radio service providers such as us: o incur costs as a result of required contributions to federal programs; o are prohibited from acquiring or holding an attributable interest in PCS, cellular or specialized mobile radio licenses with more than 45MHz of airwaves in the same metropolitan area, and more than 55 MHz in rural markets; o are required to provide manual roaming service to enable a customer of other providers to obtain service while roaming in our service area; o are required to route emergency calls to public safety centers and provide the public safety centers under certain circumstances with information regarding the originating number and the general location of the caller; and o will eventually be required to allow customers to retain their telephone numbers when changing service providers, in some circumstances. FCC Personal Communications Services Regulation We are subject to service-specific regulations under the FCC's rules. Among other things, these regulations provide that PCS licensees, such as us, are granted licenses for a 10-year term, subject to renewal. Under these policies, we will be granted a renewal expectancy that would preclude the FCC from considering competing applications if we have: 11 o provided "substantial" performance, that is "sound, favorable and substantially above a level of mediocre service just minimally justifying renewal;" and o substantially complied with FCC rules and policies and the Communications Act. These regulations also govern the transmission characteristics of PCS handsets and network equipment sites and other technical requirements. PCS licensees are required to comply with limits intended to ensure that these operations do not interfere with radio services in other markets or in other portions of the airwaves and to ensure emissions from mobile transmitters do not cause adverse health effects. We are also subject to minimum construction requirements that will require us to deploy facilities with service coverage of a particular amount of the population of our licensed area within specified time periods. Relocation of Fixed Microwave Licensees Because PCS carriers use airwaves occupied by existing microwave licensees, the FCC has adopted special regulations governing the relocation of incumbent microwave systems and cost-sharing among licensees that pay to relocate microwave incumbents. Relocation usually requires a PCS operator to compensate an incumbent for the costs of system modifications and new equipment required to move the incumbent to new portions of the airwaves, including possible premium costs for early relocation to alternate portions of the airwaves. The transition plan allows most microwave users to operate in the PCS portion of the airwaves for a one-year voluntary negotiation period and an additional one-year mandatory negotiation period following the issuance of the PCS license. These periods are longer for public safety entities. We have entered into all necessary agreements for microwave relocation. Under certain circumstances, relocated licensees may exercise their rights to move back to their original sites in the event the new sites are inadequate. Local Multipoint Distribution Service Regulation TeleCorp LMDS holds certain Local Multipoint Distribution Service ("LMDS") licenses that are subject to service specific FCC regulations. Like the PCS service specific regulations, these regulations provide that LMDS licensees, such as us, are granted licenses for a 10-year term, subject to renewal. Under these policies, we will be granted a renewal expectancy that would preclude the FCC from considering competing applications if we have: o provided "substantial" performance, that is "sound, favorable and substantially above a level of mediocre service just minimally justifying renewal;" and o substantially complied with FCC rules and policies and the Communications Act. These regulations also govern the transmission characteristics of LMDS systems and other technical requirements. LMDS licensees are required to comply with limits intended to ensure that these operations do not interfere with radio services in other markets or in other portions of the airwaves and to ensure emissions from transmitters do not cause adverse health effects. In addition, depending upon how the Company uses such licenses, the Company may become subject to additional federal or state regulations. FCC and Federal Aviation Administration Facilities Regulation Because we acquire and operate antenna sites for use in our network, we are subject to FCC and Federal Aviation Administration regulations governing registration of towers, the marking and lighting of structures and regulations governing compliance with the National Environmental Policy Act of 1969, which requires carriers to assess the impact of their operations on the environment, including the health effects of radio airwave radiation on humans. 12 FCC Designated Entity Regulation Each of TeleCorp Holding, TeleCorp LMDS, and Viper Wireless obtained their FCC licenses under the FCC's designated entity policies. Under such policies, for a period of five years from initial license grant, some of our licenses can only be held by a company that meets the FCC's criteria for "entrepreneurial" status. In addition, some of our licenses were awarded subject to bidding credits because the original bidder met the criteria for "small business" or "very small business" status. With respect to our designated entity licenses, we: o believe we met the relevant eligibility and benefits criteria at the time we received such licenses; o believe we continue to hold such licenses in compliance with the FCC's eligibility and benefits criteria; o intend to diligently pursue and maintain our eligibility and benefits criteria in compliance with applicable FCC rules. We rely on representations of our investors to determine our compliance with the FCC's rules applicable to PCS licenses. Entrepreneurial Eligibility. Under the FCC's designated entity rules for PCS, the C and F Blocks of PCS spectrum were set aside by the FCC for entrepreneurs. Only entrepreneurs were eligible to bid for these licenses and, for a period of five years from the original grant, only entrepreneurs may hold these licenses. TeleCorp Holding and Viper both hold PCS licenses as entrepreneurs, having won some licenses at auction and having acquired some licenses from other entrepreneurs. To qualify as an entrepreneur, our designated entity subsidiaries, their attributable investors, the affiliates of our designated entity subsidiaries, and the affiliates of the attributable investors in our designated entity subsidiaries must have less than $500 million in net assets and average aggregate gross revenues of less than $125 million for the two years prior to filing its license application. To the extent an entrepreneur grows beyond these limits as a result of normal business growth, it will retain its eligibility to holds its licenses and even may continue to acquire additional entrepreneurial licenses from other entrepreneurs. Small Business and Very Small Business Status. Under the FCC's designated entity policies, TeleCorp Holding, TeleCorp LMDS, and Viper received their licenses subject to bidding credits, and in some cases, government financing, awarded because of their status as very small businesses. In order to qualify for bidding credits or government financing, or to aquire licenses originally awarded with bidding credits or government financing without being subject to penalty payments, the FCC considers the aggregate average gross revenues of the applicant, its attributable investors, the applicant's affiliates, and the affiliates of the applicant's attributable investors for the prior three years. If these average annual revenues are less than $40 million, the entity will be considered a small business. If these average annual revenues are less than $15 million, the entity will be considered a very small business. To the extent a small business or very small business grows beyond these limits as a result of normal business growth, it will not lose its bidding credits or government financing, but its status is not grandfathered for other licenses its subsequently acquires. Each of TeleCorp Holding, TeleCorp LMDS, and Viper qualified as a very small business in the relevant auction. TeleCorp Holding has also acquired licenses in the aftermarket as a very small business. After 1999, however, our designated entity subsidiaries will only qualify as small businesses for future acquisitions. Control Group Requirements. For our designated entity subsidiaries to avoid attribution of the revenues and assets of some of their investors, our subsidiaries are required to maintain a conforming control group and to limit the amount of equity held by other investors on a fully-diluted basis. These requirements mandate that the control group, among other things, has and maintains both actual and legal control of the licensee. Under these control group requirements: o an established group of investors meeting the financial qualifications must own at least three-fifths of the control group's equity, or 15% of the licensee's overall equity, on a fully-diluted basis and at least 50.1% of the voting power, in the licensee entity; and o additional members of the control group may hold up to two-fifths of the control group's equity, or up to 10% of the equity interest, on a fully-diluted basis, in the licensee entity. Additional members may be non-controlling institutional investors, including most venture capital firms. A licensee must have met the requirements at the time it filed its application to acquire these licenses and must continue to meet the requirements for five years following the date that a license is granted, although normal business growth is permitted. Beginning the fourth year of the license term, the FCC rules: o eliminate the requirement that additional members hold the 10% equity interest; and o allow the qualifying investors to reduce the minimum required equity interest from 15% to 10%. FCC Transfer Restrictions. During the first five years of their license terms, designated entity PCS licensees may only transfer or assign their license, in whole or in part, to other qualified entrepreneurs. The acquiring entities would take over the license, or any portion of the license, subject to 13 separately established installment payment obligations. After five years, licenses are transferable to entrepreneurs and non-entrepreneurs alike, subject to unjust enrichment penalties. If transfer occurs during years six through ten of the initial license term to a company that does not qualify for the same level of auction preferences as the transferor, the sale would be subject to immediate payment of the outstanding balance of the government installment payment debt and payment of any unjust enrichment assessments as a condition of transfer. The FCC has also initiated transfer disclosure regulations that require licensees who transfer control of or assign a PCS license within the first three years to file associated contracts for sale, option agreements, management agreements or other documents disclosing the total consideration that the applicant would receive in return for the transfer or assignment of its license. State and Local Regulation The FCC permits the states to: o regulate terms and conditions of our commercial mobile radio services other than rates and entry and may regulate all aspects of our intrastate toll services; o regulate the intrastate portion of services offered by local telephone carriers, and therefore the rates we must pay to acquire critical facilities from other common carriers; o administer numbering resources, subject to federal oversight; and o have other responsibilities that impact the nature and profitability of our operations, including the ability to specify cost-recovery mechanisms for network modifications to support emergency public safety services. States and localities also regulate construction of new antenna site facilities and are responsible for zoning and developmental regulations that can materially impact our timely acquisition of sites critical to our radio network. Emission and Hands-Free Regulation Media reports have suggested that some radio airwave emissions from wireless handsets may be linked to health concerns, including the incidence of cancer. Data gathered in studies performed by manufacturers of wireless communications equipment dispute these media reports. The FCC has adopted rules specifying the methods to be used in evaluating radio airwave emissions from radio equipment, including wireless handsets. The hand-held digital telephones that we offer to our customers comply with the standards adopted under the new rules, although these handsets may not comply with any rules adopted by the FCC in the future. Recent studies have shown that hand-held digital telephones interfere with medical devices, including hearing aids and pacemakers and additional studies are underway. Various state legislatures have proposed or considered measures that would require hands free use of cellular phones while operating motor vehicles, ban cellular phone use or limit the length of calls while driving and require drivers to pull to the side of the road to use cellular phones. In addition, some gas stations have banned the use of mobile phones on their premises. Intellectual Property The AT&T and globe design logo is a service mark registered with the U.S. Patent and Trademark Office. AT&T owns the service mark. We use the AT&T and globe design logo, on a royalty free basis, with 14 equal emphasis on our SunCom brand and logo, solely within our licensed area in connection with marketing, offering and providing licensed services to end-users and resellers of our services. Our license agreement with AT&T grants us the right and license to use licensed marks on permitted mobile phones. This license agreement contains numerous restrictions with respect to the use and modification of licensed marks. We, Triton PCS and Tritel Communications have adopted a common brand, SunCom, that is co-branded with equal emphasis with the AT&T brand and logo. Each of the SunCom companies owns one-third of Affiliate License Co., which owns the SunCom name and has no other operations. We and the other SunCom companies license the SunCom name from Affiliate License Co. We use the brand to market, offer and provide services to end-users and resellers of our PCS. Employees As of December 31, 1999, we employed approximately 914 people. None of our employees currently are represented by a union and we believe that our relations with our employees are good. Segment Reporting The Company presently operates in a single business segment as a provider of wireless mobility services in its licensed regions primarily in the south-central and northeastern United States and in Puerto Rico. The Company operates in various MTAs including New Orleans, LA, Memphis, TN, Little Rock, AR, Boston, MA and San Juan, Puerto Rico. Acquisition History On April 20, 1999, we acquired PCS licenses covering the Baton Rouge, Houma, Hammond and Lafayette, Louisiana basic trading areas from Digital PCS. As consideration for the licenses, we issued $2.3 million of our common and preferred stock, paid Digital PCS approximately $0.3 million in reimbursement of interest paid on U.S. government debt related to the licenses and assumed $4.1 million of debt owed to the U.S. government related to these licenses. These licenses cover a population of approximately 1.6 million, including a population of 1.2 million in Baton Rouge and Lafayette covered by licenses we already owned. On May 25, 1999, we completed the acquisition of a PCS license and related assets covering the San Juan major trading area from AT&T Wireless. On May 24, 1999, we sold to AT&T $40.0 million of our series A, D and F preferred stock. On May 25, 1999, we purchased the license and related assets from AT&T for $96.5 million in cash. In addition, we reimbursed AT&T $3.2 million for microwave relocation and $0.3 million for other expenses it incurred in connection with the acquisition. This license covers a population of approximately 3.9 million in Puerto Rico and the U.S. Virgin Islands. On June 2, 1999, we acquired PCS licenses covering the Alexandria, Lake Charles and Monroe, Louisiana basic trading areas from Wireless 2000. As consideration for the licenses, we issued approximately $0.4 million of our common and preferred stock, paid $0.2 million for Wireless 2000's costs for microwave relocation related to the Monroe license and $0.4 million in reimbursement of interest paid on government debt related to their licenses, and assumed $7.4 million of debt owed to the U.S. government related to these licenses. These licenses cover a population of approximately 0.8 million. We cannot, without AT&T's consent, develop the markets covered by the Monroe license. Our agreements with AT&T Wireless were extended to cover these markets, except for a portion of the Monroe basic trading area, upon the closing of the Louisiana and Puerto Rico acquisitions. 15 On October 14, 1999, we agreed to purchase 15 MHz of additional airwaves in the Lake Charles, Louisiana basic trading area from Gulf Telecomm, LLC. As consideration for the additional airwaves we will pay Gulf Telecomm $362,844 in cash, assume approximately $2.3 million in FCC debt related to the license and reimburse Gulf Telecomm for all interest it paid to the FCC on debt related to the license from June, 1998 until the date the transaction is completed. We have received FCC approval and expect to consummate the acquisition no later than the second quarter of 2000. On October 18, 1999, we entered into a plan of reorganization and agreement of merger with Messrs. Vento and Sullivan and TeleCorp Holding Corp. to acquire the 15% of Viper Wireless, Inc. that we do not yet own from Messrs. Vento and Sullivan in exchange for an aggregate of 323,372 shares of our class A common stock and 800 shares of our series E preferred stock. TeleCorp Holding Corp. acquired 85% of Viper Wireless on March 1, 1999 in exchange for $32,286,000 contributed by AT&T and some of our other initial investors for additional shares of our preferred and common stock. Viper Wireless' used the proceeds to participate in the FCC's reauction of PCS licenses. Viper Wireless was subsequently granted six PCS licenses in the reauction. We have received FCC approval for the acquisition of the final 15% of Viper Wireless and expect to consummate the acquisition no later than the second quarter of 2000. On October 18, 1999, we agreed to acquire TeleCorp LMDS, Inc. through an exchange of all of the outstanding stock of TeleCorp LMDS for 834,300 shares of our class A common stock and 2,700 shares of our series C preferred stock. TeleCorp LMDS's stockholders are Mr. Vento, Mr. Sullivan and three of our initial investors. By acquiring TeleCorp LMDS, we will gain local multipoint distribution service licenses covering 1100 MHz of airwaves in the Little Rock, Arkansas basic trading area and 150 MHz of airwaves in each of the Beaumont, Texas, New Orleans, Louisiana, San Juan and Mayaguez, Puerto Rico, and U.S. Virgin Islands basic trading areas. The completion of this transaction is contingent upon FCC approval, which is expected in the second quarter of 2000. Item 2. Properties. We lease space for our call connection equipment in New Orleans, Boston and Puerto Rico and for our network operations center, our call connection equipment, our customer care and our data center in Memphis. Further, we have operating leases primarily related to our headquarters, regional offices, retail store locations, distribution outlets, office space and network equipment sites. Item 3. Legal Proceedings. We were not a party to any lawsuit or proceeding which is likely, in the opinion of management, to have a material adverse effect on our financial position, results of operations and cash flows. We are a party to routine filings and customary regulatory proceedings with the FCC relating to our operations. Item 4. Submission of Matters to Vote of Security Holders. On November 5, 1999, the holders of 90.3% of the class A common stock and all of the holders of the voting preference common stock, by written consent in lieu of a special meeting: o approved an amendment to our certificate of incorporation to effect a 3.09-for-1 stock split of and increase the authorized amount of all classes of our common stock and our series F preferred stock; 16 o approved the adoption of our Fifth Amended and Restated Certificate of Incorporation effective upon the closing of our initial public offering on November 30, 1999 that (a) increased the authorized number of shares of our class A common stock by 300 million, (b) added 1 million new undesignated shares of authorized preferred stock subject to blank check preferred stock provisions, (c) reduced the number of directors that holders of series A preferred stock can nominate to one, (d) added a provision that permits the Board of Directors to amend the By-laws, (e) added a provision for a classified Board of Directors, (f) added provisions regarding number, selection and removal of directors, (g) added provisions regarding director appointments and vacancies and (h) integrated all prior amendments into a single document; o approved the adoption of our Second Amended and Restated By-Laws effective upon the closing of our initial public offering on November 30, 1999 to (a) amend notice of meeting provisions to increase percentage of outstanding shares needed to call special meeting, (b) amend quorum and voting provisions, (c) amend provisions regarding number, term, selection and removal of directors, (d) add provisions regarding notice of a stockholder proposals, including directors nominees, and (e) add provisions that permits the Board of Directors to amend By-laws; and o approved an amendment to our Stockholders' Agreement to, among other things, change the provisions with respect to the election of directors and delete provisions rendered inapplicable as a result of our IPO. The holders of 9.7 % of the class A common stock took no action with respect to such consent. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. Market Information Our Class A Common Stock began trading on the Nasdaq National Market on November 23, 1999 under the symbol "TLCP." The following table sets forth, for the period indicated, the high and low last reported sales price for our Class A Common Stock, as reported by the Nasdaq National Market since it commenced public trading.
Class A Common Stock ------------ Fiscal Year Ended December 31, 1999 High Low ----------------------------------- ---- --- Fourth Quarter ended December 31, 1999 (from November 231999) ..................................... $42.875 $ 31.00
Stockholders As of March 26, 2000, there were approximately 48 stockholders of record. Dividends 17 We have never paid cash dividends to our stockholders since our inception and do not plan to pay cash dividends in the foreseeable future. We currently intend to retain earnings, if any, to finance our growth. Our ability to pay dividends is restricted by the terms of our preferred stock, our senior subordinated notes indenture and our senior credit facilities. Unregistered Sales of Securities None. Use of Proceeds from Registered Securities On November 23, 1999, in connection with our initial public offering, a registration statement on Form S-1 (File No. 333-89393) was declared effective by the Securities and Exchange Commission, pursuant to which 10.58 million shares of our class A common stock were sold at a price of $20 per share, generating gross proceeds of $211.6 million. The managing underwriters were Salomon Smith Barney Inc., Lehman Brothers Inc., Deutsche Bank Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated. After deducting approximately $14.3 million in underwriting discounts and commissions and approximately $1.8 million in other offering expenses payable by us, the net proceeds to us were approximately $195.5 million. In addition, in January of 2000, we completed a private offering to AT&T of 2.245 million shares of our class A common stock at a price of $18.65 per share generating proceeds of $41.9 million. The following table approximates our intended use of the net offering proceeds:
Construction of plant, building and facilities .................. $170.0 Working Capital ................................................. 25.5 ------ Total ........................................................ $195.5 ======
The foregoing use of net proceeds does not represent a material change in the use of net proceeds described in the registration statement. 18 Item 6. Selected Financial Data. The following sets fourth certain consolidated financial data for the periods indicated and should be read in conjunction with the Consolidated Financial Statements, related notes and other financial information appearing elsewhere in Part II of this Annual Report on Form 10K (dollar amounts in thousands, except per share amounts).
July 29, 1996 (inception) to December 31, For the year ended December 31, 1996 -------------------------------------------- (Predecessor) 1997 1998 1999 ------------ -------------------------------------------- Statements of Operations Data: Revenue: Service revenue ................... $ -- $ -- $ -- $ 41,319 Roaming revenue ................... -- -- 29 29,010 Equipment revenue ................ -- -- -- 17,353 ------------ ------------ ------------ ------------ Total revenue ........ -- -- 29 87,682 ------------ ------------ ------------ ------------ Operating expense: Cost of revenue ................... -- -- -- 39,259 Operations and development (c) .... -- -- 9,772 35,979 Selling and marketing (c) ......... 10 304 6,325 71,180 General and administrative (c) .... 515 2,637 26,239 92,585 Depreciation and amortization ..... -- 11 1,584 55,110 ------------ ------------ ------------ ------------ Total operating expense ....... 525 2,952 43,920 294,113 ------------ ------------ ------------ ------------ Operating loss ................ (525) (2,952) (43,891) (206,431) Other (income) expense: Interest expense .................. -- 396 11,934 51,313 Interest income ................... -- (13) (4,697) (6,464) Other expense ..................... -- -- 27 (284) ------------ ------------ ------------ ------------ Net loss ...................... (525) (3,335) (51,155) (250,996) Accretion of mandatorily redeemable preferred stock ... (289) (726) (8,567) (24,124) ------------ ------------ ------------ ------------ Net loss attributable to common equity ................ $ (814) $ (4,061) $ (59,722) $ (275,120) ============ ============ ============ ============ Net loss attributable to common equity per share - basic and diluted ................. $ (44.45) (111.74) $ (2.19) $ (3.58) ============ ============ ============ ============ Weighted average common equity shares outstanding-basic and diluted ....... 18,313 36,340 27,233,786 76,895,391 ============ ============ ============ ============ Other Operating Data: Subscribers (end of period) ......... -- -- -- 142,231 Covered population (end of period) .. -- -- -- 11.0 million
19
As of December 31, ---------------------------------------------- 1996 1997 (Predecessor) (Predecessor) 1998 1999 ---------------------------------------------- Balance Sheet Data: Cash and cash equivalents ....................... $ 52 $ 2,567 $ 111,733 $ 182,330 (524) (6,656) (4,676) Working capital ................................. 94,082 Property and equipment, net ..................... 1 3,609 197,469 400,450 PCS licenses and microwave relocation costs, net -- 10,018 118,107 267,682 Intangible assets -AT&T agreements, net ......... -- -- 26,285 37,908 Total assets .................................... 7,574 16,295 466,644 952,202 Total debt ...................................... 499 7,727 243,385 640,571 Mandatorily redeemable preferred stock, net(a)(b) 7,789 4,144 164,491 263,181 Total stockholders' equity (deficit) ........... $ (812) $ (4,875) $ (64,500) (90,554)
- --------- (a) Net of deferred compensation and preferred stock subscription receivable of $4 and $75,914, respectively, as of December 31, 1998. (b) Net of preferred stock subscription receivable of $97,001 as of December 31, 1999. (c) Includes non cash stock compensation. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. For periods prior to 1999 we were a development stage company. In the first quarter of 1999, we exited the development stage and commenced commercial operations in each of our major mainland U.S. markets, after having launched our New Orleans market for roaming services in late December 1998. We launched service in our Puerto Rico markets on June 30, 1999. At December 31, 1999 we had launched our service in 26 markets covering approximately 66% of the population of our licensed area. Revenue We derive our revenue from: o Services. We sell wireless personal communications services. The various types of service revenue associated with personal communications services for our customers include monthly recurring access charges and monthly non-recurring airtime charges for local, long distance and 20 roaming airtime used in excess of pre-subscribed usage. Our customers' charges are rate plan dependent, based on the number of pooled minutes included in their plans. Service revenue also includes monthly non-recurring airtime usage associated with our prepaid customers and non-recurring activation and de-activation service charges. o Roaming Charges. We charge monthly, non-recurring, per minute fees to other wireless companies whose customers use our network facilities to place and receive wireless calls. o Equipment Sales. We sell wireless personal communications handsets and accessories that are used by our customers in connection with our wireless services. Service revenue constituted our largest component of revenue during the year ended December 31, 1999 at 47%. Roaming revenue and equipment revenue represented 33% and 20%, respectively. We expect that as our customer base grows, service revenue will become an even larger percentage of revenue, while roaming revenue and equipment revenue are expected to decrease as a percentage of revenue. Roaming minutes on our network are expected to increase as AT&T and other carriers increase the number of customers on their networks. Under our reciprocal roaming agreement with AT&T Wireless, our largest roaming partner, the amount we will receive and pay per roaming minute declines for each of the next several years. It appears that the wireless industry is experiencing a general trend towards offering rate plans containing larger buckets of minutes. This is expected to result in decreases in gross revenue per minute. We have autonomy in determining our pricing plans. We have developed our pricing plans to be competitive and to emphasize the advantages of our service. We may discount our pricing from time to time in order to obtain additional customers or in response to downward pricing in the market for wireless communications services. Cost of Revenue o Equipment. We purchase personal communications handsets and accessories from third party vendors to resell to our customers for use in connection with our services. The cost of handsets is, and is expected to remain, higher than the resale price to the customer. We record as cost of revenue an amount approximately equal to our revenue on equipment sales. We record the excess cost of handsets as a sales and marketing operating expense. We do not manufacture any of this equipment. o Roaming Fees. We pay fees to other wireless communications companies based on airtime usage of our customers on other communications networks. It is expected that reciprocal roaming rates charged between us and other carriers will decrease. We do not have any significant minimum purchase requirements other than our obligation to purchase at least 15 million roaming minutes from July 1999 to January 2002 from another wireless provider in Puerto Rico relating to customers roaming outside our coverage area. We believe we will be able to meet these minimum requirements. o Clearinghouse Fees. We pay fees to an independent clearinghouse for processing our call data records and performing monthly inter-carrier financial settlements for all charges that we pay to other wireless companies when our customers use their network, and that other wireless companies pay to us when their customers use our network. We do not have any significant 21 minimum purchase requirements. These fees are based on the number of transactions processed in a month. o Variable Interconnect. We pay monthly charges associated with the connection of our network with other carriers' networks. These fees are based on minutes of use by our customers. This is known as interconnection. We do not have any significant minimum purchase requirements. o Variable Long Distance. We pay monthly usage charges to other communications companies for long distance service provided to our customers. These variable charges are based on our customers' usage, applied at pre-negotiated rates with the other carriers. We do not have any significant minimum purchase requirements other than an obligation to AT&T Wireless to purchase a minimum number of minutes of traffic annually over a specified time period and a specified number of dedicated voice and data leased lines in order for us to retain preferred pricing rates. We believe we will be able to meet these minimum requirements. Operating Expense Operations and development. Our operations and development expense includes engineering operations and support, field technicians, network implementation support, product development, engineering management and non cash stock compensation related to employees whose salaries are recorded within operations and development. This expense also includes monthly recurring charges directly associated with the maintenance of network facilities and equipment. Operations and development expense is expected to increase as we expand our coverage and add customers. In future periods, we expect that this expense will decrease as a percentage of gross revenues. Selling and marketing. Our selling and marketing expense includes brand management, external communications, retail distribution, sales training, direct, indirect, third party and telemarketing support and non cash stock compensation related to employees whose salaries are included within selling and marketing. We also record the excess cost of handsets over the resale price as a cost of selling and marketing. Selling and marketing expense is expected to increase as we expand our coverage and add customers. In future periods, we expect that this expense will decrease as a percentage of gross revenues. General and administrative. Our general and administrative expense includes customer support, billing, information technology, finance, accounting and legal services and non cash stock compensation related to employees whose salaries are included within general and administrative. Although we expect general and administrative expense to increase in future periods we expect this expense will decrease as a percentage of gross revenues. Depreciation and amortization. Depreciation of property and equipment is computed using the straight-line method, generally over three to ten years, based upon estimated useful lives. Leasehold improvements are amortized over the lesser of the useful lives of the assets or the term of the lease. Network development costs incurred to ready our network for use are capitalized. Amortization of network development costs begins when the network equipment is ready for its intended use and will be amortized over its estimated useful life ranging from five to ten years. We began amortizing the cost of the PCS licenses, microwave relocation costs, and capitalized interest in the first quarter of 1999, when PCS services commenced in some of our basic trading areas. Microwave relocation entails transferring business and public safety companies from radio airwaves that overlap with the portion of the airwaves covered by our business to other portions of the airwaves. Amortization of PCS licenses and microwave relocation is calculated using the straight-line method over 40 years. The AT&T agreements are amortized on a straight-line basis over the related contractual terms, 22 which range from three to ten years. Amortization of the AT&T exclusivity agreement, long distance agreement and the intercarrier roamer services agreement began once wireless services were available to our customers. Amortization of the network membership license agreement began on July 17, 1998, the date of the finalization of the AT&T transaction. Capital expenditures. Our principal capital requirements for deployment of our wireless network include installation of equipment and, to a lesser extent, site development work. Interest income (expense). Interest income is earned primarily on our cash and cash equivalents. Interest expense through December 31, 1999 consists of interest due on our senior credit facilities, senior subordinated discount notes, vendor financing, and debt owed to the U.S. government related to our licenses, less interest capitalized. Results of Operations Year ended December 31, 1999 Compared to Year ended December 31, 1998 Customer Analysis We began launching commercial service in the first quarter of 1999, and by December 31, 1999, grew our customer base to over 142,000 customers and launched commercial service in 26 of our markets with our networks covering approximately 66% of the population where we held licenses. Revenue Service revenue was approximately $41.3 million for the year ended December 31, 1999 and resulted from our launch of commercial service in 26 of our markets in 1999. We generated no service revenue for the year ended December 31, 1998. Equipment revenue was approximately $17.4 million for the year ended December 31, 1999 and resulted from our customers' purchase of handsets and other equipment in connection with the use of our service. We generated no equipment revenue for the year ended December 31, 1998. Roaming revenue was $29.0 million for the year ended December 31, 1999, as compared to $29,000 for the year ended December 31, 1998. The increase was due to our significant increase in cell sites which provided service to AT&T Wireless' roaming customers in our markets. Cost of Revenue Cost of revenue for the year ended December 31, 1999 was approximately $39.3 million, consisting of equipment costs, roaming and clearinghouse fees and variable interconnect and long distance charges. We did not generate any cost of revenue for the year ended December 31, 1998. Operations and Development Operations and development expense was $36.0 million for the year ended December 31, 1999, as compared to $9.8 million for the year ended December 31, 1998. The increase in operations and development was primarily due to the engineering and implementation support and maintenance expense related to the significant increase of our PCS network. Selling and Marketing 23 Selling and marketing expense for the year ended December 31, 1999, was approximately $71.2 million, as compared to $6.3 million for the year ended December 31, 1998. This increase was primarily due to the increase in salary and benefit expenses for new corporate and regional sales staff, advertising and promotion expenses associated with our launch of 26 markets in 1999, and the expense associated with the excess cost of handsets over the retail price. General and Administrative General and administrative expense was approximately $92.6 million, including $29.4 million in non cash stock compensation, for the year ended December 31, 1999, as compared to approximately $26.2 million and no non cash stock compensation for the year ended December 31, 1998. The increase was primarily due to the development and growth of infrastructure and staffing related to information technology, customer care and other administrative functions incurred in conjunction with the commencement of our service offering, as well as the stock based compensation charge related to vested stock options and vested restricted stock awards measured in 1999. Depreciation and Amortization Depreciation and amortization expense was approximately $55.1 million for the year ended December 31, 1999, as compared to approximately $1.6 million for the year ended December 31, 1998. The increase was primarily due to depreciation of our fixed assets, as well as the amortization on personal communications services licenses and the AT&T agreements. Interest Income and Expense Interest expense was $51.3 million, net of capitalized interest income of $5.4 million, for the year ended December 31, 1999, as compared to $11.9 million, net of capitalized interest of $1.5 million, for the year ended December 31, 1998. The increase in interest expense was primarily due to the increase in debt of approximately $397,000 including the issuance of the senior subordinated discount notes of $327.6 million. The increase in capitalized interest of $3.8 million was attributable to the increased capital expenditure in 1999. Year ended December 31, 1998 Compared to Year ended December 31, 1997 Revenue Revenue for the year ended December 31, 1998 was approximately $29,000. This revenue resulted from servicing AT&T Wireless' roaming customers in our Louisiana markets. We began offering wireless services in most of our major markets in the first quarter of 1999. We generated no revenue for the year ended 1997. Operations and Development Operations and development expense for the year ended December 31, 1998, was approximately $9.8 million. This expense was primarily related to an increase in engineering and operating staff devoted to the implementation of future operations of our network. There was no operations and development expense for the year ended December 31, 1997. 24 Selling and Marketing Selling and marketing expenses for the year ended December 31, 1998, was approximately $6.3 million, as compared to approximately $0.3 million for the year ended December 31, 1997. The year-over-year increase was due to the increase in corporate and regional sales and marketing staff in order to prepare for domestic market launches in the first quarter of 1999. General and Administrative General and administrative expense for the year ended December 31, 1998, was approximately $26.2 million, as compared to approximately $2.6 million for the year ended December 31, 1997. The year-over-year increase was due to the development and growth of infrastructure and staffing related to information technology, customer care and other administrative functions incurred in the preparation for commercial launch of our markets in the first quarter of 1999. Depreciation and Amortization Depreciation and amortization expense for the year ended December 31, 1998, was approximately $1.6 million, as compared to approximately $11,000 for the year ended December 31, 1997. This expense was related to depreciation of furniture, fixtures and office equipment, as well as the initiation of amortization on AT&T Wireless agreements. Interest Income and Expense Interest expense, net of interest income, for the year ended December 31, 1998, was approximately $7.2 million, as compared to approximately $0.4 million for the year ended December 31, 1997. This interest expense was related to notes payable to shareholders and affiliates. This increase in interest expense was related to borrowings under the senior credit facilities of $225.0 million since July 1998 and the issuance of $10.0 million aggregate principal amount of notes under the vendor financing provided by Lucent. Liquidity and Capital Resources We have been relying on the proceeds from borrowings and issuances of capital stock, rather than revenues, for our primary sources of cash flow. We began commercial operations in December 1998 and began earning recurring revenues by the end of the first quarter of 1999. Cash and cash equivalents totaled $182.3 million at December 31, 1999, as compared to $111.7 million at December 31, 1998. This increase was the result of incoming cash provided by financing activities of $638.6 million, offset by $126.9 million of cash used in operating activities and $441.0 million of cash used in network development and investing activities. During the year ended December 31, 1999, we received proceeds from long-term debt, net of repayments of $357.2 million. Additionally, we received net proceeds from our initial public offering of $195.5 million, and received $79.7 million of preferred stock proceeds and receipt of preferred stock subscriptions receivable net of direct issuance costs. Cash outlays for capital expenditures required to develop and construct our network totaled $298.5 million. We spent $114.2 million to purchase PCS licenses and $17.3 million for the purchase of additional AT&T agreements. Cash used in operating activities of $126.9 million 25 for the year ended December 31, 1999 resulted from a net loss of $251.0 million that was partially offset by non-cash charges of $122.6 million. During the year ended December 31, 1998, we received proceeds from long-term debt, net of repayments of $255.4 million. Additionally, we received $26.7 million of preferred stock proceeds net of direct issuance costs. Cash outlays for capital expenditures required to develop and construct our network totaled $107.5 million and we spent $21.0 million to purchase PCS licenses. Cash used in operating activities of $29.8 million for the year ended December 31, 1998 resulted from a net loss of $51.2 million that was partially offset by non-cash charges of $3.0 million. During the year ended December 31, 1997, we received proceeds from long-term debt, net of repayments of $2.8 million. Additionally, we received $1.5 million of preferred stock proceeds net of direct issuance costs. Cash outlays for capital expenditures required to develop and construct our network totaled $1.1 million. Cash used in operating activities of $2.4 million for the year ended December 31, 1997 resulted from a net loss of $3.3 million that was partially offset by non-cash charges of $0.1 million. Our preferred stock is convertible into shares of our common stock at various times and following various events as follows: o our series A preferred stock is convertible into shares of our class A common stock after July 17, 2006 at a conversion rate equal to the liquidation preference, which was approximately $109.6 million as of December 31, 1999, divided by the market price of the class A common stock at the time of conversion; o our series F preferred stock is convertible at any time into shares of our class A, class B or, if certain FCC restrictions have not been lifted, Class D common stock, on a share for share basis. We may redeem: o shares of our series A preferred stock after the tenth anniversary of its issuance; and o shares of our series B, series C and series D preferred stock at any time at the liquidation preference for the shares being redeemed. The holders of our series A, series B, series C, series D and series E preferred stock have the right to require us to redeem their shares after the twentieth anniversary of their issuance time at the liquidation preference for the shares being redeemed. Holders of our series A preferred stock are entitled to a quarterly dividend equal to 10% per annum of that stock's accumulated liquidation preference. The accumulated liquidation preference of our series A preferred stock was approximately $109.6 million in aggregate as of December 31, 1999. We may defer payment of this dividend until December 31, 2008, and we are currently doing so. Holders of our series C, D and E preferred stock are not entitled to a dividend except to the extent declared by our board. Those series of stock, however, are entitled to an accumulated liquidation preference, which was approximately $280.3 million in aggregate as of December 31, 1999. The liquidation preference accretes at a rate of 6% per annum, compounded quarterly. 26 Equity Commitments In connection with completion of the venture with AT&T, we received unconditional and irrevocable equity commitments from our stockholders in the aggregate amount of $128.0 million in return for the issuance of preferred and common stock. As of December 31, 1999, approximately $55.5 million of the equity commitments had been funded. The remaining equity commitments will be funded in an installment of $36.3 million in July 2000 and $36.2 million in July 2001. We received additional irrevocable equity commitments from our stockholders in the aggregate amount of $5.0 million in return for the issuance of preferred and common stock in connection with the Digital PCS acquisition. Our stockholders funded $2.2 million of these equity commitments on April 30, 1999, and will fund $1.4 million in each of July 2000 and July 2001. We have received additional irrevocable equity commitments from our stockholders in the aggregate amount of approximately $40.0 million in return for the issuance of preferred and common stock in connection with the Puerto Rico acquisition. We received $12.0 million of these commitments on May 24, 1999 and an additional $6.0 million on December 15, 1999. Our stockholders will fund the remaining commitments in two installments of $11.0 million on March 30, 2001 and March 30, 2002. We also received irrevocable equity commitments from our stockholders in the amount of approximately $32.3 million in connection with Viper Wireless' participation in the FCC's reauction of PCS licenses. We received approximately $6.5 million of these equity commitments on May 14, 1999, approximately $11.0 million on July 15, 1999 and approximately $14.8 million on September 29, 1999. In the aggregate, we have obtained $205.3 million of equity commitments, of which $108 million had been funded as of December 31, 1999. These equity commitments cannot be amended without our consent and the consent of AT&T and all of the other initial investors. In addition, the terms of our senior subordinated discount notes and our bank and vendor credit facilities restrict us from waiving or amending these commitments. The foregoing equity commitments are also collateralized by pledges of the shares of our capital stock issued to each initial investor, other than certain shares of preferred stock. Those pledges have been assigned to our senior lenders as collateral for our senior credit facilities. Transfers of shares of our capital stock pledged to collateralize an equity commitment remain subject to such pledge until the equity commitment is funded in full. In addition, pursuant to the stockholders' agreement between our initial investors, Mr. Vento and Mr. Sullivan and us, the initial investors are restricted from transferring their shares of common stock prior to July 2001, except to affiliates. Any transfers by them of class A common stock are subject to rights of first offer and tag-along and drag-along rights in favor of AT&T Wireless and the other initial investors. In addition to the approval of our senior lenders, the terms of the stockholders' agreement may be amended only if agreed to in writing by us and the beneficial holders of a majority of the class A common stock party to the stockholders' agreement, including AT&T Wireless, 66 2/3% of the class A common stock beneficially owned by our initial investors other than AT&T Wireless, and 66 2/3% of the class A common stock beneficially owned by Mr. Vento and Mr. Sullivan. Following the expiration or waiver of the 180 day restrictions on transfer imposed in connection with our initial public offering of 9,200,000 shares of our class A common stock, shares of our preferred stock may be transferred, subject, however, to the pledge described above and the continuing obligations of the investors to fund its Commitments. 27 Senior Subordinated Discount Notes On April 20, 1999, we sold $575.0 million aggregate principal amount at maturity of 11 5/8% senior subordinated discount notes due April 15, 2009. Cash interest on these notes will not accrue or be payable prior to April 15, 2004. From April 15, 2004, cash interest will accrue at a rate of 11 5/8% per annum on the principal amount at maturity of the notes through and including the maturity date and will be payable semi-annually on April 15 and October 15 of each year. In connection with the sale of these notes, we received net proceeds of approximately $317 million after deducting initial purchasers' discount and issuance expenses of approximately $11 million. The indenture under which the notes were issued restricts, among other things, our ability to: o incur debt; o create levels of debt that are senior to the notes but junior to our senior debt; o pay dividends on or redeem capital stock; o make some investments or redeem other subordinated debt; o make particular dispositions of assets; o engage in transactions with affiliates; o engage in particular business activities; and o engage in mergers, consolidations and particular sales of assets. Senior Credit Facilities In July 1998, we entered into senior credit facilities with a group of lenders for an aggregate amount of $525.0 million. In October 1999 we entered into amendments to the senior credit facilities under which the amount of credit available to us was increased to $560.0 million. Our senior credit facilities currently provide for: o a $150.0 million senior secured term loan that matures in January 2007, o a $225.0 million senior secured term loan that matures in January 2008, o a $150.0 million senior secured revolving credit facility that matures in January 2007, and o a $35.0 million senior secured term loan that matures in May 2009. We must repay the term loans in quarterly installments, beginning in September 2002, and the commitments to make loans under the revolving credit facility automatically and permanently reduce beginning in April 2005. As of December 31, 1999, $225.0 million had been drawn under the senior credit facilities and was then accruing interest at an annual rate of 9.12%. The senior credit agreement contains financial and other covenants customary for senior agreements. 28 We entered into a note purchase agreement with Lucent under which Lucent agreed to provide us with $80.0 million of junior subordinated vendor financing. This $80.0 million consisted of $40.0 million aggregate principal amount of increasing rate Lucent series A notes and $40.0 million aggregate principal amount of increasing rate Lucent series B notes. We borrowed $40.0 million under the series B note facility and repaid this amount and accrued interest thereon in April 1999 from proceeds of our sale of senior subordinated discount notes. This amount cannot be reborrowed. As of December 31, 1999, we had outstanding approximately $43.5 million of our Lucent series A notes, including $3.6 million of accrued interest and accruing interest at a rate per annum of 8.5% as of December 31, 1999. The amount outstanding under these series A notes and any future series A note borrowings is subject to mandatory prepayment in an amount equal to 50% of the excess of $198.0 million in net proceeds we receive from an equity offering other than the issuance of capital stock used to acquire related business assets. In October 1999 we entered into an amended and restated note purchase agreement with Lucent under which Lucent has agreed to purchase up to $12.5 million of new series A notes and up to $12.5 million of new series B notes under a vendor expansion facility in connection with our prior acquisition of licenses in the San Juan, Puerto Rico, Evansville Indiana, Paducah, Kentucky and Alexandria and Lake Charles, Louisiana markets. The obligation of Lucent to purchase notes under this vendor expansion facility is subject to a number of conditions, including that we commit to purchase one wireless call connection equipment site and 50 network equipment sites for each additional market from Lucent. In addition, pursuant to the amended and restated note purchase agreement Lucent has agreed to make available up to an additional $50.0 million of new vendor financing not to exceed an amount equal to 30% of the value of equipment, software and services provided by Lucent in connection with any additional markets we acquire. This $50.0 million of availability is subject to a reduction up to $20 million on a dollar for dollar basis of any additional amounts Lucent otherwise lends to us for such purposes under our senior credit facilities, exclusive of amounts Lucent lends to us under its existing commitments under our senior credit facilities. Any notes purchased under this facility would be divided equally between Lucent series A and series B notes. The terms of Lucent series A and series B notes issued under these expansion facilities would be identical to the terms of the original Lucent series A and series B notes as amended, including a maturity date of October 23, 2009. Any Lucent series B notes issued under these expansion facilities will mature and will be subject to mandatory prepayment on a dollar for dollar basis out of the net proceeds of any future public or private offering or sale of debt securities, exclusive of any private placement notes issued to finance any additional market and borrowings under the senior credit facilities or any replacement facility. Interest payable on the Lucent series A notes and the Lucent series B notes on or prior to May 11, 2004 will be payable in additional series A and series B notes. Thereafter, interest will be paid in arrears in cash on each six month and yearly anniversary of the series A and series B closing date or, if cash interest payments are prohibited under the senior credit facilities or a qualifying high yield debt offering, in additional series A and series B notes. The U.S. government financing requires quarterly interest payments, which commenced in July 1998 and continued for one year thereafter, then quarterly principal and interest payments for the remaining nine years. Vendor Financing In May 1998, we entered into a vendor procurement contract with Lucent under which we are required to purchase up to $285.0 million of radio, call connecting and related equipment and services for the development of our wireless communications network. At December 31, 1999, we had satisfied our purchase requirements under this contract through our purchase of approximately $294.5 million of equipment and services from Lucent. 29 FCC Debt In completing acquisitions of PCS licenses during the year ended December 31, 1999, we assumed U.S. government financing with the FCC. At December 31, 1999 our FCC debt was $20.2 million less a discount of $2.5 million. The terms of the notes include interest rates ranging from 6.125% to 7.00% and have quarterly and principal interest payments over the remaining nine years of the debt. Commitments We have operating leases primarily related to retail store locations, distribution outlets, office space and rent for our network development. The terms of some of the leases include a reduction of rental payments and scheduled rent increases at specified intervals during the term of the leases. We are recognizing rent expense on a straight-line basis over the life of the lease, which establishes deferred rent on the balance sheet. As of December 31, 1999, the aggregate minimum rental commitments under non-cancelable operating leases are as follows:
For the year ending December 31: (dollars in thousands) 2000........................................ $ 21,605 2001........................................ 21,375 2002........................................ 21,057 2003........................................ 18,374 2004........................................ 10,330 Thereafter..................................... 27,999 -------- Total $120,740 ========
Rental expense, which is recorded ratably over the lease terms, was approximately $157,000, $3.2 million and $13.8 million for the years ended December 31, 1997, 1998, and 1999, respectively. We have communications towers situated on leased sites in all of our markets and we are considering entering into sale/leaseback transactions and may do so if we can obtain terms acceptable to us. We have entered into letters of credit to facilitate local business activities. We are liable under the letters of credit for nonperformance of certain criteria under the individual contracts. The total amount of outstanding letters of credit was approximately $1.6 million at December 31, 1999. The outstanding letters of credit reduce the amount available to be drawn under our senior credit facility. We have minimum purchase commitments of 15 million roaming minutes from July 1999 to January 2002 from another wireless provider in Puerto Rico relating to customers roaming outside our coverage area. We believe we will be able to meet these minimum requirements. We believe that the capital we have raised to date and the other capital resources currently available to us, which includes the funding of the irrevocable equity commitments from our initial investors, will be sufficient to meet our projected capital requirements through December 31, 2001. If we acquire additional licenses or properties, we may need to incur substantial additional debt to complete the acquisitions and construct and operate the acquired properties. The network development requirements imposed by our agreements with AT&T create significant capital requirements, much of which will be covered by indebtedness we incur. 30 Quarterly Results of Operations The following table sets forth certain unaudited quarterly operating information for each of the eight quarters ended December 31, 1999. This data has been prepared on the same basis as the audited financial statements, and in management's opinion, includes all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the information for the periods presented. Results for any previous fiscal quarter are not necessarily indicative of results for the full year or for any future quarter. Quarterly Financial Data (unaudited) ($ in thousands expect per share amounts)
Quarter ended, --------------------------------------------------------------- Mar. 31, June 30, Sept. 30, Dec. 31, -------- -------- --------- -------- 1999 ---- Revenue $ 4,240 $ 17,128 $ 26,833 $ 39,481 Operating loss (26,944) (37,150) (50,179) (92,158) Net loss (32,293) (45,990) (65,792) (106,921) Accretion of manditorily redeemable preferred stock (4,267) (5,629) (7,064) (7,164) -------- -------- --------- --------- Net loss attributable to common equity $(36,560) $(51,619) $(72,856) $(114,085) ======== ======== ======== ========= Net loss attributable to common equity per share - basic and diluted $( 0.62) $( 0.75) $(0.89) $( 1.29) ======== ======== ======== ========= 1998 ---- Revenue $ 0 $ 0 $ 0 $ 29 Operating loss (2,655) (6,624) (12,239) (21,373) Net loss (2,745) (6,843) (15,823) (25,744) Accretion of manditorily redeemable preferred stock (17) (190) (3,819) (4,541) -------- -------- --------- --------- Net loss attributable to common equity $( 2,762) $( 7,033) $( 19,643) $( 30,285) ======== ======== ========= ========= Net loss attributable to common equity per share - basic and diluted(a) $(142.85) $(363.75) $( 1.23) $( 0.51) ======== ======== ========= =========
(a) Net loss attributable to common equity per share - basic and diluted for the first and second quarter of 1998 was computed based on the common equity structure of the predecessor company. Forward Looking Statements: Cautionary Statements Statements in this report expressing our expectations and beliefs of the Company regarding our future results or performance are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve a number of risks and uncertainties. In particular, certain statements contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations which are not historical facts constitute forward-looking statements. Although we believe that the expectations expressed in such forward-looking statements are based on reasonable assumptions within the bounds of our knowledge of our business, our actual future results may differ significantly from those stated in any forward-looking statements. Factors that may cause or contribute to such differences include, but are not limited to, risks 31 discussed in our Registration Statement on Form S-1 (Reg. No. 333-89393) and in our other filings with the Securities and Exchange Commission, including, without limitation, the following: (1) we depend on our agreements with AT&T for our success, and under certain circumstances AT&T could terminate its exclusive relationship with us and our use of the AT&T brand name and logo, (2) we may not be able to manage the construction of our network or the growth of our business successfully, (3) we have substantial existing debt, and may incur substantial additional debt, that we may be unable to service, (4) we may not be able to obtain the additional financing we may need to complete our network and fund operating losses, (5) we have many competitors that have substantial coverage of our licensed areas, (6) difficulties in obtaining infrastructure equipment or sites may affect our ability to construct our network and meet our development requirements, (7) potential acquisitions may require us to incur substantial additional debt and integrate new technologies, operations and services, which may be costly and time consuming, (8) we may experience a high rate of customer turnover, (9) our association with the other SunCom companies may harm our reputation if consumers react unfavorably to them, (10) we depend upon consultants and contractors for our network services, (11) we may become subject to new health and safety regulations, which may result in a decrease in demand for our services, (12) changes in our licenses or other governmental action or regulation could affect how we do business, (13) we could lose our PCS licenses or incur financial penalties if the FCC determines we are not a very small business or if we do not meet the FCC's minimum construction requirements, (14) the technologies that we use may become obsolete, which would limit our ability to compete effectively and (15) we expect to incur operating costs due to fraud. As a result of the foregoing and other factors, we may experience material fluctuations in future operating results on a quarterly or annual basis which could materially and adversely affect our business, financial condition, operating results and stock price. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. We are not exposed to fluctuations in currency exchange rates because all of our services are invoiced in U.S. dollars. We are exposed to the impact of interest rate changes on our short-term cash investments, consisting of U.S. Treasury obligations and other investments in respect of institutions with the highest credit ratings, all of which have maturities of three months or less. These short-term investments carry a degree of interest rate risk. We believe that the impact of a 10% increase or decline in interest rates would not be material to our investment income. We use interest rate swaps to hedge the effects of fluctuations in interest rates on our senior credit facilities. These transactions meet the requirements for hedge accounting, including designation and correlation. These interest rate swaps are managed in accordance with our policies and procedures. We do not enter into these transactions for trading purposes. The resulting gains or losses, measured by quoted market prices, are accounted for as part of the transactions being hedged, except that losses not expected to be recovered upon the completion of hedged transactions are expensed. Gains or losses associated with interest rate swaps are computed as the difference between the interest expense per the amount hedged using the fixed rate compared to a floating rate over the term of the swap agreement. As of December 31, 1999, we had entered into six interest rate swap agreements totaling $225 million to convert our variable rate debt to fixed rate debt. The interest rate swaps had no material impact on our consolidated financial statements as of and for the year ended December 31, 1999. Item 8. Financial Statements and Supplementary Data. Reference is made to the consolidated financial statements listed under the heading "(a) (1) Consolidated Financial Statements" of Item 14 hereof, which financial statements are incorporated herein by reference in response to this Item 8. 32 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Registrant. The response to this item is incorporated by reference from the discussion responsive thereto under the captions "Board of Directors," and "Section 16(a) Beneficial Ownership Reporting" in our Proxy Statement for the 2000 Annual Meeting of Stockholders to be held on May 24, 2000. Item 11. Executive Compensation. The response to this item is incorporated by reference from the discussion responsive thereto under the caption "Compensation of Executive Officers" in our Proxy Statement for the 2000 Annual Meeting of Stockholders to be held on May 24, 2000. Item 12. Security Ownership of Certain Beneficial Owners and Management. The response to this item is incorporated by reference from the discussion responsive thereto under the caption "Stock Ownership of Certain Beneficial Owners and Management" in our Proxy Statement for the 2000 Annual Meeting of Stockholders to be held on May 24, 2000. Item 13. Certain Relationships and Related Transactions. The response to this item is incorporated by reference from the discussion responsive thereto under the captions "Certain Transactions", "Compensation of Executive Officers -- Management Agreement" and "Compensation of Executive Officers -- Employment Agreement" in our Proxy Statement for the 2000 Annual Meeting of Stockholders to be held on May 24, 2000. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) Financial Statements, Schedules and Exhibits (1) Consolidated Financial Statements. The following consolidated financial statements and the Report of Independent Accountants related thereto are included in Item 8 above. Page ---- Report of Independent Accountants ....................................... F-2 Consolidated Balance Sheets ............................................. F-3 Consolidated Statements of Operations ................................... F-4 Consolidated Statement of Changes in Stockholders' Equity (Deficit) ..... F-5 Consolidated Statements of Cash Flows ................................... F-6 Notes to Consolidated Financial Statements .............................. F-8 33 (2) Financial Statement Schedules. None. (3) Exhibits. The following exhibits are filed with this report or incorporated by reference as set forth below. Exhibit Number Description of Document ------ ----------------------- 2.1 Stock Purchase Agreement by and among TeleCorp PCS, Inc., TeleCorp Holding Corp., Inc., Gerald T. Vento, Thomas H. Sullivan, and certain other investors identified therein, dated as of October 18, 1999. 3.1 Fifth Amended and Restated Certificate of Incorporation of TeleCorp PCS, Inc. 3.2 Second Amended and Restated Bylaws of TeleCorp PCS, Inc. 23.1 Consent of PricewaterhouseCoopers LLP. (b) Reports on Form 8-K: None. 34 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 28, 2000 TELECORP PCS, INC. By: /s/ Gerald T. Vento ------------------------------ Gerald T. Vento Chairman of the Board and Chief Executive Officer Signature Title Date --------- ----- ---- /s/ Gerald T. Vento - -------------------- Chief Executive Officer March 28, 2000 Gerald T. Vento (Principal Executive Officer) and Chairman /s/ Thomas H. Sullivan - ---------------------- Executive Vice President, Chief March 28, 2000 Thomas H. Sullivan Financial Officer (Principal Financial and Accounting Officer) and Director - -------------------- Director March __, 2000 Michael R. Hannon /s/ Scott Anderson - -------------------- Director March 28, 2000 Scott Anderson /s/ Rohit M. Desai - -------------------- Rohit M. Desai Director March 28, 2000 /s/ James M. Hoak - -------------------- Director March 28, 2000 James M. Hoak - -------------------- Director March ___, 2000 Mary Hawkins-Key /s/ William Kussell - -------------------- William Kussell Director March 28, 2000 - -------------------- Director March ___, 2000 Michael Schwartz 35 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 28, 2000 TeleCorp Communications, Inc. By: /s/ Gerald T. Vento ------------------------------ Gerald T. Vento Chairman of the Board and Chief Executive Officer Signature Title Date --------- ----- ---- /s/ Gerald T. Vento - -------------------- Chief Executive Officer March 28, 2000 Gerald T. Vento (Principal Executive Officer) and Chairman /s/ Thomas H. Sullivan - ---------------------- Director and President March 28, 2000 Thomas H. Sullivan 36 INDEX TO FINANCIAL STATEMENTS TELECORP PCS, INC. AND SUBSIDIARIES AND PREDCESSOR 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
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, 1999 and 1998 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP McLean, Virginia March 10, 2000 F-2 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY CONSOLIDATED BALANCE SHEETS ($ in thousands, except per share data)
December 31, ----------------------- 1998 1999 --------- --------- ASSETS Current assets: Cash and cash equivalents .......................................................................... $ 111,733 $ 182,330 Accounts receivable, net ........................................................................... -- 23,581 Inventory .......................................................................................... 778 15,802 Prepaid expenses ................................................................................... 2,186 3,031 Other current assets ............................................................................... 1,218 797 --------- --------- Total current assets ......................................................................... 115,915 225,541 Property and equipment, net ........................................................................ 197,469 400,450 PCS licenses and microwave relocation costs, net ................................................... 118,107 267,682 Intangible assets-- AT&T agreements, net ........................................................... 26,285 37,908 Deferred financing costs, net ...................................................................... 8,585 19,577 Other assets ....................................................................................... 283 1,044 --------- --------- Total assets ................................................................................. $ 466,644 $ 952,202 ========= ========= LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable ................................................................................... $ 14,592 $ 38,903 Accrued expenses ................................................................................... 94,872 51,977 Microwave relocation obligation, current portion ................................................... 6,636 36,122 Long-term debt, current portion .................................................................... -- 1,361 Accrued interest ................................................................................... 4,491 1,387 Deferred revenue ................................................................................... -- 1,709 --------- --------- Total current liabilities .................................................................... 120,591 131,459 Long-term debt ......................................................................................... 243,385 639,210 Microwave relocation obligation ........................................................................ 2,481 2,365 Accrued expenses and other ............................................................................. 196 6,541 --------- --------- Total liabilities ............................................................................ 366,653 779,575 --------- --------- Mandatorily redeemable preferred stock, issued 255,999 and 382,539 shares, respectively; and outstanding, 255,215 and 382,539 shares, respectively, (liquidation preference $389,966 as of December 31, 1999) ................................... 240,409 360,182 Deferred compensation ............................................................................ (4) -- Treasury stock, 784 shares and none, respectively, at cost ....................................... -- -- Preferred stock subscriptions receivable ......................................................... (75,914) (97,001) --------- --------- Total mandatorily redeemable preferred stock, net ...................................... 164,491 263,181 --------- --------- Commitments and contingencies Stockholders' equity (deficit): Series F preferred stock, par value $.01 per share, 10,308,676 and 14,912,778 shares issued and outstanding, respectively (liquidation preference $1 as of December 31, 1999) ........................................................................ 103 149 Common stock, par value $.01 per share issued 49,357,658 and 85,592,221 shares, .............. 493 856 respectively; and outstanding 48,805,184 and 85,592,221 shares, respectively Additional paid-in capital ................................................................... -- 267,442 Deferred compensation ........................................................................ (7) (42,811) Common stock subscriptions receivable ........................................................ (86) (191) Treasury stock, 552,474 shares and none, respectively, at cost ............................... -- -- Accumulated deficit .......................................................................... (65,003) (315,999) --------- --------- Total stockholders' equity (deficit) ................................................... (64,500) (90,554) --------- --------- Total liabilities, mandatorily redeemable preferred stock and stockholders' equity (deficit) ........................................................................... $ 466,644 $ 952,202 ========= =========
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 ($ in thousands, except per share data)
For the year ended December 31, -------------------------------------------- 1997 1998 1999 ------------ ------------ ------------ Revenue: Service revenue ...................................... $ -- $ -- $ 41,319 Roaming revenue ...................................... -- 29 29,010 Equipment revenue .................................... -- -- 17,353 ------------ ------------ ------------ Total revenue ............................ -- 29 87,682 ------------ ------------ ------------ Operating expenses: Cost of revenue ...................................... -- -- 39,259 Operations and development (including non cash stock compensation of $1,472 in 1999) .............. -- 9,772 35,979 Selling and marketing (including non cash stock compensation of $937 in 1999) ................ 304 6,325 71,180 General and administrative (including non cash stock compensation of $29,408 in 1999) ............. 2,637 26,239 92,585 Depreciation and amortization ........................ 11 1,584 55,110 ------------ ------------ ------------ Total operating expenses ................. 2,952 43,920 294,113 ------------ ------------ ------------ Operating loss ........................... (2,952) (43,891) (206,431) Other (income) expense: Interest expense ..................................... 396 11,934 51,313 Interest income ...................................... (13) (4,697) (6,464) Other expense (income) ............................... -- 27 (284) ------------ ------------ ------------ Net loss ............................. (3,335) (51,155) (250,996) Accretion of mandatorily redeemable preferred stock ...... (726) (8,567) (24,124) ------------ ------------ ------------ Net loss attributable to common equity $ (4,061) $ (59,722) $ (275,120) ============ ============ ============ Net loss attributable to common equity per share-- basic and diluted .................................... $ (111.74) $ (2.19) $ (3.58) ============ ============ ============ Weighted average common equity shares outstanding-- basic and diluted .................................... 36,340 27,233,786 76,895,391 ============ ============ ============
The accompanying notes are an integral part of these financial statements. F-4 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) ($ in thousands)
Additional Series F Paid-in Preferred stock Common stock capital ------------------------- -------------------------- ---------- Shares Amount Shares Amount ----------- ----------- ----------- ----------- Balance, December 31, 1996 ................................. -- $ -- 43,124 $ 2 $ -- Issuance of common stock for cash .......................... -- -- 6,875 -- -- Accretion of mandatorily redeemable preferred stock ...................................................... -- -- -- -- -- Noncash redemption of equity interests ..................... -- -- (30,664) (1) -- Net loss ................................................... -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1997 ................................. -- -- 19,335 1 -- Noncash redemption of equity interests ..................... -- -- (19,335) (1) -- Issuance of preferred and common stock for cash, licenses and AT&T agreements ............................... 10,308,676 103 46,262,185 462 -- Accretion of mandatorily redeemable preferred stock ...................................................... -- -- -- -- -- Noncash issuance of restricted stock to employees .................................................. -- -- 3,095,473 31 -- Repurchase of common stock for cash ........................ -- -- -- -- -- Compensation expense related to restricted stock awards .... -- -- -- -- -- Net loss ................................................... -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1998 ................................. 10,308,676 103 49,357,658 493 -- Issuance of preferred stock and common stock for cash and licenses .......................................... 4,604,102 46 23,231,331 233 21,550 Issuance of common stock in initial public offering ........ -- -- 10,580,000 106 197,211 Costs associated with initial public offering .............. -- -- -- -- (1,801) Deferred compensation expense related to stock option grants and restricted stock awards ................................ -- -- -- -- 73,049 Compensation expense related to stock option grants and restricted stock awards .................................... -- -- -- -- -- Non-cash issuance of restricted stock ...................... -- -- 2,423,232 24 1,558 Repurchase of common stock for cash ........................ (1) Accretion of manditorily redeemable preferred stock ...................................................... -- -- -- -- (24,124) Net loss ................................................... -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1999 ................................. 14,912,778 $ 149 85,592,221 $ 856 $ 267,442 =========== =========== =========== =========== =========== Common stock Deferred Subscriptions Compensation Receivable Treasury stock ------------ ----------- ------------------------- Shares Amount ----------- ----------- Balance, December 31, 1996 ................................. $ -- $ -- -- $ -- Issuance of common stock for cash .......................... -- -- -- -- Accretion of mandatorily redeemable preferred stock ...................................................... -- -- -- -- Noncash redemption of equity interests ..................... -- -- -- -- Net loss ................................................... -- -- -- -- ----------- ----------- ----------- ----------- Balance, December 31, 1997 ................................. -- -- -- -- Noncash redemption of equity interests ..................... -- -- -- -- Issuance of preferred and common stock for cash, licenses and AT&T agreements ............................... -- (86) -- -- Accretion of mandatorily redeemable preferred stock ...................................................... -- -- -- -- Noncash issuance of restricted stock to employees .................................................. (10) -- -- -- Repurchase of common stock for cash ........................ 2 -- (552,474) -- Compensation expense related to restricted stock awards .... 1 -- -- -- Net loss ................................................... -- -- -- -- ----------- ----------- ----------- ----------- Balance, December 31, 1998 ................................. (7) (86) (552,474) -- Issuance of preferred stock and common stock for cash and licenses .......................................... -- (105) -- -- Issuance of common stock in initial public offering ........ -- -- -- -- Costs associated with initial public offering .............. -- -- -- -- Deferred compensation expense related to stock option grants and restricted stock awards ................................ (73,049) -- -- -- Compensation expense related to stock option grants and restricted stock awards .................................... 31,817 -- -- -- Non-cash issuance of restricted stock ...................... (1,573) -- 959,259 -- Repurchase of common stock for cash ........................ 1 (406,785) -- Accretion of manditorily redeemable preferred stock ...................................................... -- -- -- -- Net loss ................................................... -- -- -- -- ----------- ----------- ----------- ----------- Balance, December 31, 1999 ................................. $ (42,811) $ (191) -- $ -- =========== =========== =========== =========== Accumulated Deficit Total ----------- ----------- Balance, December 31, 1996 ................................. $ (814) $ (812) Issuance of common stock for cash .......................... -- -- Accretion of mandatorily redeemable preferred stock ...................................................... (726) (726) Noncash redemption of equity interests ..................... -- (1) Net loss ................................................... (3,335) (3,335) ----------- ----------- Balance, December 31, 1997 ................................. (4,875) (4,874) Noncash redemption of equity interests ..................... -- (1) Issuance of preferred and common stock for cash, licenses and AT&T agreements ............................... (383) 96 Accretion of mandatorily redeemable preferred stock ...................................................... (8,567) (8,567) Noncash issuance of restricted stock to employees .................................................. (21) Repurchase of common stock for cash ........................ (2) -- Compensation expense related to restricted stock awards .... -- 1 Net loss ................................................... (51,155) (51,155) ----------- ----------- Balance, December 31, 1998 ................................. (65,003) (64,500) Issuance of preferred stock and common stock for cash and licenses .......................................... -- 21,724 Issuance of common stock in initial public offering ........ -- 197,317 Costs associated with initial public offering .............. -- (1,801) Deferred compensation expense related to stock option grants -- -- and restricted stock awards Compensation expense related to stock option grants and restricted stock awards .................................... -- 31,817 Non-cash issuance of restricted stock ...................... -- 9 Repurchase of common stock for cash ........................ -- Accretion of manditorily redeemable preferred stock ...................................................... -- (24,124) Net loss ................................................... (250,996) (250,996) ----------- ----------- Balance, December 31, 1999 ................................. $ (315,999) $ (90,554) =========== ===========
The accompanying notes are an integral part of these financial statements. F-5 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS ($ in thousands)
For the year ended December 31, ------------------------------------------- 1997 1998 1999 --------- --------- --------- Cash flows from operating activities: Net loss .................................................................... $ (3,335) $ (51,155) $(250,996) Adjustment to reconcile net loss to net cash used in operating activities: Depreciation and amortization ............................................ 11 1,584 55,110 Noncash compensation expense related to stock option ..................... -- 2 31,817 grants and restricted stock awards Noncash interest expense ................................................. 134 1,182 32,718 Bad debt expense ......................................................... -- -- 2,962 Noncash general and administrative expense charge by affiliates ......................................................... -- 197 -- Changes in cash flow from operations resulting from changes in assets and liabilities: Accounts receivable ...................................................... -- -- (23,581) Inventory ................................................................ -- (778) (15,024) Prepaid expenses ......................................................... -- (2,186) (845) Other current assets ..................................................... (52) (1,145) 421 Other assets ............................................................. (27) (256) (761) Accounts payable ......................................................... 619 11,586 24,808 Accrued expenses ......................................................... -- 9,145 17,831 Accrued interest ......................................................... 258 2,046 (3,104) Deferred revenue ......................................................... -- -- 1,709 --------- --------- --------- Net cash used in operating activities ................................. (2,392) (29,778) (126,935) --------- --------- --------- Cash flows from investing activities: Expenditures for network under development, wireless network and property and equipment ....................................... (1,134) (107,542) (298,506) Capitalized interest on network under development and wireless network ..................................................... -- (227) (5,317) Expenditures for microwave relocation ....................................... -- (3,340) (5,654) Purchase of PCS licenses .................................................... -- (21,000) (114,238) Partial refund of deposit on PCS licenses ................................... 1,561 -- -- Purchase of intangibles--AT&T agreements .................................... -- -- (17,310) --------- --------- --------- Net cash provided by (used in) investing activities ................... 427 (132,109) (441,025) --------- --------- --------- Cash flows from financing activities: Proceeds from sale of mandatorily redeemable preferred stock .......................................................... 1,500 26,661 70,323 Receipt of preferred stock subscription receivable .......................... -- -- 9,414 Direct issuance costs from sale of mandatorily redeemable preferred stock ............................................... -- (1,027) (2,500) Proceeds from sale of common stock and series F preferred stock ............. -- 38 21,724 Proceeds from long-term debt ................................................ 2,809 257,492 407,635 Proceeds associated with initial public offering ............................ -- -- 197,317 Direct issuance cost from the initial public offering ....................... -- -- (1,801) Purchases of treasury shares ................................................ -- -- -- Payments on long term debt .................................................. -- (2,073) (50,451) Payments of deferred financing costs ........................................ -- (9,110) (12,742) Net increase in amounts due to affiliates .................................. 171 (928) (362) --------- --------- --------- Net cash provided by financing activities ............................. 4,480 271,053 638,557 --------- --------- --------- Net increase in cash and cash equivalents ....................................... 2,515 109,166 70,597 Cash and cash equivalents at the beginning of period ............................ 52 2,567 111,733 --------- --------- --------- Cash and cash equivalents at the end of period .................................. $ 2,567 $ 111,733 $ 182,330 ========= ========= =========
The accompanying notes are an integral part of these financial statements. F-6 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued) ($ in thousands, except for per share data)
For the year ended December 31, ------------------------------ 1997 1998 1999 -------- -------- -------- Supplemental disclosure of cash flow Information: Cash paid for income taxes ........................ $ -- $ -- $ -- Cash paid for interest ............................ -- 9,786 24,342 Supplemental disclosure of non-cash investing and financing activities: Network under development and microwave relocation costs included in accounts payable and accrued expenses .......................... 2,485 98,092 32,424 Issuance of mandatorily redeemable preferred stock and preferred stock in exchange for PCS licenses and AT&T agreements ............................... -- 100,900 2,674 Issuance of mandatorily redeemable preferred stock and common stock in exchange for stock subscriptions receivable ...................... -- 76,000 27,191 U.S. Government financing of PCS licenses .................................. 9,193 -- 11,551 Discount on U.S. Government financing ..................................... 1,600 -- 1,631 Conversion of notes payable to stockholders into preferred stock ......................................... 499 25,300 -- Accretion of preferred stock dividends ..................................... 726 8,567 24,124 Redemption of equity interests .................... 6,370 -- -- Distribution of net assets to Affiliates .................................... 3,645 -- -- Notes payable to affiliates ....................... 2,725 -- -- Capitalized interest .............................. $ 131 $ 2 ,055 $ 5,409
The accompanying notes are an integral part of these financial statements. F-7 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) ($ in thousands, except for per share data) 1. Organization and Business TeleCorp Holding Corp., Inc. (Holding) was incorporated in the State of Delaware on July 29, 1996 (date of inception). Holding was formed to participate in the Federal Communications Commission's (FCC) Auction of F-Block Personal Communications Services (PCS) licenses (the Auction) in April 1997. Holding successfully obtained licenses in the New Orleans, Memphis, Beaumont, Little Rock, Houston, Tampa, Melbourne and Orlando Basic Trading Areas (BTAs). Holding qualifies as a Designated Entity and Very Small Business under Part 24 of the rules of the FCC applicable to broadband PCS. In April 1997, Holding entered into an agreement to transfer the PCS licenses for the Houston, Tampa, Melbourne and Orlando BTAs to four newly-formed entities created by Holding's existing stockholder group: THC of Houston, Inc.; THC of Tampa, Inc.; THC of Melbourne, Inc.; and THC of Orlando, Inc. These licenses were transferred along with the related operating assets and liabilities in exchange for investment units consisting of Class A, B and C common stock and Series A preferred stock in August 1997. TeleCorp PCS, Inc. (TeleCorp) was incorporated in the State of Delaware on November 14, 1997 by the controlling stockholders of Holding. TeleCorp is the exclusive provider of wireless mobility services using equal emphasis co-branding with AT&T in its licensed regions in connection with a strategic alliance with AT&T Wireless and its affiliates (collectively AT&T). Upon finalization of the AT&T Transaction, Holding became a wholly-owned subsidiary of TeleCorp (see Note 9). TeleCorp and Holding are hereafter referred to as the Company. TeleCorp PCS, Inc. is the largest AT&T Wireless affiliate in the United States in terms of licensed population, with licenses covering markets where approximately 16.7 million people reside. The Company provides wireless personal communication services, or PCS, in selected markets in the south-central and northeast United States and in Puerto Rico, encompassing eight of the 100 largest metropolitan areas in the United States. Under the terms of the AT&T strategic alliance, the Company is AT&T's exclusive provider of wireless mobility services in the eight covered markets, using equal emphasis co-branding with AT&T subject to AT&T's right to resell services on the Company's network. The Company has the right to use the AT&T brand name and logo together with the SunCom brand name and logo, giving equal emphasis to each in its covered markets. The Company is AT&T's preferred roaming partner for digital customers in the Company's markets. Additionally, the Company's relationship with AT&T Wireless provides coast-to-coast coverage to TeleCorp customers. 2. Summary of Significant Accounting Policies Basis of presentation Holding was formed to explore various business opportunities in the wireless telecommunications industry. TeleCorp was formed to continue the activity of Holding through its strategic alliance with AT&T. For purposes of the accompanying financial statements, Holding has been treated as a "predecessor" entity. Therefore, the financial statements for the year ended December 31, 1997 include the historical financial information of Holding, the predecessor entity. The financial statements as of and for the year ended December 31, 1998 and for all periods thereafter, include the historical financial information of Holding and TeleCorp. The Chief Executive Officer and President of Holding maintain the positions of Chief Executive Officer and Executive Vice President and Chief Financial Officer, respectively, of TeleCorp. In addition, these officers own a majority of the voting stock of TeleCorp and, prior to the finalization of the AT&T Transaction, owned a majority of the voting stock of Holding. As a result of this relationship, certain financing relationships and the similar nature of business activities, Holding and TeleCorp were considered companies under common control. F-8 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) ($ in thousands, except for per share data) Risks and uncertainties The Company expects to continue to incur significant operating losses and to generate negative cash flow from operating activities for at least the next several years while it constructs its network and develops its customer base. The Company's ability to eliminate operating losses and to generate positive cash flow from operations in the future will depend upon a variety of factors, many of which it is unable to control. These factors include: (1) the cost of constructing its network, (2) changes in technology, (3) changes in governmental regulations, (4) the level of demand for wireless communications services, (5) the product offerings, pricing strategies and other competitive factors of the Company's competitors and (6) general economic conditions. If the Company's is unable to implement its business plan successfully, it may not be able to eliminate operating losses, generate positive cash flow or achieve or sustain profitability which would materially adversely affect its business, operations and financial results as well as its ability to make payments on its debt obligations. Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, which includes TeleCorp Communications, Inc., TeleCorp LLC and Holding. All intercompany accounts and transactions have been eliminated in consolidation. Development Stage Company Prior to January 1, 1999, the Company's activities principally were planning and participation in the Auction, initiating research and development, conducting market research, securing capital and developing its proposed service and network. Since the Auction, the Company has been relying on the borrowing of funds and the issuance of common and preferred stock rather than recurring revenues, for its primary sources of cash flow. Accordingly, the Company's financial statements for all periods prior to January 1, 1999 were presented as a development stage enterprise, as prescribed by Statement of Financial Accounting Standards No. 7, "Accounting and Reporting by Development Stage Enterprises." In the first quarter of 1999, the Company commenced operations and began providing wireless mobility services for its customers. As a result, the Company exited the development stage in the quarter ended March 31, 1999. Fair Value of Financial Instruments The Company believes that the carrying amount of its financial instruments approximate fair value. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities on the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Concentration of Credit Risk F-9 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) ($ in thousands, except for per share data) Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and accounts receivable. The Company sells products and services to various customers throughout many regions in the United States and Puerto Rico. The Company routinely assesses the strength of its customers and maintains allowances for anticipated losses. For the years ended December 31, 1997, 1998 and 1999, no one customer accounted for 10% or more of total revenues or accounts receivable. Cash Equivalents The Company considers all highly liquid instruments with a maturity from purchase date of three months or less to be cash equivalents. Cash equivalents consist of overnight sweep accounts and U.S. Treasury obligations. Inventory Inventory, consisting of handsets and accessories, is valued at the lower of average cost or market and is recorded net of an allowance for obsolescence, if required. Property and Equipment and Network Under Development Property and equipment are recorded at cost and depreciation is computed using the straight-line method over the following estimated useful lives: 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. PCS Licenses and Microwave Relocation Costs PCS licenses include costs incurred, including capitalized interest related to the U.S. Government financing, to acquire FCC licenses in the 1850-1990 MHz radio frequency band. Interest capitalization on the U.S. Government financing began when the activities necessary to get the Company's network ready for its intended use were initiated and concluded when the wireless networks were ready for intended use. The PCS licenses are issued conditionally for ten years. Historically, the FCC has granted license renewals providing the licensees have complied with F-10 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) ($ in thousands, except for per share data) applicable rules, policies and the Communications Act of 1934, as amended. The Company believes it has complied with and intends to continue to comply with these rules and policies. As a condition of each PCS license, the FCC requires each license-holder to relocate existing microwave users (Incumbents) within the awarded spectrum to microwave frequencies of equal capacity. Microwave relocation costs include the actual and estimated costs incurred to relocate the Incumbent's microwave links affecting the Company's licensed frequencies. The Company began amortizing the cost of the PCS licenses, microwave relocation costs, and capitalized interest in March 1999, when PCS services commenced in certain BTAs. Amortization is calculated using the straight-line method over 40 years. Intangible assets--AT&T Agreements The AT&T Agreements consist of the fair value of various agreements with AT&T exchanged for mandatorily redeemable preferred stock and Series F preferred stock (see Notes 9 and 10). The AT&T Agreements are amortized on a straight-line basis over the related contractual terms, which range from three to ten years. Long-Lived Assets The Company periodically evaluates the recoverability of the carrying value of property and equipment, network under development, intangible assets, PCS licenses and microwave relocation costs. The Company considers historical performance and anticipated future results in its evaluation of potential impairment. Accordingly, when indicators of impairment are present, the Company evaluates the carrying value of these assets in relation to the operating performance of the business and future and undiscounted cash flows expected to result from the use of these assets. Impairment losses are recognized when the sum of the present value of expected future cash flows are less than the assets' carrying value. No such impairment losses have been recognized to date. Deferred Financing Costs Deferred finance costs are capitalized and amortized as a component of interest expense over the term of the related debt. Revenue Recognition The Company earns revenue by providing wireless mobility services to both its subscribers and subscribers of other wireless carriers traveling in the Company's service area, as well as sale of equipment and accessories. Wireless mobility services revenue consists of monthly recurring and non-recurring charges for local, long distance, roaming and airtime used in excess of pre-subscribed usage. Generally, access fees, airtime roaming and long distance charges are billed monthly and are recognized when service is provided. Prepaid service revenue is collected in advance, recorded as deferred revenue, and recognized as service is provided. Roaming revenue consists of the airtime and long distance charged to the subscribers of other wireless carriers for use of the Company's network while traveling in the Company's service area and is recognized when the service is provided. F-11 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) ($ in thousands, except for per share data) Equipment revenue is recognized upon delivery of the equipment to the customer and when future obligations are no longer significant. Advertising Costs The Company expenses production costs of print, radio and television advertisements and other advertising costs as such costs are incurred. Income Taxes The Company accounts for income taxes in accordance with the liability method. Deferred income taxes are recognized for tax consequences in future years for differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end, based on enacted laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce net deferred tax assets to the amount expected to be realized. The provision for income taxes consists of the current tax provision and the change during the period in deferred tax assets and liabilities. Accounting for Stock-Based Compensation SFAS No. 123, "Accounting for Stock-Based Compensation", requires disclosure of the fair value method of accounting for stock options and other equity instruments. Under the fair value method, compensation cost is measured at grant date based on the fair value of the award and is recognized over the service period which is usually the vesting period. The Company has chosen, under provisions of SFAS No. 123, to continue to account for employee stock-based compensation under Accounting Principles Board (APB) No. 25, "Accounting for Stock Issued to Employees". The Company discloses in Note 11 to the financial statements the pro forma net loss and the pro forma basic and diluted net loss per share as if the Company had applied the method of accounting prescribed by SFAS No. 123. The Company periodically issues restricted stock awards and stock option grants to its employees. Upon reaching a measurement date, the Company records deferred compensation equal to the difference between the strike price and the estimated fair value of the stock award. Deferred compensation is amortized to compensation expense over the related vesting period. Interest Rate Swaps The Company uses interest rate swaps to hedge the effects of fluctuations in interest rates from their Senior Credit Facility (see Note 8). These transactions meet the requirements for hedge accounting, including designation and correlation. The interest rate swaps are managed in accordance with the Company's policies and procedures. The Company does not enter into these transactions for trading purposes. The resulting gains or losses, measured by quoted market prices, are accounted for as part of the transactions being hedged, except that losses not expected to be recovered upon the completion of hedged transactions are expensed. Gains or losses associated with interest rate swaps are computed as the difference between the interest expense per the amount hedged using the fixed rate compared to a floating rate over the term of the swap agreement. F-12 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) ($ in thousands, except for per share data) Net Loss Attributable to Common Equity Per Share The Company computes net loss attributable to common equity per share in accordance with SFAS No. 128, "Earnings Per Share," and SEC Staff Accounting Bulletin No. 98 (SAB 98). Under the provisions of SFAS No. 128 and SAB 98, basic net loss attributable to common equity per share is computed by dividing the net loss attributable to common equity for the period by the weighted average number of common equity shares outstanding during the period. The weighted average number of common shares outstanding includes the Series F Preferred Stock, which is a participating stock and has no preferential rights over Common Stock, and all classes of Common Stock. Diluted net loss attributable to common equity per share is computed by dividing the net loss attributable to common equity for the period by the weighted average number of common and dilutive common equivalent shares outstanding during the period. As the Company had a net loss attributable to common equity in each of the periods presented, basic and diluted net loss attributable to common equity per share are the same. Segment Reporting The Company presently operates in a single business segment as a provider of wireless mobility services in its licensed regions primarily in the south-central and northeastern United States and Puerto Rico. The Company operates in various MTAs including New Orleans, LA, Memphis, TN, Little Rock, AR, Boston, MA and San Juan, Puerto Rico. Reclassifications Certain amounts in the 1997 and 1998 consolidated financial statements have been reclassified to conform with the presentations of the 1999 consolidated financial statements. Recently Issued Accounting Standards In July 1999, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 137, "Deferral of the Effective Date of FAS 133" which defers the effective date of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company is in thee process of determining the effect of adopting this standard. In December 1999, the SEC released Staff Accounting Bulletin (SAB) Number 101, "Revenue Recognition in Financial Statements." This bulletin will become effective for the Company for the quarter ended March 31, 2000. This bulletin establishes more clearly defined revenue recognition criteria than previously existing accounting pronouncements, and specifically addresses revenue recognition requirements for nonrefundable fees, such as activation fees, collected by a company upon entering into an arrangement with a customer, such as an arrangement to provide telecommunications services. The Company is currently evaluating the full impact of this bulletin to determine the impact on its financial position and results of operations. F-13 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) ($ in thousands, except for per share data) 3. Accounts Receivable Accounts receivables consists of the following:
December 31, --------------------- 1998 1999 ------ -------- Accounts receivable ..................... $ -- $ 26,203 Allowance for doubtful accounts ......... -- (2,622) ====== ======== $ -- $ 23,581 ====== ========
Bad debt expense for the year ended December 31, 1999 was $2,962. 4. Inventory Inventory consists of the following:
December 31, ------------------------ 1998 1999 ------- ------- Handsets ........................... $ 778 $15,090 Accessories ........................ -- 712 ======= ======= Total inventory .................... $ 778 $15,802 ======= =======
5. Property and Equipment Property and equipment consists of the following:
December 31, ---------------------- 1998 1999 --------- --------- Wireless network ........................... $ -- $ 364,491 Network under development .................. 170,886 21,758 Computer equipment ......................... 10,115 16,888 Internal use software ...................... 11,161 21,648 Leasehold improvements ..................... 3,205 12,011 Furniture, fixtures and office equipment ... 2,924 10,855 Land ....................................... -- 49 --------- --------- 198,291 447,700 Accumulated depreciation ................... (822) (47,250) ========= ========= $ 197,469 $ 400,450 ========= =========
Depreciation expense for the years ended December 31, 1997, 1998 and 1999 was $11, $811, and $46,428, respectively. F-14 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) ($ in thousands, except for per share data) 6. PCS Licenses and Microwave Relocation Costs PCS licenses, microwave relocation costs, and capitalized interest consist of the following:
December 31, ------------------------- 1998 1999 --------- --------- PCS licenses ........................ $ 104,737 $ 221,650 Microwave relocation costs .......... 12,457 47,835 Capitalized interest ................ 913 1,005 --------- --------- 118,107 270,490 Accumulated amortization ............ -- (2,808) $ 118,107 $ 267,682 ========= =========
Amortization expense related to PCS licenses, its related capitalized interest, and microwave relocation costs for the years ended December 31, 1997, 1998 and 1999 was $0, $0, and $2,808, respectively. 7. Accrued Expenses Accrued expenses consist of the following:
December 31, ----------------------- 1998 1999 ------- ------- Property and equipment ................. $85,635 $32,725 Sales taxes ............................ -- 8,263 Bonuses and vacation ................... 2,386 6,079 Selling and marketing .................. 347 3,496 Other .................................. 6,700 7,955 ------- ------- 95,068 58,518 Less: non-current portion .............. 196 6,541 ------- ------- $94,872 $51,977 ======= =======
8. Long-term Debt Long-term debt consists of the following:
December 31, --------------------- 1998 1999 -------- -------- Senior subordinated discount notes ......... $ -- $354,291 Senior credit facilities ................... 225,000 225,000 Lucent notes payable ....................... 10,460 43,504 U.S. Government financing .................. 7,925 17,776 -------- -------- 243,385 640,571 Less: current portion ...................... -- 1,361 -------- -------- $243,385 $639,210 ======== ========
F-15 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) ($ in thousands, except for per share data) Senior Subordinated Discount Notes On April 23, 1999, the Company completed the issuance and sale of 115/8% Senior Subordinated Discount Notes (the Notes) with an aggregate principal amount at maturity of $575,000. The total gross proceeds from the sale of the Notes were $327,635. Offering expenses consisting of underwriting, printing, legal and accounting fees totaled $10,999. The Notes mature April 15, 2009, unless previously redeemed by the Company. As interest accrues, it will be added to the principal as an increase to interest expense and the carrying value of the Notes until April 15, 2004. The Company will begin paying interest semi-annually beginning October 15, 2004. The Notes are not collateralized. The Notes are subordinate to all of the Company's existing and future senior debt and ranks equally with all other senior subordinated debt, and ranks senior to all of the Company's existing and future subordinated debt. The Notes are guaranteed by the Company's wholly owned subsidiary, TeleCorp Communications, Inc. (see Note 19). As of December 31, 1999 accrued interest added to the principal was $26,656. In October 1999, the Company registered the Notes with the Securities and Exchange Commission to become publicly traded securities. Offering expenses totaled $917 and are accounted for as debt issuance costs. Senior Credit Facilities In July 1998, the Company entered into a credit facility (the Senior Credit Facility) with a group of commercial lenders, under which the Company may borrow up to $525,000, in the aggregate, consisting of (i) up to $150,000 in revolving loans (the Senior Revolving Credit Facility) with a maturity date of January 2007, (ii) a $150,000 term loan (the Tranche A Term Loan) with a maturity date of January 2007, and (iii) a $225,000 term loan (the Tranche B Term Loan) with a maturity date of January 2008. In October 1999, the Company entered into amendments to increase the amount of credit available to $560,000. A total of $225,000 of indebtedness from the Tranche B Term Loan was outstanding as of December 31, 1998 and 1999. The Senior Credit Facility also provides for an uncommitted $75,000 senior term loan (the Expansion Facility) with a maturity date of January 2008. Beginning in September 2002, principal repayments will be made in 18 quarterly installments for the Tranche A Term Loan and 22 quarterly installments for the Tranche B Term Loan. Quarterly principal repayments for the Tranche A Term Loan are as follows: first six, $3,750; next four, $9,375; last eight, $11,250. Quarterly principal repayments for the Tranche B Term Loan are as follows: first 18, $562, last four, $53,721. Interest payments on the senior credit facility are made quarterly. The Senior Credit Facility contains a prepayment provision whereby certain amounts borrowed must be repaid upon the occurrence of certain specified events. The commitment to make loans under the Tranche A Term loan will terminate in July 2001, or earlier if elected by the Company. Beginning in April 2005, the commitment to make loans under the Senior Revolving Credit Facility will be permanently reduced on a quarterly basis through April 2007 as follows: first four reductions, $12,500; last four reductions $25,000. The unpaid principal on the Senior Revolving Credit Facility is due January 2007. In July 2000, if the undrawn portion of the Tranche A Term Loan exceeds $50,000 the amount of the Tranche A Term Loan will be automatically reduced by such excess. The interest rate applicable to the Senior Credit Facility is based on, at the Company's option, (i) LIBOR (Eurodollar Loans) plus the Applicable Margin, as defined, or (ii) the higher of the administrative agent's prime rate or the Federal Funds Effective Rate (ABR Loans), plus the Applicable Margin, as defined. The Applicable Margin for Eurodollar Loans will range from 125 to 325 basis points based upon certain events by the Company, as specified. The Applicable Margin for ABR Loans will range from 25 to 225 basis points based upon certain events by the Company, as specified. At December 31, 1998, the interest rate applicable to the Tranche B Term Loan was 8.75% and interest incurred for the year ended December 31, 1998 was $9,210 of which $7,710 was expensed and $1,500 was capitalized. At December 31, 1999, the interest rate applicable to the Tranche B Term Loan was 9.12%, F-16 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) ($ in thousands, except for per share data) and for the year ended December 31, 1999 interest incurred on the Tranche B Term Loan was $19,110 of which $13,793 was expensed and $5,317 was capitalized. The loans from the Senior Credit Facility are subject to an annual commitment fee which ranges from 0.50% to 1.25% of the available portion of the Tranche A Term Loan and the Senior Revolving Credit Facility. The Company has expensed $3,306 and $3,817, for the year ended December 31, 1998 and 1999, respectively, related to these bank commitment fees. The Senior Credit Facility requires the Company to purchase interest rate hedging contracts covering amounts equal to at least 50% of the total amount of the outstanding indebtedness of the Company. As of December 31, 1998 and 1999, the Company hedged 100% of its outstanding indebtedness of $225,000 to take advantage of favorable interest rate swaps. The six outstanding interest rate swap contracts fix LIBOR at annual interest rates from 5.20% to 5.26%. The contracts mature in September of 2003. Initially, borrowings under the Senior Credit Facility are subject to a maximum Senior Debt to Total Capital ratio, as defined, of 50%. This ratio has been increased to 55% because certain specified operating benchmarks have been achieved. In addition, the Company must comply with certain financial and operating covenants. The financial covenants include various debt to equity, debt to EBITDA, interest coverage, and fixed charge coverage ratios, as defined in the Senior Credit Facility. The operating covenants include minimum subscribers, minimum aggregate service revenue, minimum coverage of population and maximum capital expenditure thresholds. As of December 31, 1998 and 1999, the Company was in compliance with these covenants. The Company may utilize the Expansion Facility as long as the Company is not in default of the Senior Credit Facility and is in compliance with each of the financial covenants. However, none of the lenders are required to participate in the Expansion Facility. The Senior Credit Facility is collateralized by substantially all of the assets of the Company. In addition, the Senior Credit Facility has been guaranteed by the Company's subsidiaries and shall be guaranteed by subsequently acquired or organized domestic subsidiaries of the Company. Lucent Notes Payable In May 1998, the Company entered into a Note Purchase Agreement (the Lucent Note Agreement) with Lucent Technologies, Inc. (Lucent) which provides for the issuance of increasing rate 8.5% Series A (the Series A Notes) and 10.0% Series B (the Series B Notes) junior subordinated notes (the Subordinated Notes) with an aggregate face value of $80,000. The aggregate face value of the Subordinated Notes shall decrease dollar for dollar, upon the occurrence of certain events as defined in the Lucent Note Agreement. The proceeds of the Subordinated Notes are to be used to develop the Company's network in certain designated areas. As of December 31, 1998 and 1999, the Company had $10,460 and $43,504, respectively outstanding under the Series A Notes. During the year ended December 31, 1999, the Company borrowed and repaid $40,000 on the Lucent Series B Notes plus $228 of accrued interest. Interest expense for the years ended December 31, 1998 and 1999 was $460 and $3,044, respectively. The Series A and Series B Notes will not amortize and will have a maturity date six months after the final maturity of the Company's high yield debt offering, but in no event later than May 1, 2012. The Series A Notes will have a mandatory redemption at par plus accrued interest from the proceeds of a subsequent equity offering to the extent the net proceeds exceed an amount identified in the Lucent Note Agreement. If the Series A Notes and Series B Notes are not redeemed in full by January 2001 and January 2000, respectively, the interest rate on each note will increase by 1.5% per annum on January 1. However, the interest rate applicable to the Subordinated Notes shall not exceed 12.125%. Interest payable on the Series A Notes and the Series B Notes on or prior to May 11, 2004 shall be payable in additional Series A and Series B Notes. Thereafter, interest shall be paid in arrears in cash on each six month and yearly anniversary of the Series A and Series B closing date or, if cash interest payments are prohibited F-17 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) ($ in thousands, except for per share data) under the Senior Credit Facility and/or the Senior Subordinated Discount Notes, in additional Series A and Series B Notes. As of December 31, 1998 and 1999, interest accrued under the Series A Notes of $460 and $3,504, respectively has been included in long-term debt. The Company may redeem the Subordinated Notes held by Lucent or any of its affiliates at any time. The Series A Notes that are not held by Lucent or any of its affiliates may be redeemed by the Company prior to May 2002 and after May 2007. The Series B Notes that are not held by Lucent or any of its affiliates may be redeemed by the Company prior to May 2000 and after May 2005. Any redemption after May 2007, in the case of the Series A Notes, and May 2005, in the case of the Series B Notes, shall be subject to an interest rate premium, as specified. All of the outstanding notes under the Lucent Note Agreement as of December 31, 1998 and 1999 are held by Lucent. The Company must comply with certain operating covenants. As of December 31, 1998 and 1999, the Company was in compliance with these operating covenants. In October 1999, the Company entered into an amended and restated note purchase agreement with Lucent for the issuance of up to $12,500 of new series A notes and up to $12,500 of new series B notes under a vendor expansion facility in connection with prior acquisitions of licenses in certain markets. The terms of these notes issued under these facilities are identical to the original Lucent series A and series B notes. In addition, pursuant to the amended and restated note purchase agreement, Lucent has agreed to make available up to an additional $50.0 million of new vendor financing not to exceed an amount equal to 30% of the value of equipment, software and services provided by Lucent in connection with any additional markets the Company acquires. This $50.0 million of availability is subject to a reduction up to $20 million on a dollar for dollar basis of any additional amounts Lucent otherwise lends to the Company for such purposes under the Company's senior credit facilities. Any notes purchased under this facility would be divided equally between Lucent series A and series B notes. The terms of Lucent series A and series B notes issued under these expansion facilities would be identical to the terms of the original Lucent series A and series B notes as amended, including a maturity date of October 23, 2009. In addition, any Lucent series B notes issued under the vendor expansion facility will mature and will be subject to mandatory prepayment on a dollar for dollar basis out of the net proceeds of any future public or private offering or sale of debt securities, exclusive of any private placement of notes issued to finance any additional markets and borrowings under the senior credit facilities or any replacement facility. U.S. Government financing As of December 31, 1998 and 1999, the Company owes the U.S. Government $9,192 and $20,247, less a discount of $1,268 and $2,471, respectively, for the acquisition of PCS licenses. The terms of the notes related to the PCS licenses in New Orleans, Memphis, Beaumont and Little Rock obtained during the 1997 F-Block auction include: an interest rate of 6.25%, quarterly interest payments which commenced in July 1998 and continue for the one year thereafter, then quarterly principal and interest payments for the remaining 9 years. The promissory notes are collateralized by the underlying PCS licenses. During the year ended December 31, 1999, the Company completed the acquisition of additional PCS licenses from Digital PCS, LLC and Wireless 2000, Inc. (see Note 10). As part of these acquisitions, the Company assumed additional U.S. Government financing with the FCC amounting to $11,551, less a discount of $1,631. The terms of the notes include an interest rate of 6.125% for notes assumed from Digital PCS, LLC and 7.00% for notes assumed from Wireless 2000, Inc., quarterly interest payments for a two-year period and then quarterly principal and interest payments for the remaining eight years. F-18 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) ($ in thousands, except for per share data) The notes were discounted using management's best estimate of the prevailing market interest rate at the time of issuance of 10.25%. In connection with entering into the senior credit facilities and the senior-subordinated discount notes, the Company incurred certain debt issuance costs. The Company capitalized debt issuance costs of $9,110 and $12,742, during the years ended December 31, 1998 and 1999, respectively. The financing costs are being amortized using the straight-line method over the term of the related debt. For the years ended December 31, 1998 and 1999, the Company recorded interest expense related to the amortization of the deferred financing costs of $525 and $1,750, respectively. As of December 31, 1999, minimum required annual principal repayment (undiscounted) under all of the Company's outstanding debt obligations were as follows:
For the year ending December 31, 2000 ............................................ $ 1,361 2001 ............................................ 1,448 2002 ............................................ 2,102 2003 ............................................ 5,561 2004 ............................................ 5,785 Thereafter ...................................... 847,494 -------- Total ........................................... $863,751 ========
9. AT&T Transaction In January 1998, the Company entered into a Securities Purchase Agreement (the Securities Purchase Agreement) with AT&T Wireless PCS, Inc. and TWR Cellular, Inc. (both subsidiaries of AT&T Corporation and collectively referred to as AT&T PCS), the stockholders of Holding and various venture capital investment firms (the Cash Equity Investors). The Securities Purchase Agreement allows the Company to be a provider of wireless mobility services in its licensed regions utilizing the AT&T brand name. Upon the receipt of FCC approval in July 1998, the Company finalized the transaction contemplated in the Securities Purchase Agreement (the AT&T Transaction). As a result, the Company (i) issued preferred stock and paid AT&T $21,000 in exchange for 20 MHz PCS licenses with a fair value of $94,850 and certain operating agreements with AT&T for exclusivity, network membership, long distance and roaming with a fair value of $27,050 (ii) issued preferred and common stock for 100% of the outstanding ownership interests in Holding, which includes 10 MHz PCS licenses which was recorded at historical cost; and (iii) issued preferred and common stock for a cash commitment from the Cash Equity Investors of $128,000 to be paid over a three year term plus an additional $5,000 upon the closing of the Digital PCS, Inc. transaction (see Note 10). The general terms of the operating agreements with AT&T are summarized below: AT&T Exclusivity: The Company will be AT&T's exclusive facilities-based provider of mobile wireless telecommunications services within the Company's BTAs for an initial ten year period. This agreement will automatically renew for a one-year term and then operate on a year-to-year basis unless one party terminates at least ninety (90) days prior to the end of any one-year term. F-19 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) ($ in thousands, except for per share data) The Company has determined the fair value of this agreement to be $11,870 and is amortizing this value over the initial 10 year term. Network Membership License Agreement: The Network Membership License Agreement (the License Agreement) defines that AT&T will make available to the Company use of the AT&T logo and the right to refer to itself as a "Member of the AT&T Wireless Network" to market its PCS services. Through the use of these rights, the Company expects to participate in and benefit from AT&T promotional and marketing efforts. The License Agreement has an initial five-year term with a five-year renewal term if both the Company and AT&T elect to renew at least ninety 90 days prior to the expiration of the initial term. The Company determined the fair value of this agreement to be $8,480 and is amortizing this value over the initial five-year term. o Intercarrier Roamer Services Agreement: AT&T and the Company have entered into a twenty-year reciprocal roaming agreement provided that their customers who own tri-mode phones will roam on the other's mobile wireless systems at commercially reasonable rates to the extent commercially and technologically feasible. Thereafter, this agreement shall renew automatically on a year-to-year basis unless either the Company or AT&T terminates this agreement by written notice at least 90 days prior to the conclusion of the original or any subsequent term. After ten years, this agreement may be terminated by the Company or AT&T at any time upon 90 days prior written notice. The Company has determined the value of this roaming agreement to be $3,500 and is amortizing this value over the initial 10-year term. o Long Distance Agreement: The long distance agreement provides that AT&T will be the exclusive provider for long distance services to the Company's customers within the Company's licensed regions for an initial three year period. The long distance agreement requires that the Company meet a minimum traffic volume commitment during the term of the agreement. If the Company fails to meet such volume commitments, the Company must pay to AT&T the difference between the expected fee based on the volume of the commitment and the fees based on actual volume. The Company had determined the fair value of this agreement to be $3,200 and is amortizing this value over the initial three-year term. Triton PCS, Inc. (Triton), Tritel Communications (Tritel), and the Company have adopted a common brand, SunCom, which is co-branded with equal emphasis with the AT&T brand name and logo. On April 16, 1999, Triton, Tritel and TeleCorp Communications formed a new company, Affiliate License Co., L.L.C., to own, register and maintain the marks SunCom, SunCom Wireless and other SunCom and Sun formative marks (SunCom Marks) and to license the SunCom marks to Triton, Tritel and the Company. Triton, Tritel and TeleCorp Communications each have a 33% membership interest in Affiliate License Co., L.L.C. On April 16, 1999, Triton entered into an agreement to settle a potential dispute regarding prior use of the SunCom brand. In connection with this settlement, Triton agreed to pay $975 to acquire the SunCom Marks that were contributed to Affiliate License Co., L.L.C. The Company paid $325 in royalty payments to reimburse Triton for the contributed SunCom marks. 10. Acquisitions On April 20, 1999, the Company completed the acquisition of 10 MHz PCS licenses covering the Baton Rouge, Houma, Hammond and Lafayette, Louisiana BTA's from Digital PCS, LLC. The total purchase price of $6,114 was F-20 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) ($ in thousands, except for per share data) comprised of $2,335 of mandatorily redeemable preferred stock and common stock of the Company, the assumption of U.S. Government financing with the FCC of $4,102 less a discount of $609, and $286 in cash as reimbursement to Digital PCS, LLC, for interest due to the FCC incurred prior to close and legal costs. The entire purchase price has been allocated to the PCS license. As a result of completing the transaction with Digital PCS, LLC, the Cash Equity Investors have irrevocably committed to contribute $5,000 in exchange for mandatorily redeemable preferred stock and common stock over a two year period from the close of this transaction. As of December 31, 1999 the Company has received $2,200 of the $5,000 commitment. On May 24, 1999, the Company sold mandatorily redeemable preferred stock and preferred stock to AT&T for $40,000. On May 25, 1999, the Company acquired from AT&T 20 MHz PCS licenses covering the San Juan MTA, 27 constructed cell sites, a switching facility, leases for additional cell sites, the extension of the Network Membership License Agreement, Long Distance Agreement, Intercarrier Roamer Services Agreement and AT&T Exclusivity Agreement and the reimbursement of AT&T for microwave relocation costs, salary and lease payments (the Puerto Rico Transaction) incurred prior to acquisition. The total purchase price of this asset acquisition was $99,694 in cash plus legal fees of $252. The purchase price has been allocated to the assets acquired, based upon their estimated fair value as follows: PCS licenses ..................................................... $70,421 Intangible assets--AT&T Agreements ............................... 17,310 Cell sites site acquisition, switching facility assets and other assets ............................................... 9,015 Microwave relocation costs ....................................... 3,200 ------- $99,946
As a result of completing this transaction, the Company's available borrowings under the Lucent Note Agreement increased by $15,000 ($7,500 of Series A and $7,500 of Series B) and certain Cash Equity Investors committed $39,997 in cash in exchange for mandatorily redeemable preferred and common stock. The Cash Equity Investors cash commitment of $39,997 will be funded over a three-year period from the close of this transaction. As of December 31, 1999, the Company received $17,999 of this cash commitment. As a part of obtaining this additional preferred and common stock financing, the Company paid $2,000 to a Cash Equity Investor upon the closing of the transaction. In addition, certain officers, the Chief Executive Officer and the Executive Vice President and Chief Financial Officer of the Company were issued fixed and variable awards of 5,318 and 2,380,536 restricted shares of mandatorily redeemable Series E preferred stock and Class A common stock, respectively, in exchange for their interest in Puerto Rico Acquisition Corporation. Puerto Rico Acquisition Corporation was a special purpose entity wholly-owned by the Company's Chief Executive Officer and Executive Vice President and Chief Financial Officer. The fixed awards typically vest over a five-year period. The estimated fair value of these shares has been recorded as deferred compensation and is being amortized over the related vesting periods. The variable awards vested based upon the completion of the Company's initial public offering. On June 2, 1999 the Company acquired from Wireless 2000, Inc. 15 MHz PCS licenses in the Alexandria, Lake Charles and Monroe, Louisiana BTAs. The total purchase price of $7,448 was comprised of $371 of mandatorily redeemable preferred stock and common stock of the Company, the assumption of U.S. Government financing with the FCC of $7,449 less a discount of $1,022 and $650 in cash as reimbursement of microwave relocation costs and reimbursement of FCC interest and legal costs. The entire purchase price has been allocated to the PCS licenses acquired. In February 1999, Viper Wireless, Inc. (Viper), was formed to participate in the C-Block PCS license reauction for additional spectrum in most of the Company's markets. Viper was initially capitalized for $100 and was equally-owned by the Company's Chief Executive Officer and Executive Vice President-Chief Financial Officer. In order to F-21 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) ($ in thousands, except for per share data) participate in the reauction, the Company paid the FCC an initial deposit of $17,819, on behalf of Viper. Simultaneously, the Company transferred this initial deposit to Viper in exchange for an 85% ownership interest which represented a 49.9% voting interest. On April 15, 1999, the FCC announced Viper was the high bidder for 15 MHz licenses in New Orleans, Houma and Alexandria, Louisiana, San Juan, Puerto Rico and Jackson, Tennessee and 30 MHz licenses in Beaumont, Texas. The total auction price is $32,286 plus legal fees of $47. During the year ended December 31, 1999, the FCC refunded $11,361 of the initial deposit; however, the Company was required to pay the FCC $11,059 as a final deposit on behalf of Viper. As of and for the year ended December 31, 1999, Viper had no financial activity other than its capitalization which includes the transfer of the initial deposit to Viper. The Company received final regulatory approval of the license transfer from the FCC on September 9, 1999. The entire purchase price has been allocated to the PCS licenses acquired. AT&T and certain of the Company's other stockholders have committed an aggregate of up to approximately $32,300 in exchange for additional shares of mandatorily redeemable preferred stock, Series F preferred stock and common stock of the Company. As part of this financing, the Company paid approximately $500 to an affiliate of a Cash Equity Investor for closing this preferred and common stock financing. In May and July 1999, AT&T and certain Cash Equity Investors funded approximately $17,516 of their commitment to the Company. The Company made its final payment of $14,770 to the FCC on September 13, 1999 with respect to these licenses and received the remaining funding commitments from AT&T and the certain Cash Equity Investors on September 29, 1999. 11. Mandatorily Redeemable Preferred Stock and Stockholders' Equity Holding Holding's authorized capital stock consisted of 6,000 shares of no par value mandatorily redeemable Series A preferred stock, 125,000 shares of no par value Class A common stock, 175,000 shares of no par value Class B common stock and 175,000 shares of no par value Class C common stock. This capital stock was in existence during 1996, 1997, and through July 1998, the closing of the AT&T Transaction, at which time Holding became a wholly-owned subsidiary of the Company. Subsequent to the AT&T Transaction, the authorized and outstanding shares of Holding were cancelled and replaced with 1,000 authorized shares of common stock of which 100 shares were issued to the Company. F-22 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) ($ in thousands, except for per share data) TeleCorp On May 14, 1999, TeleCorp restated its Certificate of Incorporation, which was subsequently amended. The Restated Certificate of Incorporation, as amended, provides the Company with the authority to issue 918,339,090 shares of stock, consisting of the following:
Par Shares Par Shares Preferred Stock Value Authorized Common Stock Value authorized ----- ---------- ------------ ----- ---------- Mandatorily redeemable Series A .................. $0.01 100,000 Class A ................. $0.01 608,550,000 Mandatorily redeemable Series B .................. $0.01 200,000 Class B ................. $0.01 308,550,000 Mandatorily redeemable Series C .................. $0.01 215,000 Class C tracked ......... $0.01 309,000 Mandatorily redeemable Series D .................. $0.01 50,000 Class D tracked ......... $0.01 927,000 Mandatorily redeemable Series E .................. $0.01 30,000 Voting Preference ....... $0.01 3,090 Series F ...................... $0.01 15,450,000 ---------- ----------- Total ................. 16,045,000 Total ................ 918,339,090 ========== ===========
The following schedules represent the transactions that took place with respect to Holding's mandatorily redeemable preferred stock and common stock for the year ended December 31, 1998.
Series A preferred stock ---------------------------- Shares Amount ----------- ----------- 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 -------- -------- -------- -------- -------- -------- -------- -------- -------- 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-23 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) ($ in thousands, except for per share data) The following schedule represents the transactions that took place with respect to TeleCorp's mandatorily redeemable preferred stock, Series F preferred stock and common stock for the period July 1998 to December 31, 1999:
Series A Series C Series D Preferred stock Preferred stock Preferred stock Shares Amount Shares Amount Shares Amount ------ -------- ------- -------- ------ -------- Mandatorily redeemable preferred stock Issuance of preferred stock to AT&T PCS for licenses and AT&T Agreements ................... 66,723 $ 66,723 -- $ -- 34,267 $ 34,143 Issuance of preferred stock to cash Equity Investors, net of issuance costs of $1028 ................................. -- -- 128,000 126,848 -- -- Accretion of preferred stock dividends ............................. -- 3,040 -- 3,819 -- 946 Noncash issuance of restricted stock ...................... -- -- -- -- -- -- Repurchase of restricted stock for cash ... -- -- -- -- -- -- Noncash issuance of preferred stock for equity of Holding ................................... -- -- 7,348 4,334 -- -- ------ -------- ------- -------- ------ -------- Balance, December 31, 1998 ................ 66,723 69,763 135,348 135,001 34,267 35,089 Issuance of preferred stock for cash, net of issuance costs of $2,500 ....................... 30,750 30,454 72,382 51,089 15,150 11,080 Issuance of preferred stock for PCS licenses and operating agreements .................. -- -- 2,878 2,674 -- -- Accretion of preferred stock dividends ............................. -- 9,124 -- 10,939 -- 2,646 Noncash issuance of restricted stock ...................... -- -- -- -- -- -- Repurchase of restricted stock or cash .... -- -- -- -- -- -- ------ -------- ------- -------- ------ -------- Balance, December 31, 1999 .................................. 97,473 $109,341 210,608 $199,703 49,417 $ 48,815 ====== ======== ======= ======== ====== ======== Series E Preferred stock Shares Amount Total ------- --------- --------- Mandatorily redeemable preferred stock Issuance of preferred stock to AT&T PCS for licenses and AT&T Agreements ................... -- $ -- $ 100,866 Issuance of preferred stock to cash Equity Investors, net of issuance costs of $1,028 ................................ -- -- 126,848 Accretion of preferred stock dividends ............................. -- 541 8,346 Noncash issuance of restricted stock ...................... 5,505 6 6 Repurchase of restricted stock for cash ... (784) (1) (1) Noncash issuance of preferred stock for equity of Holding ................................... 14,156 10 4,344 ------- --------- --------- Balance, December 31, 1998 ................ 18,877 556 240,409 Issuance of preferred stock for cash, net of issuance costs of $2,500 ....................... -- -- 92,623 Issuance of preferred stock for PCS licenses and operating agreements .................. -- -- 2,674 Accretion of preferred stock dividends ............................. -- 1,415 24,124 Noncash issuance of restricted stock ...................... 6,741 353 353 Repurchase of restricted stock or cash .... (577) (1) (1) ------- --------- --------- Balance, December 31, 1999 .................................. 25,041 $ 2,323 $ 360,182 ======= ========= =========
F-24 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ in thousands, except for per share data)
Class C Class D Voting tracked tracked Preference Series F Class A Common stock Common stock Common stock Preferred stock Common stock --------------- -------------- ------------- Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Total ---------- ------ ----------- ------ ------- ------ ------- ------ ------ ------ ----- Series F preferred and Common stock Issuance of common Stock to Cash Equity Investors for cash ............. -- $ -- 37,540,390 $375 110,549 $1 827,487 $8 -- $ -- $ 384 Issuance of preferred Stock to AT&T PCS For licenses and AT&T agreements ................ 10,308,676 103 -- -- -- -- -- -- -- -- 103 Exchange of 100% of Equity interests in Predecessor Company For equity in the Company ........................ -- -- 7,583,463 76 173,264 2 23,942 -- 3,090 -- 78 Noncash issuance of Restricted stock ............... -- -- 3,095,473 31 -- -- -- -- -- -- 31 Repurchase of restricted Stock for cash ................. -- -- (552,474) -- -- -- -- -- -- -- -- ---------- ---- ----------- ---- ------- -- ------- -- ----- ---- ------ Balance, December 31, 1998 ........................... 10,308,676 103 47,666,852 482 283,813 3 851,429 8 3,090 596 Issuance of common Stock and preferred Stock for cash ................. 4,604,102 46 22,366,242 224 -- -- -- -- -- -- 270 Issuance of Common Stock in Initial Public Offering ................ -- -- 10,580,000 106 106 Issuance of common Stock for PCS Licenses and operating Agreements ..................... -- -- 865,089 9 -- -- -- -- -- -- 9 Noncash issuance of- Restricted stock ............... -- -- 3,382,493 24 -- -- -- -- -- -- 24 Repurchase of restricted Stock for cash ................. -- -- (406,787) -- -- -- -- -- -- -- -- ---------- ---- ----------- ---- ------- -- ------- -- ----- ---- ------ Balance, December 31, 1999 ........................... 14,912,778 $149 84,453,889 $845 283,813 $3 851,429 $8 3,090 $ -- $1,005 ========== ==== =========== ==== ======= == ======= == ===== ==== ======
Stock Split On August 27, 1999 and on November 5, 1999, the Company filed amendments to its certificate of incorporation with the Delaware Secretary of State to effect a 100 for 1 stock split and 3.09 for 1 stock split respectively, of its outstanding and authorized Series F preferred stock and all classes of its common stock. The stock splits have been retroactively reflected in the financial statements for all periods presented. In addition, the amendment to the Company's certificate of incorporation increased the authorized number of shares of each of the Class A common stock and the Class B common stock by 15 million. In addition, the Board of Directors and the stockholders approved further amendments and restatements to the Company's certificate of incorporation becoming effective upon the closing of the Company' initial public offering, including a 300 million increase in the number of authorized shares of the Company's class A common stock. F-25 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ in thousands, except for per share data) Initial Public Offering and Concurrent Offering On November 23, 1999 in an initial public offering of 10.58 million shares of Class A common stock for $20.00 per share, the Company raised proceeds of approximately $197,317, net of underwriter's discount of $3,703. Offering costs, including legal, accounting and printing costs associated with the offering totaled $1,801, and these costs were charged directly against paid-in capital. In a concurrent offering to AT&T Wireless, the Company issued 2,245,000 shares of Class A common stock for $18.65 per share. The Company raised proceeds of $41,869, which was received on January 18, 2000. There are no issued or outstanding shares of Series B preferred stock, Senior common stock or Class B common stock as of December 31, 1999. F-26 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ in thousands, except for per share data) The conversion features and conversion prices of the Company's issued stock are summarized below:
Convertible Security Convertible Into Conversion Price -------------------- ---------------- ---------------- Series A preferred stock After July 2006, at the The Series A conversion rate holders' option, into Class A is equal to the liquidation common stock Preference of the Series A preferred stock on the conversion date Divided by the market price of the Class A common stock on the Conversion date. Series C preferred stock At the option of the Company The liquidation preference of at the IPO date into either the Series C preferred stock Class A or B common stock divided By the IPO price of $20.00 per share. Series D preferred stock If Series C preferred stock is The liquidation preference Converted then automatically divided by the IPO price of at the IPO date into Senior $20.00 per share. common stock Series E preferred stock At the option of the Company The liquidation preference of at the IPO date into either the Series E preferred stock Class A or Class B common divided By the IPO price of stock $20.00 per share. Series F preferred stock and At the holders' option, into One share of Series F Senior common stock Class A, Class B or Class D preferred stock or Senior common stock, Depending upon common stock for One share of the occurrence of certain either Class A, Class B or defined events Class D common stock. Class A common stock At the holders' option into One share of Class B common Class B common stock stock for one share of Class A Common stock. Class C tracked common Subject to FCC constraints and One share of Class A or Class Stock Board approval, at the B common stock for one share holders' option and by of Class C tracked common affirmative vote of at least stock. 66 2/3% of Class A common stock into Class A or Class B common stock Class D tracked common Subject to FCC constraints and One share of Class A or Class Stock Board approval, at the B common stock for one share holders' option and by of Class D tracked common affirmative vote of at least stock. 66 2/3% of Class A common stock into Class A or Class B common stock
F-27 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ in thousands, except for per share data) The conversion features and conversion prices of the Company's issued stock are summarized below: Liquidation rights In the event of any liquidation, dissolution or winding up of the Company, as defined, the stockholders of the Company are entitled to liquidation preferences as follows: Order of Distribution Stock Classification Distribution Preference - ------------ -------------------- ----------------------- Second Series C and Series D Series C: actual paid-in preferred stock capital per share plus accrued and unpaid dividends plus interest of 6% per annum on the actual paid-in capital, compounded quarterly, less amount of dividends declared and paid. Series D: $1,000 per share plus accrued and unpaid dividends plus an amount equal to interest on $1,000 per share at a rate of 6% per annum, compounded quarterly, less amount of dividends declared and paid. Third Series E preferred stock Accrued and unpaid dividends, plus an amount equal to interest on $1,000 per share at 6% per annum, compounded quarterly, less dividends declared and paid. Fourth Series F preferred stock Series F preferred: $0.000032 and Senior per share plus accrued and common stock unpaid dividends. Senior common stock: The sum of the liquidation preference of each share of Series D and Series F preferred stock converted in Senior common stock divided by the aggregate number of shares of Senior common stock issued upon conversion of shares of Series D and Series F preferred stock Dividends and voting rights The holders of the Series A and Series B preferred stock are entitled to cumulative quarterly cash dividends at an annual rate of 10% of the liquidation preference of the then outstanding shares. The holders of the remaining shares of preferred and common stock are entitled to dividends if and when declared. F-28 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ in thousands, except for per share data) The Class A common stock has 15,419,100 voting rights and the Voting Preference common stock has 15,480,900 voting rights. The remaining shares of preferred and common stock shall have no voting rights, except as provided by law or in certain limited circumstances. Call and Redemption features The preferred stock is callable at the option of the Company at a price equal to the liquidation preference on the redemption date. The Series A preferred stock is callable thirty days after the 10th anniversary of the issuance of such shares. The Series B preferred stock is callable at any time. The Series C and Series D preferred stock are callable at any time, provided that the Series C and Series D Preferred Stock are called concurrently. The Series A, Series B, Series C, Series D and Series E preferred stock are redeemable thirty days after the 20th anniversary of the issuance of such shares at the option of the holder at a price equal to the liquidation preference on the redemption date. The Series F preferred stock is not redeemable. Pursuant to a Management Agreement, the Company may redeem certain shares of Class A common stock and Series E preferred stock held by the Company's Chief Executive Officer and Executive Vice President (the TMC officers). For the period from the finalization of the AT&T Transaction to December 31, 1998, the Company accreted $8,345 of dividends in connection with this redemption feature. Tracked common stock The Class C and Class D common stock have been designated as Tracked common stock. The holders of the Tracked common stock are entitled to a dividend, when available, equal to the excess of the fair value of the net assets of Holding over the aggregate par value of the outstanding shares of the Tracked common stock. After all other preferential liquidating distributions have been made, the holders of the Tracked common stock will be entitled to a liquidation preference equal to the excess of the fair value of the net assets of Holding. Participating stock The Series F preferred stock, the Senior common stock and the Class A and B common stock are participating stock, and the Board of Directors may not declare dividends on or redeem, purchase or otherwise acquire for consideration any shares of the Participating Stock, unless the Board of Directors makes such declaration or payment on the same terms with respect to all shares of participating stock, ratably in accordance with each class and series of participating stock then outstanding. F-29 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ in thousands, except for per share data) Net Loss Per Share The following table sets forth the computation of basic and diluted net loss per share:
For the Year Ended December 31, -------------------------------------------- 1997 1998 1999 ------------ ------------ ------------ Numerator: Net loss $ (3,335) $ (51,155) $ (250,996) Less: accretion of manditorily redeemable preferred stock (726) (8,567) (24,124) ------------ ------------ ------------ Net loss attributable to common equity $ (4,061) $ (59,722) $ (275,120) ============ ============ ============ Denominator: Basic and diluted net loss per share- weighted average shares 36,340 27,233,786 76,895,391 ============ ============ ============ Net loss attributable to common equity per share - basic and diluted $ (111.74) $ (2.19) $ (3.58) ============ ============ ============
The following equity instruments were not included in the diluted net loss per share calculation because their effect would be anti-dilutive.
Year Ended December 31, ----------------------- 1997 1998 1999 ---- ---- ---- Manditorily redeemable preferred stock series A -- -- 97,473 Stock options -- -- 545,497
12. Restricted Stock Plan and Restricted Stock Awards In July 1998, the Company adopted a Restricted Stock Plan (the Plan) to attract and retain key employees and to reward outstanding performance. Key employees selected by management may elect to become participants in the Plan by entering into an agreement which provides for issuance of fixed and variable units consisting of Series E mandatorily redeemable preferred stock and Class A common stock. The fixed units typically vest over a five or six year period. The variable units vest based upon certain events taking place, such as buildout milestones, Pop coverage, the completion of an initial public offering and other events. Unvested shares are forfeited upon termination of employment. The shares issued under the Plan shall consist of units transferred to participants without payment as additional compensation for their services to the Company. The total number of units that may be awarded to key employees shall not exceed 7,085 units and 4,000,000 shares of Series E preferred stock and Class A common stock, respectively, as determined upon award. Any units not granted on or prior to July 17, 2003 shall be awarded to two officers of the Company. Each participant has voting, dividend and distribution rights with respect to all shares of both vested and unvested common stock. After the Class A shares become publicly traded, the right of first offer will no longer exist for the Series E preferred shares. In addition the shares contain rights of inclusion and first negotiation. The Company may repurchase unvested shares, and under certain circumstances, vested shares of F-30 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ in thousands, except for per share data) participants whose employment with the Company terminates. The repurchase price is equal to $0.01 and $0.00003 per share for the Series E preferred and common stock, respectively. Activity under the Plan is as follows:
Series E Estimated Estimated preferred fair value Class A fair value --------- ---------- ------- ---------- Shares awarded ................................. 5,505 $ 1.00 3,095,473 $ .003 Repurchases .................................... (784) -- (552,474) -- ----- ------------- --------- ------------ Balance, December 31, 1998 ..................... 4,721 $ 1.00 2,542,999 $ .003 Shares awarded ................................. 2,677 $52.00-$72.98 1,748,609 $.003-$20.00 Repurchases .................................... (577) -- (406,787) -- ----- ------------- --------- ------------ Balance, December 31, 1999 ..................... 6,821 $ 1.00-$72.98 3,884,821 $.003-$20.00 ===== =========
Deferred compensation and compensation expense related to the issuance of restricted stock to employees, based on the estimated fair value of the preferred and common stock, was immaterial for the year ended December 31, 1998. Certain awards granted under the Plan were variable awards. Upon the initial offering, the variable stock awards became fixed. At that point, the Company recorded deferred compensation expense based on the difference between the estimated fair value and the exercise price of the award in the amount of $61,999. For the year ended December 31, 1999, the Company recorded compensation expense related to those restricted stock awards of $29,997. The remaining deferred compensation balance related to the restricted stock awards of $32,000 will be recognized as compensation expense over the remaining vesting period. Outstanding fixed awards and variable awards as of December 31, 1998 and 1999 are as follows:
December 31, December 31, 1998 1999 --------- --------- Series E preferred stock: Fixed awards ........................... 3,664 6,821 Variable awards ........................ 1,057 -- --------- --------- Total Series E awards .......... 4,721 6,821 ========= ========= Class A common stock: Fixed awards ........................... 1,152,605 3,884,821 Variable awards ........................ 1,390,394 -- --------- --------- Total Class A awards ........... 2,542,999 3,884,821 ========= =========
The Chief Executive Officer and the Executive Vice President were issued variable restricted stock awards outside of the Restricted Stock Plan. Upon the initial public offering, the variable stock awards became fixed. At that point, the Company recorded deferred compensation expense based the difference between the estimated fair value and the exercise price of the award. The company recorded $19,613 as deferred compensation related to these awards and will recognize that as compensation expense over the related vesting periods, of which $14,809 was recorded as compensation expense for the year ended December 31, 1999. 13. Employee and Director Stock Option Plan On July 22, 1999, the Company implemented the 1999 Stock Option Plan to allow employees and members of the Board of Directors to acquire shares of Class B common stock. The options have an option term of 10 years, ratable vesting over a three to four year period, exercise prices equal to the estimated fair value of the underlying F-31 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ in thousands, except for per share data) Class B common stock on the date of award and restrictions on exercisability until (i) a qualified initial public offering (IPO) to which the Class A voting common stock has been registered under the Securities Act of 1933 for aggregate proceeds of $20,000, (ii) the sale of all or substantially all of the assets of the Company or (iii) the sale of all or substantially all of the outstanding capital stock of the Company. The Company has reserved 1,814,321 shares of Class A common stock for issuance under this plan. The 581,967 stock options awarded during the period from July 22, 1999 to November 23, 1999 represented variable awards since their exercisability was restricted until the completion of the initial public offering, sale of assets or sale of the Company. Therefore, the measurement date occurred when the exercisability restrictions were relieved, upon the initial public offering. At that point, the Company recorded deferred compensation expense based on the difference between the initial public offering of $20.00 per share and the exercise price of the award. All awards after the initial public offering are fixed awards. The Company recorded $11,050 as deferred compensation related to the stock option awards and will recognize expense over the related vesting periods, of which $1,473 was recorded as compensation expense for the year ended December 31, 1999. A summary of the status of the Company's stock option plan is presented below:
Weighted Average Weighted Remaining Average Option Price Contractual Exercise Shares Range per share Life (Years) Price ------------------ ------------------ ------------------ ------------------ Outstanding at December 31, 1998 -- $ -- -- $ -- Granted 611,967 0.0065 - $37.88 3.2 $ 128 Exercised -- -- -- -- Forfeited (66,470) $ 0.0065 3.1 $ 0.0065 ------------------ ------------------ ------------------ ------------------ Outstanding at December 31, 1999 545,497 $ 0.0065 - $37.88 3.2 $ 1.43 ================== ================== ================== ================== Options vested at December 31, 1999 76,801 $ 0.0065 3.1 $ 0.0065 ================== ================== ================== ==================
No options were exercisable as of December 31, 1999.
Options Outstanding at December 31, 1999 ------------------------------------------------------ Weighted Average Remaining Weighted Average Contractual Life Exercise Price Number of Shares Remaining -------------- ---------------- --------- $ .0065 515,497 3.1 $ 20.00 20,000 4.0 $ 37.88 10,000 4.0 --------- --------- --------- $ 1.43 545,497 3.2 ========= ========= =========
F-32 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ in thousands, except for per share data) During the year ended December 31, 1999, the Company granted options to purchase 611,967 shares of common stock, of which options to purchase 601,967 shares of common stock were granted at exercise prices below fair market value.
Options Granted for the Year Ended December 31, 1999 ------------------------------------------------------------------------------------------- Market Price Weighted average Weighted Average of Stock on Fair Value of remaining Shares Exercise Price Grant Date options life (year) -------------- -------------- -------------- -------------- -------------- 581,967 $ 0.0065 $20.00 $20.00 3.1 10,000 $ 20.00 $20.00 $18.34 3.9 10,000 $ 20.00 $36.97 $34.82 4.0 10,000 $ 37.88 $39.25 $36.09 4.0 -------------- -------------- -------------- -------------- -------------- 611,967 $ 1.28 $20.00- $39.25 $18.34 - $36.09 3.2 ============== ============== ============== ============== ==============
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation", the Company has elected to continue to follow the provisions of Accounting Principle Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees," and to adopt the disclosure only provision of SFAS No. 123. If compensation expense had been recorded based on the fair value at the grant dates for awards under the Plan, the Company's pro forma net loss, pro forma basic net loss per share and pro forma diluted net loss per share would have been the same as their respective reported balances disclosed in the financial statements. The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used for grants issued during the year ended December 31, 1999: volatility factor of 100%, weighted average expected life of 10 years, weighted -average risk free interest rate of 6%, and no dividend yield. The weighted average fair value of grants made during the year ended December 31, 1999 was $20.52. 14. Preferred and Common Stock Subscriptions Receivable In connection with the AT&T Transaction described in Note 9 and the acquisitions described in Note 10, the Company received various cash commitments from the Cash Equity Investors in exchange for Series C preferred stock and various classes of common stock. Through December 31, 1998 and 1999 the Company received $52,000 and $23,696 of the commitment. The Company has recorded a preferred stock subscription receivable of $75,914 and $97,001 as of December 31, 1998 and 1999, respectively, as a reduction to the mandatorily redeemable preferred stock and a common stock subscription receivable of $86 and $191 as of December 31, 1998 and 1999, respectively, as a reduction to stockholders' equity (deficit) for the unpaid commitment. As of December 31, 1999, the agreements require the Cash Equity Investors to fund their unconditional and irrevocable obligations in installments in accordance with the following schedules:
For the year ended December 31, Amount ------------------------------- ------ 2000 ................................................. $37,650 2001 ................................................. 48,351 2002 ................................................. 11,000 ------- Total ................................................ $97,001 =======
F-33 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ in thousands, except for per share data) 15. Income Taxes There was no provision for income tax for the years ended December 31, 1997, 1998 and 1999, respectively. The tax effect of temporary differences which gives rise to significant portions of the deferred tax assets as of December 31, 1998 and 1999, respectively, are as follows:
December 31, --------------------------- 1998 1999 --------- --------- Capitalized start-up costs ................. $ 17,599 $ 13,517 Net operating losses ....................... 3,635 92,579 Depreciation and amortization .............. 289 (14,180) Original Issue Discount .................... 175 11,461 Other ...................................... (843) 1,402 --------- --------- 20,855 104,779 Less valuation allowance ................... (20,855) (104,779) ========= ========= $ -- $ -- ========= =========
For federal income tax purposes, start-up costs are being amortized over five years starting January 1, 1999 when active business operations commenced. As of December 31, 1999, the Company had approximately $244,000 of net operating losses. The net operating losses will begin to expire in 2012. There may be a limitation on the annual utilization of net operating losses and capitalized start-up costs as a result of certain ownership changes that have occurred since the Company's inception. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. Based on the Company's financial results, management has concluded that a full valuation allowance for all of the Company's deferred tax assets is appropriate. A reconciliation between income taxes from operations computed using the federal statutory income tax rate and the Company's effective tax rate is as follows:
December 31, 1999 ------------ Federal tax at statutory rates ............................ 34.0% State tax expense 3.5% Stock based compensation .................................. (4.1%) Change in valuation allowance ............................. (33.4%) ==== 0.0% ====
16. Commitments In May 1998, the Company entered into a vendor procurement contract (the Vendor Procurement Contract) with Lucent, pursuant to which the Company may purchase up to $285,000 of radio, switching and related equipment and services for the development of the Company's wireless communications network. At December 31, 1998 and 1999, the Company has purchased approximately $90,900 and $294,500, respectively, of equipment and services from Lucent since the inception of the Vendor Procurement Contract. The Company has operating leases primarily related to retail store locations, distribution outlets, office space, and rent for the Company's network build-out. The terms of some of the leases include a reduction of rental payments and scheduled rent increases at specified intervals during the term of the leases. The Company is recognizing rent F-34 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ in thousands, except for per share data) expense on a straight-line basis over the life of the lease, which establishes deferred rent on the balance sheet. As of December 31, 1999, the aggregate minimum rental commitments under non-cancelable operating leases are as follows:
For the Year Ended December 31; 2000 ................................ $ 21,605 2001 ................................ 21,375 2002 ................................. 21,057 2003 ................................. 18,374 2004 ................................. 10,330 Thereafter ........................... 27,999 -------- Total ........................ $120,740 ========
Rental expense was approximately $157, $3,193 and $13,792 for the years ended December 31, 1997, 1998, and 1999, respectively. The Company has entered into letters of credit to facilitate local business activities. The Company is liable under the letters of credit for nonperformance of certain criteria under the individual contracts. The total amount of outstanding letters of credit was $1,425 and $1,576 at December 31, 1998 and 1999, respectively. The outstanding letters of credit reduce the amount available to be drawn under the Senior Credit Facility (see Note 8). The Company is unaware of any events that would have resulted in nonperformance of a contract during the years ended December 31, 1998 and 1999. The Company has minimum purchase commitments of 15 million roaming minutes from July 1999 to January 2002 from another wireless provider in Puerto Rico relating to customers roaming outside our coverage area. We believe we will be able to meet these minimum requirements. Additionally, the Company has an obligation to AT&T Wireless to purchase a minimum number of minutes of traffic annually over a specified time period and a specified number of dedicated voice and data leased lines in order for us to retain preferred pricing rates. We believe we will be able to meet these minimum requirements. 17. Related Parties The Executive Vice President serves as a consultant to ML Strategies, a division of the law firm, Mintz, Levin, Cohn, Ferris, Glozsky, and Popeo, PC (the Firm). The Firm also provides services for the Company. The Company incurred $506 during the year ended December 31, 1999 related services performed by the Firm and the Company owed the Firm $50 at December 31, 1999. The Company receives site acquisition, construction management, program management, microwave relocation, and engineering services pursuant to a Master Services Agreement with WFI. The Chief Executive Officer and Executive Vice President and Chief Financial Office of the Company were formerly stockholders and senior officers of WFI. Fees for the above services are as follows: $12 per site for site acquisition services, $7 per site for construction management services, $9 per site for program management and $1 for microwave relocation services for all of the Company's existing regions. Fees for engineering services are based upon WFI's customary hourly rates. For the years ended December 31, 1997, 1998 and 1999, the Company paid $1,940, $30,720 and $75,975, respectively, to WFI for these services. As of December 31, 1997, 1998 and 1999, the Company owed WFI $171, $21,178 and $15,053, respectively. Subsequent to December 31, 1997, the Chief Executive Officer and Executive Vice President sold 100% of their interests in WFI. F-35 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ in thousands, except for per share data) In April 1997, Holding entered into an agreement to transfer PCS licenses, operating assets, liabilities and U.S. Government financing, for the Houston, Tampa, Melbourne and Orlando BTAs to four newly-formed entities created by Holding's existing stockholder group: THC of Houston, Inc.; THC of Tampa, Inc.; THC of Melbourne, Inc.; and THC of Orlando, Inc. (the THC entities). These assets and liabilities were transferred in exchange for investment units of the newly-formed THC entities which consisted of Class A, B and C common stock and Series A preferred stock in August 1997. The carrying amount of the total assets and liabilities transferred was $15,679 and $12,034, respectively. Simultaneously, Holding reacquired shares of its preferred and common stock in a $6,370 partial stock redemption through the exchange of the investment units in the newly-formed companies of $3,645, which represented the net difference between the cost of the assets and liabilities transferred and the issuance of an aggregate of $2,725,of notes payable to those newly-formed THC entities. As a result of this transfer, Holding no longer retains any ownership interest in the THC entities. Because this transaction was non-monetary in nature and occurred between entities with the same stockholder group, the transaction was recorded at historical cost. Subsequent to the transfer, the Company reduced the notes payable by $653 which represented certain costs incurred by the Company on behalf of the THC entities for the year ended December 31, 1997 pursuant to Transfer Agreements and Management Agreements. The combined amounts owed THC Houston, Inc., THC Tampa, Inc., THC Melbourne, Inc., and THC Orlando, Inc. of $2,073 as of December 31, 1997 were repaid in full during 1998. As of December 31, 1998 and December 31, 1999, the combined amounts owed by the Company to THC Houston, Inc., THC Tampa, Inc., THC Melbourne, Inc., and THC Orlando, Inc. were $547 and $0, respectively. As of December 31, 1997, the Company had amounts payable of $824, to TeleCorp WCS, Inc. (WCS), an affiliate, formerly TeleCorp Management Corporation, Inc. The amount payable to WCS represented $1,200 of funds received by the Company on behalf of WCS related to wireless communications service licenses owned by WCS reduced by expenses and other payments owed by WCS to the Company. The entire balance due WCS as of December 31, 1997 was repaid during 1998. Pursuant to a Management Agreement, TeleCorp Management Corp. (TMC) provides assistance to the Company in the form of administrative, operational, marketing, regulatory and general business services. For these services, beginning in July 1998, the Company pays a management fee to TMC of $550 per year plus reimbursement of certain business expenses, payable in equal monthly installments, plus an annual bonus. The management agreement has a five-year term, but may be terminated by the Company upon the occurrence of certain defined events. TMC may terminate the agreement at any time with proper notice. The Officers of TMC own all of the ownership interest in TMC. For the years ended December 31, 1998 and 1999, the Company paid approximately $533 and 1,665 respectively, to TMC for these services. The Company has entered into a Master Site Lease Agreement with American Towers, Inc., a company partially owned by certain stockholders of the Company. Under this arrangement American Towers provides network site leases for PCS deployment. The Company has incurred $17 and $77 expense for the years ended December 31, 1998 and 1999, respectively. 18. Defined Contribution Plan During 1998, the Company established the TeleCorp Communications, Inc. 401(k) Plan (the 401(k) Plan), a defined contribution plan in which all employees over the age of 21 are immediately eligible to participate in the 401(k) Plan. TeleCorp Communications, Inc. is a wholly-owned subsidiary of the Company. Under the 401(k) Plan, participants may elect to withhold up to 15% of their annual compensation, limited to $160 of total compensation as adjusted for inflation. The Company may make a matching contribution based on a percentage of the participant's contributions. Participants vest in the Company's matching contributions as follows: 20% after one year; 60% after two years and 100% after three years. Total Company contributions to the 401(k) Plan were $505 and $888 for the years ended December 31, 1998 and 1999, respectively. F-36 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ in thousands, except for per share data) 19. Subsidiary Guarantee On April 23, 1999, the Company completed the issuance and sale of 115/8% Senior Subordinated Discount Notes. The Notes are fully and unconditionally guaranteed on a joint and several basis by TeleCorp Communications, Inc., one of the Company's wholly-owned subsidiaries. Summarized financial information of TeleCorp, TeleCorp Communications, Inc. and non-guarantor subsidiaries as of December 31, 1998 and 1999, and for the years ended December 31, 1998 and 1999 are as follows: F-37 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ in thousands, except for per share data) Balance Sheet Information as of December 31, 1998:
TeleCorp Communications, Inc.-- Guarantor Non-Guarantor TeleCorp Subsidiary Subsidiaries Eliminations Consolidated --------- --------- ------------- ------------- ------------ ASSETS Current assets: Cash and cash equivalents ................... $ 93,047 $ 21,441 $ (2,755) $ -- $ 111,733 Accounts receivable ......................... -- -- -- -- -- Inventory ................................... -- 778 -- -- 778 Intercompany receivables .................... 279,078 -- -- (279,078) -- Prepaid expenses ............................ -- 812 1,374 -- 2,186 Other current assets ........................ 637 581 -- -- 1,218 --------- --------- --------- --------- --------- Total current assets .................. 372,762 23,612 (1,381) (279,078) 115,915 Property and equipment, net ........................ 1,499 90,072 105,915 (17) 197,469 PCS licenses and microwave relocation Costs .......................................... -- 12,457 105,650 -- 118,107 Intangible assets--AT&T agreements ................. -- -- 26,285 -- 26,285 Deferred financing costs, net ...................... 8,585 -- -- -- 8,585 Other assets ....................................... 4,370 7 276 (4,370) 283 --------- --------- --------- --------- --------- Total assets .......................... $ 387,216 $ 126,148 $ 236,745 $(283,465) $ 466,644 ========= ========= ========= ========= ========= LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY (DEFICIT) Current liabilities: Due to affiliates ........................... $ -- $ 92,923 $ 186,155 $(279,078) $ -- Accounts payable ............................ -- 8,331 6,261 -- 14,592 Accrued expenses ............................ 13 41,645 53,214 -- 94,872 Microwave relocation obligation ............. -- 6,636 -- -- 6,636 Accrued interest ............................ 3,992 -- 499 -- 4,491 --------- --------- --------- --------- --------- Total current liabilities ............. 4,005 149,535 246,129 (279,078) 120,591 Long-term debt ..................................... 235,460 -- 7,925 -- 243,385 Microwave relocation obligation .................... -- 2,481 -- -- 2,481 Accrued expenses and other ......................... -- -- 196 -- 196 --------- --------- --------- --------- Total liabilities ..................... 239,465 152,016 254,250 (279,078) 366,653 --------- --------- --------- --------- --------- Mandatorily redeemable preferred stock .......................................... 240,409 -- -- -- 240,409 Deferred compensation .............................. -- (4) -- -- (4) Treasury stock ..................................... -- -- -- -- -- Preferred stock subscriptions Receivable ..................................... (75,914) -- -- -- (75,914) --------- --------- --------- --------- --------- Total mandatorily redeemable preferred stock .................... 164,495 (4) -- -- 164,491 --------- --------- --------- --------- --------- Series F preferred stock ........................... 103 -- -- -- 103 Common stock ....................................... 493 -- -- -- 493 Additional paid in capital ......................... -- -- 4,370 (4,370) -- Deferred compensation .............................. -- (7) -- -- (7) Common stock subscriptions Receivable ..................................... (86) -- -- -- (86) Treasury stock ..................................... -- -- -- -- -- Accumulated deficit ................................ (17,254) (25,856) (21,875) (17) (65,003) --------- --------- --------- --------- --------- Total shareholders' equity (deficit) .......................... (16,744) (25,864) (17,505) (4,387) (64,500) --------- --------- --------- --------- --------- Total liabilities and shareholders' equity (deficit) .......................... $ 387,216 $ 126,148 $ 236,745 $(283,465) $ 466,644 ========= ========= ========= ========= =========
F-38 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ in thousands, except for per share data) Balance Sheet Information as of December 31, 1999:
TeleCorp Communications, Inc.-- Guarantor Non-Guarantor TeleCorp Subsidiary Subsidiaries Eliminations Consolidated ----------- ----------- ------------ ------------ ------------ ASSETS Current assets: Cash and cash equivalents ................... $ 186,110 $ (2,724) $ (1,056) $ -- $ 182,330 Accounts receivable ......................... -- 23,443 138 -- 23,581 Inventory ................................... -- 15,802 -- -- 15,802 Intercompany receivables .................... 831,623 (415,728) (415,895) -- -- Prepaid expenses ............................ -- 1,099 1,932 -- 3,031 Other current assets ........................ 146 226 425 -- 797 ----------- ----------- ----------- ----------- ----------- Total current assets .................. 1,017,879 (377,882) (414,456) -- 225,541 Property and equipment, net ........................ 6,058 176,116 218,347 (71) 400,450 PCS licenses and microwave relocation costs .......................................... 2,119 47,835 217,728 -- 267,682 Intangible assets--AT&T agreements ................. -- -- 37,908 -- 37,908 Deferred financing costs, net ...................... 19,389 188 -- -- 19,577 Other assets ....................................... 4,385 601 17,944 (21,886) 1,044 ----------- ----------- ----------- ----------- ----------- Total assets .......................... $ 1,049,830 $ (153,142) $ 77,471 $ (21,957) $ 952,202 =========== =========== =========== =========== =========== LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable ............................ $ 96 $ 12,222 $ 26,585 $ -- $ 38,903 Accrued expenses ............................ (23) 48,983 3,017 -- 51,977 Microwave relocation obligation ............. -- 36,122 -- -- 36,122 Long-term debt, current portion ............. -- -- 1,361 -- 1,361 Accrued interest ............................ 675 -- 712 -- 1,387 Deferred revenue ............................ -- 1,709 -- -- 1,709 ----------- ----------- ----------- ----------- ----------- 748 99,036 31,675 -- 131,459 Total current liabilities Long-term debt ..................................... 622,795 -- 16,415 -- 639,210 Microwave relocation obligation .................... -- 2,365 -- -- 2,365 Accrued expenses ................................... -- -- 6,541 -- 6,541 ----------- ----------- ----------- ----------- ----------- Total liabilities ..................... 623,543 101,401 54,631 -- 779,575 ----------- ----------- ----------- ----------- ----------- Mandatorily redeemable preferred Stock .......................................... 360,182 -- -- -- 360,182 Preferred stock subscriptions Receivable ..................................... (97,001) -- -- -- (97,001) ----------- ----------- ----------- ----------- ----------- Total MRPS ........................... 263,181 -- -- -- 263,181 ----------- ----------- ----------- ----------- ----------- Stockholders' equity (deficit): Series F preferred stock ........................... 149 -- -- -- 149 Common stock ....................................... 856 -- -- -- 856 Additional paid in capital ......................... 267,442 -- 21,886 (21,886) 267,442 Deferred compensation .............................. (42,811) -- -- -- (42,811) Common stock subscriptions Receivable ..................................... (191) -- -- -- (191) Treasury stock Accumulated deficit ................................ (62,339) (254,543) 954 (71) (315,999) ----------- ----------- ----------- ----------- ----------- Total shareholders' equity (deficit) .......................... 163,106 (254,543) 22,840 (21,957) (90,554) ----------- ----------- ----------- ----------- ----------- Total liabilities, mandatorily redeemable preferred stock and shareholders' equity (deficit) ........ $ 1,049,830 $ (153,142) $ 77,471 $ (21,957) $ 952,202 =========== =========== =========== =========== ===========
F-39 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY Notes to Consolidated Financial Statements ($ in thousands, except for per share data) Statement of Operations Information for the year ended December 31, 1998:
TeleCorp Communications, Inc.-- Guarantor Non-Guarantor TeleCorp Subsidiary Subsidiaries Eliminations Consolidated -------- ---------- ------------ ------------ ------------ Revenue: Service revenue .................................. $ -- $ -- $ -- $ -- $ -- Roaming revenue .................................. -- 29 -- -- 29 Equipment revenue ................................ -- 777 261 (1,038) -- -------- -------- -------- -------- -------- Total revenue .................................... -- 806 261 (1,038) 29 -------- -------- -------- -------- -------- Operating expenses: Cost of revenue .................................. -- -- -- -- -- Operations and development ....................... -- 5,218 4,675 (121) 9,772 Selling and marketing ............................ -- 4,920 1,405 6,325 General and administrative ....................... 975 16,137 10,027 (900) 26,239 Depreciation and amortization .................... -- 459 1,125 -- 1,584 -------- -------- -------- -------- -------- Total operating expense .................... 975 26,734 17,232 (1,021) 43,920 -------- -------- -------- -------- -------- Operating loss ............................. (975) (25,928) (16,971) (17) (43,891) Other (income) expense: Interest expense ................................. 11,923 -- 11 -- 11,934 Interest income .................................. (4,427) (87) (183) -- (4,697) Other expense .................................... 21 5 1 -- 27 -------- -------- -------- -------- -------- Net loss ................................... (8,492) (25,846) (16,800) (17) (51,155) Accretion of mandatorily redeemable Preferred stock ..................................... (8,567) -- -- -- (8,567) -------- -------- -------- -------- -------- Net loss attributable to common equity .................................. $(17,059) $(25,846) $(16,800) $ (17) $(59,722) ======== ======== ======== ======== ========
F-40 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY Description of Unaudited Proforma Condensed Consolidated Financial Statements ($ in thousands, except for per share data) Statement of Operations Information for the year ended December 31, 1999:
TeleCorp Communications, Inc.- Guarantor Non-Guarantor TeleCorp Subsidiary Subsidiaries Eliminations Consolidated -------- ---------- ------------ ------------ ------------ Revenue: Service revenue ........................ $ -- $ 41,100 $ 4,282 $ (4,063) $ 41,319 Equipment revenue ...................... -- 29,010 -- -- 29,010 Roaming revenue ........................ -- 17,353 -- -- 17,353 --------- --------- --------- --------- --------- Total Revenue .................... -- 87,463 4,282 (4,063) 87,682 Operating expenses: Cost of revenue ........................ -- 39,259 -- -- 39,259 Operations and development ............. 1,472 26,833 11,682 (4,008) 35,979 Selling and marketing .................. 937 69,514 729 -- 71,180 General and administrative ............. 30,579 59,296 2,710 -- 92,585 Depreciation and amortization .......... 787 20,910 33,413 -- 55,110 --------- --------- --------- --------- --------- Total operating expense .......... 33,775 215,812 48,534 (4,008) 294,113 --------- --------- --------- --------- --------- Operating loss ................... (33,775) (128,349) (44,252) (55) (206,431) Other (income) expense: Interest expense ....................... 49,356 15 1,942 -- 51,313 Interest income ........................ (6,200) (243) (21) -- (6,464) Other expense .......................... -- (147) (137) -- (284) --------- --------- --------- --------- --------- Net loss ......................... (76,931) (127,974) (46,036) (55) (250,996) Accretion of mandatorily redeemable Preferred stock ........................... (24,124) -- -- -- (24,124) Net loss attributable to common equity ................. $(101,055) $(127,974) $ (46,036) $ (55) $(275,120) ========= ========= ========= ========= =========
F-41 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY Description of Unaudited Proforma Condensed Consolidated Financial Statements ($ in thousands, except for per share data) December 31, 1998 Cash Flow Information:
TeleCorp Communications, Inc.-- Guarantor TeleCorp Subsidiary --------- --------- Cash flows from operating activities: Net loss ..................................................................................... $ (8,496) $ (26,645) Adjustment to reconcile net loss to net cash used in operating activities: Depreciation and amortization ............................................................. -- 581 Noncash interest expense associated with Lucent notes and senior subordinated debt ........ 460 -- Amortization of deferred financing costs .................................................. 525 -- Changes in cash flow from operations resulting from changes in assets and liabilities: Accounts receivable ....................................................................... (57) (473) Inventory ................................................................................. -- (778) Prepaid expenses .......................................................................... -- (816) Other current assets ...................................................................... (580) (104) Other assets .............................................................................. -- (7) Accounts payable .......................................................................... -- 2,260 Accrued expenses .......................................................................... 13 16,211 Accrued interest .......................................................................... 3,992 -- --------- --------- Net cash used in operating activities ............................................... (4,143) (9,771) --------- --------- Cash flows from investing activities: Expenditures for network under development, wireless network and property and Equipment .............................................................................. -- (58,205) Capitalized interest on network under development and wireless network .................... (227) -- Expenditures for microwave relocation ..................................................... -- (3,339) Purchase of PCS licenses .................................................................. (21,000) -- Partial refund of deposit on PCS licenses ................................................. -- (61,544) --------- --------- Net cash used in investing activities ............................................... 21,227) (61,544) --------- --------- Cash flows from financing activities: Proceeds from sale of mandatorily redeemable preferred stock .............................. 26,661 -- Direct issuance costs from sale of mandatorily redeemable preferred stock ................. (1,027) -- Proceeds from sale of common stock ........................................................ 38 -- Proceeds from long-term debt .............................................................. 235,000 -- Payments of deferred financing costs ...................................................... (9,109) -- Proceeds from cash transfers from and expenses paid by affiliates ......................... 1,065 121,750 Payments on behalf of and transfers to affiliates ......................................... (134,215) (28,994) --------- --------- Net cash provided by financing activities ........................................... 118,417 92,756 --------- --------- Net increase in cash and cash equivalents ................................................. 93,047 21,440 Cash and cash equivalents at the beginning of period ...................................... -- -- --------- --------- Cash and cash equivalents at the end of period ............................................ $ 93,047 $ 21,441 ========= =========
F-42 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY Description of Unaudited Proforma Condensed Consolidated Financial Statements ($ in thousands, except for per share data) December 31, 1999 Flow Information:
TeleCorp Communications, Inc.-- Guarantor TeleCorp Subsidiary -------- ---------- Cash flows from operating activities: Net loss ........................................................................................ $ (76,931) $(127,974) Adjustment to reconcile net loss to net cash used in operating activities: Depreciation and amortization ................................................................ 787 18,102 Noncash compensation expense associated with the issuance of restricted common stock and preferred stock ........................................................................... 31,817 -- Noncash accretion of Series E preferred stock Noncash interest expense associated with Lucent Notes and High Yield facility ................ 26,895 Noncash general and administrative expense charged by affiliates ............................. 2,962 Amortization of deferred financing costs ..................................................... Amortization of discount on notes payable .................................................... Changes in cash flow from operations resulting from changes in assets and liabilities: Accounts receivable .......................................................................... -- (23,443) Inventory .................................................................................... -- (15,024) Prepaid expenses ............................................................................. -- (287) Other current assets ......................................................................... 491 355 Other assets ................................................................................. (15) 6,343 Accounts payable ............................................................................. 96 3,891 Accrued expenses ............................................................................. (36) 7,338 Accrued interest ............................................................................. (3,317) -- Deferred revenue ............................................................................. -- 1,709 --------- --------- Net cash used in operating activities ..................................................... (20,213) (126,028) --------- --------- Cash flows from investing activities: Expenditures for network under development, wireless network and property and equipment ...... (5,016) (92,575) Capitalized interest on network under development and wireless network ....................... (5,317) -- Expenditures for microwave relocation ........................................................ -- (5,654) Purchase of PCS licenses ..................................................................... (2,146) -- --------- --------- Net cash used in investing activities ..................................................... (12,479) (98,229) --------- --------- Cash flows from financing activities: Proceeds from sale of mandatorily redeemable preferred stock ................................. 70,323 -- Proceeds from sale of common stock and series F preferred stock .............................. 21,725 -- Receipt of preferred stock subscription receivable ........................................... 9,414 -- Direct issuance costs from sale of mandatorily redeemable preferred stock .................... 0 -- Redeemable Preferred stock ................................................................... (2,500) -- Proceeds associated with IPO ................................................................. 197,317 -- Costs associated with IPO .................................................................... (1,801) -- Proceeds from long-term debt ................................................................. 236,502 -- Purchases of treasury shares ................................................................. -- -- Payments on notes payable Payments of deferred financing costs ......................................................... (12,742) -- Proceeds from cash transfers from and expenses paid by affiliates ............................ (392,483) 200,092 --------- --------- Net cash provided by financing activities ................................................. 125,755 200,092 --------- --------- Net increase in cash and cash equivalents ................................................. 93,063 (24,165) Cash and cash equivalents at the beginning of period ...................................... 93,047 21,441 --------- --------- Cash and cash equivalents at the end of period ............................................... $ 186,110 $ (2,724) ========= =========
F-43 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ In thousands, except for per share data) 20. Subsequent Events Deferred Compensation Certain employees, the Chief Executive Officer and the Executive Vice President of the Company will be issued a total of 1,111 shares and 503,022 shares of mandatorily redeemable Series E preferred stock and Class A common stock, respectively, pending final FCC approval of the share issuance related to the Viper Wireless transaction. The Chief Executive Officer's and the Executive Vice President's shares vest immediately and the employees' shares vest ratably over five years. The total fair value of these shares will be based on fair market value of the stock when issued. As of December 31, 1999, the estimated fair value of the Series E preferred stock was $72.98 per share and the fair value of the class A common stock was $38.00 per share. Pending Acquisitions On October 18, 1999, the Company agreed to acquire TeleCorp LMDS, Inc. (TeleCorp LMDS) through a purchase of all of the outstanding stock of TeleCorp LMDS for an estimated aggregate purchase price of approximately $19,200. The consideration will be comprised of Series C preferred stock and Class A common stock. TeleCorp LMDS' only assets are LMDS licenses. The purchase price has been preliminarily allocated to the acquired licenses, subject to adjustment, based on a final valuation. TeleCorp LMDS' stockholders are Mr. Vento, Mr. Sullivan and three of our Cash Equity Investors. By acquiring TeleCorp LMDS, the Company will gain local multipoint distribution service, or LMDS. The LMDS licenses will provide the Company with additional airwaves to use as back-haul portions of the Company's PCS network traffic in several of the Company's markets. On October 14, 1999, the Company agreed to purchase 15 MHz of additional airwaves in the Lake Charles, Louisiana basic trading area from Gulfstream Telecomm, L.L.C. Total consideration approximates $2,700 and consists of approximately $400 in cash plus the assumption of approximately $2,300 in debt related to the license. Additionally, the Company will reimburse Gulf Telecomm for all interest it paid to the FCC on debt related to the license from June 1998 until the date the transaction is completed. Each of these agreements are subject to governmental approvals and other customary conditions to closing, but no assurance can be given that they will be closed on schedule or at all. Tritel Merger and Concurrent Property Swap with AT&T Wireless On February 28, 2000, the Company agreed to merge with Tritel, Inc. through a merger of each of us and Tritel into a newly formed subsidiary of a new holding company. The merger will result in the exchange of 100% of the outstanding common and preferred stock of the Company and Tritel for common and preferred stock of the newly-formed entity, to be called TeleCorp PCS, Inc. The new entity will be controlled by the Company's voting preference common stockholders, and the Company and Tritel will become subsidiaries of the holding company. F-44 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ In thousands, except for per share data) This transaction will be accounted for using the purchase method of accounting. The purchase price for Tritel will be determined based on the fair value of the shares of the new holding company issued to the former shareholders of Tritel plus cash, the fair value associated with the conversion of outstanding Tritel options and warrants, holding company options and warrants, liabilities assumed, and merger related costs. The fair value of the shares issued will be determined based on the existing market price of the Company's Class A common stock, which is publicly traded, and, for those shares that do not have a readily available market price, through valuation by an investment banking firm. The purchase price for this transaction will be allocated to the assets acquired based on their estimated fair values. The excess of the purchase price over the assets acquired will be recorded as goodwill and amortized over 20 years. The purchase price and the excess of the purchase price over the assets acquired has not yet been determined. The proposed merger has been unanimously approved by the Company's and Tritel's boards of directors, with three of our directors abstaining. In addition, shareholders with greater than 50% of the voting power of each company have agreed to vote in favor of the merger. The merger is subject to regulatory approval and other conditions and is expected to close in the last quarter of 2000. In connection with the Company's merger with Tritel, the Company has agreed to exchange certain other assets with AT&T Wireless Services. This exchange will result in the Company acquiring various assets in exchange for the consideration issued as follows: The Company acquires: $20 million cash from AT&T Wireless Services and a two year extension of the Company's and AT&T's brand sharing and limited exclusivity rights agreements. The right to acquire all of the common and preferred stock of Indus, Inc. (Indus). The right to acquire additional wireless properties and assets from Airadigm, Inc. (Airadigm). Consideration issued: 9.3 million shares of Class A common stock of the new holding company formed from the Tritel merger to AT&T Wireless Services. F-45 TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ In thousands, except for per share data) Cash to the shareholders of Indus. Cash to Airadigm. Separately, AT&T Wireless and the Company entered into an Asset Exchange Agreement pursuant to which the Company has agreed to exchange certain assets with AT&T Wireless, among other consideration. The Company is receiving certain consideration in exchange for assets as follows: The Company acquires: $80 million in cash from AT&T Wireless. AT&T Wireless' 10MHz licenses in the areas covering part of the Wisconsin market, in addition to adjacent licenses. AT&T Wireless' existing 10MHz licenses in Fort Dodge and Waterloo, Iowa. The right to acquire additional wireless properties from Polycell Communications, Inc. (Polycell) and ABC Wireless, L.L.C. (ABC Wireless). Consideration issued: The Company's markets and infrastructure in the Boston-Providence MTA to AT&T Wireless. A "right of first refusal" with respect to certain markets contributed by AT&T Wireless triggered in the event of a sale of the Company to a third party. Cash or class A common stock to Polycell and cash to ABC Wireless. These transactions will be accounted for using the purchase method of accounting. The purchase price will be determined based on cash paid, the fair value of the shares issued, and the net book value of the assets relinquished. The purchase price will be allocated to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase price over the assets acquired will be recorded as goodwill and amortized over 20 years. This transaction is also subject to regulatory approval and other conditions and is expected to close in the second half of 2000. The failure of these transactions to occur does not prevent the Tritel merger from occurring. F-46 EX-2.1 2 STOCK PURCHASE AGREEMENT EXHIBIT 2.1 STOCK PURCHASE AGREEMENT This STOCK PURCHASE AGREEMENT, dated as of October 18, 1999, by and among TeleCorp PCS, Inc., a Delaware corporation ("TeleCorp"), TeleCorp Holding Corp., Inc., a Delaware corporation and wholly-owned subsidiary of TeleCorp ("THC"), Gerald T. Vento and Thomas H. Sullivan (each, a "Management Stockholder"), and the other investors referred to on Schedule I attached hereto (the "Stockholders" and together with the Management Stockholders, the "Investors"). WHEREAS, immediately prior to the Closing of the sale of the Shares pursuant hereto, LMDS (defined below) will effect a sale of its local multipoint distribution services B Block license for the Orlando, BTA to THC of Orlando LMDS, Inc. in exchange for shares ("Newco Stock") of such corporation's capital stock (the "Spin-Off"); WHEREAS, after the Spin-Off, the Investors will continue to own all of the issued and outstanding shares (the "Shares") of Class A Common Stock, no par value per share ("Class A Common Stock"), Class C Common Stock, no par value per share ("Class C Common Stock"), and Series A Preferred Stock, no par value per share ("Series A Preferred Stock"), of TeleCorp LMDS, Inc., a Delaware corporation ("LMDS"); WHEREAS, the Investors wish to sell and THC and TeleCorp wish for THC to purchase all of the Shares in exchange for the shares of TeleCorp capital stock set forth below; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows. 1. DEFINITIONS 1.1 "Affiliate" means, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with that Person. For purposes of this definition, "control" (including the terms "controlling" and "controlled") means the power to direct or cause the direction of the management and policies of a Person, directly or indirectly, whether through the ownership of securities or partnership or other ownership interests, by contract or otherwise. 1.2 "Business Day" means any day other than a Saturday, Sunday or a legal holiday in New York, New York or any other day on which commercial banks in New York, New York are authorized by law or governmental decree to close. 1.3 "Claim" has the meaning set forth in Section 7.4(a). 1.4 "Class A Common Stock" has the meaning set forth in the second recital. 1.5 "Class C Common Stock" has the meaning set forth in the second recital. 1.6 "Closing" has the meaning set forth in Section 2.2. 1.7 "Closing Date" has the meaning set forth in Section 2.2. 1.8 "Consents" means all consents and approvals of Governmental Authorities or other third parties necessary to authorize, approve or permit the parties hereto to consummate the Transactions. 1.9 "Distribution Agreement" means that certain Distribution Agreement of even date herewith by and among the Investors and LMDS by which LMDS shall transfer ownership of the Newco Stock to the Investors. 1.10 "FCC " means the Federal Communications Commission. 1.11 "Governmental Authority" means a Federal, state or local court, legislature, governmental agency (including, without limitation, the United States Department of Justice), commission or regulatory or administrative authority or instrumentality. 1.12 "Indemnified Party" has the meaning set forth in Section 7.4(a). 1.13 "Indemnifying Party" has the meaning set forth in Section 7.4(a). 1.14 "Investors' Rights Agreement" means that certain Investors' Rights Agreement by and among LMDS and the Investors, dated as of February 2, 1998. 1.15 "Law" means applicable common law and any statute, ordinance, code or other law, rule, permit, permit condition, regulation, order, decree, technical or other standard, requirement or procedure enacted, adopted, promulgated, applied or followed by any Governmental Authority. 1.16 "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest, right of first refusal or right of others therein, or encumbrance of any nature whatsoever in respect of such asset. 1.17 "LMDS" has the meaning set forth in the second recital. 1.18 "Losses" has the meaning set forth in Section 7.2. 1.19 "Management Stockholders" has the meaning set forth in the preamble. 1.20 "Material Adverse Effect" means a material adverse effect on the business, financial condition, assets, liabilities or results of operations or prospects of the Person specified. 1.21 "Person" means an individual, corporation, partnership, limited liability company, association, joint stock company, Governmental Authority, business trust, unincorporated organization, or other legal entity. 1.22 "Related Agreement" has the meaning set forth in Section 3.1(b). -2- 1.23 "Section 7.2 Indemnified Party" has the meaning set forth in Section 7.2. 1.24 "Section 7.3 Indemnified Party" has the meaning set forth in Section 7.3. 1.25 "Securities Act" means the Securities Act of 1933, as amended. 1.26 "Series A Preferred Stock" has the meaning set forth in the first recital. 1.27 "Shares" has the meaning set forth in the recitals. 1.28 "Spin-Off" has the meaning set forth in the recitals. 1.29 "Stockholders" has the meaning set forth in the preamble. 1.30 "Stockholders' Agreement" means that certain Stockholders' Agreement by and among LMDS and each of the Investors, dated as of February 2, 1998. 1.31 "TeleCorp" has the meaning set forth in the preamble. 1.32 "TeleCorp Stock" means an aggregate of 2,700 shares of TeleCorp's Series C Preferred Stock, $.01 par value per share, and an aggregate of 270,000 shares of Class A Voting Common Stock, $.01 par value per share, as the same may be adjusted from time to time in conjunction with a stock split, recapitalization, reorganization, reclassification, or other change in the capital structure of TeleCorp affecting such series and classes of capital stock of TeleCorp after the date hereof. 1.33 "TeleCorp Investors Stockholders' Agreement" means that certain Investors Stockholders' Agreement by and among AT&T Wireless PCS, LLC, the Cash Equity Investors, as defined therein, and the Management Stockholders, dated as of July 17, 1998, as the same may be amended, modified or supplemented in accordance with the terms thereof. 1.34 "TeleCorp Stockholders' Agreement" means that certain Stockholders' Agreement by and among TeleCorp, AT&T Wireless PCS, LLC, TWR Cellular, Inc., the Cash Equity Investors, as defined therein, and the other parties named therein, as stockholders, dated as of July 17, 1998, as the same may be amended, modified or supplemented in accordance with the terms thereof. 1.35 "THC" has the meaning set forth in the preamble. 1.36 "Transactions" means the transactions contemplated by this Agreement. 1.37 "Transfer Agreement " means that certain Agreement of even date herewith by and between LMDS and THC of Orlando LMDS, Inc. by which the Spin-Off is to be effected. 2. PURCHASE PRICE; CLOSING DATE; DELIVERY -3- 2.1 Purchase of Shares. In consideration of the ownership of the Shares being transferred to THC, TeleCorp shall issue to each Investor the amount of TeleCorp Stock determined as set forth on Schedule I attached hereto on the Closing Date. 2.2 Closing Date. The closing of the purchase and sale of the Shares (the "Closing") shall occur on the fifth Business Day following the receipt of the final consent necessary under Section 6.1(h) and 6.2(e) and immediately following the closing of the Spin-Off at the offices of McDermott, Will & Emery, 28 State Street, Boston, MA 02109 at 10:00 am EST, or on such other date and at such other time and/or place as the parties may agree (the "Closing Date"). 2.3 Delivery. At the Closing, (a) each Investor shall deliver to THC stock certificates, representing the Shares owned by him or it, duly endorsed in blank or accompanied by stock transfer powers transferring the Shares to THC, and (b) TeleCorp shall issue and deliver to each Investor one or more certificates representing the TeleCorp Stock to be received by him or it. 3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS Each of the Stockholders (severally as to itself and jointly and severally with the other Investors as to LMDS), and each of the Management Stockholders (severally as to himself, except with respect to the representations contained in Sections 3.1(a), 3.1(c), and 3.1(d), and jointly and severally with the other Investors as to LMDS) represents and warrants to TeleCorp and THC as of the date hereof and as of the Closing Date with respect to itself and LMDS that: 3.1 Formation and Standing. (a) It is a limited liability company or limited partnership, as applicable, duly formed, validly existing and in good standing under the Laws of its jurisdiction of formation and has the requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted. (b) It has the requisite power and authority to execute, deliver and perform this Agreement and each other instrument, document, certificate and agreement required or contemplated to be executed, delivered and performed hereunder (each a "Related Agreement") to which it is or will be a party. (c) It is duly qualified to do business in each jurisdiction where the character of its properties owned or held under lease or the nature of its activities makes such qualification necessary other than any such jurisdiction in which the failure to be so qualified would not have a Material Adverse Effect on it or materially adversely affect the Transactions or its ability to perform its obligations hereunder. (d) The execution and delivery of this Agreement or any Related Agreement by it and the consummation of the Transactions by it have been duly and validly authorized by its General Partner, Manager or Management Board (or other equivalent body or authorized person) and no other proceedings on its part which have not been taken (including, without limitation, approval of its stockholders, partners or members) are necessary to authorize this Agreement or any Related Agreement or to consummate the Transactions. -4- (e) This Agreement has been duly executed and delivered by it and constitutes its valid and binding obligation, enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally and may be subject to general principles of equity. Each Related Agreement to which it is a party shall be duly executed and delivered by it at (or prior to) the Closing and, upon such execution and delivery, shall constitute its valid and binding obligation, enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally and may be subject to general principles of equity. (f) As of the Closing Date, after giving effect to the Transactions, he/it is not in breach of any obligation under this Agreement or any Related Agreement to which he or it is a party or any other agreement by and between he or it and LMDS or any of the other Investors regarding LMDS and/or the Shares. (g) As of the Closing Date, he/it is the record and beneficial owner of the Shares determined pursuant to Schedule I, and has good and marketable title thereto, free and clear of all Liens, and he/it has the right, power and authority to assign, transfer and deliver all such record and beneficial ownership of the Shares owned by him/it to THC pursuant to this Agreement. 3.2 Consents; No Conflicts. Neither the execution, delivery and performance by it of this Agreement or any Related Agreement to which it is a party nor the consummation of the Transactions will (a) conflict with, or result in a breach or violation of, any provision of its organizational documents or the Certificate of Incorporation or Bylaws of LMDS; (b) constitute, with or without the giving of notice or passage of time or both, a breach, violation or default, create a Lien, or give rise to any right of termination, modification, cancellation, prepayment or acceleration, under (i) any Law or (ii) any note, bond, mortgage, indenture, lease, agreement or other instrument, in each case which is applicable to or binding upon it or any of its assets; or (c) require any consent or the approval of its board of directors, general partner, members, stockholders or similar constituent bodies, as the case may be (which approvals have been obtained), except in each case, where such breach, violation, default, Lien, right, or the failure to obtain or give such consent would not have a Material Adverse Effect on it or materially adversely affect the Transactions or its ability to perform its obligations under the Agreement and any Related Agreement. There is no fact relating to it or its Affiliates that would be reasonably expected to prevent it from consummating the Transactions or performing its obligations under this Agreement or any Related Agreement. 3.3 Organization and Standing of LMDS. LMDS is a corporation duly organized and validly existing under, and by virtue of, the laws of the State of Delaware and is in good standing as a domestic corporation under the laws of said state. LMDS has no subsidiaries. 3.4 Shares. The Shares are, and when issued in compliance with the provisions of this Agreement, will be, validly issued, fully paid and nonassessable and will be free and clear of any and all Liens. -5- 3.5 Authorized Capital Stock. The authorized capital stock of LMDS consists of 12,500 shares of Class A Common Stock, of which 12,500 are issued and outstanding as of the date hereof and of which 12,375 shall be issued and outstanding as of the Closing Date, 37,500 shares of Class C Common Stock, of which 37,500 are issued and outstanding as of the date hereof and of which 37,125 shall be issued and outstanding as of the Closing Date, and 420 shares of Series A Preferred Stock, of which 420 are issued and outstanding as of the date hereof, and as of the Closing Date, such number of shares shall be issued and outstanding as are determined pursuant to the redemption provisions of the Distribution Agreement, which in the aggregate shall comprise as of the Closing Date all of the Shares. On the Closing Date, after giving effect to the Transactions, there will not be any existing options, warrants, calls, subscriptions, or other rights, or other agreements or commitments, obligating LMDS to issue, transfer or sell any shares of capital stock of LMDS. 3.6 No Liabilities. As of the Closing Date before giving effect to the Transactions, LMDS has no indebtedness or liability of any nature whatsoever, absolute or contingent, liquidated or unliquidated. LMDS has no other business or operations other than owning local multipoint distribution services licenses. 3.7 FCC Compliance. LMDS complies with all eligibility rules issued by the FCC to hold LMDS licenses, including without limitation, FCC rules on foreign ownership and the CMRS spectrum cap. 3.8 Compliance with Laws. LMDS has operated in compliance with all applicable Laws, including all FCC Laws, environmental Laws and Laws relating to taxes, except for noncompliance that, individually or in the aggregate, has not and would not reasonably be expected to have a Material Adverse Effect. LMDS has not received notice to the effect that, or otherwise been advised that, it is not in compliance with any Laws with respect to the Shares, its business or its operations, and it has not taken any action or failed to take any action that is a violation of any such Laws with respect to the Shares or any of its assets, its business or its operations, except for actions or failures to take action that, individually or in the aggregate, have not and would not reasonably be expected to have a Material Adverse Effect or a materially adversely affect the Transactions. 3.9 Litigation. There are no actions, suits, proceedings or investigations pending or, to the best of his/its knowledge, threatened against him/it or LMDS or any of LMDS's properties before or by any court or arbitrator or any government body, agency or official in which there is a reasonable likelihood of an adverse decision that could have a Material Adverse Effect on LMDS's properties or assets or the business of LMDS as presently conducted or proposed to be conducted. 3.10 No Material Change. Since LMDS's incorporation, there has been no material adverse change in business, prospects, financial condition, net worth or results of operations, other than changes occurring in the ordinary course of business which have not, individually or in the aggregate, had a Material Adverse Effect on the business, prospects, properties or financial condition of LMDS. -6- 3.11 Taxes. Since LMDS's incorporation, it has timely filed, or caused to be timely filed, or will timely file or cause to be timely filed on or prior to the Closing Date, all tax returns required to be filed on or prior to the Closing Date (taking into account any extensions of time to file granted to or on behalf of LMDS). All taxes for the respective periods covered by such returns have been or prior to the Closing Date will be, timely paid. 3.12 Investor Acknowledgments. (a) He/it is an "accredited investor" as defined in Regulation D of the Securities Act. His/its representatives have been provided an opportunity to ask questions of, and have received answers thereto from, THC and TeleCorp and their representatives regarding the terms and conditions of his/its sale of the Shares in consideration of the issuance of the TeleCorp Stock, and THC and TeleCorp and their proposed business generally, and have obtained all additional information requested by him/it to verify the accuracy of all information furnished to him/it in connection with such sale and issuance. (b) He/it has such knowledge and experience in financial and business affairs that it is capable of evaluating the merits and risks of selling the Shares in consideration of the issuance of the TeleCorp Stock hereunder. (c) He/it is not relying on and acknowledges that no representation is being made by any other Investor, TeleCorp, THC or any of their officers, employees, Affiliates, agents or representatives, except for representations and warranties expressly set forth in this Agreement, and, in particular, he/it is not relying on, and acknowledges that no representation is being made in respect of, (x) any projections, estimates or budgets delivered to or made available to them of future revenues, expenses or expenditures, or future results of operations and (y) any other information or documents delivered or made available to him/it or his/its representatives, except for representations and warranties expressly set forth in this Agreement and the Related Agreements and such information and documents obtained by him/it as a stockholder of TeleCorp and through his/its representatives who serve as members of TeleCorp's board of directors, as the case may be. (d) In deciding to invest in TeleCorp, he/it has relied exclusively on the representations and warranties expressly set forth in this Agreement, and the investigations made by himself/itself and his/its representatives and his/its and such representatives' knowledge of the industry in which TeleCorp proposes to operate. Based solely on such representations and warranties and such investigations and knowledge and such information obtained by him/it by virtue of his/its status as a stockholder of TeleCorp, and through his/its representatives who serve as members of TeleCorp's board of directors, as the case may be, he/it has determined that the TeleCorp Stock he/it is acquiring is a suitable investment for him/it. (e) He/it is acquiring the TeleCorp Stock hereunder for the purpose of investment and not with a view to or for sale in connection with any distribution thereof (other than in compliance with the Securities Act and all applicable state securities laws). 4. REPRESENTATIONS AND WARRANTIES OF TELECORP AND THC -7- Each of TeleCorp and THC, jointly and severally, represents and warrants to the Investors as of the Closing Date as follows: 4.1 Organization, Power and Authority. (a) It is a corporation duly organized, validly existing and in good standing under the laws of the state of Delaware and has the requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted and as proposed to be conducted. (b) It has the requisite power and authority to execute, deliver and perform this Agreement and any Related Agreement to which it is a party. (c) The execution and delivery of this Agreement or any Related Agreement and the consummation of the Transactions by it have been duly and validly authorized by its Board of Directors and no other proceedings which have not been taken are necessary to authorize this Agreement or any Related Agreement to which it is a party or to consummate the Transactions. (d) This Agreement has been duly executed and delivered by it and constitutes the valid and binding obligation of it, enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally and may be subject to general principles of equity. Each Related Agreement to which it is a party shall be duly executed and delivered by it at (or prior to) the Closing and, upon such execution and delivery, shall constitute the valid and binding obligation of it, enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally and may be subject to general principles of equity. (e) As of the Closing Date, after giving effect to the Transactions, it is not in breach of any obligation under this Agreement or any Related Agreement to which it is a party. 4.2 Consents; No Conflicts. Neither the execution, delivery and performance of this Agreement and any Related Agreement to which it is a party nor the consummation of the Transactions will (a) conflict with, or result in a breach or violation of, any provision of its organizational documents; (b) with or without the giving of notice or passage of time or both, a breach, violation or default, create a Lien, or give rise to any right of termination, modification, cancellation, prepayment or acceleration, under (i) any Law or (ii) any note, bond, mortgage, indenture, lease, agreement or other instrument, in each case which is applicable to or binding upon it or any of its assets; or (c) require any consent or the approval of its Board of Directors or its stockholders (which approval has been obtained), except in each case where such breach, violation, default, Lien, right, or the failure to obtain or give such consent would not have a Material Adverse Effect on it or materially adversely affect the Transactions, its ability to perform its obligations under this Agreement or any Related Agreement or the operation of its business after the Closing Date. To its knowledge, there is no fact relating to it or its Affiliates -8- that would be reasonably expected to prevent it from consummating the Transactions or performing its obligations under this Agreement or any Related Agreement. 4.3 Litigation. There is no action, proceeding or investigation pending or, to its knowledge, threatened against it or any of its properties or assets that would have a Material Adverse Effect on its ability to consummate the Transactions to which it is a party or to fulfill its obligations under this Agreement or any Related Agreement to which it is a party, or to operate its business after the Closing Date, or which seeks to prevent or challenge the Transactions. There is no judgment, decree, injunction, rule or order outstanding against it which would limit in any material respect its ability to operate its business in the manner currently contemplated. 4.4 TeleCorp Stock. The TeleCorp Stock, when issued in compliance with the provisions of this Agreement will be validly issued fully paid and nonassessable, and shall be free of any Liens caused or created by TeleCorp, except as set forth in that certain Stockholders Agreement by and among the Investors, TeleCorp and the other TeleCorp stockholders named therein dated as of July 17, 1998, as amended, and TeleCorp's Amended and Restated Certificate of Incorporation. 4.5 Authorized Capital Stock. The authorized capital stock of TeleCorp as of the date hereof consists of: (a) 12,595,000 shares of preferred stock, $.01 par value per share, consisting of (i) 100,000 shares of Series A Convertible Preferred Stock, (ii) 200,000 shares of Series B Preferred Stock, (iii) 215,000 shares of Series C Preferred Stock, (iv) 50,000 shares of Series D Preferred Stock, (v) 30,000 shares of Series E Preferred Stock, (vi) 5,000,000 shares of Series F Preferred Stock and (vii) 7,000,000 shares of Senior Common Stock; and (b) 190,401,000 shares of common stock, $.01 par value per share, consisting of (i) 95,000,000 shares of Class A Voting Common Stock, (ii) 95,000,000 shares of Class B Non-Voting Common Stock, (iii) 100,000 shares of Class C Common Stock, (iv) 300,000 shares of Class D Common Stock, and (v) 1,000 shares of Voting Preference Common Stock. As of the Closing Date, the authorized, issued and outstanding shares of Preferred Stock and Common Stock of TeleCorp shall be changed to the extent necessary in order to effect TeleCorp's initial public offering of its Class A Voting Common Stock, and to the extent the TeleCorp Stock is issued pursuant hereto. 5. COVENANTS 5.1 Consummation of Transactions. Each party shall use all commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable and consistent with applicable Law to carry out all of its/his respective obligations under this Agreement and any Related Agreement to which it/he is a party and to consummate the Transactions, which efforts shall include, without limitation, the following: (a) The parties shall use all commercially reasonable efforts to cause the Closing to occur and the Transactions to be consummated in accordance with the terms hereof, and, without limiting the generality of the foregoing, to obtain all necessary Consents including the approval of this Agreement and the Transactions by all Governmental Authorities and agencies and third parties, including the FCC, and to make all filings with and to give all notices -9- to third parties which may be necessary or reasonably required in order for the parties to consummate the Transactions. (b) Each party shall furnish to the other parties all information concerning such party and its Affiliates reasonably required for inclusion in any application or filing to be made by the Company or any other party in connection with the Transactions or otherwise to determine compliance with applicable FCC Law. (c) Upon the request of any other party, each party shall forthwith execute and deliver, or cause to be executed and delivered, such further instruments of assignment, transfer, conveyance, endorsement, direction or authorization and other documents as may reasonably be requested by such party in order to effectuate the purposes of this Agreement. 5.2 No Action. During the period from the date hereof until the Closing Date, other than as required pursuant to the Transfer Agreement, the Distribution Agreement and any documents related thereto, LMDS and the Investors shall not (i) sell, transfer, assign or dispose of, or offer to, or enter into any agreement, arrangement or understanding to, sell, transfer, assign or dispose of any of the Shares or any interest therein or any of LMDS' properties or assets, or negotiate therefor, or (ii) create, incur or suffer to exist any Lien of any nature whatsoever relating to any of the foregoing or any interest therein. 5.3 Waiver of Rights Under the Stockholders' Agreement. With respect to the Transactions (i) each of the Management Stockholders hereby waives his right of first refusal and notice requirements set forth in Section 2 of the Stockholders' Agreement and (b) each of the Investors hereby waives its co-sale rights and notice requirements set forth in Section 10 of the Stockholders' Agreement. 6. CONDITIONS TO CLOSING 6.1 Conditions to Obligations of TeleCorp and THC. The obligation of TeleCorp and THC to consummate the Transactions shall be further conditioned upon the satisfaction or fulfillment, at or prior to the Closing, of the following conditions by each of the other parties, unless waived by TeleCorp and THC at or prior to the Closing: (a) The representations and warranties of each Investor contained herein shall be true and correct in all material respects (except for representations and warranties that are qualified as to materiality, which shall be true and correct), in each case when made and at and as of the Closing (except for representations and warranties made as of a specified date, which shall be true and correct as of such date) with the same force and effect as though made at and as of such time, except for inaccuracies in respect of the representations and warranties set forth in Section 3.9 (disregarding any qualifications as to materiality contained therein), that in the aggregate would not be reasonably expected to have a Material Adverse Effect on LMDS or such Investor or to materially adversely affect the Transactions. (b) Each Investor shall have performed in all material respects all agreements contained herein or required to be performed by it at or before the Closing. -10- (c) An officer of each Investor shall have delivered to TeleCorp and THC a certificate, dated the Closing Date, certifying as to the fulfillment of the conditions set forth in paragraphs (a) and (b) above as to the party delivering such certificate. (d) All limited liability or limited partnership and other proceedings of each of the Investors in connection with the Transactions, and all documents and instruments incident thereto, shall be reasonably satisfactory in form and substance to TeleCorp and THC, and each of the Investors shall have delivered to TeleCorp and THC such receipts, documents, instruments and certificates, in form and substance reasonably satisfactory to TeleCorp and THC which TeleCorp and THC shall have reasonably requested in order to consummate the Transactions. (e) All directors serving on the Board of Directors of LMDS and all of the officers of LMDS shall resign from their respective positions except for Thomas H. Sullivan and Gerald T. Vento. (f) All of the agreements among the Investors and LMDS, including but not limited to the Stockholders' Agreement and the Investors' Rights Agreement, shall be terminated as of the Closing Date without liability. (g) Each Investor shall deliver to THC on the Closing Date stock certificates, representing the Shares owned by it, duly endorsed in blank or accompanied by stock transfer powers transferring the Shares to THC. (h) All Consents by any Governmental Authority required to permit the consummation of the Transactions, the failure to obtain or make which would be reasonably expected to have a Material Adverse Effect on TeleCorp, THC or LMDS or materially adversely affect the Transactions or TeleCorp's or THC's ability to perform its obligations under this Agreement or any Related Agreement shall have been obtained or made. (i) The Spin-Off and the transfer of the Newco Stock to the Investors shall have been consummated. (j) Each Stockholder not currently a party to the TeleCorp Investor Stockholders' Agreement shall have executed and delivered a joinder agreement to the TeleCorp Investor Stockholders' Agreement in form and substance reasonably satisfactory to TeleCorp. (k) The Investors shall certify in writing to TeleCorp and THC the number and classification of capital stock of LMDS issued and outstanding as of the Closing Date and that the Investors own such stock. 6.2 Conditions to the Obligations of the Investors. The obligation of each Investor to consummate the Transactions contemplated to occur at the Closing shall be further conditioned upon the satisfaction or fulfillment, at or prior to the Closing, of the following conditions, unless waived by such Investor at or prior to the Closing: (a) The representations and warranties of TeleCorp and THC and each other Investor contained herein shall be true and correct in all material respects (except for representations and warranties that are qualified as to materiality, which shall be true and -11- correct), in each case when made and at and as of the Closing (except for representations and warranties made as of a specified date, which shall be true and correct as of such date) with the same force and effect as though made at and as of such time, except for inaccuracies in respect of the representations and warranties set forth in Section 4.3 (disregarding any qualifications as to materiality contained therein) that in the aggregate would not be reasonably expected to have a Material Adverse Effect on TeleCorp, THC or such other Investor or to materially adversely affect the Transactions. (b) Each of TeleCorp, THC and each other Investor shall have performed in all material respects all agreements contained herein or required to be performed by it at or before the Closing. (c) An officer of TeleCorp, THC and of each other Investor, respectively, shall have delivered to such Investor a certificate, dated the Closing Date, certifying as to the fulfillment of the conditions set forth in paragraphs (a) and (b) above as to the party delivering such certificate. (d) TeleCorp shall issue and deliver to each Investor the shares of TeleCorp Stock he or it is entitled to receive hereunder. (e) All Consents by any Governmental Authority required to permit the consummation of the Transactions, the failure to obtain or make which would be reasonably expected to have a Material Adverse Effect on such Investor or materially adversely affect the Transactions or its ability to perform its obligations under this Agreement or any Related Agreement shall have been obtained or made. (f) All corporate and other proceedings of each other Investor, TeleCorp and THC in connection with the Transactions, and all documents and instruments incident thereto, shall be reasonably satisfactory in form and substance to such Investor, and each other Investor, TeleCorp and THC shall have delivered to such Investor all such receipts, documents, instruments and certificates, in form and substance reasonably satisfactory to such Investor, which such Investor shall have reasonably requested in order to consummate the Transactions. (g) The Spin-Off and the transfer of the Newco Stock to the Investors shall have been consummated. 7. SURVIVAL AND INDEMNIFICATION 7.1 Survival. The representations and warranties made in this Agreement shall survive the Closing without regard to any investigation made by any of the parties hereto until the second anniversary thereof and shall thereupon expire together with any right to indemnification in respect thereof (except to the extent a written notice asserting a claim for breach of any such representation or warranty and describing such claim in reasonable detail shall have been given prior to the expiration of the applicable survival period to the party which made such representation or warranty). The covenants and agreements contained herein to be performed or complied with prior to the Closing shall expire at the Closing. The covenants and agreements contained in this Agreement to be performed or complied with after the Closing shall -12- survive the Closing; provided that the right to indemnification pursuant to this Article VII in respect of a breach of a representation or warranty shall expire upon the application of the applicable survival period of the Closing (except to the extent written notice asserting a claim thereunder and describing such claim in reasonable detail shall have been given prior to such expiration to the party from whom such indemnification is sought); provided further, that the representations and warranties made in Section 4 of this Agreement by TeleCorp and THC to the Management Stockholders shall not survive the Closing. After the Closing, the sole and exclusive remedy of the parties for any breach or inaccuracy of any representation or warranty contained in this Agreement, or any other claim (whether or not alleging a breach of this Agreement) that arises out of the facts and circumstances constituting such breach or inaccuracy, shall be the indemnity provided in this Article VII. 7.2 Indemnification by the Investors. Each Investor shall indemnify and hold harmless each other Investor, TeleCorp and THC and their respective Affiliates, and the shareholders, members, managers, directors, officers, employees, agents and/or the legal representatives of any of them (each, a "Section 7.2 Indemnified Party"), against all liabilities and expenses (including amounts paid in satisfaction of judgments, in compromise, as fines and penalties, and as counsel fees) (collectively, "Losses") incurred by him or it in connection with the investigation, defense, or disposition of any action, suit or other proceeding in which any Section 7.2 Indemnified Party may be involved or with which he or it may be threatened (whether arising out of or relating to matters asserted by third parties against a Section 7.2 Indemnified Party or incurred or sustained by such party in the absence of a third-party claim), that arises out of or results from (a) any representation or warranty of such indemnifying party contained in this Agreement being untrue in any material respect as of the date on which it was made or (b) any material default by such indemnifying party or any of its Affiliates in the performance of their respective obligations under this Agreement; except to the extent (but only to the extent) any such Losses arise out of or result from the gross negligence or willful misconduct of such Section 7.2 Indemnified Party or its Affiliates; provided that the aggregate liability of each Management Stockholder to indemnify Section 7.2 Indemnified Parties against Losses arising out of or resulting from (x) the untruth in any material respect of any representation or warranty as to LMDS made by such Management Stockholder in this Agreement, (y) any material default by such Management Stockholder in the performance of his obligations under this Agreement, shall be limited to the surrender to TeleCorp of the shares of TeleCorp Stock such Management Stockholder receives hereunder for his shares of Class A Common Stock, and Section 7.2 Indemnified Parties seeking indemnification against any Management Stockholder for such Losses hereunder shall not have recourse to any other assets of such Management Stockholder. 7.3 Indemnification by TeleCorp and THC. TeleCorp and THC shall jointly and severally indemnify and hold harmless each of the Investors and their respective Affiliates, and the shareholders, members, managers, officers, employees, agents and/or the legal representatives of any of them (each, a "Section 7.3 Indemnified Party"), against all Losses incurred by him or it in connection with the investigation, defense, or disposition of any action, suit or other proceeding in which any Section 7.3 Indemnified Party may be involved or with which he or it may be threatened (whether arising out of or relating to matters asserted by third parties against a Section 7.3 Indemnified Party or incurred or sustained by such party in the absence of a third-party claim), that arises out of or results from (a) any representation or -13- warranty of TeleCorp and/or THC contained in this Agreement being untrue in any material respect as of the date on which it was made or (b) any material default by TeleCorp and/or THC or any of their respective Affiliates in the performance of their respective obligations under this Agreement, except to the extent (but only to the extent) any such Losses arise out of or result from the gross negligence or willful misconduct of such Section 7.3 Indemnified Party or its Affiliates; provided, that TeleCorp and THC shall not be obligated to indemnify the Management Stockholders for any Losses arising from a breach of any representation or warranty made in Section 4. 7.4 Procedures. (a) The terms of this Section 7.4 shall apply to any claim (a "Claim") for indemnification under the terms of Sections 7.2 or 7.3. The Section 7.2 Indemnified Party or Section 7.3 Indemnified Party (each, an "Indemnified Party"), as the case may be, shall give prompt written notice of such Claim to the indemnifying party (the "Indemnifying Party") under the applicable Section, which party may assume the defense thereof, provided that any delay or failure to so notify the Indemnifying Party shall relieve the Indemnifying Party of its obligations hereunder only to the extent, if at all, that it is materially prejudiced by reason of such delay or failure. The Indemnified Party shall have the right to approve any counsel selected by the Indemnifying Party and to approve the terms of any proposed settlement, such approval not to be unreasonably delayed or withheld (unless, in the case of approval of a proposed settlement, such settlement provides only, as to the Indemnified Party, the payment of money damages actually paid by the Indemnifying Party and a complete release of the Indemnified Party in respect of the claim in question). Notwithstanding any of the foregoing to the contrary, the provisions of this Article VII shall not be construed so as to provide for the indemnification of any Indemnified Party for any liability to the extent (but only to the extent) that such indemnification would be in violation of applicable law or that such liability may not be waived, modified or limited under applicable law, but shall be construed so as to effectuate the provisions of this Article VII to the fullest extent permitted by law. (b) In the event that the Indemnifying Party undertakes the defense of any Claim, the Indemnifying Party will keep the Indemnified Party advised as to all material developments in connection with such Claim, including, but not limited to, promptly furnishing the Indemnified Party with copies of all material documents filed or served in connection therewith. (c) In the event that the Indemnifying Party fails to assume the defense of any Claim within ten business days after receiving written notice thereof, the Indemnified Party shall have the right, subject to the Indemnifying Party's right to assume the defense pursuant to the provisions of this Article VII, to undertake the defense, compromise or settlement of such Claim for the account of the Indemnifying Party. Unless and until the Indemnified Party assumes the defense of any Claim, the Indemnifying Party shall advance to the Indemnified Party any of its reasonable attorneys' fees and other costs and expenses incurred in connection with the defense of any such action or proceeding. Each Indemnified Party shall agree in writing prior to any such advancement that, in the event he or it receives any such advance, such Indemnified Party shall reimburse the Indemnifying Party for such fees, costs and expenses to the extent that it shall be determined that he or it was not entitled to indemnification under this Article VII. -14- (d) In no event shall an Indemnifying Party be required to pay in connection with any Claim for more than one firm of counsel (and local counsel) for each of the following groups of Indemnified Parties: (i) the Stockholders, their respective Affiliates, and the shareholders, members, managers, officers, employees, agents and/or the legal representatives of any of them; (ii) the Management Stockholders, their respective successors, assigns, heirs, personal representatives, beneficiaries, agents and/or the legal representatives of any of them; and (iii) TeleCorp and THC and their respective Affiliates, and the shareholders, members, managers, officers, employees, agents and/or the legal representatives of any of them. 8. TERMINATION 8.1 Termination. In addition to any other rights of termination set forth herein, this Agreement may be terminated, and the Transactions abandoned, without further obligation of any party (except as set forth herein), at any time prior to the Closing Date: (a) by mutual written consent of the parties; (b) by any party by written notice to the other parties, if the Closing shall not have occurred on or before the date that is nine months after the date hereof, provided that the party electing to exercise such right is not otherwise in breach of its obligations under this Agreement; or (c) by any party by written notice to the other parties, if the consummation of the Transactions shall be prohibited by a final, non-appealable order, decree or injunction of a court of competent jurisdiction. 8.2 Effect of Termination. (a) In the event of a termination of this Agreement, no party hereto shall have any liability or further obligation to any other party to this Agreement, except as set forth in paragraph (b) below, and except that nothing herein will relieve any party from liability for any breach by such party of this Agreement. (b) In the event of a termination of this Agreement pursuant to Section 8.1, all provisions of this Agreement shall terminate, except Articles VII and IX. (c) Whether or not the Closing occurs, except as otherwise expressly provided in this Agreement, all costs and expenses incurred in connection with this Agreement, any Related Agreement and the Transactions shall be paid by the party incurring such expenses. 9. MISCELLANEOUS 9.1 Amendment and Modification. This Agreement may be amended, modified or supplemented only by written agreement of each of the parties. 9.2 Waiver of Compliance; Consents. Any failure of any of the parties to comply with any obligation, covenant, agreement or condition herein may be waived by the party or parties entitled to the benefits thereof only by a written instrument signed by the party granting -15- such waiver, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. 9.3 Parties in Interest; Assignment. This Agreement is binding upon and is solely for the benefit of the parties hereto and their respective permitted successors, legal representatives and permitted assigns. Neither the Investors nor TeleCorp or THC may assign its rights and obligations hereunder without the prior written consent of each of the other parties, provided that TeleCorp and THC may assign their respective obligations to any of their Affiliates, and provided, further, that TeleCorp and THC shall have the right to assign their respective rights under this Agreement to the lenders (the "Lenders") named in the Credit Agreement, dated as of July 17, 1998, by an among TeleCorp PCS, Inc., the lenders party thereto and the Chase Manhattan Bank, as Administrative Agent, TD Securities (USA) Inc., as Syndication Agent, and Bankers Trust Company, as Documentation Agent (the "Credit Agreement"), as security pursuant to the terms of the Credit Agreement and the documents and instruments executed therewith, it being understood that, in connection with any such assignment to the Lenders, the Lenders shall not assume any obligations of TeleCorp or THC hereunder. 9.4 Broker's Fee. Each of the parties hereto hereby represents that, on the basis of any actions and agreements by it, there are no brokers or finders entitled to compensation in connection herewith. 9.5 Governing Law. This Agreement shall be governed in all respects by the laws of the Commonwealth of Virginia without regard to the conflict of laws, and the rules thereof. 9.6 Survival. The representations, warranties, covenants, and agreements made in this Agreement shall survive any investigation made by the Investors, TeleCorp or THC. 9.7 Entire Agreement. This Agreement, including the exhibits and schedules hereto and thereto and the certificates and instruments delivered pursuant to the terms of this Agreement, constitute the entire agreement and understanding of the parties hereto in respect of the Transactions. This Agreement supersedes all prior agreements and understandings between the parties with respect to such Transactions. 9.8 Notices, etc. All notices and other communications required or permitted under this Agreement shall be in writing and shall be delivered by hand, overnight courier or given by electronic facsimile transmission or mailed by first class, certified or registered mail, return receipt requested, postage prepaid: If to the Stockholders, at the address set forth in Schedule I hereto. If to the Management Stockholders, to the address set forth below for TeleCorp. If to TeleCorp or THC, to: TeleCorp PCS, Inc. 1010 N. Glebe Road, Suite 800 Arlington, VA 22201 Attention: Thomas H. Sullivan Telephone: (703) 236-1100 Facsimile: (703) 236-1376 -16- With a copy to: Friedman Kaplan & Seiler LLP 875 Third Avenue, 8th Floor New York, New York 10022 Attention: Gregg S. Lerner Facsimile: (212) 355-6401 Mayer, Brown & Platt 1675 Broadway New York, New York 10019 Attention: Mark S. Wojciechowski Facsimile: (212) 262-1910 All notices and other communications shall be effective upon the earlier of actual receipt thereof and (a) in the case of notices and communications sent by personal delivery or telecopy, three hours after such notice or communication arrives at the applicable address or was successfully sent to the applicable telecopy number, (b) in the case of notices and communications sent by overnight delivery service, at noon (local time) on the first business day following the day such notice or communication was sent, and (c) in the case of notices and communications sent by U.S. mail, five days after such notice or communication shall have been deposited in the U.S. mail. 9.9 Severability of this Agreement. If any provision of this Agreement shall be found by any court of competent jurisdiction to be invalid or unenforceable, the parties waive such provision to the extent that it is found to be invalid or unenforceable. Such provision shall, to the maximum extent allowable by law, be modified by such court so that it becomes enforceable and, as modified, shall be enforced as any other provision hereof, all the other provisions hereof continuing in full force and effect. 9.10 Headings. The headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 9.11 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 9.12 Further Assurances. Each party hereto shall do and perform or cause to be done and performed all such further acts and things and shall execute and deliver all such other agreements, certificates, instruments and documents as the other party hereto may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the Transactions. 9.13 Expenses. Each party hereto shall bear its own expenses incurred on its behalf with respect to this Agreement and the Transactions, including fees of legal counsel. -17- IN WITNESS WHEREOF, the foregoing agreement is hereby executed as of the date first above written. TELECORP PCS, INC. By: /s/ Thomas H. Sullivan --------------------------------- Name: Thomas H. Sullivan Title: Executive Vice President TELECORP HOLDING CORP., INC. By: /s/ Thomas H. Sullivan --------------------------------- Name: Thomas H. Sullivan Title: President INVESTORS: NORTHWOOD VENTURES LLC By: /s/ Peter Schiff --------------------------------- Name: Peter G. Schiff Title: President NORTHWOOD CAPITAL PARTNERS LLC By: --------------------------------- Name: Peter G. Schiff Title: President ONELIBERTY FUND IV, L.P. By: OneLiberty Partners IV, LLC By:/s/ Stephen Ricci --------------------------------- Name: Stephen Ricci Title: Managing Member -18- /s/ Thomas Sullivan ------------------------------------ Thomas Sullivan /s/ Gerald Vento ------------------------------------ Gerald Vento -19- SCHEDULE I Series C Preferred Stock:
Name of Stockholder Shares - ------------------- ------ OneLiberty Fund IV, L.P. 1,350 One Liberty Square Boston, Massachusetts 02109 Northwood Ventures LLC 1,181.25 485 Underhill Boulevard Syosset, New York 11791-3419 Northwood Capital Partners LLC 168.75 485 Underhill Boulevard Syosset, New York 11791-3419 ---------- Total: 2,700
Class A Voting Common Stock: An aggregate of 270,000 shares of Class A Voting Common Stock shall be issued as follows: Stockholders: Each Stockholder shall receive shares of Class A Voting Common Stock equal to 270,000 multiplied by a fraction, the numerator of which shall be the Accreted Value and denominator of which shall be the Fair Market Value. For the purposes hereof, the term "Accreted Value" shall mean an amount equal to the accreted value of the LMDS Series A Preferred Stock held by a Stockholder, post-Spin-Off, less the aggregate face amount of the Series C Preferred Stock of TeleCorp to be received by such Stockholder at Closing. For the purposes hereof, the term "Fair Market Value" shall mean an amount equal to the product of the per share average daily trading price of TeleCorp's Class A Voting Common Stock for the three business days immediately preceding the Closing Date times 270,000. Investors: Each Investor shall receive a number of shares of Class A Voting Common Stock equal to the product of its pro rata common stock ownership in LMDS times the difference between 270,000 shares and the number of shares of Class A Voting Common Stock issued to the Stockholders above. The parties hereto acknowledge that the Management Stockholders, in the aggregate, own fifteen percent (15%) of the issued and outstanding common stock of LMDS and that the Stockholders, in the aggregate, own eighty five percent (85%) of the issued and outstanding common stock of LMDS. EX-3.1 3 FIFTH AMENDED & RESTATED CERTIFICATE OF INCORPORATION EXHIBIT 3.1 FIFTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF TELECORP PCS, INC. TeleCorp PCS, Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: FIRST: The name of the corporation is TeleCorp PCS, Inc. (the "Corporation"). The original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware (the "Secretary of State") on November 14, 1997 and was amended and restated pursuant to a Restated Certificate of Incorporation filed with the Secretary of State on July 16, 1998, a Second Amended and Restated Certificate of Incorporation filed with the Secretary of State on April 20, 1999, a Third Amended and Restated Certificate of Incorporation filed with the Secretary of State on May 14, 1999 and amended by Amendment No. 1 to the Third Amended and Restated Certificate filed with the Secretary of State on August 27, 1999 (the "Third Amended and Restated Certificate"), a Fourth Amended and Restated Certificate of Incorporation filed with the Secretary of State on August 27, 1999, and amended by Amendment No. 1 to the Fourth Amended and Restated Certificate filed with the Secretary of State on November 8, 1999 (the "Fourth Amended and Restated Certificate"). SECOND: This Fifth Amended and Restated Certificate of Incorporation (the "Amended and Restated Certificate of Incorporation") has been duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware and written consent has been given by the stockholders of the Company in accordance with Section 228 of the General Corporation Law of the State of Delaware. THIRD: This Amended and Restated Certificate of Incorporation restates, integrates and amends the provisions of the Corporation's Fourth Amended and Restated Certificate, as amended, by amending Articles IV and VI and by adding Article IX, all as set forth in this Amended and Restated Certificate of Incorporation. ARTICLE I The name of the Corporation shall be TeleCorp PCS, Inc. ARTICLE II The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company. 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; -2- (ii) whether the shares of such series shall have voting rights, in addition to any voting rights provided by law, and, if so, the terms of such voting rights, which may be general or limited; (iii) the dividends, if any, payable on such series, whether any such dividends shall be cumulative, and, if so, from what dates, the conditions and dates upon which such dividends shall be payable, the preference or relation which such dividends shall bear to the dividends payable on any shares of stock of any other class or any other series of this class; (iv) whether the shares of such series shall be subject to redemption by the Corporation, and, if so, the times, prices and other conditions of such redemption; (v) the amount or amounts payable upon shares of such series upon, and the rights of the holders of such series in, the voluntary or involuntary liquidation, dissolution or winding up, or upon any distribution of the assets, of the Corporation; (vi) whether the shares of such series shall be subject to the operation of a retirement or sinking fund and, if so, the extent to and manner in which any such retirement or sinking fund shall be applied to the purchase or redemption of the shares of such series for retirement or other corporate purposes and the terms and provisions relative to the operation thereof; (vii) whether the shares of such series shall be convertible into, or exchangeable for, shares of stock of any other class or any other series of this class or any other securities and, if so, the price or prices or the rate or rates of conversion or exchange and the method, if any, of adjusting the same, and any other terms and conditions of conversion or exchange; (viii) the limitations and restrictions, if any, to be effective while any shares of such series are outstanding upon the payment of dividends or the making of other distributions on, and upon the purchase, redemption other acquisition by the Corporation of, the Common Stock or shares of stock of any other class or any other series of this class; (ix) the conditions or restrictions, if any, upon the creation of indebtedness of the Corporation or upon the issue of any additional stock, including additional shares of such series or of any other series of this class or of any other class; and (x) any other powers, preferences and relative, participating, optional and other special rights, and any qualifications, limitations and restrictions thereof. (b) The powers, preferences and relative, participating, optional and other special rights of each series of Preferred Stock, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding. -3- All shares of any one series of Preferred Stock shall be identical in all respects with all other shares of such series, except that shares of any one series issued at different times may differ as to the dates from which dividends thereon shall be cumulative. (c) Shares of Preferred Stock of any series that have been redeemed (whether through the operation of a sinking fund or otherwise) or that, if convertible or exchangeable, have been converted into or exchanged for any other security shall have the status of authorized and unissued shares of Preferred Stock of the same series and may be reissued as a part of the series of which they were originally a part or may be reclassified and reissued as part of a new series of shares of Preferred Stock to be created by resolution or resolutions of the Board of Directors or as part of any other series of shares of Preferred Stock, all subject to the conditions or restrictions on issuance set forth in the resolution or resolutions adopted by the Board of Directors providing for the issue of any series of shares of Preferred Stock. (d) Subject to the provisions of this Amended and Restated Certificate of Incorporation and except as otherwise provided by law, the stock of the Corporation, regardless of class, may be issued for such consideration and for such corporate purposes as the Board of Directors may from time to time determine. 4.3 Powers, Preferences and Rights of the Series A Preferred Stock. The powers, preferences and rights of the Series A Preferred Stock and the qualifications, limitations and restrictions thereof are as follows: (a) Ranking. The Series A Preferred Stock shall, with respect to the payment of dividends and the distribution of assets on liquidation, dissolution or winding up, rank on a parity with the Series B Preferred Stock, and rank senior to Junior Stock. (b) Dividends and Distributions. (i) Dividends. The holders of shares of Series A Preferred Stock shall be entitled to receive, as and when declared by the Board of Directors, out of funds legally available therefor, dividends on each outstanding share of Series A Preferred Stock, at an annual rate per share equal to ten percent (10%) of the Liquidation Preference, calculated on the basis of a 360-day year consisting of twelve 30-day months. Dividends shall be paid quarterly in arrears on the Dividend Payment Date commencing September 30, 1998 in the manner provided in paragraph (iii) below. (ii) Accrued Dividends, Record Date. Dividends payable pursuant to paragraph (i) above shall begin to accrue and be cumulative from the date on which shares of Series A Preferred Stock are issued, and shall begin to accrue on a daily basis, in each case whether or not earned or declared. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of the dividends payable pursuant to paragraph (i) above, which record date shall not be more than 60 days prior to the Dividend Payment Date. -4- (iii) Payment. All dividends shall be payable in cash. Until the 42nd Dividend Payment Date, the Corporation shall have the option to defer payment of dividends on Series A Preferred Stock. Any dividend payments so deferred shall be payable on and not earlier than the 42nd Dividend Payment Date. (iv) Dividends Pro Rata. All dividends paid with respect to shares of Series A Preferred Stock pursuant to this Section 4.3(b) shall be paid pro rata to the holders entitled thereto. In the event that the funds legally available therefor shall be insufficient for the payment of the entire amount of cash dividends payable at any Dividend Payment Date, subject to Section 4.3(c), such funds shall be allocated for the payment of dividends with respect to the shares of Series A Preferred Stock and Series B Preferred Stock pro rata based upon the Liquidation Preference of the outstanding shares. (c) Certain Restrictions. (i) Notwithstanding the provisions of Sections 4.3(b), (e) and (f), cash dividends on the Series A Preferred Stock may not be declared, paid or set apart for payment, nor may the Corporation redeem, purchase or otherwise acquire any shares of Series A Preferred Stock, if (A) the Corporation is not solvent or would be rendered insolvent thereby or (B) at such time the terms and provisions of any law or agreement of the Corporation, including any agreement relating to its indebtedness, specifically prohibit such declaration, payment or setting apart for payment or such redemption, purchase or other acquisition, or provide that such declaration, payment or setting apart for payment or such redemption, purchase or other acquisition would constitute a violation or breach thereof or a default thereunder. (ii) So long as shares of Series A Preferred Stock are outstanding or dividends payable on shares of Series A Preferred Stock have not been paid in full in cash, then the Corporation shall not declare or pay cash dividends on, or redeem, purchase or otherwise acquire for consideration, any shares of Common Stock or other shares of Junior Stock, except with the prior written consent of holders of a majority of the outstanding shares of Series A Preferred Stock, except that the Corporation may acquire, in accordance with the terms of any agreement between the Corporation and its employees, shares of Common Stock or Preferred Stock at a price not greater than the Market Price as of such date. (iii) The Corporation shall not permit any Subsidiary of the Corporation, or cause any other Person, to make any distribution with respect to, or purchase or otherwise acquire for consideration, any shares of capital stock of the Corporation, unless the Corporation could, pursuant to paragraph (ii) above, make such distribution or purchase or otherwise acquire such shares at such time and in such manner. (d) Voting Rights; Election of Directors. -5- (i) The holders of shares of Series A Preferred Stock shall not have any right to vote on any matters to be voted on by the stockholders of the Corporation, except as otherwise provided in paragraphs (ii) and (iii) below or as provided by law, and the shares of Series A Preferred Stock shall not be included in determining the number of shares voting or entitled to vote on any such matters (other than the matters described in paragraphs (ii) and (iii) below or as otherwise required by law). (ii) Unless the consent or approval of a greater number of shares shall then be required by law, the affirmative vote of the holders of a majority of the outstanding shares of Series A Preferred Stock in person or by proxy, at each special and annual meeting of stockholders called for the purpose, or by written consent, shall be necessary to (A) authorize, increase the authorized number of shares of or issue (including on conversion or exchange of any convertible or exchangeable securities or by reclassification) any shares of any class or classes of Senior Stock or Parity Stock or any additional shares of Series A Preferred Stock, (B) authorize, adopt or approve each amendment to this Amended and Restated Certificate of Incorporation that would increase or decrease the par value of the shares of Series A Preferred Stock, alter or change the powers, preferences or rights of the shares of Series A Preferred Stock or alter or change the powers, preferences or rights of any other capital stock of the Corporation if such alteration or change results in such capital stock being Senior Stock or Parity Stock, (C) amend, alter or repeal any provision of this Amended and Restated Certificate of Incorporation so as to affect the shares of Series A Preferred Stock adversely, or (D) authorize or issue any security convertible into, exchangeable for or evidencing the right to purchase or otherwise receive any shares of any class or classes of Senior Stock or Parity Stock. (iii) So long as the Initial Holders own in the aggregate at least two-thirds (2/3) of the number of shares of Series A Preferred Stock owned by them on July 17, 1998, holders of shares of Series A Preferred Stock shall have the exclusive right, voting separately as a single class, to nominate one director of the Corporation. The foregoing right to nominate one director may be exercised at any annual meeting of stockholders or a special meeting of stockholders or holders of Series A Preferred Stock held for such purpose or any adjournment thereof, or by the written consent, delivered to the Secretary of the Corporation, of the holders of a majority of the issued and outstanding shares of Series A Preferred Stock. Notwithstanding the foregoing, the Initial Holders shall have the right, exercisable at any time by written notice delivered to the Secretary of the Corporation, to surrender and cancel irrevocably such right to nominate one director of the Corporation. So long as the Initial Holders own in the aggregate at least two-thirds (2/3) of the number of shares of Series A Preferred Stock owned by them on July 17, 1998, in the event any director so nominated by the Initial Holders ceases to be a director of the Corporation during such director's term (whether or not such director resigns, is removed from the Board of Directors with or without cause or ceases to be a director by reason of death, disability or for any other reason), the Initial Holders shall have the right to designate a replacement for such director, and the Corporation shall cause to be elected -6- or appointed for the remainder of the term of any director so replaced any person designated by the Initial Holders, upon written notice to the Corporation and the other members of the Board of Directors which notice shall set forth the name of the member being replaced and the name of the new member. (e) Redemption at Option of the Corporation. The Corporation shall have the right to redeem shares of Series A Preferred Stock pursuant to the following provisions: (i) The Corporation shall not have any right to redeem shares of the Series A Preferred Stock prior to, with respect to any share of the Series A Preferred Stock, the 30th day after the tenth anniversary of the issuance of such share. Thereafter, subject to the restrictions in Section 4.3(c)(i), the Corporation shall have the right, at its sole option and election, to redeem the shares of the Series A Preferred Stock, in whole but not in part, at any time at a redemption price (the "Series A Redemption Price") per share equal to the Liquidation Preference as of the redemption date; (ii) Notice of any redemption of the Series A Preferred Stock shall be mailed at least ten, but not more than 60, days prior to the date fixed for redemption to each holder of Series A Preferred Stock to be redeemed, at such holder's address as it appears on the books of the Corporation. In order to facilitate the redemption of the Series A Preferred Stock, the Board of Directors may fix a record date for the determination of holders of Series A Preferred Stock to be redeemed, or may cause the transfer books of the Corporation to be closed for the transfer of the Series A Preferred Stock, not more than 60 days prior to the date fixed for such redemption; (iii) Within two Business Days after the redemption date specified in the notice given pursuant to paragraph (ii) above and the surrender of the certificate(s) representing shares of Series A Preferred Stock, the Corporation shall pay to the holder of the shares being redeemed the Series A Redemption Price therefor. Such payment shall be made by wire transfer of immediately available funds to an account designated by such holder or by overnight delivery (by a nationally recognized courier) of a bank check to such holder's address as it appears on the books of the Corporation; and (iv) Effective upon the date of the notice given pursuant to paragraph (ii) above, notwithstanding that any certificate for such shares shall not have been surrendered for cancellation, the shares represented thereby shall no longer be deemed outstanding, the rights to receive dividends thereon shall cease to accrue from and after the date of redemption designated in the notice of redemption and all rights of the holders of the shares of the Series A Preferred Stock called for redemption shall cease and terminate, excepting only the right to receive the Series A Redemption Price therefor in accordance with paragraph (iii) above and the right to convert such shares into shares of Class A Common Stock until the close of business on the third Business Day preceding the redemption date, as provided in Section 4.3(i). (f) Redemption at Option of Holder. -7- (i) No holder of shares of Series A Preferred Stock shall have any right to require the Corporation to redeem any shares of Series A Preferred Stock prior to, with respect to any share of the Series A Preferred Stock, the 30th day after the twentieth anniversary of the issuance of such share. Thereafter, subject to the restrictions set forth in Section 4.3(c)(i), each holder of shares of Series A Preferred Stock shall have the right, at the sole option and election of such holder, to require the Corporation to redeem all (but not less than all) of the shares of Series A Preferred Stock owned by such holder at a price per share equal to the Series A Redemption Price; (ii) The holder of any shares of the Series A Preferred Stock may exercise such holder's right to require the Corporation to redeem such shares by surrendering for such purpose to the Corporation, at its principal office or at such other office or agency maintained by the Corporation for that purpose, certificates representing the shares of Series A Preferred Stock to be redeemed, accompanied by a written notice stating that such holder elects to require the Corporation to redeem all (but not less than all) of such shares in accordance with the provisions of this Section 4.3(f), which notice may specify an account for delivery of the Series A Redemption Price; (iii) Within two Business Days after the surrender of such certificates, the Corporation shall pay to the holder of the shares being redeemed the Series A Redemption Price therefor. Such payment shall be made by wire transfer of immediately available funds to an account designated by such holder or by overnight delivery (by a nationally recognized courier) of a bank check to such holder's address as it appears on the books of the Corporation; and (iv) Such redemptions shall be deemed to have been made at the close of business on the date of the receipt of such notice and of such surrender of the certificates representing the shares of the Series A Preferred Stock to be redeemed and the rights of the holder thereof, except for the right to receive the Series A Redemption Price therefor in accordance herewith, shall cease on such date of receipt and surrender. (g) Reacquired Shares. Any shares of the Series A Preferred Stock redeemed or purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued pursuant to Section 4.2(c) as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions or restrictions on issuance set forth herein. (h) Liquidation, Dissolution or Winding Up. (i) In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, before any distribution or payment to holders of Junior Stock, the holders of shares of Series A Preferred Stock shall be entitled -8- to be paid an amount equal to the Liquidation Preference with respect to each share of Series A Preferred Stock. (ii) If, upon any liquidation, dissolution or winding up of the Corporation, the assets of the Corporation available for distribution to the holders of Series A Preferred Stock shall be insufficient to permit payment in full to such holders of the sums which such holders are entitled to receive in such case, then all of the assets available for distribution to holders of the Series A Preferred Stock and Series B Preferred Stock shall be distributed among and paid to such holders ratably in proportion to the amounts that would be payable to such holders if such assets were sufficient to permit payment in full. (iii) Neither the consolidation or merger of the Corporation with or into any other Person nor the sale or other distribution to another Person of all or substantially all the assets, property or business of the Corporation, shall be deemed to be a liquidation, dissolution or winding up of the Corporation for purposes of this Section 4.3(h). (i) Conversion. (i) Stockholders' Right To Convert. No holder of shares of Series A Preferred Stock shall have any right to convert any shares of Series A Preferred Stock into Class A Common Stock or any other securities of the Corporation prior to July 17, 2006. Thereafter, each share of Series A Preferred Stock held by the Initial Holders or a Qualified Transferee shall be convertible, at the sole option and election of the Initial Holders or Qualified Transferee, into fully paid and non-assessable shares of Class A Common Stock. (ii) Number of Shares of Class A Common Stock Issuable upon Conversion. The number of shares of Class A Common Stock to be issued upon conversion of shares of Series A Preferred Stock pursuant to paragraph (i) above shall be equal to the product of (A) the Series A Conversion Rate as of the date of the applicable notice pursuant to paragraph (iv) below, multiplied by (B) the number of shares of Series A Preferred Stock to be converted. (iii) Fractional Shares. Notwithstanding any other provision of this Amended and Restated Certificate of Incorporation, the Corporation shall not be required to issue fractions of shares upon conversion of any shares of Series A Preferred Stock or to distribute certificates which evidence fractional shares. In lieu of fractional shares, the Corporation may pay therefor, at the time of any conversion of shares of Series A Preferred Stock as herein provided, an amount in cash equal to such fraction multiplied by the Market Price of a share of Class A Common Stock on such date. (iv) Mechanics of Conversion. The Initial Holders or Qualified Transferee may exercise its option to convert by surrendering for such purpose to the Corporation, at its principal office or such other office or agency maintained by the Corporation for that purpose, certificates representing the shares of Series A Preferred Stock to be converted, -9- accompanied by a written notice, delivered in accordance with the terms of the Stockholders Agreement, stating that such holder elects to convert such shares in accordance with this Section 4.3(i). The date of receipt of such certificates and notice by the Corporation at such office shall be the conversion date (the "Series A Conversion Date"). If required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his or its attorney duly authorized in writing. Within ten Business Days after the Series A Conversion Date (or, if at the time of such surrender the shares of Class A Common Stock are not listed or admitted for trading on any national securities exchange and are not quoted on NASDAQ or any similar service, within ten Business Days of the determination of the Market Price pursuant to the Appraisal Procedure), the Corporation shall issue to such holder a number of shares of Class A Common Stock into which such shares of Series A Preferred Stock are convertible pursuant to paragraph (ii) above. Certificates representing such shares of Class A Common Stock shall be delivered to such holder at such holder's address as it appears on the books of the Corporation. (v) Termination of Rights. All shares of Series A Preferred Stock which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares, including the rights, if any, to receive notices and to vote, shall immediately cease and terminate on the Series A Conversion Date, except only the right of the holders thereof to receive shares of Class A Common Stock in exchange therefor and payment of any declared and unpaid dividends thereon. (vi) No Conversion Charge or Tax. The issuance and delivery of certificates for shares of Class A Common Stock upon the conversion of shares of Series A Preferred Stock shall be made without charge to the holder of shares of Series A Preferred Stock for any issue or transfer tax, or other incidental expense in respect of the issuance or delivery of such certificates or the securities represented thereby, all of which taxes and expenses shall be paid by the Corporation. (vii) Reorganization, Reclassification and Merger Adjustment. If there occurs any capital reorganization or any reclassification of the Class A Common Stock of the Corporation, the consolidation or merger of the Corporation with or into another Person (other than a merger or consolidation of the Corporation in which the Corporation is the continuing corporation and which does not result in any reclassification or change of outstanding shares of its Class A Common Stock) or the sale or conveyance of all or substantially all of the assets of the Corporation to another Person, then each share of Series A Preferred Stock shall thereafter be convertible into the same kind and amounts of securities (including shares of stock) or other assets, or both, which were issuable or distributable to the holders of outstanding Class A Common Stock of the Corporation upon such reorganization, reclassification, consolidation, merger, sale or conveyance, in respect of that number of shares of Class A Common Stock into which such share of -10- Series A Preferred Stock might have been converted immediately prior to such reorganization, reclassification, consolidation, merger, sale or conveyance; and, in any such case, appropriate adjustments (as determined in good faith by the Board of Directors of the Corporation, whose determination shall be conclusive) shall be made to assure that the provisions set forth herein shall thereafter be applicable, as nearly as reasonably may be practicable, in relation to any securities or other assets thereafter deliverable upon the conversion of the Series A Preferred Stock. (viii) Notice of Adjustment. Whenever the securities or other property deliverable upon the conversion of the Series A Preferred Stock shall be adjusted pursuant to the provisions hereof, the Corporation shall promptly give written notice thereof to each holder of shares of Series A Preferred Stock at such holder's address as it appears on the transfer books of the Corporation and shall forthwith file, at its principal executive office and with any transfer agent or agents for the Series A Preferred Stock and the Class A Common Stock, a certificate, signed by the Chairman of the Board, President or one of the Vice Presidents of the Corporation, and by its Chief Financial Officer, Treasurer or one of its Assistant Treasurers, stating the securities or other property deliverable per share of Series A Preferred Stock calculated to the nearest cent or to the nearest one-hundredth of a share and setting forth in reasonable detail the method of calculation and the facts requiring such adjustment and upon which such calculation is based. Each adjustment shall remain in effect until a subsequent adjustment hereunder is required. (ix) Reservation of Class A Common Stock. The Corporation shall at all times reserve and keep available for issuance upon the conversion of the shares of Series A Preferred Stock the maximum number of its authorized but unissued shares of Class A Common Stock as is reasonably anticipated to be sufficient to permit the conversion of all outstanding shares of Series A Preferred Stock, and shall take all action required to increase the authorized number of shares of Class A Common Stock if at any time there shall be insufficient authorized but unissued shares of Class A Common Stock to permit such reservation or to permit the conversion of all outstanding shares of Series A Preferred Stock. (j) Qualified Transfer. If at any time an Initial Holder or Qualified Transferee desires to sell, transfer or otherwise dispose of shares of Series A Preferred Stock pursuant to a Qualified Transfer, it shall, with respect to each such proposed transfer, give written notice (a "Qualified Transfer Notice") to the Corporation at its principal executive office specifying up to ten prospective transferees. Upon receipt of such notice, the Corporation shall have ten days to give written notice to the Initial Holders or Qualified Transferee specifying its disapproval of (A) any or all of such prospective transferees if it has good reason for such disapproval and specifying such reason and (B) up to two of such prospective transferees with or without good reason. -11- (k) Notice of Certain Events. In case the Corporation shall propose at any time or from time to time (i) to declare or pay any dividend payable in stock of any class to the holders of Common Stock or to make any other distribution to the holders of Common Stock, (ii) to offer to the holders of Common Stock rights or warrants to subscribe for or to purchase any additional shares of Common Stock or shares of stock of any class or any other securities, rights or options, (iii) to effect any reclassification of its Common Stock, (iv) to effect any consolidation, merger or sale, transfer or other disposition of all or substantially all of the property, assets or business of the Corporation which would, if consummated, adjust the Series A Conversion Rate or the securities issuable upon conversion of shares of Series A Preferred Stock, or (v) to effect the liquidation, dissolution or winding up of the Corporation, then, in each such case, the Corporation shall mail to each holder of shares of Series A Preferred Stock, at such holder's address as it appears on the transfer books of the Corporation, a written notice of such proposed action, which shall specify (A) the date on which a record is to be taken for the purpose of such dividend or distribution of rights or warrants or, if a record is not to be taken, the date as of which the holders of shares of Common Stock of record to be entitled to such dividend or distribution of rights or warrants are to be determined, or (B) the date on which such reclassification, consolidation, merger, sale, conveyance, dissolution, liquidation or winding up is expected to become effective, and such notice shall be so given as promptly as possible but in any event at least ten Business Days prior to the applicable record, determination or effective date, specified in such notice. (l) Certain Remedies. Any registered holder of shares of Series A Preferred Stock shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Amended and Restated Certificate of Incorporation and to enforce specifically the terms and provisions of this Amended and Restated Certificate of Incorporation in any court of the United States or any state thereof having jurisdiction, this being in addition to any other remedy to which such holder may be entitled at law or in equity. 4.4 Powers, Preferences and Rights of the Series B Preferred Stock. The Series B Preferred Stock shall rank on a parity with the Series A Preferred Stock, and the powers, preferences and rights of the Series B Preferred Stock, and the qualifications, limitations, and restrictions thereof, shall be identical to those of the Series A Preferred Stock, except that (a) shares of Series B Preferred Stock shall not be, pursuant to the terms of Section 4.3(i) or otherwise, convertible into shares of Common Stock or any other security issued by the Corporation, (b) the Corporation may redeem shares of Series B Preferred Stock in accordance with the terms of Section 4.3(e) at any time without regard to whether the redemption date is before, on or after the date referred to in Section 4.3(e)(i), (c) shares of Series B Preferred Stock may be issued by the Corporation in accordance with the terms of Section 4.11, (d) holders of Series B Preferred Stock shall not, pursuant to Section 4.3(d) or otherwise, have the right to elect any directors of the Corporation and (e) the words "Series B Preferred Stock" and "Series A Preferred Stock" shall be substituted for all references in Section 4.3 to Series A Preferred Stock and Series B Preferred Stock, respectively. -12- 4.5 Powers, Preferences and Rights of the Series C Preferred Stock. The powers, preferences and rights of the Series C Preferred Stock and the qualifications, limitations and restrictions thereof are as follows: (a) Ranking. The Series C Preferred Stock shall rank (i) junior to the Series A Preferred Stock and the Series B Preferred Stock with respect to the payment of dividends and the distribution of assets on liquidation, dissolution or winding up, (ii) junior to the Series D Preferred Stock with respect to the distribution of assets on a Statutory Liquidation, (iii) on a parity with the Series D Preferred Stock with respect to the distribution of assets on liquidation, dissolution or winding up (other than on a Statutory Liquidation), (iv) on a parity with the Series D Preferred Stock and the Common Stock with respect to the payment of dividends, and (v) senior to the Common Stock and any series or class of the Corporation's common or preferred stock, now or hereafter authorized (other than Series A Preferred Stock, Series B Preferred Stock or Series D Preferred Stock), with respect to the distribution of assets on liquidation, dissolution and winding up. (b) Dividends. Holders of Series C Preferred Stock shall be entitled to dividends in cash or property when, as and if, declared by the Board of Directors of the Corporation; provided that, in no event shall dividends in excess of the Liquidation Preference be declared or paid. So long as shares of Series C Preferred Stock are outstanding or dividends payable on shares of Series C Preferred Stock have not been paid in full in cash, the Corporation shall not declare or pay cash dividends on, or redeem, purchase or otherwise acquire for consideration, any shares of any class of common stock or series of preferred stock ranking junior to or on a parity with the Series C Preferred Stock, except that the Corporation may acquire, in accordance with the terms of any agreement between the Corporation and its employees, shares of Common Stock or Preferred Stock at a price not greater than the Market Price as of such date. The Corporation shall not declare or pay cash dividends on, or redeem, purchase or otherwise acquire for consideration, any shares of Series D Preferred Stock unless concurrently therewith the Corporation shall declare or pay cash dividends on, or redeem, purchase or otherwise acquire for consideration, as the case may be, shares of Series C Preferred Stock ratably in accordance with the number of shares of Series C Preferred Stock and Series D Preferred Stock then outstanding. (c) Liquidation Preference. (i) In the event of any liquidation, dissolution or winding up of the Corporation, the holders of Series C Preferred Stock shall be entitled to receive out of the assets of the Corporation, whether such assets are capital or surplus of any nature, after payment is made to holders of all series of preferred stock ranking senior to the Series C Preferred Stock with respect to rights on liquidation, dissolution or winding up (including, in the case of a Statutory Liquidation, the Series D Preferred Stock), but before any payment shall be made or any assets distributed to the holders of Common -13- Stock or any series of preferred stock ranking junior to the Series C Preferred Stock with respect to rights on liquidation, dissolution or winding up, an amount equal to the Liquidation Preference and no more. (ii) If upon any liquidation, dissolution or winding up of the Corporation the assets of the Corporation to be distributed are insufficient to permit the payment to all holders of Series C Preferred Stock and any other series of preferred stock ranking on a parity with Series C Preferred Stock with respect to rights on liquidation, dissolution or winding up (including, in the case of a liquidation, dissolution or winding up other than a Statutory Liquidation, the Series D Preferred Stock), to receive their full preferential amounts, the entire assets of the Corporation shall be distributed among the holders of Series C Preferred Stock and all such other series ratably in accordance with their respective Liquidation Preference. (iii) Neither the consolidation or merger of the Corporation with or into any other Person nor the sale or other distribution to another Person of all or substantially all the assets, property or business of the Corporation, shall be deemed to be a liquidation, dissolution or winding up of the Corporation for purposes of this Section 4.5(c). (d) Voting Rights. (i) The holders of shares of Series C Preferred Stock shall not have any right to vote on any matters to be voted on by the stockholders of the Corporation, except as otherwise provided in paragraph (ii) below or as provided by law, and the shares of Series C Preferred Stock shall not be included in determining the number of shares voting or entitled to vote on any such matters (other than the matters described in paragraph (ii) below or as otherwise required by law). (ii) The affirmative vote of holders of not less than a majority of Series C Preferred Stock shall be required to (A) authorize, increase the authorized number of shares of or issue (including on conversion or exchange of any convertible or exchangeable securities or by reclassification) any shares of any class or classes of stock ranking senior to or pari passu with the Series C Preferred Stock or any additional shares of Series C Preferred Stock, (B) authorize, adopt or approve each amendment to this Amended and Restated Certificate of Incorporation that would increase or decrease the par value of the shares of Series C Preferred Stock, alter or change the powers, preferences or rights of the shares of Series C Preferred Stock or alter or change the powers, preferences or rights of any other capital stock of the Corporation if such alteration or change results in such capital stock ranking senior to or pari passu with the Series C Preferred Stock, (C) amend, alter or repeal any provision of this Amended and Restated Certificate of Incorporation so as to affect the shares of Series C Preferred Stock adversely, or (D) authorize or issue any security convertible into, exchangeable for or evidencing the right to purchase or otherwise receive any shares of any class or classes of stock senior to or pari passu with the Series C Preferred Stock. -14- (e) Redemption at Option of the Corporation. The Corporation shall have the right to redeem shares of Series C Preferred Stock pursuant to the following provisions: (i) Subject to the restrictions set forth in Section 4.5(g)(i), the Corporation shall have the right, at its sole option and election, to redeem the shares of the Series C Preferred Stock, in whole but not in part, at any time at a redemption price per share equal to the Liquidation Preference thereof as of the redemption date; provided, that concurrently with such redemption, the Corporation shall redeem the shares of Series D Preferred Stock, in whole and not in part, at a redemption price per share equal to the Liquidation Preference thereof as of the redemption date; provided, further, that if the funds legally available to the Corporation are insufficient to effect the redemption of the Series C Preferred Stock and the Series D Preferred Stock in full, such funds shall be allocated among the shares of Series C Preferred Stock and Series D Preferred Stock ratably in accordance with the number of shares of each Series outstanding as of the redemption date; (ii) Notice of any redemption of the Series C Preferred Stock and Series D Preferred Stock shall be mailed at least ten but not more than 60 days prior to the date fixed for redemption to each holder of Series C Preferred Stock and Series D Preferred Stock to be redeemed, at such holder's address as it appears on the books of the Corporation. In order to facilitate the redemption of the Series C Preferred Stock and Series D Preferred Stock, the Board of Directors may fix a record date for the determination of holders of Series C Preferred Stock and Series D Preferred Stock to be redeemed, or may cause the transfer books of the Corporation to be closed for the transfer of the Series C Preferred Stock and Series D Preferred Stock, not more than 60 days prior to the date fixed for such redemption; (iii) Within two Business Days after the redemption date specified in the notice given pursuant to paragraph (ii) above and the surrender of the certificate(s) representing shares of Series C Preferred Stock or Series D Preferred Stock, as the case may be, the Corporation shall pay to the holder of the shares being redeemed the Series C Redemption Price or the Series D Redemption Price therefor. Such payment shall be made by wire transfer of immediately available funds to an account designated by such holder or by overnight delivery (by a nationally recognized courier) of a bank check to such holder's address as it appears on the books of the Corporation; and (iv) Effective upon the date of the notice given pursuant to paragraph (ii) above, notwithstanding that any certificate for such shares shall not have been surrendered for cancellation, the shares represented thereby shall no longer be deemed outstanding, the rights to receive dividends thereon shall cease to accrue from and after the date of redemption designated in the notice of redemption and all rights of the holders of the shares of the Series C Preferred Stock or Series D Preferred Stock, as the case may be, called for redemption shall cease and terminate, excepting only the right to receive the -15- Series C Redemption Price or the Series D Redemption Price therefor in accordance with paragraph (iii) above. (f) Redemption at Option of Holder. (i) No holder of shares of Series C Preferred Stock shall have any right to require the Corporation to redeem any shares of Series C Preferred Stock prior to, with respect to any share of Series C Preferred Stock, the 30th day after the twentieth anniversary of the issuance of such share. Thereafter, subject to the restrictions set forth in Section 4.5(g)(i), each holder of shares of Series C Preferred Stock shall have the right, at the sole option and election of such holder, to require the Corporation to redeem all (but not less than all) of the shares of Series C Preferred Stock owned by such holder at a price per share equal to the Series C Redemption Price; (ii) The holder of any shares of the Series C Preferred Stock may exercise such holder's right to require the Corporation to redeem such shares by surrendering for such purpose to the Corporation, at its principal office or at such other office or agency maintained by the Corporation for that purpose, certificates representing the shares of Series C Preferred Stock to be redeemed, accompanied by a written notice stating that such holder elects to require the Corporation to redeem all (but not less than all) of such shares in accordance with the provisions of this Section 4.5(f), which notice may specify an account for delivery of the Series C Redemption Price; (iii) Within two Business Days after the surrender of such certificates, the Corporation shall pay to the holder of the shares being redeemed the Series C Redemption Price therefor. Such payment shall be made by wire transfer of immediately available funds to an account designated by such holder or by overnight delivery (by a nationally recognized courier) of a bank check to such holder's address as it appears on the books of the Corporation; and (iv) Such redemptions shall be deemed to have been made at the close of business on the date of the receipt of such notice and of such surrender of the certificates representing the shares of the Series C Preferred Stock to be redeemed and the rights of the holder thereof, except for the right to receive the Series C Redemption Price therefor in accordance herewith, shall cease on such date of receipt and surrender. (g) Certain Restrictions. (i) Notwithstanding the provisions of Sections 4.5(b) or (f), cash dividends on the Series C Preferred Stock may not be declared, paid or set apart for payment, nor may the Corporation redeem, purchase or otherwise acquire any shares of Series C Preferred Stock, if (A) the Corporation is not solvent or would be rendered insolvent thereby or (B) at such time the terms and provisions of any law or agreement of the Corporation, including any agreement relating to its indebtedness, specifically prohibit such declaration, payment or setting apart for payment or such redemption, purchase or other acquisition, or provide that such declaration, payment or setting apart for payment or such redemption, purchase or other -16- acquisition would constitute a violation or breach thereof or a default thereunder. (ii) So long as shares of Series C Preferred Stock are outstanding or dividends payable on shares of Series C Preferred Stock have not been paid in full in cash, the Corporation shall not declare or pay cash dividends on, or redeem, purchase or otherwise acquire for consideration, any shares of Common Stock or other shares of capital stock of the Corporation ranking junior to or on a parity basis with the Series C Preferred Stock, except with the prior written consent of holders of a majority of the outstanding shares of Series C Preferred Stock, except that the Corporation may acquire, in accordance with the terms of any agreement between the Corporation and its employees, shares of Common Stock from its employees at a price equal to such employee's purchase price therefor without such consent. (iii) The Corporation shall not permit any Subsidiary of the Corporation, or cause any other Person, to make any distribution with respect to, or purchase or otherwise acquire for consideration, any shares of Common Stock or other shares of capital stock of the Corporation ranking junior to or on a parity basis with the Series C Preferred Stock unless the Corporation could, pursuant to paragraph (i) above, make such distribution or purchase or otherwise acquire such shares at such time and in such manner. 4.6 Powers, Preferences and Rights of the Series D Preferred Stock. (a) General. The powers, preferences and rights of the Series D Preferred Stock, and the qualifications, limitations, and restrictions thereof, shall be identical to those of the Series C Preferred Stock, except that (i) the Series D Preferred Stock shall rank with respect to the other series and classes of capital stock of the Corporation as provided in paragraph (b) below, (ii) the shares of Series D Preferred Stock shall be subject to redemption, pro rata with the Series C Preferred Stock, in accordance with Section 4.5(e), and (iii) the words "Series D Preferred Stock" and "Series C Preferred Stock" shall be substituted for all references in Section 4.5 to Series C Preferred Stock and Series D Preferred Stock, respectively. (b) Ranking. The Series D Preferred Stock shall rank (i) junior to the Series A Preferred Stock and the Series B Preferred Stock with respect to the payment of dividends and the distribution of assets on liquidation, dissolution or winding up, (ii) senior to the Series C Preferred Stock with respect to the distribution of assets on a Statutory Liquidation, (iii) on a parity with the Series C Preferred Stock with respect to the distribution of assets on liquidation, dissolution or winding up (other than on a Statutory Liquidation), (iv) on a parity with the Series C Preferred Stock and the Common Stock with respect to the payment of dividends, and (v) senior to the Common Stock and any series or class of the Corporation's common or preferred stock, now or hereafter authorized (other than Series A Preferred Stock, Series B Preferred Stock or -17- Series C Preferred Stock), with respect to the distribution of assets on liquidation, dissolution and winding up. 4.7 Powers, Preferences and Rights of the Series E Preferred Stock. The powers, preferences and rights of the Series E Preferred Stock, and the qualifications, limitations and restrictions thereof, shall be identical to those of the Series C Preferred Stock, except that (a) the Series E Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets on liquidation, dissolution or winding up, (i) junior to the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock and (ii) senior to the Series F Preferred Stock and the Common Stock and any series or class of the Corporation's common or preferred stock, now or hereafter authorized (other than the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock), (b) the provisos to Section 4.5(e)(i) shall not apply to a redemption of the Series E Preferred Stock, and (c) the words "Series E Preferred Stock" and "Series C Preferred Stock" shall be substituted for all references in Section 4.5 to Series C Preferred Stock and Series E Preferred Stock, respectively. 4.8 Powers, Preferences and Rights of the Series F Preferred Stock. The powers, preferences and rights of the Series F Preferred Stock, and the qualifications, limitations and restrictions thereof are as follows: (a) Ranking. The Series F Preferred Stock shall rank (i) junior to the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock and the Series E Preferred Stock with respect to the payment of dividends and the distribution of assets on liquidation, dissolution or winding up, (ii) on a parity with the Common Stock with respect to the distribution of assets on liquidation, dissolution or winding up (other than on a Statutory Liquidation), (iii) senior to the Common Stock with respect to the distribution of assets on a Statutory Liquidation (iv on a parity with the Common Stock with respect to the payment of dividends, and (v) senior to any series or class of the Corporation's common or preferred stock hereafter authorized (other than Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, or Common Stock), with respect to the payment of dividends and the distribution of assets on liquidation, dissolution and winding up. (b) Dividends. Holders of Series F Preferred Stock shall be entitled to dividends in cash or property when, as and if, declared by the Board of Directors of the Corporation. (c) Liquidation Preference. (i) In the event of any liquidation, dissolution or winding up of the Corporation, the holders of Series F Preferred Stock shall be entitled to receive out of the assets of the Corporation, whether such assets are capital or surplus of any nature, after payment is made to holders of all series of preferred stock ranking senior to the Series F Preferred Stock with respect to rights on liquidation, dissolution or winding up, but -18- before any payment shall be made or any assets distributed to the holders of Common Stock or any series of preferred stock ranking junior to the Series F Preferred Stock with respect to rights on liquidation, dissolution or winding up, an amount equal to the Liquidation Preference and no more. (ii) If upon any liquidation, dissolution or winding up of the Corporation the assets of the Corporation to be distributed are insufficient to permit the payment to all holders of Series F Preferred Stock and any other series of preferred stock ranking on a parity with Series F Preferred Stock with respect to rights on liquidation, dissolution or winding up, to receive their full preferential amounts, the entire assets of the Corporation shall be distributed among the holders of Series F Preferred Stock and all such other series ratably in accordance with their respective Liquidation Preference. (iii) After payment to the holders of Series F Preferred Stock of the amounts set forth in paragraph (i) above, the entire remaining assets and funds of the Corporation legally available for distribution, if any, shall be distributed among the holders of the Participating Stock in proportion to the shares of Participating Stock then held by them as of the date of the liquidation, dissolution or winding up of the Corporation. (iv) Neither the consolidation or merger of the Corporation with or into any other Person nor the sale or other distribution to another Person of all or substantially all the assets, property or business of the Corporation, shall be deemed to be a liquidation, dissolution or winding up of the Corporation for purposes of this Section 4.8(c). (d) Voting Rights. (i) The holders of shares of Series F Preferred Stock shall not have any right to vote on any matters to be voted on by the stockholders of the Corporation, except as otherwise provided in paragraph (ii) below or as provided by law, and the shares of Series F Preferred Stock shall not be included in determining the number of shares voting or entitled to vote on any such matters (other than the matters described in paragraph (ii) below or as otherwise required by law). (ii) The affirmative vote of holders of not less than a majority of Series F Preferred Stock shall be required to (A) authorize, increase the authorized number of shares of or issue (including on conversion or exchange of any convertible or exchangeable securities or by reclassification) any shares of any class or classes of stock ranking senior to or pari passu with the Series F Preferred Stock or any additional shares of Series F Preferred Stock, (B) authorize, adopt or approve each amendment to this Amended and Restated Certificate of Incorporation that would increase or decrease the par value of the shares of Series F Preferred Stock, alter or change the powers, preferences or rights of the shares of Series F Preferred Stock or alter or change the powers, preferences or rights of any other capital stock of the Corporation if such alteration or change results in such capital stock ranking senior to or pari passu with the Series F Preferred Stock, (C) amend, alter or repeal any provision of this Amended and -19- Restated Certificate of Incorporation so as to affect the shares of Series F Preferred Stock adversely, or (D) authorize or issue any security convertible into, exchangeable for or evidencing the right to purchase or otherwise receive any shares of any class or classes of stock senior to or pari passu with the Series F Preferred Stock. (e) Conversion. The shares of Series F Preferred Stock shall be convertible into shares of Common Stock as follows: (i) Optional Conversion. Each share of Series F Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, into one fully paid and non-assessable share of Non-Tracked Common Stock; provided that, unless and until the Tracked Common Stock shall be convertible into Class A Common Stock in accordance with Section 4.9(e)(i), each of the first 195,062.43 shares of Series F Preferred Stock converted pursuant to this paragraph shall be convertible into one fully paid and non-assessable share of Class D Common Stock. (ii) Mechanics of Optional Conversion. In order for a holder of Series F Preferred Stock to convert such shares into shares of Common Stock, such holder shall surrender the certificate(s) for such shares of Series F Preferred Stock at the office of the transfer agent for the Series F Preferred Stock (or if the Corporation serves as its own transfer agent, at the principal office of the Corporation), together with written notice that such holder elects to convert all or any number of the shares of the Series F Preferred Stock represented by such certificate(s). If required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his or its attorney duly authorized in writing. The date of receipt of such certificates and notice by the transfer agent (or by the Corporation if the Corporation serves as its own transfer agent) shall be the conversion date (the "Optional Conversion Date"). The Corporation shall, within ten Business Days after the Optional Conversion Date, issue and deliver at such office to such holder of Series F Preferred Stock, or to his or its nominees, one or more certificates for the number of whole shares of Common Stock (and any shares of Series F Preferred Stock represented by the certificate delivered to the Corporation by the holder thereof that are not converted into Common Stock) issuable upon such conversion in accordance with the provisions hereof. (iii) Reservation of Shares. The Corporation shall at all times when the Series F Preferred Stock shall be outstanding, reserve and keep available out of its authorized but unissued stock, for the purpose of effecting the conversion of the Series F Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Series F Preferred Stock. Before taking any action which would cause Common Stock upon the conversion of Series F Preferred Stock, to be issued below the then par value of the shares of Common Stock the Corporation will take any corporate action that may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully -20- paid and non-assessable shares of Common Stock, as the case may be, to the holders of Series F Preferred Stock. (iv) Adjustments for Dividends. Upon any conversion of Series F Preferred Stock, no adjustment to the conversion ratio shall be made for declared and unpaid dividends on the Series F Preferred Stock surrendered for conversion or on the Common Stock delivered upon conversion. (v) Termination of Rights. All shares of Series F Preferred Stock which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares, including the rights, if any, to receive notices and to vote, shall immediately cease and terminate on the Optional Conversion Date, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor and payment of any declared and unpaid dividends thereon. On and as of the Optional Conversion Date, the shares of Common Stock issuable upon such conversion shall be deemed to be outstanding, and the holder thereof shall be entitled to exercise and enjoy all rights with respect to such shares of Common Stock including the rights, if any, to receive notices and to vote. Shares of Series F Preferred Stock converted into Common Stock will be restored to the status of authorized but unissued shares of Common Stock or preferred stock without designation as to class or series, and may thereafter be issued, whether or not designated as shares of Class A Common Stock or Series F Preferred Stock. (vi) No Conversion Charge or Tax. The issuance and delivery of certificates for shares of Common Stock upon the conversion of shares of Series F Preferred Stock shall be made without charge to the holder of shares of Series F Preferred Stock for any issue or transfer tax, or other incidental expense in respect of the issuance or delivery of such certificates or the securities represented thereby, all of which taxes and expenses shall be paid by the Corporation. (vii) Reorganization, Reclassification and Merger Adjustment. If there occurs any capital reorganization or any reclassification of the Common Stock of the Corporation, the consolidation or merger of the Corporation with or into another Person (other than a merger or consolidation of the Corporation in which the Corporation is the continuing corporation and which does not result in any reclassification or change of outstanding shares of its Common Stock) or the sale or conveyance of all or substantially all of the assets of the Corporation to another Person, then each share of Series F Preferred Stock shall thereafter be convertible into the same kind and amounts of securities (including shares of stock) or other assets, or both, which were issuable or distributable to the holders of outstanding Common Stock of the Corporation upon such reorganization, reclassification, consolidation, merger, sale or conveyance, in respect of that number of shares of Common Stock into which such share of Series F Preferred Stock might have been converted immediately prior to such reorganization, reclassification, consolidation, merger, sale or conveyance; and, in any such case, -21- appropriate adjustments (as determined in good faith by the Board of Directors of the Corporation, whose determination shall be conclusive) shall be made to assure that the provisions set forth herein shall thereafter be applicable, as nearly as reasonably may be practicable, in relation to any securities or other assets thereafter deliverable upon the conversion of the Series F Preferred Stock. (f) Certain Restrictions. (i) Notwithstanding the provisions of Sections 4.8(b), cash dividends on the Series F Preferred Stock may not be declared, paid or set apart for payment, nor may the Corporation redeem, purchase or otherwise acquire any shares of Series F Preferred Stock, if (A) the Corporation is not solvent or would be rendered insolvent thereby or (B) at such time the terms and provisions of any law or agreement of the Corporation, including any agreement relating to its indebtedness, specifically prohibit such declaration, payment or setting apart for payment or such redemption, purchase or other acquisition, or provide that such declaration, payment or setting apart for payment or such redemption, purchase or other acquisition would constitute a violation or breach thereof or a default thereunder. (ii) The Corporation shall not permit any Subsidiary of the Corporation, or cause any other Person, to make any distribution with respect to, or purchase or otherwise acquire for consideration, any shares of Common Stock or other shares of capital stock of the Corporation ranking junior to or on a parity basis with the Series F Preferred Stock unless the Corporation could, pursuant to paragraph (i) above, make such distribution or purchase or otherwise acquire such shares at such time and in such manner. (g) Redemption. The Series F Preferred Stock is not redeemable. (h) Sinking Fund. There shall be no sinking fund for the payment of dividends or Liquidation Preferences on the Series F Preferred Stock. 4.9 Common Stock. (a) General. Except as otherwise provided herein, all shares of Common Stock issued and outstanding shall be identical, and shall entitle the holders thereof to the same rights, powers and privileges of stockholders under Delaware law. For purposes of this Section 4.9 (and the definitions relating thereto), the Class A Common Stock and the Class B Common Stock are herein collectively referred to as the "Non-Tracked Common Stock" and the Class C Common Stock and the Class D Common Stock are herein collectively referred to as the "Tracked Common Stock". (b) Dividends. Subject to Section 4.10(b) and the express terms of any outstanding series of Preferred Stock, dividends may be paid in cash or otherwise with respect to each class of Common Stock out of the assets of the Corporation, upon the -22- terms, and subject to the limitations, provided in this Section 4.9(b), as the Board of Directors may determine. (i) Dividends on the Non-Tracked Common Stock. Dividends on the Non-Tracked Common Stock may be declared and paid only out of the excess of (A) the funds of the Corporation legally available therefor over (B) the Tracked Business Available Dividend Amount (the "Non-Tracked Business Available Dividend Amount"). (ii) Dividends on Tracked Common Stock. Dividends on the Tracked Common Stock may be declared and paid only out of the lesser of (A) the funds of the Corporation legally available therefor and (B) the Tracked Business Available Dividend Amount. The Corporation shall not declare or pay cash dividends on, or redeem, purchase or otherwise acquire for consideration, any shares of Tracked Common Stock unless concurrently therewith the Corporation shall declare or pay cash dividends on, or redeem, purchase or otherwise acquire for consideration, as the case may be, on the same terms, all shares of Tracked Common Stock ratably in accordance with the number of shares of each class of Tracked Common Stock then outstanding. (iii) Discrimination in Dividends Among the Tracked and Non-Tracked Common Stock. The Board of Directors may at any time, subject to the provisions of Sections 4.9(b)(i) and (ii) and Section 4.10, declare and pay dividends exclusively on the Non-Tracked Common Stock, exclusively on the Tracked Common Stock or on both such categories of Common Stock in equal or unequal amounts, notwithstanding the relative amounts of the Non-Tracked Business Available Dividend Amount and the Tracked Business Available Dividend Amount. (c) Voting. (i) The holders of shares of Common Stock shall be entitled to such voting rights as hereinafter provided, and shall be entitled to notice of any stockholders' meeting and to vote upon such matters as provided herein and in the Bylaws of the Corporation, and as may be provided by law. Holders of any class of Common Stock shall not be entitled to cumulate their votes for any purpose. Except as otherwise required by law or provided herein, regardless of the number of shares of any class of Common Stock then outstanding, each class of Common Stock shall be entitled to the number of votes enumerated below and the number of votes or fractional votes to which each share of a particular class of Common Stock shall be entitled shall be the quotient determined by dividing the aggregate number of votes to which such class of Common Stock is entitled by the number of shares of such class of Common Stock then outstanding. Except as otherwise required by law or provided herein, the Class A Common Stock shall have 4,990,000 votes; the Class B Common Stock shall have no votes; the Class C Common Stock shall have no votes; the Class D Common Stock shall have no votes; and the Voting Preference Common Stock shall have 5,010,000 votes. -23- (ii) A quorum for the transaction of business shall be present when a majority of the shares of Voting Preference Common Stock outstanding as of the record date are present and when shares of all classes of Common Stock with at least 5,010,000 votes are present, except that (x) with respect to actions requiring a majority vote of the Class A Common Stock, the presence of a majority of the outstanding shares of Class A Common Stock shall also be required for a quorum to be present, (y) with respect to actions requiring the vote of a majority vote of the Class C Common Stock, the presence of a majority of the outstanding shares of Class C Common Stock shall also be required for a quorum to be present and (z) with respect to actions requiring the vote of a majority vote of the Class D Common Stock, the presence of a majority of the outstanding shares of Class D Common Stock shall also be required for a quorum to be present. Except as otherwise required by law or provided herein, the majority vote of the Voting Preference Common Stock present at any meeting at which a quorum is present shall be sufficient to approve any action required to be approved by the holders of the Common Stock. (iii) In any matter requiring a separate class vote of holders of any class of Common Stock or a separate vote of two or more classes of Common Stock voting together as a single class, for the purposes of such a class vote, each share of Common Stock of such classes shall be entitled to one vote per share. (iv) In the event that the Corporation shall have received an opinion of regulatory counsel of nationally recognized standing to the effect that the rules, regulations or policies of the Federal Communications Commission (the "FCC") permit the Class A Common Stock and the Voting Preference Common Stock (x) to be voted as a single class on all matters, (y) to be treated as a single class for purposes of all quorum requirements and (z) to have one vote per share, then, unless the Board of Directors of the Corporation shall have determined, within 30 days after the date of receipt of such opinion, that obtaining the FCC consent described below would be reasonably expected to have a significant detrimental effect on the Corporation, the Corporation shall, upon the affirmative vote of 66-2/3% or more of the Class A Common Stock, seek consent from the FCC to permit the Class A Common Stock and Voting Preference Common Stock to vote and act as a single class in the manner described above. From and after the date that such consent is obtained, the Class A Common Stock and the Voting Preference Common Stock shall be voted as a single class on all matters, shall be treated as a single class for purposes of all quorum requirements, and shall have one vote per share; provided, that the voting rights of the the Class B Common Stock, Class C Common Stock and Class D Common Stock and the Preferred Stock shall remain unaffected. (v) The holders of shares of Class B Common Stock shall be entitled to vote as a separate class on any amendment, repeal or modification of any provision of this Amended and Restated Certificate of Incorporation that adversely affects the powers, preferences or special rights of the holders of the Class B Common Stock. -24- (d) Dissolution, Liquidation or Winding Up. Upon the dissolution, liquidation or winding up of the Corporation, after any preferential amounts to be distributed to the holders of the Preferred Stock and any other class or series of stock having a preference over the Common Stock then outstanding have been paid or declared and funds sufficient for the payment thereof in full set apart for payment, (i) the holders of the Tracked Common Stock shall be entitled to receive pro rata the Tracked Business Available Liquidation Amount and (ii) the holders of the Non-Tracked Common Stock shall be entitled to receive pro rata the excess of (A) all the remaining assets of the Corporation available for distribution to its stockholders over (B) the Tracked Business Available Liquidation Amount. (e) Conversion. (i) Each share of Class B Common Stock may, at the option of the holder thereof, at any time, be converted into one fully paid and non-assessable share of Class A Common Stock. (ii) Each share of Class A Common Stock may, at the option of the holder thereof, at any time, be converted into one fully paid and non-assessable share of Class B Common Stock. (iii) In the event that the Corporation shall have received an opinion of regulatory counsel of nationally recognized standing to the effect that the rules, regulations or policies of the FCC permit the conversion of shares of Tracked Common Stock into Class A Common Stock or Class B Common Stock, then, unless the Board of Directors of the Corporation shall have determined, within 30 days after receipt of such opinion, that permitting such conversion would be reasonably expected to have a significant detrimental effect on the Corporation, shares of Class C Common Stock and Class D Common Stock shall, upon the affirmative vote of 66-2/3% or more of the Class A Common Stock, be convertible as follows: (x) each share of Class C Common Stock may, at the option of the holder thereof, be converted into one fully paid and non-assessable share of Class A Common Stock or or Class B Common Stock, and (y) each share of Class D Common Stock may, at the option of the holder thereof, be converted into one fully paid and non-assessable share of Class A Common Stock or Class B Common Stock. 4.10 Participating Stock. (a) Changes in Capital Stock. The Corporation shall not effect any change in or reclassification of any class or series of the outstanding Participating Stock, whether through stock dividends, stock splits, reverse stock splits, combinations or otherwise, without the payment to the Corporation of any consideration therefor in money, services or property, unless concurrently therewith the Corporation shall effect a corresponding change in each other class and series of the outstanding Participating Stock. -25- (b) Dividends and Distributions. The Corporation shall not declare or pay cash dividends on, or redeem, purchase or otherwise acquire for consideration, any shares of Participating Stock unless concurrently therewith the Corporation shall declare or pay cash dividends on, or redeem, purchase or otherwise acquire for consideration, as the case may be, on the same terms, all shares of Participating Stock ratably in accordance with the number of shares of each class and series of Participating Stock then outstanding. (c) Notices. Any written notice or communication by the Corporation to holders of any class or series of Participating Stock shall be sent to all holders of Participating Stock. 4.11 Exchange of Capital Stock. Notwithstanding any other provision of this Amended and Restated Certificate of Incorporation to the contrary, in the event that AT&T Wireless PCS, LLC terminates its obligations under Section 8.6 of the Stockholders Agreement pursuant to Section 8.8(c) thereof with respect to any Overlap Territory (as defined therein) (any such termination being referred to hereinafter as the "Exchange Event"), the following provisions shall apply: (a) Right to Exchange. The Corporation shall have the right, exercisable in its sole discretion by written notice (the "Exchange Notice") given to the Initial Holders and Section 4.11 Transfers within 60 days after the Exchange Event, to: (i) require the Initial Holders and each Section 4.11 Transferee to exchange for an equivalent number of shares of Series B Preferred Stock either (A) all of the shares of Series A Preferred Stock then owned by the Initial Holders and each Section 4.11 Transferee or (B) a number of shares of Series A Preferred Stock then owned by each such holder equal to the product of (x) the number of shares of Series A Preferred Stock then owned by such holder multiplied by (y) a fraction, the numerator of which is equal to the number of POPs (as defined in the Stockholders Agreement) in the Overlap Territory and the denominator of which is equal to the total number of POPs in the Territory (as defined in the Stockholders Agreement); and (ii) require the Initial Holders and each Section 4.11 Transferee to exchange, for a number of shares of Series B Preferred Stock determined in accordance with paragraph (b) below, either (A) all of the shares of Series D Preferred Stock, Series F Preferred Stock and Common Stock owned by the Initial Holder on July 17, 1998 (or shares of Common Stock into which such shares of Series D Preferred Stock, and Series F Preferred Stock shall have been converted) and that the Initial Holders or a Section 4.11 Transferee continues to own on the date of delivery of the Exchange Notice (any such shares of Series D Preferred Stock, Series F Preferred Stock or Common Stock being referred to hereinafter collectively as "Original Shares") or (B) a number of Original Shares of Series D Preferred Stock, Series F Preferred Stock and Common Stock equal to the product of (x) the number of Original Shares of Series D Preferred Stock, Series F Preferred Stock and Common Stock, as the case may be, then owned by each such holder, multiplied by (y) a fraction, the numerator of which is equal to the number -26- of POPs in the Overlap Territory and the denominator of which is equal to the total number of POPs in the Territory; provided, that (x) if the Corporation exercises its right under clause (i)(A) of this paragraph (a), it shall be required to exercise its right under clause (ii)(A) of this paragraph (a), and vice-versa; and if the Corporation exercises its right under clause (i)(B) of this paragraph (a), it shall be required to exercise its right under clause (ii)(B) of this paragraph (a), and vice-versa and (y) the provisions of this Section 4.11(a) shall not apply to any Section 4.11 Transferee which is a Cash Equity Investor. (Shares of Series A Preferred Stock, Series D Preferred Stock, Series F Preferred Stock and Series G Preferred Stock (and shares of Common Stock into which such shares shall have been converted) and shares of Common Stock subject to exchange pursuant to this Section 4.11 are hereinafter referred to collectively as "Exchange Shares.") (b) Number of Shares of Series B Preferred Stock Issuable in Exchange. The number of shares of Series B Preferred Stock issuable in exchange for Original Shares pursuant to clause (ii) of paragraph (a) above shall be equal to the quotient of the aggregate purchase price paid by the Initial Holders for the Original Shares being exchanged, divided by $1,000. (c) Fractional Shares. Notwithstanding any other provision of this Amended and Restated Certificate of Incorporation, the Corporation shall not be required to issue fractions of shares upon exchange of any Exchange Shares or to distribute certificates which evidence fractional shares. In lieu of fractional shares, the Corporation may pay therefor, at the time of any exchange of Exchange Shares as herein provided, an amount in cash equal to such fraction multiplied by the Market Price of a share of Common Stock on such date. (d) Mechanics of Exchange. The Exchange Notice shall specify the date fixed for the exchange (the "Exchange Date"), which shall be at least ten but no more than 60 days following delivery of the Exchange Notice, and the place designated for exchange of the Exchange Shares pursuant to this Section 4.11. Such notice will be sent by first class or registered mail, postage prepaid, to the Initial Holders and each Section 4.11 Transferee at such holder's address last shown on the records of the transfer agent for the Exchange Shares (or the records of the Corporation if it serves as its own transfer agent). On or before the Exchange Date, the Initial Holders and each Section 4.11 Transferee shall surrender its certificate or certificates for all such shares to the Corporation at the place designated in such notice. If required by the Corporation, certificates surrendered for exchange shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the Initial Holders and each Section 4.11 Transferee or its attorney duly authorized in writing. (e) Termination of Rights. On and after the Exchange Date (whether or not the applicable certificates have theretofore been surrendered), all rights with respect to the Exchange Shares, including the rights, if any, to receive notices and to vote, will -27- terminate, except only the rights of the Initial Holders and Section 4.11 Transferees to receive certificates for the number of shares of Series B Preferred Stock into which such Exchange Shares have been exchanged, upon surrender of its certificate or certificates therefor, and payment of any declared but unpaid dividends thereon (which shall accrue and be payable at the times and on the other terms applicable to such dividends when declared) and payment of any deferred dividends in respect of Series A Preferred Stock which shall be payable as set forth in Section 4.3(b)(iii). Within ten Business Days after the Exchange Date, the Corporation shall issue and deliver to the Initial Holders and each Section 4.11 Transferee, or on its written order to its nominees, a certificate or certificates for the number of whole shares of Series B Preferred Stock issuable upon such exchange in accordance with the provisions hereof, together with cash in lieu of fractional shares calculated in accordance with paragraph (c) of this Section 4.11. (f) Reservation of Shares. The Corporation shall at all times reserve and keep available for issuance upon the exchange of Exchange Shares the maximum number of its authorized but unissued shares of Series B Preferred Stock as is reasonably anticipated to be sufficient to permit the exchange of all outstanding Exchange Shares, and shall take all action required to increase the authorized number of shares of Series B Preferred Stock if at any time there shall be insufficient authorized but unissued shares of Series B Preferred Stock to permit such reservation or to permit the exchange of all outstanding Exchange Shares. (g) Adjustments for Dividends. Upon any exchange of Exchange Shares, no adjustment to the rate of conversion shall be made for accrued and unpaid dividends (whether or not declared) on the Exchange Shares, as the case may be, surrendered for exchange or on the Series B Preferred Stock delivered upon exchange. (h) No Exchange Charge or Tax. The issuance and delivery of certificates for shares of Series B Preferred Stock upon the exchange of Exchange Shares shall be made without charge to the Initial Holder for any issue or transfer tax, or other incidental expense in respect of the issuance or delivery of such certificates or the securities represented thereby, all of which taxes and expenses shall be paid by the Corporation. 4.12 Redemption of Capital Stock; FCC Approval. (a) Redemption. Notwithstanding any other provision of this Amended and Restated Certificate of Incorporation to the contrary, outstanding shares of capital stock of the Corporation held by Disqualified Holders shall always be subject to redemption by the Corporation, by action of the Board of Directors, if, in the judgment of the Board of Directors, such action should be taken, pursuant to Section 151(b) of the GCL or any other applicable provision of law, to the extent necessary to prevent the loss or secure the reinstatement of any license or franchise from any governmental agency held by the Corporation or any of its subsidiaries to conduct any portion of the business of the Corporation or any of its subsidiaries, which license or franchise is conditioned upon -28- some or all of the holders of the Corporation's stock possessing prescribed qualifications. The terms and conditions of such redemption shall be as follows: (i) the redemption price of the shares to be redeemed pursuant to this Section 4.12 shall be equal to the lesser of (x) the Market Price or (y) if such stock was purchased by such Disqualified Holder within one year of the Section 4.12 Redemption Date, such Disqualified Holder's purchase price for such shares; (ii) the redemption price of such shares may be paid in cash, Redemption Securities or any combination thereof; (iii) if less than all the shares held by Disqualified Holders are to be redeemed, the shares to be redeemed shall be selected in such manner as shall be determined by the Board of Directors, which may include selection first of the most recently purchased shares thereof, selection by lot or selection in any other manner determined by the Board of Directors; (iv) at least 30 days' written notice of the Section 4.12 Redemption Date shall be given to the record holders of the shares selected to be redeemed (unless waived in writing by any such holder); provided, however, that only 10 days' written notice of the Redemption Date shall be given to record holders if the cash or Redemption Securities necessary to effect the redemption shall have been deposited in trust for the benefit of such record holders and subject to immediate withdrawal by them upon surrender of the stock certificates for their shares to be redeemed; provided, further, that the record holders of the shares selected to be redeemed may transfer such shares prior to the Section 4.12 Redemption Date to any holder that is not a Disqualified Holder and, thereafter, for so long as such shares are not held by a Disqualified Holder, such shares shall not be subject to redemption by the Corporation; (v) from and after the Section 4.12 Redemption Date, any and all rights of whatever nature (including without limitation any rights to vote or participate in dividends declared on stock of the same class or series as such shares) with respect to the shares selected from redemption held by Disqualified Holders on the Section 4.12 Redemption Date shall cease and terminate and such Disqualified Holders thenceforth shall be entitled only to receive the cash or Redemption Securities payable upon redemption; and (vi) such other terms and conditions as the Board of Directors shall determine. (b) FCC Approval. Notwithstanding anything herein to the contrary, if Federal Communications Commission or other regulatory approval is required to be obtained prior to the conversion of shares of any series or class of Preferred Stock or Common Stock, the holder thereof may nevertheless elect to convert any or all of its shares by written notice given to the Corporation in accordance with the applicable provision hereof, provided, that such conversion shall not become effective until the close of -29- business on the date of the receipt of the last of any such approvals and of the surrender of the certificates representing the shares of the applicable Preferred Stock or Common Stock to be converted, and the rights of the holder thereof shall continue in full force and effect pending the receipt of all such approvals, except that, in the case of the Series A Preferred Stock, no dividends shall be payable in respect of the period following the Series A Conversion Date, unless the required approvals are not obtained and the conversion has not been effected within one year of the Series A Conversion Date and the applicable conversion notice is withdrawn, in which event the obligation to pay dividends from and after the Series A Conversion Date shall be payable in accordance with the terms of Section 4.3(b). 4.13 Definitions. For the purposes of this Amended and Restated Certificate of Incorporation, the following terms shall have the meanings indicated: "Affiliate" means, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with that Person. For purposes of this definition, "control" (including the terms "controlling" and "controlled") means the power to direct or cause the direction of the management and policies of a Person, directly or indirectly, whether through the ownership of securities or partnership or other ownership interests, by contract or otherwise. "Appraisal Procedure" means the following procedure for determining the Market Price, for the purpose of calculating the Series A Conversion Rate, in the event that the shares of Class A Common Stock are not listed or admitted for trading on any national securities exchange and are not quoted on NASDAQ or any similar service: (i) Two independent accounting or investment banking firms of nationally recognized standing (each, an "Appraiser"), one chosen by the Corporation and one by the holders of a majority of the outstanding shares of Series A Preferred Stock, shall each determine and attempt to mutually agree upon, the Market Price. Each party shall deliver a notice to the other appointing its Appraiser within 15 days after the applicable notice and surrender pursuant to Section 4.3(iv). If either the Corporation or such holders fail to appoint an appraiser within such 15-day period, the Market Price shall be determined by the Appraiser that has been so appointed. (ii) If within 30 days after appointment of the two Appraisers they are unable to agree upon the Market Price, an independent accounting or investment banking firm of nationally recognized standing shall within ten days thereafter be chosen to serve as a third Appraiser by the mutual consent of such first two Appraisers. The determination of the Market Price by the third Appraiser so appointed and chosen shall be made within 30 days after the selection of such third Appraiser. (iii) If three Appraisers shall be appointed and the determination of one Appraiser is disparate from the middle determination by more than twice the amount by which the other determination is disparate from the middle determination, then the -30- determination of such Appraiser shall be excluded, the remaining two determinations shall be averaged, and such average shall be binding and conclusive on the Corporation and the holders of the Series A Preferred Stock; otherwise the average of all three determinations shall be binding and conclusive on the Corporation and the holders of the Series A Preferred Stock. (iv) In connection with any appraisal conducted pursuant to this Appraisal Procedure, the Appraiser shall adhere to the guidelines provided in the definition of "Market Price" set forth below, including the proviso thereto. (v) The fees and expenses of each Appraiser shall be borne by the Corporation. "Board of Directors" has the meaning specified in Section 4.2(a). "Business Day" shall mean any day other than a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required by law or executive order to close. "Class A Common Stock" has the meaning specified in Section 4.1. "Class B Common Stock" has the meaning specified in Section 4.1. "Class C Common Stock" has the meaning specified in Section 4.1. "Class D Common Stock" has the meaning specified in Section 4.1. "Closing Price" shall mean, with respect to each share of any class or series of capital stock for any day, (i) the last reported sale price regular way or, in case no such sale takes place on such day, the average of the closing bid and asked prices regular way, in either case as reported on the principal national securities exchange on which such class or series of capital stock is listed or admitted for trading or (ii) if such class or series of capital stock is not listed or admitted for trading on any national securities exchange, the last reported sale price or, in case no such sale takes place on such day, the average of the highest reported bid and the lowest reported asked quotation for such class or series of capital stock, in either case as reported on NASDAQ or a similar service if NASDAQ is no longer reporting such information. "Common Stock" has the meaning specified in Section 4.1. "Disqualified Holder" shall mean any holder of shares of capital stock of the Corporation whose holding of such stock, either individually or when taken together with the holding of shares of capital stock of the Corporation by any other holders, may result, in the judgment of the Board of Directors, in the loss of, or the failure to secure the reinstatement of, any license or franchise from any governmental agency held by the Corporation or any of its -31- subsidiaries or affiliates to conduct any portion of the business of the Corporation or any of its subsidiaries or affiliates. "Dividend Payment Date" shall mean the last day of each March, June, September and December, except that if any Dividend Payment Date is not a Business Day, then the next succeeding Business Day shall be the Dividend Payment Date. "Fully Diluted Basis" shall mean, with respect to the outstanding shares of Common Stock, the number of shares of Common Stock outstanding assuming the conversion of all outstanding convertible securities (other than the Series A Preferred Stock) and the exercise of all outstanding warrants, options or other rights to subscribe for or purchase any shares of Common Stock. "Initial Holder" means AT&T Wireless PCS, LLC, a Delaware limited liability company, TWR Cellular, Inc., a Delaware corporation, and/or any of their respective Affiliates that is a Subsidiary of AT&T Corp. "Invested Amount" means, as of any date with respect to each share of Series C Preferred Stock held by any stockholder, an amount equal to the quotient of (i) the aggregate paid-in capital actually paid with respect to all shares of Series C Preferred Stock held by such stockholder as of such date divided by (ii) the total number of shares of Series C Preferred Stock held by such stockholder. "Junior Stock" shall mean, with respect to shares of Series A Preferred Stock or Series B Preferred Stock, any capital stock of the Corporation, including without limitation the Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock, Series G Preferred Stock and the Common Stock, ranking junior to the Series A Preferred Stock or Series B Preferred Stock, as the case may be, with respect to dividends, distribution in liquidation or any other preference, right or power. "Liquidation Preference" shall mean, as of any date, and subject to adjustment for subdivisions or combinations affecting the number of shares of the applicable series of Preferred Stock: (i) with respect to each share of Series A Preferred Stock and Series B Preferred Stock, $1,000 plus accrued and unpaid dividends thereon; (ii) with respect to each share of Series C Preferred Stock, the Invested Amount plus accrued and unpaid dividends on such share (if any), plus an amount equal to interest on the Invested Amount at the rate of six percent (6%) per annum, compounded quarterly, less the amount of dividends (if any) theretofore declared and paid in respect of such share; (iii) with respect to each share of Series D Preferred Stock, $1,000 plus accrued and unpaid dividends thereon (if any), plus an amount equal to interest on $1,000 -32- at the rate of six percent (6%) per annum, compounded quarterly, from the date of issuance of such share to and including the date of the calculation, less the amount of dividends (if any) theretofore declared and paid in respect of such share; (iv) with respect to each share of Series E Preferred Stock, accrued and unpaid dividends thereon (if any), plus an amount equal to interest on $1,000 at the rate of six percent (6%) per annum, compounded quarterly, from the date of issuance of such share to and including the date of the calculation, less the amount of dividends (if any) theretofore declared and paid in respect of such share; and (v) with respect to each share of Series F Preferred Stock, $.000032 plus accrued and unpaid dividends thereon. "Market Price" shall mean, with respect to each share of any class or series of capital stock for any day, (i) the average of the daily Closing Prices for the ten consecutive trading days commencing 15 days before the day in question or (ii) if on such date the shares of such class or series of capital stock are not listed or admitted for trading on any national securities exchange and are not quoted on NASDAQ or any similar service, the cash amount that a willing buyer would pay a willing seller (neither acting under compulsion) in an arm's-length transaction without time constraints per share of such class or series of capital stock as of such date, viewing the Corporation on a going concern basis, as determined (A) in the case of a determination of "Market Price" for the purpose of calculating the Series A Conversion Rate, pursuant to the Appraisal Procedure and (B) in the case of a determination of Market Price for any other purpose, in good faith by the Board of Directors, whose determination shall be conclusive; provided that, in determining such cash amount, the following shall be ignored: (i) any contract or legal limitation in respect of shares of Common Stock or Preferred Stock, including transfer, voting and other rights, (ii) the "minority interest" or "control" status of shares of Common Stock into which shares of Series A Preferred Stock would be converted, and (iii) any illiquidity arising by contract in respect of the shares of Common Stock and any voting rights or control rights amongst the stockholders. "NASDAQ" shall mean the National Association of Securities Dealers Automated Quotations System. "Non-Tracked Common Stock" has the meaning specified in Section 4.9(a). "Non-Tracked Business Available Dividend Amount" has the meaning specified in Section 4.9(b)(i). "Optional Conversion Date" has the meaning specified in 4.8(e)(ii). "Parity Stock" shall mean, with respect to shares of Series A Preferred Stock or Series B Preferred Stock, any capital stock of the Corporation ranking on a parity with the Series A Preferred Stock or Series B Preferred Stock, as the case may be, with respect to dividends, distribution in liquidation or any other preference, right or power. -33- "Participating Stock" shall mean, collectively, the Series F Preferred Stock and the Non-Tracked Common Stock. "Person" shall mean any individual, firm, corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, governmental agency or political subdivision thereof or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. "Preferred Stock" has the meaning specified in Section 4.1. "Qualified Transfer" shall mean a sale, transfer or other disposition of shares of Series A Preferred Stock to any prospective transferee specified in a Qualified Transfer Notice, other than a prospective transferee as to which the Corporation disapproves in accordance with the terms of the second sentence of Section 4.3(j), provided such sale, transfer or other disposition is made pursuant to a binding agreement entered into no later than 180 days after the applicable Qualified Transfer Notice is given. "Qualified Transferee" shall mean, with respect to any shares of Series A Preferred Stock, (i) any Cash Equity Investor that acquired such shares pursuant to Section 4.2 of the Stockholders Agreement or (ii) any other holder that acquired such shares in a Qualified Transfer from an Initial Holders or Qualified Transferee. "Qualified Transfer Notice" has the meaning specified in Section 4.3(i)(x). "Redemption Securities" shall mean any debt or equity securities of the Corporation, any of its subsidiaries or affiliates or any other corporation, or any combination thereof, having such terms and conditions as shall be approved by the Board of Directors and which, together with any cash to be paid as part of the redemption price payable pursuant to Section 4.12, in the opinion of any nationally recognized investment banking firm selected by the Board of Directors (which may be a firm which provides investment banking, brokerage or other services to the Corporation), has a value, at the time notice of redemption is given pursuant to Section 4.12(d) at least equal to the price required to be paid pursuant to Section 4.12(a) (assuming, in the case of Redemption Securities to be publicly traded, that such Redemption Securities were fully distributed and subject only to normal trading activity). "Section 4.11 Transferee" shall mean any transferee of shares of Series A Preferred Stock, Series D Preferred Stock and Series F Preferred Stock issued to the Initial Holder on July 17, 1998 (or any shares of Common Stock into which any such shares are converted) that are acquired in a private transaction. "Section 4.12 Redemption Date" shall mean the date fixed by the Board of Directors for the redemption of any shares of stock of the Corporation pursuant to Section 4.12. "Senior Stock" shall mean, with respect to shares of Series A Preferred Stock or Series B Preferred Stock, as the case may be, any capital stock of the Corporation ranking senior -34- to the Series A Preferred Stock or the Series B Preferred Stock, as the case may be, with respect to dividends, distribution in liquidation or any other preference, right or power. "Series A Conversion Date" has the meaning specified in Section 4.3(i)(iv). "Series A Conversion Rate" shall mean, as of any date of determination, a fraction in which the numerator is the Liquidation Preference of one share of Series A Preferred Stock as of such date, and the denominator is the Market Price of Class A Common Stock as of such date. "Series A Preferred Stock" has the meaning specified in Section 4.1. "Series A Redemption Price" has the meaning specified in Section 4.3(e)(i). "Series B Preferred Stock" has the meaning specified in Section 4.1. "Series C Preferred Stock" has the meaning specified in Section 4.1. "Series D Preferred Stock" has the meaning specified in Section 4.1. "Series E Preferred Stock" has the meaning specified in Section 4.1. "Series F Preferred Stock" has the meaning specified in Section 4.1. "Statutory Liquidation" means the liquidation of the Corporation pursuant to Section 275 of the GCL, as amended. "Stockholders Agreement" means the July 1998 Stockholders Agreement by and among the Corporation, the Initial Holders and the other stockholders of the Corporation named therein, as the same may be amended, modified or supplemented in accordance with the terms thereof, a copy of which is available for inspection by any stockholder at the principal executive offices of the Corporation. "Subsidiary" shall mean, with respect to any Person, a corporation or other entity of which 50% or more of the voting power of the voting equity securities or equity interest is owned, directly or indirectly, by such Person. "Tracked Business Available Dividend Amount" shall mean, on any date, the excess (if any) of (i) the fair market value of the total assets of Tracked Subsidiary (including, without limitation, investments held by Tracked Subsidiary), less the total amount of the liabilities of Tracked Subsidiary, in each case as of such date determined in accordance with generally accepted accounting principles, over (ii) the aggregate par value of, or any greater amount determined in accordance with GCL to be capital in respect of, all outstanding shares of the Tracked Common Stock. -35- "Tracked Business Available Liquidation Amount" shall mean, on any date, the fair market value of the total assets of Tracked Subsidiary (including, without limitation, investments held by Tracked Subsidiary, less the total amount of the liabilities of Tracked Subsidiary, in each case as of such date determined in accordance with generally accepted accounting principles. "Tracked Common Stock" has the meaning specified in Section 4.9(a). "Tracked Subsidiary" shall mean TeleCorp Holding Corp., Inc. ARTICLE V Election of Directors need not be by written ballot. ARTICLE VI 6.1 Amendment of Amended and Restated Certificate of Incorporation. Subject to the separate class vote requirements relating to any class or series of Preferred Stock, the holders of shares of capital stock representing at least two-thirds (2/3) of the votes entitled to be cast for the election of directors of the Corporation, voting together as a single class, in person or by proxy, at a special or annual meeting of stockholders called for the purpose, or by written consent, may amend, alter or repeal this Amended and Restated Certificate of Incorporation. 6.2 Amendment of the Bylaws. Except as otherwise provided by law or by this Certificate of Incorporation, the Bylaws of the Corporation, as from time to time altered or amended, may be made, altered or amended by the holders of shares of capital stock representing at least two-thirds (2/3) of the votes entitled to be cast for the election of directors of the Corporation, voting together as a single class, in person or by proxy at any annual or special meeting of the stockholders called for such purpose, of which the notice shall specify the subject matter of the proposed alteration or amendment or new bylaw or the article or articles to be affected thereby, or by written consent of such holders of such number of shares. The Bylaws may also be made, altered or amended by a majority of the whole number of directors then in office. Notwithstanding anything to the contrary contained in this Section 6.2, the rights of any Stockholder (as such term is defined in the Stockholders Agreement) or group of Stockholders under Section 2.11(b) of the Bylaws shall not be amended, altered or repealed without the prior written approval of any such Stockholder or group of Stockholders, as the case may be. ARTICLE VII 7.1 Indemnification. Any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding (a "Proceeding"), whether civil, criminal, administrative, or investigative (whether or not by or in the right of the Corporation), by reason of the fact that such person, or a person of whom such person is the legal -36- representative, is or was a director, officer, incorporator, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, incorporator, employee, partner, trustee, or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise (an "Other Entity"), shall be entitled to be indemnified by the Corporation to the full extent then permitted by law against expenses (including counsel fees and disbursements), judgments, fines (including excise taxes assessed on a person with respect to an employee benefit plan), and amounts paid in settlement incurred by him in connection with such Proceeding. Persons who are not Directors or officers of the Corporation may be similarly indemnified in respect of service to the Corporation or to an Other Entity at the request of the Corporation to the extent the Board of Directors at any time specifies that such persons are entitled to the benefits of this Article VII. 7.2 Advancement of Expenses. The Corporation shall, from time to time, reimburse or advance to any Director or officer or other person entitled to indemnification hereunder the funds necessary for payment of expenses, including attorneys' fees and disbursements, incurred in connection with any Proceeding, in advance of the final disposition of such Proceeding; provided, however, that, if (and only if) required by the GCL, such expenses incurred by or on behalf of any Director or officer or other person may be paid in advance of the final disposition of a Proceeding only upon receipt by the Corporation of an undertaking, by or on behalf of such Director or officer (or other person indemnified hereunder), to repay any such amount so advanced if it shall ultimately be determined by final judicial decision from which there is no further right of appeal that such Director, officer or other person is not entitled to be indemnified for such expenses. 7.3 Rights Not Exclusive. The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Article VII shall not be deemed exclusive of any other rights to which a person seeking indemnification or reimbursement or advancement of expenses may have or hereafter be entitled under any statute, this Amended and Restated Certificate of Incorporation, the Bylaws, any agreement, any vote of stockholders or disinterested Directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office. 7.4 Continuing Rights. The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Article VII shall continue as to a person who has ceased to be a Director or officer (or other person indemnified hereunder), shall inure to the benefit of the executors, administrators, legatees and distributees of such person, and in either case, shall inure whether or not the claim asserted is based on matters which antedate the adoption of this Article VII. 7.5 Insurance. The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation, as a director, officer, employee or agent of an Other Entity, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation -37- would have the power to indemnify such person against such liability under the provisions of this Article VII, the Bylaws or under Section 145 of the GCL or any other provision of law. 7.6 Contract Rights; No Repeal. The provisions of this Article VII shall be a contract between the Corporation, on the one hand, and each Director and officer who serves in such capacity at any time while this Article VII is in effect and any other person indemnified hereunder, on the other hand, pursuant to which the Corporation and each such Director, officer, or other person intend to be legally bound. No repeal or modification of this Article VII shall affect any rights or obligations with respect to any state of facts then or, heretofore or thereafter brought or threatened based in whole or in part upon any such state of facts. 7.7 Enforceability; Burden of Proof. The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Article VII shall be enforceable by any person entitled to such indemnification or reimbursement or advancement of expenses in any court of competent jurisdiction. The burden of proving that such indemnification or reimbursement or advancement of expenses is not appropriate shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, its independent legal counsel and its stockholders) to have made a determination prior to the commencement of such action that such indemnification or reimbursement or advancement of expenses is proper in the circumstances nor an actual determination by the Corporation (including its Board of Directors, its independent legal counsel and its stockholders) that such person is not entitled to such indemnification or reimbursement or advancement of expenses shall constitute a defense to the action or create a presumption that such person is not so entitled. Such a person shall also be indemnified for any expenses incurred in connection with successfully establishing his or her right to such indemnification or reimbursement or advancement of expenses, in whole or in part, in any such Proceeding. 7.8 Service at the Request of the Corporation. Any Director or officer of the Corporation serving in any capacity in (a) another corporation of which a majority of the shares entitled to vote in the election of its directors is held, directly or indirectly, by the Corporation or (b) any employee benefit plan of the Corporation or any corporation referred to in clause (a) shall be deemed to be doing so at the request of the Corporation. 7.9 Right to Be Covered by Applicable Law. Any person entitled to be indemnified or to reimbursement or advancement of expenses as a matter of right pursuant to this Article VII may elect to have the right to indemnification or reimbursement or advancement of expenses interpreted on the basis of the applicable law in effect at the time of the occurrence of the event or events giving rise to the applicable Proceeding, to the extent permitted by law, or on the basis of the applicable law in effect at the time such indemnification or reimbursement or advancement of expenses is sought. Such election shall be made, by a notice in writing to the Corporation, at the time indemnification or reimbursement or advancement of expenses is sought; provided, however, that if no such notice is given, the right to indemnification or reimbursement or advancement of expenses shall be determined by the law in effect at the time indemnification or reimbursement or advancement of expenses is sought. -38- ARTICLE VIII No Director of the Corporation shall be liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a Director, provided that this provision does not eliminate the liability of the Director (i) for any breach of the Director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the GCL or (iv) for any transaction from which the Director derived an improper personal benefit. For purposes of the prior sentence, the term "damages" shall, to the extent permitted by law, include without limitation, any judgment, fine, amount paid in settlement, penalty, punitive damages, excise or other tax assessed with respect to an employee benefit plan, or expense of any nature (including, without limitation, counsel fees and disbursements). Each person who serves as a Director of the Corporation while this Article VIII is in effect shall be deemed to be doing so in reliance on the provisions of this Article VIII, and neither the amendment or repeal of this Article VIII, nor the adoption of any provision of this Amended and Restated Certificate of Incorporation inconsistent with this Article VIII, shall apply to or have any effect on the liability or alleged liability of any Director of the Corporation for, arising out of, based upon, or in connection with any acts or omissions of such Director occurring prior to such amendment, repeal, or adoption of an inconsistent provision. The provisions of this Article VIII are cumulative and shall be in addition to and independent of any and all other limitations on or eliminations of the liabilities of Directors of the Corporation, as such, whether such limitations or eliminations arise under or are created by any law, rule, regulation, bylaw, agreement, vote of stockholders or disinterested Directors, or otherwise. ARTICLE IX 9.1 Number, Terms and Election of Directors. (a) Subject to the rights, if any, of the holders of any class or series of Preferred Stock to elect additional directors under specified circumstances, the number of directors of the Corporation shall be fixed and may be increased or decreased from time to time by the Board of Directors, but in no case shall the number be less than one nor more than fifteen. (b) Upon the closing of an offer and sale of the Class A Common Stock of the Corporation to the public (a "Public Offering") pursuant to an effective Registration Statement under the Securities Act of 1933, as amended (the "1933 Act"), in which (i) the aggregate gross proceeds received by the Corporation in connection with such Registration Statement(s) equals or exceeds $20 million, and (ii) the Class A Common Stock shall have been listed for trading on the New York Stock Exchange or the American Stock Exchange or authorized for trading on NASDAQ, including without limitation its National Market System, the then current directors and any new directors taking office upon such closing shall be divided into three classes, as nearly equal in number as possible, by the affirmative vote (which vote may be taken prior to such -39- closing) of a majority of the directors then holding office. One class of directors shall be appointed to the Board of Directors for a term expiring at the first annual meeting of stockholders to be held after the closing date of the Public Offering, another class of directors shall be appointed to the Board of Directors for a term expiring at the second annual meeting of stockholders to be held after the closing date of the Public Offering, and another class of directors shall be appointed to the Board of Directors for a term expiring the third annual meeting of stockholders to be held after the closing date of the Public Offering, with members of each class to hold office until their successors are elected and qualified. At each succeeding annual meeting of the stockholders of the Corporation, the successors of the class of directors whose term expires at that meeting shall be elected by plurality vote of all votes cast at such meeting to hold office for a term expiring at the annual meeting of stockholders held in the third year following their year of election. 9.2 Newly Created Directorships and Vacancies. Subject to the rights, if any, of the holders of any and all series of Preferred Stock to elect additional directors pursuant to the terms and conditions of such Preferred Stock, newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled solely by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the board of directors, or by a sole remaining director. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified. No decrease in the number of directors constituting the Board of Directors shall shorten the term of an incumbent director. 9.3 Removal. Subject to the rights, if any, of the holders of any and all series of Preferred Stock to elect additional directors pursuant to the terms and conditions of such Preferred Stock, any director may be removed from office by the stockholders only for cause and only in the following manner. At any annual meeting or special meeting of the stockholders of the Corporation, the notice of which shall state that the removal of a director or directors is among the purposes of the meeting, the affirmative vote of the holders of at least a majority of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of the directors, voting together as a single class, may remove such director or directors for cause. 9.4 Additional Rights of Certain Stockholders Regarding Directors. Notwithstanding anything to the contrary contained in this Article IX, so long as a Stockholder (as such term is defined in the Stockholders' Agreement) or group of Stockholders has the right to nominate one or more of the directors of the Corporation pursuant to the terms of the Stockholders' Agreement or this Amended and Restated Certificate of Incorporation (including, without limitation, the right of the Initial Holders to nominate a director pursuant to Section 4.3(d)(iii) hereof), then, with respect to any directors so nominated by such Stockholder or group of Stockholders, such Stockholder or group of Stockholders, as the case may be, shall have the right to cause the -40- Corporation to remove any director so nominated by such Stockholder or group of stockholders, as the case may be, with or without cause, and any vacancy caused by the removal of such director or otherwise during the term of such director (whether or not such director resigns, is removed from the Board of Directors with or without cause or ceases to be a director by reason of death, disability or for any other reason) shall be filled in accordance with the terms of the Stockholders' Agreement or this Amended and Restated Certificate of Incorporation, as the case may be. -41- IN WITNESS WHEREOF, the undersigned officer of the Corporation has executed this Fifth Amended and Restated Certificate of Incorporation this 29th day of November, 1999. /s/ Thomas H. Sullivan ------------------------------------ Name: Thomas H. Sullivan Title: Executive Vice President EX-3.2 4 SECOND AMENDED & RESTATED BYLAWS EXHIBIT 3.2 TELECORP PCS, INC. SECOND AMENDED AND RESTATED BYLAWS ADOPTED AS OF NOVEMBER 29, 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 below) of the date of such meeting is first made. Such stockholder's notice shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (ii) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the proposal is made (A) the name and address of such stockholder, as they appear on the Corporation's books, and the name and address of such beneficial owner and (B) the class and number of shares of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner; and (iii) in the event that such business includes a proposal to amend either the Certificate of Incorporation or the Bylaws of the Corporation, the language of the proposed amendment. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the preceding paragraph, and the Chairman of the Board or other person presiding at an annual meeting of stockholders, may refuse to permit any business to be brought before an annual meeting without compliance with the foregoing procedures. "Public Announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In addition to the provisions of this paragraph, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 1.1. Nothing in these Bylaws shall be deemed to affect any rights of the Stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act. 1.2 Special Meetings. Special meetings of the stockholders may be called at any time by the Chairman of the Board (or, in the event of his absence or disability, by the President). A special meeting shall be called by the Chairman of the Board (or, in the event of his absence or disability, by the President), or by the Secretary, immediately upon receipt of a written request therefor by stockholders holding in the aggregate not less than 35% of the outstanding shares of the Corporation at the time entitled to vote at any meeting of the stockholders or by a request of a majority of the Board of Directors. If the Chairman of the Board, the President or the Secretary shall fail to so call such meeting within 20 days after receipt of such request, any stockholder or member of the Board of Directors executing such request may call such meeting. Any such special meeting of the stockholders shall be held at such place, within or without the State of Delaware, as shall be specified in the notice or waiver of notice thereof. 1.3 Notice of Meetings; Waiver. The Secretary or any Assistant Secretary shall cause written notice of the place, date and hour of each meeting of the stockholders, and, in the case of a special meeting, the purpose or purposes for which such meeting is called, to be given personally or by mail, not less than ten nor more than 60 days before the date of the meeting, to each stockholder of record entitled to vote at such meeting. If such notice is mailed, it shall be deemed to have been given to a stockholder when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the record of stockholders of the Corporation, or, if he shall have filed with the Secretary a written request that notices to him be mailed to some other address, then directed to him at such other address. Such further notice shall be given as may be required by law. Whenever notice is required to be given to stockholders hereunder, a written waiver, signed by a stockholder, whether before or after the time stated therein, shall be deemed equivalent to notice. Neither the business to be transacted at, nor the purpose of, 2 any regular or special meeting of the stockholders need be specified in a written waiver of notice. The attendance of any stockholder at a meeting of stockholders shall constitute a waiver of notice of such meeting, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting is not lawfully called or convened. 1.4 Quorum; Voting. Except as otherwise required by law or by the Corporation's Certificate of Incorporation, as then amended and in effect (the "Certificate of Incorporation"), at any meeting of the stockholders, a majority of all shares issued and outstanding and entitled to vote upon a question to be considered at the meeting shall constitute a quorum when represented at such meeting by the holders thereof in person or by their duly constituted and authorized attorney or attorneys, but holders of a lesser interest may adjourn any meeting from time to time, and the meeting may be held as adjourned without further notice. When a quorum is present at any meeting, a majority of the stock so represented thereat and voting on any question brought before such meeting shall be determinative, except where a larger vote is required by law, by the Certificate of Incorporation or by these by-laws, and except that the vote required for the election of directors shall be as set forth in the Certificate of Incorporation. Except as set forth in the Certificate of Incorporation, if, pursuant to Section 5.5 of these Bylaws, a record date has been fixed, every holder of record of shares entitled to vote at a meeting of stockholders shall be entitled to one vote for each share outstanding in his name on the books of the Corporation at the close of business on such record date. If no record date has been fixed, then every holder of record of shares entitled to vote at a meeting of stockholders shall be entitled to one vote for each share of stock standing in his name on the books of the Corporation at the close of business on the day next preceding the day on which notice of the meeting is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. 1.5 Voting by Ballot. No vote of the stockholders need be taken by written ballot or conducted by inspectors of election, unless otherwise required by law. Any vote which need not be taken by ballot may be conducted in any manner approved by the meeting. 1.6 Adjournment. If a quorum is not present at any meeting of the stockholders, the stockholders present in person or by proxy shall have the power to adjourn any such meeting from time to time until a quorum is present. Notice of any adjourned meeting of the stockholders of the Corporation need not be given if the place, date and hour thereof are announced at the meeting at which the adjournment is taken, provided, however, that if the adjournment is for more than 30 days, or if after the adjournment a new record date for the adjourned meeting is fixed pursuant to Section 5.5 of these Bylaws, a notice of the adjourned meeting, conforming to the requirements of Section 1.3 hereof, shall be given to each stockholder of record entitled to vote at such meeting. At any adjourned meeting at which a quorum is present, any business may be transacted that might have been transacted on the original date of the meeting. 3 1.7 Proxies. Any stockholder entitled to vote at any meeting of the stockholders or to express consent to or dissent from corporate action without a meeting may, by a written instrument signed by such stockholder or his attorney-in-fact, authorize another person or persons to vote at any such meeting and express such consent or dissent for him by proxy. No such proxy shall be voted or acted upon after the expiration of three years from the date of such proxy, unless such proxy provides for a longer period. Every proxy shall be revocable at the pleasure of the stockholder executing it, except in those cases where applicable law provides that a proxy shall be irrevocable. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or by filing another duly executed proxy bearing a later date with the Secretary. 1.8 Organization; Procedure. At every meeting of stockholders the presiding officer shall be the Chairman of the Board or, in the event of his absence or disability, the President or, in the event of his absence or disability, a presiding officer chosen by a majority of the stockholders present in person or by proxy. The Secretary, or in the event of his absence or disability, the Assistant Secretary, if any, or if there be no Assistant Secretary, in the absence of the Secretary, an appointee of the presiding officer, shall act as Secretary of the meeting. The order of business and all other matters of procedure at every meeting of stockholders may be determined by such presiding officer. 1.9 Consent of Stockholders in Lieu of Meeting. To the fullest extent permitted by law, whenever the vote of the stockholders at a meeting thereof is required or permitted to be taken for or in connection with any corporate action, such action may be taken without a meeting, without prior notice and without a vote of stockholders, if the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted shall consent in writing to such corporate action being taken. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not so consented in writing. ARTICLE 2. BOARD OF DIRECTORS 2.1 General Powers. Except as may otherwise be provided by law, by the Certificate of Incorporation or by these Bylaws, the property, affairs and business of the Corporation shall be managed by or under the direction of the Board of Directors and the Board of Directors may exercise all the powers of the Corporation. 2.2 Number; Election; Term of Office; Removal. The classification of the board of directors, the term of each class of directors, the manner of election and removal of directors and the filling of newly created directorships and vacancies on the Board shall be as set forth in the Certificate of Incorporation. Each Director (whenever elected) shall hold office until his successor has been duly elected and qualified, or until his earlier death, resignation or removal. 4 2.3 Annual and Regular Meetings. The annual meeting of the Board of Directors for the purpose of electing officers and for the transaction of such other business as may come before the meeting shall be held as soon as possible following adjournment of the annual meeting of the stockholders at the place of such annual meeting of the stockholders. Notice of such annual meeting of the Board of Directors need not be given. The Board of Directors from time to time may by resolution provide for the holding of regular meetings and fix the place (which may be within or without the State of Delaware) and the date and hour of such meetings. Notice of regular meetings need not be given, provided, however, that if the Board of Directors shall fix or change the time or place of any regular meeting, notice of such action shall be mailed promptly, or sent by telegram, facsimile or cable, to each Director who shall not have been present at the meeting at which such action was taken, addressed to him at his usual place of business, or shall be delivered to him personally. Notice of such action need not be given to any Director who attends the first regular meeting after such action is taken without protesting the lack of notice to him, prior to or at the commencement of such meeting, or to any Director who submits a signed waiver of notice, whether before or after such meeting. 2.4 Special Meetings; Notice. Special meetings of the Board of Directors shall be held whenever called by the Chairman of the Board or, in the event of his absence or disability, by the President, at such place (within or without the State of Delaware), date and hour as may be specified in the respective notices or waivers of notice of such meetings. Special meetings of the Board of Directors may be called on 24 hours' notice, if notice is given to each Director personally or by telephone or facsimile, or on five days' notice, if notice is mailed to each Director, addressed to him at his usual place of business. Notice of any special meeting need not be given to any Director who attends such meeting without protesting the lack of notice to him, prior to or at the commencement of such meeting, or to any Director who submits a signed waiver of notice, whether before or after such meeting, and any business may be transacted thereat. 2.5 Quorum; Voting. At all meetings of the Board of Directors, the presence of a majority of the total authorized number of Directors shall constitute a quorum for the transaction of business. Except as otherwise required by law or the Certificate of Incorporation, the vote of a majority of the Directors present at any meeting at which a quorum is present shall be the act of the Board of Directors. 2.6 Adjournment. A majority of the Directors present, whether or not a quorum is present, may adjourn any meeting of the Board of Directors to another time or place. No notice need be given of any adjourned meeting unless the time and place of the adjourned meeting are not announced at the time of adjournment, in which case notice conforming to the requirements of Section 2.5 shall be given to each Director. 2.7 Action Without a Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all members of the Board of Directors consent thereto in writing, and such writing or writings are filed with the minutes of proceedings of the Board of Directors. 5 2.8 Regulations; Manner of Acting. To the extent consistent with applicable law, the Certificate of Incorporation and these Bylaws, the Board of Directors may adopt such rules and regulations for the conduct of meetings of the Board of Directors and for the management of the property, affairs and business of the Corporation as the Board of Directors may deem appropriate. The Directors shall act only as a Board, and the individual Directors shall have no power as such. 2.9 Action by Telephonic Communications. Members of the Board of Directors may participate in a meeting of the Board of Directors by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this provision shall constitute presence in person at such meeting. 2.10 Resignation. Any Director may resign at any time by delivering a written notice of resignation, signed by such Director, to the Chairman of the Board, the President or the Secretary. Unless otherwise specified therein, such resignation shall take effect upon delivery. No director need be a stockholder. 2.11 Nominations. (a) Except as otherwise provided by law or by the Certificate of Incorporation, the business and affairs of the Corporation shall be managed by the board of directors. Subject to the rights of holders of the Corporation's preferred stock or the Stockholders (as defined in the Stockholders' Agreement defined below) as set forth in the the Stockholders' Agreement, nominations for the election of directors may be made by the board of directors or a committee appointed by the board of directors or by any stockholder entitled to vote in the election of directors generally. However, any stockholder entitled to vote in the election of directors may nominate one or more persons for election as directors at a meeting only if written notice of such stockholder's intent to make such nomination or nominations has been given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the corporation not later than 90 days prior to the date of any annual or special meeting. In the event that the date of such annual or special meeting was not made by a Public Announcement (as defined in Section 1.1) more than 90 days prior to the meeting, notice by the stockholder to be timely must be delivered to the Secretary of the Corporation not later than the close of business on the tenth day following the day on which such announcement of the date of the meeting was communicated to the stockholders. "Stockholders Agreement" shall have the meaning ascribed to such term as is set forth in the Corporation's Certificate of Incorporation. Each such notice shall set forth: (i) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (ii) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (iii) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (iv) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, by 6 the board of directors; and (v) the consent of each nominee to serve as a director of the Corporation if so elected. (b) Notwithstanding anything to the contrary contained in this Section 2.11, so long as one or more Stockholders (as such term is defined in the Stockholders' Agreement) has the right to nominate one or more directors of the Corporation pursuant to the Certificate of Incorporation or Stockholders' Agreement, as the case may be, then, with respect to such Stockholder or group of Stockholders, as the case may be, such Stockholder or group of Stockholders, as the case may be, shall have the right to nominate such director by written notice to the Company which notice shall set forth the name of the person being nominated. The Company shall deliver written notice to the Stockholders or group of Stockholders, as the case may be, so entitled to nominate such director of the date the Company proposes to distribute any proxy solicitation materials for its annual meeting at least thirty days prior to such earliest proposed distribution date so as to enable such Stockholder or group of Stockholders, as the case may be, to give notice to the Corporation of the persons to be nominated thereby in accordance with the Certificate of Incorporation or Stockholders Agreement, as applicable. The Company shall include in any proxy solicitation materials related to the election of members of the Board of Directors information and recommendations of the Board to effect the nomination of any director so designated by such Stockholders or group of Stockholders, as the case may be. 2.12 Compensation. The amount, if any, which each Director shall be entitled to receive as compensation for his services as such shall be fixed from time to time by resolution of the Board of Directors. 2.13 Reliance on Accounts and Reports, etc. A member of the Board of Directors, or a member of any Committee designated by the Board of Directors, shall, in the performance of his duties, be fully protected in relying in good faith upon the records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of the Corporation's officers or employees, or Committees of the Board of Directors, or by any other person as to matters the member reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation, including without limitation independent certified public accountants and appraisers. ARTICLE 3. EXECUTIVE COMMITTEE AND OTHER COMMITTEES 3.1 How Constituted. The Board of Directors may designate one or more Committees, including an Executive Committee, each such Committee to consist of such number of Directors as from time to time may be fixed by the Board of Directors. The Board of Directors may designate one or more directors as alternate members of any such Committee, who may replace any absent or disqualified member or members at any meeting of such Committee. In addition, unless the Board of Directors has so designated 7 an alternate member of such Committee, in the absence or disqualification of a member of such Committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Thereafter, members (and alternate members, if any) of each such Committee may be designated at the annual meeting of the Board of Directors. Any such Committee may be abolished or redesignated from time to time by the Board of Directors. Each member (and each alternate member) of any such Committee (whether designated at an annual meeting of the Board of Directors or to fill a vacancy or otherwise) shall hold office until his successor shall have been designated or until he shall cease to be a Director, or until his earlier death, resignation or removal. 3.2 Powers. Each Committee shall have and may exercise such powers of the Board of Directors as may be provided by resolution of the Board, provided, that neither the Executive Committee nor any such other Committee shall have the power or authority to (i) approve or adopt, or recommend to the stockholders, any action or matter expressly required by the General Corporation Law to be submitted to stockholders for approval or (ii) adopt, amend or repeal any of these Bylaws. Each Committee may be granted by the Board of Directors power to authorize the seal of the Corporation to be affixed to any or all papers which may require it. 3.3 Quorum; Voting. Except as may be otherwise provided in the resolution creating such Committee, at all meetings of any Committee the presence of members (or alternate members) constituting a majority of the total authorized membership of such Committee shall constitute a quorum for the transaction of business. The act of a majority of the members present at any meeting at which a quorum is present shall be the act of such Committee. 3.4 Action without a Meeting. Any action required or permitted to be taken at any meeting of any such Committee may be taken without a meeting, if all members of such Committee shall consent to such action in writing and such writing or writings are filed with the minutes of the proceedings of the Committee. 3.5 Regulations; Manner of Acting. Each such Committee may fix its own rules of procedure and may meet at such place (within or without the State of Delaware), at such time and upon such notice, if any, as it shall determine from time to time. Each such Committee shall keep minutes of its proceedings and shall report such proceedings to the Board of Directors at the meeting of the Board of Directors next following any such proceeding. The members of any such Committee shall act only as a Committee, and the individual members of such Committee shall have no power as such. 3.6 Action by Telephonic Communications. Members of any Committee designated by the Board of Directors may participate in a meeting of such Committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this provision shall constitute presence in person at such meeting. 8 3.7 Resignation. Any member (and any alternate member) of any Committee may resign at any time by delivering a written notice of resignation, signed by such member, to the Chairman of the Board or the President. Unless otherwise specified therein, such resignation shall take effect upon delivery. 3.8 Removal. Any member (any alternate member) of any Committee may be removed at any time, with or without cause, by resolution adopted by a majority of the whole Board of Directors. 3.9 Vacancies. If any vacancy shall occur in any Committee, by reason of death, resignation, removal or otherwise, the remaining members (and any alternate members) shall continue to act, and any such vacancy may be filled by the Board of Directors or the remaining members of the Committee as provided in Section 3.1 hereof. ARTICLE 4. OFFICERS 4.1 Titles. The officers of the Corporation shall be chosen by the Board of Directors and shall be a Chairman of the Board, the President, an Vice President/Chief Operating Officer, an Executive Vice President/General Counsel, one or more Vice Presidents, a Secretary and a Treasurer. The Board of Directors also may elect one or more Assistant Secretaries and Assistant Treasurers in such numbers as the Board of Directors may determine, and shall also elect a Chairman of the Board. Any number of offices may be held by the same person. No officer need be a Director of the Corporation. 4.2 Election. Unless otherwise determined by the Board of Directors, the officers of the Corporation shall be elected by the Board of Directors at the annual meeting of the Board of Directors, and shall be elected to hold office until the next succeeding annual meeting of the Board of Directors. In the event of the failure to elect officers at such annual meeting, officers may be elected at any regular or special meeting of the Board of Directors. Each officer shall hold office until his successor has been elected and qualified, or until his earlier death, resignation or removal. 4.3 Salaries. The salaries of all officers of the Corporation shall be fixed by the Board of Directors. 4.4 Removal and Resignation; Vacancies. Any officer may be removed with or without cause at any time by the Board of Directors. Any officer may resign at any time by delivering a written notice of resignation, signed by such officer, to the Board of Directors or the Chairman of the Board. Unless otherwise specified therein, such resignation shall take effect upon delivery. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise, shall be filled by the Board of Directors. 4.5 Authority and Duties. The officers of the Corporation shall have such authority and shall exercise such powers and perform such duties as may be specified in 9 these Bylaws, except that in any event each officer shall exercise such powers and perform such duties as may be required by law. 4.6 The Chairman of the Board. The Chairman of the Board shall preside at all meetings of the stockholders and directors. He shall also perform all duties and exercise all powers usually pertaining to the office of a Chairman of the Board of a corporation. He shall see that all orders and resolutions of the Board of Directors are carried into effect. The Chairman of the Board shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. 4.7 The President. The President shall be the chief executive officer of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. In the absence of the Chairman of the Board, the President shall preside at all meetings of the stockholders and directors. He shall manage and administer the Corporation's business and affairs and shall also perform all duties and exercise all powers usually pertaining to the office of a chief executive officer of a corporation. 4.8 Vice President/Chief Operating Officer. The Vice President/Chief Operating Officer shall, subject to the direction of the Board of Directors and the President, perform all duties and exercise all powers usually pertaining to the office of a chief operating officer of a corporation. 4.9 Executive Vice President/General Counsel. The Executive Vice President/General Counsel shall, subject to the directions of the Board of Directors, have general control and supervision of legal and regulatory policies and operations of the Corporation. He shall also be the chief business development officer of the Corporation and in connection therewith shall perform all duties and exercise all powers usually pertaining to the office of a chief business development officer. 4.10 The Vice Presidents. Each Vice President shall perform such duties and exercise such powers as may be assigned to him from time to time by the President. In the absence of the President, the duties of the President shall be performed and his powers may be exercised by such Vice President as shall be designated by the President, or failing such designation, such duties shall be performed and such powers may be exercised by each Vice President in the order of their election to that office; subject in any case to review and superseding action by the President. 4.11 The Secretary. The Secretary shall perform, in general, all duties incident to the office of secretary and such other duties as may be specified in these Bylaws or as may be assigned to him from time to time by the Board of Directors or the President. 4.12 The Treasurer. The Treasurer shall be the chief financial officer of the corporation and shall perform, in general, all duties incident to the office of treasurer and such other duties as may be specified in these Bylaws or as may be assigned to him from time to time by the Board of Directors, or the President. 4.13 Additional Officers. The Board of Directors may appoint such other officers and agents as it my deem appropriate, and such other officers and agents shall 10 hold their offices for such terms and shall exercise such powers and perform such duties as may be determined from time to time by the Board of Directors. The Board of Directors from time to time may delegate to any officer or agent the power to appoint subordinate officers or agents and to prescribe their respective rights, terms of office, authorities and duties. Any such officer or agent may remove any such subordinate officer or agent appointed by him, with or without cause. 4.14 Security. The Board of Directors may direct that the Corporation secure the fidelity of any or all of its officers or agents by bond or otherwise. ARTICLE 5. CAPITAL STOCK 5.1 Certificates of Stock, Uncertificated Shares. The shares of the Corporation shall be represented by certificates, provided that the Board of Directors may provide by resolution that some or all of any or all classes or series of the stock of the Corporation shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until each certificate is surrendered to the Corporation. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock in the Corporation represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the Corporation, by the Chairman of the Board, President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, representing the number of shares registered in certificate form. Such certificate shall be in such form as the Board of Directors may determine, to the extent consistent with applicable law, the Certificate of Incorporation and these Bylaws. 5.2 Signatures; Facsimile. All of such signatures on the certificate may be a facsimile, engraved or printed, to the extent permitted by law. In case any officer, transfer agent or registrar who has signed, or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. 5.3 Lost, Stolen or Destroyed Certificates. The Secretary of the Corporation may cause a new certificate of stock or uncertificated shares in place of any certificate therefor issued by the Corporation, alleged to have been lost, stolen or destroyed, upon delivery to the Secretary of an affidavit of the owner or owners of such certificate, or his or their legal representative setting forth such allegation. The Secretary may require the owner or owners of such lost, stolen or destroyed certificate, or his or their legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of any such new certificate or uncertificated shares. 5.4 Transfer of Stock. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares, duly endorsed or accompanied by 11 appropriate evidence of succession, assignment or authority to transfer, the Corporation shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Within a reasonable time after the transfer of uncertificated stock, the Corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to Section 151, 156, 202(a) or 218(a) of the General Corporation Law. Subject to the provisions of the Certificate of Incorporation and these Bylaws, the Board of Directors may prescribe such additional rules and regulations as it may deem appropriate relating to the issue, transfer and registration of shares of the Corporation. 5.5 Record Date. In order to determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than 60 nor less than ten days before the date of such meeting, nor more than 60 days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting, provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. 5.6 Registered Stockholders. Prior to due surrender of a certificate for registration of transfer, the Corporation may treat the registered owner as the person exclusively entitled to receive dividends and other distributions, to vote, to receive notice and otherwise to exercise all the rights and powers of the owner of the shares represented by such certificate, and the Corporation shall not be bound to recognize any equitable or legal claim to or interest in such shares on the part of any other person, whether or not the Corporation shall have notice of such claim or interest. Whenever any transfer of shares shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of the transfer if, when the certificates are presented to the Corporation for transfer or uncertificated shares are requested to be transferred, both the transferor and transferee request the Corporation to do so. 5.7 Transfer Agent and Registrar. The Board of Directors may appoint one or more transfer agents and registrars, and may require all certificates representing shares to bear the signature of any such transfer agents or registrars. ARTICLE 6. INDEMNIFICATION 6.1 Indemnification. The Corporation shall, to the fullest extent permitted by applicable law from time to time in effect, indemnify any and all persons who may serve or who have served at any time as Directors or officers of the Corporation, or who at the request of the Corporation may serve or at any time have served as Directors or officers of another corporation (including subsidiaries of the Corporation) or of any partnership, 12 joint venture, trust or other enterprise, from and against any and all of the expenses, liabilities or other matters referred to in or covered by said law. Such indemnification shall continue as to a person who has ceased to be a Director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person. The Corporation may also indemnify any and all other persons whom it shall have power to indemnify under any applicable law from time to time in effect to the extent authorized by the Board of Directors and permitted by such law. The indemnification provided by this Article shall not be deemed exclusive of any other rights to which any person may be entitled under any provision of the Certificate of Incorporation, other Bylaw, agreement, vote of stockholders or disinterested Directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. 6.2 Definition. For purposes of this Article, the term "Corporation" shall include constituent corporations referred to in Subsection (h) of Section 145 of the General Corporation Law (or any similar provision of applicable law at the time in effect). ARTICLE 7. OFFICES 7.1 Registered Office. The registered office of the Corporation in the State of Delaware shall be located at Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801, and the Corporation's registered agent shall be The Corporation Trust Company. 7.2 Other Offices. The Corporation may maintain offices or places of business at such other locations within or without the State of Delaware as the Board of Directors may from time to time determine or as the business of the Corporation may require. ARTICLE 8. GENERAL PROVISIONS 8.1 Dividends. Subject to any applicable provisions of law and the Certificate of Incorporation, dividends upon the shares of the Corporation may be declared by the Board of Directors at any regular or special meeting of the Board of Directors and any such dividend may be paid in cash, property, or shares of the Corporation. 8.2 Reserves. There may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, thinks proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation or for such other purpose as the Board of Directors shall think conducive to the interest of the Corporation, and the Board of Directors may similarly modify or abolish any such reserve. 13 8.3 Execution of Instruments. The President, any Executive Vice President, any Vice President, the Secretary or the Treasurer may enter into any contract or execute and deliver any instrument in the name and on behalf of the Corporation. The Board of Directors or the President may authorize any other officer or agent to enter into any contract or execute and deliver any instrument in the name and on behalf of the Corporation. Any such authorization may be general or limited to specific contracts or instruments. 8.4 Corporate Indebtedness. No loan shall be contracted on behalf of the Corporation, and no evidence of indebtedness shall be issued in its name, unless authorized by the Board of Directors. Such authorization may be general or confined to specific instances. Loans so authorized may be effected at any time for the Corporation from any bank, trust company or other institution, or from any firm, corporation or individual. All bonds, debentures, notes and other obligations or evidences of indebtedness of the Corporation issued for such loans shall be made, executed and delivered as the Board of Directors shall authorize. When so authorized by the Board of Directors, any part of or all the properties, including contract rights, assets, business or good will of the Corporation, whether then owned or thereafter acquired, may be mortgaged, pledged, hypothecated or conveyed or assigned in trust as security for the payment of such bonds, debentures, notes and other obligations or evidences of indebtedness of the Corporation, and of any interest thereon, by instruments executed and delivered in the name of the Corporation. 8.5 Deposits. Any funds of the Corporation may be deposited from time to time in such banks, trust companies or other depositaries as may be determined by the Board of Directors or the President, or by such officers or agents as may be authorized by the Board of Directors or the President to make such determination. 16 8.6 Checks. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such agent or agents of the Corporation, and in such manner, as the Board of Directors, the Chairman of the Board, or the President from time to time may determine. 8.7 Sale, Transfer, etc. of Securities. To the extent authorized by the Board of Directors or by the President, any Vice President, the Secretary or the Treasurer, or any other officers designated by the Board of Directors, the Chairman of the Board, or the President may sell, transfer, endorse, and assign any shares of stock, bonds or other securities owned by or held in the name of the Corporation, and may make, execute and deliver in the name of the Corporation, under its corporate seal, any instruments that may be appropriate to effect any such sale, transfer, endorsement or assignment. 8.8 Voting as Stockholder. Unless otherwise determined by resolution of the Board of Directors, the President or any Vice President shall have full power and authority on behalf of the Corporation to attend any meeting of stockholders of any corporation in which the Corporation may hold stock, and to act, vote (or execute proxies to vote) and exercise in person or by proxy all other rights, powers and privileges incident to the ownership of such stock. Such officers acting on behalf of the Corporation shall 14 have full power and authority to execute any instrument expressing consent to or dissent from any action of any such corporation without a meeting. The Board of Directors may by resolution from time to time confer such power and authority upon any other person or persons. 8.9 Fiscal Year. The fiscal year of the Corporation shall commence on the first day of January of each year (except for the Corporation's first fiscal year which shall commence on the date of incorporation) and shall end in each case on December 31. 8.10 Seal. The seal of the Corporation shall be circular in form and shall contain the name of the Corporation, the year of its incorporation and the words "Corporate Seal" and "Delaware". The form of such seal shall be subject to alteration by the Board of Directors. The seal may be used by causing it or a facsimile thereof to be impressed, affixed or reproduced, or may be used in any other lawful manner. 8.11 Books and Records. Except to the extent otherwise required bylaw, the books and records of the Corporation shall be kept at such place or places within or without the State of Delaware as may be determined from time to time by the Board of Directors. ARTICLE 9. AMENDMENT OF BYLAWS 9.1 Amendment. Except as otherwise provided by law or by the Certificate of Incorporation, these Bylaws, as from time to time altered or amended, may be made, altered or amended by the holders of shares of capital stock representing at least two-thirds (2/3) of the votes entitled to be cast for the election of directors of the Corporation, voting together as a single class, in person or by proxy at any annual or special meeting of the stockholders called for such purpose, of which the notice shall specify the subject matter of the proposed alteration or amendment or new bylaw or the article or articles to be affected thereby, or by written consent of such holders of such number of shares. If the Certificate of Incorporation so provides, these Bylaws may also be made, altered or amended by a majority of the whole number of directors then in office. Notwithstanding anything to the contrary contained in this Section 9.1, the rights of any Stockholder or group of Stockholders under Section 2.11(b) of these Bylaws shall not be amended, altered or repealed without the prior written approval of any such Stockholder or group of Stockholders, as the case may be. ARTICLE 10. CONSTRUCTION 10.1 Construction. In the event of any conflict between the provisions of these Bylaws as in effect from time to time and the provisions of the Certificate of 15 Incorporation as in effect from time to time, the provisions of the Certificate of Incorporation shall be controlling. 16 EX-23.1 5 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-91807) of TeleCorp PCS, Inc. of our report dated March 10, 2000 relating to the financial statements which appear in this Form 10-K. McLean, Virginia March 30, 2000 -----END PRIVACY-ENHANCED MESSAGE-----