As filed with the Securities and Exchange Commission on June 22, 1999
Registration No. 333-[_________]
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
______________
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________
TELECORP PCS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 4812 54-1872248
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
______________
1010 N. Glebe Road
Suite 800
Arlington, VA 22201
(703) 236-1100
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
______________
Thomas H. Sullivan, P.C.
Executive Vice President and Chief Financial Officer
TeleCorp PCS, Inc.
1010 N. Glebe Road, Suite 800
Arlington, VA 22201
(703) 236-1122
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
______________
Copies to:
Dov T. Schwell, Esq.
McDermott, Will & Emery
50 Rockefeller Plaza
New York, NY 10020
(212) 547-5400
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
Title of Each Class of
Securities to be Proposed Maximum Offering Proposed Maximum Aggregate Amount of
Registered Amount to be Registered Price Per Unit Offering Price Registration Fee
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11 5/8% Senior $575,000,000 56.98% $327,635,000 $91,082.53
Subordinated Discount
Notes due 2009
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The proposed maximum offering price per unit and the proposed maximum
aggregate offering price are estimated solely for the purpose of calculating the
registration fee.
___________________________________
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
EXPLANATORY NOTE
This registration statement contains a prospectus relating to the offer
(the "Exchange Offer") for all outstanding 11 5/8% Senior Subordinated Discount
Notes due 2009 of TeleCorp PCS, Inc. in exchange for 11 5/8% Senior Subordinated
Discount Notes due 2009. In addition, this registration statement contains a
prospectus relating to certain market-making activities with respect to the
Exchange Notes which may, from time to time, be carried out by Chase Securities
Inc. The two prospectuses will be identical in all material respects except for
the front cover page, the Plan of Distribution section and the back cover page
and except for the fact that the market-making prospectus will not contain the
information in the Prospectus Summary relating to the Exchange Offer, the
information under the caption "The Exchange Offer" and "Certain U.S. Federal Tax
Considerations--Exchange Offer" will be deleted and certain conforming changes
will be made to delete references to the Exchange Offer. The prospectus for the
Exchange Offer follows immediately after this Explanatory Note. Following such
prospectus are the form of alternative cover page, Plan of Distribution section
and back cover page for the market-making prospectus and alternative pages,
sections and provisions covering conforming changes.
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THIS PROSPECTUS, DATED JUNE 22, 1999, IS SUBJECT TO COMPLETION AND AMENDMENT
PROSPECTUS
TELECORP PCS, INC.
OFFER TO EXCHANGE ALL OF OUR OUTSTANDING AND UNREGISTERED
11 5/8% SENIOR SUBORDINATED DISCOUNT NOTES DUE 2009
FOR OUR REGISTERED
11 5/8% SENIOR SUBORDINATED DISCOUNT NOTES DUE 2009
We hereby offer upon the terms and conditions described in this prospectus and
the accompanying Letter of Transmittal (which together constitute the "Exchange
Offer") to exchange all of our outstanding and unregistered 11 5/8% Senior
Subordinated Discount Notes due 2009 ("Old Notes") for our registered 11 5/8%
Senior Subordinated Discount Notes due 2009 ("Exchange Notes"). The Old Notes
were issued on April 23, 1999 and, as of the date of this prospectus, an
aggregate principal amount at maturity of $575.0 million is outstanding. The
terms of the Exchange Notes are substantially the same as the terms of the Old
Notes except that the Exchange Notes will be registered under the Securities Act
of 1933, as amended, and the Exchange Notes will not contain certain transfer
restrictions, registration rights and terms providing for an increase in the
interest rate on the Old Notes under certain events relating to registration of
the Exchange Notes. The Exchange Notes will evidence the same debt as the Old
Notes and will be issued under, and entitled to the same benefits of, the
indenture governing the Old Notes. We are making the Exchange Offer in order to
satisfy certain contractual obligations. The Exchange Notes and the Old Notes
are sometimes collectively referred to as the "Notes."
YOU SHOULD CAREFULLY REVIEW THE RISK FACTORS BEGINNING ON PAGE 13 OF THIS
PROSPECTUS.
Our offer to exchange the Old Notes for Exchange Notes will be open until 5:00
p.m., New York City time, on , 1999, unless we extend the offer.
You should carefully review the procedures for tendering the Old Notes
beginning on page 51 of this prospectus.
If you fail to tender your Old Notes, you will continue to hold unregistered
securities and your ability to transfer them could be adversely affected.
INFORMATION ABOUT THE EXCHANGE NOTES
Maturity Change of Control
. The Notes will mature on April 15, . If we experience a change of
2009, unless previously redeemed. control, you may require us to
purchase the Notes.
Interest and Accretion Security and Ranking
. We issued the Old Notes at a . The Notes are not secured by any
discount to their principal collateral.
amount at maturity.
. The Notes are subordinate to all
. The Notes will accrete in value of our existing and future senior
until April 15, 2004 at a debt.
rate of 11 5/8% compounded semi- . The Notes rank equally with all
annually. of our other senior
subordinated debt.
. We will pay interest semiannually on
April 15 and October 15 of each year . The Notes rank senior to all of
beginning October 15, 2004. our existing and future
subordinated debt.
Redemption
. We may redeem some or all of the Guarantees
Notes at any time after . If we fail to make payments on
April 15, 2004. the Notes, our guarantor
subsidiaries must make them
. We also may redeem up to 35% of instead. These guaranties will
the aggregate principal amount be senior subordinated
at maturity of the Notes using obligations of our guarantor
the proceeds of certain equity subsidiaries. Not all of our
offerings completed before subsidiaries will be
April 15, 2002. guaranteeing our payments on the
. See page 82 for the redemption prices. Notes.
PORTAL
. The Old Notes have been designated for trading in the
PORTAL market.
Neither the SEC nor any state securities commission has approved or disapproved
of the Notes, or determined that this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The date of this prospectus is , 1999.
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We will not receive any proceeds from the Exchange Offer. We will bear the
expenses of the Exchange Offer. We are not using any underwriters in connection
with the Exchange Offer. See "The Exchange Offer."
Each broker-dealer that receives Exchange Notes for its own account in the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. The Letter of Transmittal states that
by so acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act. A broker-dealer may use this prospectus, as it may be amended or
supplemented from time to time, in connection with resales of Exchange Notes
received in exchange for Old Notes where such broker-dealer acquired such Old
Notes as a result of market-making activities or other trading activities. For
a period of 180 days after the expiration date of the Exchange Offer, we will
make this prospectus available to any broker-dealer for use in connection with
any such resale. See "Plan of Distribution."
This prospectus incorporates important business and financial information
about us that we have not included in or delivered with the prospectus. This
information is free, and you may write to or call us to obtain this information.
Contact us at: TeleCorp PCS, Inc., 1010 N. Glebe Road, Suite 800, Arlington, VA
22201; telephone (703) 236-1100; Attention: Thomas H. Sullivan. To timely
deliver such information to you, we much receive your request no later than five
business days before you must decide whether to exchange the Notes, which is
, 1999.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
All statements contained in this prospectus, as well as statements made in
press releases and oral statements that may be made by us or any of our
officers, directors or employees acting on our behalf, that are not statements
of historical fact, including, but not limited to, statements regarding our
current business strategy, future operations, technical capabilities,
construction plan and schedule, commercial operations schedule, funding needs,
prospective acquisitions or joint ventures, financing sources, pricing, future
regulatory approvals, markets, size of markets for wireless communications
services, financial position, estimated revenues, projected costs, prospects,
plans and objectives of management, as well as information concerning expected
actions of third parties, such as equipment suppliers, service providers and
roaming partners, and expected characteristics of competing systems, are based
upon current expectations and constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 and, as such,
speak only as of the date made. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors that could cause our actual
results to be materially different from historical results or from any future
results expressed or implied by such forward-looking statements. Among the
factors that could cause actual results to differ materially are the following:
the availability of sufficient capital to finance our business plan on terms
satisfactory to us; competitive factors; changes in labor, equipment and capital
costs; our ability to obtain necessary regulatory approvals; technological
changes; our ability to comply with the indenture governing the Notes and the
terms of our other credit agreements; future acquisitions or strategic
partnerships; general business and economic conditions; and other factors
described under the heading "Risk Factors." We caution readers not to place
undue reliance on any forward-looking statements. In addition to statements that
explicitly describe such risks and uncertainties, readers are urged to consider
statements that include the terms "believes," "belief," "expects," "plans,"
"anticipates," "intends," "estimates," "projects" or the like to be uncertain
and forward-looking. We have no obligation to update or revise publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise. Although we believe that the expectations underlying the
forward-looking statements are reasonable, we cannot assure that such
expectations will prove to be correct.
We disclose important factors that could cause our actual results to differ
materially from our expectations ("cautionary statements") under the heading
"Risk Factors" and elsewhere in the prospectus. The cautionary statements
qualify all forward-looking statements attributable to us or persons acting on
our behalf.
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PROSPECTUS SUMMARY
The following summary highlights information contained elsewhere in this
prospectus. This summary may not contain all of the information that you should
consider before exchanging the Notes. You should carefully read this entire
prospectus, including "Risk Factors," which describes important factors that
could affect us. Unless otherwise specifically indicated, "TeleCorp," "we,"
"our" and "us" refer to TeleCorp PCS, Inc. and its consolidated subsidiaries,
references to "AT&T" mean AT&T Corp. and its direct and indirect wholly-owned
subsidiaries, references to the "FCC" mean the Federal Communications
Commission, references to "Pops" mean the Paul Kagan Associates, Inc. ("Kagan")
estimate of the 1998 population of a geographic area, and references to "PCS"
mean personal communications services. Except as otherwise indicated, all
information in this prospectus gives effect to: the offering of the Old Notes
and the application of the net proceeds of such offering; the acquisition of
licenses and related assets in Puerto Rico and Louisiana and our receipt of
additional equity commitments in connection with such acquisition and the
funding of a portion of these commitments; the acquisition of additional
spectrum through participation in the FCC's reauction of C-Block licenses,
receipt of additional equity commitments in connection with such acquisition;
and the funding of a portion of these commitments (the "Transactions"). The FCC
declared us the highest bidder in the reauction on April 20, 1999. The offering
of the Old Notes occurred on April 23, 1999, the acquisition of certain licenses
in Puerto Rico occurred on May 25, 1999, and the acquisition of certain licenses
in Louisiana occurred on April 20, 1999, and June 2, 1999. The March 31, 1999
historical financial information in this prospectus does not reflect such
transactions. References to our domestic markets and Pops mean our markets and
Pops in the continental United States and not in Puerto Rico or the U.S. Virgin
Islands. We define certain other terms used in this prospectus in the Glossary
of Defined Terms.
TeleCorp
We intend to become a leading provider of digital wireless communications
services in targeted markets in the south-central and northeast United States
and in Puerto Rico. We are the exclusive provider of facilities-based mobile
wireless communications services for AT&T in our markets. TeleCorp was founded
in 1996 by Gerald T. Vento, Thomas H. Sullivan and certain private equity
investors to acquire strategic PCS licenses. In 1998, we entered into a venture
with AT&T in which AT&T contributed certain PCS licenses to us in exchange for
an equity interest in our company. In addition, we have the right to use the
AT&T brand name and logo together with our own brand name and logo, giving equal
emphasis to each. We are AT&T's preferred roaming partner in our markets and
receive preferred long distance rates from AT&T.
Our PCS licenses cover approximately 16.0 million Pops, including those in the
major population centers of New Orleans and Baton Rouge, Louisiana, Memphis,
Tennessee, Little Rock, Arkansas, Manchester, Concord and Nashua, New Hampshire,
Worcester, Massachusetts and San Juan, Puerto Rico, as well as vacation
destinations such as Puerto Rico, the U.S. Virgin Islands, Cape Cod and Martha's
Vineyard. Our markets have attractive economic and demographic characteristics
and are experiencing strong growth in use of wireless services. These markets,
which attract over 24 million visitors per year, are major roaming markets for
AT&T's customers.
We have successfully launched our services in 14 markets, including all of our
major domestic markets. Our launched network covers approximately 40% of our
domestic licensed Pops, and by year-end 1999 we expect our network will cover
approximately 50% of our total licensed Pops. We have a strong distribution
presence in our launched markets with 22 company-owned stores and more than 140
retail outlets where customers can buy our services. Additionally, we market our
services through business-to-business representatives, telemarketing and the
Internet.
Our goal is to provide our customers with simple, easy-to-use wireless
services with coverage across the nation, superior call quality, personalized
customer care and competitive pricing in the markets we serve. We believe that,
as an AT&T affiliate, we will attract customers through the national brand and
coast-to-coast roaming provided by AT&T and its roaming partners. We have also
entered into an agreement with Triton PCS and Tritel Communications, two other
companies similarly affiliated with AT&T, to adopt SunCom as a common regional
brand that is co-branded with AT&T, giving equal emphasis to each. We and the
other SunCom companies are establishing the SunCom brand as a basis for building
a strong regional presence with a service area covering approximately 43.0
million Pops.
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Strategic Alliance with AT&T
To rapidly develop its PCS markets, AT&T has focused on constructing its own
network in selected cities and has entered into agreements with certain
independent wireless operators, such as us and other affiliates, to construct
and operate PCS networks in other markets.
Our strategic alliance with AT&T provides us with many business, operational
and marketing advantages, including:
. Brand. We market our wireless services to our customers giving equal
emphasis to the SunCom and AT&T brand names and logos. Our market
research indicates that association with the AT&T brand name
significantly increases the likelihood that potential customers will
purchase our wireless communications services.
. Exclusivity. We are AT&T's exclusive provider of facilities-based mobile
wireless communications services in our covered markets, and we
participate with AT&T in national programs. We will also work with AT&T
to provide wireless services bundled with other communications services,
such as their P-Net (Personal Network) program. We have entered into an
agreement whereby AT&T provides long distance services to us at preferred
rates.
. Roaming. We are the preferred roaming partner for AT&T's digital
customers who roam into our covered markets. We expect to benefit from
growth in roaming traffic as AT&T's customers take advantage of its
"Digital One Rate" plans while traveling in our markets. AT&T has
recently experienced significant growth in roaming traffic in our
markets. With the use of advanced tri-mode handsets, which transition
between PCS and cellular frequencies, our customers have access to coast-
to-coast coverage through our agreements with AT&T, which provide us with
the benefits of AT&T's roaming agreements with third party carriers.
These agreements, together with AT&T's wireless network, cover
approximately 98% of the U.S. population, including in-region roaming
coverage in all of our covered markets. We believe this coast-to-coast
coverage provides a significant advantage over PCS competitors in our
markets, and it allows us to offer competitive pricing plans similar to
AT&T's Digital One Rate plans.
. Products and Services. We receive preferred terms on certain products and
services, including handsets, infrastructure equipment and back office
support from companies who provide these products and services to AT&T.
For example, we have arrangements with Lucent Technologies, Ericsson and
Nokia to supply us with handsets, mobile telephone equipment, software
and services at preferred prices.
. Marketing. We benefit from AT&T's nationwide marketing and advertising
campaigns, including the success of AT&T's Digital One Rate plans in the
marketing of our own national SunRate plans. In addition, we are working
with AT&T's national sales representatives to jointly market our wireless
services to AT&T corporate customers located in our markets.
Competitive Strengths
In addition to the advantages provided by our strategic alliance with AT&T, we
have the following competitive strengths:
Attractive Market Footprint. Our markets have favorable demographic
characteristics for wireless communications services, and we believe our markets
are strategically important to AT&T's nationwide footprint.
. Our markets include major population and business centers and vacation
destinations.
. We believe our markets, along with those of the other SunCom companies,
are important to AT&T's national wireless strategy, particularly the
success of its Digital One Rate plans, because they represent significant
AT&T roaming markets.
. According to Kagan, the average population density in our markets is
approximately 38% above the national average. Relatively high population
density allows us to cover more people with a lower level of network
infrastructure investment.
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Active Commercial Operations. Since late December 1998, we have successfully
launched our services in 14 of our markets, including all of our major domestic
markets.
. We cover approximately 4.7 million Pops in our launched markets, which
represent approximately 40% of our licensed domestic Pops.
. We have 22 company-owned stores and over 140 retail outlets where
customers can buy our services, such as Office Depot, Staples, Best Buy
and Office Max.
. We have established the SunCom brand name and logo which we use with
equal emphasis with the AT&T brand name and logo in our marketing
efforts. We and the other SunCom companies are reinforcing SunCom as a
strong local brand with television, radio, and print advertisements in
all our launched markets.
. We developed our marketing strategy based upon extensive research in our
markets and created service packages designed to meet prospective
customers' needs. We offer easy-to-understand rate plans and extensive
coverage areas. We also offer flexible pricing options such as pooled
rate plans, pre-pay plans and our national SunRate plans.
Strong Capital Base. We have committed capital of approximately $1.3 billion,
consisting of the following:
. up to $525.0 million of borrowings under our senior credit facilities
provided by a syndicate of banks led by The Chase Manhattan Bank, TD
Securities (USA) Inc. and Bankers Trust Company;
. approximately $327.6 million of gross proceeds from the offering of the
Old Notes;
. $55.0 million of vendor financing provided by Lucent, with up to an
additional $65.0 million available for the development of new markets;
. $205.3 million of irrevocable equity commitments from AT&T and entities
managed by Chase Capital Partners, Desai Capital Management Incorporated,
Hoak Capital Corporation, J.H. Whitney & Co., M/C Partners, Entergy
Corporation, Northwood Ventures LLC, One Liberty Ventures LLC and Toronto
Dominion Capital (USA) Inc.; and
. $148.0 million of equity issued in exchange for licenses contributed to
us and related agreements.
Superior Technology. We chose to build our network using TDMA technology.
TDMA is the technology used by AT&T, and therefore our network is compatible
with AT&T's and other TDMA networks.
. TDMA technology allows enhanced features and services relative to analog
cellular service, including extended battery life, integrated voicemail,
paging, fax and e-mail delivery, enhanced voice privacy and short-
messaging capability.
. Investment in TDMA product development has led to the development of an
advanced generation of handsets capable of delivering stand-by battery
life of up to 14 days. We believe that wireless users place great value
on the convenience and reliability afforded by this technological
advance.
. TDMA provides high network quality and in-building penetration.
. TDMA provides network capacity at least three times greater than existing
analog cellular networks, which results in operating cost advantages.
. Two of the top three wireless communications companies in the United
States, based on number of customers, use TDMA technology. The increased
volume of TDMA users has driven down handset prices and has increased the
importance of TDMA as an industry standard.
Experienced and Incentivized Management. We have a management team with a
high level of experience in the wireless communications industry. Our 14 member
senior management team has an average of ten years of experience with wireless
leaders such as AT&T, Bell Atlantic, BellSouth, SBC Communications, ALLTEL and
Sprint PCS(R).
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. Mr. Vento, our co-founder, Chief Executive Officer and Chairman of our
Board of Directors, has 20 years of experience in communications and
previously served as Chief Executive Officer of Sprint Spectrum(TM)/APC,
leading the development of the first PCS network launched in North
America.
. Mr. Sullivan, our co-founder, Executive Vice President and Chief
Financial Officer, is experienced in the wireless industry, having
formerly served as President of TeleCorp Holding, our predecessor
company, and co-head of the telecommunications law practice at McDermott,
Will & Emery.
. Julie Dobson, our Chief Operating Officer, has extensive operating
experience in the telecommunications industry, including 18 years at Bell
Atlantic, most recently as President of the New York region of Bell
Atlantic Mobile Systems.
. Our senior management team has substantial experience developing PCS
networks in several markets using the three competing PCS technology
standards of TDMA, CDMA and GSM.
. Our senior management team owns approximately 14% of our common stock.
Business Strategy
Our formula for success is to focus on providing our customers with superior
coast-to-coast and in-market coverage, enhanced value at low cost, quality
customer care and superior network clarity.
Provide Superior Coast-to-Coast and In-Market Coverage. Our market research
indicates that scope and quality of coverage are extremely important to
customers in their choice of a wireless service provider. We have designed
extensive local calling areas, and we offer coast-to-coast coverage through our
arrangements with AT&T and its roaming partners. Our network covers those areas
where people are most likely to take advantage of wireless coverage, such as
suburbs, metropolitan areas and vacation locations: the places where they live,
work, and play. Through the use of tri-mode handsets, we offer our customers a
large in-market footprint and coast-to-coast roaming, providing them with
reliable, quality service.
Provide Enhanced Value at Low Cost. We offer our customers advanced services
and features at competitive prices. Our pricing plans are designed to promote
the use of wireless services by enhancing the value of our services to our
customers. We include usage enhancing features such as call waiting, three-way
conference calling, and short message service in our basic packages. We market
our service with a simple, all-in-one focus: digital phone, pager and voice
mail. We offer our customers affordable, simple calling plans, and we take
advantage of the coast-to-coast reach of AT&T and its roaming partners. In May
1998, AT&T introduced Digital One Rate, a suite of rate plans that has caused a
redefinition of local service areas in the U.S. wireless marketplace. These
simplified rate plans allow a customer to purchase a large "bucket" of minutes
per month for a low fixed price. These minutes can generally be used throughout
the United States without paying additional roaming fees or long distance
charges. Our national SunRate plans are similar to AT&T's Digital One Rate
plans. We believe we can offer competitive services because of the cost
advantages provided by our agreements with AT&T and the other SunCom companies,
the cost-effective characteristics of TDMA and our centralized administrative
functions and efficient distribution.
Deliver Quality Customer Care. We believe that superior customer service is
a critical element in attracting and retaining customers. Our marketing strategy
is designed to meet the needs of four primary market segments: corporate
accounts, current wireless users, those with the intent to purchase wireless
service within six months and pre-paid subscribers. We serve our customers from
our state-of-the-art facility in Memphis, Tennessee, which houses our customer
service, collections and anti-fraud personnel. Convergys, a leading provider of
outsourced call center services, provides backup call center support and
bilingual customer service from two facilities in Florida. We have implemented a
"one call resolution" approach to customer care through the use of customer
support tools such as an advanced diagnostic mechanism and access to online
reference information. We are developing a state-of-the-art data warehouse to
provide timely access to critical business information that can be used to
provide customers with desired services, such as real-time billing and automated
notification of remaining account balances. Our pre-paid users hear a
"whispered" announcement of time remaining in their account before each call
they place, which allows them to control usage and reduce balance inquiries to
customer service. In addition, we emphasize proactive and timely customer
service, including welcome packages and anniversary calls. Our Internet site
provides our customers with access to new service information giving us an
additional source of contact with our customers. Finally, we support our
customer care initiatives through employee compensation plans based on
subscriber quotas and retention.
Offer Superior Network Clarity. We are committed to making the capital
investment required to develop a superior network. We intend to invest
approximately $50 per covered Pop for the construction of our network, which we
believe will ensure consistent quality performance and result in a high level of
customer satisfaction. Our capital investment is designed to provide a
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highly reliable network as measured by performance factors such as percentage of
call completion and number of dropped calls. We maintain a state-of-the-art
network operations center and, to ensure continuous monitoring and maintenance
of our network, we have a disaster recovery plan.
Recent Developments
We participated in the FCC's reauction of C-Block licenses for additional
spectrum through Viper Wireless, a subsidiary formed for this purpose. On April
20, 1999, the FCC announced that the reauction ended, and Viper Wireless was the
high bidder for 15 MHz licenses in New Orleans, Houma and Alexandria, Louisiana,
San Juan, Puerto Rico and Jackson, Tennessee. Viper Wireless was also the high
bidder for a 30 MHz license in Beaumont, Texas. AT&T and certain of our cash
equity investors have committed an aggregate of approximately $32.3 million in
exchange for additional shares of our preferred and common stock in the event
Viper Wireless is ultimately awarded these licenses. AT&T and the investors
funded approximately $6.5 million of their commitment on May 14, 1999, and
approximately $25.8 million will be funded when we make payments to the FCC with
respect to these licenses, or if the FCC does not refund amounts we paid to them
as deposits in connection with the reauction within 180 days of the date of
deposit. On June 3, 1999, a petition was filed by certain secured creditors of
DCR PCS, Inc. and Pocket Communications Inc. against the application of Viper
Wireless for the Houma and New Orleans licenses. The petition seeks deferral of
the grant of these licenses to Viper Wireless until an appeal by the secured
creditors of DCR PCS and Pocket Communications has been resolved or, in the
alternative, a condition noting that a pre-existing claim to the licenses may
exist if the secured creditors of DCR PCS and Pocket Communications are
successful in that appeal. The appeal seeks review of the bankruptcy court's
ruling concerning DCR PCS and Pocket Communications permitting DCR PCS to file
its election notice, which ultimately resulted in the return of these licenses
to the FCC, over the objection of the secured creditors of DCR PCS and Pocket
Communications. Viper Wireless filed an opposition to the petition on June 15,
1999. TeleCorp Holding owns 85% of Viper Wireless, and Mr. Vento and Mr.
Sullivan together own the remaining 15%. Mr. Vento and Mr. Sullivan together
have voting control over Viper Wireless.
On April 20, 1999, we completed the acquisition of 10 MHz F-Block PCS licenses
covering the Baton Rouge, Houma, Hammond and Lafayette, Louisiana BTAs from
Digital PCS. As consideration for these licenses, we issued to Digital PCS $2.3
million of our common and preferred stock, paid Digital PCS approximately $0.3
million in reimbursement of interest paid on U.S. government debt related to the
license and assumed $4.1 million of debt owed to the U.S. government related to
these licenses. This debt is shown on our balance sheet net of a discount of
$0.7 million reflecting the below market interest rate on the debt. These
licenses cover approximately 1.6 million Pops, including 1.2 million Pops in
Baton Rouge and Lafayette covered by licenses we already owned. These licenses
also cover areas contiguous to our existing licensed area, including travel
corridors, which provide us with opportunities to expand our covered area.
On May 25, 1999, we completed the acquisition of a 20 MHz A-Block PCS license
and related assets covering the San Juan MTA from AT&T. On May 24, 1999, we sold
to AT&T $40.0 million of our preferred stock. On May 25, 1999, we purchased the
license and related assets from AT&T for $95.0 million in cash. In addition, we
reimbursed AT&T $3.2 million for microwave relocation and $1.5 million for other
expenses it incurred in connection with the acquisition. This license covers
approximately 4.0 million Pops in Puerto Rico and the U.S. Virgin Islands.
On June 2, 1999, we completed the acquisition of 15 MHz C-Block PCS licenses
covering the Alexandria, Lake Charles and Monroe, Louisiana BTAs from Wireless
2000. As consideration for these licenses, we issued to Wireless 2000
approximately $0.4 million of common and preferred stock, paid Wireless 2000
$0.2 million for its costs for microwave relocation related to the Monroe
license, $0.4 million in reimbursement of interest paid on government debt
related to the license and assumed $7.4 million of debt owed to the U.S.
government related to these licenses. This debt is shown on our balance sheet
net of a discount of $1.3 million reflecting the below market interest rate on
the debt. These licenses cover approximately 0.8 million Pops. These licenses
also cover areas contiguous to our existing licensed area, including travel
corridors, which provide us with opportunities to expand our covered area. We
have no present intention to develop the markets covered by the Alexandria and
Monroe licenses.
Our agreements with AT&T were extended to cover these markets upon the closing
of the Louisiana and Puerto Rico acquisitions, except for a portion of the
Monroe BTA.
Network Development and Financing Plan
We began commercial operations in December 1998, and we have launched our
services in each of our major domestic markets. Our network now covers
approximately 40% of our domestic licensed Pops. We expect to launch our Puerto
Rico market during the third quarter of 1999.
-5-
We estimate that our total capital requirements from our inception until our
network is substantially built out will be approximately $1.2 billion. These
requirements include license acquisition costs, capital expenditures for the
network construction, operating cash flow losses and other working capital
costs, debt service and closing fees and expenses. These requirements have
been, and will be, funded by a variety of sources, including cash equity, the
net proceeds from the offering of the Old Notes, vendor financing and borrowings
under our senior credit facilities.
Substantially all of our operations are conducted through TeleCorp
Communications, Inc. and its subsidiaries. Mr. Vento and Mr. Sullivan provide
supervisory managerial services under a management agreement between TeleCorp
and TeleCorp Management Corp.
We are a Delaware corporation and our principal executive offices are at 1010
N. Glebe Road, Suite 800, Arlington, Virginia 22201. The telephone number at
our executive offices is (703) 236-1100. We maintain a website at
http://www.suncom1.com.
-6-
THE EXCHANGE OFFER
The Exchange Offer...... We are offering to exchange $1,000 principal amount of
the Exchange Notes for each $1,000 principal amount of
the Old Notes. As of the date hereof, $575.0 million
aggregate principal amount at maturity of the Old Notes
are outstanding. The terms of the Exchange Notes are
substantially the same as the terms of the Old Notes
except that the Exchange Notes will be registered under
the Securities Act of 1933, as amended, and the
Exchange Notes will not contain certain transfer
restrictions, registration rights and terms providing
for us to pay liquidated damages to holders of the Old
Notes under certain events relating to registration of
the Exchange Notes.
Based on interpretations by the staff of the SEC, as
set forth in no-action letters issued to certain third
parties unrelated to us in other transactions, we
believe that Exchange Notes issued in the Exchange
Offer in exchange for Old Notes may be offered for
resale, resold or otherwise transferred by holders of
such Exchange Notes, other than any holder which is our
"affiliate" within the meaning of Rule 405 under the
Securities Act, or a broker-dealer who purchased Old
Notes directly from us to resell under Rule 144A or any
other available exemption promulgated under the
Securities Act, without compliance with the
registration and prospectus delivery requirements of
the Securities Act, so long as such Exchange Notes are
acquired in the ordinary course of the business of such
holders and such holders have no arrangement with any
person to engage in a distribution of Exchange Notes.
However, the SEC has not considered the Exchange Offer
in the context of a no-action letter and we cannot be
sure that the staff of the SEC would make a similar
determination with respect to the Exchange Offer as in
such other circumstances. Further, each holder, other
than a broker-dealer, must acknowledge that it is not
engaged in, and does not intend to engage in, a
distribution of the Exchange Notes and has no
arrangement or understanding to participate in a
distribution of Exchange Notes. Each broker-dealer
that receives the Exchange Notes for its own account in
the Exchange Offer must acknowledge that it will comply
with the prospectus delivery requirements of the
Securities Act in connection with any resale of such
Exchange Notes. Broker-dealers who acquired Old Notes
directly from us and not as a result of market-making
activities or other trading activities may not rely on
the staff's interpretations discussed above or
participate in the Exchange Offer and must comply with
the prospectus delivery requirements of the Securities
Act in order to resell the Old Notes.
Expiration Date......... The Exchange Offer will expire at 5:00 p.m., New York
City time, , 1999, or such later date and
time to which we extend it.
Withdrawal.............. The tender of the Old Notes in the Exchange Offer may
be withdrawn at any time prior to 5:00 p.m., New York
City time, on , 1999, or such later date
and time to which we extend the offer. We will return
any Old Notes that we do not accept for exchange for
any reason without expense to the tendering holder of
such Notes as soon as practicable after the Exchange
Offer expires or terminates.
Accrued Interest on the
Exchange Notes and the
Old Notes............... Interest on the Exchange Notes will accrue from the
date we issued the Old Notes (April 23, 1999) for which
the Exchange Notes are exchanged until April 15, 2004,
at which time they will have an aggregate principal
amount of $575,000,000. At that time, cash interest on
the Notes will become payable on April 15 and October
15 of each year, beginning on October 15, 2004. We
will pay no interest on the Old Notes tendered and
accepted for exchange.
Conditions to the
Exchange Offer.......... The Exchange Offer is subject to certain customary
conditions, certain of which we may waive. See "The
Exchange Offer - Certain Conditions to the Exchange
Offer" beginning on page 54.
-7-
Procedures for Tendering
Old Notes................... Each holder of the Old Notes wishing to accept the
Exchange Offer must complete, sign and date a
Letter of Transmittal in accordance with the
instructions contained in the Letter of Transmittal
and in this prospectus, and mail or otherwise
deliver that Letter of Transmittal, together with
the Old Notes and any other required documentation,
to the exchange agent at the address set forth in
this prospectus and registration statement. Holders
may sign and mail copies of the Letter of
Transmittal. Persons holding the Old Notes through
the Depository Trust Company (DTC) and wishing to
accept the Exchange Offer must do so under DTC's
Automated Tender Offer Program, by which each
tendering participant will agree to be bound by the
Letter of Transmittal. By executing or agreeing to
be bound by the Letter of Transmittal, each holder
will represent to us that, among other things, (1)
the Exchange Notes acquired in the Exchange Offer
are being obtained in the ordinary course of
business of the person receiving such Exchange
Notes, whether or not such person is the registered
holder of the Old Notes, (2) that if such holder is
a broker-dealer registered under the Exchange Act
or is participating in the Exchange Offer for the
purposes of distributing the Exchange Notes, such
holder will comply with the registration and
prospectus delivery requirements of the Securities
Act in connection with a resale of such holder's
Exchange Notes and cannot rely on the position of
the staff of the SEC set forth in no-action letters
(see "The Exchange Offer--Purpose and Effects"),
(3) such holder understands that a resale described
in clause (2) above and any resales of the Exchange
Notes obtained by such holder in exchange for the
Old Notes acquired by such holder directly from us
should be covered by an effective registration
statement containing the seller securityholder
information required by Item 507 or Item 508, as
applicable, of Regulation S-K of the SEC, (4) the
holder does not have any arrangement or
understanding with any person to participate in the
distribution of the Exchange Notes and (5) the
holder is not our "affiliate," as defined in Rule
405 under the Securities Act.
Holders who tender their Old Notes in the Exchange
Offer with the intention of participating in a
distribution of the Exchange Notes will not be able
to rely on the no-action letters described under
the heading "The Exchange Offer" above. If the
holder is a broker-dealer that will receive
Exchange Notes for its own account in exchange for
Old Notes that such broker-dealer acquired as a
result of market-making activities or other trading
activities, such holder will be required to
acknowledge in the Letter of Transmittal that such
holder will deliver a prospectus in connection with
any resale of such Exchange Notes; however, by so
acknowledging and by delivering a prospectus, such
holder will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities
Act. See "The Exchange Offer--Procedures for
Tendering Old Notes."
We will accept for exchange any and all Old Notes
which are properly tendered (and not withdrawn) in
the Exchange Offer prior to 5:00 p.m., New York
City time, on , 1999. The Exchange Notes
issued in the Exchange Offer will be delivered
promptly following the expiration date. See "The
Exchange Offer--Terms of the Exchange Offer"
beginning on page 50.
Special Procedures for
Beneficial Owners........... Any beneficial owner whose Old Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender such Old Notes in the Exchange Offer should
contact such registered holder promptly and
instruct such registered holder to tender on such
beneficial owner's behalf. If such beneficial owner
wishes to tender on such owner's own behalf, such
owner must, prior to completing and executing a
Letter of Transmittal and delivering such owner's
Old Notes, either make appropriate arrangements to
register ownership of the Old Notes in such owner's
name or obtain a properly completed bond power from
the registered holder. The transfer of registered
ownership may take considerable time and may not be
able to be completed prior to the Expiration Date.
See "The Exchange Offer--Procedures for Tendering
Old Notes."
-8-
Guaranteed Delivery
Procedures.................. Holders of the Old Notes who wish to tender their
Old Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes, a
Letter of Transmittal or any other documentation
required by a Letter of Transmittal to the exchange
agent prior to the Expiration Date must tender
their Old Notes according to the guaranteed
delivery procedures set forth under "The Exchange
Offer--Guaranteed Delivery Procedures."
Exchange Agent.............. Bankers Trust Company is serving as exchange agent
in connection with the Exchange Offer.
U.S. Federal Tax
Considerations.............. The exchange of the Old Notes for the Exchange
Notes in the Exchange Offer should not constitute a
sale or an exchange for U.S. federal income tax
purposes. See "Certain U.S. Federal Tax
Considerations--Exchange Offer" beginning on page
117.
Effect of Not Tendering..... The Old Notes that are not tendered or that are
tendered but not accepted will, following the
completion of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer.
Under certain circumstances, we may register the
Old Notes under a shelf registration statement.
Use of Proceeds............. We will not receive any cash from the exchange of
the Old Notes in the Exchange Offer.
-9-
THE NOTES
Issuer.................. TeleCorp PCS, Inc.
Securities Offered...... $575,000,000 aggregate principal amount at maturity of
11 5/8% Senior Subordinated Discount Notes due 2009.
Maturity Date........... April 15, 2009.
Interest and Accretion.. The Notes will accrete in value until April 15, 2004,
compounded semi-annually. At that time, cash interest
on the Notes will accrue and become payable on April 15
and October 15 of each year, beginning on October 15,
2004. The yield to maturity of the Notes is 11 5/8%
(computed on a semi-annual bond-equivalent basis)
calculated from April 23, 1999.
Original Issue Discount. We issued the Notes with "original issue discount"
for U.S. federal income tax purposes. When computing
gross income for U.S. federal income tax purposes, a
holder of the Notes will be required to include in
gross income a portion of the "original issue discount"
for each day during each taxable year in which any
Notes are held, even though no cash interest payments
on the Notes will be made prior to October 15, 2004.
The "original issue discount" will be equal to the
difference between the sum of all cash payments
(whether denominated as interest or principal) to be
made on the Notes and the issue price of the Notes. See
"Certain U.S. Federal Tax Considerations--Tax
Consequences to U.S. Holders."
Optional Redemption..... On or after April 15, 2004, we may redeem some or all
of the Notes at the redemption prices set forth under
"Description of the Notes--Optional Redemption,"
together with accrued and unpaid interest, if any, to
the date of redemption.
Before April 15, 2002, we may redeem up to 35% of the
aggregate principal amount at maturity of the Notes
with the net cash proceeds of certain equity offerings
at a redemption price equal to 111 5/8% of the accreted
value of the Notes as of the date of redemption,
provided that at least 65% of the aggregate principal
amount at maturity of the Notes remains outstanding
immediately after the redemption. See "Description of
the Notes--Optional Redemption."
Change of Control....... If we experience a change of control, you will have the
right to require us to repurchase your Notes at a price
equal to 101% of either the accreted value or the
principal amount at maturity of the Notes, as
applicable, together with accrued and unpaid interest,
if any, to the date of repurchase. See "Description of
the Notes--Change of Control."
Subsidiary Guarantees... The Notes are fully and unconditionally guaranteed on
an unsecured, senior subordinated basis by TeleCorp
Communications. Certain of our future subsidiaries
that incur debt will fully and unconditionally
guarantee the Notes on an unsecured, senior
subordinated basis. If we fail to make payments on the
Notes, our guarantor subsidiaries must make them
instead. Each of our guarantor subsidiaries also
guarantees our senior credit facilities and are jointly
and severally liable on a senior basis with us for all
obligations thereunder. Not all of our subsidiaries
guarantee payments on the Notes. All obligations under
our senior credit facilities are secured by pledges of
all the capital stock of all our subsidiaries and
security interests in, or liens on, substantially all
of our other tangible and intangible assets and the
tangible and intangible assets of our subsidiaries.
See "Description of the Notes--Subsidiary Guarantees,"
"--Certain Covenants" and "Certain Indebtedness--Senior
Credit Facilities."
-10-
Ranking................. The Notes and the subsidiary guarantees are unsecured
and:
. subordinate in right of payment to all of our and
our guarantor subsidiaries' existing and future
senior debt (including our and our guarantor
subsidiaries' obligations under our senior credit
facilities);
. equal in right of payment with any of our and our
guarantor subsidiaries' future senior subordinated
debt; and
. senior in right of payment to all of our and our
guarantor subsidiaries' subordinated debt.
Assuming the Transactions had been completed on March
31, 1999, (1) our outstanding senior debt would have
been approximately $225.0 million (excluding unused
commitments under our senior credit facilities and
additional senior indebtedness of our subsidiaries),
(2) we would have had no senior subordinated debt other
than the Notes and (3) our outstanding subordinated
debt would have been approximately $40.5 million,
including $0.5 million of interest that was paid-in-
kind, plus $0.3 million of additional accrued interest.
In addition, (1) the outstanding senior debt of our
guarantor subsidiary would have been approximately
$225.0 million (consisting entirely of a guarantee of
our borrowings under our senior credit facilities), (2)
our subsidiary guarantor would have had no senior
subordinated debt other than the guarantee of the Notes
and (3) our subsidiary guarantor would have had no
subordinated debt. Our subsidiaries who do not
guarantee the Notes would have had a total of
approximately $242.5 million of senior debt, consisting
of approximately $20.7 million of debt owed to the U.S.
government related to our licenses and approximately
$225.0 million consisting of guarantees of our
borrowing under our senior credit facilities. The U.S.
government debt is shown on our balance sheet net of
discounts of $3.2 million reflecting the below market
interest rates on the debt. These subsidiaries would
have had no senior subordinated debt or subordinated
debt. The total liabilities of these subsidiaries would
have been approximately $320.8 million, consisting of
debt owed to the U.S. government related to our
licenses in the approximate amount of $20.7 million,
trade payables in the approximate amount of $24.8
million, accrued and other expenses in the approximate
amount of $4.1 million and intercompany amounts payable
in the approximate amount $274.4 million. The U.S.
government debt is shown on our balance sheet net of
discounts of $3.2 million reflecting the below market
interest rates on the debt. See "Description of Notes--
Ranking."
Restrictive Covenants... We issued the Old Notes, and will issue the Exchange
Notes, under an indenture with Bankers Trust Company,
as trustee. The indenture restricts, among other
things, our ability and the ability of certain of our
subsidiaries to:
. incur debt;
. layer debt;
. pay dividends on or redeem capital stock;
. make certain investments or redeem certain
subordinated debt;
. make certain dispositions of assets;
. engage in transactions with affiliates;
. engage in certain business activities; and
. engage in mergers, consolidations and certain sales
of assets.
-11-
The indenture governing the Notes also limits our
ability to permit restrictions on the ability of
certain of our subsidiaries to pay dividends or make
certain other distributions.
For more details, see "Description of the Notes--
Certain Covenants" and "--Merger, Consolidation and
Certain Sales of Assets."
Risk Factors
You should consider carefully all of the information set forth in this
prospectus and, in particular, you should evaluate the specific factors under
"Risk Factors" beginning on the next page before exchanging the Notes.
-12-
RISK FACTORS
You should consider carefully the following factors and the other information
in this prospectus before exchanging the Notes.
We are a new company, and we may not be able to manage the construction of our
network or the growth of our business successfully.
We began our operations in December 1998 by servicing roaming customers in
certain of our Louisiana markets, and we began offering our wireless services in
each of our major domestic markets in the first quarter of 1999. As our business
expands, we will have to construct, test and deploy additional portions of our
network, enhance our financial, operational and administrative systems, hire,
train, integrate and manage additional employees and retain qualified personnel.
Our financial performance will depend on our ability to manage the construction
of our network and the successful growth of our business. If management is
unable to direct our development effectively, including by failing to implement
adequate systems and controls in a timely manner or by failing to retain
qualified employees, we could be materially adversely affected. See "--The FCC
may not finally grant our additional licenses," "--Our success depends upon our
relationship with AT&T and its success," "--We may not be able to acquire the
sites necessary to complete our network," "--We may have difficulty in obtaining
infrastructure equipment," "Business--Network Development" and "Management."
We continue to incur significant operating losses, and we may not be able to
generate positive cash flow from our operations in the future.
We incurred cumulative operating losses through March 31, 1999 of
approximately $85.3 million. We expect to continue to incur significant
operating losses and to generate negative cash flow from operating activities
for at least the next several years while we continue to construct our network
and develop our customer base. Our 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 we cannot control. These factors include:
. the cost of constructing our network;
. changes in technology;
. changes in governmental regulations;
. the level of demand for wireless communications services;
. the product offerings, pricing strategies and other competitive factors
of our competitors; and
. general economic conditions.
If we are unable to implement our business plan successfully, we may not be
able to eliminate operating losses, generate positive cash flow or achieve or
sustain profitability, which would materially adversely affect us and our
ability to make payments on the Notes. See "--The FCC may not finally grant our
additional licenses," "--Our success depends upon our relationship with AT&T
and its success," "--We may not be able to acquire the sites necessary to
complete our network," "--We may have difficulty in obtaining infrastructure
equipment," and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
We have substantial debt which we may not be able to service.
We have a substantial amount of debt. As of March 31, 1999, after giving
effect to the Transactions, our outstanding debt would have been approximately
$610.9 million, consisting of (1) approximately $225.0 million of borrowings
under our senior credit facilities and $20.7 million of debt owed to
the U.S. government related to our licenses, which debt is shown on our balance
sheet net of discounts of $3.2 million reflecting the below market interest
rates on the debt, (2) approximately $327.6 million in accreted value of the
Notes and (3) approximately $40.5 million, including $0.5 million of interest
that was paid in kind, of junior subordinated notes, plus $0.3 million of
additional accrued interest, issued to Lucent in connection with the vendor
financing provided by Lucent. In addition, Lucent has committed to purchase up
to an additional $80.0 million of junior subordinated notes in connection with
our development of new markets. We may incur additional debt in the future.
The indenture governing the Notes permits us to incur additional debt, subject
to certain limitations. Our senior credit facilities provide for total
borrowings in the amount of up to
-13-
$525.0 million, and, in certain circumstances, for additional borrowings in the
amount of up to $75.0 million. As of March 31, 1999, after giving effect to the
Transactions, the vendor financing provided by Lucent provided for us to issue
up to an additional $15.0 million aggregate principal amount of notes based upon
our current markets and an additional $65.0 million if we develop new markets.
See "Certain Indebtedness" and "Description of the Notes."
The substantial amount of our debt will have a number of important
consequences for our operations, including:
. we may not have sufficient funds to pay interest on, and principal of,
our debt (including the Notes);
. if payments on any debt owed to the U.S. government are not made when
due, the FCC may:
. impose substantial financial penalties;
. reclaim and reauction the related licenses, and impose a significant
financial penalty in respect of each license that is reclaimed and
reauctioned;
. deny renewal of any other licenses; and
. pursue other enforcement measures;
. we will have to dedicate a substantial portion of any cash flow from
operations to the payment of interest on, and principal of, our debt,
which will reduce funds available for other purposes;
. we may not be able to obtain additional financing for capital
requirements, capital expenditures, working capital requirements and
other corporate purposes;
. some of our debt, including borrowings under our senior credit
facilities, will be at variable rates of interest, which could result in
higher interest expense in the event of increases in interest rates;
. pledges of the capital stock of our subsidiaries and liens on
substantially all of our other assets and the assets of such
subsidiaries secure the debt incurred under our senior credit facilities
and this debt matures prior to the maturity of the Notes; and
. our ability to adjust to changing market conditions and to withstand
competitive pressures could be limited, and we may be vulnerable to
additional risk in the event of a downturn in general economic
conditions or our business.
See "--We could lose our F-Block and C-Block licenses if we fail to meet
financial and other tests," "--Government regulation, changes in our licenses or
other governmental action could adversely affect us," "Business--Government
Regulation" and "Certain Indebtedness."
Our ability to make payments on our debt, including the Notes, depends upon
our future operating performance, which is subject to general economic and
competitive conditions and to financial, business and other factors, many of
which we cannot control. If our cash flow from operating activities is
insufficient, we may take certain actions, including delaying or reducing
capital expenditures, attempting to restructure or refinance our debt, selling
assets or operations or seeking additional equity capital. We may be unable to
take any of these actions on satisfactory terms or in a timely manner. Further,
any of these actions may not be sufficient to allow us to service our debt
obligations. Our existing debt agreements limit our ability to take certain of
these actions. The indenture governing the Notes contains similar restrictions.
See "--Our debt instruments could restrict our business plans." Our failure to
earn enough to pay our debts or to successfully undertake any of these actions
could, among other things, materially adversely affect the market value of the
Notes. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources," "Certain Indebtedness"
and "Description of the Notes."
We may need additional financing to complete our network and fund operating
losses.
We will make significant capital expenditures to finish the designing,
building, testing and deployment of our network. We estimate that the proceeds
from the offering of the Old Notes, together with the proceeds from sales of our
equity securities, borrowings under our senior credit facilities and the vendor
financing provided by Lucent, and internally generated cash, will be sufficient
to:
-14-
. fund the planned construction of our network;
. fund operating losses; and
. satisfy debt service requirements through December 31, 2002.
See "Use of Proceeds" and "Business--Network Development." The actual
expenditures necessary to achieve these goals may differ significantly from our
estimates. We would have to obtain additional financing, if:
. any of our sources of capital are unavailable or insufficient;
. we significantly depart from our business plan;
. we experience unexpected delays or cost overruns in the construction of
our network;
. we have increases in operating costs;
. changes in technology or governmental regulations create unanticipated
costs; or
. we acquire additional licenses.
We cannot predict whether any additional financing will be available, the
terms on which any additional financing would be available or whether our
existing debt agreements will allow additional financing. If we cannot obtain
additional financing when needed, we will have to delay, modify or abandon some
of our plans to construct the remainder of our network.
We have sold $205.3 million of equity securities. As of March 31, 1999, we had
received payments of $55.5 million in payment for such securities. The remaining
$149.8 million (including $32.3 million of commitments to reimburse us for costs
incurred in connection with the FCC's reauction of C-Block licenses) has been
irrevocably committed and will be paid within three years. If we do not receive
the proceeds from sales of our equity securities in a timely manner, our ability
to complete construction of our network, successfully implement our business
plan and capitalize on opportunities for growth could be materially adversely
affected.
The FCC may not finally grant our additional licenses.
We participated in the FCC's reauction of C-Block and other licenses for
additional spectrum through Viper Wireless. On April 20, 1999, the FCC
announced that the reauction ended, and Viper Wireless was the high bidder for
additional spectrum in New Orleans, Houma and Alexandria, Louisiana, San Juan,
Puerto Rico, Jackson, Tennessee and Beaumont, Texas. On June 3, 1999, a
petition was filed by certain secured creditors of DCR PCS and Pocket
Communications against the application of Viper Wireless for the Houma and New
Orleans licenses. The petition seeks deferral of the grant of these licenses to
Viper Wireless until an appeal by the secured creditors of DCR PCS and Pocket
Communications has been resolved or, in the alternative, a condition noting that
a pre-existing claim to the licenses may exist if the secured creditors of DCR
PCS and Pocket Communications are successful in that appeal. The appeal seeks
review of the bankruptcy court's ruling concerning DCR PCS and Pocket
Communications permitting DCR PCS to file its election notice, which ultimately
resulted in the return of these licenses to the FCC, over the objection of the
secured creditors of DCR PCS and Pocket Communications. Viper Wireless filed an
opposition to the petition on June 15, 1999. If we transfer these licenses to
TeleCorp Holding Corp., Inc., our wholly owned subsidiary, we would need FCC
approval to do so. Accordingly, we cannot be certain that we will consummate
this transaction. See "Summary--Recent Developments."
Our success depends upon our relationship with AT&T and its success.
We have entered into a number of agreements with AT&T, including:
. a license agreement, which allows us to market our services using equal
emphasis co-branding with the AT&T brand name and logo until July 2003
(which will be automatically renewed for a period of five years unless
we or AT&T elects not to renew the agreement);
. a stockholders' agreement, which provides, among other things, that we
will be AT&T's exclusive facilities-based provider of mobile wireless
services in our covered areas until July 2009;
-15-
. an intercarrier roamer service agreement, which allows us and AT&T to
grant our respective customers the right to roam on the other's network
until July 2018 (if we or AT&T do not previously terminate the agreement
after July 2008);
. a roaming administration service agreement, which allows us to grant to
our customers the right to roam on networks operated by companies who
have entered into roaming agreements with AT&T to the extent provided
in, and subject to the terms of, such agreements, for two years; and
. a long distance agreement, which allows us to purchase long distance
services at preferred rates.
In certain situations, AT&T may withdraw from these agreements with us. If we
experience a change in control, AT&T may terminate the license agreement, the
stockholders' agreement and the long distance agreement. If AT&T combines with
certain other businesses, AT&T may terminate the license agreement or the
exclusive provider provisions of the stockholders' agreement for that portion of
our coverage area in which the acquired company provided wireless services.
Currently, only Sprint Corporation, SBC Communications, Bell Atlantic and Bell
South satisfy the criteria regarding the other business in respect of which a
combination would permit the termination of the exclusive provider provisions of
the stockholders' agreement. If we fail to meet certain construction, quality or
feature set requirements, AT&T may terminate the exclusive provider provisions
of the stockholders' agreement. Upon 180 days' prior notice, both we and AT&T
may terminate the roaming administration service agreement. See "Certain
Relationships and Related Transactions--AT&T Agreements." If the rights to use
the AT&T brand name and logo and related rights granted to us under the license
agreement were revoked or otherwise became unavailable, or if any of the
agreements we have entered into with AT&T were not renewed or were terminated,
we could be materially adversely affected.
We use our relationship with AT&T to obtain the infrastructure equipment and
handsets that we use in the construction and operation of our network on
preferred terms from the vendors who supply AT&T. See "--We may have difficulty
obtaining infrastructure equipment." Any disruption in our relationship with
AT&T could have a material adverse effect on our ability to obtain the
infrastructure equipment that we use in our network or on our relationship with
our vendors.
We currently depend upon AT&T's systems to activate our subscribers over-the-
air. If this service were not available to us, it could materially adversely
affect our ability to activate our subscribers.
Our success highly depends upon our relationship with AT&T and its success as
a provider of wireless communications services. AT&T and the other SunCom
companies are subject, to varying degrees, to the same risks that affect us, and
we cannot be sure that AT&T and these companies will succeed in developing their
wireless businesses. Any such failures could materially adversely affect us. See
"--We face significant competition" and "Business--Competition."
The agreements we have entered into with AT&T contain requirements regarding
the construction of our network, and, in many instances, these requirements are
more stringent than those imposed by the FCC. Failure to meet their requirements
could result in termination of certain exclusivity provisions contained in our
agreements with AT&T. The construction of the remainder of our network involves
risks of unanticipated costs and delays. We will need to complete timely the
construction of additional phases of our network to meet such requirements.
We may not be able to acquire the sites necessary to complete our network.
We must lease or otherwise acquire rights to use sites for the location of
base station transmitter equipment and obtain zoning variances and other
governmental approvals to complete the construction of our network and to
provide wireless communications services to customers in our licensed areas. In
addition to the sites used in the areas where we currently offer service, we
have leased 149 sites that will be developed in later phases of construction of
our network. Local zoning ordinances restrict our ability to site and construct
antennas, and such ordinances may prevent us from successfully completing the
buildout of our network. If we encounter significant difficulties in leasing or
otherwise acquiring rights to sites for the location of base station transmitter
equipment, we may need to alter the design of our network, which could
materially adversely affect our ability to complete construction of our network
in a timely manner.
We may have difficulty in obtaining infrastructure equipment.
The demand for the equipment that we require to construct our network is
considerable and manufacturers of this equipment could have substantial backlogs
of orders. Accordingly, the lead time for the delivery of this equipment may be
long. Some of our competitors purchase large quantities of communications
equipment and may have established relationships with the manufacturers of this
equipment. Consequently, they may receive priority in the delivery of this
equipment. Our agreements with
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vendors contain penalties if vendors do not deliver the equipment according to
schedule. Nevertheless, the vendors may fail to deliver the equipment to us in a
timely manner. If we do not receive the equipment in a timely manner, we may be
unable to provide wireless communications services comparable to those of our
competitors. In addition, we may be unable to satisfy the requirements regarding
the construction of our network contained in FCC regulations or our agreements
with AT&T. If we fail to construct our network in a timely manner, we could
limit our ability to compete effectively, lose our licenses or breach our
agreements with AT&T, which, in turn, could materially adversely affect us. See
"--Our success depends upon our relationship with AT&T and its success," "--
Government regulation, changes in our licenses or other governmental action
could adversely affect us," "--We could lose our F-Block and C-Block licenses if
we fail to meet financial and other tests," "Business--Network Development," "--
Government Regulation" and "Certain Relationships and Related Transactions--AT&T
Agreements."
The interests of our stockholders may conflict with the interests of the
holders of the Notes.
Under the stockholders' agreement between us and AT&T, AT&T has the right to
elect two of the 13 members of our Board. All of our directors and officers owe
a fiduciary duty to holders of our equity interests, including AT&T. Directors
and officers of a company generally do not owe a fiduciary duty to holders of
debt securities, such as the Notes, and they may not act in the best interests
of the holders of the Notes. In addition, our interests may conflict with those
of AT&T, and we and AT&T may not resolve any such conflict in our favor.
Potential acquisitions may require us to incur additional debt and integrate new
technologies, operations and services.
We may pursue additional strategic acquisitions of licenses and facilities to
enhance our business, operations and financial results and to expand our
commercial operations. To consummate future acquisitions, we may incur
additional debt. In addition, the acquisition of additional licenses and
facilities involves a number of significant risks, including the difficulties
associated with the integration of new technologies, operations and services
with existing technologies, operations and services and the diversion of
management's attention from other business concerns. Accordingly, future
acquisitions could materially adversely affect us. The construction of a network
and the beginning of commercial operations in any new area will be subject to
the same risks that affect the construction of our network and the beginning of
commercial operations in our current markets. See "--We may need additional
financing to complete our network and fund operating losses" and "--Our success
depends upon our relationship with AT&T and its success," "--We may not be able
to acquire the sites necessary to complete our network" and "--We may have
difficulty in obtaining infrastructure equipment."
We face significant competition.
Competition in the wireless communications services industry is intense. Many
of our competitors have substantially greater financial, technological,
marketing and sales and distribution resources than we do. In addition,
competitors who entered the wireless communications services market before us
may have a significant "time-to-market" advantage over us. As a new entrant in
the market, we may have to engage in significant and prolonged discounting to
attract customers, which would materially adversely affect our business. In
addition, some of our competitors may market other services, such as traditional
landline telephone service, cable television access and access to the Internet,
together with their wireless communications services. We may not be able to
compete successfully with competitors who have substantially greater resources
or a significant "time-to-market" advantage or who offer more services than we
do.
We compete in our markets with virtually every major U.S. cellular and PCS
company. Some of these competitors have achieved substantial coverage in
portions of our licensed areas. Certain of our competitors have more extensive
coverage within our licensed areas than we provide and also have broader
regional coverage. In addition, the FCC reauctioned C-Block licenses in
substantially all of our markets, and, to the extent we did not acquire these
licenses, we may face additional competitors in our markets.
We compete with companies that use other communications technologies,
including paging (and digital two-way paging), ESMR and domestic and global
mobile satellite service. In addition, we expect that, in the future, providers
of wireless communications services will compete more directly with providers of
traditional landline telephone services, energy companies, utility companies and
cable operators who expand their services to offer communications services.
Finally, we may compete in the future with companies who offer new technologies.
See "--Changes in technology and customer demands could adversely affect us."
Our ability to compete successfully will depend, in part, upon our ability to
anticipate and respond to various competitive factors affecting the industry,
including the introduction of new services, changes in consumer preferences,
demographic trends, economic conditions and competitors' pricing strategies, all
of which could adversely affect our profitability. In addition, the
-17-
future level of demand for wireless communications services is uncertain. See
"Business--The Wireless Communications Industry" and "--Competition."
We depend upon consultants and contractors who could fail to perform their
obligations.
We have retained Lucent and other consultants and contractors to assist in the
design and engineering of our systems, construct cell sites, switch facilities
and towers, assist in leasing or otherwise acquiring rights to use sites for the
location of cell sites, deploy our network and install, maintain and support our
information technology systems. See "Certain Relationships and Related
Transactions--Other Related Party Transactions." Although we believe that other
vendors can perform the services that such consultants and contractors provide,
the failure by any of these consultants or contractors to fulfill its
contractual obligations could materially adversely affect our ability to
complete the construction of our network in a timely manner, which could
materially adversely affect us. See "--Our success depends upon our relationship
with AT&T and its success," "--We may not be able to acquire the sites necessary
to complete our network" and "--We may have difficulty in obtaining
infrastructure equipment."
Our success depends upon our ability to attract and retain senior management.
Our success depends upon the services of the members of our senior management
team, particularly Mr. Vento, Mr. Sullivan and Ms. Dobson, and their ability to
implement our business plan and manage our business. The loss of the services of
one or more of these individuals could materially adversely affect us. We do not
carry life insurance on any of our senior management. See "--We depend on a
management agreement with TeleCorp Management" and "Certain Relationships and
Related Transactions--Management Agreement."
We depend on a management agreement with TeleCorp Management.
Under the management agreement with TeleCorp Management, TeleCorp Management
provides management services to us regarding the design, development and
operation of our network. We depend upon TeleCorp Management to perform its
obligations under the management agreement. TeleCorp Management, which is wholly
owned by Mr. Vento and Mr. Sullivan, had no operating history before it began
providing services to us. The management agreement terminates:
. upon thirty days' notice from TeleCorp Management;
. upon our or our stockholders removing Mr. Vento or Mr. Sullivan as a
director of TeleCorp;
. if we do not pay TeleCorp Management;
. if we become bankrupt; or
. on July 17, 2003, unless renewed.
If the management agreement is terminated, our success and our ability to
comply with the rules regarding our F-Block and C-Block licenses could be
materially adversely affected. See "--Government regulation, changes in our
licenses and other governmental action could adversely affect us," "We could
lose our F-Block and C-Block licenses if we fail to meet financial and other
tests," "Business--Government Regulation" and "Management--Management
Agreement."
Members of our management own interests in companies that might conflict with
our interests.
Members of our management, including Mr. Vento and Mr. Sullivan, own interests
in companies that hold licenses to provide wireless communications services in
areas outside of our licensed areas and may acquire interests in companies that
hold licenses to provide wireless communications services in the future.
Although we do not expect that these companies will provide services that
compete with our services, our interests may conflict with the interests of
these companies and any conflicts may not be resolved in our favor.
Government regulation, changes in our licenses or other governmental action
could adversely affect us.
Congress, the FCC, state and local regulatory agencies and the courts directly
and indirectly regulate wireless communications networks and the networks with
which they interconnect. The FCC, in conjunction with the Federal Aviation
Administration, regulates the marking and lighting of towers, including those
used in wireless communications networks. Congress, the FCC, the Federal
Aviation Administration, state and local regulatory authorities or the courts
may adopt new
-18-
regulations, amend existing regulations, alter the administration of existing
regulations or take other actions that materially adversely affect us.
Our licenses to provide wireless communications services, which are our
principal assets, have terms of ten years. Each of our licenses may be renewed
upon expiration of its term for a period of ten years. All of the licenses,
however, are subject to revocation by the FCC at any time "for cause," which
includes the failure to comply with the terms of the licenses, the failure to
remain qualified under applicable FCC rules to hold the licenses, certain
violations of FCC regulations and malfeasance and other misconduct. We cannot
ensure that our licenses will be renewed upon expiration of their terms.
Further, our licenses could be modified in a way that materially adversely
affects us. The nonrenewal or loss of any of our licenses would materially
adversely affect us. Additionally, the threat of nonrenewal or loss of any of
our licenses could materially adversely affect the market value of the Notes.
See "Business--Government Regulation."
TeleCorp Holding participated in the FCC's auction of F-Block licenses as a
"very small business," and TeleCorp Holding must remain a "very small business"
for at least five years to comply with applicable rules of the FCC. TeleCorp
Holding will also acquire certain C-Block licenses in connection with the
Louisiana acquisitions, which are subject to the same regulations. See "--We
could lose our F-Block and C-Block licenses if we fail to meet financial and
other tests." If TeleCorp Holding were found to be in violation of these rules,
the FCC could impose substantial financial and regulatory penalties upon us and
TeleCorp Holding, such as a fine, revocation of our PCS licenses, acceleration
of installment payment obligations or retroactive loss of bidding credits. For
example, the FCC could require that TeleCorp Holding repay all debt owed to the
U.S. government in respect of the award of our F-Block and C-Block licenses,
restrict or revoke TeleCorp Holding's F-Block and C-Block licenses or refuse to
grant similar licenses to us in the future. See "Business--Government
Regulation." The imposition of any of these financial or regulatory penalties
could materially adversely affect us.
In addition, TeleCorp Holding owes substantial debt to the U.S. government in
respect of the award of certain F-Block and C-Block licenses. If interest on,
and principal of, any of this debt is not paid when due, or if any default,
after any applicable grace periods expire, on the payment of amounts owed under
this debt occurs, the FCC may:
. impose substantial financial penalties;
. reclaim and reauction the related licenses, and impose a significant
financial penalty in respect of each license that is reclaimed and
reauctioned;
. deny renewal of other licenses; or
. pursue other enforcement measures.
See "--We could lose our F-Block and C-Block licenses if we fail to meet
financial and other tests." If the FCC were to take any of these actions, then
we could be materially adversely affected. See "Certain Indebtedness--Government
Debt."
Spectrum is the range of electromagnetic frequencies available for use. The
FCC has made additional PCS spectrum available through a reauction of certain C-
Block and other licenses returned to, or repossessed by, the FCC. We
participated in this reauction for additional spectrum through Viper Wireless.
On April 20, 1999, the FCC announced that the reauction ended, and Viper
Wireless was the higher bidder for additional spectrum in New Orleans, Houma and
Alexandria, Louisiana, San Juan, Puerto Rico, Jackson, Tennessee and Beaumont,
Texas. On June 3, 1999, a petition was filed by certain secured creditors of
DCR PCS and Pocket Communications against the application of Viper Wireless for
the Houma and New Orleans licenses. The petition seeks deferral of the grant of
these licenses to Viper Wireless until an appeal, by the secured creditors of
DCR PCS and Pocket Communications has been resolved or in the alternative, a
condition noting that a pre-existing claim to the licenses may exist if the
secured creditors are successful in that appeal. The appeal seeks review of the
bankruptcy court's ruling concerning DCR PCS and Pocket Communications
permitting DCR PCS to file its election notice, which ultimately resulted in the
return of these licenses to the FCC, over the objection of the secured creditors
of DCR PCS and Pocket Communications. Viper Wireless filed an opposition to the
petition on June 15, 1999. All these licenses are C-Block licenses and are
subject to the same restrictions as our current C-Block licenses. To the extent
such licenses are not finally granted to us, we may face additional competitors
in our markets.
In the future, the FCC may auction additional spectrum, including 36 MHz of
spectrum near the cellular band in the year 2000.
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We could lose our F-Block and C-Block licenses if we fail to meet financial and
other tests.
TeleCorp Holding participated in the FCC's auction of F-Block licenses as a
"very small business," and TeleCorp Holding must remain a "very small business"
for at least five years to comply with applicable rules of the FCC. TeleCorp
Holding will also acquire certain C-Block businesses in connection with the
Louisiana acquisitions, which are subject to the same regulations. Viper
Wireless participated in the FCC's reauction of C-Block licenses as a "very
small business," and Viper Wireless is subject to the same regulations. The
FCC combines the gross revenues and assets of the applicant or licensee and the
applicant's or licensee's "financial affiliates" to determine whether an
applicant or a licensee qualifies as a "very small business." An entity may be a
"financial affiliate" of an applicant or licensee as a result of common
investments, contractual relationships, joint venture agreements, voting trusts,
stock ownership, ownership of stock options or convertible securities,
agreements to merge or familial relationships. In addition, the FCC may consider
an entity with which an applicant or licensee has formed a "joint venture," as
defined by the FCC, to be a "financial affiliate" of the applicant or licensee
under certain circumstances. Holders of an ownership interest in an applicant or
licensee below certain thresholds are "passive" investors, and such holders are
not "financial affiliates" of the applicant or licensee. Moreover, the FCC will
not attribute to an applicant or licensee the gross revenues and assets of an
entity that makes a bona fide loan to the applicant or licensee unless such
entity is otherwise an affiliate of the applicant or if the FCC treats the loan
as an equity investment. The FCC also requires applicants and licensees with
certain ownership structures, such as ours, to cause certain investors who have
certain financial qualifications to form a "control group." Such a control group
must:
. hold not less than 25% of the applicant's or licensee's equity on a
fully diluted basis;
. hold a majority of the applicant's or licensee's total voting stock; and
. have both actual and legal control of the applicant or licensee.
We believe that our capital structure and our ownership structure allow us to
maintain our status as a "very small business" and to satisfy the FCC's
requirements regarding the presence of a "control group." The FCC reviewed our
capital and ownership structures, as well as the filings required in connection
with the formation of the venture between us and AT&T, as part of our
application for our F-Block licenses. The FCC has granted all our F-Block
licenses to us by "final order" and has not taken any action to challenge our
capital structure or ownership structure under the rules applicable to "very
small businesses," the rules of "financial affiliation" or the rules relating to
the presence of a "control group." The FCC or another party may challenge our
capital or ownership structure under any of these rules in the future, and our
capital structure or ownership structure, our relationship with AT&T, our
financial affiliations with other entities or the loans from Lucent may be found
to violate these rules. If we were found to be in violation of these rules, the
FCC could impose substantial penalties upon us or TeleCorp Holding, such as a
fine, revocation of our PCS licenses, acceleration of installment payment
obligations or retroactive loss of bidding credits. For example, the FCC could
require that TeleCorp Holding repay all debt owed to the U.S. government in
respect of the award of certain F-Block and C-Block licenses to TeleCorp
Holding, restrict or revoke our F-Block and C-Block licenses or refuse to grant
similar licenses to us in the future. See "--Government regulation, changes in
our licenses and other governmental action could adversely affect us" and
"Business--Government Regulation." The imposition of any of these financial or
regulatory penalties could materially adversely affect us.
The FCC has adopted regulations that require companies who have acquired
licenses to provide wireless communications services to meet certain minimum
requirements regarding the construction of their networks. For example,
licensees of 30 MHz Blocks (such as the A-Block, B-Block and C-Block) are
required to offer a signal level that provides adequate service to at least one-
third of the population in their licensed area within five years of receipt of
the license, and to at least two-thirds of such population within ten years of
receipt of the license. Licensees of 10 MHz Blocks (such as the D-Block, E-Block
and F-Block) are required to offer a signal level that provides adequate service
to at least one-quarter of the population in their licensed area within five
years of receipt of the license, or to show substantial service in the licensed
area within five years of receipt of the license. The FCC has ruled that
disaggregated 15 MHz licenses such as those acquired in the FCC's reauction of
C-Block and other licenses are subject to the same build-out requirements as 10
MHz Blocks. See "--Government regulation, changes in our licenses or other
governmental action could adversely affect us" and "Business--Government
Regulation." The FCC could fine us or revoke our licenses if we do not meet such
requirements. After giving effect to final grant of the Viper Wireless licenses,
we will own A-Block, B-Block, C-Block, D-Block and F-Block licenses. A fine or
the revocation of any of our licenses could materially adversely affect us.
Changes in technology and customer demands could adversely affect us.
We use the TDMA technology standard in our network. Other digital
technologies, such as CDMA and GSM, may have significant advantages over TDMA.
If the marketplace demands the advantages of other digital technologies or if
alternative
-20-
technologies emerge in the marketplace, we may need to purchase and install
equipment necessary to allow migration from TDMA to these technologies or change
our choice of technology to compete in the marketplace. We may not be able to
purchase and install successfully the equipment necessary to allow for migration
to a new or different technology or to adopt a new or different technology at an
acceptable cost, if at all.
The wireless communications services industry is experiencing rapid
technological change, evidenced by the pace of digital upgrades in existing
analog systems, evolution of industry standards, ongoing improvements in the
capacity and quality of digital technology, decrease in the time needed for new
products to come to market and enhancements and changes in the requirements and
preferences of consumers. In addition, industry groups are in the process of
developing standards for the next generation of wireless services. While we
believe that TDMA users will be able to migrate to the next generation systems,
this may not be the case. We will need to develop and implement new technologies
to increase our service offering and cost effectiveness to remain competitive.
The development and implementation of new technologies is highly complex and
uncertain, and we may experience delays in developing or implementing new
technologies. If we are unable to develop and implement new technologies, we may
not be able to compete effectively. An inability to develop and implement new
technologies to meet customer demands and to compete effectively could
materially adversely affect us.
We expect to incur operating costs due to fraud.
Based upon the experiences of other providers of wireless communications
services, we expect to incur costs as a result of the unauthorized use of our
network. These costs include the capital and administrative costs associated
with detecting, monitoring and reducing the incidence of fraud and the costs
associated with payments to other providers of wireless communications services
for "unbillable" fraudulent roaming on their networks. If we are unsuccessful in
our efforts to control the unauthorized use of our network, or if we experience
unanticipated types of fraud, our business could be materially adversely
affected.
Use of hand-held phones may pose health and safety risks.
Media reports have suggested that certain radio frequency emissions from
wireless handsets may be linked to certain health concerns, including the
incidence of cancer. Data gathered in studies performed by manufacturers of
wireless communications equipment dispute these media reports. Further, a major
industry trade association and certain governmental agencies have stated
publicly that the use of wireless handsets does not pose any undue health risks.
Nevertheless, concerns regarding radio frequency emissions could have the effect
of discouraging the use of wireless handsets, which could materially adversely
affect us.
The FCC recently revised the rules specifying the methods to be used in
evaluating radio frequency emissions from radio equipment, including wireless
handsets. The hand-held digital telephones that we offer to our customers comply
with the standards adopted under the new rules. These handsets may not comply
with any rules adopted by the FCC in the future. The failure of these handsets
to remain in compliance with applicable FCC rules and standards could materially
adversely affect us.
Recent studies have shown that hand-held digital telephones interfere with
certain medical devices, including hearing aids and pacemakers. The University
of Oklahoma Center for the Study of Wireless Electromagnetic Compatibility,
together with industry trade associations and other interested parties, are
currently studying the extent of, and possible solutions to, this interference.
If these studies demonstrate significant interference or create public concern
about interference, the results of such studies could materially adversely
affect us.
Measures that would (1) require "hands free" use of cellular phones while
operating motor vehicles, (2) ban cellular phone use while driving, (3) limit
the length of calls while driving or (4) require people to pull to the side of
the road to use cellular phones while driving, have been proposed or are being
considered in 12 state legislatures. Three states have passed legislation
concerning cellular phones while driving. California requires rental cars with
cell phones to include written operating instructions concerning safe use.
Florida permits cellular phone use as long as the motorist has one ear free to
hear surrounding sound. Massachusetts allows cellular phone use as long as it
does not interfere with the safe operation of the vehicle and as long as the
motorist keeps one hand on the steering wheel at all times. In addition,
certain commissions and municipalities have passed restrictions on cellular
phone use while driving. In New York, New York, the New York City Taxi and
Limousine Commission approved a regulation that bans taxi drivers from dialing
and talking while driving and requires taxi drivers to pull over to the curb and
be legally parked before using cellular phones. In Brooklyn, Ohio, it is a
misdemeanor to use a cellular phone while driving unless both hands are on the
steering wheel. We cannot predict the success of the proposed laws concerning
car phone use or the effect on use of cellular phones as a result of the
publicity surrounding or passage of such laws. In addition, more restrictive
measures or measures aimed at wireless services companies as opposed to users
may be proposed or passed in state legislatures in the future. The passage or
proliferation of such legislation could materially adversely affect us.
-21-
The Notes are subordinate to other debt that encumbers our assets.
The right to payment on the Notes is subordinate to all of our existing and
future senior debt. Similarly, each subsidiary guarantee of the Notes is
subordinate to all existing and future senior debt of the applicable guarantor.
In the event of a bankruptcy, liquidation, dissolution, reorganization or
similar proceeding with respect to us or any guarantor, our or such guarantor's
assets will be available to pay obligations on the Notes or the applicable
guarantee only after all outstanding senior debt of such party has been paid in
full. There may not be sufficient assets remaining to make payments on amounts
due on any or all of the Notes then outstanding or any subsidiary guarantee. In
addition, under certain circumstances, an event of a default in the payment of
certain senior debt will prohibit us and the guarantors of the Notes from paying
the Notes or the guarantees of the Notes. As of March 31, 1999, after giving
effect to the Transactions:
. our outstanding senior debt would have been approximately $225.0 million
(excluding unused commitments under our senior credit facilities and
additional senior indebtedness for our subsidiaries); and
. the outstanding senior debt of our subsidiary guarantor would have been
approximately $225.0 million (consisting entirely of guarantees of
borrowings under our senior credit facilities, but excluding unused
commitments thereunder).
In addition, certain of our subsidiaries will not guarantee the Notes. In the
event of a bankruptcy, liquidation, dissolution, reorganization or similar
proceeding with respect to any of these subsidiaries, the assets of these
subsidiaries will be available to pay obligations on the Notes only after all
outstanding liabilities of such subsidiaries has been paid in full. As of March
31, 1999, after giving effect to the Transactions, the total liabilities of
these subsidiaries would have been approximately $320.8 million, consisting of
debt owed to the U.S. government related to our licenses in the approximate
amount of $20.7 million, trade payables in the approximate amount of
$24.8 million, accrued and other expenses in the approximate amount of $4.1
million and intercompany amounts payable in the approximate amount of $274.4
million. The U.S. government debt is shown on our balance sheet net of discounts
of $3.2 million reflecting the below market interest rates on the debt.
Although the indenture governing the Notes limits the amount of debt we and
certain of our subsidiaries may incur, the amount of such debt could be
substantial and could be senior debt. See "Description of the Notes."
The Notes and the guarantees of the Notes are unsecured. Thus, the Notes and
the guarantees of the Notes rank junior in right of payment to any of our
secured debt or the secured debt of the guarantors of the Notes to the extent of
the value of the assets securing such debt. Such debt includes debt incurred
under our senior credit facilities, which is secured by liens on substantially
all of our assets and those of our subsidiaries. If an event of default were to
occur under our senior credit facilities, the lenders could foreclose on such
collateral regardless of any default with respect to the Notes. Such assets
would first be used to repay in full all amounts outstanding under our senior
credit facilities. The use in the wireless communications services business of
our licenses and the infrastructure equipment used in our network creates the
value of such assets. These assets are highly specialized and, taken
individually, have limited marketability. Consequently, in the event the lenders
under our senior credit facilities foreclose on the collateral securing our
debt, these assets are likely to be sold as an entirety. The need to obtain FCC
approval and comply with applicable governmental regulations could reduce the
value obtained for these assets.
We depend upon our subsidiaries for funds necessary to make payments on the
Notes.
We conduct almost all of our operations through our subsidiaries. As a result,
we depend upon dividends from our subsidiaries for the funds necessary to make
payments on the Notes. The indenture governing the Notes limits restrictions on
the ability of certain of our subsidiaries to pay dividends or make certain
other distributions. Nonetheless, our senior credit facilities restrict the
ability of these subsidiaries to pay dividends or make other distributions. In
addition, there can be no assurance that any such dividends or distributions
will be adequate to allow us to make payments on the Notes.
Federal and state statutes allow courts, under specific circumstances, to void
the Notes and the guarantees of the Notes.
Although guarantees of the Notes provide the holders of the Notes with a
direct claim against the assets of the applicable guarantor, creditors of a
bankrupt guarantor may challenge such guarantee. If such a challenge were
upheld, then the applicable guarantee would be invalid and unenforceable.
Without the benefit of any guarantees, holders of the Notes would be junior to
all creditors, including trade creditors, of our subsidiaries. As of March 31,
1999, after giving effect to the Transactions, the total liabilities of our
subsidiaries who do not guarantee the Notes would have been approximately $320.8
million, consisting of debt owed to the U.S. government related to our licenses
in the approximate amount of $20.7 million, trade payables in the approximate
amount of $24.8 million, accrued and
-22-
other expenses in the approximate amount of $4.1 million and intercompany
amounts payable in the approximate amount of $274.4 million. The U.S. government
debt is shown on our balance sheet net of discounts of $3.2 million reflecting
the below market interest rates on the debt.
The creditors of a bankrupt guarantor could challenge a guarantee on the
grounds that the guarantee constituted a "fraudulent conveyance" under
bankruptcy law. If a court were to rule that a guarantor:
. incurred a guarantee to delay, hinder or defraud present or future
creditors;
. received less than reasonably equivalent value or fair consideration for
incurring the guarantee; and
. at the time of incurring the guarantee, the guarantor:
. was insolvent or rendered insolvent by reason of the guarantee;
. was engaged, or about to engage, in a business or transaction for
which its remaining unencumbered assets were unreasonably small; or
. intended to, or believed it would, incur debts greater than it could
pay as they become due
then the court could void the obligations under the guarantee or subordinate the
guarantee to other debt of such guarantor or take other action detrimental to
the holders of the Notes. In addition, any of the guarantees of the Notes could
be subject to the claim that, since such guarantee was incurred for our benefit
and only indirectly for the benefit of our subsidiary that provided the
guarantee, the obligations of the applicable guarantor were incurred for less
than fair consideration.
Our debt instruments could restrict our business plans.
The indenture governing the Notes restricts our ability and the ability of
certain of our subsidiaries to engage in certain transactions. In addition, our
senior credit facilities require us to maintain certain ratios, including
leverage ratios, an interest coverage ratio and a fixed charges ratio, and to
satisfy certain tests, including tests relating to minimum covered Pops, minimum
number of subscribers to our services and minimum aggregate service revenue per
subscriber. The vendor financing provided by Lucent also restricts our ability
and the ability of our subsidiaries to do the following:
. create liens;
. make certain payments, including payments of dividends and distributions
in respect of capital stock;
. consolidate, merge and sell assets;
. engage in certain transactions with affiliates; and
. fundamentally change our business.
See "Description of the Notes--Certain Covenants," "Certain Indebtedness--
Senior Credit Facilities" and "--Vendor Financing."
The restrictions contained in the indenture governing the Notes, and the
restrictions contained in our senior credit facilities and the vendor financing
provided by Lucent, may limit our ability to implement our business plan,
finance future operations, respond to changing business and economic conditions,
secure additional financing, if needed, and engage in opportunistic
transactions. Moreover, we may not satisfy the financial ratios and tests under
our senior credit facilities due to events that are beyond our control. The
failure to satisfy any of the financial ratios and tests could result in a
default under our senior credit facilities. Following a default under our senior
credit facilities, the lenders could declare all amounts outstanding to be
immediately due and payable. If we could not repay such amounts, the lenders
could foreclose on the collateral granted to them to secure such indebtedness.
See "--The Notes are subordinate to other debt that encumbers our assets." If
the lenders accelerated the indebtedness outstanding under our senior credit
facilities, there can be no assurance that we could repay such indebtedness, and
there can be no assurance that we could pay amounts due in respect of our other
indebtedness with our remaining assets, including the Notes. See "Certain
Indebtedness--Senior Credit Facilities" and "Description of the Notes--Ranking."
-23-
Holders of the Notes may face tax and bankruptcy concerns.
We issued the Notes at a substantial discount from their principal amount at
maturity. Original issue discount (i.e., the difference between the "stated
redemption price at maturity" of the Notes, including all cash payments of
principal and interest, and the "issue price" of the Notes) accrues from the
original issue date of the Notes and will be included in a holder's gross income
for federal income tax purposes before the holder receives the cash payment of
such interest. See "Certain U.S. Federal Tax Considerations--Tax Consequences to
U.S. Holders." U.S. federal income tax law may postpone or limit our deduction
of interest or original issue discount. See "Certain U.S. Federal Tax
Considerations--Applicable High Yield Discount Obligations." U.S. federal income
tax law limits the use of corporate net operating loss carryforwards following
certain ownership changes in a corporation which may limit our ability to use
the net operating loss carryforwards we have experienced or acquired to date to
reduce future tax liabilities.
If a bankruptcy case were commenced by or against us under the U.S. Bankruptcy
Code, the claim of a holder of the Notes with respect to the principal amount of
such Notes may be limited to an amount equal to the sum of the initial offering
price and that portion of the original issue discount that is not deemed to
constitute "unmatured interest" for purposes of the U.S. Bankruptcy Code. Any
original issue discount that had not amortized as of the date of any such
bankruptcy filing could constitute "unmatured interest" for purposes of the U.S.
Bankruptcy Code. To the extent that the U.S. Bankruptcy Code differs from the
Internal Revenue Code in determining the method of amortization of original
issue discount, a holder of the Notes may recognize taxable gain or loss upon
payment of such holder's claim in bankruptcy.
We may not be able to satisfy our obligations owed to the holders of the Notes
upon a change of control.
Upon the occurrence of a "change of control" as defined in the indenture
governing the Notes, each holder of the Notes will have the right to require us
to repurchase such holder's Notes at a price equal to 101% of the accreted value
of such Notes or the principal amount at maturity, as applicable, together with
accrued and unpaid interest to the date of repurchase. Certain events which
would constitute a change of control under the indenture governing the Notes
would also constitute a default under our senior credit facilities. In addition,
our senior credit facilities effectively prevent the repurchase of the Notes by
us in the event of our change of control unless all amounts outstanding under
our senior credit facilities are repaid in full. Our failure to repurchase the
Notes would be a default under the indenture governing the Notes, which would be
a default under our senior credit facilities. The inability to repay all
indebtedness outstanding under our senior credit facilities upon acceleration
would also be a default under the indenture governing the Notes. Any default
under our senior credit facilities or the indenture governing the Notes would
materially adversely affect our business, operations and financial results as
well as the market price of the Notes. In the event of a change of control, we
may not have sufficient assets to satisfy all obligations under our senior
credit facilities and the indenture governing the Notes. Any debt we incur in
the future may also prohibit certain events or transactions that would
constitute a change of control under the indenture governing the Notes. See
"Certain Indebtedness--Senior Credit Facilities" and "Description of the Notes--
Change of Control."
We may enter into transactions, including acquisitions, refinancings or
recapitalizations, or highly leveraged transactions, that do not constitute a
change of control under the indenture governing the Notes. Any of these
transactions may result in an increase in our debt or otherwise affect our
capital structure, harm our credit ratings or have a material adverse affect on
holders of the Notes. See "Description of the Notes--Change of Control."
This prospectus contains forward-looking statements that may be incorrect.
All statements in this prospectus that are not statements of historical facts
are forward-looking statements. Forward-looking statements concern our strategy,
future operations, technical capabilities, construction plan and schedule,
commercial operations schedule, funding needs, prospective acquisitions or joint
ventures, financing sources, pricing, future regulatory approvals, markets, size
of markets for wireless communications services, financial position, estimated
revenues, projected costs, prospects, plans and objectives of management, as
well as information concerning expected actions of third parties such as
equipment suppliers, service providers and roaming partners, and expected
characteristics of competing systems. Although we believe that the expectations
underlying such forward-looking statements are reasonable, forward-looking
statements are inherently speculative, and they may be incorrect. Our business,
operations and financial results may differ materially from the expectations
expressed or implied in the forward-looking statements in this prospectus. You
should consider carefully the factors described in this section and the other
information in this prospectus before deciding to exchange the Notes.
The information set forth under "Business--Network Development," other than
historical information, the statements in this prospectus regarding the years
during which we expect to continue to incur significant operating losses and to
generate negative cash flow from operating activities and the statements in this
prospectus regarding our anticipated capital needs are forward-looking
statements based upon a number of specific assumptions. These assumptions
include the following:
-24-
. we will not incur any unanticipated costs in the construction of our
network;
. we will be able to compete successfully in each of our markets;
. demand for our services will meet wireless communications industry
projections;
. our network will satisfy the requirements set forth in our agreements
with AT&T and support the services we expect to provide;
. the capacity of our network will be sufficient to meet the level of
service reflected in our business plan;
. we will be successful in working with AT&T and the other SunCom
companies, as well as with other providers of wireless communications
services and roaming partners, to ensure effective marketing of our
network and the services we intend to offer;
. there will be no change in any governmental regulation or the
administration of existing governmental regulations that requires a
material change in the operation of our business; and
. there will be no change in any of our material contracts that adversely
affects us.
Although we believe that these assumptions are reasonable, they may be
incorrect. If one or more of these assumptions is incorrect, our business,
operations and financial results may differ materially from the expectations,
expressed or implied, in the forward-looking statements in this prospectus.
If holders fail to exchange the Old Notes for the Exchange Notes, it may weaken
the market for the unexchanged Old Notes, as well as for the Exchange Notes.
We will issue the Exchange Notes in exchange for the Old Notes, only after
timely receipt by the Exchange Agent of such Old Notes, a properly completed and
duly executed Letter of Transmittal and all other required documentation.
Holders of the Old Notes desiring to tender such Old Notes in exchange for the
Exchange Notes should allow sufficient time to ensure timely delivery. Neither
we nor the Exchange Agent is under any duty to notify holders of defects or
irregularities with respect to tenders of the Old Notes for exchange. The Old
Notes that are not tendered or are tendered but not accepted will, following
consummation of the Exchange Offer, continue to be subject to the existing
restrictions upon transfer. In addition, any holder of the Old Notes who
tenders in the Exchange Offer to distribute the Exchange Notes must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives the
Exchange Notes for its own account in exchange for the Old Notes, where such
broker-dealer acquired such Old Notes as a result of market-making activities or
any other trading activities, must acknowledge that it will deliver a prospectus
in connection with any resale of such Exchange Notes. To the extent that the
Old Notes are tendered and accepted in the Exchange Offer, the trading market
for untendered and tendered but unaccepted Old Notes could be adversely affected
due to the limited amount, or "float," of the Old Notes that are expected to
remain outstanding following the Exchange Offer. Generally, a lower "float" of
a security could result in less demand to purchase such security and could
result in lower prices for such security. For the same reasons, to the extent
that a large amount of the Old Notes are not tendered or are tendered and not
accepted in the Exchange Offer, the trading market for the Exchange Notes could
be adversely affected. See "The Exchange Offer" and "Plan of Distribution."
There is no public market for the Notes and there are restrictions on the resale
of the Notes.
As of the date hereof, the only registered holder of the Old Notes is Cede &
Co., as its nominee. We believe that, as of the date hereof, such holder is not
our "affiliate," as such term is defined in Rule 405 under the Securities Act.
Prior to the private offering of the Old Notes, there had been no market for the
Notes. We cannot ensure that there will be a liquid trading market for the
Notes, or any market at all. We do not intend to list the Exchange Notes on any
securities exchange, but the Old Notes have been designated for trading in the
PORTAL Market. The Exchange Notes are new securities with no established
trading market. The Exchange Notes may trade at a discount from their initial
offering price, depending upon prevailing interest rates, the market for similar
securities, our performance and other factors. Chase Securities Inc. ("CSI"),
one of the initial purchasers of the Old Notes, has told us that they intend to
make a market in the Exchange Notes, as well as the Old Notes, as the law
permits. CSI is not obligated to make a market, and may discontinue any such
activities at any time without notice. In addition, CSI may limit any market-
making activities during the Exchange Offer and the pendency of the Shelf
Registration Statement, as defined in the
-25-
"The Exchange Offer-Terms of the Exchange Offer." We cannot ensure that an
active market for the Notes will develop. See "The Exchange Offer" and "Plan of
Distribution."
-26-
USE OF PROCEEDS
We will not receive proceeds from the Exchange Offer. The net proceeds from
the offering of the Old Notes, after deducting the initial purchasers' discounts
and estimated fees and expenses payable by us, were approximately $317.0
million. We used $40.0 million of the net proceeds to repay vendor financing
from Lucent. We intend to use the remaining net proceeds from the offering of
the Old Notes, together with proceeds from sales of our equity securities,
borrowings under our senior credit facilities, other vendor financing provided
by Lucent and internally generated cash, to fund capital expenditures,
acquisitions of PCS licenses, operating losses and other working capital
requirements. See "Business--Network Development" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
-27-
CAPITALIZATION
The following table sets forth as of March 31, 1999 (1) our historical
capitalization and (2) our capitalization giving pro forma effect to the
Transactions, derived from our unaudited pro forma balance sheet included
elsewhere in this prospectus. This table should be read in conjunction with
"Selected Historical and Pro Forma Consolidated Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our Consolidated Financial Statements and the notes to such
documents included elsewhere in this prospectus.
As of March 31, 1999
---------------------------
Actual Pro Forma
------------ -------------
(dollars in millions)
Cash and cash equivalents.................................................................. $ 11.2 $ 230.0
-------- ---------
Debt:
Government license obligations (a)...................................................... $ 8.0 $ 17.5
Senior credit facilities (b)............................................................ 225.0 225.0
Senior subordinated Notes (c)........................................................... -- 327.6
Vendor financing (d).................................................................... 60.9 40.8
Total debt.......................................................................... 293.9 610.9
-------- ---------
Mandatorily redeemable preferred stock (e)................................................. 245.1 362.6
Preferred stock subscriptions receivable and other items (f)............................ (72.4) (149.8)
-------- ---------
Mandatorily redeemable preferred stock, net......................................... 172.7 212.8
Stockholders' deficit (g).................................................................. (99.5) (99.4)
-------- ---------
Total capitalization....................................................................... $367.1 $ 724.3
======== =========
______________
(a) Includes government license obligations in the amount of $9.5 million
related to the F-Block licenses and the C-Block licenses we have acquired as
part of the Transactions. This debt is shown on our balance sheet net of
discounts of $2.0 million reflecting the below market interest rate on the
debt.
(b) Our senior credit facilities provide up to $525.0 million of term loan and
revolving credit financing. As of March 31, 1999, we had drawn $225.0
million under our senior credit facilities. See "Certain Indebtedness--
Senior Credit Facilities."
(c) Represents the gross proceeds of $327.6 million from the sale of 11 5/8%
Senior Subordinated Discount Notes due 2009 on April 23, 1999, excluding
offering expenses and the repayment of Lucent Series B Notes.
(d) As of March 31, 1999, the total amount of Series A and Series B notes
outstanding, including $0.5 million of interest paid-in-kind, was $40.5
million, plus $0.3 million of additional accrued interest, and $20.1
million, respectively. In addition, Lucent purchased $20.0 million of
Series B junior subordinated notes in April 1999. The full amount of such
Series B notes were repaid with the proceeds of the offering of the old
Notes. In connection with the acquisition of licenses and related assets
from AT&T in Puerto Rico, Lucent has committed to purchase $15.0 million of
additional junior subordinated notes. Lucent has also committed to purchase
up to an additional $65.0 million of such notes in connection with our
development of new markets. See "Certain Indebtedness--Vendor Financing."
(e) Represents mandatorily redeemable preferred stock issued or to be issued to
AT&T, Chase Capital Partners, Desai Capital Management Incorporated, Hoak
Capital Corporation, J.H. Whitney III, L.P., M/C Partners, Entergy
Corporation, Northwood Ventures, LLC, One Liberty Ventures, LLC, Toronto
Dominion Capital (USA), Wireless 2000, Digital PCS and stockholders of
TeleCorp Holding.
(f) Preferred stock subscriptions receivable and other items is comprised of the
following:
As of March 31, 1999
---------------------------------
Actual Pro Forma
--------------- ----------------
Deferred Compensation........................................................... $ (11,078) $ (304,514)
Treasury Stock.................................................................. (12) (12)
Preferred Stock subscriptions receivable........................................ (72,413,769) (149,499,135)
------------- --------------
$(72,424,859) $(149,803,661)
============= ==============
-28-
(g) Stockholders' deficit is comprised of the following:
As of March 31, 1999
---------------------------------
Actual Pro Forma
---------------------------------
Series F preferred stock................................................ $ 333 $ 482
Common stock............................................................ 1,597 2,431
Additional paid-in capital.............................................. 187,498 433,908
Deferred compensation................................................... (5,306) (25,015)
Common stock subscriptions receivable................................... (86,221) (283,455)
Treasury stock.......................................................... (26) (26)
Accumulated deficit..................................................... (99,562,287) (99,562,287)
------------- ------------
$(99,464,412) $(99,433,962)
============= ============
-29-
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The selected historical consolidated financial information presented below as
of March 31, 1999, for the period from inception on July 29, 1996 to December
31, 1996, for the years ended December 31, 1997 and 1998, and for the three
months ended March 31, 1998 and 1999, has been derived from our and our
predecessor's consolidated financial statements and the related notes included
elsewhere in this prospectus. The unaudited pro forma per share statement of
operations data and any other data for the period from inception on July 29,
1996 to December 31, 1996, for the years ended December 31, 1997 and 1998, and
for the three months ended March 31, 1998 and 1999, and the unaudited pro forma
balance sheet data as of March 31, 1999, are derived from the unaudited pro
forma financial data included elsewhere in this prospectus, and give effect to
the Transactions, as if they had occurred on March 31, 1999. The unaudited pro
forma financial data presented do not purport to represent what our results of
operations and financial condition actually would have been or what our
operations in any future period would be if the Transactions had occurred on the
date assumed. The selected historical and pro forma data below should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our and our predecessor's audited and unaudited
consolidated financial statements and notes to such statements and our unaudited
pro forma balance sheet and notes to such balance sheet included elsewhere in
this prospectus.
For the period July 29, For the year ended For the three month
1996 (inception) to For the year ended December 31, period ended
December 31, 1996 December 31, 1997 1998 March 31, 1998
(unaudited)
----------------------- ------------------- ------------------- -------------------
Statements of Operations Data:
Service revenue......................... $ - $ - $ - $ -
Equipment revenue....................... - - - -
Roaming revenue......................... - - 29,231 -
-------------- ---------------- ---------------- --------------
Total revenue........................... $ - $ - $ 29,231 -
-------------- ---------------- ---------------- --------------
Operating expense:
Cost of revenue........................ - - - -
Operations and development............. - - 9,772,485 -
Selling and marketing.................. 9,747 304,062 6,324,666 369,392
General and administrative............. 515,146 2,637,035 26,239,119 2,246,456
Depreciation and amortization.......... 75 10,625 1,583,864 39,129
-------------- ---------------- ---------------- --------------
Total operating expense............. 524,968 2,951,722 43,920,134 2,654,977
-------------- ---------------- ---------------- -------------
Operating loss...................... (524,968) (2,951,722) (43,890,903) (2,654,977)
Other (income) expense:
Interest expense....................... - 396,362 11,934,263 132,400
Interest income........................ - (12,914) (4,697,233) (42,256)
Other expense.......................... - - 27,347 -
-------------- ---------------- ---------------- -------------
Net loss............................ $ (524,968) $ (3,335,170) $ (51,155,280) $ (2,745,121)
Accretion of mandatorily redeemable
preferred stock $ (288,959) $ (725,557) $ (8,566,922) $ (103,608)
-------------- ---------------- ---------------- -------------
Net loss attributable to common equity $ (813,927) $ (4,060,727) $ (59,722,202) $ (2,848,729)
============== ================ ================ =============
Other Data:
Ratio of earnings to fixed charges (a).. - - - -
For the three month
period ended
March 31, 1999
(unaudited)
---------------------
Statements of Operations Data:
Service revenue................................. $ 507,285
Equipment revenue............................... 1,815,224
Roaming revenue................................. 1,940,317
---------------
Total Revenue................................... $ 4,262,826
---------------
Operating expense:
Cost of revenue................................ 2,829,448
Operations and development..................... 7,352,578
Selling and marketing.......................... 8,040,922
General and administrative..................... 10,278,338
Depreciation and amortization.................. 3,052,980
---------------
Total operating expense..................... 31,554,266
---------------
Operating loss.............................. (27,291,440)
Other (income) expense:
Interest expense............................... 3,715,129
Interest income................................ (741,429)
Other expense.................................. 70,187
---------------
Net loss.................................... $ (30,335,327)
Accretion of mandatorily redeemable
preferred stock $ (4,630,104)
---------------
Net loss attributable to common equity $ (34,965,431)
===============
Other Data:
Ratio of earnings to fixed charges (a).......... -
As of March 31, 1999
---------------------------------
Actual Pro Forma
--------------- ---------------
Balance Sheet Data:
Cash and cash equivalents................................................. $ 11,210,696 $ 230,047,360
Property and equipment, net............................................... 262,653,787 270,653,787
PCS licenses and microwave relocation costs............................... 117,531,516 235,142,756
Intangible assets -AT&T Agreements, net................................... 25,369,334 42,679,334
Total assets.............................................................. 457,903,537 815,173,777
Total debts............................................................... 293,889,463 610,978,893
Mandatorily redeemable preferred stock.................................... 245,131,494 362,660,656
Mandatorily redeemable preferred stock, net (b)(c)........................ 172,706,635 212,856,995
Total stockholders' deficit............................................... $ (99,464,412) $ (99,433,962)
(a) The ratio of earnings to fixed charges is computed by dividing fixed charges
into income before taxes plus fixed charges. Fixed charges include interest
expense and that portion of rental expense (one-third) attributable to the
interest factor. On this basis, earnings before fixed charges for the period
ended December 31, 1996, for the years ended December 31, 1997 and 1998 and
for the three months ended March 31, 1998 and 1999 were not adequate to
cover fixed charges by $525,635, $3,915,262, $66,208,919, $3,136,577 and
$36,612,156, respectively.
(b) Net of treasury stock, deferred compensation and preferred stock
subscription receivable of $12, $11,078, and $72,413,769 respectively, as of
March 31, 1999.
(c) Net of treasury stock, deferred compensation and preferred stock
subscription receivable of $12, $304,514, and $149,499,135, respectively, as
of March 31, 1999 on a pro forma basis.
-30-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
History
TeleCorp Holding was incorporated on July 29, 1996 to participate in the FCC's
auction of F-Block PCS licenses in April 1997 as a "designated entity" and "very
small business," as defined by the FCC. TeleCorp Holding obtained PCS licenses
in the New Orleans, Memphis, Beaumont and Little Rock BTAs, and certain other
licenses that were subsequently transferred to unrelated entities.
TeleCorp PCS, Inc. was incorporated on November 14, 1997 by the controlling
stockholders of TeleCorp Holding. In January 1998, we entered into a venture
with AT&T under which AT&T contributed certain PCS licenses to us in exchange
for an equity interest in TeleCorp and sold additional PCS licenses to us for
$21.0 million. In July 1998, we received final FCC approval for the venture and,
in connection with the consummation of the venture, we entered into exclusivity,
licensing, roaming and long distance agreements. We are AT&T's exclusive
provider of facilities-based mobile wireless communications services in our
licensed markets and we use the AT&T brand name and logo together with the
SunCom name and logo, giving equal emphasis to each. In addition, TeleCorp
Holding became a wholly owned subsidiary of TeleCorp.
In the first quarter of 1999, we commenced commercial operations in each of
our major domestic markets, after having launched our New Orleans market for
roaming services in late December 1998. Accordingly, for periods prior to 1999
we were a development stage company. We plan to launch our service in our Puerto
Rico markets during the third quarter of 1999.
We recently acquired 10 MHz F-Block PCS licenses covering the Baton Rouge,
Houma, Hammond and Lafayette, Louisiana BTAs from Digital PCS, for $2.3 million
of our common and preferred stock and the assumption of $4.1 million of debt
owed to the U.S. government related to these licenses. The debt is shown on our
balance sheet net of a discount of $0.7 million reflecting the below market
interest rate on the debt. We also recently acquired a 20 MHz PCS license and
related assets covering the San Juan MTA from AT&T. On May 24, 1999, we sold to
AT&T $40.0 million of our preferred stock. On May 25, 1999, we purchased the
license and related assets from AT&T for $95.0 million in cash. In addition, we
reimbursed AT&T $3.2 million for microwave relocation and $1.5 million for other
expenses it incurred in connection with such acquisition. In addition, we
recently acquired 15 MHz C-Block PCS licenses covering the Alexandria, Lake
Charles and Monroe, Louisiana BTAs from Wireless 2000, for approximately $0.4
million of common and preferred stock, the assumption of $7.4 million of debt
owed to the U.S. government related to these licenses, $0.2 million in cash in
connection with microwave relocation and $0.4 million in reimbursement of
interest paid on government debt related to the license. The U.S. government
debt is shown net of a discount of $1.3 million reflecting the below market
interest rate on the debt.
From time to time, we may enter into discussions regarding the acquisition of
other PCS licenses, including swapping our licenses for those of other PCS
license holders.
We participated in the FCC's reauction of C-Block and other licenses for
additional spectrum through Viper Wireless. On April 20, 1999, the FCC announced
that the reauction ended, and Viper Wireless was the high bidder for additional
spectrum in New Orleans, Houma and Alexandria, Louisiana, San Juan, Puerto Rico,
Jackson, Tennessee and Beaumont, Texas. On June 3, 1999, a petition was filed by
certain secured creditors of DCR PCS and Pocket Communications against the
application of Viper Wireless for the Houma and New Orleans licenses. The
petition seeks deferral of the grant of these licenses to Viper Wireless until
an appeal by the secured creditors of DCR PCS and Pocket Communications has been
resolved or, in the alternative, a condition noting that a pre-existing claim to
the licenses may exist if the secured creditors of DCR PCS and Pocket
Communications are successful in that appeal. The appeal seeks review of the
bankruptcy court's ruling concerning DCR PCS and Pocket Communications
permitting DCR PCS to file its election notice, which ultimately resulted in the
return of these licenses to the FCC, over the objection of the secured creditors
of DCR PCS and Pocket Communications. Viper Wireless filed an opposition to the
petition on June 15, 1999. At present, TeleCorp Holding owns 85% of Viper
Wireless, and Mr. Vento and Mr. Sullivan together own the remaining 15%. Mr.
Vento and Mr. Sullivan together have voting control over Viper Wireless. AT&T
and certain of our cash equity investors have committed an aggregate of up to
$32.3 million in exchange for additional shares of our preferred and common
stock.
Revenue
We derive our revenue from:
-31-
. Service. We sell wireless personal communications services. The
various types of service revenue associated with wireless
communications service for our subscribers include monthly recurring
charges and monthly non-recurring airtime charges for local, long
distance and roaming airtime used in excess of pre-subscribed usage.
Our customers' roaming charges are rate plan dependent, based on the
number of pooled minutes included in their plans. Service revenue also
includes monthly non-recurring airtime usage associated with our
prepaid subscribers and non-recurring activation and de-activation
service charges.
. Equipment. We sell wireless personal communications handsets and
accessories that are used by our customers in connection with our
wireless services.
. Roaming. We charge monthly non-recurring outcollect fees for other
wireless companies' customers using our network facilities to place
and receive wireless services.
Cost of Revenue
Equipment. We purchase personal communications handsets and accessories from
third party vendors to resell to our customers for use in connection with our
services. The cost of handsets is inherently higher than the resale price to the
customer. We record the excess cost as a sales and marketing operational
expense. We do not manufacture any of this equipment.
Incollect Fees. We pay fees to other wireless communications companies based
on airtime usage of our customers on other communications networks.
Clearinghouse Fees. We pay fees to a third party clearinghouse for processing
our call data records and performing monthly inter-carrier financial settlements
for all roaming incollect and outcollect charges.
Variable Interconnect. We pay monthly non-recurring charges associated with
interconnection with other carriers' networks. These fees are based on minutes
of use by our customers.
Variable Long Distance. We pay monthly non-recurring usage charges to other
communications companies for long distance service provided to our customers.
These variable charges are based on our subscribers' usage, applied at pre-
negotiated rates with the other carriers.
Operating Expense
Operations and development. Our operations and development expense includes
all employee-based charges, including engineering operations and support, field
technicians, network implementation support, product development, and
engineering management. This expense also includes monthly recurring charges
directly associated with the maintenance of network facilities and equipment.
Selling and marketing. Our selling and marketing expense includes all employee
based charges, including brand management, external communications, retail
distribution, sales training, direct, indirect, third party and telemarketing
support. In addition to employee based charges, we also record the excess cost
of handsets over the resale price as a cost of selling and marketing. We
distribute our products and services through direct and indirect sales efforts,
agents and telemarketing. Our direct sales and marketing efforts focus on
attracting and retaining small, medium and large business customers in our
target markets. We sell through company owned retail stores, indirect sales
partners, third party agents and resellers in an effort to efficiently increase
our consumer based subscribers.
General and administrative. Our general and administrative expense includes
all employee based charges, including customer support, billing, information
technology, finance, accounting and legal services. Certain functions, such as
customer support, billing, finance, accounting and legal services are likely to
remain centralized in order to achieve economies of scale.
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.
Capital expenditures. Our principal capital requirements for deployment of our
wireless network include installation of digital equipment and, to a lesser
extent, site development work.
-32-
Interest Income (Expense). Interest income is earned primarily on our cash and
cash equivalents. Interest expense through March 31, 1999 consists of interest
due on our senior credit facilities, vendor financing, and debt owed to the U.S.
government related to our licenses.
Results of Operations
Three Months ended March 31, 1999 Compared to Three Months ended March 31, 1998
For the three months ended March 31, 1999, service revenue was approximately
$0.5 million, equipment revenue totaled approximately $1.8 million and roaming
revenue exceeded $1.9 million. We began offering wireless services in each of
our major domestic markets in the first quarter of 1999 and a large portion of
our revenue resulted from servicing AT&T's roaming customers in these markets.
We generated no revenue for the three months ended March 31, 1998.
Cost of revenue, consisting mainly of cost of equipment and incollect expense,
for the three months ended March 31, 1999 was approximately $2.8 million. We did
not generate any such cost for the three months ended March 31, 1998.
Operations and development expense for the three months ended March 31, 1999
was approximately $7.4 million. This expense was primarily related to the
engineering and operating staff required to implement and operate our network.
There was no operations and development expense for the three months ended March
31, 1998.
Selling and marketing expense for the three months ended March 31, 1999 was
approximately $8.0 million, as compared to approximately $0.4 million for the
three months ended March 31, 1998. This increase was due to salary and benefits
for sales and marketing staff, as well as market research. The increase in sales
and marketing expense is mainly due to commencing services in our domestic
markets during the three months ended March 31, 1999.
General and administrative expense for the three months ended March 31, 1999
was approximately $10.3 million, as compared to approximately $2.2 million for
the three months ended March 31, 1998. The increase was 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 commercial launch of our markets during the three months ended March 31,
1999.
Depreciation and amortization expense for the three months ended March 31,
1999 was approximately $3.1 million, as compared to approximately $39,000 for
the three months ended March 31, 1998. This expense was related to depreciation
of our fixed assets, as well as the initiation of amortization on PCS licenses
and AT&T agreements upon the commercial launch of our domestic markets.
Interest expense, net of interest income, for the three months ended March 31,
1999 was approximately $3.0 million, as compared to approximately $90,000 for
the quarter ended March 31, 1998. This increase in interest expenses was related
to borrowings under our senior credit facilities of $225.0 million and the
issuance of $60.0 million aggregate principal amount of notes under the vendor
financing provided by Lucent.
Year ended December 31, 1998 Compared to Year ended December 31, 1997
Revenue for the year ended December 31, 1998 was $29,231. This revenue
resulted from servicing AT&T's roaming customers in certain of our Louisiana
markets. We began offering wireless services in each of our major domestic
markets in the first quarter of 1999. We generated no revenue for the year ended
1997.
Operations and development expense for the year ended December 31, 1998 was
approximately $9.8 million. This expense was primarily related to an increase in
engineering and operating staff devoted to the implementation of future
operations of our network. There was no operations and development expense for
the year ended December 31, 1997.
Selling and marketing expenses for the year ended December 31, 1998 was
approximately $6.3 million, as compared to approximately $0.3 million for the
year ended December 31, 1997. This increase was due to salary and benefits for
sales and marketing staff as well as market research. 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 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.
-33-
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
certain AT&T agreements.
Interest expense, net of interest income, for the year ended December 31, 1998
was approximately $7.2 million, as compared to approximately $0.4 million for
the year ended December 31, 1997. This interest expense was related to certain
notes payable to shareholders and affiliates. This increase in interest expense
was related to borrowings under the senior credit facilities of $225.0 million
and the issuance of $10.0 million aggregate principal amount of notes under the
vendor financing provided by Lucent.
From July 29, 1996 (inception) to December 31, 1996
Selling and marketing expense and general and administrative expense for the
period from July 29, 1996 (inception) to December 31, 1996 was approximately
$0.5 million, which were associated with salary, benefits and expenses of
administrative personnel, as well as legal and other costs associated with the
formation of TeleCorp.
Liquidity and Capital Resources
Since inception, our activities have consisted principally of hiring a
management team, raising capital, negotiating strategic business relationships,
planning and participating in the PCS auction, initiating research and
development, conducting market research and developing our wireless services
offering and network. We have been relying on the proceeds from borrowings and
issuances of capital stock, rather than revenues, for our primary sources of
cash flow. We began commercial operations in December 1998 and began earning
recurring revenues by the end of the first quarter of 1999.
Cash and cash equivalents totaled $11.2 million at March 31, 1999, as compared
to $111.7 million at December 31, 1998. This decrease was the result of incoming
cash provided by financing activities of $53.5 million, offset by $21.5 million
of cash used in operating activities and $132.5 million of cash used in network
development and investing activities.
During the three months ended March 31,1999, we increased long-term debt by
$50.0 million and received $3.5 million of preferred stock subscriptions.
Capital expenditures required to develop and construct our network totaled
$114.7 million and we were required to deposit $17.8 million with the FCC for
PCS licenses during the three months ended March 31, 1999. Cash used in
operating activities of $21.5 million for the three months ended March 31, 1999
resulted from a net loss of $30.3 million that was partially offset by non-cash
charges of $3.9 million and changes in assets and liabilities of $4.9 million.
From inception through June 1998, our primary source of financing was certain
notes issued to our stockholders. In July 1996, we issued $0.5 million of
subordinated promissory notes to our stockholders. We converted these notes into
50 shares of our Series A Preferred Stock in April 1997. In December 1997, we
issued various promissory notes to our stockholders. We converted these notes
into mandatorily redeemable preferred stock. From January 1 to June 30, 1998, we
borrowed approximately $22.5 million in the form of promissory notes to existing
and prospective stockholders to satisfy working capital needs. We converted
these notes into equity of TeleCorp in July 1998 in connection with the
consummation of the venture with AT&T.
In connection with consummation 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 March 31, 1999, approximately $55.5 million of such 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 $6.0 million will be funded in
December 1999 and $11.0 million will be funded on each of May 24, 2000 and May
24, 2001. 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 C-Block licenses. We received
approximately $6.5 million of these equity commitments on May 14, 1999, and the
remaining approximately $25.8 million will be available when we make payments to
the FCC with respect to these licenses or if the FCC does not refund amounts we
paid to them as deposits in connection with the reauction within 180 days of the
date of the deposit. In aggregate we have obtained $205.3 million of equity
commitments.
-34-
In July 1998, we entered into senior credit facilities with a group of lenders
for an aggregate amount of $525.0 million. Our senior credit facilities provide
for (1) a $150.0 million senior secured term loan that matures in January 2007,
(2) a $225.0 million senior secured term loan that matures in January 2008, (3)
a $150.0 million senior secured revolving credit facility that matures in
January 2007, and (4) an uncommitted $75.0 million senior secured term loan in
the form of an expansion facility. We must repay the term loans in quarterly
installments, beginning in September 2002, and the commitments to make loans
under the revolving credit facility are automatically and permanently reduced
beginning in April 2005. As of March 31, 1999, $225.0 million had been drawn
under the senior credit facilities. See "Certain Indebtedness--Senior Credit
Facilities."
In May 1998, we entered into a vendor procurement contract with Lucent, under
which we agreed to purchase radio, switching and related equipment and services
for the development of our network. Lucent agreed to provide us with $80.0
million of junior subordinated vendor financing. This $80.0 million consisted of
$40.0 million aggregate principal amount of Increasing Rate Series A notes due
2012 (the "Series A Notes") and $40.0 million aggregate principal amount of
Increasing Rate Series B notes due 2012 (the "Series B Notes").
As of March 31, 1999, we had outstanding approximately $40.5 million of the
Series A Notes, including $0.5 million of Series A Notes issued as payment in
kind, plus $0.3 million of additional accrued interest. The $40.5 million
principal amount of Series A Notes is subject to mandatory prepayment on a
dollar for dollar basis out of the proceeds of future equity offerings in excess
of $130.0 million.
Lucent has agreed to make available up to an additional $80.0 million of
junior subordinated vendor financing in amounts of up to 30% of the value of
equipment, software and services provided by Lucent in connection with any
additional markets we acquire. Any notes purchased under this facility would be
divided equally between Series A and Series B Notes. As a result of the markets
acquired in connection with the Puerto Rico acquisition, we have $15.0 million
of availability under this facility, consisting of $7.5 million of Series A
Notes and $7.5 million of Series B Notes. The terms of these Series A and Series
B Notes are identical to the terms of the original Series A and Series B Notes,
with the exception of their maturities. These notes will mature 6 months after
the maturity of the Notes. In the event we acquire any new markets, we would
have up to an additional $65.0 million available to us under this facility. See
"Certain Indebtedness--Vendor Financing."
Pro forma for the Transactions as of March 31, 1999, we would have had
approximately $20.7 million of debt owed to the U.S. government related to our
C-Block and F-Block licenses. This debt is shown on our balance sheet net of
discounts of $3.2 million reflecting the below market interest rates on the
debt. We assumed $4.1 million of debt to the U.S. government in connection with
the Digital PCS acquisition. The debt is shown on our balance sheet net of a
discount of $0.7 million reflecting the below market interest rate on the debt.
In addition, we assumed $7.4 million of debt to the U.S. government in
connection with the Wireless 2000 acquisition. This debt is shown on our balance
sheet net of a discount of $1.3 million reflecting the below market interest
rate on the debt.
Total capital expenditures were approximately $194.7 million for 1998. The
continued construction of our network and the marketing and distribution of
wireless communications products and services will require substantial
additional capital. We will incur significant amounts of debt to implement our
business plan and will therefore be highly leveraged. We estimate that our total
capital requirements from our inception until December 31, 2002 will be
approximately $1.2 billion. These requirements include license acquisition
costs, capital expenditures for network construction, operating cash flow losses
and other working capital costs, debt service and closing fees and expenses.
Capital expenditures from inception to March 31, 1999 were approximately $265.5
million. We estimate that capital expenditures will total approximately $159.4
million for the year ended December 31, 1999.
We believe that the capital raised to date, which includes proceeds from the
offering of the Old Notes and the funding of the irrevocable equity commitments
from our stockholders will be sufficient to meet our projected capital
requirements through December 31, 2002. Our ability to meet our capital
requirements is subject to our ability to construct our network and obtain
customers in accordance with our plans and assumptions and a number of other
risks and uncertainties including those discussed under the heading "Risk
Factors." There can be no assurance that the build out of our network will be
completed as projected or that we will be able to generate positive cash flow.
If any of our projections are incorrect, we may not be able to meet our
projected capital requirements.
Quantitative and Qualitative Disclosure About Market Risk
We are not exposed to fluctuations in currency exchange rates since all of our
services are invoiced in U.S. dollars. We are exposed to the impact of interest
rate changes on our short-term cash investments, consisting of U.S. Treasury
obligations and certain 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.
-35-
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 March 31, 1999, we have entered into
six interest rate swap agreements with various counterparties totaling a
notional amount of $225.0 million to convert our variable rate debt to fixed
rate debt. The interest rate swaps had no material impact on our consolidated
financial statements as of and for the year ended December 31, 1998 or the three
month period ended March 31, 1999.
Year 2000
The year-2000 issue is the result of computer programs being written using two
digits, rather than four digits, to define the applicable year. Programs that
have time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a major system failure or
miscalculations, including an inability to process transactions, send invoices
or engage in similar normal business activities. Due to our reliance on computer
hardware and software, telecommunications and related service industries are
highly susceptible to the year-2000 issue. Over the past two years, as we
purchased the various components that comprise our internal information
technology systems, we received representations from our vendors that such
components were year-2000 compliant. We have begun the process of evaluating our
information technology systems to verify the accuracy of the representations
made by our vendors. Our costs to date have been immaterial, and we anticipate
that our total costs in evaluating our information technology system will not
exceed $5.0 million, including costs to build the necessary redundancy into our
systems. We expect to complete such evaluation by the end of the third quarter
of 1999.
Our non-information technology systems may also be susceptible to the year-
2000 issues. In particular, our network switches contain embedded components
that are date sensitive. We have received assurances from Lucent that all our
network hardware purchased from them is year-2000 compliant. The failure of our
network switches would have a material adverse effect on our business.
We are also dependent upon the ability of AT&T, AT&T's roaming partners and
EDS to ensure that their software and equipment are year-2000 compliant. We rely
on AT&T to provide our customers with over-the-air activation and roaming. We
rely on EDS to provide clearinghouse services. There can be no guarantee that
their systems will be year-2000 compliant on a timely basis or that their
systems will be compatible with our systems. This could have a material adverse
effect on our business.
-36-
BUSINESS
We intend to become a leading provider of digital wireless communications
services in targeted markets in the south-central and northeast United States
and in Puerto Rico. We are the exclusive provider of facilities-based mobile
wireless communications services for AT&T in our markets. TeleCorp was founded
in 1996 by Gerald T. Vento, Thomas H. Sullivan and certain private equity
investors to acquire strategic PCS licenses. In 1998, we entered into a venture
with AT&T in which AT&T contributed certain PCS licenses to us in exchange for
an equity interest in our company. In addition, we have the right to use the
AT&T brand name and logo together with our own brand name and logo, giving equal
emphasis to each. We are AT&T's preferred roaming partner in our markets and
receive preferred long distance rates from AT&T.
Our PCS licenses cover approximately 16.0 million Pops, including those in the
major population centers of New Orleans and Baton Rouge, Louisiana, Memphis,
Tennessee, Little Rock, Arkansas, Manchester, Concord and Nashua, New Hampshire,
Worcester, Massachusetts and San Juan, Puerto Rico, as well as vacation
destinations such as Puerto Rico, the U.S. Virgin Islands, Cape Cod and Martha's
Vineyard. Our markets have attractive economic and demographic characteristics
and are experiencing strong growth in use of wireless services. These markets,
which attract over 24 million visitors per year, are major roaming markets for
AT&T's customers.
We have successfully launched our services in 14 markets, including all of our
major domestic markets. Our launched network covers approximately 40% of our
domestic licensed Pops, and by year-end 1999 we expect our network will cover
approximately 50% of our total licensed Pops. In December 1998, we began
servicing roaming customers in certain of our Louisiana markets and we carried
more than 4.2 million minutes in the first 60 days of operation in those
markets. We have a strong distribution presence in our launched markets with 22
company-owned stores and more than 140 retail outlets where customers can buy
our services. Additionally, we market our services through business-to-business
representatives, telemarketing and the Internet.
Our goal is to provide our customers with simple, easy-to-use wireless
services with coverage across the nation, superior call quality, personalized
customer care and competitive pricing in the markets we serve. We believe that,
as an AT&T affiliate, we will attract customers through the national brand and
coast-to-coast roaming provided by AT&T and its roaming partners. We have also
entered into an agreement with Triton PCS and Tritel Communications, two other
companies similarly affiliated with AT&T, to adopt SunCom as a common regional
brand that is co-branded with AT&T, giving equal emphasis to each. We and the
other SunCom companies are establishing the SunCom brand as a basis for building
a strong regional presence with a service area covering approximately 43.0
million Pops.
-37-
Market Overview
We hold or will acquire BTA licenses within the following eight MTAs:
Markets 1998 Pops Spectrum
- ------- --------- --------
(in thousands) (in MHz)
New Orleans, Louisiana
New Orleans.............................................................................. 1,402 35
Baton Rouge.............................................................................. 676 20
Lafayette................................................................................ 531 20
Lake Charles............................................................................. 279 15
Houma.................................................................................... 272 25
Hammond.................................................................................. 107 10
--------
Total................................................................................ 3,267
Memphis, Tennessee
Memphis.................................................................................. 1,493 30
Jackson.................................................................................. 276 35
Dyersburg................................................................................ 116 20
Blytheville, AR.......................................................................... 70 20
--------
Total................................................................................ 1,955
Little Rock, Arkansas
Little Rock.............................................................................. 926 30
Fort Smith............................................................................... 312 20
Fayetteville............................................................................. 291 20
Jonesboro................................................................................ 174 20
Pine Bluff............................................................................... 148 20
Hot Springs.............................................................................. 133 20
El Dorado................................................................................ 103 20
Russellville............................................................................. 95 20
Harrison................................................................................. 88 20
--------
Total................................................................................ 2,270
Boston, Massachusetts
Worcester, MA............................................................................ 727 20
Manchester, NH........................................................................... 584 20
Boston, MA (a)........................................................................... 383 20
Hyannis, MA.............................................................................. 231 20
--------
Total................................................................................ 1,925
San Juan, Puerto Rico
Puerto Rico/San Juan..................................................................... 2,719 35
Mayaguez Aguadilla....................................................................... 1,089 20
Virgin Islands........................................................................... 106 20
--------
Total................................................................................ 3,914
St. Louis, Missouri
Springfield (b).......................................................................... 283 20
Carbondale, IL........................................................................... 216 20
Columbia................................................................................. 209 20
Cape Giradeau............................................................................ 189 20
Quincy................................................................................... 181 20
Jefferson City........................................................................... 156 20
Poplar Bluff............................................................................. 155 20
Mt. Vernon, IL........................................................................... 121 20
Rolla.................................................................................... 98 20
West Plains.............................................................................. 76 20
Kirksville............................................................................... 56 20
--------
Total................................................................................ 1,740
Houston, Texas
Beaumont................................................................................. 459 40
--------
Total................................................................................ 459
Louisville, Kentucky
Evansville, Indiana...................................................................... 518 20
--------
Total................................................................................ 518
========
Total Pops........................................................................... 16,048
_____________
Source: The 1998 PCS Atlas & Databook, Kagan, 1990 U.S. Census.
(a) Rockingham and Stafford counties only.
(b) Camden, Cedar, Dallas, Douglas, Hickory, Laclede, Polk, Stone, Taney, Texas,
Webster and Wright counties only.
In addition, we hold or will hold licenses for the following BTAs:
Alexandria, Louisiana (209,000 Pops), Monroe, Louisiana (335,000 Pops) and
Paducah, Kentucky (231,000 Pops). We do not presently intend to develop markets
covered by these additional licenses.
-38-
The average population density of our markets is approximately 38% greater
than the national average.
Services and Features
We provide an array of wireless communications services and features through
our network.
Wireless Mobility. Our primary service is wireless mobility, featuring tri-
mode handsets, enhanced voice clarity, improved protection from eavesdropping
and a broad feature set. Our basic wireless service offering includes caller ID,
three-way conference calling, call waiting, voicemail, paging and short-
messaging.
Feature-Rich Handsets. As part of our basic service offering, we provide
easy-to-use, interactive menu-driven handsets that can be activated over the
air. These handsets primarily feature word prompts and easy-to-use menus rather
than numeric codes to operate handset functions. These handsets allow mobile
access to Internet services and will have the ability to interact with personal
computers.
Advanced Tri-Mode Handsets. Through the use of tri-mode handsets, which are
compatible with PCS, digital cellular and analog cellular frequencies and
service modes, we offer customers coast-to-coast roaming across a variety of
wireless networks. Tri-mode handsets incorporate a roaming database (which can
be updated over the air) that controls roaming preferences, typically completing
calls using the best available system (from both quality and cost perspectives).
We offer our customers use of technologically advanced Nokia and Ericsson
handsets.
Extended Battery Life. Tri-mode handsets offer significantly extended
battery life over earlier technologies, providing up to 14 days of stand-by
battery life. Handsets operating on a digital system are capable of "sleep-mode"
while turned on but not in use, thus improving efficiency and extending battery
life. We expect that this feature will increase usage, especially for incoming
calls, as users will be able to leave the phone on for significantly longer
periods. The use of tri-mode handsets further extends battery life by using a
digital system for roaming when in areas covered by digital systems.
Improved Voice Quality. We believe the version of TDMA we are using offers
significantly improved voice quality, more powerful error correction, less
susceptibility to call fading and enhanced interference rejection, which results
in fewer dropped calls, compared to earlier versions of TDMA.
Voice Privacy and Call Security. Digital technology is inherently more
secure than analog technologies. This security provides increased voice privacy
for our customer and enhanced fraud protection.
Paging and Short-Messaging. Our network has the capability to send and
receive pages and short text messages. These services allow customers to use
less expensive forms of wireless communications when conversation is not
necessary. We offer short-messaging as a bundled service on select packages and
as an extra feature available to all customers.
Pre-Paid Services. We offer our customers the option to subscribe for a pre-
paid service which enables them to better monitor and control their usage. Pre-
pay customers are able to use services within our licensed areas and to access
all of AT&T's wireless network as well as those of its participating roaming
partners who have compatible equipment. We provide an expansive feature set to
our pre-pay customers, including caller ID and call waiting, and we market the
pre-paid services to a broad segment of customers.
Wireless In-Building Services. As the use of wireless devices becomes more
widespread, consumers increasingly are demanding wireless services which extend
into office buildings, subways, airports, shopping centers and private homes. We
use "micro-cellular" technology to offer corporate users full in-building
coverage and four-digit wireless office dialing. In addition, we are working
with a number of hardware and software suppliers to develop next generation
full-scale wireless office services including wireless PBX and wireless local
area network services, which will enable users to use wireless handsets both
inside and outside of the office.
Data and Internet Services. Because of the quality of digital signal
transmission, wireless communications systems are suitable for the transmission
of wireless data services such as weather reports, sports summaries, fax
services, access to stock quote services, monitoring of alarm systems and remote
Internet access.
Marketing Strategy
Our marketing strategy has been developed on the basis of extensive market
research in each of our markets. This research indicates that limited coverage
of existing wireless systems, relatively high cost, inconsistent performance and
overall confusion
-39-
about wireless services drive subscriber dissatisfaction and reduce the
attractiveness of wireless services for potential new subscribers. We believe
that our affiliation with the AT&T brand name and the distinctive advantages of
our TDMA network, combined with simplified, attractive pricing plans, will allow
us to capture significant market share from existing analog cellular providers
in our markets and to attract new wireless users. We are focusing our marketing
efforts on four primary market segments: corporate accounts, current cellular
users, individuals with the intent to purchase a wireless product within six
months and pre-paid subscribers. For each segment, we are creating a specific
marketing program including a service package, pricing plan and promotional
strategy. Management believes that targeted service offerings will increase
customer loyalty and satisfaction, thereby reducing customer turnover.
Brand
We have formed Affiliate License Co. with Triton PCS and Tritel
Communications, other companies similarly affiliated with AT&T, to adopt a
common regional brand, SunCom. Each of the SunCom companies owns one-third of
Affiliate License Co., which owns the SunCom name. We and the other SunCom
companies license the SunCom name from Affiliate License Co. We market our
wireless services as "SunCom, Member of the AT&T Wireless Network" and use the
globally recognized AT&T brand name and logo in equal size and prominence with
the SunCom brand name and logo. The use of the AT&T brand reinforces an
association with reliability and quality. We and the other SunCom companies are
establishing the SunCom brand as a strong local presence with a service area
covering approximately 43 million Pops. We enjoy preferred pricing on equipment,
handset packaging and distribution by virtue of our affiliation with AT&T and
the other SunCom companies. We hope to achieve additional production and
packaging economies of scale by working with the other SunCom companies. See
"Risk Factors--Our success depends upon our relationship with AT&T and its
success," "Certain Relationships and Related Transactions--AT&T Agreements" and
"--Other Related Party Transactions."
Pricing
Our pricing plans are competitive and straightforward, offering large buckets
of minutes, large local calling areas and usage enhancing features. We offer
distinctive pricing plans tailored for each of our market segments. One way we
differentiate ourselves from existing wireless competitors is through our
pricing policies. We offer pricing plans designed to encourage customers to
enter into long term service contract plans. We also offer shared minute pools,
which are available for businesses and families who have multiple wireless users
who want to share the bucket of minutes.
In May 1998, AT&T introduced "Digital One Rate," a suite of rate plans that
has caused a redefinition of the concept of local service area in the U.S.
wireless marketplace. These rate plans include large buckets of minutes which
can be used locally, or practically anywhere in the United States, on AT&T's
wireless network and through AT&T's extensive network of roaming agreements.
These plans also bundle long distance and roaming charges. Subscribers can make
calls to or from most locations in the United States and pay no additional
roaming fees or long distance charges. The Digital One Rate and other flat rate
plans are also causing a shift in calling patterns in the wireless industry.
Although these plans are too new to predict the long-range effect on consumer
behavior, it appears that usage, and in particular long distance usage, has
risen since the introduction of these plans.
We offer our customers our national SunRate plans, which allow them to make
calls practically anywhere in the United States without paying additional
roaming or long distance charges. By contrast, competing flat rate plans
generally restrict flat rate usage to such competitors' owned networks. By
virtue of our roaming arrangements with AT&T and its roaming partners, we
believe we can offer a competitive national rate plan.
We believe the pre-paid subscriber segment represents a large market
opportunity, and we offer pricing plans that will drive growth in this category.
Pre-pay plans provide an opportunity for individuals whose credit profiles would
not otherwise allow them access to wireless communications to take advantage of
our services. In addition, our pre-pay plans provide an attractive alternative
for families and business users to control the usage of family members or
employees. We offer our pre-paid subscribers the same digital services and
features available to other customer segments. Typical pre-pay plans of
competitors, by contrast, provide low quality handsets and limited services and
features.
Bundling and Affinity Marketing
We may bundle our wireless communications services with other communications
services, including discounted long distance services, through strategic
alliances and resale agreements with AT&T and others. We also may offer service
options in partnership with local business and affinity marketing groups.
Examples of these arrangements include offering wireless services with utility
services, banking services, cable television, Internet access or alarm
monitoring services in conjunction with local information services. Such
offerings provide the customer access to information, such as account status,
weather and traffic reports, stock quotes, sports scores and text messages from
any location.
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Customer Care
We are committed to building strong customer relationships by providing
customers with service that exceeds expectations. We serve our customers from
our state-of-the-art facility in Memphis, Tennessee, which houses our customer
service, collections and anti-fraud personnel. Convergys provides backup call
center support and bilingual customer service from two facilities in Florida. We
have implemented a "one call resolution" approach to customer service through
the use of customer support tools, including access to online reference
information. In addition, we emphasize proactive and timely customer service,
including welcome packages and anniversary calls. We support our customer
service initiatives through employee compensation plans based on subscriber
quotas and retention. We use innovative service features to improve customer
satisfaction and reduce the cost of service delivery. For example, pre-paid
users hear a "whispered" announcement of time remaining in their account before
each call, which allows them to control usage and reduces balance inquiries to
customer service. We intend to expand our web-based services to include online
account specific information that allows customers to check billing, modify
service or otherwise manage their accounts.
We are developing a state-of-the-art data warehouse to provide timely access
to critical business information that can be used to provide customers with
desired services, such as real-time billing and automated notification of
remaining account balances. We also intend to use the data warehouse to cross-
link billing, marketing and customer care systems to collect customer profile
and usage information. This information provides the tools necessary to
increase revenue by analyzing channel and product profitability and reduces
customer acquisition costs by more effectively implementing marketing
strategies.
Advertising
We believe that the most successful marketing strategy is to establish a
strong local presence in each of our markets. We are directing our media and
promotional efforts at the community level with advertisements in local
publications and sponsorship of local and regional events. We combine our local
efforts with mass market strategies and tactics to build the SunCom and AT&T
brands locally. Our media efforts include television, radio, newspaper,
magazine, outdoor and Internet advertisements to promote our brand. In addition,
we use newspaper and radio advertising and our web page to promote specific
product offerings and direct marketing programs for targeted audiences.
Sales and Distribution
We use a mix of sales and distribution channels, including a network of
company stores, nationally recognized retailers, a direct sales force for
corporate accounts and direct marketing channels such as telesales, neighborhood
sales and online sales. We work with AT&T's sales channels to cooperatively
exchange leads and develop new business.
We are taking advantage of over-the-air activation features intrinsic to
digital technology to separate activation of service from the sale of the phone.
By separating activation and sale, we are able to ensure that knowledgeable
staff is communicating with customers. This allows for better informed customers
at the point of activation, with basic training in the use of their handsets and
appropriate expectations for their wireless service provider. We believe that
having better informed customers will lead to reduced customer turnover. In
addition, the separation of activation and sale of handsets reduces the overall
cost of the retail sales channel, because retailers have less involvement and
therefore lower sales commissions.
Company Stores
We make extensive use of company stores for the distribution and sale of our
handsets and services. Management believes that company stores offer a
considerable competitive advantage by providing a strong local presence, which
is required to achieve high penetration in suburban and rural areas. We also
believe that company stores offer one of the lowest customer acquisition costs
among our different distribution channels. Sales representatives in company
stores receive in-depth training to allow them to explain wireless
communications services simply and clearly. Company stores have three different
formats: flagship stores, express stores and kiosks. Our flagship stores are
located in the principal retail district in each market. Express stores are a
smaller retail format located in secondary markets. Kiosks are being deployed to
maximize our retail presence in each market and to take advantage of high
traffic areas, such as shopping malls and airports. We have opened 22 company-
owned stores.
Retail Outlets
We have negotiated distribution agreements with national and regional mass
merchandisers and consumer electronics retailers, including Office Depot,
Staples, Best Buy and Office Max. We currently have over 140 retail outlet
locations where customers can purchase our services. These distributors are
chosen based upon their ability to reach our target customers in our service
area. Our separation of activation and sale of handsets reduces retailer
involvement, which, in conjunction with the
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desirability of the AT&T name, we believe, attracts retailers to our handsets.
In some of these retail store locations, we are implementing a store-within-a-
store concept, which uses visual merchandising to leverage the brand awareness
created by both SunCom and AT&T advertising. The ease of distribution of shrink-
wrapped handsets appeals to mass merchandisers who have altered their in-store
merchandising to reflect the changing wireless marketplace. We support their
dedication of valuable floor space to wireless communications products through a
local team of retail merchandisers, attention-grabbing point of sale materials
and consumer appeal.
Direct Sales
We focus our direct sales distribution channel on high-revenue, high-
profitability corporate users. Our direct corporate sales force consists of
dedicated professionals targeting the wireless decision maker within large
corporations. We also benefit from AT&T's national corporate accounts sales
force. AT&T, in conjunction with us, supports marketing of our services to
AT&T's large national accounts located in certain of our service areas. We have
formed regional advisory groups as an additional way to interface with corporate
customers in our markets. These advisory groups are comprised of local business
leaders, who are also wireless users or prospective users, and are designed to
provide timely feedback regarding our proposed wireless offerings and establish
a customer base prior to launch. See "--Marketing Strategy."
Direct Marketing
We use direct marketing efforts such as direct mail and telemarketing. These
efforts are used to generate leads and stimulate prospects for our telemarketing
department. Telesales allow us to maintain low selling costs and to "up sell"
additional features or customized services.
Website
Our web page provides current information about us, our markets and our
product offerings. We are also establishing an online store on our website. The
web page conveys our marketing message and we expect it will generate customers
through online purchasing. We deliver all information that is required to make a
purchasing decision at our website. Customers are able to choose rate plans,
features, handsets and accessories. The online store will provide a secure
environment for transactions, and customers purchasing through the online store
will experience a similar business process to that of customers purchasing
service through other channels.
Network Development
We began commercial operations in December 1998 and have launched our services
in each of our major domestic markets. Our network now covers approximately 40%
of our domestic licensed Pops. We expect to launch our Puerto Rico market during
the third quarter of 1999.
Consistent with our strategy, we launched our services in each of our major
domestic markets, which have attractive characteristics for a high volume of
wireless communications usage, including metropolitan "downtown" areas, the
surrounding suburbs, well-utilized commuting and travel corridors, and popular
leisure and vacation destinations. Immediately upon launch, subscribers had
access to coast-to-coast coverage through roaming arrangements with AT&T and its
roaming partners (both within and outside our licensed areas). Within each
market, geographic coverage will be based upon changes in wireless
communications usage patterns, demographic changes within our licensed areas and
our experiences in those markets.
We intend to continue to meet our network development plan by using the
expertise of vendors recognized in the industry for providing high quality
services. Lucent is providing the necessary radio, switching and related
equipment for construction of our network. In addition, a number of other
experienced wireless vendors are assisting us in deploying our network.
Handsets
We purchase our handsets from Nokia and Ericsson at preferred prices through
our affiliation with AT&T and the other SunCom companies. We also have entered
into an arrangement with Brightpoint, a leading distributor for the wireless
industry, for the packaging and distribution of our handsets.
Network Construction
We have leased over 640 cell sites, including 149 that will be developed in
later phases of construction of our network, and we operate five mobile switches
and four switching centers. We designed our network architecture to optimize the
use of co-
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location on existing sites which minimizes the construction of new towers and
significantly reduces our need to obtain zoning approvals.
Network Operations
The effective operation of our network requires public switched
interconnection and backhaul agreements with other communications providers,
long distance interconnection, the implementation of roaming arrangements, the
development of network monitoring systems and the implementation of information
technology systems.
Switched Interconnection/Backhaul
Our network is connected to the public switched telephone network to
facilitate the origination and termination of traffic between our network and
both the local exchange and long distance carriers. We have signed agreements
with numerous carriers, including, among others, BellSouth in New Orleans, Time
Warner Telecom in Memphis, SBC Communications in Little Rock, Bell Atlantic in
New England and Puerto Rico Telephone in Puerto Rico.
Long Distance
We have executed a wholesale long distance agreement with AT&T providing for
preferred rates for long distance services.
Roaming
Through our arrangements with AT&T and via the use of tri-mode handsets, our
customers have roaming capabilities on AT&T's wireless network. Further, we have
the benefit of AT&T's roaming agreements with third party carriers at AT&T's
preferred pricing, including in-region roaming agreements covering all of our
launched service areas.
Network Monitoring Systems
Our network operations center provides around-the-clock monitoring and
maintenance of our entire network. The network operations center is equipped
with sophisticated electronics that constantly monitor the status of all base
stations and switches and record network traffic. The network operations center
provides continuous monitoring of system quality for blocked or dropped calls,
call clarity and evidence of tampering, cloning or fraud. We designed our
network operations center to oversee the interface between customer usage, data
collected at switch facilities and our billing systems. Usage reports, feature
activation and related billing items are managed on a timely and accurate basis.
Our network operations center is located in the Memphis switch center, and we
also have back-up network operations center capabilities in our Arlington,
Virginia data center.
Information Technology
We operate management information systems to handle customer care, billing,
network management and financial and administrative services. The systems focus
on three primary areas: (1) network management, including service activation,
pre-pay systems, traffic and usage monitoring, trouble management and
operational support systems; (2) customer care, including billing systems and
customer service and support systems; and (3) business systems, including
financial, purchasing, human resources and other administrative systems.
We have incorporated sophisticated network management and operations support
systems to facilitate network fault detection, correction and management,
performance and usage monitoring and security. System capabilities have been
developed to allow over-the-air activation of handsets and implement fraud
protection measures. We maintain stringent controls for both voluntary and
involuntary deactivations. Subscriber disconnections initiated by us are
minimized by (1) preactivation screening to identify any prior fraudulent or bad
debt activity, (2) credit review and (3) call pattern profiling to identify
where activation and termination policy adjustments are needed. We entered into
a long-term software license, development and implementation agreement with LHS
Communications Systems and CAP Gemini America to provide our billing system, and
we have engaged a variety of industry leaders such as Lucent and Lightbridge to
provide activation, fraud management and support systems.
TDMA Digital Technology
We have chosen digital TDMA technology for our network. TDMA allows for the
use of advanced tri-mode handsets which allow for roaming across PCS and
cellular frequencies, including both analog cellular and digital cellular. TDMA
technology allows for enhanced services and features, such as short-messaging,
extended battery life, added call security and improved voice quality. TDMA's
hierarchical cell structure will enable us to enhance network coverage with
lower incremental investment
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(through the deployment of micro, as opposed to full-size, cell sites). This
will enable us to offer customized billing options and to track billing
information per individual cell site, which is practical for advanced wireless
applications, such as wireless local loop and wireless office applications. In
addition, TDMA technology allows for three times the capacity of analog systems.
TDMA is the digital technology choice for two of the three largest wireless
communications companies in the United States, AT&T and SBC Communications. TDMA
served an estimated 19 million subscribers worldwide and 9 million subscribers
in North America as of December 31, 1999, according to the Universal Wireless
Communications Consortium ("UWCC"), an association of TDMA service providers and
manufacturers. The increased volume of TDMA users has increased the probability
of TDMA technology remaining an industry standard. TDMA equipment is available
from leading telecommunications vendors, such as Lucent, Ericsson and Northern
Telecom. See "Risk Factors--Changes in technology and customer demands could
adversely affect us."
Competition
We believe subscribers choose a wireless communications service provider
principally based upon network coverage, pricing, quality of service and
customer care. We believe that we enjoy certain advantages over our
competitors. We offer our customers coverage where they live, work and play and
coast-to-coast coverage immediately upon launch through our relationship with
AT&T and its roaming partners. Our pricing plans are competitive and
straightforward, offering large buckets of minutes, large local calling areas
with in-region roaming capabilities to supplement our network and usage-
enhancing features. We believe that our TDMA digital technology provides better
quality services and more enhanced features than analog cellular technology.
Our digital network provides users with improved sound quality, enhanced
security, prolonged battery life and increased data transfer capability over
analog networks, and we believe that customers increasingly will choose digital
service over analog service. We operate a state-of-the-art customer care
facility designed to provide proactive customer service. Our marketing plan
includes at least four customer contacts annually, including welcome calls,
first bill calls and anniversary calls, and we follow a "one call resolution
approach" to customer concerns. We market our wireless services to our
customers giving equal emphasis to the SunCom and AT&T brand names and logos.
Our market research indicates that association with the AT&T brand name
reinforces reliability and quality and significantly increases the likelihood
that potential customers will purchase our wireless communications services.
We compete directly with at least two cellular providers and other PCS
providers in each of our markets and against ESMR operations in certain of our
markets. Most of these existing cellular providers have an infrastructure in
place and have been operational for a number of years, with certain of these
competitors having greater financial and technical resources than we do. Certain
of these cellular operators may upgrade their networks to provide services
comparable to those offered by us. We also compete with other PCS license
holders in each of our markets. In New Orleans, we compete primarily against
Radiofone and BellSouth for cellular services, Sprint PCS and PrimeCo Personal
Communications for PCS services, and Nextel for ESMR. In Memphis, we compete
with GTE, SBC Communications and BellSouth for cellular services, Powertel and
Sprint PCS for PCS services and Nextel for ESMR. In Little Rock, we compete
against ALLTEL and SBC Communications for cellular services and Sprint PCS for
PCS services. In New England, we compete against SBC Communications, Bell
Atlantic and U.S. Cellular for cellular services and Sprint PCS and Omnipoint
Technologies for PCS services. In Puerto Rico, we compete principally against
Puerto Rico Telephone Company and Cellular One for cellular services and
Centennial Cellular for PCS services.
Our ability to compete successfully will depend, in part, upon our ability to
anticipate and respond to various competitive factors affecting the industry,
including the introduction of new services, changes in consumer preferences,
demographic trends, economic conditions and competitors' discount pricing
strategies, all of which could adversely affect our operating margins. See "Risk
Factors--Changes in technology and customer demands could adversely affect us."
The Wireless Communications Industry
Wireless communications systems use a variety of radio frequencies to transmit
voice and data. The wireless communications industry includes one-way radio
applications, such as paging or beeper services, and two-way radio applications,
such as PCS, cellular telephone and ESMR. Each application is licensed and
operates in a distinct radio frequency block.
Since the introduction of commercial cellular in 1983, the wireless
communications industry has experienced dramatic growth. The number of wireless
subscribers has increased from an estimated 340,213 at the end of 1985 to over
69 million as of December 31, 1998, according to the Cellular Telecommunications
Industry Association, an international association for the wireless industry.
Kagan, an independent media and telecommunications association, estimates that
the number of wireless users will increase to 142 million by 2003, with PCS
users representing nearly 34% of total users, a significant increase over the
approximately 11% of total users represented by PCS today. The following chart
illustrates the annual growth in U.S. wireless communications customers
(cellular, ESMR and PCS) through December 31, 1998:
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Year Ended December 31,
--------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998
------- ------- ------- ------- ------- ------- -------
Wireless Industry Statistics/1/......................................
Total service revenues (in billions)................................. $ 7.8 $ 10.9 $ 14.2 $ 19.0 $ 23.6 $ 27.5 $ 33.1
Wireless subscribers at end of period (in millions).................. 11.0 16.0 24.1 33.8 44.0 55.3 69.2
Subscriber growth.................................................... 46.0% 45.1% 50.8% 40.0% 30.4% 25.6% 25.1%
Average monthly wireless bill........................................ $68.68 $61.48 $56.21 $51.00 $47.70 $42.78 $39.43
Ending penetration................................................... 4.4% 6.2% 9.4 13.0% 16.3% 20.2% 25.0%
Digital subscribers (in millions).................................... -- -- -- -- -- -- 18.3
Sources: Cellular Telecommunications Industry Association and Kagan.
(1) Reflects domestic commercially operational cellular, ESMR and PCS providers.
In the wireless communications industry, there are two principal services
licensed by the FCC for transmitting voice and data signals: PCS and cellular.
PCS is a term commonly used in the United States to refer to service carried
over the 1850 MHz to 1990 MHz portion of the radio spectrum. Cellular is a term
commonly used in the United States to refer to service carried over the 824 MHz
to 893 MHz portion of the radio spectrum. Cellular service is the predominant
form of wireless voice communications service available. Cellular systems were
originally analog-based systems, although digital technology has been introduced
in certain markets. PCS systems use digital technology. Analog technology
currently has several limitations, including lack of privacy and limited
capacity. Digital systems convert voice or data signals into a stream of digits
that is compressed before transmission, enabling a single radio channel to carry
multiple simultaneous signal transmissions. This enhanced capacity, along with
improvements in digital signaling, allows digital-based wireless technologies to
offer new and enhanced services, such as greater call privacy and robust data
transmission features, including "mobile office" applications (facsimile, e-mail
and wireless connections to computer/data networks, including the Internet). See
"--Government Regulation" for a discussion of the FCC auction process and
allocation of wireless licenses.
Operation of Wireless Communications Systems
Wireless communications system service areas, whether PCS or cellular, are
divided into multiple cells. In both PCS and cellular systems, each cell
contains a transmitter, a receiver and signaling equipment, which is known as a
"cell site." The cell site is connected by microwave or landline telephone lines
to a switch that uses computers to control the operation of the cellular
communications system for the entire service area. The system controls the
transfer of calls from cell site to cell site as a subscriber's handset travels,
coordinates calls to and from handsets, allocates calls among the cell sites
within the system and connects calls to the local landline telephone system or
to a long distance telephone carrier. Wireless communications providers must
establish interconnection agreements with local exchange carriers and inter-
exchange carriers, thereby integrating their system with the existing landline
communications system.
Because the signal strength of a transmission between a handset and a cell
site declines as the handset moves away from the cell site, the switching office
and the cell site monitor the signal strength of calls in progress. When the
signal strength of a call declines to a predetermined level, the switching
office may hand-off the call to another cell site where the signal strength is
stronger. If a handset leaves the service area of a PCS or cellular system, the
call is disconnected unless there is a technical connection with the adjacent
system. If there is a technical connection with the adjacent system, the
customer may roam onto the adjacent system.
Analog cellular handsets are functionally compatible with cellular systems in
all markets in the United States. As a result, analog cellular handsets may be
used wherever a subscriber is located, as long as a cellular system is
operational in the area and either the service provider's system covers such
area or a roaming arrangement exists with a provider covering such area.
Although PCS and cellular systems utilize similar technologies and hardware,
they operate on different frequencies and use different technical and network
standards. With the introduction of tri-mode phones, it is now possible for
users of one type of system to roam on a different type of system outside of
their service area, and to hand-off calls from one type of system to another if
the appropriate agreements are in place.
Currently, PCS systems operate under one of three principal digital signal
transmission technological standards that have been proposed by various
operators and vendors for use in PCS systems: TDMA, CDMA or GSM. TDMA and GSM
are both "time division-based" standards but are incompatible with each other
and with CDMA. Accordingly, a subscriber of a system that utilizes TDMA
technology is unable to use a TDMA handset when travelling in an area not served
by TDMA-based PCS operators, unless the subscriber carries a dual-mode handset
that permits the subscriber to use the analog or digital cellular system in that
area and the appropriate agreements are in place.
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With a tri-mode handset, a user can place or receive calls using (1) a PCS
system using the technological standard with which such handset is compatible,
(2) a digital cellular system using the corresponding technological standard or
(3) an analog cellular system. 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 such system. If there is no PCS system providing coverage, the call
will be placed through a digital cellular system operating in the area and
providing coverage to the user, and if no digital cellular system is providing
coverage, the call will be connected over an analog cellular system providing
coverage. Tri-mode handsets allow for a call in progress to be handed off to an
adjacent system, whether the same mode or band or otherwise, without
interruption if the appropriate agreements are in place. Prior generations of
handsets would cut off the call when the handset left the coverage of one system
and would require the customer to place the call again using the adjacent
system.
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 CMRS by the FCC, subject to regulation under Title II of the
Communications Act of 1934 (the "Act") as a common carrier and subject to
regulation under Title III of the Act as a radio licensee. The states are
preempted from regulating our entry into and rates for CMRS offerings, but
remain free to regulate other terms and conditions of our CMRS services and to
regulate other intrastate offerings by us. Congress and the states regularly
enact legislation, and the FCC, state commissions and local authorities
regularly conduct rulemaking and adjudicatory proceedings that could have a
material adverse effect on us and other similarly situated carriers. In
addition, our nature as a regulated entity may adversely affect our ability to
engage in, or rapidly consummate, certain 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 Act, we are: (1) required to offer service upon
reasonable request; (2) prohibited from imposing unjust or unreasonable rates,
terms or conditions of service; (3) proscribed from unjustly or unreasonably
discriminating among customers; (4) required to reserve communications capacity
for law enforcement surveillance operations and to make technical network
changes to facilitate such surveillance; (5) required to make our services and
products accessible to, and usable by, Americans with disabilities, if readily
achievable; and (6) required to comply with limitations on our use of customer
proprietary network information. We are entitled to certain benefits when
negotiating interconnection arrangements with other communications carriers
(such as resale, number portability and reciprocal compensation), but we are
subject to those same requirements when other carriers seek to interconnect with
our network. While the rates of common carriers are subject to the FCC's
jurisdiction, the FCC forbears from requiring CMRS carriers to file tariffs for
their services. Common carriers, including CMRS providers, are also prohibited
under Sections 201 and 202 of the Act from unreasonably restricting the resale
of their services and are required to offer unrestricted resale. There can be no
assurance that the FCC will not choose to regulate common carriers more
comprehensively, which could have an adverse effect on our operations.
FCC Radio License Regulation Under Title III
Among other things, Title III of the Act:
. does not permit licenses to be granted or held by entities that have
been subject to the denial of federal benefits;
. requires us to seek prior approval from the FCC to transfer control of
us or to assign our radio authorizations (including disaggregating sub-
bands of our radio frequencies or partitioning geographic license
areas), except in very limited circumstances; and
. limits foreign ownership in certain radio licensees, including PCS
providers.
While we believe that we comply with Title III, any future violation of these
limitations could result in license revocation, forfeiture and/or the forced
restructuring of our ownership to comply with the rules, any of which could have
a material adverse effect on us. The Title III restrictions could also
materially adversely affect our ability to attract additional equity financing
from certain entities. See "Risk Factors--Government regulation, changes in our
licenses or other governmental action could adversely affect us."
FCC CMRS Regulation
The FCC rules and policies impose substantial regulations on CMRS providers.
Among other regulations, broadband CMRS providers such as us: (1) incur costs as
a result of required contributions to the Universal Service Fund, the
Telecommunications
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Relay Service, FCC regulatory fees, the administration of the
North American Numbering Plan and other federal programs; (2) are prohibited
from acquiring or holding an attributable interest in more than 45 MHz of
combined broadband PCS, cellular or SMR spectrum in the same geographic area;
(3) are required to provide "manual" roaming service to enable a customer of one
provider to obtain service while roaming in another carrier's service area; (4)
are required to route emergency calls to Public Safety Answering Points
("PSAPs") and provide PSAPs with certain enhanced 9-1-1 information regarding
the called number and the location of the caller; and (5) will be required to
begin to implement local number portability after March 31, 2000, under certain
circumstances, which will allow subscribers to retain their telephone numbers
when changing service providers. Any violation of the CMRS regulations could
result in a revocation or forfeiture of our licenses that would have a material
adverse effect on us. In addition, there can be no assurance that the FCC will
not choose to regulate CMRS providers more comprehensively, which could have an
adverse effect on our operations.
FCC PCS Regulation
We are subject to service-specific regulations under Part 24 of the FCC's
rules. Among other things, Part 24 provides 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 (1) provided "substantial"
performance, that is "sound, favorable and substantially above a level of
mediocre service just minimally justifying renewal" and (2) substantially
complied with FCC rules and policies and the Act. While we intend to structure
our operations to secure a renewal expectancy, there can be no assurance that a
renewal expectancy will be granted and, if the renewal expectancy is not
granted, that our licenses will be renewed. Our failure to obtain renewal of our
licenses would have a material adverse effect on our operations.
Part 24 also contains regulations governing the transmission characteristics
of PCS handsets and base stations and other technical requirements. PCS
licensees are required to comply with limits intended to ensure that such
operations do not interfere with radio services in other markets or in other
spectrum bands 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. See
"Risk Factors--We could lose our F-Block and C-Block licenses if we fail to meet
financial and other tests." While we intend to comply with all PCS regulations
in effect, any violation of the PCS regulations could result in a revocation or
forfeiture that would have a material adverse effect on us. In addition, there
can be no assurance that the FCC will not choose to regulate PCS licensees more
comprehensively, which could have an adverse effect on our operations.
Relocation of Fixed Microwave Licensees
Because PCS carriers are utilizing spectrum occupied by existing microwave
licensees, the FCC has adopted special regulations governing the relocation of
incumbent systems and cost-sharing among licensees that pay to relocate
microwave incumbents. Relocation usually requires a PCS operator to compensate
an incumbent for the costs of system modifications and new equipment required to
move the incumbent to new spectrum, including possible "premium" costs for early
relocation to alternate spectrum. The transition plan allows most microwave
users to operate in the PCS spectrum for a one-year voluntary negotiation 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. There can be no
assurance, however, that relocated licenses will not exercise their rights to
move back to their original sites in the event the new sites are inadequate. Any
delay in the relocation of microwave users to other spectrum also may affect
adversely our ability to operate our network. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
FCC and Federal Aviation Administration Facilities Regulation
Because we will acquire antenna sites for use in our network, we will become
subject to FCC and Federal Aviation Administration regulations governing
registration of towers, the marking and lighting of certain 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 frequency radiation on
humans.
FCC Designated Entity and Small Business Regulation
TeleCorp Holding was the winning bidder for four licenses in the auction of F-
Block licenses. With respect to those licenses, and additional C-Block and F-
Block licenses acquired through later auctions and transactions, we (1) believe
we qualify as a "very small business" (as defined) and as Entrepreneurs (as
defined), and (2) intend to diligently pursue and maintain our qualification as
a "very small business" and as Entrepreneur in a manner intended to ensure
compliance with the applicable FCC rules. We rely on representations of our
investors to determine our compliance with the FCC's rules applicable to C-Block
and F-
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Block licenses. There can be no assurance, however, that our investors or
we will continue to satisfy these requirements during the term of any PCS
license granted to TeleCorp Holding or TeleCorp PCS, LLC, our wholly owned
subsidiary, or that we will be able successfully to implement divestiture or
other mechanisms included in our corporate charter that are designed to ensure
compliance with FCC rules. Any non-compliance with the FCC "very small business"
and Entrepreneurs rules could subject us to penalties, including a fine,
revocation of our PCS licenses, acceleration of installment payment obligations
or retroactive loss of bidding credits. See "Risk Factors--We have substantial
debt which we may not be able to service," "--Government regulation, changes in
our licenses or other governmental action could adversely affect us" and "--We
could lose our F-Block and C-Block licenses if we fail to meet financial and
other tests."
Entrepreneurs. In order to hold a C-Block and F-Block license, an entity and
its affiliates must have had less than $125 million in average gross revenues in
the last two years and less than $500 million in total assets at the time it
filed its application to acquire the C-Block or F-Block licenses (such
qualifying entity, an "Entrepreneur"). In calculating revenues and assets for
such purposes, the FCC includes the gross revenues and total assets of our
affiliates, those entities that hold attributable interests in us and the
affiliates of such entities. However, the revenues and assets of certain
affiliates are not attributable to the licensee if the licensee maintains an
organizational structure that satisfies certain Control Group Requirements (as
defined). For at least five years after the initial licensing of a C-Block or F-
Block license, a licensee must continue to meet the control group requirements
to continue to qualify for the installment payment program and must continue to
meet the "very small business" requirements to continue to qualify for the
bidding credits received in the auction.
Very Small Business. We are also structured under the FCC's rules to qualify
as a "very small business." A "very small business" is an entity that, together
with its affiliates and entities that hold interests in the applicant and their
affiliates, has average annual gross revenues of not more than $15 million for
the previous three calendar years. As a result of our classification as a "very
small business," we were eligible for both a 25% bidding credit and for a
preferential installment payment program. In the more recent reauction, Viper
Wireless qualified as a "very small business," eligible for the same bidding
credit, but the FCC ceased to provide installment payment financing.
Control Group Requirements. To avoid attribution of the revenues and assets
of certain investors, we are required to maintain a conforming control group and
to limit the amount of equity held by such entities on a fully-diluted basis.
These requirements mandate that the Control Group, among other things, have and
maintain both actual (de facto) and legal (de jure) control of the licensee.
Under these control group requirements, (1) an established group of investors
meeting certain financial qualifications must own at least three-fifths of the
control group's equity (i.e., 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
(2) additional members of the control group must hold, on a fully-diluted basis,
the remaining 10% equity interest in the licensee entity. Additional Members may
be non-controlling institutional investors, including most venture capital
firms. A C-Block or F-Block licensee must have met the requirements at the time
it filed its application to acquire such licenses and must continue to meet the
requirements for five years following the date that a C-Block or F-Block license
is granted. Commencing the fourth year of the license term, the FCC rules (1)
eliminate the requirement that Additional Members hold the 10% equity interest
and (2) allow the Qualifying Investors to reduce the minimum required equity
interest from 15% to 10%. If the FCC were to determine that we did not comply
with the regulations, we would be required to attribute the revenues of
additional stockholders, which would likely cause the loss of our status both as
an Entrepreneur and a "very small business." Loss of such status would have a
materially adverse effect on us.
FCC C-Block and F-Block Transfer Restrictions. During the first five years of
their license terms, C-Block and F-Block PCS licensees may only transfer or
assign their license, or any partitioned or disaggregated portion of, to other
qualified Entrepreneurs. Such acquiring entities would take over the license, or
any portion of the license, subject to separately established installment
payment obligations. After five years, licenses are transferable to
Entrepreneurs and non-Entrepreneurs alike, subject to unjust enrichment
penalties. If transfer occurs during years six through ten of the initial
license term to a company that does not qualify for the same level of auction
preferences as the transferor, such a 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(s). If the FCC determines
that a transferor or assignor is being "unjustly enriched" by a proposed sale or
transfer of a license, it may condition its approval of the transaction on
payment of money to the U.S. Treasury, accelerate installment payments or
require repayment of bidding credits.
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State and Local Regulation
The FCC permits the states to regulate terms and conditions of our CMRS
services other than rates and entry and may regulate all aspects of our
intrastate toll services. State jurisdiction also extends to regulating the
intrastate portion of services offered by local exchange carriers, and therefore
the rates we must pay to acquire certain critical facilities from other common
carriers. The FCC also delegates authority to the states to administer numbering
resources, subject to federal oversight, and have other responsibilities that
impact the nature and profitability of our operations, including the ability to
specify cost-recovery mechanisms for network modifications to support enhanced
9-1-1 services. States and localities also regulate construction of new antenna
site facilities and are responsible for zoning and developmental regulations
that can materially impact our timely acquisition of sites critical to our radio
network. The states and localities regularly conduct legislative, rulemaking and
adjudicatory proceedings on matters within their jurisdiction that could have a
material adverse effect on us and other similarly situated carriers. States may
petition the FCC to expand their jurisdiction over CMRS rates and entry under
certain conditions. There can be no assurance that a state in which we operate
will not attempt to engage in more comprehensive regulation of our operations,
which could increase the costs of providing service and materially affect our
ability to operate in that state.
Intellectual Property
The AT&T and globe design logo is a service mark registered with the U.S.
Patent and Trademark Office. AT&T owns the service mark. We use the AT&T and
globe design logo, on a royalty free basis, with equal emphasis on our SunCom
brand and logo, solely within our licensed area in connection with marketing,
offering and providing certain licensed services to end-users and resellers. Our
license agreement with AT&T grants us the right and license to use certain
licensed marks on certain permitted mobile phones. This license agreement
contains numerous restrictions with respect to the use and modification of
certain licensed marks. See "Certain Relationships and Related Transactions--
AT&T Agreements."
We, Triton PCS and Tritel Communications have adopted a common brand, SunCom,
that is co-branded with equal emphasis with the AT&T brand name and logo. Each
of the SunCom companies owns one-third of Affiliate License Co., which owns the
SunCom name. We and the other SunCom companies license the SunCom name from
Affiliate License Co. We use such brand to market, offer and provide services
to end-users and resellers. See "--Marketing Strategy," "Certain Relationships
and Related Transactions--Other Related Party Transactions."
Triton PCS recently paid $975,000 to settle a potential dispute regarding
prior use of a version of the SunCom brand. In connection with this settlement,
Triton PCS transferred the SunCom trademark to Affiliate License Co. for
$650,000. Each of the other SunCom Companies agreed to pay $325,000 as a royalty
fee to license such trademark from Affiliate License Co.
Employees
As of March 31, 1999, we employed approximately 515 people. None of our
employees currently are represented by a union. We believe that our relations
with our employees are good.
Properties
We lease space for our switches in New Orleans, Boston and Puerto Rico and for
our network operators center, a switch and our customer care and data center in
Memphis. Further, we lease space for our base station transmitter equipment, and
we lease office space for our headquarters and regional offices.
Legal Proceedings
We are not a party to any lawsuit or proceeding which is likely, in the
opinion of management, to have a material adverse effect on our financial
position, results of operations and cash flows. We are a party to routine
filings and customary regulatory proceedings with the FCC relating to our
operations.
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THE EXCHANGE OFFER
Purpose and Effects
The Exchange Offer is designed to provide to holders of the Old Notes an
opportunity to acquire the Exchange Notes which, unlike the Old Notes, will be
freely transferable at all times, provided that the holder is not our affiliate.
The Old Notes were originally issued and sold on April 23, 1999 in the
principal amount at maturity of $575.0 million in a transaction exempt from the
registration requirements of the Securities Act. The Old Notes may not be
reoffered, resold or transferred except under a registration statement filed
with the SEC or unless an exemption from the registration requirements of the
Securities Act is available.
We are making the Exchange Offer in reliance on the position of the staff of
the SEC as set forth in certain no-action letters addressed to other parties in
other transactions. However, we have not sought our own no-action letter and
there can be no assurance that the staff of the SEC would make a similar
determination with respect to the Exchange Offer as in such other circumstances.
Based upon these interpretations by the staff of the SEC, we believe that the
Exchange Notes issued in the Exchange Offer in exchange for the Old Notes may be
offered for resale, resold and otherwise transferred by a holder of the Exchange
Notes other than by (1) a broker-dealer who purchased such Old Notes directly
from us to resell under Rule 144A under the Securities Act or any other
available exemption under the Securities Act or (2) a person that is our
"affiliate," as defined in Rule 405 under the Securities Act, without compliance
with the registration and prospectus delivery provisions of the Securities Act,
provided that such Exchange Notes are acquired in the ordinary course of such
holder's business and that such holder is not participating, and has no
arrangement or understanding with any person to participate, in the distribution
of such Exchange Notes. Holders of the Old Notes accepting the Exchange Offer
for the purpose of participating in a distribution of the Exchange Notes may not
rely on the position of the staff of the SEC as set forth in these no-action
letters and would have to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale of the Exchange
Notes. A resale in the United States by a holder of the Exchange Notes who is
using the Exchange Offer to participate in the distribution of the Exchange
Notes must be covered by a registration statement containing the selling
securityholder information required by Item 507 of Regulation S-K under the
Securities Act.
The Exchange Notes will be freely transferable by the holders of such Notes,
subject to the limitations described in the immediately preceding paragraph.
The Exchange Notes will be identical in all respects, including interest rate,
maturity, security, guaranty and restrictive covenants, to the Old Notes for
which they may be exchanged in the Exchange Offer, except the Exchange Notes
will not confer registration rights or bear penalty interest. Holders who do
not exchange their Old Notes in the Exchange Offer will continue to hold the Old
Notes which are subject to restrictions on transfer.
Each broker-dealer that receives the Exchange Notes for its own account in
exchange for the Old Notes, where such Old Notes were acquired by such broker-
dealer as a result of market-making or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. See "Plan of Distribution."
Terms of the Exchange Offer
Promptly after the registration statement of which this prospectus constitutes
a part has been declared effective, we will offer the Exchange Notes in exchange
for surrender of the Old Notes. We will keep the Exchange Offer open for not
less than 30 days (or longer if required by applicable law) after the date on
which notice of the Exchange Offer is mailed to the registered holders of the
Old Notes. For each $1,000 principal amount at maturity of the Old Notes
validly tendered to us in the Exchange Offer and not withdrawn by the holder of
such Old Notes, the holder of such Old Notes will receive $1,000 principal
amount at maturity of the Exchange Notes. Interest on each Exchange Note will
accrue from the date of the original issue of the Old Notes. The Exchange Notes
evidence the same debt as the Old Notes and are issued under and entitled to the
same benefits under the indenture governing the Notes as the Old Notes. In
addition, the Exchange Notes and the Old Notes are treated as one series of
securities under the indenture governing the Notes.
In the event that (1) neither the registration statement of which this
prospectus constitutes a part nor a Shelf Registration Statement, as defined in
the Exchange and Registration Rights Agreement, with respect to the Old Notes is
filed on or prior to the 60th day after the date of original issue of the Old
Notes, (2) neither of such registration statements is declared effective by the
SEC on or prior to the 180th day after the date of original issue of the Old
Notes, or within 45 days after the publication of a change in applicable law or
interpretation of law by the SEC's staff that would require us to file a Shelf
Registration Statement (the "Effectiveness Target Date"), (3) we fail to
consummate the Exchange Offer on or prior to the 210th day after the date of
original issuance of the Old Notes, or (4) the Shelf Registration Statement is
declared effective but thereafter ceases to be effective or usable in connection
with resales of the Old Notes during the period specified in the Exchange and
Registration
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Rights Agreement (each such event referred to in clauses (1)through (4) above as
a "Registration Default"), then we must pay liquidated damages to each holder of
the Old Notes, during the period of one or more such Registration Defaults, in
an amount equal to $0.192 per week per $1,000 of Accreted Value, as defined in
the indenture governing the Notes, of the Old Notes held by such holder until
the cure of all Registration Defaults. Such interest will be payable on the next
scheduled interest payment date.
As of April 23, 1999, $575.0 million aggregate principal amount at maturity of
the Old Notes was outstanding. This prospectus and the Letter of Transmittal
are being sent to all registered holders of the Old Notes.
Tendering holders of the Old Notes will not be required to pay brokerage
commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of the Old Notes in the
Exchange Offer. We will pay all charges and expenses, other than certain
transfer taxes which may be imposed, in connection with the Exchange Offer. See
"Transfer Taxes" below.
Holders of the Old Notes do not have any appraisal or dissenters' rights under
the Delaware General Corporation Law in connection with the Exchange Offer.
Period for Tendering Old Notes
Upon the terms and subject to the conditions set forth in this prospectus and
in the accompanying Letter of Transmittal which together constitute the Exchange
Offer, we will accept for exchange the Old Notes which are properly tendered on
or prior to the Expiration Date and not withdrawn as permitted below. As used
within the Exchange Offer, the term "Expiration Date" means 5:00 p.m., New York
City time, on , 1999; PROVIDED, HOWEVER, that our obligation to accept the Old
Notes for exchange in the Exchange Offer is subject to certain conditions set
forth under "--Certain Conditions to the Exchange Offer" below.
We expressly reserve the right, at any time or from time to time, to extend
the period of time during which the Exchange Offer is open, and thereby delay
acceptance of exchange of any Old Notes, by giving oral or written notice of
such extension to the holders of such Old Notes as described below. During any
such extension, all Old Notes previously tendered will remain subject to the
Exchange Offer and we may accept them for exchange. Any Old Notes not accepted
for exchange for any reason will be returned without expense to the tendering
holder of such Old Notes as promptly as practicable after the expiration or
termination of the Exchange Offer.
We expressly reserve the right to amend or terminate the Exchange Offer, and
not to accept for exchange any Old Notes not already accepted for exchange, upon
the occurrence of any of the conditions specified below under "--Certain
Conditions to the Exchange Offer." We will give oral or written notice of any
extension, amendment, non-acceptance or termination to the holders of the Old
Notes as promptly as practicable. We shall issue such notice, in the case of
any extension, as a press release or other public announcement no later than
9:00 a.m., New York City time, on the next business day after the previously
scheduled Expiration Date.
Procedures for Tendering Old Notes
Except as set forth below, a holder of the Old Notes who wishes to tender the
Old Notes for exchange in the Exchange Offer must send a properly completed and
duly executed Letter of Transmittal, including all other documents required by
such Letter of Transmittal, to Bankers Trust Company (the "Exchange Agent") at
the address set forth below under "--Exchange Agent" on or prior to the
Expiration Date. In addition, either (1) certificates for such Old Notes must
be received by the Exchange Agent, or (2) a timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation") of such Old Notes into the Exchange
Agent's account at The Depository Trust Company (the "Book-Entry Transfer
Facility") under the procedure for book-entry transfer described below, must be
received by the Exchange Agent on or prior to the Expiration Date, or (3) the
holder of the Old Notes must comply with the guaranteed delivery procedures
described below.
Each exchanging holder of the Old Notes will be required to represent in its
Letter of Transmittal that such holder is acquiring the Exchange Notes in the
ordinary course of business, is not engaged in, and does not intend to engage
in, a distribution of the Exchange Notes and is not our affiliate or an
affiliate of our subsidiary guarantors.
THE METHOD OF DELIVERY OF THE OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER OF THE OLD NOTES.
IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY
INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD
NOTES SHOULD BE SENT TO US.
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Each broker-dealer that receives the Exchange Notes for its own account in
exchange for the Old Notes, where such Old Notes were acquired by such broker-
dealer as a result of market-making or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. See "Plan of Distribution."
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Old Notes surrendered for exchange in the
Exchange Offer are tendered (1) by a registered holder of the Old Notes who has
not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (2) for the account of an
Eligible Institution, as defined below. In the event that signatures on a
Letter of Transmittal or a notice of withdrawal are required to be guaranteed,
such guarantees must be made by a firm which is a member of a registered
national securities exchange or a member of the National Association of
Securities Dealers, Inc. or by a commercial bank or trust company having an
office or correspondent in the United States (collectively, "Eligible
Institutions"). If the Old Notes are registered in the name of a person other
than a signer of the Letter of Transmittal, the Old Notes surrendered for
exchange must be endorsed by, or be accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as determined by us in
our sole discretion, duly executed by the registered holder with the signature
guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of the Old Notes tendered for exchange will be
determined by us in our sole discretion, which determination shall be final and
binding. We reserve the absolute right to reject any and all tenders of any
particular Old Notes not properly tendered or to not accept any particular Old
Notes which acceptance might, in our judgment or the judgment of our counsel, be
unlawful. We also reserve the absolute right to waive any defects or
irregularities or conditions of the Exchange Offer as to any particular Old
Notes either before or after the Expiration Date. Our interpretation of the
terms and conditions of the Exchange Offer either before or after the Expiration
Date (including the Letter of Transmittal and the instructions) shall be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes for exchange must be cured within such
reasonable period of time as we shall determine. None of us, the Exchange Agent
nor any other person shall be under any duty to give notification of any defect
or irregularity with respect to any tender of Old Notes for exchange, nor shall
any of us incur any liability for failure to give such notification. Tenders of
Old Notes received by the Exchange Agent that are not properly tendered and as
to which the irregularities have not been cured or waived will be returned by
the Exchange Agent to the tendering holder, unless otherwise provided in the
Letter of Transmittal, as soon as practicable following the Expiration Date.
If the Letter of Transmittal is signed by a person or persons other than the
registered holder or holders of the Old Notes, such Old Notes must be endorsed
or accompanied by appropriate powers of attorney, in either case signed exactly
as the name or names of the registered holder or holders that appear on the Old
Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by us, must submit
to us proper evidence satisfactory to us of their authority to so act.
In all cases, issuance of the Exchange Notes for the Old Notes that are
accepted for exchange in the Exchange Offer will be made only after timely
receipt by the Exchange Agent of certificates for such Old Notes or a timely
Book-Entry Confirmation of such Old Notes in the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If we do not accept any tendered
Old Notes for any reason or the Old Notes are submitted for a greater principal
amount than the holder of such Old Notes desires to exchange, we will return
such unaccepted or non-exchanged Old Notes without expense to the tendering
holder of such Old Notes as promptly as practicable after the Exchange Offer
expires or terminates. In the case of Old Notes tendered by book-entry transfer
into the Exchange Agent's account at the Book-Entry Transfer Facility under the
book-entry procedures described below, such non-exchanged Old Notes will be
credited to an account maintained with such Book-Entry Transfer Facility as
promptly as practicable after the termination of the Exchange Offer.
Book-Entry Transfer
The Exchange Agent will make a request to establish an account with respect to
the Old Notes at the Book-Entry Transfer Facility for purposes of the Exchange
Offer within two business days after the date of this prospectus, and any
financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of the Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. Although the Old Notes
may be delivered through book-entry transfer at the Book-Entry Transfer
Facility, the Letter of Transmittal, with any required signature guarantees and
any other required documents, must, in any case, be sent to and received by the
Exchange Agent at the address set
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forth below under "--Exchange Agent" on or prior to the Expiration Date or the
guaranteed delivery procedures described below must be complied with. Holders of
Old Notes may use copies of the Letter of Transmittal.
Acceptance of Old Notes for Exchange; Delivery of Exchange Notes
Tenders of Old Notes will be accepted only in principal amounts at maturity of
$1,000 and integral multiples of $1,000.
Upon the terms and subject to the conditions of the Exchange Offer, we will
accept all Old Notes validly tendered and not withdrawn promptly prior to 5:00
p.m. on the Expiration Date. We will deliver the Exchange Notes in exchange for
the Old Notes promptly following acceptance of the Old Notes.
For purposes of the Exchange Offer, we shall be deemed to have accepted
validly tendered Old Notes when, as and if we have given oral or written notice
to the Exchange Agent. The Exchange Agent will act as agent for the tendering
holders of the Old Notes for the purposes of receiving the Exchange Notes.
Under no circumstances will we or the Exchange Agent pay interest because of any
delay in making such payment or delivery.
Our acceptance for exchange of the Old Notes tendered in the Exchange Offer
will constitute a binding agreement between the tendering holder and us upon the
terms and subject to the conditions of the Exchange Offer.
If any tendered Old Notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events or otherwise, we will return any
such unaccepted Old Notes, at our expense, to their tendering holder as promptly
as practicable after the expiration or termination of the Exchange Offer.
Guaranteed Delivery Procedures
If a registered holder of the Old Notes desires to tender such Old Notes and
such Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (1) the tender is made
through an Eligible Institution, (2) prior to the Expiration Date, the Exchange
Agent receives from such Eligible Institution a properly completed and duly
executed Notice of Guaranteed Delivery, substantially in the form provided by
us, by facsimile transmission, mail or hand delivery, setting forth the name and
address of the holder of the Old Notes, the certificate numbers of such Old
Notes (except in the case of book-entry tenders) and the principal amount of the
Old Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within three NYSE trading days after the Expiration Date, the
Letter of Transmittal together with the certificates for all physically tendered
Old Notes, in proper form for transfer, or a Book-Entry Confirmation, and any
other documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent, and (3) such properly completed
and executed Letter of Transmittal (or a copy thereof) together with the
certificates for all physically tendered Old Notes, in proper form for transfer,
or a Book-Entry Confirmation, as the case may be, and all other documents
required by the Letter of Transmittal, are received by the Exchange Agent within
three NYSE trading days after the Expiration Date. Holders of Old Notes may use
copies of the Letter of Transmittal.
Withdrawal Rights
You may withdraw your tender of the Old Notes at any time prior to 5:00 p.m.
on the Expiration Date.
For a withdrawal to be effective, the Exchange Agent must receive a written
notice of withdrawal at the address set forth below under "--Exchange Agent."
Any such notice of withdrawal must (1) specify the name of the person having
tendered the Old Notes to be withdrawn, (2) identify the Old Notes to be
withdrawn, including the certificate numbers and principal amount of such Old
Notes (except in the case of book-entry tenders), (3) be signed by the holder of
the Old Notes in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes are tendered or be accompanied by sufficient
documents of transfer and (4) specify the name in which such Old Notes are
registered, if different from that of the withdrawing holder. If certificates
for the Old Notes have been delivered or otherwise identified to the Exchange
Agent, then, prior to the release of such certificates, the withdrawing holder
must also submit the certificate numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such holder of the Old Notes is an Eligible
Institution. If the Old Notes have been tendered for book-entry transfer as
described above, any notice of withdrawal must specify the name and number of
the account at the Book-Entry Transfer Facility to be credited with the
withdrawn Old Notes and otherwise comply with the procedures of such facility.
We will determine all questions as to the validity, form and eligibility
(including time of receipt) of such notices, and our determination shall be
final and binding on all parties. Any Old Notes so withdrawn will be deemed not
to have been validly tendered for exchange. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder of such Old Notes without cost to such
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holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. In the case of the Old Notes tendered by
book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility under the book-entry transfer procedures described above, such Old
Notes will be credited to an account maintained with such Book-Entry Transfer
Facility for the Old Notes. Properly withdrawn Old Notes may be retendered by
following one of the procedures described under "--Procedures for Tendering Old
Notes" above at any time on or prior to the Expiration Date.
Certain Conditions to the Exchange Offer
Despite any other provision of the Exchange Offer, we will not be required to
accept for exchange, or to issue the Exchange Notes in exchange for, any Old
Notes, and may terminate or amend the Exchange Offer, if at any time before the
acceptance of such Old Notes for exchange or the exchange of the Exchange Notes
for such Old Notes, any of the following events shall occur:
(1) such acceptance or issuance would violate applicable law or any
applicable interpretation of the staff of the SEC;
(2) any action or proceeding by or before any court or governmental agency
with respect to the Exchange Offer shall be instituted or pending
which, in our sole judgment, might impair our ability to proceed with
the Exchange Offer; or
(3) any law, statute, rule or regulation shall have been proposed, adopted
or enacted which, in our sole judgment, might materially impair our
ability to proceed with the Exchange Offer.
The foregoing conditions are for our sole benefit and we may assert them
regardless of the circumstances giving rise to any such condition or we may
waive them in whole or in part at any time and from time to time in our sole
discretion. Our failure at any time to exercise any of our rights shall not be
deemed a waiver of any such right and each such right shall be deemed an ongoing
right which we may assert at any time and from time to time.
In addition, we will not accept for exchange any Old Notes tendered, and no
Exchange Notes will be issued in exchange for any such Old Notes, if at such
time any stop order shall be threatened or in effect with respect to the
registration statement of which this prospectus constitutes a part or the
qualification of the indenture governing the Notes under the Trust Indenture Act
of 1939.
Exchange Agent
Bankers Trust Company has been appointed as the Exchange Agent for the
Exchange Offer. All executed Letters of Transmittal should be directed to the
Exchange Agent at the address set forth below. Questions and requests for
assistance, requests for additional copies of the prospectus or the Letter of
Transmittal and requests for Notices of Guaranteed Delivery should be directed
to the Exchange Agent, addressed as follows:
BANKERS TRUST COMPANY
By Facsimile: By Mail:
(212)669-0772 Bankers Trust Company
Attention: Customer Service Corporate Trust and Agency Group
Confirm by Telephone to: (212) 250-4730 Four Albany Street, 4th Floor
New York, New York 10006
Attention: Corporate Trust Services
By Hand before 4:30 p.m.: By Overnight Courier and By Hand after 4:30 p.m.:
Bankers Trust Company Bankers Trust Company
Corporate Trust and Agency Group Corporate Trust and Agency Group
Four Albany Street, 4th Floor Four Albany Street, 4th Floor
New York, New York 10006 New York, New York 10006
Attention: Anthony M. Nista, Assistant Treasurer Attention: Anthony M. Nista, Assistant Treasurer
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DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA FAX TRANSMISSION OTHER THAN AS SET FORTH ABOVE
DOES NOT CONSTITUTE A VALID DELIVERY.
Fees and Expenses
We will not make any payment to brokers, dealers, or others soliciting
acceptances of the Exchange Offer.
We will pay certain other expenses to be incurred in connection with the
Exchange Offer, including the fees and expenses of the Exchange Agent,
accounting and certain legal fees.
Transfer Taxes
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection with such exchange, except that if a holder of
the Old Notes instructs us to register the Exchange Notes in the name of, or
requests that the Old Notes not tendered or not accepted in the Exchange Offer
be returned to, a person other than the registered tendering holder, or if a
transfer tax is imposed for any reason other than the exchange of the Old Notes
in the Exchange Offer, the amount of any such transfer taxes, whether imposed on
the registered holder of the Old Notes or any other person, will be the
responsibility of the registered tendering holder.
Consequences of Failure to Exchange
The Old Notes of holders who do not exchange their Old Notes for the Exchange
Notes in the Exchange Offer will continue to have restrictions on transfer since
we issued the Old Notes under exemptions from, or in transactions not subject
to, the registration requirements of the Securities Act and applicable state
securities laws. In general, the Old Notes may not be offered or sold, unless
registered under the Securities Act, except under an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws.
We do not currently anticipate that we will register the Old Notes under the
Securities Act. To the extent that the Old Notes are tendered in connection
with the Exchange Offer, any trading market for the Old Notes not tendered in
connection with the Exchange Offer could be adversely affected. The tender of
the Old Notes in the Exchange Offer may have an adverse effect upon, and
increase the volatility of, the market prices of the Old Notes due to a
reduction in liquidity.
Accounting Treatment
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, as reflected in our accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized. The
expenses of the Exchange Offer will be expensed over the term of the Exchange
Notes.
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MANAGEMENT
Executive Officers and Directors
The table below sets forth certain information regarding our directors and
executive officers.
Name Age Position
- ---- --- --------
Gerald T. Vento.................................... 52 Chief Executive Officer and Chairman
Thomas H. Sullivan................................. 37 Executive Vice President, Chief Financial Officer and Director
Julie Dobson....................................... 42 Vice President and Chief Operating Officer
Michael R. Hannon.................................. 39 Director
Scott Anderson..................................... 40 Director
Rohit M. Desai..................................... 60 Director
Gary Fuqua......................................... 48 Director
James M. Hoak...................................... 55 Director
Mary Hawkins Key................................... 48 Director
William Kussell.................................... 40 Director
William Laverack, Jr............................... 42 Director
Joseph O' Donnell.................................. 57 Director
Michael Schwartz................................... 34 Director
James F. Wade...................................... 43 Director
Gerald T. Vento is the co-founder of TeleCorp and our predecessor company and
has been Chief Executive Officer and a director since our inception. He has been
Chairman of our Board since June 1999. From 1993 to 1995, Mr. Vento was Vice
Chairman and Chief Executive Officer of Sprint Spectrum(TM)/American PCS. Under
Mr. Vento's leadership, that partnership developed the first PCS network in the
United States. Mr. Vento also served as managing partner in a joint venture with
the Washington Post Company to build and operate the company's systems in the
United Kingdom prior to its sale in 1993 to TCI/US West Communications. Mr.
Vento has spent over twenty years in cable, telephone and wireless businesses.
Mr. Vento was the founder and Managing General Partner for several
communications companies, which he developed from inception, including wireless
and cable television properties throughout the United States and Puerto Rico.
Thomas H. Sullivan has been Executive Vice President and a director of
TeleCorp since our inception, and Chief Financial Officer since March 1999. Mr.
Sullivan served as President of TeleCorp Holding from 1996 to 1998 and has
served as a senior executive and founder of several wireless and wireline
companies for the past five years. From 1992 to 1998, Mr. Sullivan was a partner
at McDermott, Will & Emery, where he served as co-head of its telecommunications
practice and co-chairman of its corporate finance practice. In 11 years at
McDermott, Will & Emery, he counseled several of the country's largest cellular
and PCS operators including Sprint Spectrum(TM)/American PCS, L.P., Aerial
Communications, NorthCoast Communications and Bell Atlantic Mobile in both
financial and operational matters. Mr. Sullivan has served in varying capacities
as consultant and/or senior advisor to several telecommunications start-ups. Mr.
Sullivan is a director of Affiliate License Co.
Julie Dobson has served as TeleCorp's Chief Operating Officer since July 1998.
Prior to joining us, Ms. Dobson was President of Bell Atlantic Corporation
Mobile Systems(TM) New York/New Jersey Metro Region. She was responsible for
sales, marketing, customer service and the continued expansion of that company's
wireless communications network in the region. She also oversaw more than 1,500
employees and an extensive retail store network in 22 counties in New York and
northern and central New Jersey. Ms. Dobson had been with Bell Atlantic since
1980, when she began her career as an account executive in sales at Bell
Atlantic-Pennsylvania, and has served in a variety of positions in sales, sales
management and marketing over two decades.
Michael R. Hannon has been a director of TeleCorp since July 1998. Mr. Hannon
is a General Partner of Chase Capital Partners, a general partnership with
approximately $7 billion under management and one of our equity investors. Chase
Capital Partners invests in a wide variety of domestic and international private
equity opportunities including management buyouts, growth equity and venture
capital situations. Chase Capital Partners' sole limited partner is The Chase
Manhattan Corporation, one of the largest bank holding companies in the United
States with assets totaling over US $300 billion. Mr. Hannon is currently a
director of Formus Communications, Entertainment Communications and Financial
Equity Partners.
Scott Anderson has served as a director of TeleCorp since July 1998. Since
1997, Mr. Anderson has served as Principal in Cedar Grove Partners, an
investment and consulting/advisory partnership, and since 1998, as Principal in
Cedar Grove Investments, a small "angel" capital investment fund. Mr. Anderson
was an independent board member of PriCellular Corp from March 1997 through June
1998, when the company went private. He is a board member and advisory board
member of Tegic, a
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wireless technology licensing company, a board member of Tritel Communications,
a board member of Triton PCS and a board member of Xypoint, a private E-911
service company. He was employed by McCaw Cellular Communications and AT&T from
1986 until 1997, where he last served as Senior Vice President of the
Acquisitions and Development group.
Rohit M. Desai has served as a director of TeleCorp since January 1998. He has
been the Chairman, President and Chief Investment Officer of Desai Capital
Management Incorporated, an equity investment firm with approximately $1 billion
under management, since 1984. Desai Capital Management is the investment advisor
to Equity-Linked Investors II and Private Equity Investors III, L.P., of which
Mr. Desai is the managing general partner. Desai Capital Management invests in a
variety of industries, including the media and telecommunications sectors. Mr.
Desai currently sits on the board of The Rouse Company, a developer and owner of
regional shopping centers and urban specialty retailing properties; Sunglass Hut
International, a specialty retailer of sunglasses and watch stations in over
2,000 locations in the United States, United Kingdom, Australia and various
other countries; Finlay Fine Jewelry Holdings, a retailer of fine jewelry in
approximately 1,000 department stores in the United States, United Kingdom and
France; and Independence Community Bankcorp, with headquarters in Brooklyn, New
York. He is also a director of various other private companies including
American Horizon and Penn National.
Gary Fuqua has served as a director of TeleCorp since July 1998. Mr. Fuqua has
managed corporate development activities at Entergy since 1998. In addition, Mr.
Fuqua oversees Entergy's non-regulated domestic retail businesses, including
District Energy, Entergy Security and Entergy's various telecommunications
businesses. Before he joined Entergy, Mr. Fuqua served as a Vice President with
Enron Ventures Corporation in London. He also founded and managed his own
company prior to joining Enron in 1988. He is a member of Entergy Enterprises'
board, and President of Entergy Technology Holdings. Mr. Fuqua is also a member
of the board of Tritel Communications.
James M. Hoak, Jr., has served as a director of TeleCorp since July 1998. Mr.
Hoak has served as Chairman and a Principal of Hoak Capital Corporation, a
private equity investment firm, since September 1991. He has also served as
Chairman of HBW Holdings, an investment bank, since July 1996. He served as
Chairman of Heritage Media Corporation, a broadcasting and marketing services
firm, from its inception in August 1987 to its sale in August 1997. From
February 1991 to January 1995, he served as Chairman and Chief Executive Officer
of Crown Media, a cable television company. From 1971 to 1987, he served as
President and Chief Executive Officer of Heritage Communications, a diversified
communications company, and as its Chairman and Chief Executive Officer from
August 1987 to December 1990. He is also a director of PanAmSat Corporation;
Pier1 Imports; an d Texas Industries.
Mary Hawkins Key has served as a director of TeleCorp since March 1999. She is
Senior Vice President of Partnership Operations for AT&T. Partnership operations
include AT&T's proportionate interests in active 850 MHz cellular markets (such
as Bay Area Cellular Telephone), strategic alliances such as Rogers Cantel, and
AT&T's equity participation in affiliated new PCS businesses which are members
of the AT&T Wireless Network. Ms. Hawkins Key heads the multi-disciplinary team
which provides guidance, consulting and assistance to partnership operations in
virtually every area of the business. Ms. Hawkins Key joined AT&T's Messaging
Division in 1995, and subsequently became Chief Operating Officer for the 1100
employee division. While in this role, Ms. Hawkins Key served as business leader
of the team responsible for spinning off the Messaging business unit. Ms.
Hawkins Key is on the board of Triton PCS and is a partner committee member for
CMT Partners, the partnership which owns the Bay Area Cellular Telephone and
Kansas City Cellular Telephone companies.
William Kussell has served as a director of TeleCorp since July 1998. Mr.
Kussell has served as President of Dunkin' Donuts marketing office since 1996,
as well as Retail Concept Officer for Allied Domecq Retailing USA since 1997. In
this role, Mr. Kussell leads the overall strategy for Dunkin' Donuts as well as
oversees the development of the Baskin Robbins Brand. Mr. Kussell has over 13
years of brand building marketing experience within several industries, ranging
from food to photography. He was Vice President of worldwide marketing for
Reebok where he helped build Reebok's worldwide brand image and led the entry
into the home fitness video and programming business.
William Laverack, Jr. has served as a director of TeleCorp since January 1998.
He has been a General Partner of J.H. Whitney, an investment firm focused on
private equity and mezzanine capital investments, since May 1993. J.H. Whitney
manages approximately $1 billion of capital and invests in several industry
areas including communications. Prior to J.H. Whitney, he was with Gleacher &
Co., Morgan Stanley, and J.P. Morgan. He is currently a director of Steel
Dynamics, and several private companies including NBX, PRAECIS Pharmaceuticals,
NeuroMetrix, Ariat International, and Qualitech Steel. Mr. Laverack is a
graduate of Harvard College, B.A., and Harvard Business School, M.B.A.
Joseph O'Donnell has served as a director of TeleCorp since July 1998. He is
the former Chairman and Chief Executive Officer of two major advertising
agencies: J. Walter Thompson Company Worldwide and Campbell-Mithum-Esty
Advertising. In his twenty-five year career in the advertising business, he has
had experience with the automotive, financial services, telecommunications and
retail industries. Since leaving the agency business in 1991, Mr. O'Donnell has
founded several
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marketing and/or communication related businesses, principally Osgood, O'Donnell
& Walsh LLC, a communications consulting company serving such companies as
Equitable Insurance, Chase Manhattan Bank, PricewaterhouseCoopers, Ford and
Teligent. Mr. O'Donnell also sits on the board of Unique Casual Restaurants.
Michael Schwartz has served as a director of TeleCorp since November 1998. Mr.
Schwartz joined AT&T in September of 1996. He is currently a Vice President in
AT&T's Acquisitions and Development group. From September 1996 through September
1998, Mr. Schwartz was Vice President and Chief Counsel of AT&T's Messaging
Division. Prior to joining AT&T, Mr. Schwartz was in private practice in the
Seattle office of Graham & James. Mr. Schwartz holds a B.A., magna cum laude, in
physics and a J.D., magna cum laude, from Harvard University.
James F. Wade has served as a director of TeleCorp since July 1998. He is
currently the Managing Partner of M/C Venture Partners, a $250 million private
equity fund and has been a General Partner in a series of predecessor funds
since 1987. M/C Venture Partners invests solely in the telecommunications and
information technology sectors. Mr. Wade's investments have included several
wireless telephony commitments throughout North America. Mr. Wade has been
responsible for developing the firm's involvement in the telecommunications
sectors, including cellular telephony, ESMR, PCS, CAPs, CLECs, domestic and
international paging, and LMDS. Mr. Wade has been working with the management of
TeleCorp and TeleCorp Holding since 1995 and is on the board of six other
private companies. Mr. Wade graduated from the University of Notre Dame in 1978
with a B.B.A. in Finance and received an M.B.A. from Harvard Business School in
1982.
Compensation of Directors
It is not anticipated that the cash equity investors who are members of our
Board or any committee of our Board will receive cash compensation for their
service on our Board. Other non-employee members of our Board or its committees
receive a quarterly stipend of $1,875, $1,000 for attending each Board or
committee meeting and $500 for participating in each teleconference. It is
anticipated that these directors may also receive stock options. All members of
our Board or any committee of our Board, including members who are our
employees, will be reimbursed for out-of-pocket expenses in connection with
attendance at meetings.
Committees of the Board of Directors
Our bylaws, as amended, provide that our Board may establish committees to
exercise certain powers delegated by our Board. Under that authority, our Board
has established an executive committee, an audit committee and a compensation
committee.
Executive Compensation
The following table contains information about the cash and other compensation
that we paid in the 1998 fiscal year to Mr. Vento, our Chief Executive Officer,
and the four other most highly paid executive officers:
Summary Compensation Table
Long-Term Compensation
-------------------------
Annual Compensation Awards
------------------------------------------- -------------------------
Other Annual
Compensation Restricted Stock
Name and Principal Position Salary($) Bonus($)(a) ($)(b) Awards($)
- ---------------------------------------------------------------------------------------------------------------
Gerald T. Vento $213,461(c) $157,500(d) $5,994(e) $0
Chief Executive Officer
and Chairman
Thomas H. Sullivan 206,931(f) 125,000(g) 106,637(h) 0
Executive Vice President and
Chief Financial Officer
Julie Dobson 114,423(i) 155,000 66,134(j) 127,238(k)
Vice President and Chief
Operating Officer
Robert Dowski(l) 181,196(m) 101,251(n) 5,514(o) 40,640(p)
Chief Financial Officer
Steven Chandler 118,808(q) 45,000(r) 114,475(s) 14,541(t)
General Manager
______________________________
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(a) Our employees are eligible for annual cash bonuses. Such bonuses are
generally earned in the year prior to which they are paid based upon achievement
of corporate and individual performance objectives; however certain bonuses are
specified in employment agreements. The bonuses earned in 1997 were paid in
1998 and are not included in this table. The bonuses in the table were earned
in 1998 and were paid in 1999.
(b) Consists of amounts reimbursed for relocation expenses and any taxes that
we paid on behalf of the executive for such reimbursement.
(c) This amount consists of $111,538 that TeleCorp Management paid to Mr.
Vento out of amounts we paid to TeleCorp Management under the Management
Agreement and $101,923 that TeleCorp Holding paid to Mr. Vento.
(d) This amount does not include $62,500 in bonus that TeleCorp Holding paid
to Mr. Vento in 1998 earned in 1997.
(e) This amount consists of $5,994 that we paid on behalf of Mr. Vento into
our 401(k) plan.
(f) This amount consists of $92,947 that TeleCorp Management paid to Mr.
Sullivan out of amounts we paid to TeleCorp Management under the Management
Agreement and $113,984 that TeleCorp Holding paid to Mr. Sullivan.
(g) This amount does not include $51,500 that TeleCorp Holding paid to Mr.
Sullivan in 1998 earned in 1997.
(h) This amount consists of $103,637 in relocation expenses that TeleCorp
Management paid to Mr. Sullivan out of amounts that we paid to TeleCorp
Management under the Management Agreement and $3,000 that we paid on behalf of
Mr. Sullivan in our 401(k) plan.
(i) This amount consists of $114,423 that TeleCorp Communications paid to Ms.
Dobson.
(j) This amount consists of $66,134 in relocation expenses that TeleCorp
Communications paid to Ms. Dobson.
(k) Consists of 2,287.21 shares of Series E Preferred Stock, valued at $52
per share, and 3,459.45 shares of Class A Common Stock, valued at $2.40 per
share, issued under our Restricted Stock Grant Plan on July 16, 1998.
(l) Mr. Dowski ceased to be employed with us as of March 8, 1999, except for
certain transition support.
(m) This amount consists of $72,692 that TeleCorp Holding paid to Mr. Dowski
and $108,504 that TeleCorp Communications paid to Mr. Dowski.
(n) This amount does not include $9,803 that TeleCorp Holding paid to Mr.
Dowski in 1998 earned in 1997.
(o) This amount consists of $5,514 that we paid on behalf of Mr. Dowski into
our 401(k) plan.
(p) Consists of 714.340 shares of Series E Preferred Stock, valued at $52 per
share, and 1,455.910 shares of Class A Common Stock, valued at $2.40 per share,
issued under our Restricted Stock Grant Plan on July 16, 1998. On March 8,
1999, we repurchased 577.392 of Mr. Dowski's shares of Series E Preferred Stock
and 1,316.462 of Mr. Dowski's shares of Class A Common Stock for a total of
approximately $19, which is not reflected in the table.
(q) This amount consists of $54,519 that TeleCorp Holding paid to Mr.
Chandler and $64,288 that TeleCorp Communications paid to Mr. Chandler.
(r) This amount does not include $7,228 that TeleCorp Holding paid to Mr.
Chandler in 1998 earned in 1997 or $6,000 that TeleCorp Communications paid to
Mr. Chandler in 1998 earned in 1997.
(s) This amount consists of $111,995 in relocation expenses that TeleCorp
Communications paid to Mr. Chandler and $2,480 that we paid on behalf of Mr.
Chandler into our 401(k) plan.
(t) Consists of 255.59 shares of Series E Preferred Stock and 520.92 shares
of Class A Common Stock issued under our Restricted Stock Grant Plan on July 16,
1998.
Restricted Stock Grant Plan
We established the TeleCorp PCS, Inc. 1998 Restricted Stock Plan to award key
employees shares of our Series E Preferred Stock and Class A Common Stock. Each
award is subject to a five- or six-year vesting schedule that depends on such
employee's date of hire, with unvested shares being redeemed by us for $0.01 per
share upon termination of employment. The shares granted are subject to the same
transfer restrictions and repurchase rights as our shares held by AT&T and other
investors. See "Description of Capital Stock." As of March 31, 1999, 5,930
shares of Series E Preferred Stock and 10,322 shares of Class A Common Stock are
outstanding under this plan. We repurchased an additional 1,155 shares of Series
E Preferred Stock and 2,633 shares of Class A Common Stock from certain
stockholders, which we had granted under this plan, and such repurchased shares
are again available for grant under this plan. We intend to establish a non-
qualified stock option plan for key employees and directors.
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Management Agreement
Under to the Management Agreement, TeleCorp Management, under our oversight,
review and ultimate control and approval, assists us with: administrative
services, such as accounting, payment of all bills and collection; operational
services, such as engineering, maintenance and construction; marketing services,
such as sales, advertising and promotion; regulatory services, such as tax
compliance, FCC applications and regulatory filings; and general business
services, such as supervising employees, budgeting and negotiating contracts.
Mr. Vento and Mr. Sullivan own TeleCorp Management.
TeleCorp Management has agreed to provide the services of Mr. Vento and Mr.
Sullivan in connection with the performance of TeleCorp Management's obligations
under the Management Agreement. Mr. Vento and Mr. Sullivan have agreed to devote
their entire business time and attention to providing such services, provided
that they may devote reasonable periods of time to certain enumerated
activities.
We reimburse TeleCorp Management for all out of pocket expenses it incurs for
the retention of third parties on our behalf. We pay TeleCorp management fees of
$550,000 per year, payable in monthly installments. The compensation we pay to
TeleCorp Management also includes the potential for payments of bonuses. In
1998, we paid bonuses totaling approximately $285,000 to TeleCorp Management.
The Management Agreement has a five-year term. We may terminate the Management
Agreement immediately in the event of certain circumstances including (1)
indictment of Mr. Vento or Mr. Sullivan for a felony, (2) a material breach
which remains uncured after 30 days' written notice or (3) acceleration of any
of our indebtedness over $25.0 million. TeleCorp Management may terminate the
agreement voluntarily upon 30 days written notice to us.
During the term of the Management Agreement, and under limited circumstances
for a period following termination, TeleCorp Management, Mr. Vento and Mr.
Sullivan are prohibited from assisting or becoming associated with any person or
entity, other than as a holder of up to 5% of the outstanding voting shares of
any publicly traded company, that is actively engaged in the business of
providing mobile wireless communications services in our territory, and from
employing any person who was employed by us unless that person was not employed
by us for a period of at least six months.
In addition, the Management Agreement provides for repurchase by us of the
shares of our stock which Mr. Vento and Mr. Sullivan own, under certain
circumstances.
Employee Agreements
On July 17, 1998, we entered into an employee agreement with Ms. Dobson, under
which she serves as our Chief Operating Officer at a base annual salary of
$250,000.
Ms. Dobson is eligible under such employee agreement, at our Board's
discretion, to receive an annual bonus in an amount up to 50% of her base annual
salary.
On July 17, 1998, we entered into an employee agreement with Mr. Chandler,
under which he serves as our General Manager at a base annual salary of
$145,000.
Mr. Chandler is eligible under such employee agreement, at our Board's
discretion, to receive an annual bonus in an amount up to 30% of his base annual
salary.
Both Ms. Dobson's and Mr. Chandler's employee agreements provide that they are
employees-at-will. We will reimburse the reasonable expenses that the
executives incur while performing their services under the employee agreements
and the executives may participate in our employee benefit plans available to
employees of comparable status and position.
If an executive should die, we will pay any amounts that we owe such executive
under the employee agreements accrued prior to such death to such executive's
estate, heirs and beneficiaries. All family medical benefits under the employee
agreements for the benefit of such executive will continue for six months after
such death. Termination for cause is:
. engaging in misconduct which has caused demonstrable and serious injury,
financial or otherwise, to us or our reputation;
. being convicted of a felony or misdemeanor as evidenced by a judgment,
order or decree of a court of competent jurisdiction;
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. failing to comply with our Board's directions, or neglecting or refusing
to perform such executive's duties or responsibilities, unless changed
significantly without such executive's consent; or
. violating the employee agreement or Restricted Stock Grant Plan.
If we terminate an executive for cause, or an executive voluntarily quits, we
will pay such executive any amounts that we owe such executive accrued prior to
such cessation of employment. If we terminate an executive other than for
cause, we will pay such executive an amount equal to such executive's then
annual base salary, at normal payroll intervals, as well as continue to cover
such executive under our employee benefit plans for 12 months.
Under the employee agreements, the executives are subject to confidentiality
provisions, and have agreed, for one year after cessation of employment with us,
to non-competition and non-solicitation provisions and to limit public
statements concerning us.
Separation Agreement
On March 8, 1999, we entered into a separation agreement with Mr. Dowski.
Under such separation agreement, we agreed to pay Mr. Dowski:
. $17,500 per month for 12 months;
. a lump sum of $105,000, representing a 1998 bonus;
. a lump sum equal to earned but unpaid or unused vacation;
. $4,300 as reimbursement for relocation expenses, including taxes payable
by Mr. Dowski on such sum; and
. a lump sum equal to outstanding travel and expense reimbursement.
We also agreed to continue covering Mr. Dowski under our employee benefit plans
for 12 months. We will continue to pay a duplicate housing relocation benefit to
Mr. Dowski through July 1999.
In addition, we repurchased 577.392 shares of Mr. Dowski's Series E Preferred
Stock and 1,316.462 of Mr. Dowski's shares of Class A Common Stock for
approximately $19 in accordance with his share grant agreement concerning such
restricted stock.
The separation agreement contained mutual releases by Mr. Dowski and us of the
other. In addition, in such separation agreement, Mr. Dowski confirmed his
confidentiality agreements with us, and his one-year non-competition, non-
solicitation and limitation on public speaking agreements.
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SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 1999, on a pro forma basis,
after giving effect to the Transactions, the number of shares of each class of
our voting stock beneficially owned by (a) each of our directors, (b) certain of
our key executive officers, (c) each person known by us to beneficially own more
than 5% of the outstanding shares of any class of our voting capital stock at
such date and (d) all of our directors and executive officers of as a group (30
persons). As of such date, after giving pro forma effect to the Transactions,
there were 97,473 shares of Series A Preferred Stock, 210,608 shares of Series C
Preferred Stock, 49,417 shares of Series D Preferred Stock, 24,150 shares of
Series E Preferred Stock, 48,261 shares of Series F Preferred Stock, 236,824
shares of Class A Common Stock, 919 shares of Class C Common Stock, 2,755 shares
of Class D Common Stock and 10 shares of Voting Preference Stock, of TeleCorp
outstanding. See "Description of Capital Stock." Except as otherwise indicated,
the address for each stockholder is c/o TeleCorp, 1010 N. Glebe Road, Suite 800,
Arlington, Virginia 22201.
Class A Voting Preference
Common Stock (a) (b) Common Stock (a) (b)
--------------------------- --------------------------
Number of Percentage Number of Percentage of
Stockholder Shares of Class Shares Class
- ----------- ------------ ------------ ------------ ------------
CB Capital Investors, L.P. (c)............................... 46,321 19.56% 0 0%
Equity-Linked Investors -II (d).............................. 44,037 18.59 0 0
Hoak Communications Partners, L.P. (e)....................... 33,027 13.95 0 0
Whitney Equity Partners. L.P. (f)............................ 27,521 11.62 0 0
Entergy Technology Holding Company (g)....................... 14,872 6.28 0 0
Media/Communications Partners (h)............................ 17,658 7.46 0 0
AT&T Wireless PCS, Inc. (i).................................. 48,261 16.93 0 0
TWR Cellular, Inc. (i)....................................... 48,261 16.93 0 0
Gerald T. Vento (j).......................................... 14,478 6.11 5 50
Thomas H. Sullivan (k)....................................... 8,825 3.73 5 50
Michael R. Hannon (l)........................................ 0 0 0 0
Rohit M. Desai (m)........................................... 44,037 18.59 0 0
James M. Hoak (n)............................................ 33,027 13.95 0 0
William Laverack, Jr. (o).................................... 27,521 11.62 0 0
Gary Fuqua (p)............................................... 14,872 6.28 0 0
James F. Wade (q)............................................ 17,658 7.46 0 0
Scott Anderson............................................... 0 0 0 0
William Kussel............................................... 0 0 0 0
Joseph O'Donnell............................................. 0 0 0 0
Michael Schwartz (i)......................................... 48,261 16.93 0 0
Mary Hawkins Key (i)......................................... 48,261 16.93 0 0
Julie Dobson................................................. 3,459 1.46 0 0
Robert Dowski................................................ 139 * 0 0
Steven Chandler.............................................. 521 * 0 0
All directors and executive officers as a group (30
persons) (r)................................................. 218,674 76.70
- ---------------
* Less than one percent.
(a) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, for purposes of this table, a person is deemed to be the beneficial
owner of any shares of Common Stock if such person has or shares voting
power or investment power with respect to such Common Stock, or has the
right to acquire beneficial ownership at any time within 60 days of the date
of the table. As used here, "voting power" is the power to vote or direct
the voting of shares and "investment power" is the power to dispose or
direct the disposition of shares.
(b) Under the terms of our restated certificate of incorporation, until the
occurrence of certain events, and subject to specific rights granted to
holders of other classes of our capital stock, the holders of Voting
Preference Common Stock possess 50.1% of the voting power of all shares of
our capital stock, and the holders of Class A Common Stock possess 49.9% of
the voting power of all shares of our capital stock. If, under circumstances
described under "Description of Capital Stock," we receive FCC approval for
the Class A Common Stock and Voting Preference Common Stock to vote as a
single class, the Class A Common Stock and the Voting Preference Common
Stock will vote as a single class on all matters and be granted one vote per
outstanding share. Holders of certain other classes of our capital stock
have been granted voting rights regarding matters specifically affecting
those classes. Finally, so long as AT&T continues to own not less than two-
thirds of the shares of Series A Preferred Stock it owned on July 16, 1998,
it will have the right to nominate two members of our Board (or one member
following certain events). See "Description of Capital Stock."
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(c) Includes shares held by TeleCorp Investment Corp., LLC. Does not include 91
shares of Class C Common Stock or 596 shares of Class D Common Stock held by
such stockholders. Such shares, under certain circumstances, are convertible
into shares of Class A Common Stock. See "Description of Capital Stock."
Such shares may also be deemed to be beneficially owned by Mr. Hannon. Mr.
Hannon disclaims beneficial ownership of all such shares. The address of the
stockholders is 380 Madison Avenue, 12/th/ Floor, New York, New York 10017.
(d) Includes shares held by Private Equity Investors III, L.P. Does not include
87 shares of Class C Common Stock or 572 shares of Class D Common Stock held
by such stockholders. Such shares, under certain circumstances, are
convertible into shares of Class A Common Stock. See "Description of Capital
Stock." Such shares may also be deemed to be beneficially owned by Mr.
Desai. Mr. Desai disclaims beneficial ownership of all such shares. The
address of the stockholders is 540 Madison Avenue, 36/th/ Floor, New York,
New York 10022.
(e) Includes shares held by HCP Capital Fund, L.P. Does not include 65 shares of
Class C Common Stock or 429 shares of Class D Common Stock held by such
stockholders. Such shares, under certain circumstances, are convertible into
shares of Class A Common Stock. See "Description of Capital Stock." Such
shares may also be deemed to be beneficially owned by Mr. Hoak. The address
of the stockholders is One Galleria Tower, 13355 Noel Road, Suite 1050,
Dallas, Texas 75240.
(f) Includes shares held by J.H. Whitney III, L.P. and Whitney Strategic
Partners III, L.P. Does not include 54 shares of Class C Common Stock or 357
shares of Class D Common Stock held by such stockholders. Such shares, under
certain circumstances, are convertible into shares of Class A Common Stock.
See "Description of Capital Stock." Such shares may also be deemed to be
beneficially owned by Mr. Laverack. The address of the stockholders is 177
Broad Street, 15/th/ Floor, Stamford, Connecticut 06901.
(g) Such shares may also be deemed to be beneficially owned by Mr. Fuqua and
Entergy Corporation. Does not include 344 shares of Class D Common Stock
held by the stockholder. Such shares, under certain circumstances, are
convertible into shares of Class A Common Stock. See "Description of Capital
Stock." The address of the stockholder is Three Financial Centre, 900 South
Shackleford Road, Suite 210, Little Rock, Arkansas 72211.
(h) Consists of shares held by Media/Communications Partners III Limited
Partnership and Media/Communications Investors Limited Partnership. Does not
include 35 shares of Class C Common Stock or 227 shares of Class D Common
Stock held by such stockholders. Such shares, under certain circumstances,
are convertible into shares of Class A Common Stock. See "Description of
Capital Stock." Such shares may also be deemed to be beneficially owned by
Mr. Wade. The address of the stockholders is 75 State Street, Suite 2500,
Boston, Massachusetts 02109.
(i) Consists of 25,324.95 shares of Series F Preferred Stock held by AT&T
Wireless PCS, 18,036.46 shares of Series F Preferred Stock held by TWR and
4,900 shares of Series F Preferred Stock issuable to AT&T Wireless PCS in
connection with the Viper Wireless transaction. Such shares may also be
deemed to be held by Mr. Schwartz, Ms. Hawkins Key and various AT&T
affiliates. Mr. Schwartz and Ms. Hawkins Key disclaim beneficial ownership
of all such shares. The address of the stockholders is c/o AT&T Wireless
PCS, Inc., 7277 164th Avenue, N.E., Redmond, Washington 98052.
(j) Does not include 341 shares of Class C Common Stock or 9 shares of Class D
Common Stock held by such stockholder. Such shares, under certain
circumstances, are convertible into shares of Class A Common Stock. See
"Description of Capital Stock."
(k) Does not include 212 shares of Class C Common Stock or 2 shares of Class D
Common Stock held by such stockholder. Such shares, under certain
circumstances, are convertible into shares of Class A Common Stock. See
"Description of Capital Stock."
(l) Does not include shares of our capital stock owned by CB Capital Investors,
L.P. and TeleCorp Investment Corp., LLC, of which Mr. Hannon disclaims
beneficial ownership. Mr. Hannon serves as Vice President of CB Capital
Investors, L.P. Does not include 91 shares of Class C Common Stock or 596
shares of Class D Common Stock held by such stockholders. Such shares, under
certain circumstances, are convertible into shares of Class A Common Stock.
See "Description of Capital Stock." Mr. Hannon disclaims beneficial
ownership of all of such shares. The address of the stockholder is c/o CB
Capital Investors, L.P., 380 Madison Avenue, 12/th/ Floor, New York, New
York 10017.
(m) Consists of shares owned by Equity-Linked Investors-II and Private Equity
Investors III, L.P. Mr. Desai serves as managing general partner of each of
such stockholders. Does not include 87 shares of Class C Common Stock or 572
shares of Class D Common Stock held by such stockholders. Such shares, under
certain circumstances, are convertible into shares of Class A Common Stock.
See "Description of Capital Stock." Mr. Desai disclaims beneficial ownership
of all such shares. The address of such stockholder is 540 Madison Avenue,
36th Floor, New York, New York 10022.
(n) Consists of shares owned by Hoak Communications Partners, L.P. and HCP
Capital Fund, L.P. Mr. Hoak serves as Principal and Chairman of the manager
of such stockholders, shareholder of the manager and General Partner of Hoak
Communications Partners, L.P. and limited partner and shareholder of the
General Partner of HCP Capital Fund, L.P. Does not include 65 shares of
Class C Common Stock or 429 shares of Class D Common Stock held by such
stockholders. Such shares, under certain circumstances, are convertible into
shares of Class A Common Stock. See "Description of Capital Stock." The
address of such stockholders is c/o Hoak Communications Partners, L.P., One
Galleria Tower, 13355 Noel Road, Suite 1050, Dallas, Texas 75240.
(o) Consists of shares owned by Whitney Equity Partners, L.P., J.H. Whitney III,
L.P. and Whitney Strategic Partners III, L.P. Mr. Laverack serves as
Managing Member of J.H. Whitney Equity Partners, L.L.C., which is a General
Partner in Whitney Equity Partners, L.P., Managing Member of J.H. Whitney
Equity Partners III, L.L.C. which is a General Partner in J.H. Whitney III,
L.P. and Whitney Strategic Partners III, L.P. Does not include 54 shares of
Class C Common Stock or 357 shares of Class D Common Stock held by such
stockholders. Such shares, under certain circumstances, are convertible into
shares of Class A Common Stock. See "Description of Capital Stock." The
address of such stockholders is c/o Whitney Equity Partners, L.P., 177 Broad
Street, 15th Floor, Stamford, Connecticut 06901.
(p) Consists of shares owned by Entergy Technology Holding Company. Mr. Fuqua
serves as an officer of the corporate parent of such stockholder. Does not
include 344 shares of Class D Common Stock held by Entergy. Such shares,
under certain circumstances, are convertible into shares of Class A Common
Stock. See "Description of Capital Stock." The address of such stockholder
is c/o Entergy Technology Holding Company, Three Financial Centre, 900
Shackleford Road, Suite 210, Little Rock, Arkansas 72211.
(q) Consists of shares owned by Media/Communications Investors Limited
Partnership and Media/Communications Partners III Limited Partnership. Mr.
Wade serves as President of M/C Investor General Partner-J, Inc., which is a
General Partner in Media Communications Investors Limited Partnerships and
Manager of M/C III, L.L.C., which is a General Partner in Media
Communications Partners III Limited Partnership. Does not include 35 shares
of Class C Common Stock or 227 shares of Class D Common Stock held by such
stockholders. Such shares, under certain circumstances, are convertible into
shares of
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Class A Common Stock. See "Description of Capital Stock." The
address of such stockholders is c/o Media/Communications Partners, 75 State
Street, Suite 2500, Boston, Massachusetts 02109.
(r) Includes shares held by members of management and certain of our cash equity
investors that may be deemed to be beneficially owned by certain members of
our Board. Certain of such members of our Board disclaim such beneficial
ownership. The 14 members of our senior management team hold approximately
14% of our common stock.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AT&T Agreements
On January 23, 1998, we and AT&T announced the formation of a venture under
which we are financing, constructing and operating a wireless communications
network using the AT&T and SunCom brand names and logos together, giving equal
emphasis to both. AT&T contributed licenses to us in exchange for an equity
interest in us. The venture provides the basis for a strategic alliance between
us and AT&T for the provision of wireless communications services in certain
markets. The terms of the venture and the strategic alliance are set forth in a
number of agreements, and summaries of these agreements are set forth below.
These summaries are not complete and are qualified in their entirety by
reference to the agreements. Copies of the agreements are attached as exhibits
to the registration statement.
Securities Purchase Agreement
The Securities Purchase Agreement, dated as of January 23, 1998, as amended,
among AT&T Wireless PCS Inc., TWR Cellular, Inc., CB Capital Investors, Inc.,
Desai Associates, Hoak Capital Corporation, J.H. Whitney & Co., Entergy
Technology Holding Company, M/C Partners, One Liberty Fund III, L.P. and Toronto
Dominion Investments, Inc. and Northwood Capital Partners (the "Cash Equity
Investors"), the former stockholders of TeleCorp Holding (the "THC Stockholders"
and together with the Cash Equity Investors, AT&T Wireless PCS and TWR Cellular,
Inc., the "Purchasers"), Mr. Vento and Mr. Sullivan (the "Management
Stockholders") and us provided for the transfer by AT&T Wireless PCS and TWR
Cellular to us of certain PCS licenses providing, in the aggregate, the right to
use 20 MHz of authorized frequencies within the areas covered by such licenses
in exchange for shares of our Series A Preferred Stock, Series D Preferred Stock
and Series F Preferred Stock.
The Securities Purchase Agreement also provides for the contribution by the
Cash Equity Investors of $128.0 million to us in exchange for shares of our
Series C Preferred Stock, Class A Voting Common Stock and Class C Common Stock.
In addition, the Securities Purchase Agreement provides that, upon the
consummation by us of an acquisition of F-Block PCS licenses covering one
million or more Pops (as defined in the Stockholders' Agreement described
below), the Cash Equity Investors will contribute an additional $5.0 million to
us in exchange for additional shares of our Series C Preferred Stock and Class A
Common Stock. Certain of the contributions to be made by the Cash Equity
Investors were made upon the consummation of the transactions contemplated by
the Securities Purchase Agreement, which occurred on July 17, 1998, and the
remainder of such contributions will be made over a three-year period. The
obligations of each of the Cash Equity Investors to make its remaining
contributions are (1) irrevocable and unconditional, and not subject to
counterclaim, set-off, deduction or defense, or to abatement, suspension,
deferment, diminution or reduction for any reason whatsoever, and (2) under a
pledge agreement between each such Cash Equity Investor and us, secured by a
pledge of all shares of our capital stock issued to such Cash Equity Investor
under the Securities Purchase Agreement. See "Management Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
Under the Securities Purchase Agreement, the THC Stockholders exchanged their
shares of stock in TeleCorp Holding for shares of our Series C Preferred Stock,
Class A Common Stock, Class C Common Stock and Class D Common Stock.
Under the Securities Purchase Agreement, the Management Stockholders exchanged
their shares of stock in TeleCorp Holding for shares of our Series E Preferred
Stock, Class A Common Stock, Class C Common Stock and Class D Common Stock. Each
of the Management Stockholders received five shares of our Voting Preference
Stock in exchange for shares of stock we previously issued to them. Upon the
closing of the transactions contemplated by the Securities Purchase Agreement,
we also issued to certain other members of management shares of our Series E
Preferred Stock and Class A Common Stock. Up to 35.71% of the Class A Common
Stock issued to members of management are under our restricted stock plan.
Shares issued under the restricted stock plan are subject to forfeiture
according to a schedule if employment with us is terminated within six years
after the closing of the Securities Purchase Agreement.
Stockholders' Agreement
General. The Stockholders' Agreement, dated as of July 17, 1998, among AT&T
Wireless PCS, TWR Cellular, the Cash Equity Investors, the Management
Stockholders and us provides for certain arrangements regarding our management
and operations and for certain restrictions with respect to the sale, transfer
or other disposition of our capital stock.
Board of Directors. The Stockholders' Agreement provides that our Board
shall initially consist of 13 directors and that any action of our Board be
approved by the affirmative vote of a majority of our entire Board, except in
certain circumstances where voting by certain classes of directors is required.
The Stockholders' Agreement also provides that the members of our Board will
initially be (1) three individuals selected by the Cash Equity Investors who own
a majority of the Class A Common Stock, (2)
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each of Mr. Vento and Mr. Sullivan, so long as each remains one of our officers
and the Management Agreement remains in effect, (3) two individuals selected by
AT&T Wireless PCS in its capacity as holder of the Series A Preferred Stock, so
long as AT&T Wireless PCS and TWR Cellular own in the aggregate at least two-
thirds of the number of shares of Series A Preferred Stock authorized on the
date of our restated certificate of incorporation, (4) three individuals
selected by the holders of the Voting Preference Stock, which three individuals
are reasonably acceptable to the Cash Equity Investors who own a majority of the
Class A Common Stock and (5) three individuals selected by the holders of the
Voting Preference Stock, which three individuals are reasonably acceptable to
the holders of a majority of the Class A Common Stock beneficially owned by the
Cash Equity Investors and AT&T Wireless PCS.
Exclusivity. The parties to the Stockholders' Agreement have agreed that,
during the term of the Stockholders' Agreement, neither they nor any of their
respective affiliates will provide or resell, or act as the agent for any person
offering, within the areas covered by our licenses, mobile wireless
communications services initiated or terminated using TDMA and frequencies
licensed by the FCC (collectively, "Company Communications Services"), except
that AT&T and its affiliates may (1) resell or act as agent for us in connection
with the provision of Company Communications Services, (2) provide or resell
wireless communications services to or from certain specific locations, provided
that any equipment sold in connection with such service must be capable of
providing Company Communication Services, and (3) resell Company Communications
Services for another person in any area where we have not placed a system into
commercial service. Additionally, with respect to certain markets identified in
the Intercarrier Roamer Services Agreement with AT&T Wireless Services, Inc.,
each of us and AT&T Wireless PCS has agreed to cause our respective affiliates
in their home carrier capacities to (1) program and direct the programming of
customer equipment so that the other party, in its capacity as the serving
carrier, is the preferred provider in such markets and (2) refrain from inducing
any of its customers to change such programming. AT&T Wireless PCS has retained
up to 10 MHz of authorized frequencies within the areas covered by our licenses
for which we have a right of negotiation in the event of a proposed transfer.
We and the other parties amended the Stockholders' Agreement to terminate the
exclusivity provisions with regard to approximately 100,000 Pops that overlapped
with the coverage area of licenses AT&T purchased from Vanguard Cellular. We
have agreed with AT&T to exchange our licenses covering such Pops for licenses
covering other Pops. Such exchanged Pops will be covered under the scope of our
agreements with AT&T.
Construction. The Stockholders' Agreement establishes a minimum construction
plan for the construction of a PCS system in the areas covered by our licenses
(the "Minimum Construction Plan"), which requires us to deploy service to (1)
20% of the total 1990 population of the area covered by our licenses (the "Total
Population") by July 17, 1999 (focusing on designated areas of Memphis and New
Orleans), (2) 40% of the Total Population by July 17, 2000 (focusing on
designated areas of New England, Little Rock and Missouri and enhancing coverage
in all markets), (3) 55% of the Total Population by July 17, 2001 (focusing on
secondary cities and the important associated connecting highways), (4) 70% of
the Total Population by July 17, 2002 (continuing to expand the secondary cities
and enhancing coverage of the core areas) and (5) 75% of the Total Population by
July 17, 2003 (focusing on adding capacity sites and filling in the remaining
suburban areas). In addition to the Minimum Construction Plan, we are bound to
several other operational obligations, including arranging for all necessary
microwave relocation for our licenses and AT&T's retained licenses, ensuring
compatibility of our systems with the majority of systems in Louisiana,
Oklahoma, Minnesota, Illinois and Texas (excluding Houston), satisfying the FCC
construction requirements in the areas covered by our licenses and AT&T's
retained licenses, offering certain core service features with respect to our
systems, causing our systems to comply with AT&T's TDMA quality standards and
refraining from providing or reselling interexchange services other than
interexchange services that constitute Company Communications Services or that
are procured from AT&T. If we materially breach any of our operational
obligations or if AT&T Wireless PCS and its affiliates decide to adopt a new
technology standard, other than TDMA, in a majority of its markets and we
decline to adopt such new technology, AT&T Wireless PCS may terminate its
exclusivity obligations.
Disqualifying Transaction. In the event of a merger, consolidation, asset
acquisition or disposition or other business combination (a "Disqualifying
Transaction") involving (1) AT&T and (2) a person that (A) derives annual
revenues from communications businesses in excess of $5 billion, (B) derives
less than one-third of its aggregate revenues from the provision of wireless
communications and (C) owns FCC licenses to offer, and does offer, mobile
wireless communications services serving more than 25% of the residents, as
determined by Equifax Marketing Decision Systems Inc., within the areas covered
by our licenses (such person, the "Other Party"), AT&T, upon written notice, may
terminate certain of its exclusivity obligations in the portion of the areas
covered by our licenses in which the Other Party owns an FCC license to offer
CMRS (the "Overlap Territory"); provided, that, upon such termination, we have
the right to cause AT&T, TWR Cellular, or any transferee that acquired any
shares of Series A Preferred Stock, Series D Preferred Stock or Series F
Preferred Stock owned by AT&T Wireless PCS on the date of the Stockholders'
Agreement (and any shares of our common stock into which any such shares are
converted) to exchange all or a proportionate share (based upon the overlap of
the residents) of such stock into shares of Series B Preferred Stock. Once so
converted, we may redeem such shares of Series B Preferred Stock at any time in
accordance with our restated
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certificate of incorporation. Currently, only Sprint, SBC Communications, Bell
Atlantic and BellSouth satisfy the criteria for a business combination partner.
Under certain circumstances, during the period commencing on the date of the
announcement by AT&T of a Disqualifying Transaction and ending upon the later to
occur of six months following the consummation of such transaction and the date,
if any, by which AT&T is required under applicable law to dispose of any
cellular system or any PCS system serving any of the St. Louis, Missouri,
Louisville, Kentucky or Boston, Massachusetts BTAs (the "Subject Markets"), if
AT&T proposes to sell, transfer or assign to any person that is not an affiliate
of AT&T any PCS system owned and operated by AT&T Wireless PCS and its
affiliates in any Subject Market, then AT&T will provide us with the opportunity
to offer for sale jointly with AT&T for a 90-day period wireless communications
services in the applicable Subject Markets and the portion of the areas covered
by our licenses that are included in the MTA that includes such Subject Markets.
Acquisition of Licenses. The Stockholders' Agreement provides that we may
acquire any cellular license that our Board has determined is a demonstrably
superior alternative to constructing a PCS system within the applicable portion
of the areas covered by our licenses; provided, that: (1) a majority of the Pops
covered by such license are within the areas covered by our licenses; (2) AT&T
Wireless PCS and its affiliates do not own CMRS licenses in the area covered by
such license; and (3) our ownership of such license will not cause AT&T Wireless
PCS or any affiliate to be in breach of any law or contract.
Vendor Discounts; Roaming Agreements. AT&T Wireless PCS has agreed, under
the Stockholders' Agreement, that if requested by us, it will use all
commercially reasonable efforts (1) to assist us in obtaining discounts from any
AT&T Wireless PCS vendor with whom we are negotiating for the purchase of any
infrastructure equipment or billing services and (2) to enable us to become a
party to the roaming agreements between AT&T Wireless PCS and its affiliates and
operators of other cellular and PCS systems.
Resale Agreements. Under the Stockholders' Agreement, we, upon the request of
AT&T Wireless PCS, will enter into resale agreements relating to the areas
covered by our licenses. The rates, terms and conditions of service provided by
us are to be at least as favorable (and to the extent permitted by applicable
law, more favorable) to AT&T Wireless PCS, taken as a whole, as the rates, terms
and conditions provided by us to other customers.
Subsidiaries. The Stockholders' Agreement provides that all of our
subsidiaries must be direct or indirect wholly owned subsidiaries. The
Stockholders' Agreement also provides that, without the prior written consent
of, or right of first offer to, AT&T Wireless PCS, we and our subsidiaries,
subject to certain limited exceptions, may not effect any sale or disposition of
a substantial portion of our assets or any of our subsidiaries or the
liquidation, merger or consolidation of us or any of our subsidiaries until we
meet certain minimum construction requirements.
Restrictions on Transfer. The Stockholders' Agreement imposes certain
restrictions with respect to the sale, transfer or other disposition of our
capital stock, such as preemptive, drag along and tag along rights, and provides
certain demand and piggyback registration rights.
Amendments. Amendments to the Stockholders' Agreement require the written
consent of holders of (1) a majority of the shares of the Class A Common Stock,
including AT&T Wireless PCS, (2) two-thirds of the Class A Common Stock
beneficially owned by the Cash Equity Investors and (3) two-thirds of the Class
A Common Stock beneficially owned by the Management Stockholders.
Termination. The Stockholders' Agreement will terminate upon the earliest to
occur of (1) the receipt of the written consent of each such party, (2) July 17,
2009 and (3) under certain circumstances, the date on which a single stockholder
beneficially owns all of the outstanding shares of Class A Common Stock.
Network Membership License Agreement
Under the Network Membership License Agreement dated as of July 17, 1998 (the
"License Agreement") between AT&T and us, AT&T granted to us a royalty-free,
non-transferable, non-sublicensable, non-exclusive, limited right and license to
use certain licensed marks, including the logo containing the AT&T name and
globe design, the expression "Member, AT&T Wireless Services Network" and AT&T
colors, graphics and overall configurations (collectively, the "Licensed
Marks"), solely in connection with certain licensed activities (the "Licensed
Activities"). The Licensed Activities include (1) the provision to end-users and
resellers, solely within the areas covered by our licenses, of Company
Communications Services on frequencies licensed to us for CMRS provided in
accordance with the agreements between us and AT&T (collectively, the "Licensed
Services") and (2) marketing and offering the Licensed Services within the areas
covered by our licenses with limited advertising
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outside our licensed area. The License Agreement also grants to us the right and
license to use Licensed Marks on specified mobile phones distributed to our end-
users.
Except in certain instances, AT&T has agreed not to grant to any other person
a right or license to provide or resell, or act as agent for any person
offering, Company Communications Services under the Licensed Marks. AT&T retains
all rights of ownership in the Licensed Marks, including the rights to license
or transfer, as well as the right to use the Licensed Marks in providing its
services (subject to its exclusivity obligations) in both the areas covered by
our licenses and all other areas.
The License Agreement contains restrictions with respect to the use and
modification of any of the Licensed Marks. Although we may develop our own
marks, we may not use them together with the Licensed Marks without the prior
approval of AT&T. Furthermore, we are obligated to use commercially reasonable
efforts to cause all Licensed Services marketed and provided using the Licensed
Marks to be of comparable quality to similar services marketed and provided by
AT&T in areas that are comparable to the areas covered by our licenses, taking
into account, among other things, the relative stage of development of the areas
in which such services are being provided. The License Agreement also sets forth
specific testing procedures to determine compliance with these standards and
affords us with a grace period to cure any instances of noncompliance.
Following the core period, we must cease using the Licensed Marks until we are
in compliance with the standards or may be deemed to be in breach of the License
Agreement.
We may not assign, sublicense or transfer, by change of control or otherwise,
any of our rights under the License Agreement; provided, however, that the
License Agreement may be, and has been, assigned to our lenders under our senior
credit facilities, and after the expiration of any applicable grace and cure
periods under our senior credit facilities, such lenders may enforce our rights
under the License Agreement and assign the License Agreement to any person with
AT&T's consent.
The initial term of the License Agreement is for a period of five years (the
"Initial Term"), which will be automatically renewed for an additional five-year
period if each party gives written notice to the other party of our election to
renew the term of the License Agreement and neither party gives a notice of non-
renewal. The License Agreement may be terminated by AT&T at any time in the
event of a significant breach by us, including our misuse of any Licensed Marks,
our licensing or assignment of any of our rights under the License Agreement,
except as permitted by the terms of the License Agreement, our loss of the
licenses acquired from AT&T, our failure to maintain AT&T's quality standards or
a change in control of us. After the initial term, AT&T may also terminate the
License Agreement in certain circumstances in connection with a Disqualifying
Transaction.
Upon closing of the Digital PCS acquisition, the License Agreement was
automatically amended to include the Baton Rouge, Houma, Hammond and Lafayette,
Louisiana BTAs under its scope. Upon closing of the Puerto Rico acquisition,
the License Agreement was automatically amended to include the San Juan MTA
under its scope. Upon the closing of the Wireless 2000 acquisition, the License
Agreement was automatically amended to include the Alexandria, Lake Charles and
certain counties under the Monroe, Louisiana BTAs under its scope.
Intercarrier Roamer Service Agreement / Roaming Administration Service Agreement
Under the Intercarrier Roamer Services Agreement dated as of July 17, 1998
between AT&T Wireless Services and certain of its affiliates (collectively,
"AWS") and us, we have agreed with AWS that each of us, in our capacity as a
serving provider, will provide wireless communications services for registered
customers of the other party's customers while such customers are out of their
home carrier's geographic area and in the geographic area where the serving
provider holds a license or permit to construct and operate a wireless
communications system and station. Each home carrier whose customers receive
service from a serving provider will pay to the serving provider all of the
serving provider's charges for wireless service and all of the applicable
charges. Each serving provider's service charges per minute or partial minute
for use for the first three years will be fixed at a declining rate.
The Intercarrier Roamer Service Agreement has a term of 20 years, which is
automatically renewed on a year-to-year basis unless terminated by either party
upon 90 days' prior written notice after 10 years. The Intercarrier Roamer
Service Agreement may be terminated earlier by either party in certain
circumstances, including, after ten years, by either party upon 90 days' prior
written notice. Neither party may assign or transfer its rights and obligations
under the Intercarrier Roamer Service Agreement without the written consent of
the other party, except to an affiliate or an assignee of its license.
Under the Roaming Administrative Service Agreement dated as of July 17, 1998
between AWS and us, AWS has agreed to make available to us the benefits of the
intercarrier roaming services agreements it has entered into with certain other
wireless carriers, subject to the consent of such other wireless carriers and to
our remaining a member in good standing of the North American Cellular Network.
The Roaming Administrative Service Agreement has an initial term of two years,
which is automatically renewed on a year-to-year basis unless terminated by
either party upon 90 days' prior written notice. Either party
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may terminate the Roaming Administrative Service Agreement for any reason at any
time upon 180 days' prior written notice. Neither party may assign or transfer
its rights and obligations under the Roaming Administrative Service Agreement
without the written consent of the other party, except to an affiliate or an
assignee of its license, except that AWS may subcontract its duties thereunder.
Upon closing of the Digital PCS acquisition, the Intercarrier Roamer Service
Agreement was automatically amended to include the Baton Rouge, Houma, Hammond
and Lafayette BTAs under its scope. Upon closing of the Puerto Rico acquisition,
the Intercarrier Roamer Service Agreement was automatically amended to include
the San Juan MTA under its scope. Upon closing of the Wireless 2000 acquisition,
the Intercarrier Roamer Service Agreement was automatically amended to include
the Alexandria, Lake Charles and certain counties under the Monroe, Louisiana
BTAs under its scope.
Resale Agreement
The Stockholders' Agreement provides that, from time to time, we will enter
into a Resale Agreement with AT&T Wireless PCS or certain of its affiliates that
provides that we grant to AWS the right to purchase and resell access to, and
use of, our wireless services on a non-exclusive basis within a designated area.
AWS will pay charges for any services that are resold, including usage, roaming,
directory assistance and long distance charges, and taxes and tariffs, if any,
according to a specified rate schedule. Each Resale Agreement will have an
initial term of ten years that will be automatically renewed on a year-to-year
basis unless terminated by either party upon 90 days' prior written notice. AWS
will be able to terminate each Resale Agreement for any reason at any time upon
180 days' prior written notice.
In addition, AT&T has agreed to extend the terms of any Resale Agreement to
include the Baton Rouge, Houma, Hammond and Lafayette BTAs in connection with
the Digital PCS acquisition, the San Juan MTA in connection with the Puerto Rico
acquisition and the Alexandria, Lake Charles and certain counties under the
Monroe, Louisiana BTAs in connection with the Wireless 2000 acquisition.
Long Distance Agreement
Under the Long Distance Agreement dated as of December 21, 1998 between AWS
and us, we purchase interstate and intrastate long distance services from AWS at
preferred rates which we resell to our customers. These preferred rates are
contingent upon our continuing affiliation with AWS.
The Long Distance Agreement requires that we meet a minimum traffic volume
commitment during the term of the agreement, which may be up to three years. If
we fail to meet such volume commitments, we must pay to AWS the difference
between the expected fee based on the volume commitment and the fees based on
actual volume.
The long distance services we purchase from AWS may only be used in connection
with (1) our commercial mobile radio services, (2) calls that originate on our
network and (3) those commercial mobile radio services that share our switches.
Puerto Rico License
We acquired a 20 MHz A-Block PCS license and related assets covering the San
Juan MTA from AT&T Wireless PCS on May 25, 1999. The San Juan MTA covers
approximately 4 million Pops in Puerto Rico, as well as the U.S. Virgin Islands.
Under a Preferred Stock Purchase Agreement, on May 24, 1999, we sold to AT&T
$40.0 million of our preferred stock for cash. Under an Asset Purchase
Agreement, on May 25, 1999, we purchased the license and related assets from
AT&T for $95.0 million in cash. In addition, we reimbursed AT&T $3.2 million
for microwave relocation and $1.5 million for other expenses it incurred in
connection with the acquisition. Our agreements with AT&T were automatically
amended to include the San Juan MTA under the scope of those agreements.
Management Agreement
As of July 17, 1998, we entered into the Management Agreement with TeleCorp
Management, a company owned by Mr. Vento and Mr. Sullivan, for the provision of
certain administrative, operational, marketing, regulatory and general business
services by TeleCorp Management to us. TeleCorp Management receives an annual
fee of approximately $0.5 million and reimbursement of out-of-pocket expenses
from us, and is eligible for an annual bonus based upon achievement of certain
objectives determined by the compensation committee of our Board. In addition,
the Management Agreement provides that certain shares owned by Mr. Vento and Mr.
Sullivan vest based upon meeting minimum construction requirements. Mr. Vento
and Mr. Sullivan have agreed to devote substantially their entire business time
and attention to the services provided under the Management Agreement.
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The Management Agreement has a term of five years and may be terminated
earlier by either party in certain circumstances, including by us in the event
TeleCorp Management commits fraud, fails to maintain adequately our debt or one
of the principals of TeleCorp Management is indicted for a felony, and by
TeleCorp Management in the event Mr. Vento and Mr. Sullivan are removed from our
Board, or are demoted or their duties are materially diminished. TeleCorp
Management, Mr. Vento and Mr. Sullivan are subject to certain non-competition,
non-solicitation and confidentiality provisions upon termination of the
Management Agreement. In addition, we must repurchase certain of our shares
owned by Mr. Vento and Mr. Sullivan in the event of termination. For the 1998
fiscal year, we paid approximately $0.5 million for management services and
bonuses under the Management Agreement. See "Management--Management Agreement."
Other Related Party Transactions
Relationship with WFI/Entel Technologies and other Site Acquisition Service
Providers
We receive site acquisition, construction management, program management,
microwave relocation and engineering services under a master services agreement
with WFI/Entel Technologies. Payments under such agreement were approximately
$30.7 million in the 1998 fiscal year. At the time of entering into the master
services agreement, Mr. Vento was a senior officer, and he and Mr. Sullivan were
the controlling stockholders, of WFI/Entel Technologies. In February 1998, they
sold their interests in WFI/Entel Technologies.
Relationship with Certain of the Initial Purchasers of the Notes in the Original
Private Offering
Net proceeds of the original private offering of the Notes to us were
approximately $317.0 million, excluding our repayment of the Series B Notes to
Lucent. CSI and its affiliates perform various investment banking and
commercial banking services from time to time for us and our affiliates. CSI
acted as our lead manager for our offering of the Old Notes. The Chase
Manhattan Bank, an affiliate of CSI, is the agent bank and a lender under our
senior credit facilities. Mr. Michael R. Hannon, a member of our Board, is a
General Partner of Chase Capital Partners, an affiliate of CSI. In addition,
affiliates of Chase Capital Partners own a portion of our common stock. For
further information concerning these relationships, see "Management,"
"Securities Ownership of Certain Beneficial Owners and Management" and "Plan of
Distribution."
BT Alex. Brown Incorporated, one of the initial purchasers of the Old Notes,
is an affiliate of Bankers Trust Company, the documentation agent and one of the
lenders under our senior credit facilities for $525.0 million, as well as the
trustee under the indenture governing the Notes and the Exchange Agent. We have
also entered into certain other transactions with Bankers Trust Company. See
"Plan of Distribution."
Relationship with Tritel Communications
We have common stockholders with Tritel Communications and may be deemed
affiliates by virtue of such common ownership. Mr. Anderson and Mr. Fuqua, two
of our directors, also serve as directors of Tritel Communications. See
"Management." We have formed Affiliate License Co. with Tritel Communications
and Triton PCS to adopt a common brand, SunCom, that is co-branded with AT&T on
an equal emphasis basis. Under such agreement, we, Tritel Communications and
Triton PCS each own one third of Affiliate License Co., the owner of the SunCom
name. We and the other SunCom companies license the SunCom name from Affiliate
License Co. Mr. Sullivan is a director of Affiliate License Co.
Relationship with Triton PCS
We have common stockholders with Triton PCS and may be deemed affiliates by
virtue of such common ownership. Ms. Hawkins Key and Mr. Anderson, two of our
directors, also serve as directors of Triton PCS. See "Management." We have
formed Affiliate License Co. with Triton PCS and Tritel Communications to adopt
a common brand, SunCom, that is co-branded with AT&T on an equal emphasis basis.
Under such agreement, we, Triton PCS and Tritel Communications each own one
third of Affiliate License Co., the owner of the SunCom name. We and the other
SunCom companies license the SunCom name from Affiliate License Co. Triton PCS
transferred its ownership of the SunCom name to Affiliate License Co. for
approximately $0.6 million. Mr. Sullivan is a director of Affiliate License Co.
Relationship with Other Entities
TeleCorp Holding, our predecessor company, was incorporated on July 29, 1996
to participate in the FCC's auction of F-Block licenses in April 1997. TeleCorp
Holding raised money from investors to develop any such licenses it obtained in
such auction. TeleCorp Holding successfully obtained licenses in the New
Orleans, Memphis, Beaumont, Little Rock, Houston, Tampa, Melbourne and Orlando
BTAs. In August 1997, TeleCorp Holding transferred the Houston, Tampa, Melbourne
and
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Orlando BTAs to four newly-formed entities created by TeleCorp Holding's
stockholders: THC of Houston; THC of Tampa; THC of Melbourne; and THC of
Orlando; and issued notes in the aggregate amount of approximately $2.7 million
to such entities to develop such licenses. TeleCorp Holding performed certain
administrative and management services and paid costs on behalf of such entities
for the year ended December 31, 1997, worth the aggregate amount of $0.7
million. In 1998, upon the closing of the agreements with AT&T TeleCorp Holding
paid approximately $2.0 million to the entities as payment of the notes, offset
by the approximately $0.7 million in services and costs. We, TeleCorp Holding,
THC of Houston, THC of Tampa, THC of Melbourne, THC of Orlando, TeleCorp WCS and
Telecorp LMDS have common stockholders in Mr. Sullivan and Mr. Vento.
On May 5, 1997, TeleCorp Holding lent approximately $3.0 million to TeleCorp
WCS, Inc. in exchange for interest-free notes from TeleCorp WCS. On May 5,
1997, TeleCorp Holding received equity investments in exchange for the right to
receive (1) the notes from TeleCorp WCS, (2) any cash, notes or other assets
received by TeleCorp Holding on behalf of the notes or (3) any capital stock
into which the notes were converted. TeleCorp WCS repaid approximately $2.7
million of the notes with cash to TeleCorp Holding, and TeleCorp Holding
forwarded such cash to the equity investors. TeleCorp WCS issued a note in the
amount of approximately $0.3 million directly to the investors on behalf of the
remaining $0.3 million outstanding under the notes. TeleCorp WCS converted such
notes into capital stock issued to the investors.
Mr. Sullivan and Mr. Vento are stockholders in us, TeleCorp Holding and
TeleCorp WCS.
Viper Wireless was formed to participate in the FCC's reauction of C-Block PCS
licenses in most of our markets. TeleCorp Holding owns 85% of Viper Wireless,
and Mr. Vento and Mr. Sullivan collectively own the remaining 15%. AT&T and
certain of our cash equity investors have committed an aggregate of
approximately $32.3 million in exchange for additional shares of our preferred
and common stock if Viper Wireless is the successful bidder in the reauction.
AT&T and the investors funded approximately $6.5 million of their commitment on
May 14, 1999, and approximately $25.8 million will be funded when we make
payments to the FCC with respect to these licenses, or if the FCC does not
refund amounts we paid to them as deposits in connection with the reauction
within 180 days of the date of deposit. The FCC has made additional PCS
spectrum available through a reauction of certain C-Block and other licenses
returned to, or repossessed by, the FCC. We participated in this for additional
spectrum through Viper Wireless. On April 20, 1999, the FCC announced that the
reauction ended, and Viper Wireless was the higher bidder for additional
spectrum in New Orleans, Houma and Alexandria, Louisiana, San Juan, Puerto Rico,
Jackson, Tennessee and Beaumont, Texas. On June 3, 1999, a petition was filed
by certain secured creditors of DCR PCS and Pocket Communications against the
application of Viper Wireless for the Houma and New Orleans licenses. The
petition seeks deferral of the grant of these licenses to Viper Wireless until
an appeal, by the secured creditors of DCR PCS and Pocket Communications has
been resolved or in the alternative, a condition noting that a pre-existing
claim to the licenses may exist if the secured creditors are successful in that
appeal. The appeal seeks review of the bankruptcy court's ruling concerning DCR
PCS and Pocket Communications permitting DCR PCS to file its election notice,
which ultimately resulted in the return of these licenses to the FCC, over the
objection of the secured creditors of DCR PCS and Pocket Communications. Viper
Wireless filed an opposition to the petition on June 15, 1999.
Relationship with Toronto Dominion
Toronto Dominion Investments, a Cash Equity Investor, and TD Securities (USA),
a lender under our senior credit facilities for $525.0 million, may be deemed to
be under common control.
Relationships with Stockholders
From inception through June 1998, our primary source of financing was notes
issued to our stockholders. In July 1996, we issued $0.5 million of subordinated
promissory notes to our stockholders. These notes were converted into 50 shares
of our Series A Preferred Stock in April 1997. In December 1997, we issued
various promissory notes to our stockholders. These notes were converted into
mandatorily redeemable preferred stock in July 1998. From January 1, 1998 to
June 30, 1998, we borrowed approximately $22.5 million in the form of promissory
notes to existing and prospective stockholders to satisfy working capital needs.
These notes were converted into equity of TeleCorp in July 1998 in connection
with the consummation of the venture with AT&T.
Relationship with McDermott, Will & Emery
We use the services of a law firm, McDermott, Will & Emery, to which Mr.
Sullivan, our Executive Vice President, Chief Financial Officer and a member of
our Board, is counsel. Prior to July 1998, Mr. Sullivan was a partner of
McDermott, Will & Emery. For the 1998 fiscal year we paid McDermott, Will &
Emery approximately $2.1 million.
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CERTAIN INDEBTEDNESS
Senior Credit Facilities
On July 17, 1998 (the "Senior Credit Facilities Effective Date"), we
entered into senior credit facilities for $525.0 million (the "Senior Credit
Facilities") with certain lenders (the "Lenders"), including The Chase Manhattan
Bank, as administrative agent and issuing bank, TD Securities (USA) Inc., as
syndication agent, and Bankers Trust Company, as documentation agent (the credit
agreement governing the Senior Credit Facilities, the "Senior Credit
Agreement"). The Senior Credit Facilities provide for (1) a $150.0 million
senior secured term loan (the "Tranche A Term Loan"), which matures in January
2007, (2) a $225.0 million senior secured term loan (the "Tranche B Term Loan,"
and together with the Tranche A Term Loan, the "Term Loans"), which matures in
January 2008, (3) a $150.0 million senior secured revolving credit facility (the
"Revolving Credit Facility," and together with the Term Loans, the "Senior
Facilities"), which matures in January 2007 and (4) an uncommitted $75.0 million
senior secured term loan in the form of an expansion facility (the "Expansion
Facility," and together with the Senior Facilities, the "Facilities"), which
will mature no sooner than January 2008.
The Tranche A Term Loan must be repaid, beginning in September 2002, in 18
consecutive quarterly installments. The amount of each of the first six
installments is $3.75 million. The amount of each of the next four installments
is $9.4 million. The amount of each of the last eight installments is $11.25
million. The Tranche B Term Loan is required to be repaid, beginning in
September 2002, in 22 consecutive quarterly installments. The amount of each of
the first 18 installments is $0.6 million. The amount of each of the last four
installments is $54.0 million. The commitment to make loans under the Revolving
Credit Facility ("Revolving Credit Loans," and together with the Term Loans, the
"Loans") automatically and permanently is reduced, beginning in April 2005 after
the Senior Credit Facilities Effective Date, by virtue of eight consecutive
quarterly reductions. The amount of each of the first four reductions is $12.5
million. The amount of each of the last four reductions is $25.0 million.
We may select the rate at which interest accrues on all Loans. We may
choose a "Eurodollar Loan," which accrues at LIBOR, multiplied by the ratio of
which one is the numerator and one minus the aggregate of maximum reserve
percentages (including any marginal, special, emergency or supplemental
reserves) expressed as a decimal established by the Board of Governors of the
Federal Reserve system that applies to the administrative agent regarding
eurocurrency funding is the denominator, and added to the Applicable Margin. The
"Applicable Margin" in the case of Eurodollar Loan means:
. a rate between 1.25% and 2.75% per annum, depending upon our
leverage ratio, with respect to the Tranche A Term Loan and the
Revolving Credit Loans; and
. 3.25% per annum, with respect to the Tranche B term loan.
Alternatively, we may choose an "ABR Loan," which accrues at the higher of
either the Administrative Agent's prime rate and the Federal Funds Effective
Rate (as defined in the Senior Credit Agreement) plus 0.50% plus the Applicable
Margin. "Applicable Margin" in the case of an ABR Loans means:
. a rate between 0.25% and 1.75% per annum, depending on our leverage
ratio with respect to the Tranche A Term Loan and the Revolving
Credit Loans; and
. 2.25% per annum, with respect to the Tranche B Term Loan.
Interest on any overdue amounts will accrue at a rate per annum equal to
2.00% plus the rate otherwise applicable to such amounts.
The terms of the Senior Credit Facilities require us to pay an annual
commitment fee between 0.50% and 1.25%, depending on the percentage drawn, of
the unused portion of the Revolving Credit Facility. The Tranche A Term Loan and
Tranche B Term Loan are payable quarterly in arrears, and a separate agent's fee
is payable to the administrative agent. The Senior Credit Facilities also
require us to purchase an interest rate hedging contract covering an amount
equal to at least 50% of the total amount of our outstanding indebtedness,
excluding indebtedness which earns interest at a fixed rate.
The Tranche A Term Loan automatically will be reduced to the extent its
undrawn portion exceeds $50.0 million in July 2000 by the amount of such excess.
The Term Loans will be prepaid, and commitments under the Revolving Credit
Facility will be reduced, in an aggregate amount equal to:
(1) 50% of the excess cash flow of each fiscal year commencing with the
fiscal year ending December 31, 2001;
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(2) 100% of the net proceeds of asset sales outside of the ordinary course
of business, in excess of a $1.0 million annual threshold, or unused insurance
proceeds;
(3) 100% of the net cash proceeds of issuances of debt obligations (other
than debt obligations permitted by the Senior Credit Agreement, including the
issuance of the Notes); and
(4) 100% of the net cash proceeds of issuances of equity securities (other
than in connection with the Cash Equity);
provided that the prepayments and reductions set forth under clauses (3) and (4)
will not be required if, after giving effect to such issuance, (A) our leverage
ratio would be less than 5.0 to 1.0 and (B) in the case of clause (4), we would
be in pro forma compliance with each covenant contained in the Senior Credit
Agreement.
We may establish the Expansion Facility so long as, both before and after
giving effect to it, no default exists under the Senior Credit Agreement and we
are in pro forma compliance with each of the financial covenants contained in
the Senior Credit Agreement. No Lender is required to participate in the
Expansion Facility. Each of our existing and future domestic subsidiaries
unconditionally guarantees all our obligations under the Senior Credit
Facilities (the "Credit Facility Subsidiary Guarantees"). The Facilities and
the Credit Facility Subsidiary Guarantees, and any related hedging contracts
provided by the Lenders under the Senior Credit Facilities, are secured by
substantially all of our assets and the assets of each of our existing and
future domestic subsidiaries, including a first priority pledge of all of the
capital stock held by us or any of our subsidiaries; provided that the pledge of
shares of foreign subsidiaries will be limited to 65% of the outstanding shares
of such foreign subsidiaries. Under the Senior Credit Facilities, no action may
be taken against our licenses unless and until the requisite approval is
obtained from the FCC. We have organized special purpose subsidiaries to hold
our licenses, our real property and our equipment. Each such single purpose
subsidiary is prohibited from incurring any liabilities or obligations other
than:
. the Credit Facility Subsidiary Guarantee issued by it;
. obligations under the security agreement entered into by it in
connection with the Senior Credit Facilities;
. obligations resulting from regulatory requirements; or
. taxes and liabilities incurred in the ordinary course of its
business incident to its business or necessary to maintain its
existence.
The Senior Credit Agreement contains covenants customary for facilities
similar to the Senior Credit Facilities, including covenants that restrict,
among other things:
. the incurrence of indebtedness and the issuance of certain equity
securities;
. the creation of liens;
. sale and lease-back transactions, mergers, consolidations and
liquidations;
. certain investments, loans, guarantees, advances and acquisitions;
. sales of assets;
. hedging agreements;
. certain payments, including the payment of dividends or
distributions in respect of capital stock and prepayments of the
Notes;
. certain transactions with affiliates;
. the entering into of certain restrictive agreements; and
. the amendment of certain material agreements.
The Senior Credit Agreement requires us to maintain certain ratios,
including:
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. a senior debt to capital ratio;
. a senior debt to EBITDA ratio;
. a total debt to EBITDA ratio;
. an interest coverage ratio; and
. a fixed charges ratio;
and to satisfy certain tests, including tests relating to:
. the minimum population covered by our network;
. the minimum number of subscribers to our services;
. the minimum aggregate service revenue per subscriber; and
. limits on capital expenditures.
In particular, we may not permit the following ratio to exceed 0.5 to 1.0:
the numerator is senior debt and the denominator is the sum of (1) all of our
indebtedness and the indebtedness of our subsidiaries which matures, in more
than one year, whether, by its terms renewal or extension, plus (2) certain
equity contributions, plus (3) commitments of the Cash Equity Investors to
purchase shares of our capital stock under the Securities Purchase Agreement.
The denominator is known as "Total Capital." However, if (1) the Cash
Equity Investors have satisfied in full in cash all commitments to purchase
shares of our capital stock under the Securities Purchase Agreement and (2) our
network is substantially complete in markets that cover more than 60% of the
aggregate number of residents within the areas that our licenses cover, the
ratio of senior debt to Total Capital may exceed 0.5 to 1.00, but may not exceed
0.55 to 1.00. In the above contingency, the aggregate number of residents are as
determined by the Donnelley Marketing Service Guide published in 1995. The
Senior Credit Agreement also contains customary representations, warranties,
indemnities, conditions precedent to borrowing and events of default.
Borrowings under the Senior Credit Facilities are available to finance
capital expenditures related to the construction of our network, the acquisition
of related businesses, working capital needs and subscriber acquisition costs.
Vendor Financing
In May 1998, we entered into a vendor procurement contract (the
"Procurement Contract") with Lucent, under which we agreed to purchase radio,
switching and related equipment and services for the development of our network.
In connection with the Procurement Contract, Lucent agreed to provide us with
$80.0 million of junior subordinated vendor financing. In addition, Lucent has
agreed to make available up to an additional $80.0 million of junior
subordinated vendor financing in amounts up to 30% of the value of equipment,
software and services provided by Lucent in connection with any additional
markets we acquire (the "Vendor Expansion Facility"). We have $15.0 million of
availability under the Vendor Expansion Facility agreement as a result of the
Puerto Rico acquisition. The expiration date for any notes issued under the
Vendor Expansion Facility is the date which is six months after the scheduled
maturity of the Notes.
Under a Note Purchase Agreement dated as of May 11, 1998 (the "Note
Purchase Agreement"), between Lucent and us, we have issued to Lucent $40.0
million aggregate principal amount of Series A Notes due 2012. All proceeds from
the sale of these notes are to be used to develop our network in certain
designated areas.
We had also issued to Lucent $40.0 million aggregate principal amount of
Series B Notes due 2012. We repaid these notes with the proceeds from the
offering of the Old Notes. Upon the consummation of the offering of the Old
Notes, Lucent's commitment to provide us with $40.0 million of Series B notes
terminated.
We have a commitment from Lucent to purchase an additional $7.5 million of
Series A Notes and $7.5 million of Series B Notes under to the Vendor Expansion
Facility in connection with the Puerto Rico acquisition. The obligation of
Lucent to purchase notes under the Vendor Expansion Facility is subject to a
number of conditions, including the requirement that we have
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received certain cash equity contributions in respect of each additional market
and that we irrevocably commit to purchase one mobile switching center and 50
base stations for each additional market from Lucent.
The original $40.0 million principal amount of the Series A Notes is due in
2012, but is subject to mandatory prepayment on a dollar for dollar basis out of
the proceeds of future equity offerings in excess of $130.0 million (exclusive
of the $5.0 million of equity to be contributed in connection with the Louisiana
acquisitions). Any Series A Notes issued under the Vendor Expansion Facility
will mature six months after the Notes, but will be subject to mandatory
prepayment on a dollar for dollar basis out of the proceeds of future equity
offerings in excess of $175.7 million (exclusive of all cash equity received in
the Transactions).
Any Series B Notes issued under the Vendor Expansion Facility will mature
six months after the Notes, but in no event later than May 1, 2012, 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 borrowings under the Credit Agreement).
The Series A Notes, including any Series A Notes issued under the Vendor
Expansion Facility, will initially accrue interest at a rate of 8.5% per annum.
If the Series A Notes are not redeemed in full on or prior to January 1, 2001,
the rate will increase by 1.5% per annum on each January 1 thereafter, beginning
January 1, 2002, provided that the maximum interest rate will not exceed 12 1/8%
which is 50 basis points per annum over the initial yield on the Notes. Interest
on the Series A Notes will be payable semi-annually, provided that prior to May
11, 2004, interest will be payable in additional Series A Notes and thereafter
will be payable in cash, unless prohibited by the Senior Credit Facilities or
the indenture governing the Notes.
Any Series B Notes issued under the Vendor Expansion Facility will
initially accrue interest at a rate of 10% per annum. If the Series B Notes are
not redeemed in full on or prior to January 1, 2000, the rate will increase by
1.5% per annum on each January 1 thereafter beginning on January 1, 2001,
provided that the maximum interest rate will not exceed 12 1/8% which is 50
basis points per annum over the initial yield on the Notes. Interest on the
Series B Notes will be payable semi-annually, provided that prior to May 11,
2004, interest will be payable in additional Series B Notes and thereafter will
be payable in cash unless prohibited by the terms of the Senior Credit
Facilities or the indenture governing the Notes.
Upon a change of control as defined by the Note Purchase Agreement, the
Series A and Series B Notes must be repaid at their principal amount plus a
premium. The Series A and Series B may not be prepaid, however, if prohibited by
the terms of the Senior Credit Facilities, the indenture governing the Notes or
other indebtedness that ranks senior to the Series A and Series B Notes. In the
event a change of control occurs prior to May 1, 2002 in the case of the Series
A Notes, or in the case of the Series B Notes, May 1, 2000, the Series A and
Series B Notes may be prepaid in accordance with the optional prepayment
provisions.
Under the Note Purchase Agreement, Lucent may not engage in any remarketing
efforts of the Series A or Series B Notes, or unused commitments relating to the
Series A or Series B Notes, prior to January 23, 2000. If Lucent has not
completed certain sales in respect of Series A or Series B Notes then
outstanding prior to January 1, 2003, we must pay Lucent up to 3% of the then
outstanding principal amount of all Series A and Series B Notes to defray any
actual marketing distribution and other costs incurred by Lucent in connection
with any such sales remarketing.
The Series A Notes may be prepaid without payment of a premium at any time
prior to May 1, 2002. In addition, the Series A note may be prepaid at any time
after May 1, 2002 without payment of a premium to the extent Lucent or its
affiliates have retained them. The Series B Notes may be prepaid without payment
of a premium at any time prior to May 1, 2000. In addition, the Series B Notes
may be prepaid at any time after May 1, 2000 without payment of a premium to the
extent Lucent or its affiliates have retained them.
If we are subject to any bankruptcy or related procedures or there is any
default in the payment of our debt, including borrowings under the Senior Credit
Facilities and the Notes, that ranks senior in right of payment to the Series A
and Series B Notes, we will pay the senior debt in full before we make payments
on the Series A and Series B Notes. If a non-payment default occurs with
respect to any such debt, the holders of more than $25.0 million principal
amount of such debt may declare a payment blockage period of up to 179 days.
Events of default under the Note Purchase Agreement include, subject to
certain cure periods:
. the failure to pay principal or interest under such agreement when
due;
. violation of covenants;
. inaccuracy of representations and warranties;
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. cross-default for other indebtedness;
. bankruptcy;
. material judgments; and
. termination of the Procurement Contract.
Government Debt
In connection with our purchase of our F-Block licenses, we issued to the
FCC secured installment payment plan notes in an aggregate principal amount of
$9.2 million (the "FCC Notes"). This debt is shown on our balance sheet net of a
discount of $1.2 million reflecting the below market interest rate on the debt.
The FCC Notes are due April 28, 2007, and bear interest at a rate of 6.25% per
annum. In addition, we assumed $4.1 million in aggregate principal amount of
additional secured installment payment plan notes in connection with the Digital
PCS acquisition (the "Digital PCS Notes"). This debt is shown on our balance
sheet net of a discount of $0.7 million reflecting the below market interest
rate on the debt. The Digital PCS Notes are due August 21, 2007, and bear
interest at a rate of 6.125% per annum. In connection with the Wireless 2000
acquisition, we assumed $7.4 million in aggregate principal amount of additional
secured installment payment plan notes (the "Wireless 2000 Notes"). This debt is
shown on our balance sheet net of a discount of $1.3 million reflecting the
below market interest rate on the debt. The Wireless 2000 Notes are due
September 17, 2006, and bear interest at a rate of 7.0% per annum. A security
agreement secures the FCC Notes, Wireless 2000 Notes and Digital PCS Notes,
which grants the FCC a first priority security interest in the license for which
the applicable note was issued. In the event of a default under the FCC Notes,
Wireless 2000 Notes or Digital PCS Notes, the FCC may revoke the licenses for
which such defaulted notes were issued.
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock, as set forth in our restated certificate of
incorporation dated April 20, 1999, consists of:
. 1,904,010 shares of common stock, par value $0.01 per share, consisting of:
. 950,000 shares of Class A Common Stock
. 950,000 shares of Class B Common Stock
. 1,000 shares of Class C Common Stock
. 3,000 shares of Class D Common Stock
. 10 shares of Voting Preference Common Stock
. 715,000 shares of preferred stock, par value $0.01 per share, consisting
of:
. 100,000 shares of Series A Preferred Stock
. 200,000 shares of Series B Preferred Stock
. 215,000 shares of Series C Preferred Stock
. 50,000 shares of Series D Preferred Stock
. 30,000 shares of Series E Preferred Stock
. 50,000 shares of Series F Preferred Stock
. 70,000 shares of Senior Common Stock
As of May 31, 1999, and after giving pro forma effect to the Transactions, our
outstanding capital stock consisted of:
. 236,824 shares of Class A Common Stock
. 919 shares of Class C Common Stock
. 2,755 shares of Class D Common Stock
. 10 shares of Voting Preference Common Stock
. 97,473 shares of Series A Preferred Stock
. 210,608 shares of Series C Preferred Stock
. 49,417 shares of Series D Preferred Stock
. 24,150 shares of Series E Preferred Stock
. 48,261 shares of Series F Preferred Stock
The following summaries of certain provisions of the common stock and the
preferred stock are not complete and are subject to, and qualified in their
entirety by, the provisions of our restated certificate of incorporation and
bylaws. Subject to any required approval of holders of any shares of any class
or series of preferred stock, our Board has the power, by resolution, to issue
additional shares of preferred stock with such preferences, rights and
designations as it shall determine.
Voting Rights
Subject to the rights of specific classes of stock to vote as a class on
certain matters, the holders of the Class A Common Stock are entitled to
4,990,000 votes and the holders of Voting Preference Common Stock are entitled
to 5,010,000 votes of all outstanding capital stock. No other class of capital
stock has the right to vote on any matter except as required by law. In
addition, for so long as AT&T and its affiliates continue to hold at least two-
thirds of the shares of Series A Preferred Stock they held as of May 14, 1999,
they will be entitled, but not obliged, to nominate two of our directors. After
an initial public offering of our securities, or after the special voting rights
of Voting Preference Common Stock are eliminated, they may nominate only one
director.
Our restated certificate of incorporation provides that, except where a
class of capital stock has the right to vote as a class, a quorum shall be
present so long as a majority of the outstanding Voting Preference Common Stock
and shares representing at least 5,010,000 votes are present. When a class vote
is required, a majority of such class must also be present. Further, any action
not requiring a class vote may be approved by the affirmative vote of a majority
of Voting Preference Common Stock present at any meeting where a quorum is
present.
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The holders of each class of preferred stock have the right to vote as a class
on any measure to:
. authorize or issue any shares senior to or on a parity with such
class;
. amend our restated certificate of incorporation to change any of the
characteristics of such class; or
. authorize or issue any security convertible into, exchangeable for or
granting the right to purchase or otherwise receive any shares of
stock senior to or on a parity with such class.
The majority of each such class of preferred stock must affirmatively vote to
act.
Subject to any class voting requirements, shares of Common Stock
representing at least two-thirds of the votes entitled to be cast for the
election of our directors must affirmatively vote for any amendment, alteration
or repeal of our certificate of incorporation or bylaws.
If (1) we receive an opinion of regulatory counsel that Class A Common
Stock and Voting Preference Common Stock can vote and be treated as a single
class of stock for quorum purposes and have one vote per share, (2) not less
than two-thirds of the outstanding Class A Common Stock affirmatively vote for
such single class status, and (3) our Board has not determined that it is likely
to be detrimental to us, we will seek the approval of the FCC to have Class A
Common Stock and Voting Preference Common Stock vote and be treated together as
a single class with one vote per share.
Certain of our stockholders have entered into agreements (including the
Stockholders' Agreement and the Investors Stockholders' Agreement dated as of
July 17, 1998 among the Cash Equity Investors and the Management Stockholders)
regarding the voting of their shares on certain matters, including the election
of directors. See "Certain Relationships and Related Transactions--The AT&T
Agreements--Stockholders Agreement."
Conversion
After July 17, 2006, holders of Series A Preferred Stock may convert their
shares into shares of Class A Common Stock at a conversion rate equal to the
liquidation preference of Series A Preferred Stock divided by the market price
of Class A Common Stock.
On the date of an initial public offering of our capital stock, we may
convert shares of Series C Preferred Stock and Series E Preferred Stock into
shares of Common Stock at a conversion rate equal to the liquidation preference
of Series C Preferred Stock or Series E Preferred Stock, as applicable, divided
by the initial public offering price. If we convert Series C Preferred Stock to
shares of Common Stock on the date of an initial public offering of our capital
stock, shares of Series D Preferred Stock will be automatically converted into
shares of Senior Common Stock on that date at a rate equal to the liquidation
preference of Series D Preferred Stock divided by the initial public offering
price.
At any time, holders of Series F Preferred Stock may convert each share
into one share of Class A Common Stock or Class B Common Stock; provided, that,
until the happening of certain events, the first 631.27 of such shares to be
converted are convertible into shares of Class D Common Stock. If we convert
Series C Preferred Stock into Common Stock upon an initial public offering of
our capital stock, each share of Series F Preferred Stock will be automatically
converted into one share of Senior Common Stock.
At any time, holders of Senior Common Stock may convert each share into one
share of Class A Common Stock or Class B Common Stock; provided, that, until the
happening of certain events, the first 631.27 of such shares to be converted are
convertible into shares of Class D Common Stock.
At any time, holders of Class A Common Stock and Class B Common Stock may
convert their shares into shares of the other class.
If we receive an opinion of counsel that Class A Common Stock and Voting
Preference Common Stock can vote and be treated as a single class of stock with
one vote per share, then, unless our Board shall determine that it is likely to
be detrimental to us, holders of Class C Common Stock and Class D Common Stock
may convert their shares into shares of Class A Common Stock or Class B Common
Stock.
All conversions are subject to obtaining any required FCC approvals.
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Redemption
We have the right to redeem certain of our capital stock as follows:
. Shares of Series A Preferred Stock: following 30 days after the
10th anniversary of issuance at the liquidation preference the
Series A preferred Stock;
. Shares of Series B Preferred Stock: at any time at the
liquidation preference of the Series Preferred Stock; and
. Shares of Series C Preferred Stock and Series D Preferred Stock:
at any time at the liquidation preferences of Series C Preferred
Stock and Series D Preferred Stock; provided, that if we redeem
any shares of either Series C Preferred Stock or Series D
Preferred Stock, we must redeem a proportionate number of shares
of the other.
In addition, the holders of certain classes of capital stock have the right
to require us to redeem their shares as follows:
. Holders of Series A Preferred Stock or Series B Preferred Stock:
following the 30th day after the 20th anniversary of issuance at
the liquidation preference of the Series A Preferred Stock or
Series B Preferred Stock; and
. Holders of Series C Preferred Stock, Series D Preferred Stock or
Series E Preferred Stock: following the 30th day after the 20th
anniversary of issuance at the liquidation preference therefor
Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock.
Neither we nor any holder of shares of any class of our capital stock may
cause us to redeem our capital stock if, at such time:
. we are insolvent or will be rendered insolvent by such
redemption; or
. law or any of our agreements prohibits such redemption.
Further, our restated certificate of incorporation restricts our ability to
redeem any shares of capital stock to the extent shares of capital stock ranking
senior to or on a parity with such shares remain outstanding or dividends on
such senior or parity shares have not been paid in full.
Our restated certificate of incorporation also provides for our redemption
of any shares of our capital stock that is held by stockholders whose holding of
such shares, in the opinion of our Board, may result in the loss of, or failure
to obtain the reinstatement of, any of our licenses or franchises.
The Management Agreement provides for the redemption by us of certain
shares of Class A Common Stock and Series E Preferred Stock held by Mr. Vento
and Mr. Sullivan in certain circumstances. See "Management--Management
Agreement."
Ranking
With respect to the payment of dividends and distributions upon our
liquidation, dissolution or winding up, classes of our preferred stock ranks as
follows:
- ---------------------------------------------------------------------------------------------------------------------------------
Class of Stock Parity with Junior to Senior to
- ---------------------------------------------------------------------------------------------------------------------------------
Series A Preferred Series B Preferred None Series C Preferred
Series D Preferred
Series E Preferred
Series F Preferred
Senior Common Stock
Common Stock
- ---------------------------------------------------------------------------------------------------------------------------------
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- ----------------------------------------------------------------------------------------------------------------------------------
Class of Stock Parity with Junior to Senior to
- ----------------------------------------------------------------------------------------------------------------------------------
Series B Preferred Series A Preferred None Series C Preferred
Series D Preferred
Series E Preferred
Series F Preferred
Senior Common Stock
Common Stock
- ----------------------------------------------------------------------------------------------------------------------------------
Series C Preferred Series D Preferred Series A Preferred and Series Series E Preferred
(except when a statutory B Preferred Stock Series F Preferred
liquidation ) Series D Preferred (only upon Senior Common Stock
Common Stock (only with a statutory liquidation) Common Stock (only with
respect to dividends) respect to dissolution,
liquidation and winding up)
- ---------------------------------------------------------------------------------------------------------------------------------
Series D Preferred Series C preferred Series A Preferred Series C Preferred
(except when a statutory Series B Preferred (only upon a statutory
liquidation) liquidation)
Common Stock (only with Series E Preferred
respect to dividends) Series F Preferred
Senior Common Stock
Common Stock (only with
respect to dissolution,
liquidation and winding up)
- ---------------------------------------------------------------------------------------------------------------------------------
Series E Preferred Common Stock (only with Series A Preferred Series F Preferred
respect to dividends) Series B Preferred Senior Common Stock
Series C Preferred Common Stock
Series D Preferred
- ---------------------------------------------------------------------------------------------------------------------------------
Series F Preferred Senior Common Stock Series A Preferred Common Stock
Common Stock (except when a Series B Preferred (only upon a statutory
statutory liquidation) Series C Preferred liquidation)
Series D Preferred
Series E Preferred
- ---------------------------------------------------------------------------------------------------------------------------------
Senior Common Stock Series F Preferred Series A Preferred Common Stock
Series B Preferred
Series C Preferred
Series D Preferred
Series E Preferred
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends
The holders of Series A Preferred Stock and Series B Preferred Stock are
entitled to receive annual dividends equal to 10% of the liquidation preference
related to their shares; provided that so long as any shares of Series A
Preferred Stock or Series B Preferred Stock are outstanding, no dividends may be
paid on any shares of any class of capital stock ranking junior to Series A
Preferred Stock or Series B Preferred Stock. Dividends accrue from the date of
issuance of the shares and are payable quarterly, provided that we have the
option to defer payments for up to ten and one-half years from the date of
issuance.
The holder of Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock, Series F Preferred Stock and Senior Common Stock are entitled
to dividends as declared by our Board.
Subject to the rights of the holders of the Preferred Stock, our Board may
declare dividends on the Common Stock; provided, that dividends on Class C
Common Stock and Class D Common Stock may only be paid up to the amount by which
funds legally available for such dividends exceed the excess of (1) fair market
value of the assets of TeleCorp Holding less TeleCorp Holding's liabilities over
(2) the aggregate par value of Class C Common Stock and Class D Common Stock, at
our Board's discretion. Dividends may only be paid on the other classes of
Common Stock up to the amount legally available after subtracting the maximum
amount payable in respect of Class C Common Stock and Class D Common Stock, at
our Board's discretion.
We may not pay dividends on any shares of any class of our capital stock
if, at such time:
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. we are insolvent or will be rendered insolvent by such payments;
or
. law or any of our agreements prohibits such dividend payments.
Further, our restated certificate of incorporation restricts our ability to pay
any dividends on any class of capital stock to the extent shares of capital
stock ranking senior to or on a parity with such class remain outstanding or
dividends on such senior or parity shares have not been paid in full.
Liquidation Preference
The holders of Preferred Stock are entitled to certain preferences with
respect to distributions upon our liquidation, dissolution or winding up as
follows:
. Holders of Series A Preferred Stock and Series B Preferred Stock
are entitled to a preference per share equal to $1,000 plus
accrued and unpaid dividends on such shares.
. Holders of Series C Preferred Stock are entitled to a preference
per share equal to the paid-in capital per share of Series C
Preferred Stock together with interest on $1,000 from the date of
issuance at a rate of 6% per annum, compounded quarterly, less
the amount of any dividends paid on such share, plus accrued and
unpaid dividends.
. Holders of Series D Preferred Stock are entitled to a preference
per share equal to $1,000 together with interest thereon from the
date of issuance at rate of 6% per annum, compounded quarterly,
less the amount of any dividends paid on such share, plus accrued
and unpaid dividends.
. Holders of Series E Preferred Stock are entitled to a preference
per share equal to the amount of accrued and unpaid dividends on
such share, together with interest on $1,000 from the date of
issuance at a rate of 6% per annum, compounded quarterly, less
the amount of any dividends declared and paid on such share.
. Holders of Series F Preferred Stock are entitled to a preference
equal to $.01 plus accrued and unpaid dividends on such shares.
. Holders of Senior Common Stock are entitled to a preference per
share equal to the liquidation preference associated with the
shares of Series D Preferred Stock for all shares of Series D
Preferred Stock converted into Senior Common Stock plus the
liquidation preference associated with the shares of Series F
Preferred Stock for all shares of Series F Preferred Stock
converted into Senior Common Stock, divided by the number of
shares of Senior Common Stock into which shares of Series D
Preferred Stock and Series F Preferred Stock were converted.
Following payment of all amounts payable to the holders of Preferred Stock
upon our liquidation, dissolution or winding up, the holders of Class C Common
Stock and Class D Common Stock shall be entitled to receive the fair market
value of the assets of TeleCorp Holding less TeleCorp Holding's liabilities.
The holders of the other classes of Common Stock shall be entitled to receive
the remaining amounts available for distribution.
Transfer Restriction
Certain of our stockholders have entered into agreements that restrict
transfer of their shares and provide for the happening of certain events, such
as share conversions. See "Certain Relationships and Related Transactions--AT&T
Agreements" and "--Management Agreement."
Our restated certificate of incorporation provides that, upon the happening
of certain events described in the Stockholders' Agreement, we have the right to
exchange all or certain of the shares of Series A Preferred Stock, Series D
Preferred Stock, Series F Preferred Stock, Senior Common Stock and Common Stock
held by AT&T for an equal number of shares of Series B Preferred Stock. See
"Certain Relationships and Related Transactions--AT&T Agreements."
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DESCRIPTION OF THE NOTES
General
As used in this section entitled "Description of the Notes," the terms
"we," "us" and "our" means TeleCorp PCS, Inc., a Delaware corporation, but does
not include any of our subsidiaries. Capitalized terms used in this section and
not otherwise defined have the meanings set forth under "--Certain Definitions."
The Old Notes have been and the Exchange Notes will be, upon request, from
us issued under the Indenture, dated as of April 23, 1999 (the "Indenture"),
among us, TeleCorp Communications, as our subsidiary guarantor, and Bankers
Trust Company, as Trustee (the "Trustee"), a copy of which is available.
The following summary of certain provisions of the Indenture, the Old Notes
and the Exchange Notes is not complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Indenture, including the
definitions of certain terms in and those terms made a part of the Indenture and
the Notes by the TIA.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at our office or agency in the
Borough of Manhattan, The City of New York (which initially shall be the
corporate trust office of the Trustee, at 4 Albany Street, New York, New York
10006), except that, at our option, payment of interest may be made by check
mailed to the registered holders of the Notes at their registered addresses.
The Notes are and will be issued only in fully registered form, without
coupons, in denominations of $1,000 and integral multiples of $1,000. No
service charge will be made for any registration of transfer or exchange of
Notes, but we may require payment of a sum sufficient to cover any transfer tax
or other similar governmental charge payable in connection with such transfer or
exchange.
Terms of the Notes
The Notes are our unsecured senior subordinated obligations, limited to
$575 million aggregate principal amount at maturity, and will mature on April
15, 2009.
Cash interest will not accrue or be payable on the Notes prior to April 15,
2004. Cash interest will accrue at the rate per annum shown on the front cover
page of this prospectus from April 15, 2004, or from the most recent date to
which interest has been paid or provided for, payable semiannually to holders of
record at the close of business on the April 1 or October 1 immediately
preceding the interest payment date on April 15 and October 15 of each year,
commencing October 15, 2004. We will pay cash interest on overdue principal at
1% per annum in excess of such rate, and we will pay interest on overdue
installments of cash interest at such higher rate to the extent lawful.
Optional Redemption
Except as set forth in the next paragraph, the Notes will not be redeemable
at our option prior to April 15, 2004. After April 15, 2004, we may redeem the
Notes, in whole or in part, on not less than 30, nor more than 60, days prior
notice, at the following redemption prices (expressed as percentages of
principal amount at maturity), plus accrued and unpaid interest, if any, to the
redemption date (subject to the right of holders of record on the relevant
record date to receive interest, if any, due on the relevant interest payment
date), if redeemed during the 12-month period commencing on April 15 of the
years set forth below:
Year Redemption Price
- ---- ----------------
2004................................................ 105.813%
2005................................................ 103.875%
2006................................................ 101.938%
2007 and thereafter................................. 100.000%
In addition, at any time and from time to time prior to April 15, 2002, we
may redeem up to a maximum of 35% of the aggregate principal amount at maturity
of the Notes with the proceeds of one or more Equity Offerings by us, at a
redemption price equal to 111 5/8% of the Accreted Value on the redemption date;
provided, however, that, after giving effect to any such redemption at least 65%
of the aggregate principal amount at maturity of the Notes remains outstanding.
In addition, any such redemption shall be made within 60 days of such Equity
Offering upon not less than 30 nor more than 60 days notice mailed to each
holder of Notes being redeemed and otherwise in accordance with the procedures
set forth in the Indenture.
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Selection
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although Notes in denominations of $1,000 or less will not be
redeemed in part. If any Note is to be redeemed in part only, the notice of
redemption relating to such Note shall state the portion of such Note to be
redeemed. A new Note equal to the unredeemed portion of such Note will be issued
in the name of the holder upon cancellation of the original Note.
Ranking
The Indebtedness evidenced by the Notes:
. is our unsecured Senior Subordinated Indebtedness;
. is subordinated in right of payment, as set forth in the
Indenture, to all of our existing and future Senior Indebtedness;
. is pari passu in right of payment with all of our existing and
future Senior Subordinated Indebtedness;
. is senior in right of payment to all of our existing and future
Subordinated Indebtedness; and
. is effectively subordinated to any of our Secured Indebtedness
and any Senior Indebtedness of our Subsidiaries to the extent of
the value of the assets securing such Indebtedness.
The Notes are guaranteed by TeleCorp Communications, one of our
Subsidiaries, and may in the future be guaranteed by certain other of our
Subsidiaries that Incur Indebtedness. The Indebtedness evidenced by the
subsidiary guarantees:
. is unsecured Senior Subordinated Indebtedness of each of our
subsidiary guarantors;
. is subordinated in right of payment, as set forth in the
Indenture, to all existing and future Senior Indebtedness of each
subsidiary guarantor;
. is pari passu in right of payment with all existing and future
Senior Subordinated Indebtedness of each of our subsidiary
guarantors;
. is senior in right of payment to all existing and future
Subordinated Indebtedness of each of our subsidiary guarantors;
and
. is effectively subordinated to any Secured Indebtedness of each
of our subsidiary guarantors and their subsidiaries to the extent
of the value of the assets securing such Indebtedness.
Payment from the money or the proceeds of U.S. Government Obligations held
in any defeasance trust described under "--Defeasance," however, is not
subordinated to any Senior Indebtedness or subject to the restrictions described
within this offer.
We conduct substantially all of our operations through our Subsidiaries.
Claims of creditors of such Subsidiaries, including trade creditors, and claims
of preferred stockholders, if any, of such Subsidiaries generally will have
priority with respect to the assets and earnings of such Subsidiaries over the
claims of our creditors, including holders of the Notes. The Notes, therefore,
are effectively subordinated to creditors, including trade creditors, and
preferred stockholders, if any, of our Subsidiaries. As of March 31, 1999, on a
pro forma basis after giving effect to the Transactions, the total liabilities
of our Subsidiaries would have been approximately $512.1 million, including
trade payables. Although the Indenture contains limitations on the Incurrence of
Indebtedness by, and the issuance of preferred stock of, certain of our
Subsidiaries, such limitations are subject to a number of significant
qualifications.
As of March 31, 1999, on a pro forma basis after giving effect to the
Transactions:
. with respect to us,
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. our outstanding Senior Indebtedness would have been $225.0
million (exclusive of unused commitments under the Credit
Agreement and additional senior indebtedness of our
subsidiaries), all of which would have been Secured
Indebtedness;
. we would have had no outstanding Senior Subordinated
Indebtedness other than the Notes; and
. our outstanding Indebtedness that would have been
subordinate or junior in right of payment to the Notes would
have been $40.5 million, including $0.5 million of interest
paid in kind;
. with respect to our subsidiary guarantors,
. the outstanding debt of our subsidiary guarantors would have
been $225.0 million (consisting entirely of a guarantee of
Indebtedness under the Credit Agreement);
. our subsidiary guarantors would have had no Senior
Subordinated Indebtedness outstanding other than the
Subsidiary Guarantee;
. our subsidiary guarantors would have had no outstanding
Indebtedness that would be subordinate or junior in right of
payment to the Subsidiary Guarantee; and
. with respect to our Subsidiaries that will not guarantee the
Notes,
. the outstanding Indebtedness of the Subsidiaries that will
not guarantee the Notes would have been $242.5 million,
consisting of $20.7 million of FCC Debt, which is shown
on our balance sheet net of discounts of $3.2 million
reflecting the below market interest rates on the debt,
and $225.0 million of guarantees of Indebtedness under the
Credit Agreement;
. our Subsidiaries that will not guarantee the Notes would
have had total liabilities of $320.8 million, consisting of
$20.7 million, of FCC Debt, $24.8 million of trade
payables, $4.1 million of accrued and other expenses and
$274.4 million of intercompany amounts payable. The FCC
Debt is shown on our balance sheet net of discounts of $3.2
million reflecting the below market interest rates on the
debt.
Although the Indenture limits the amount of additional Indebtedness which
we may Incur, under certain circumstances the amount of such Indebtedness could
be substantial and, in any case, such Indebtedness may be Senior Indebtedness.
See "--Certain Covenants--Limitation on Incurrence of Indebtedness."
"Senior Indebtedness" means the principal of, premium (if any) and accrued
and unpaid interest (including interest accruing on or after our filing of any
petition in bankruptcy or for our reorganization, regardless of whether or not a
claim for post-filing interest is allowed in such proceedings) on, and fees and
other amounts owing in respect of Bank Indebtedness and all of our other
Indebtedness, including FCC Debt, whether outstanding on the date of the
Indenture or thereafter Incurred, unless in the instrument creating or
evidencing the same or under which the same is outstanding it is provided that
such obligations are not superior in right of payment to the Notes; provided,
however, that Senior Indebtedness shall not include:
. any of our obligations to any of our Subsidiaries;
. any liability for federal, state, local or other taxes that we
owe;
. any accounts payable or other liability to trade creditors
arising in the ordinary course of business (including guarantees
of or instruments evidencing such liabilities);
. any of our Indebtedness or obligations, and any accrued and
unpaid interest in respect of such Indebtedness or obligations,
that by its terms is subordinate or junior in any respect to any
of our other Indebtedness or obligations, including any of our
Senior Subordinated Indebtedness and any of our Subordinated
Indebtedness;
. any obligations with respect to any Capital Stock; or
. any Indebtedness Incurred in violation of the Indenture.
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"Senior Indebtedness" of any our subsidiary guarantors has a correlative
meaning.
Only Senior Indebtedness will rank senior to the Notes in accordance with
the provisions of the Indenture. The Notes will in all respects rank pari passu
with all of our other Senior Subordinated Indebtedness. We have agreed in the
Indenture that we will not Incur, directly or indirectly, any Indebtedness which
is subordinate or junior in ranking in any respect to Senior Indebtedness unless
such Indebtedness is Senior Subordinated Indebtedness or is expressly
subordinated in right of payment to Senior Subordinated Indebtedness. Unsecured
Indebtedness is not deemed to be subordinate or junior to Secured Indebtedness
merely because it is unsecured.
We may not pay principal of, premium, if any, or interest on, the Notes or
make any deposit under the provisions described under "--Defeasance" and may not
otherwise repurchase, redeem or otherwise retire any Notes (collectively, "pay
the Notes"), other than payments made with money or U.S. Government Obligations
previously deposited in the defeasance trust described under "--Defeasance," if:
(1) any Designated Senior Indebtedness is not paid when due; or
(2) any other default on such Designated Senior Indebtedness occurs and the
maturity of such Designated Senior Indebtedness is accelerated in
accordance with its terms
unless, in either case:
(x) the default has been cured or waived and any such acceleration has been
rescinded; or
(y) such Designated Senior Indebtedness has been paid in full.
We may pay the Notes without regard to the foregoing, however, if we and
the Trustee receive written notice approving such payment from the
Representative of the Designated Senior Indebtedness with respect to whichever
of the events set forth in clause (1) or (2) of the immediately preceding
sentence has occurred and is continuing. During the continuance of any default
(other than a default described in clause (1) or (2) of the second preceding
sentence) with respect to any Designated Senior Indebtedness under which the
maturity may be accelerated immediately without further notice (except such
notice as may be required to effect such acceleration) or upon the expiration of
any applicable grace periods, we may not pay the Notes for a period (a "Payment
Blockage Period") commencing upon the receipt by the Trustee (with a copy to us)
of written notice (a "Blockage Notice") of such default from the Representative
of such Designated Senior Indebtedness specifying an election to effect a
Payment Blockage Period and ending 179 days thereafter (or earlier if such
Payment Blockage Period is terminated:
. by written notice to the Trustee and us from the Person or Persons
who gave such Blockage Notice;
. by repayment in full of such Designated Senior Indebtedness; or
. because the default giving rise to such Blockage Notice is no
longer continuing).
Despite the provisions described in the immediately preceding sentence (but
subject to the provisions contained in the first two sentences of this
paragraph), unless the holders of such Designated Senior Indebtedness or the
Representative of such holders have accelerated the maturity of such Designated
Senior Indebtedness, we may resume payments on the Notes after the end of such
Payment Blockage Period.
Not more than one Blockage Notice may be given in any period of 360
consecutive days, irrespective of the number of defaults with respect to
Designated Senior Indebtedness during such period. However, if any Blockage
Notice within such 360-day period is given by or on behalf of any holders of
Designated Senior Indebtedness other than the Bank Indebtedness, the
Representative of the Bank Indebtedness may give another Blockage Notice within
such period. In no event, however, may the total number of days during which any
Payment Blockage Period or Payment Blockage Periods is or are in effect exceed
179 days in the aggregate during any period of 360 consecutive days. For
purposes of this paragraph, no default or event of default that existed or was
continuing on the date of the commencement of any Payment Blockage Period with
respect to the Designated Senior Indebtedness initiating such Payment Blockage
Period shall be, or be made, the basis of the commencement of a subsequent
Payment Blockage Period by the Representative of such Designated Senior
Indebtedness, whether or not within a period of 360 consecutive days, unless
such default or event of default shall have been cured or waived for a period of
not less than 90 consecutive days.
-85-
Upon any payment or distribution of our assets to creditors upon our total
or partial liquidation or our total or partial dissolution or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to us or
our property:
. the holders of our Senior Indebtedness will be entitled to receive
payment in full in cash of such Senior Indebtedness before
Noteholders are entitled to receive any payment of principal of, or
interest on, the Notes; and
. until such Senior Indebtedness is paid in full, any payment or
distribution to which Noteholders would be entitled but for the
subordination provisions of the Indenture will be made to holders
of such Senior Indebtedness as their interests may appear, except
that Noteholders may receive shares of stock and any debt
securities that are subordinated to such Senior Indebtedness and
any securities exchanged for such Senior Indebtedness to at least
the same extent as the Notes.
If a distribution is made to Noteholders that, due to the subordination
provisions of the Indenture, should not have been made to them, such Noteholders
will be required to hold such distribution in trust for the holders of our
Senior Indebtedness and pay it over to them as their interests may appear.
If payment of the Notes is accelerated because of an Event of Default, we
or the Trustee shall promptly notify the holders of the Designated Senior
Indebtedness or their Representative of the acceleration. If any Designated
Senior Indebtedness is outstanding, we may not pay the Notes until five Business
Days after such holders or the Representative of the Designated Senior
Indebtedness receive notice of such acceleration and, thereafter, may pay the
Notes only if the subordination provisions of the Indenture otherwise permit
payment at that time.
By reason of the subordination provisions in the Indenture, in the event of
insolvency, our creditors who are holders of our Senior Indebtedness may recover
more, ratably, than the Noteholders. Our creditors who are not holders of our
Senior Indebtedness or of our Senior Subordinated Indebtedness (including the
Notes) may recover less, ratably, than holders of our Senior Indebtedness and
may recover more, ratably, than the holders of our Subordinated Indebtedness.
The subordination provisions in the Indenture will not apply to payments
made with money or U.S. Government Obligations previously deposited in the
defeasance trust described under "--Defeasance."
Subsidiary Guarantees
Our subsidiary guarantor and certain of our future subsidiaries, as
described below, as primary obligors and not merely as sureties, jointly and
severally, irrevocably and unconditionally guarantee on an unsecured senior
subordinated basis the performance and full and punctual payment when due,
whether at Stated Maturity, by acceleration or otherwise, of all of our
obligations under the Indenture and the Notes, whether for payment of principal
of, or interest on, or liquidated damages in respect of, the Notes, expenses,
indemnification or otherwise (all such obligations guaranteed by the subsidiary
guarantors being called the "Guaranteed Obligations") by executing a Subsidiary
Guarantee. Our subsidiary guarantors agree to pay, in addition to the amount
stated above, any and all costs and expenses, including reasonable counsel fees
and expenses, incurred by the Trustee or the holders of Notes in enforcing any
rights under the Subsidiary Guarantees. Each Subsidiary Guarantee is limited in
amount to an amount not to exceed the maximum amount that can be guaranteed by
the applicable subsidiary guarantor without rendering the Subsidiary Guarantee,
as it relates to such subsidiary guarantor, voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally. We will cause each Restricted
Subsidiary that Incurs Indebtedness to become a subsidiary guarantor; provided
that we will not cause any Special Purpose Subsidiary to become a subsidiary
guarantor unless such Special Purpose Subsidiary Incurs Indebtedness other than
Indebtedness under the Credit Agreement (or any Refinancing Indebtedness
Incurred to Refinance any such Indebtedness) or FCC Debt. See "--Certain
Covenants--Future Subsidiary Guarantors."
The obligations of each of our subsidiary guarantors under its Subsidiary
Guarantee are senior subordinated obligations. As such, the rights of
Noteholders to receive payment from our subsidiary guarantor under its
Subsidiary Guarantee are subordinated in right of payment to the rights of
holders of Senior Indebtedness of such subsidiary guarantor. The terms of the
subordination provisions described under "--Ranking" with respect to our
obligations under the Notes apply equally to each of our subsidiary guarantors
and the obligations of such subsidiary guarantor under its Subsidiary Guarantee.
Each Subsidiary Guarantee is a continuing guarantee and shall:
. remain in full force and effect until payment in full of all the
Guaranteed Obligations;
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. be binding upon each of our subsidiary guarantors and its
successors; and
. inure to the benefit of and be enforceable by the Trustee, the
holders of the Notes and their successors, transferees and assigns.
The Indenture provides that upon the merger or consolidation of our
subsidiary guarantors with or into any Person, other than us, any of our
Subsidiaries or any of our Affiliates, in a transaction in which such subsidiary
guarantor is not the surviving entity of such merger or consolidation, such
subsidiary guarantor shall be released and discharged from its obligations under
its Subsidiary Guarantee. The Indenture also provides that if we or any of our
Subsidiaries sell all the Capital Stock of any of our subsidiary guarantors,
including by issuance or otherwise, other than to us, to any of our Subsidiaries
or to any of our Affiliates, in a transaction constituting an Asset Disposition
(or which, but for the provisions of clause (3) of such term, would constitute
an Asset Disposition) and:
(1) the Net Available Proceeds from such Asset Disposition are used in
accordance with the covenant described under "--Certain Covenants--
Limitation on Certain Asset Dispositions;" or
(2) we deliver to the Trustee an Officers' Certificate to the effect that the
Net Available Proceeds from such Asset Disposition will be used in
accordance with the covenant described under "--Certain Covenants--
Limitation on Certain Asset Dispositions" within the time limits specified
by such covenant,
then such subsidiary guarantor shall be released and discharged from its
obligations under its Subsidiary Guarantee upon such use, in the case of clause
(1) above or upon such delivery, in the case of clause (2) above. In addition,
any of our subsidiary guarantors that becomes our subsidiary guarantor as a
consequence of its guarantee of certain Indebtedness permitted under the
Indenture and that is released and discharged from such guarantee will be
released and discharged from its Subsidiary Guarantee upon delivery of an
Officers' Certificate certifying such release and discharge from such guarantee
to the Trustee.
Change of Control
Upon the occurrence of any of the following events (each a "Change of
Control"), each holder of Notes will have the right to require us to repurchase
all or any part of such holder's Notes at a purchase price in cash equal to (1)
101% of the Accreted Value on the Purchase Date, if such date is on or before
April 15, 2004, or (2) 101% of the principal amount at maturity, plus accrued
and unpaid interest, if any, to the Purchase Date (subject to the right of
holders of record on the relevant record date to receive interest due on the
relevant interest payment date), if such date is after April 15, 2004:
. any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act), other than a Permitted Holder or
Permitted Holders or a person or group controlled by a Permitted
Holder or Permitted Holders, becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except
that a person shall be deemed to have "beneficial ownership" of all
such securities that such person has the right to acquire within
one year, upon the happening of an event or otherwise) directly or
indirectly, of our securities representing 50% or more of the
combined voting power of our then outstanding Voting Stock;
. the following individuals cease for any reason to constitute more
than a majority of the number of directors then serving on our
Board: individuals who, on April 23, 1999, constituted our Board
and any new director (other than a director whose initial
assumption of office is in connection with an actual or threatened
election contest, including, but not limited to, a consent
solicitation relating to the election of our directors) whose
appointment or election by our Board or nomination for election by
our stockholders was approved by the vote of at least two-thirds of
the directors then still in office or whose appointment, election
or nomination was previously so approved or recommended or made in
accordance with the terms of the Stockholders' Agreement; or
. our stockholders shall approve any Plan of Liquidation (whether or
not otherwise in compliance with the provisions of the Indenture).
Within 30 days following any Change of Control, we will be required to mail
a notice to each holder of the Notes, with a copy to the Trustee (the "Change of
Control Offer"), stating that we are commencing an Offer to Purchase all Old
Notes at a purchase price in cash equal to (1) 101% of the Accreted Value on the
Purchase Date, if such date is on or before April 15, 2004, or (2) 101% of the
principal amount at maturity, plus accrued and unpaid interest, if any, to the
Purchase Date (subject to the right of holders of record on the relevant record
date to receive interest due on the relevant interest payment date), if such
date is after April 15, 2004.
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We will not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at the
times and otherwise in compliance with the requirements set forth in the
Indenture applicable to a Change of Control Offer made by us and purchases all
Notes validly tendered and not withdrawn under such Change of Control Offer.
We will be required to comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of the Notes under this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, we will be required to
comply with the applicable securities laws and regulations and will not be
deemed to have breached our obligations under this covenant by virtue of our
compliance with such securities laws and regulations.
If, at the time of a Change of Control, the terms of the Bank Indebtedness
restrict or prohibit the repurchase of Notes under this covenant, then, prior to
the mailing of the notice to holders of the Notes as provided in the immediately
following paragraph, but in any event within 30 days following any Change of
Control, we will be required to:
. repay in full all Bank Indebtedness; or
. obtain the requisite consent under the agreements governing such
Bank Indebtedness to permit the repurchase of the Notes as required
by this covenant.
The Change of Control purchase feature is a result of negotiations between
us and the initial purchasers of the Old Notes. We have no present intention to
engage in a transaction involving a Change of Control, although it is possible
that we may decide to do so in the future. Subject to the limitations described
under "--Certain Covenants," we could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
could increase the amount of Indebtedness outstanding at such time or otherwise
affect our capital structure or credit ratings. Restrictions on our ability to
Incur additional Indebtedness are contained in the covenant described under
"Certain Covenants--Limitation on Incurrence of Indebtedness." Such restrictions
may only be waived with the consent of the holders of a majority in principal
amount at maturity of the Notes then outstanding. Except for the limitations
contained in such covenants, however, the Indenture does not contain any
covenants or provisions that may afford holders of the Notes protection in the
event of a highly leveraged transaction.
The occurrence of certain of the events that would constitute a Change of
Control would constitute a default under the Credit Agreement. Our future Senior
Indebtedness may also contain prohibitions of certain events which would
constitute a Change of Control or require such Senior Indebtedness to be
repurchased upon a Change of Control. Moreover, the exercise by holders of the
Notes of their right to require us to repurchase the Notes could cause a default
under such Senior Indebtedness, even if the Change of Control itself does not,
due to the financial effect of such repurchase on us. Finally, our ability to
pay cash to holders of the Notes upon a repurchase may be limited by our then
existing financial resources. There can be no assurance that sufficient funds
will be available when necessary to make any required repurchases. The
provisions of the Indenture related to our obligation to make a Change of
Control Offer as a result of a Change of Control may be waived or modified with
the written consent of the holders of a majority in principal amount at maturity
of the Notes.
Certain Covenants
The Indenture contains certain covenants including, among others, the
following:
Limitation on Incurrence of Indebtedness. The Indenture provides that we
will not, and will not cause or permit any Restricted Subsidiary to, directly or
indirectly, Incur any Indebtedness (including Acquired Indebtedness), except:
(1) Indebtedness of us or any of our subsidiary guarantors if, immediately
after giving effect to the Incurrence of such Indebtedness and the
receipt and application of the net proceeds therefrom (including,
without limitation, the application or use of the net proceeds
therefrom to repay Indebtedness, consummate an Asset Acquisition or
make any Restricted Payment):
(a) the ratio of (x) Total Consolidated Indebtedness to (y)
Annualized Pro Forma Consolidated Operating Cash Flow would be
less than:
7.0 to 1.0, if the Indebtedness is to be Incurred prior to
April 1, 2005; or
6.0 to 1.0 if the Indebtedness is to be Incurred on or after
April 1, 2005;
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or
(b) in the case of any Incurrence of Indebtedness prior to April 1,
2005 only, Total Consolidated Indebtedness would be equal to or
less than 75% of Total Invested Capital;
(2) Bank Indebtedness of us and our Restricted Subsidiaries in an
aggregate principal amount not to exceed $600 million;
(3) Indebtedness of us and our Restricted Subsidiaries outstanding from
time to time under any Vendor Credit Arrangement;
(4) Indebtedness owed by us to any Restricted Subsidiary or Indebtedness
owed by a Restricted Subsidiary to us or another Restricted
Subsidiary; provided, however, that, upon either (a) the transfer or
other disposition by such Restricted Subsidiary or us of any
Indebtedness so permitted under this clause (4) to a Person other than
us or another Restricted Subsidiary or (b) the issuance (other than of
directors' qualifying shares), sale, transfer or other disposition of
shares of Capital Stock or other ownership interests (including by
consolidation or merger) of such Restricted Subsidiary to a Person
other than us or another such Restricted Subsidiary, the exception
provided by this clause (4) shall no longer be applicable to such
Indebtedness and such Indebtedness shall be deemed to have been
Incurred at the time of any such issuance, sale, transfer or other
disposition, as the case may be;
(5) Indebtedness of us or any Restricted Subsidiary under any Hedging
Agreement to the extent entered into to protect us or such Restricted
Subsidiary from fluctuations in interest rates on any other
Indebtedness permitted under the Indenture (including the Notes),
currency exchange rates or commodity prices and not for speculative
purposes;
(6) Refinancing Indebtedness Incurred to Refinance any Indebtedness
Incurred under the prior clause (1) or (3) above, the Notes or the
Subsidiary Guarantees;
(7) Indebtedness of us under the Notes and Indebtedness of our subsidiary
guarantors under the Subsidiary Guarantees, in each case Incurred in
accordance with the Indenture;
(8) Capital Lease Obligations of us or any Restricted Subsidiary in an
aggregate principal amount not in excess of $25.0 million at any time
outstanding;
(9) FCC Debt assumed in connection with the Digital Acquisition or the
Wireless 2000 Acquisition;
(10) Indebtedness of us or any Restricted Subsidiary consisting of a
guarantee of Indebtedness of us or a Restricted Subsidiary that was
permitted to be Incurred by another provision of this covenant;
(11) Indebtedness of us or any Restricted Subsidiary in respect of
statutory obligations, performance, surety or appeal bonds or other
obligations of a like nature Incurred in the ordinary course of
business;
(12) Indebtedness of a Restricted Subsidiary existing at the time we
acquired such Restricted Subsidiary (other than Indebtedness Incurred
in connection with, or in contemplation of, the transaction or series
of related transactions in which we acquired such Restricted
Subsidiary); provided, however, that on the date we acquired such
Restricted Subsidiary, we would have been able to Incur $1.00 of
additional Indebtedness under clause (1) above after giving effect to
the Incurrence of such Indebtedness under this clause (12) and the
acquisition of such Restricted Subsidiary and Refinancing Indebtedness
Incurred by us or such Restricted Subsidiary in respect of
Indebtedness Incurred by such Restricted Subsidiary under this clause
(12); and
(13) Indebtedness of us not otherwise permitted to be Incurred under
clauses (1) through (12) above which, together with any other
outstanding Indebtedness Incurred under this clause (13), has an
aggregate principal amount not in excess of $75 million at any time
outstanding.
Indebtedness of a Person existing at the time such Person becomes a
Restricted Subsidiary or which a Lien on an asset we or a Restricted Subsidiary
acquired secures (whether or not such Indebtedness is assumed by the acquiring
person) shall be deemed Incurred at the time the Person becomes a Restricted
Subsidiary or at the time of the asset acquisition, as the case may be.
For purposes of determining compliance with this covenant:
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(1) if an item of Indebtedness meets the criteria of more than one of the
categories of Indebtedness permitted under clauses (1) through (13)
above, in our sole discretion, we may classify such item of
Indebtedness in any manner that complies with this covenant and may
from time to time reclassify such items of Indebtedness in any manner
that would comply with this covenant at the time of such
reclassification;
(2) Indebtedness permitted by this covenant need not be permitted solely
by reference to one provision permitting such Indebtedness but may be
permitted in part by one such provision and in part by one or more
other provisions of this covenant permitting such Indebtedness;
(3) if Indebtedness meets the criteria of more than one of the types of
Indebtedness described in this covenant, in our sole discretion, we
may classify such Indebtedness and only be required to include the
amount of such Indebtedness in one of such clauses; and
(4) accrual of interest (including interest paid-in-kind) and the
accretion of accreted value will not be deemed to be an Incurrence of
Indebtedness for purposes of this covenant.
Despite any other provision of this covenant:
(1) the maximum amount of Indebtedness that we or any Restricted
Subsidiary may Incur under this covenant shall not be deemed to be
exceeded solely as a result of fluctuations in the exchange rates of
currencies; and
(2) Indebtedness Incurred under to the Credit Agreement prior to or on the
date of the Indenture shall be treated as Incurred under clause (2) of
the first paragraph of this covenant.
Limitation on Layered Indebtedness. The Indenture provides that we will
not:
(1) directly or indirectly Incur any Indebtedness that by its terms would
expressly rank senior in right of payment to the Notes and rank
subordinate in right of payment to any of our other Indebtedness; or
(2) cause or permit any of our subsidiary guarantors to, and none of our
subsidiary guarantors will, directly or indirectly, Incur any
Indebtedness that by its terms would expressly rank senior in right of
payment to the Subsidiary Guarantee of such subsidiary guarantor and
rank subordinate in right of payment to any other Indebtedness of such
subsidiary guarantor;
provided that no Indebtedness shall be deemed to be subordinated solely by
virtue of being unsecured.
Limitation on Restricted Payments. The Indenture provides that we will not,
and will not cause or permit any Restricted Subsidiary to, directly or
indirectly, on or prior to December 31, 2002:
(1) declare or pay any dividend, or make any distribution of any kind or
character, whether in cash, property or securities, in respect of any
class of our Capital Stock, excluding any dividends or distributions
payable solely in shares of our Qualified Stock or in options,
warrants or other rights to acquire our Qualified Stock;
(2) purchase, redeem or otherwise acquire or retire for value any shares
of our Capital Stock, any options, warrants or rights to purchase or
acquire such shares or any securities convertible or exchangeable into
such shares, other than any such shares of Capital Stock, options,
warrants, rights or securities that we or a Restricted Subsidiary own;
(3) make any Investment, other than a Permitted Investment, in any Person
other than us or a Restricted Subsidiary; or
(4) redeem, defease, repurchase, retire or otherwise acquire or retire for
value, prior to its scheduled maturity, repayment or any sinking fund
payment, Subordinated Indebtedness or make any payment of interest or
premium on, or distribution of any kind or character, whether in cash,
property or securities, in respect of, the Series A Notes, excluding
payments of interest or distributions payable solely in additional
Series A Notes.
Each of the transactions described in clauses (1) through (4), other than any
exception to any such clause, is a "Restricted Payment."
At any time after December 31, 2002, we will not, and will not cause or permit
any Restricted Subsidiary to, directly or indirectly, make a Restricted Payment
if, at the time of:
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(A) a Default or an Event of Default shall have occurred and be continuing
at the time of or after giving effect to such Restricted Payment;
(B) immediately after giving effect to such Restricted Payment, we could
not Incur at least $1.00 of additional Indebtedness under clause (1)
of the covenant described under "--Limitation on Incurrence of
Indebtedness;" and
(C) immediately upon giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments declared or made on or
after April 23, 1999, including any Designation Amount, exceeds the
sum, without duplication, of:
(1) the amount of (x) our Consolidated Cash Flow after December 31,
2002, through the end of the latest full fiscal quarter for which
our consolidated financial statements are available preceding the
date of such Restricted Payment (treated as a single accounting
period), less (y) 150% of our cumulative Consolidated Interest
Expense after December 31, 2002, through the end of the latest
full fiscal quarter for which our consolidated financial
statements are available preceding the date of such Restricted
Payment (treated as a single accounting period); plus
(2) the aggregate net cash proceeds, other than Excluded Cash
Proceeds, that we received as a capital contribution in respect
of Qualified Stock or from the proceeds of a sale of Qualified
Stock made after April 23, 1999, excluding in each case (x) the
proceeds from a sale of Qualified Stock to a Restricted
Subsidiary and (y) the proceeds from a sale of Qualified Stock to
an employee stock ownership plan or other trust that we or any of
our Subsidiaries established; plus
(3) the aggregate net cash proceeds that we or any Restricted
Subsidiary received from the sale, disposition or repayment,
other than to us or a Restricted Subsidiary, of any Investment
made after the date of the Indenture and constituting a
Restricted Payment in an amount equal to the lesser of (x) the
return of capital with respect to such Investment and (y) the
initial amount of such Investment, in either case, less the cost
of disposition of such Investment; plus
(4) an amount equal to the consolidated Net Investment on the date of
Revocation made by us and/or any Restricted Subsidiary in any of
our Subsidiaries that has been designated as an Unrestricted
Subsidiary after April 23, 1999 upon its redesignation as a
Restricted Subsidiary in accordance with the covenant described
under "--Limitation on Designations of Unrestricted
Subsidiaries."
For purposes of:
(1) the preceding clause (C)(2), the value of the aggregate net cash
proceeds that we received from, or as a capital contribution in
connection with, the issuance of Qualified Stock either upon the
conversion of our convertible Indebtedness or the convertible
Indebtedness of any of our Restricted Subsidiaries or in exchange for
our outstanding Indebtedness or the outstanding Indebtedness of any of
our Restricted Subsidiaries or upon the exercise of options, warrants
or rights will be the net cash proceeds that we or any Restricted
Subsidiary received upon the issuance of such Indebtedness, options,
warrants or rights, plus the incremental amount that we or any
Restricted Subsidiary received upon the conversion, exchange or
exercise;
(2) the preceding clause (C)(4), the value of the consolidated Net
Investment on the date of Revocation shall be equal to the Fair Market
Value of the aggregate amount of our or any Restricted Subsidiary's
Investments in such of our Subsidiaries on the applicable date of
Designation; and
(3) determining the amount expended for Restricted Payments, cash
distributed shall be valued at the face amount and property other than
cash shall be valued at its Fair Market Value on the date we make or a
Restricted Subsidiary makes such Restricted Payment, as the case may
be.
The provisions of this covenant shall not prohibit:
(1) the payment of any dividend or distribution within 60 days after the
date of its declaration, if at the date of declaration the payment
would comply with the provisions of the Indenture;
(2) so long as no Default or Event of Default shall have occurred and be
continuing, the purchase, redemption, retirement or other acquisition
of any of our Capital Stock out of the net cash proceeds of the
substantially concurrent capital contribution to us in connection with
Qualified Stock or out of the net cash proceeds that we received from
the substantially concurrent issue or sale, other than to a Restricted
Subsidiary or to an employee stock ownership plan or
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other trust that we or any of our Subsidiaries established, of
Qualified Stock; provided that (a) any such net cash proceeds shall be
excluded from clause (C)(2) of the second preceding paragraph and (b)
such proceeds do not constitute Excluded Cash Proceeds;
(3) so long as no Default or Event of Default shall have occurred and be
continuing, the purchase, redemption, retirement, defeasance or other
acquisition of our Subordinated Indebtedness made by exchange for or
conversion into, or out of the net cash proceeds that we received, or
out of a capital contribution to us in connection with a concurrent
issue and sale, other than to a Restricted Subsidiary, of:
. Qualified Stock, provided that
. any such net cash proceeds are excluded from clause (C)(2) of the
second preceding paragraph,
. such proceeds do not constitute Excluded Cash Proceeds, and
. such proceeds, if from a sale other than a Public Sale, are not
applied to optionally redeem the Notes on or prior to April 15,
2002; or
. other of our Subordinated Indebtedness that has an Average Life
equal to or greater than the Average Life of the Subordinated
Indebtedness being purchased, redeemed, retired, defeased or
otherwise acquired and that is subordinated in right of payment to
the Notes at least to the same extent as the Subordinated
Indebtedness being purchased, redeemed, retired, defeased or
otherwise acquired;
(4) so long as no Default or Event of Default shall have occurred and be
continuing, the making of a direct or indirect Investment constituting
a Restricted Payment in an amount not to exceed the amount of the
proceeds of a concurrent capital contribution in respect of Qualified
Stock or from the issue or sale, other than to a Restricted
Subsidiary, of our Qualified Stock; provided that (a) any such net
cash proceeds are excluded from clause (C)(2) of the second preceding
paragraph, (b) such proceeds do not constitute Excluded Cash Proceeds
and (c) such proceeds, if from a sale other than a Public Sale, are
not applied to optionally redeem the Notes on or prior to April 15,
2002;
(5) so long as no Default or Event of Default shall have occurred and be
continuing and so long as, immediately after giving effect to such
Investment, we could incur at least $1.00 of additional Indebtedness
under clause (1) of the covenant described under "--Limitation on
Incurrence of Indebtedness," our making of a direct or indirect
Investment constituting a Restricted Payment in any Person
incorporated, formed or created to acquire one or more Qualified
Licenses through participation in any auction or reauction of Licenses
conducted by the FCC, in an amount not to exceed $50.0 million at any
time outstanding; provided that
. such Person shall qualify as an "entrepreneur" under the
Communications Act in the case of any proposed acquisition of
Qualified Licenses through participation in any auction or
reauction of C-Block Licenses or F-Block Licenses conducted by the
FCC; and
. we shall have received, prior to making such Investment, from one
or more Strategic Equity Investors, irrevocable, unconditional
commitments to purchase our Qualified Stock, at the earliest to
occur of:
. the date that is 30 days after the date on which such Person
acquires any such Qualified Licenses;
. the date that is 30 days after the date on which such Person
withdraws from such auction or reauction;
. the date that is 30 days after the date the FCC terminates such
auction or reauction; and
. the date that is 180 days after the date on which any amounts
were deposited by or on behalf of such Person in escrow with the
FCC in connection with such proposed acquisition of Qualified
Licenses; and
. in an amount not less than the amount of such Investment, plus the
amount of all fees, expenses and other costs incurred in connection
with such participation ;
provided further that if at any time the aggregate net cash proceeds
that such Strategic Equity Investors pay to us shall exceed the amount
of such Investment plus all fees, expenses and other costs incurred in
connection with such participation (a) such commitments may terminate
in accordance with their terms to the extent, but only to the extent,
of
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such excess and (b) we may rescind all or a portion of the payments
made by the Strategic Equity Investors for such Qualified Stock and
redeem all or a portion of such Qualified Stock in an amount not
greater than such excess;
provided further that:
. the aggregate net proceeds that we receive upon the purchase by
such Strategic Equity Investors of such Qualified Stock are
excluded from clause (C)(2) of the second preceding paragraph
unless such Person becomes a Restricted Subsidiary or merges,
consolidates or amalgamates with or into, or transfers or conveys
substantially all its assets to us or a Restricted Subsidiary, or
liquidates into us or a Restricted Subsidiary;
. such proceeds shall not constitute Excluded Cash Proceeds; and
. such proceeds are not applied to optionally redeem the Notes prior
to April 15, 2002;
(6) so long as no Default or Event of Default shall have occurred and be
continuing and so long as, immediately after giving effect to such
Investment, we could Incur at least $1.00 of additional Indebtedness
under clause (1) of the covenant described under "--Limitation on
Incurrence of Indebtedness," our making of a direct or indirect
Investment constituting a Restricted Payment in any Person engaged in
a Permitted Business in an amount not to exceed $60 million at any
time outstanding; provided that we shall have received, prior to
making such Investment, from one or more Strategic Equity Investors,
aggregate net cash proceeds from capital contributions or the issuance
or sale of our Capital Stock, other than Disqualified Stock, but
including Qualified Stock issued upon the conversion of convertible
Indebtedness or upon the exercise of options, warrants or rights to
purchase Qualified Stock, in an amount equal to the amount of such
Investment plus the amount of all fees, expenses and other costs
incurred in connection with such Investment (regardless of whether or
not such Investment is consummated); provided further that:
. the proceeds that we received as capital contributions from, or the
purchase of our Capital Stock by, such Strategic Equity Investors
are excluded from clause (C)(2) of the second preceding paragraph
unless such Person becomes a Restricted Subsidiary or merges,
consolidates or amalgamates with or into us or a Restricted
Subsidiary, or transfers or conveys substantially all its assets to
us or a Restricted Subsidiary, or liquidates into us or a
Restricted Subsidiary;
. such proceeds shall not constitute Excluded Cash Proceeds; and
. such proceeds are not applied to optionally redeem the Notes prior
to April 15, 2002; or
(7) so long as no Default or Event of Default has occurred and is
continuing, the repurchase, redemption, acquisition or retirement for
value of any of our Capital Stock held by any member of our management
or any of our Subsidiaries under any management equity subscription
agreement, stock option agreement, restricted stock agreement or other
similar agreement; provided that:
. the aggregate amount of such dividends or distributions shall not
exceed $4.0 million in any twelve-month period;
. any unused amount in any twelve-month period may be carried forward
to one or more future twelve-month periods; and
. the aggregate of all unused amounts that may be carried forward to
any future twelve-month period shall not exceed $16 million.
Restricted Payments made under clauses (1) and (7) of the immediately
preceding paragraph shall be included when determining available amounts under
clause (C) of the third preceding paragraph, Restricted Payments made under
clauses (5) and (6) of the immediately preceding paragraph shall be included
when determining available amounts under clause (C) of the third preceding
paragraph unless, after giving effect to such Investment, such Person becomes a
Restricted Subsidiary or merges, consolidates or amalgamates with or into us or
a Restricted Subsidiary, or transfers or conveys substantially all its assets to
us or a Restricted Subsidiary, or liquidates into us or a Restricted Subsidiary
and Restricted Payments made under to clauses (2), (3) and (4) of the
immediately preceding paragraph shall not be included when determining available
amounts under clause (C) of the third preceding paragraph.
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Limitation on Restrictions Affecting Restricted Subsidiaries. The Indenture
provides that we will not, and will not cause or permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist any consensual encumbrances or restrictions of any kind on the ability of
any Restricted Subsidiary to:
(1) pay, directly or indirectly, dividends, in cash or otherwise, or make
any other distributions in respect of its Capital Stock or pay any
Indebtedness or other obligation owed to us or any other Restricted
Subsidiary;
(2) make any Investment in us or any other Restricted Subsidiary; or
(3) transfer any of its property or assets to us or any other Restricted
Subsidiary,
except for such encumbrances or restrictions existing under or by reason of:
(A) any agreement in effect on April 23, 1999 as in effect on such date;
(B) any agreement relating to any Indebtedness Incurred by such Restricted
Subsidiary prior to the date on which we acquired such Restricted
Subsidiary and outstanding on such date and not Incurred in
anticipation or contemplation of becoming a Restricted Subsidiary;
provided, however, that such encumbrance or restriction shall not
apply to any of our property or assets or any property or assets of
any Restricted Subsidiary other than such Restricted Subsidiary;
(C) customary provisions contained in an agreement which has been entered
into for the sale or disposition of all or substantially all of the
Capital Stock or assets of a Restricted Subsidiary; provided, however,
that such encumbrance or restriction is applicable only to such
Restricted Subsidiary or its property and assets;
(D) any agreement effecting a Refinancing or amendment of Indebtedness
Incurred under any agreement referred to in clause (A) or (B) above;
provided, however, that the provisions contained in such Refinancing
or amendment agreement relating to such encumbrance or restriction are
no more restrictive in any material respect than the provisions
contained in such agreement referred to in clause (A) or (B) above in
the reasonable judgment of our Board;
(E) the Indenture;
(F) applicable law or any applicable rule, regulation or order;
(G) customary provisions restricting subletting or assignment of any lease
governing any leasehold interest of any Restricted Subsidiary;
(H) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the type referred to in
clause (3) of this covenant; and
(I) restrictions of the type referred to in clause (3) of this covenant
contained in security agreements securing Indebtedness of a Restricted
Subsidiary to the extent that such Liens restrict the transfer of
property subject to such agreements.
Limitation on Certain Asset Dispositions. The Indenture provides that we
will not, and will not cause or permit any Restricted Subsidiary to, directly or
indirectly, make any Asset Disposition unless:
(1) we or such Restricted Subsidiary, as the case may be, receives
consideration for such Asset Disposition at least equal to the Fair
Market Value of the assets sold or disposed of as determined by our
Board in good faith and evidenced by a resolution of our Board filed
with the Trustee;
(2) other than in the case of a Permitted Asset Swap, not less than 75% of
the consideration received by us or such Restricted Subsidiary from
the disposition consists of:
(A) cash or Cash Equivalents;
(B) the assumption of our Indebtedness or Indebtedness of such
Restricted Subsidiary, other than non-recourse Indebtedness or
any Subordinated Indebtedness, or other obligations relating to
such assets (accompanied by an irrevocable and unconditional
release of us or such Restricted Subsidiary from all liability on
the Indebtedness or other obligations assumed); or
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(C) notes or other obligations that we or such Restricted Subsidiary
received from such transferee or such Restricted Subsidiary
convert into cash or Cash Equivalents concurrently with the
receipt of such notes or other obligations (to the extent of the
cash that we actually received); and
(3) all Net Available Proceeds, less any amounts invested within 365 days
of such Asset Disposition to acquire all or substantially all of the
assets of, or a majority of the Voting Stock of, an entity primarily
engaged in a Permitted Business, to make a capital expenditure or to
acquire other long-term assets that are used or useful in a Permitted
Business, are applied, on or prior to the 365th day after such Asset
Disposition, unless and to the extent that we shall determine to make
an Offer to Purchase, to the permanent reduction and prepayment of any
of our Senior Indebtedness then outstanding, including a permanent
reduction of the commitments in respect of such Senior Indebtedness.
Any Net Available Proceeds from any Asset Disposition which is subject to
the immediately preceding sentence that are not applied as provided in the
immediately preceding sentence shall be used promptly after the expiration of
the 365th day after such Asset Disposition, or earlier if we so elect, to make
an Offer to Purchase Old Notes at a purchase price in cash equal to (a) 100% of
the Accreted Value on the Purchase Date, if such Purchase Date is on or before
April 15, 2004 and (b) 100% of the principal amount at maturity plus accrued and
unpaid interest to the Purchase Date, if such Purchase Date is after April 15,
2004; provided, however, that if we elect or the terms of any other Senior
Subordinated Indebtedness require, an offer may be made ratably to purchase the
Notes and such other Senior Subordinated Indebtedness. Notwithstanding the
foregoing, we may defer making any Offer to Purchase the Old Notes, and any
offer to purchase other Senior Subordinated Indebtedness ratably, until there
are aggregate unutilized Net Available Proceeds from Asset Dispositions
otherwise subject to the two immediately preceding sentences equal to or in
excess of $15.0 million, at which time the entire unutilized Net Available
Proceeds from Asset Dispositions otherwise subject to the two immediately
preceding sentences, and not just the amount in excess of $15.0 million, shall
be applied as required under this paragraph. We may use any remaining Net
Available Proceeds following the completion of the required Offer to Purchase
and any offer to purchase other Senior Subordinated Indebtedness ratably for any
other purpose, subject to the other provisions of the Indenture, and the amount
of Net Available Proceeds then required to be otherwise applied in accordance
with this covenant shall be reset to zero. These provisions will not apply to a
transaction consummated in compliance with the provisions of the Indenture
described under "--Merger, Consolidation and Certain Sales of Assets."
Pending application as set forth above, the Net Available Proceeds of any
Asset Disposition may be invested in cash or Cash Equivalents or used to reduce
temporarily Indebtedness outstanding under any revolving credit agreement to
which we are a party and under which we have Incurred Indebtedness.
We must comply, to the extent applicable, with the requirements of Section
14(e) of the Exchange Act and any other securities laws or regulations in
connection with the repurchase of the Notes under this covenant. To the extent
that the provisions of any securities laws or regulations conflict with
provisions of this covenant, we must comply with the applicable securities laws
and regulations and will not be deemed to have breached our obligations under
this covenant.
Limitation on Transactions with Affiliates. The Indenture provides that we
will not, and will not cause or permit any Restricted Subsidiary to, directly or
indirectly, conduct any business or enter into, renew or extend any transaction
with any of our or their respective Affiliates, including, without limitation,
the purchase, sale, lease or exchange of property, the rendering of any service
or the making of any guarantee, loan, advance or Investment, either directly or
indirectly, unless the terms of such transaction are at least as favorable as
the terms that could be obtained at such time by us or such Restricted
Subsidiary, as the case may be, in a comparable transaction made on an arms-
length basis with a Person that is not such an Affiliate; provided, however,
that:
(1) in any transaction involving aggregate consideration in excess of
$10.0 million, we shall deliver an Officers' Certificate to the
Trustee stating that a majority of the disinterested directors of our
Board or the board of such Restricted Subsidiary, as the case may be,
have determined, in their good faith judgment, that the terms of such
transaction are at least as favorable as the terms that could be
obtained by us or such Restricted Subsidiary, as the case may be, in a
comparable transaction made on an arms-length basis between
unaffiliated parties; and
(2) if the aggregate consideration is in excess of $25.0 million, we shall
also deliver to the Trustee, prior to the consummation of the
transaction, the favorable written opinion of a nationally recognized
accounting, appraisal or investment banking firm as to the fairness of
the transaction to the holders of the Notes, from a financial point of
view.
Despite the foregoing, the restrictions set forth in this covenant shall
not apply to:
(1) transactions between or among us and/or any Restricted Subsidiaries;
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(2) any Restricted Payment or Permitted Investment permitted by the
covenant described under "--Limitation on Restricted Payments;"
(3) directors' fees, indemnification and similar arrangements, officers'
indemnification, employee stock option or employee benefit plans and
employee salaries and bonuses paid or created in the ordinary course
of business;
(4) any other agreement in effect on the date of the Indenture, as the
same shall be amended from time to time; provided that any material
amendment shall be required to comply with the provisions of the
immediately preceding paragraph;
(5) the Acquisitions;
(6) transactions with AT&T or any of its Affiliates relating to the
marketing or provision of telecommunication services or related
hardware, software or equipment on terms that are no less favorable,
when taken as a whole, to us such Restricted Subsidiary, as
applicable, than those available from unaffiliated third parties;
(7) transactions involving the leasing or sharing or other use by us or
any Restricted Subsidiary of communications network facilities
(including, without limitation, cable or fiber lines, equipment or
transmission capacity) of any of our Affiliates (such Affiliate being
a "Related Party") on terms that are no less favorable when taken as a
whole to us or such Restricted Subsidiary, as applicable, than those
available from such Related Party to unaffiliated third parties;
(8) transactions involving the provision of telecommunication services by
a Related Party in the ordinary course of its business to us or any
Restricted Subsidiary, or by us or any Restricted Subsidiary to a
Related Party, on terms that are no less favorable when taken as a
whole to us or such Restricted Subsidiary, as applicable, than those
available from such Related Party to unaffiliated third parties;
(9) any sales agency agreements under which an Affiliate has the right to
market any or all of our products or services or the products or
services of any of the Restricted Subsidiaries;
(10) transactions involving the sale, transfer or other disposition of any
shares of Capital Stock of any Marketing Affiliate; provided that such
Marketing Affiliate is not engaged in any activity other than the
registration, holding, maintenance or protection of trademarks and
such related licensing; and
(11) customary commercial banking, investment banking, underwriting,
placement agent or financial advisory fees paid in connection with
services rendered to us and our subsidiaries in the ordinary course.
Limitation on our Activities and Activities of the Restricted Subsidiaries.
The Indenture provides that we will not, and will not permit any Restricted
Subsidiary to, engage in any business other than a Permitted Business, except to
such extent as is not material to us and our Restricted Subsidiaries, taken as a
whole.
Amendments to Securities Purchase Agreement. The Indenture provides that we
will not amend, modify or waive, or refrain from enforcing, any provision of the
Securities Purchase Agreement in any manner that would cause the net cash
proceeds from capital contributions or sales of our Qualified Stock under the
Securities Purchase Agreement to be less than $128.0 million.
Provision of Financial Information. The Indenture provides that, whether or
not required by the rules and regulations of the SEC, so long as any Notes are
outstanding, we will furnish to the holders of the Notes:
(1) all quarterly and annual financial information that would be required
to be contained in a filing with the SEC on Forms 10-Q and 10-K if we
were required to file such forms, including a section entitled
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" that describes our financial condition and
results of operations and that of our consolidated Subsidiaries and a
report on such annual information only by our certified independent
accountants; and
(2) all current reports that would be required to be filed with the SEC on
Form 8-K if we were required to file such reports, in each case within
the time period specified in the SEC's rules and regulations.
In addition, following the consummation of the Exchange Offer whether or
not required by the rules and regulations of the SEC, we will file a copy of all
such information and reports with the SEC for public availability within the
time periods specified in the SEC's rules and regulations (unless the SEC will
not accept such a filing) and make such information available to prospective
investors upon request. In addition, the Company will, for so long as any Notes
remain outstanding, furnish to the
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holders of Notes, upon request, the information required to be delivered under
Rule 144A(d)(4) of the Securities Act. The Company will also comply with Section
314(a) of the TIA.
Limitation on Designations of Unrestricted Subsidiaries. The Indenture
provides that we may designate any of our Subsidiaries (other than an Ineligible
Subsidiary) as an "Unrestricted Subsidiary" under the Indenture (a
"Designation") only if:
(1) no Default or Event of Default shall have occurred and be continuing at
the time of or after giving effect to such Designation;
(2) we would be permitted under the Indenture to make an Investment at the
time of Designation (assuming the effectiveness of such Designation) in an
amount (the "Designation Amount") equal to the Fair Market Value of the
aggregate amount of its Investments in such Subsidiary on such date; and
(3) except in the case of any of our Subsidiaries in which an Investment is
being made under, and as permitted by, the third paragraph of the covenant
described under "--Limitation on Restricted Payments," we would be
permitted to Incur $1.00 of additional Indebtedness under clause (1) of
the covenant described under "--Limitation on Incurrence of Indebtedness"
at the time of Designation (assuming the effectiveness of such
Designation).
In the event of any such Designation, we shall be deemed to have made an
Investment constituting a Restricted Payment under the covenant described under
"--Limitation on Restricted Payments" for all purposes of the Indenture in the
Designation Amount.
The Indenture further provides that we shall not, and shall not permit any
Restricted Subsidiary to, at any time:
(1) provide direct or indirect credit support for, or a guarantee of, any
Indebtedness of any Unrestricted Subsidiary including of any undertaking,
agreement or instrument evidencing such Indebtedness;
(2) be directly or indirectly liable for any Indebtedness of any Unrestricted
Subsidiary; or
(3) be directly or indirectly liable for any Indebtedness which provides that
the holder of such Indebtedness may upon notice, lapse of time or both
declare a default on such Indebtedness or cause the payment be accelerated
or payable prior to its final scheduled maturity upon the occurrence of a
default with respect to any Indebtedness of any Unrestricted Subsidiary
(including any right to take enforcement action against such Unrestricted
Subsidiary), except, in the case of clause (1) or (2) above, to the extent
permitted under the covenant described under "--Limitation on Restricted
Payments."
The Indenture further provides that we may revoke any Designation of a
Subsidiary as an Unrestricted Subsidiary (a "Revocation"), whereupon such
Subsidiary shall then constitute a Restricted Subsidiary, if no Default shall
have occurred and be continuing at the time of and after giving effect to such
Revocation. In the event of any such Revocation, we shall be deemed to continue
to have a permanent Investment in an Unrestricted Subsidiary constituting a
Restricted Payment under the covenant described under "--Limitation on
Restricted Payments" for all purposes under the Indenture in a positive amount
equal to:
(1) the Fair Market Value of the aggregate amount of our Investments in such
Subsidiary at the time of such Revocation; less
(2) the portion proportionate to our equity interest in such Subsidiary of the
Fair Market Value of the net assets of such Subsidiary at the time of such
Revocation.
All Designations and Revocations must be evidenced by a resolution of our
Board delivered to the Trustee certifying compliance with the foregoing
provisions.
Future Subsidiary Guarantors. We will cause each Restricted Subsidiary that
Incurs Indebtedness to become our subsidiary guarantor, and, if applicable,
execute and deliver to the Trustee a supplemental indenture in the form set
forth in the Indenture under which such Restricted Subsidiary will guarantee
payment of the Notes; provided that we shall not cause any Special Purpose
Subsidiary to become our subsidiary guarantor unless such Special Purpose
Subsidiary Incurs Indebtedness other than Indebtedness in respect of the Credit
Agreement, or any Refinancing Indebtedness Incurred to Refinance such
Indebtedness, or FCC Debt. Each Subsidiary Guarantee will be limited to an
amount not to exceed the maximum amount that can be guaranteed by that
Restricted Subsidiary without rendering the Subsidiary Guarantee, as it relates
to such Restricted Subsidiary, voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally.
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Merger, Consolidation and Certain Sales of Assets
We will not consolidate or merge with or into any Person, or sell, assign,
lease, convey or otherwise dispose of, or cause or permit any Restricted
Subsidiary to consolidate or merge with or into any Person, or to sell, assign,
lease, convey or otherwise dispose of all or substantially all of our assets,
determined on a consolidated basis for us and the Restricted Subsidiaries,
whether as an entirety or substantially an entirety in one transaction or a
series of related transactions, including by way of liquidation or dissolution,
to any Person unless, in each such case:
(1) the entity formed by or surviving any such consolidation or merger, if
other than us or such Restricted Subsidiary, as the case may be, or to
which such sale, assignment, lease, conveyance or other disposition shall
have been made (the "Surviving Entity"), is a corporation organized and
existing under the laws of the United States, any state of the United
States or the District of Columbia;
(2) the Surviving Entity assumes by supplemental indenture all of our
obligations on the Notes and under the Indenture;
(3) immediately after giving effect to such transaction and the use of any net
proceeds from such transaction on a pro forma basis, we or the Surviving
Entity, as the case may be, could Incur at least $1.00 of Indebtedness
under clause (1) of the covenant described under "--Certain Covenants--
Limitation on Incurrence of Indebtedness;"
(4) immediately after giving effect to such transaction and treating any
Indebtedness which becomes our obligation or an obligation of any of our
Restricted Subsidiaries as a result of such transactions as having been
Incurred by us or such Restricted Subsidiary, as the case may be, at the
time of the transaction, no Default or Event of Default shall have
occurred and be continuing;
(5) we deliver to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such merger, consolidation or sale of assets
and such supplemental indenture, if any, comply with the Indenture; and
(6) we deliver to the Trustee an Opinion of Counsel to the effect that holders
of the Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such merger, consolidation or sale of assets
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such merger,
sale or consolidation had not occurred.
The provisions of this paragraph shall not apply to any merger of a Restricted
Subsidiary with or into us or a Wholly Owned Subsidiary or the release of any of
our subsidiary guarantors in accordance with the terms of its Subsidiary
Guarantee and the Indenture in connection with any transaction complying with
the provisions of covenant described under "--Certain Covenants--Limitation on
Certain Asset Dispositions."
The Indenture provides that we will not permit any of our subsidiary
guarantors to consolidate or merge with or into any Person, or sell, assign,
lease, convey or otherwise dispose of all or substantially all of such
subsidiary guarantor's assets, whether as an entirety or substantially an
entirety in one transaction or a series of related transactions, including by
way of liquidation or dissolution, to any Person unless, in each such case:
(1) the entity formed by or surviving any such consolidation or merger, if
other than such subsidiary guarantor, or to which such sale, assignment,
lease, conveyance or other disposition shall have been made, is a
corporation organized and existing under the laws of the United States,
any state of the United States or the District of Columbia;
(2) such corporation assumes by supplemental indenture all of the obligations
of our subsidiary guarantors, if any, under its Subsidiary Guarantee;
(3) immediately after giving effect to such transaction and treating any
Indebtedness which becomes an obligation of such subsidiary guarantor as a
result of such transactions as having been Incurred by such subsidiary
guarantor at the time of the transaction, no Default or Event of Default
shall have occurred and be continuing; and
(4) we deliver to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such merger, consolidation or sale of assets
and such supplemental indenture, if any, comply with the Indenture.
Defaults
Each of the following events constitutes an Event of Default under the
Indenture:
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(1) a default in any payment of interest on any Note when due and payable,
whether or not prohibited by the provisions described under "--Ranking,"
continued for 30 days;
(2) a default in the payment of the Accreted Value or principal of any Note
when due and payable at its Stated Maturity, upon required redemption or
repurchase, upon declaration or otherwise, whether or not such payment is
prohibited by the provisions described under "--Ranking;"
(3) our failure to comply with its obligations under the covenant described
under "--Merger, Consolidation and Certain Sales of Assets;"
(4) our failure to comply for 30 days after notice with any of its obligations
under the covenants described under "--Change of Control" or "--Certain
Covenants" (in each case, other than a failure to purchase the Notes);
(5) our failure to comply for 60 days after notice with its other agreements
contained in the Indenture or the Notes;
(6) our failure or the failure of any Significant Subsidiary to pay any
Indebtedness within any applicable grace period after final maturity or
the acceleration of any such Indebtedness by the holders of such
Indebtedness because of a default if the total amount of such Indebtedness
unpaid or accelerated exceeds $15.0 million or its foreign currency
equivalent (the "cross acceleration provision") and such failure continues
for 10 days after receipt of the notice specified in the Indenture;
(7) certain events of bankruptcy, insolvency or reorganization of us or a
Significant Subsidiary (the "bankruptcy provisions");
(8) the rendering of any final judgment or decree, not subject to appeal, for
the payment of money in excess of $15.0 million or its foreign currency
equivalent at the time it is entered against us or a Significant
Subsidiary and is not discharged, waived or stayed if:
(A) an enforcement proceeding thereon is commenced by any creditor; or
(B) such judgment or decree remains outstanding for a period of 60 days
following such judgment and is not discharged, waived or stayed (the
"judgment default provision"); or
(9) any Subsidiary Guarantee ceases to be in full force and effect (except as
contemplated by the terms of the Indenture) or any of our subsidiary
guarantors or Person acting by or on behalf of such subsidiary guarantor
denies or disaffirms such subsidiary guarantor's obligations under the
Indenture or any Subsidiary Guarantee and such Default continues for 10
days after receipt of the notice specified in the Indenture.
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is effected
by operation of law or under any judgment, decree or order of any court or any
order, rule or regulation of any administrative or governmental body.
However, a default under clauses (4), (5) or (8) will not constitute an Event
of Default until the Trustee or the holders of at least 25% in aggregate
principal amount at maturity of the Old Notes notify us of the default and we do
not cure such default within the time specified in clauses (4), (5) or (8) after
receipt of such notice.
If an Event of Default (other than an Event of Default relating to certain
events of our bankruptcy, insolvency or reorganization) occurs and is
continuing, the Trustee or the holders of at least 25% in aggregate principal
amount at maturity of the Old Notes by notice to us may accelerate the maturity
of all the Notes. Upon such an acceleration, the Old Notes will become
immediately due and payable. If an Event of Default relating to certain events
of our bankruptcy, insolvency or reorganization occurs, the principal of and
interest on all the Notes will become immediately due and payable without any
declaration or other act on the part of the Trustee or the holders of the Notes.
Under certain circumstances, the holders of a majority in aggregate principal
amount at maturity of the Old Notes may rescind any such acceleration with
respect to the Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders of the Notes unless
such holders have offered to the Trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium (if any) or interest when due, no holder of Notes
may pursue any remedy with respect to the Indenture or the Notes unless:
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(1) such holder has previously given the Trustee notice that an Event of
Default is continuing;
(2) holders of at least 25% in aggregate principal amount at maturity of the
Old Notes have requested the Trustee in writing to pursue the remedy;
(3) such holders have offered the Trustee reasonable security or indemnity
against any loss, liability or expense;
(4) the Trustee has not complied with such request within 60 days after the
receipt of the request and the offer of security or indemnity; and
(5) the holders of a majority in aggregate principal amount at maturity of the
Old Notes have not given the Trustee a direction inconsistent with such
request within such 60-day period.
Subject to certain restrictions, the holders of a majority in aggregate
principal amount at maturity of the Old Notes are given the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or of exercising any trust or power conferred on the Trustee. The
Trustee, however, may refuse to follow any direction that conflicts with law or
the Indenture or that the Trustee determines is unduly prejudicial to the rights
of any other holder of Notes or that would involve the Trustee in personal
liability. Prior to taking any action under the Indenture, the Trustee will be
entitled to indemnification satisfactory to it in its sole discretion against
all losses and expenses caused by taking or not taking such action.
The Indenture provides that, if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder of Notes notice of
the Default within the earlier of 90 days after it occurs or 30 days after it is
known to a Trust Officer or written notice of it is received by the Trustee.
Except in the case of a Default in the payment of principal of, premium (if any)
or interest on any Note (including payments under the redemption provisions of
such Note), the Trustee may withhold notice if and so long as a committee of its
Trust Officers in good faith determines that withholding notice is in the
interests of the Noteholders. In addition, we will be required to deliver to the
Trustee, within 120 days after the end of each fiscal year, a certificate
indicating whether the signers know of any Default that occurred during the
previous year. We will also be required to deliver to the Trustee, within 30
days after the occurrence of such event, written notice of any event which would
constitute certain Events of Default, the status of any such event and the
action we are taking or propose to take in respect of such event.
Amendments and Waivers
Subject to certain exceptions, the Indenture or the Notes may be amended with
the written consent of the holders of a majority in aggregate principal amount
at maturity of the Notes then outstanding, and any past default or compliance
with any provisions may be waived with the consent of the holders of a majority
in aggregate principal amount at maturity of the Notes then outstanding.
However, without the consent of each holder of an outstanding Note affected, no
amendment may, among other things:
(1) reduce the amount of the Notes whose holders must consent to an amendment;
(2) reduce the rate of, or extend the time for payment of, interest or any
liquidated damages on any Note;
(3) reduce the principal of, or extend the Stated Maturity of, any Note;
(4) reduce the premium payable upon the redemption of any Note or change the
time at which any Note may be redeemed as described under "--Optional
Redemption;"
(5) make any Note payable in money other than that stated in the Note;
(6) make any change to the subordination provisions of the Indenture that
adversely affects the rights of any holder of Notes;
(7) impair the right of any holder of Notes to receive payment of principal of
and interest or any liquidated damages on such holder's Notes on or after
the due dates for such payment or to institute suit for the enforcement of
any payment on or with respect to such holder's Notes;
(8) make any change in the amendment provisions which require the consent of
each holder of the Notes or in the waiver provisions; or
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(9) modify the Subsidiary Guarantees in any manner adverse to the holders of
the Notes.
Without the consent of any holder of the Notes, we and the Trustee may amend
the Indenture to:
(1) cure any ambiguity, omission, defect or inconsistency;
(2) provide for the assumption by a successor corporation of our obligations
under the Indenture;
(3) provide for uncertificated Notes in addition to, or in place of,
certificated Notes (provided that the uncertificated Notes are issued in
registered form for purposes of Section 163(f) of the Code, or in a
manner such that the uncertificated Notes are described in Section
163(f)(2)(B) of the Code);
(4) make any change in the subordination provisions of the Indenture that
would limit or terminate the benefits available to any holder of our
Senior Indebtedness or any representative of such holder under such
subordination provisions;
(5) add additional guarantees with respect to the Notes;
(6) secure the Notes;
(7) add to our covenants for the benefit of the Noteholders;
(8) surrender any right or power conferred upon us;
(9) make any change that does not adversely affect the rights of any holder
of the Notes;
(10) provide for the issuance of the Exchange Notes or Private Exchange Notes,
subject to the provisions of the Indenture; or
(11) comply with any requirement of the SEC in connection with the
qualification of the Indenture under the TIA.
No amendment may be made to the subordination provisions of the Indenture,
however, that adversely affects the rights of any holder of our Senior
Indebtedness then outstanding unless the holders of such Senior Indebtedness, or
any group or representative of such holders authorized to give a consent,
consent to such change.
The consent of the Noteholders will not be necessary under the Indenture to
approve the particular form of any proposed amendment. It will be sufficient if
such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, we will be required
to mail to Noteholders a notice briefly describing such amendment. However, the
failure to give such notice to all Noteholders, or any defect in such notice,
will not impair or affect the validity of the amendment.
Transfer and Exchange
A Noteholder may transfer or exchange Notes in accordance with the Indenture.
Upon any transfer or exchange, the registrar and the Trustee may require a
Noteholder, among other things, to furnish appropriate endorsements and transfer
documents, and we may require a Noteholder to pay any taxes required by law or
permitted by the Indenture. We will not be required to transfer or exchange any
Note selected for redemption or to transfer or exchange any Note for a period of
15 days prior to a selection of Notes to be redeemed. The Notes will be issued
in registered form, and the registered holder of a Note will be treated as the
owner of such Note for all purposes.
Defeasance
We at any time may terminate all our obligations under the Indenture and the
Notes ("legal defeasance"), except for certain obligations, including
obligations:
. relating to the defeasance trust;
. to register the transfer or exchange of the Notes;
. to replace mutilated, destroyed, lost or stolen Notes; and
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. to maintain a registrar and paying agent in respect of the Notes.
We at any time may terminate our obligations under:
. the covenants described under "--Certain Covenants;"
. the operation of the cross acceleration provision, the bankruptcy
provisions with respect to Significant Subsidiaries and the judgment
default provision described under "--Defaults;"
. clauses (3), (4) and (5) set forth in the first paragraph under "--
Merger, Consolidation and Certain Sales of Assets" ("covenant
defeasance").
In the event that we exercise our legal defeasance option or our covenant
defeasance option, each of our subsidiary guarantors will be released from all
of its obligations with respect to its Subsidiary Guarantee.
We may exercise our legal defeasance option in spite of our prior exercise of
our covenant defeasance option. If we exercise our legal defeasance option,
payment of the Notes may not be accelerated because of an Event of Default with
respect to our exercise of our legal defeasance option. If we exercise our
covenant defeasance option, payment of the Notes may not be accelerated because
of an Event of Default specified in clause (4), (6), (7) with respect only to
Significant Subsidiaries, (8) with respect only to Significant Subsidiaries or
(9) under "--Defaults" or because of our failure to comply with clause (3), (4)
and (5) set forth in the first paragraph under "--Merger, Consolidation and
Certain Sales of Assets."
In order to exercise either defeasance option, we must irrevocably deposit in
trust (the "defeasance trust") with the Trustee money or U.S. Government
Obligations for the payment of principal, premium, if any, and interest on the
Notes to redemption or maturity, as the case may be, and must comply with
certain other conditions, including delivery to the Trustee of an Opinion of
Counsel to the effect that holders of the Notes will not recognize income, gain
or loss for federal income tax purposes as a result of such deposit and
defeasance and will be subject to federal income tax on the same amounts and in
the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable federal income tax law.
Concerning the Trustee
Bankers Trust Company serves as the Trustee under the Indenture, and Bankers
Trust Company has been appointed by the Company as Registrar and Paying Agent
with regard to the Notes.
Governing Law
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
Indenture, which is attached as an exhibit to the registration statement.
"Accreted Value" means, as of any date of determination prior to April 15,
2004, the sum of:
(1) the initial offering price of each Note; and
(2) the portion of the excess of the principal amount of each Note over such
initial offering price which we shall have amortized in accordance with
GAAP through such date, such amount to be so amortized on a daily basis
and compounded semiannually on each interest payment date at a rate of 11
5/8% per annum from the date of the Indenture through the date of
determination computed on the basis of a 360-day year of twelve 30-day
months.
"Acquired Indebtedness" means, with respect to any Person, Indebtedness of
such Person:
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(1) existing at the time such Person becomes a Restricted Subsidiary; or
(2) assumed in connection with the acquisition of assets from another Person,
including Indebtedness Incurred in connection with, or in contemplation
of, such Person becoming a Restricted Subsidiary or such acquisition, as
the case may be.
"Acquisitions" means the Digital Acquisition, the Puerto Rico Acquisition and
the Wireless 2000 Acquisition.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by, or under direct or indirect common
control with, any specified Person. For purposes of this definition, "control"
when used with respect to any Person means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Annualized Pro Forma Consolidated Operating Cash Flow" means Consolidated
Cash Flow for the latest two full fiscal quarters for which our consolidated
financial statements are available multiplied by two. For purposes of
calculating "Consolidated Cash Flow" for any period for purposes of this
definition only:
(1) any of our Subsidiaries that is a Restricted Subsidiary on the date of the
transaction giving rise to the need to calculate "Annualized Pro Forma
Consolidated Operating Cash Flow" (the "Transaction Date") shall be deemed
to have been a Restricted Subsidiary at all times during such period; and
(2) any of our Subsidiaries that is not a Restricted Subsidiary on the
Transaction Date shall be deemed not to have been a Restricted Subsidiary
at any time during such period.
In addition to and without limitation of the foregoing, for purposes of this
definition only, "Consolidated Cash Flow" shall be calculated after giving
effect on a pro forma basis for the applicable period to, without duplication,
any Asset Dispositions or Asset Acquisitions, including, without limitation, any
Asset Acquisition giving rise to the need to make such calculation as a result
of our or one of the Restricted Subsidiaries, including any Person who becomes a
Restricted Subsidiary as a result of the Asset Acquisition Incurring, assuming
or otherwise being liable for Acquired Indebtedness, occurring during the period
commencing on the first day of such two-fiscal-quarter period to and including
the Transaction Date (the "Reference Period"), as if such Asset Sale or Asset
Acquisition occurred on the first day of the Reference Period.
"Asset Acquisition" means:
(1) any purchase or other acquisition, by means of transfer of cash,
Indebtedness or other property to others or payment for property or
services for the account or use of others or otherwise, of Capital Stock
of any Person by us or any Restricted Subsidiary, in either case, under
which such Person shall become a Restricted Subsidiary or shall be merged
with or into us or any Restricted Subsidiary; or
(2) any acquisition by us or any Restricted Subsidiary of the property or
assets of any Person which constitute all or substantially all of an
operating unit or line of business of such Person.
"Asset Disposition" means any sale, transfer or other disposition (including,
without limitation, by merger, consolidation or Sale/Leaseback Transaction) of:
(1) shares of Capital Stock of any of our Subsidiaries, other than directors'
qualifying shares;
(2) any License for the provision of wireless telecommunications services held
by us or any Restricted Subsidiary, whether by sale of Capital Stock or
otherwise; or
(3) any other property or assets of ours or any of our Subsidiaries other than
in the ordinary course of business;
provided, however, that an Asset Disposition shall not include:
(A) any sale, transfer or other disposition of shares of Capital Stock,
property or assets by a Restricted Subsidiary to us or to any other
Restricted Subsidiary or by us to any Restricted Subsidiary;
(B) any sale, transfer or other disposition of defaulted receivables for
collection;
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(C) the sale, lease, conveyance or disposition or other transfer of all or
substantially all of our assets as permitted under "--Covenants--Merger,
Consolidation and Certain Sales of Assets;"
(D) any disposition that constitutes a Change of Control; or
(E) any sale, transfer or other disposition of shares of Capital Stock of any
Marketing Affiliate; provided that such Marketing Affiliate is not engaged
in any activity other than the registration, holding, maintenance or
protection of trademarks and such related licensing; or
(F) any sale, transfer or other disposition that does not, together with all
related sales, transfers or dispositions, involve aggregate consideration
in excess of $5.0 million.
"AT&T Wireless" means AT&T Wireless PCS Inc., a Delaware corporation.
"Average Life" means, as of the date of determination, with respect to any
Indebtedness for borrowed money or Preferred Stock, the quotient obtained by
dividing:
(1) the sum of the products of the number of years from the date of
determination to the dates of each successive scheduled principal or
liquidation value payments of such Indebtedness or Preferred Stock,
respectively, and the amount of such principal or liquidation value
payments by
(2) the sum of all such principal or liquidation value payments.
"Bank Indebtedness" means any and all amounts payable under or in respect of
the Credit Agreement and any Refinancing Indebtedness with respect to the Credit
Agreement, as amended from time to time, including principal, premium, if any,
interest, including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to us whether or not a claim for post-
filing interest is allowed in such proceedings, fees, charges, expenses,
reimbursement obligations, guarantees and all other amounts payable thereunder
or in respect thereof.
"board" of any Person means the board of directors, management committee or
other governing body of such Person.
"BTA" means a Basic Trading Area, as defined in 47 C.F.R. (S)24.202.
"Business Day" means any date which is not a Legal Holiday.
"C-Block License" means any License in the C block as set forth in parts 1 and
24 of Title 47 of the Code of Federal Regulations.
"Capital Lease Obligations" of any Person means the obligations to pay rent or
other amounts under a lease of, or other Indebtedness arrangements conveying the
right to use, real or personal property of such Person which are required to be
classified and accounted for as a capital lease or liability on the face of a
balance sheet of such Person in accordance with GAAP. The amount of such
obligations shall be the capitalized amount of such obligations in accordance
with GAAP, and the Stated Maturity of such obligations shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants options, participations or other equivalents of or interests
in, however, designated, of corporate stock or other equity participations,
including partnership interests, whether general or limited, of such Person.
"Cash Equity Investors" means CB Capital Investors, L.P., Equity-Linked
Investors-II, Private Equity Investors III, L.P., Hoak Communications Partners,
L.P., HCP Capital Fund, L.P., Whitney Equity Partners, L.P., J. H. Whitney III,
L.P., Whitney Strategic Partners III, L.P., Entergy Technology Holding Company,
Media/Communications Partners III Limited Partnership, Media/Communications
Investors Limited Partnership, One Liberty Fund III, L.P., One Liberty Fund IV,
L.P., Toronto Dominion Investments, Inc., Northwood Ventures LLC, Northwood
Capital Partners LLC, Gerald Vento, Thomas Sullivan and Gilde International B.V.
"Cash Equivalents" means:
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(1) direct obligations of, or obligations the principal of and interest on
which are unconditionally guaranteed by, the United States of America (or
by any agency to the extent such obligations are backed by the full faith
and credit of the United States of America), in each case maturing within
one year from the date of such acquisition;
(2) investments in commercial paper maturing within 365 days from the date of
such acquisition and having, at such date of acquisition, the highest
credit rating obtainable from Standard & Poor's Corporation or from
Moody's Investors Service;
(3) investments in certificates of deposit, banker's acceptance and time
deposits maturing within 365 days from the date of such acquisition issued
or guaranteed by or placed with, and money market deposit accounts issued
or offered by, any domestic office of any commercial bank organized under
the laws of the United States of America or any of its States which has a
combined capital and surplus and undivided profits of not less than
$500,000,000;
(4) fully collateralized repurchase agreements with a term of not more than 30
days for securities described in clause (1) above and entered into with a
financial institution satisfying the criteria described in clause (3)
above; and
(5) money market funds substantially all of whose assets comprise securities
of the type described in clauses (1) through (3) above.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" of any Person means Capital Stock of such Person that does not
rank prior, as to the payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person.
"Communications Act" means the Communications Act of 1934, and any similar or
successor Federal statute, and the rules and regulations and published policies
of the FCC thereunder, all as amended and as the same may be in effect from time
to time.
"Consolidated Cash Flow" of any Person means, for any period, the Consolidated
Net Income of such Person for such period:
(1) increased, to the extent Consolidated Net Income for such period has been
reduced thereby, by the sum of, without duplication"
(A) Consolidated Interest Expense of such Person for such period; plus
(B) Consolidated Income Tax Expense of such Person for such period; plus
(C) the consolidated depreciation and amortization expense of such Person
and its Restricted Subsidiaries for such period; plus
(D) any other non-cash charges of such Person and its Restricted
Subsidiaries for such period except for any non-cash charges that
represent accruals of, or reserves for, cash disbursements to be made
in any future accounting period; and
(2) decreased, to the extent Consolidated Net Income for such period has been
increased thereby, by any non-cash gains from Asset Dispositions.
"Consolidated Income Tax Expense" of any Person means, for any period, the
consolidated provision for income taxes of such Person and its Restricted
Subsidiaries for such period calculated on a consolidated basis in accordance
with GAAP.
"Consolidated Interest Expense" for any Person means, for any period, without
duplication:
(1) the consolidated interest expense included in a consolidated income
statement, without deduction of interest or finance charge income, of such
Person and its Restricted Subsidiaries for such period calculated on a
consolidated basis in accordance with GAAP, including, without limitation,
(a) any amortization of debt discount, (b) the net costs under Hedging
Agreements, (c) all capitalized interest, (d) the interest portion of any
deferred payment obligation and (e) all amortization of any premiums, fees
and expenses payable in connection with the Incurrence of any
Indebtedness; plus
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(2) the interest component of Capital Lease Obligations paid, accrued and/or
scheduled to be paid or accrued, by such Person and its Restricted
Subsidiaries during such period as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Net Income" of any Person means for any period the consolidated
net income (or loss) of such Person and its Restricted Subsidiaries for such
period determined on a consolidated basis in accordance with GAAP; provided,
however, that there shall be excluded therefrom:
(1) the net income or loss of any Person acquired by such Person or a
Restricted Subsidiary of such Person in a pooling-of-interests transaction
for any period prior to the date of such transaction;
(2) the net income but not loss of any Restricted Subsidiary of such Person
which is subject to restrictions which prevent or limit the payment of
dividends or the making of distributions to such Person to the extent of
such restrictions, regardless of any waiver;
(3) the net income of any Person that is not a Restricted Subsidiary of such
Person, except to the extent of the amount of dividends or other
distributions representing such Person's proportionate share of such other
Person's net income for such period actually paid in cash to such Person
by such other Person during such period;
(4) gains or losses, other than for purposes of calculating Consolidated Net
Income under clause (c) of the first paragraph under "--Certain Covenants-
-Limitation on Restricted Payments," on Asset Dispositions by such Person
or its Restricted Subsidiaries;
(5) all extraordinary gains, but not, other than for purposes of calculating
Consolidated Net Income under clause (c) of the first paragraph under "--
Certain Covenants--Limitation on Restricted Payments," losses, determined
in accordance with GAAP; and
(6) in the case of a successor to such Person by consolidation or merger or as
a transferee of such Person's assets, any earnings or losses of the
successor corporation prior to such consolidation, merger or transfer of
assets.
"Credit Agreement" means the Credit Agreement dated as of July 17, 1998, as
amended, waived or otherwise modified from time to time, among the Company, the
financial institutions named in the Credit Agreement as lenders, The Chase
Manhattan Bank, as Administrative Agent and Issuing Bank, TD Securities (USA)
Inc., as Syndication Agent, and Bankers Trust Company, as Documentation Agent,
except to the extent that any such amendment, waiver or other modification to
the Credit Agreement would be prohibited by the terms of the Indenture, unless
otherwise agreed to by the holders of at least a majority in aggregate principal
amount at maturity of the Notes at the time outstanding.
"Default" means any event that is, or after notice or lapse of time or both
would become, an Event of Default.
"Designated Senior Indebtedness of us" means:
(1) so long as outstanding, Bank Indebtedness; and
(2) so long as outstanding, any other Senior Indebtedness which has at the
time of initial issuance an aggregate outstanding principal amount in
excess of $25.0 million and which has been so designated as Designated
Senior Indebtedness by our Board at the time of its initial issuance in a
resolution delivered to the Trustee. "Designated Senior Indebtedness" of
our subsidiary guarantors has a correlative meaning.
"Designation" has the meaning set forth under "--Certain Covenants--Limitation
on Designations of Unrestricted Subsidiaries."
"Designation Amount" has the meaning set forth under "--Certain Covenants--
Limitation on Designations of Unrestricted Subsidiaries."
"Digital Acquisition" means our purchase by us from Digital PCS of 10 MHz of
F-Block Licenses for the Baton Rouge, Houma, Hammond and Lafayette, Louisiana
BTAs together with related assets.
"Digital PCS" means Digital PCS, L.L.C.
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"Disqualified Stock" of any Person means any Capital Stock of such Person
which, by its terms, or by the terms of any security into which it is
convertible or for which it is exchangeable, or upon the happening of any event,
matures or is mandatorily redeemable, under a sinking fund obligation or
otherwise, or is redeemable at the option of the holder thereof, in whole or in
part, on or prior to the first anniversary of the Stated Maturity of the Notes;
provided, however, that any Capital Stock that would not constitute Disqualified
Stock but for such provisions giving such holders the right to require such
Person to repurchase or redeem such Capital Stock upon the occurrence of an
"asset sale" or "change of control" occurring prior to the first anniversary of
the Stated Maturity of the Notes shall not constitute Disqualified Stock if the
"asset sale" or "change of control" provisions applicable to such Capital Stock
are no more favorable to the holders of such Capital Stock than the provisions
of the covenant described under "Change of Control."
"Equipment Subsidiary" means TeleCorp Equipment Leasing L.P. and/or any other
of our Wholly Owned Subsidiaries designated as an Equipment Subsidiary under the
Credit Agreement.
"Equity Offering" means any public or private sale of Qualified Stock that we
make on a primary basis by the Company, including through the issuance or sale
of Qualified Stock to one or more Strategic Equity Investors.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated by the SEC thereunder.
"Exchange Notes" means, collectively, our debt securities that are identical
in all material respects to the Notes, except for transfer restrictions relating
to the Notes, issued in a like aggregate principal amount at maturity of the
Notes originally issued under the Exchange and Registration Rights Agreement.
"Exchange Offer" means a registered exchange offer for the Notes undertaken by
us under the Exchange and Registration Rights Agreement.
"Excluded Cash Proceeds" means the first $128 million of net cash proceeds
received by us subsequent to the date of the Indenture from capital
contributions in respect of our Qualified Stock or from the issue or sale, other
than to a Restricted Subsidiary, of Qualified Stock.
"F-Block License" means any License in the F block as set forth in parts 1 and
24 of Title 47 of the Code of Federal Regulations.
"Fair Market Value" means, with respect to any asset or property, the price
that could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of which is under pressure
or compulsion to complete the transaction. Unless otherwise specified in the
Indenture, Fair Market Value shall be determined by our Board acting in good
faith.
"FCC" means the Federal Communications Commission, or any other similar or
successor agency of the Federal government administering the Communications Act.
"FCC Debt" means Indebtedness owed to the United States Treasury Department or
the FCC that is incurred in connection with the acquisition of a License.
"GAAP" means generally accepted accounting principles, consistently applied,
as in effect from time to time in the United States of America, as set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as is approved by a significant segment of the
accounting profession in the United States.
"Hedging Agreement" means any interest rate, currency or commodity swap
agreement, interest rate, currency or commodity future agreement, interest rate
cap or collar agreement, interest rate, currency or commodity hedge agreement
and any put, call or other agreement designed to protect against fluctuations in
interest rates, currency exchange rates or commodity prices.
"Holder" or "Noteholder" means the Person in whose name a Note is registered
on the registrar's books.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur, including by conversion, exchange or otherwise,
assume, guarantee or otherwise become liable in respect of such Indebtedness or
other obligation or the recording, as required under GAAP or otherwise, of any
such Indebtedness or other obligation on the balance sheet of such Person, and
"Incurrence," "Incurred" and "Incurring" shall have meanings correlative to the
foregoing. Indebtedness
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of any Person or any of its Restricted Subsidiaries existing at the time such
Person becomes a Restricted Subsidiary, or is merged into, or consolidates with,
us or any Restricted Subsidiary, whether or not such Indebtedness was Incurred
in connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary, or being merged into, or consolidated with, us or any Restricted
Subsidiary, shall be deemed Incurred at the time any such Person becomes a
Restricted Subsidiary or merges into, or consolidates with, us or any Restricted
Subsidiary.
"Indebtedness" means without duplication, with respect to any Person, whether
recourse is to all or a portion of the assets of such Person and whether or not
contingent:
(1) every obligation of such Person for money borrowed;
(2) every obligation of such Person evidenced by bonds, debentures, notes or
other similar instruments, including obligations Incurred in connection
with the acquisition of property, assets or businesses;
(3) every reimbursement obligation of such Person with respect to letters of
credit, bankers' acceptances or similar facilities issued for the account
of such Person;
(4) every obligation of such Person issued or assumed as the deferred purchase
price of property or services, but excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business which are
not overdue or which are being contested in good faith;
(5) every Capital Lease Obligation of such Person;
(6) every net obligation under Hedging Agreements or similar agreements of
such Person; and
(7) every obligation of the type referred to in clauses (1) through (6) of
another Person and all dividends of another Person the payment of which,
in either case, such Person has guaranteed or is responsible or liable
for, directly or indirectly, as obligor, guarantor or otherwise.
Indebtedness shall:
(1) include the liquidation preference and any mandatory redemption payment
obligations in respect of any of our Disqualified Stock and any Restricted
Subsidiary and any Preferred Stock of any of our Subsidiaries;
(2) never be calculated taking into account any cash and Cash Equivalents held
by such Persons;
(3) not include obligations arising from our agreements or agreement of a
Restricted Subsidiary to provide for indemnification, adjustment of
purchase price, earn-out or other similar obligations, in each case,
Incurred or assumed in connection with the disposition of any business or
assets of a Restricted Subsidiary.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value of such indebtedness, in the case of any Indebtedness
issued with original issue discount;
(2) the principal amount of such indebtedness, in the case of any Indebtedness
other than Indebtedness issued with original issue discount; and
(3) the greater of the maximum repurchase or redemption price or liquidation
preference of such indebtedness, in the case of any Disqualified Stock or
Preferred Stock.
"Ineligible Subsidiary" means:
(1) any Special Purpose Subsidiary;
(2) any of our subsidiary guarantors;
(3) any of our Subsidiaries that, directly or indirectly, own any Capital
Stock or Indebtedness of or own or hold any Lien on any property of, us or
any of our other Subsidiaries that is not a Subsidiary of the Subsidiary
to be so designated; and
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(4) any of our Subsidiaries that, directly or indirectly, own any Capital
Stock or Indebtedness of, or own or hold any Lien on any property of,
any other Subsidiaries that is not eligible to be designated as an
Unrestricted Subsidiary.
"initial purchasers" means Chase Securities Inc., BT Alex. Brown
Incorporated and Lehman Brothers Inc.
"Investment" in any Person means any direct or indirect loan, advance,
guarantee or other extension of credit or capital contribution to, by means of
transfers of cash or other property to others or payments for property or
services for the account or use of others or otherwise, or purchase or
acquisition of Capital Stock, bonds, notes, debentures or other securities or
evidence of Indebtedness issued by, any other Person.
"Legal Holiday" means a Saturday, Sunday or other day on which banking
institutions in the State of New York are authorized or required by law to
close.
"License" means any broadband Personal Communications Services license
issued by the FCC in connection with the operation of a System.
"License Subsidiary" means TeleCorp PCS, L.L.C. and THC and/or any of our
other Wholly Owned Restricted Subsidiaries designated as a License Subsidiary
under the Credit Agreement.
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, security interest, lien, charge,
easement other than any easement not materially impairing usefulness or
marketability, encumbrance, preference, priority or other security agreement
with respect to such property or assets, including, without limitation, any
conditional sale or other title retention agreement having substantially the
same economic effect as any of the foregoing.
"Lucent" means Lucent Technologies Inc., a Delaware corporation.
"Lucent Note Purchase Agreement" means the Note Purchase Agreement dated as
of May 11, 1998, between us and Lucent, as amended as of the date of the
Indenture.
"Management Stockholders" means Gerald Vento and Thomas Sullivan.
"Marketing Affiliate" means any Person which engages in no activity other
than the registration, holding, maintenance or protection of trademarks and such
related licensing.
"MTA" means a Major Trading Area, as defined in 47 C.F.R. (S)24.202.
"Net Available Proceeds" from any Asset Disposition by any Person means
cash or readily marketable Cash Equivalents received, including by way of sale
or discounting of a note, installment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquiror of Indebtedness or other obligations relating to such properties or
assets or received in any other non-cash form, from such Asset Disposition by
such Person, including any cash received by way of deferred payment or upon the
monetization or other disposition of any non-cash consideration, including notes
or other securities received in connection with such Asset Disposition, net of:
(1) all legal, title and recording tax expenses, commissions and other
fees and expenses incurred and all federal, state, foreign and local
taxes required to be accrued as a liability as a consequence of such
Asset Disposition;
(2) all payments made by such Person or any of its Restricted Subsidiaries
on any Indebtedness which is secured by such assets in accordance with
the terms of any Lien upon or with respect to such assets or which
must, by the terms of such Lien, or in order to obtain a necessary
consent to such Asset Disposition or by applicable law, be repaid out
of the proceeds from such Asset Disposition;
(3) all payments made with respect to liabilities associated with the
assets which are the subject of the Asset Disposition, including,
without limitation, trade payables and other accrued liabilities;
(4) appropriate amounts to be provided by such Person or any Restricted
Subsidiary, as the case may be, as a reserve in accordance with GAAP
against any liabilities associated with such assets and retained by
such Person or any such Restricted Subsidiary, as the case may be,
after such Asset
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Disposition, including, without limitation, liabilities under any
indemnification obligations and severance and other employee
termination costs associated with such Asset Disposition, until such
time as such amounts are no longer reserved or such reserve is no
longer necessary at which time any remaining amounts will become Net
Available Proceeds to be allocated in accordance with the provisions
of clause (3) of the covenant described under "--Certain Covenants--
Limitation on Certain Asset Dispositions"; and
(5) all distributions and other payments made to minority interest holders
in Restricted Subsidiaries of such Person or joint ventures as a
result of such Asset Disposition.
"Net Investment" means the excess of:
(1) the aggregate amount of all Investments made in any Unrestricted
Subsidiary or joint venture by us or any Restricted Subsidiary on or
after the date of the Indenture, in the case of an Investment made
other than in cash, the amount shall be the Fair Market Value of such
Investment as determined in good faith by our Board or the board of
such Restricted Subsidiary; over
(2) the aggregate amount returned in cash on or with respect to such
Investments whether through interest payments, principal payments,
dividends or other distributions or payments; provided, however, that
such payments or distributions shall not be, and have not been,
included in clause (c) of the first paragraph described under "--
Certain Covenants--Limitation on Restricted Payments;" provided
further that, with respect to all Investments made in any Unrestricted
Subsidiary or joint venture, the amounts referred to in clause (1)
above with respect to such Investments shall not exceed the aggregate
amount of all such Investments made in such Unrestricted Subsidiary or
joint venture.
"Note" or "Notes" means any Note or Note issued under the Indenture,
including any Exchange Note or Exchange Notes, or any Private Exchange Note or
Private Exchange Notes, issued in exchange for any Note in connection with an
Exchange Offer.
"Noteholder" or "Holder" means the Person in whose name a Note is
registered on the registrar's books.
"Offer to Purchase" means a written offer (the "Offer") sent by us by first
class mail, postage prepaid, to each holder of the Notes at such holder's
address appearing in the register for the Notes on the date of the Offer
offering to purchase up to (a) the Accreted Value of Notes, if such Offer is on
or prior to April 15, 2004, or (b) the principal amount at maturity of the
Notes, if such Offer is after April 15, 2004, specified in such Offer at the
purchase price specified in such Offer as determined under the Indenture. Unless
otherwise required by applicable law, the Offer shall specify an expiration date
(the "Expiration Date") of the Offer to Purchase which shall be not less than 30
days nor more than 60 days after the date of such Offer and a settlement date
(the "Purchase Date") for purchase of the Notes within five Business Days after
the Expiration Date. We shall notify the Trustee at least 15 Business Days, or
such shorter period as is acceptable to the Trustee, prior to the mailing of the
Offer of our obligation to make an Offer to Purchase, and the Offer shall be
mailed by us or, at our request, by the Trustee in our name and at our expense.
The Offer shall contain all the information required by applicable law to be
included in such Offer. The Offer shall contain all instructions and materials
necessary to enable holders of the Notes to tender their Notes under the Offer
to Purchase. The Offer shall also state:
(1) the provision of the Indenture under which we make the Offer to
Purchase;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount at maturity of the Old Notes offered
which we will purchase in the Offer to Purchase, including, if less
than 100%, the manner by which such amount has been determined under a
specified provision of the Indenture requiring the Offer to Purchase
(the "Purchase Amount");
(4) the purchase price that we will pay for each $1,000 aggregate
principal amount at maturity of Notes accepted for payment, as
specified under the Indenture (the "Purchase Price");
(5) that such holder may tender all or any portion of the Notes registered
in the name of such holder and that any portion of a Note tendered
must be tendered in an integral multiple of $1,000 principal amount at
maturity;
(6) the place or places where the Notes are to be surrendered for tender
in the Offer to Purchase;
(7) that interest on any Note not tendered or tendered but which we do not
purchase in the Offer to Purchase will continue to accrue;
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(8) that on the Purchase Date the Purchase Price will become due and
payable upon each Note being accepted for payment in the Offer to
Purchase and that interest on such note shall cease to accrue on and
after the Purchase Date;
(9) that each holder electing to tender all or any portion of a Note under
the Offer to Purchase will be required to surrender such Note at the
place or places specified in the Offer prior to the close of business
on the Expiration Date, such Note being, if we or the Trustee so
require, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to us and the Trustee duly executed by,
the holder of such Note or such holder's attorney duly authorized in
writing;
(10) that holders will be entitled to withdraw all or any portion of Notes
tendered if we or our paying agent receive, not later than the close
of business on the fifth Business Day next preceding the Expiration
Date, a telegram, telex, facsimile transmission or letter setting
forth the name of the holder, the principal amount at maturity of the
Note the holder tendered, the certificate number of the Note the
holder tendered and a statement that such holder is withdrawing all or
a portion of such holder's tender;
(11) that (a) if Notes in an aggregate principal amount at maturity less
than or equal to the Purchase Amount are duly tendered and not
withdrawn in the Offer to Purchase, we shall purchase all such Notes
and (b) if Notes in an aggregate principal amount at maturity in
excess of the Purchase Amount are tendered and not withdrawn in the
Offer to Purchase, we shall purchase Notes having an aggregate
principal amount at maturity equal to the Purchase Amount on a pro
rata basis with such adjustments as may be deemed appropriate so that
only Notes in denominations of $1,000 or integral multiples of $1,000
shall be purchased; and
(12) that in the case of any holder whose Note is purchased only in part,
we shall execute and the Trustee shall authenticate and deliver to the
holder of such Note without service charge, a new Note or Notes, of
any authorized denomination as requested by such holder, in an
aggregate principal amount at maturity equal to and in exchange for
the unpurchased portion of the Note so tendered.
An Offer to Purchase shall be governed by and effected in accordance with the
provisions above pertaining to any Offer.
"Officer" means the Chief Executive Officer, the Executive Vice President,
the Chief Financial Officer, the Chief Operating Officer, the President, any
Vice President, the Treasurer or any Secretary of us or any of our Subsidiaries,
as the case may be.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to us or
the Trustee.
"Permitted Asset Swap" means any exchange of assets by us or a Restricted
Subsidiary where we and/or our Restricted Subsidiaries receive consideration at
least 75% of which consists of (1) cash, (2) assets that are used or useful in a
Permitted Business or (3) any combination of such cash and such assets.
"Permitted Business" means:
(1) the delivery or distribution of telecommunications, voice, data or
video services;
(2) any business or activity reasonably related or ancillary to,
including, without limitation, any business conducted by us or any
Restricted Subsidiary on the date of the Indenture and the
acquisition, holding or exploitation of any license relating to the
delivery of the services described in clause (1) above; or
(3) any other business or activity in which we and the Restricted
Subsidiaries are expressly contemplated to be engaged under the
provisions of our certificate of incorporation and by-laws in effect
on the date of the Indenture.
"Permitted Holder" means:
(1) each of AT&T Wireless, TWR Cellular, the Cash Equity Investors, the
Management Stockholders, Digital PCS, Wireless 2000 and any of their
respective Affiliates and the respective successors by merger,
consolidation, transfer or otherwise to all or substantially all of
the respective businesses and assets of any of the foregoing; and
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(2) any "person" or "group" as such terms are used in Sections 13(d) and
14(d) of the Exchange Act controlled by one or more persons identified
in clause (1) above.
"Permitted Investments" means:
(1) Investments in Cash Equivalents;
(2) Investments representing Capital Stock or obligations issued to us or
any Restricted Subsidiary in the course of the good faith settlement
of claims against any other Person or by reason of a composition or
readjustment of debt or a reorganization of any debtor of us or any
Restricted Subsidiary;
(3) deposits including interest-bearing deposits, maintained in the
ordinary course of business in banks;
(4) any Investment in any Person; provided, however, that, after giving
effect to such Investment, such Person is or becomes a Restricted
Subsidiary or such Person is merged, consolidated or amalgamated with
or into, or transfers or conveys substantially all of its assets to,
or is liquidated into, us or a Restricted Subsidiary;
(5) trade receivables and prepaid expenses, in each case arising in the
ordinary course of business; provided, however, that such receivables
and prepaid expenses would be recorded as assets of such Person in
accordance with GAAP;
(6) endorsements for collection or deposit in the ordinary course of
business by such Person of bank drafts and similar negotiable
instruments of such other Person received as payment for ordinary
course of business trade receivables;
(7) any interest rate agreements with an unaffiliated Person otherwise
permitted by clause (5) or (6) under "--Certain Covenants--Limitation
on Incurrence of Indebtedness;"
(8) Investments received as consideration for an Asset Disposition in
compliance with the provisions of the Indenture described under "--
Certain Covenants--Limitation on Certain Asset Dispositions;"
(9) loans or advances to employees of us or any Restricted Subsidiary in
the ordinary course of business in an aggregate amount not to exceed
$5.0 million in the aggregate at any one time outstanding;
(10) any Investment acquired by us or any of our Restricted Subsidiaries as
a result of a foreclosure by us or any of our Restricted Subsidiaries
or in connection with the settlement of any outstanding Indebtedness
or trade payable;
(11) loans and advances to officers, directors and employees for business-
related travel expense, moving expense and other similar expenses,
each incurred in the ordinary course of business; and
(12) other Investments with each such Investment being valued as of the
date made and without giving effect to subsequent changes in value in
an aggregate amount not to exceed $7.5 million at any one time
outstanding.
"Person" means any individual, corporation, limited or general partnership,
joint venture, association, joint stock company, trust, unincorporated
organization or government or any agency or political subdivision.
"Plan of Liquidation" means, with respect to any Person, a plan including
by operation of law that provides for, contemplates, or the effectuation of
which is preceded or accompanied by whether or not substantially
contemporaneously:
(1) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such Person; and
(2) the distribution of all or substantially all of the proceeds of such
sale, lease, conveyance or other disposition and all or substantially
all of the remaining assets of such Person to holders of Capital Stock
of such Person.
"Preferred Stock," as applied to the Capital Stock of any Person, means
Capital Stock of such Person of any class or classes, however designated, that
ranks prior, as to the payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person.
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
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"Private Exchange Notes" means, collectively, our debt securities that are
identical in all material respects to the Exchange Notes, except for transfer
restrictions relating to such Private Exchange Notes, that we issued under the
same indenture as the Exchange Notes, simultaneously with the delivery of the
Exchange Notes in the Exchange Offer to any Noteholder that holds any Notes
acquired by it that have, or that are reasonably likely to be determined to
have, the status of an unsold allotment in an initial distribution, or to any
Noteholder that is not entitled to participate in the Exchange Offer, upon the
request of any such holder, in exchange for a like aggregate principal amount of
Notes held by such holder.
"Public Sale" means any underwritten public offering, made on a primary
basis under a registration statement filed with, and declared effective by, the
SEC in accordance with the Securities Act.
"Puerto Rico Acquisition" means the merger of Puerto Rico Acquisition Corp.
into us and the purchase by us from AT&T Wireless of 20 MHz of A-Block Licenses
covering the San Juan MTA together with related assets.
"Qualified License" means, as of the date of determination, any License
covering or adjacent to any geographical area in respect of which we or any
Restricted Subsidiary owns, as of the Business Day immediately prior to such
date of determination, at least one other License covering a substantial portion
of such area.
"Qualified Stock" means any of our Capital Stock other than Disqualified
Stock.
"Real Property Subsidiary" means TeleCorp Realty L.L.C., Puerto Rico
Acquisition Corp. and/or any of our other Wholly Owned Subsidiaries that we
designate as a Real Property Subsidiary under the Credit Agreement.
"Refinance" means refinance, renew, extend, replace or refund; and
"Refinancing" and "Refinanced" have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend, including under any defeasance or
discharge mechanism, any of our Indebtedness or any Restricted Subsidiary
existing on the date of the Indenture or Incurred in compliance with the
Indenture, including our Indebtedness that Refinances Refinancing Indebtedness;
provided, however, that:
(1) the Refinancing Indebtedness has a Stated Maturity no earlier than the
Stated Maturity of the Indebtedness being Refinanced;
(2) the Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than
the Average Life of the Indebtedness being refinanced;
(3) such Refinancing Indebtedness is Incurred in an aggregate principal
amount, or if issued with original issue discount, an aggregate issue
price, that is equal to or less than the aggregate principal amount,
or if issued with original issue discount, the aggregate accreted
value, then outstanding of the Indebtedness being Refinanced plus the
amount of any premium required to be paid in connection with such
Refinancing under the terms of the Indebtedness being Refinanced or
the amount of any premium reasonably determined by the issuer of such
Indebtedness as necessary to accomplish such Refinancing by means of a
tender offer, exchange offer or privately negotiated repurchase, plus
the expenses of such issuer reasonably incurred in connection with
such Refinancing; and
(4) if the Indebtedness being Refinanced is pari passu with the Notes,
such Refinancing Indebtedness is made pari passu with, or subordinate
in right of payment to, the Notes, and, if the Indebtedness being
Refinanced is subordinate in right of payment to the Notes, such
Refinancing Indebtedness is subordinate in right of payment to the
Notes on terms no less favorable to the holders of Notes than those
contained in the Indebtedness being Refinanced;
provided further, however, that Refinancing Indebtedness shall not include:
(A) Indebtedness of a Restricted Subsidiary that Refinances our
Indebtedness; or
(B) Our Indebtedness or Indebtedness of a Restricted Subsidiary that
Refinances Indebtedness of an Unrestricted Subsidiary.
"Restricted Subsidiary" means any of our Subsidiaries other than an
Unrestricted Subsidiary.
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"Revocation" has the meaning set forth under "--Certain Covenants--
Limitation on Designations of Unrestricted Subsidiaries."
"Sale/Leaseback Transaction" means an arrangement relating to property
owned on the date of the Indenture or acquired by us or a Restricted Subsidiary
after the date of the Indenture that involves our or a Restricted Subsidiary's
transferring of such property to a Person and our or such Restricted
Subsidiary's leasing it from such Person, other than leases between us and a
Wholly Owned Subsidiary or between Wholly Owned Subsidiaries.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Purchase Agreement" means the Securities Purchase Agreement
dated January 23, 1998, among AT&T Wireless, TWR Cellular, the stockholders of
THC, the Cash Equity Investors, the Management Stockholders and us, as the such
agreement may be amended from time to time in accordance with the provisions of
such agreement, so long as the terms of any such amendment are no less favorable
to the Noteholders than the terms of the Securities Purchase Agreement in effect
on the date of the Indenture.
"Senior Subordinated Indebtedness" of us means the Notes and any of our
other Indebtedness that specifically provides that such Indebtedness is to rank
pari passu with the Notes in right of payment and is not subordinated by its
terms in right of payment to any Indebtedness or any other of our obligations
which is not Senior Indebtedness. "Senior Subordinated Indebtedness" of our
subsidiary guarantors has a correlative meaning.
"Series A Notes" means our Series A Notes purchased by Lucent under the
Lucent Note Purchase Agreement.
"Significant Subsidiary" means any Restricted Subsidiary that would be our
"Significant Subsidiary" within the meaning of Rule 1-02 under Regulation S-X
promulgated by the SEC.
"Special Purpose Subsidiary" means any Equipment Subsidiary, License
Subsidiary or Real Property Subsidiary.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including under any mandatory redemption
provision, but excluding any provision providing for the repurchase of such
security at the option of the holder of such security upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred.
"Stockholders' Agreement" means the Stockholders' Agreement dated as of
July 17, 1998, among AT&T Wireless, TWR Cellular, the Cash Equity Investors, the
Management Stockholders and us, as such agreement may be amended from time to
time in accordance with the provisions of such agreement, so long as the terms
of any such amendment are no less favorable to the Noteholders than the terms of
the Stockholders' Agreement in effect on the date of the Indenture.
"Strategic Equity Investor" means any of the Cash Equity Investors, any
such Affiliate, any other Person engaged in a Permitted Business whose Total
Equity Market Capitalization exceeds $500 million or any other Person who has at
least $100 million total funds under management and who has issued an
irrevocable, unconditional commitment to purchase our Qualified Stock for an
aggregate purchase price that does not exceed 20% of the value of the funds
under management by such Person.
"Subordinated Indebtedness" means any of our Indebtedness or any
Indebtedness of any of our subsidiary guarantors whether outstanding on the date
of the Indenture or Incurred after such date, which is by its terms expressly
subordinate or junior in right of payment to the Notes or the Subsidiary
Guarantee of such subsidiary guarantor, as the case may be.
"Subsidiary" of any Person means:
(1) a corporation more than 50% of the outstanding Voting Stock of which
is owned, directly or indirectly, by such Person or by one or more
other Subsidiaries of such Person or by such Person and one or more
other Subsidiaries of such Person; or
(2) any other Person, other than a corporation, in which such Person, or
one or more other Subsidiaries of such Person or such Person and one
or more other Subsidiaries of such Person, directly or indirectly, has
at least a majority ownership and voting power relating to the
policies, management and affairs of such Person.
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"Subsidiary Guarantee" means each guarantee of the obligations with respect
to the Notes issued by any of our Subsidiaries under the terms of the Indenture,
each such Subsidiary Guarantee having subordination provisions equivalent to
those contained in the Indenture with respect to the Notes and being
substantially in the form prescribed in the Indenture.
"System" means, as to any Person, assets constituting a radio
communications system authorized under the rules for wireless communications
services, including any license and the network, marketing, distribution, sales,
customer interface and operations and functions relating to such license, owned
and operated by such Person.
"THC" means TeleCorp Holding Corp., Inc., a Delaware corporation and a
Wholly Owned Subsidiary.
"Total Consolidated Indebtedness" means, at any date of determination, an
amount equal to:
(1) the accreted value of all Indebtedness, in the case of any
Indebtedness issued with original issue discount; plus
(2) the principal amount of all Indebtedness, in the case of any other
Indebtedness,
of us and our Restricted Subsidiaries outstanding as of the date of
determination; provided, however, that no amount owing by us or any of our
Restricted Subsidiaries in respect of any Series A Notes outstanding as of the
date of determination shall be included in the determination of Total
Consolidated Indebtedness.
"Total Equity Market Capitalization" of any Person means, as of any day of
determination, the sum of (a) the product of (1) the aggregate number of
outstanding primary shares of common stock of such Person on such day, which
shall not include any options or warrants on, or securities convertible or
exchangeable into, shares of common stock of such Person, multiplied by (2) the
average closing price of such common stock listed on a national securities
exchange or the Nasdaq National Market System over the 20 consecutive Business
Days immediately preceding such day plus (b) the liquidation value of any
outstanding shares of preferred stock of such Person on such day.
"Total Invested Capital" means, as of any date of determination, the sum
of, without duplication:
(1) the total amount of equity contributed to us as of the date of the
Indenture, as set forth on our December 31, 1998 consolidated balance
sheet; plus
(2) irrevocable, unconditional commitments from any Strategic Equity
Investor to purchase our Capital Stock other than Disqualified Stock,
within 36 months of the date of issuance of such commitment, but in
any event not later than the Stated Maturity of the Notes; provided,
however, that such commitments shall exclude commitments related to
any Investment in any Person incorporated, formed or created for the
purpose of acquiring one or more Qualified Licenses unless such Person
shall become a Restricted Subsidiary; plus
(3) the aggregate net cash proceeds received by us from capital
contributions or the issuance or sale of our Capital Stock, other than
Disqualified Stock, but including Qualified Stock issued upon the
conversion of convertible Indebtedness or upon the exercise of
options, warrants or rights to purchase Qualified Stock, subsequent to
the date of the Indenture, other than issuances or sales of Capital
Stock to a Restricted Subsidiary and other than capital contributions
from, or issuances or sales of Capital Stock to, any Strategic Equity
Investor in connection with (a) any Investment in any Person
incorporated, formed or created for the purpose of acquiring one or
more Qualified Licenses and (b) any Investment in any Person engaged
in a Permitted Business, unless, in either case, such Person shall
become a Restricted Subsidiary; provided, however, such aggregate net
cash proceeds shall exclude any amounts included as commitments to
purchase Capital Stock in the preceding clause (2); plus
(4) the Fair Market Value of assets that are used or useful in a Permitted
Business or of the Capital Stock of a Person engaged in a Permitted
Business received by us as a capital contribution or in exchange for
our Capital Stock, other than Disqualified Stock, subsequent to the
date of the Indenture, other than (x) capital contributions from a
Restricted Subsidiary or issuance or sales of our Capital Stock to a
Restricted Subsidiary or (y) the proceeds from the sale of Qualified
Stock to an employee stock ownership plan or other trust established
by us or any of our subsidiaries; plus
(5) the aggregate net cash proceeds received by us or any Restricted
Subsidiary from the sale, disposition or repayment of any Investment
made after the date of the Indenture and constituting a Restricted
Payment in an amount equal to the lesser of (a) the return of capital
with respect to such Investment and (b) the initial amount of such
Investment, in either case, less the cost of the disposition of such
Investment; plus
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(6) an amount equal to the consolidated Net Investment of us and/or any of
our Restricted Subsidiaries in any Subsidiary that has been designated
as an Unrestricted Subsidiary after the date of the Indenture upon its
redesignation as a Restricted Subsidiary in accordance with the
covenant described under "--Certain Covenants--Limitation on
Designations of Unrestricted Subsidiaries;" plus
(7) cash proceeds from the sale to Lucent of the Series A Notes, less
payments made by us or any of our Subsidiaries with respect to Series
A Notes, other than payments of additional Series A Notes; plus
(8) Total Consolidated Indebtedness; minus
(9) the aggregate amount of all Restricted Payments including any
Designation Amount, but other than a Restricted Payment of the type
referred to in clause (3)(b) of the third paragraph of the covenant
described under "--Certain Covenants--Limitations on Restricted
Payments," declared or made on or after the date of the Indenture.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S)77aaa-77bbbb)
as in effect on the date of the Indenture.
"Trustee" means the party named as such in the Indenture until a successor
replaces it and, after such replacement, means the successor.
"Trust Officer" means the Chairman of the board of directors, the President
or any other officer or assistant officer of the Trustee assigned by the Trustee
to administer its corporate trust matters.
"TWR Cellular" means TWR Cellular, Inc., a Delaware corporation, and an
Affiliate of AT&T Wireless.
"Unrestricted Subsidiary" means (1) any of our Subsidiaries, other than an
Ineligible Subsidiary, designated after the date of the Indenture as such under,
and in compliance with, the covenant described under "--Certain Covenants--
Limitation on Designations of Unrestricted Subsidiaries" and (2) any Marketing
Affiliate. Any such designation of any of our Subsidiaries may be revoked by a
resolution of our Board delivered to the Trustee certifying compliance with such
covenant, subject to the provisions of such covenant.
"U.S. Government Obligations" means direct obligations, or certificates
representing an ownership interest in such obligations, of the United States of
America, including any agency or instrumentality of the United States of
America, for the payment of which the full faith and credit of the United States
of America is pledged and which are not callable or redeemable at the issuer's
option.
"Vendor Credit Arrangement" means any Indebtedness, including, without
limitation, Indebtedness under any credit facility entered into with any vendor
or supplier or any financial institution acting on behalf of such vendor or
supplier; provided that the net proceeds of such Indebtedness are used solely
for the purpose of financing the cost, including, without limitation, the cost
of design, development, site acquisition, construction, integration, handset
manufacture or acquisition or microwave relocation, of assets used or usable in
a Permitted Business, including, without limitation, through the acquisition of
Capital Stock of an entity engaged in a Permitted Business.
"Voting Stock" of any Person means the Capital Stock of such Person which
ordinarily has voting power for the election of directors, or Persons performing
similar functions, of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"Wholly Owned Subsidiary" means a Restricted Subsidiary, all of the
outstanding Capital Stock or other ownership interests of which, other than
directors' qualifying shares, shall at the time be owned by us and/or by one or
more Wholly Owned Subsidiaries.
"Wireless 2000" means Wireless 2000, Inc.
"Wireless 2000 Acquisition" means our purchase from Wireless 2000 of 15 MHz
of C-Block Licenses for the Monroe, Alexandria and Lake Charles, Louisiana BTAs.
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CERTAIN U.S. FEDERAL TAX CONSIDERATIONS
The following is a discussion of certain material U.S. federal income and
estate tax consequences of the acquisition, ownership, disposition and exchange
of the Notes. Unless otherwise stated, this discussion is limited to the tax
consequences to those persons who are initial purchasers of the Notes and who
hold such Notes as capital assets within the meaning of Section 1221 of the
Internal Revenue Code of 1986, as amended (the "Code") (for purposes of this
section, the "Holders"). The discussion does not purport to address specific tax
consequences that may be relevant to particular persons, including, for example,
financial institutions, broker-dealers, insurance companies, tax-exempt
organizations, and persons in special situations, such as those who hold the
Notes as part of a straddle, hedge, conversion transaction, or other integrated
investment. In addition, this discussion does not address U.S. federal
alternative minimum tax consequences or any aspect of state, local or foreign
taxation. This discussion is based upon the Code, the Treasury regulations
promulgated under, and administrative and judicial interpretations of such Code
and regulations, all of which are subject to change, possibly on a retroactive
basis.
We have not sought and will not seek any rulings from the Internal Revenue
Service (the "Service") with respect to the Notes. There can be no assurance
that the Service will not take a different position concerning the tax
consequences of the purchase, ownership or disposition of the Notes or that a
court would not sustain the Service's position.
For purposes of this discussion, a "U.S. Holder" means a Holder that, for
U.S. federal income tax purposes, is (1) a U.S. citizen or resident, (2) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision, (3) an estate the income
of which is subject to U.S. federal income taxation regardless of its source, or
(4) a trust if (A) a U.S. court exercises primary jurisdiction over its
administration and (B) one or more "United States persons" (as defined under
Section 7701(a)(30) of the Code) has the authority to control all substantial
decisions. A "Non-U.S. Holder" is any Holder other than a U.S. Holder.
PROSPECTIVE PURCHASERS OF THE NOTES ARE URGED TO CONSULT THEIR TAX ADVISORS
CONCERNING THE U.S. FEDERAL INCOME TAX CONSEQUENCES TO THEM OF ACQUIRING,
OWNING, DISPOSING AND EXCHANGING OF THE NOTES, AS WELL AS THE APPLICATION OF
STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS AND OF ANY CHANGE IN FEDERAL
TAX LAW OR ADMINISTRATIVE OR JUDICIAL INTERPRETATION OF SUCH LAW SINCE THE DATE
OF THIS PROSPECTUS.
Exchange Offer
The exchange of Exchange Notes for the Old Notes in the Exchange Offer
should not be treated as an "exchange" for federal income tax purposes because
the Exchange Notes will not be considered to differ materially in kind or extent
from the Old Notes. As a result, there should be no federal income tax
consequences to holders of the Old Notes exchanging the Old Notes for the
Exchanges Notes in the Exchange Offer. No gain or loss should be realized by a
holder upon receipt of an Exchange Note. The basis of the Exchange Notes would
be the same as the adjusted basis of the Notes immediately before the exchange
and the holding period of the Exchange Notes would include the holding period of
the Notes. The Exchange Notes would be subject to the tax rules applicable to
the Notes as described above, including with respect to the accrual and
inclusion in income of OID. It is possible that the Service could take a
different position concerning the exchange of Notes for Exchange Notes in the
event of a Registration Default that results in the payment of liquidated
damages with respect to the Notes. Holders are urged to consult their own tax
advisors regarding the tax consequences of the Exchange Offer.
Characterization of the Notes
We will treat the Notes as indebtedness for U.S. federal income tax
purposes, and the following discussion assumes that such treatment will be
respected. Accordingly, under Section 385(c) of the Code, a Holder also will
generally be required to treat the Notes as indebtedness. A Holder taking an
inconsistent position must expressly disclose such fact in the Holder's return.
Tax Consequences to U.S. Holders
Original Issue Discount. The Notes will be treated as issued with original
issue discount ("OID"). All U.S. Holders, regardless of their method of
accounting for tax purposes, will be required to include OID in income as it
accrues. Therefore, inclusion of the OID in gross income will occur in advance
of the receipt of some or all of the related cash payments (whether labeled as
interest or otherwise). OID will generally be treated as interest income to a
U.S. Holder and will accrue on a constant yield-to-maturity basis over the life
of the Notes, as discussed below.
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The amount of OID with respect to a Note will be equal to the excess of the
"stated redemption price at maturity" of such Note over its "issue price." The
"stated redemption price at maturity" of a debt instrument generally includes
all cash payments, including principal and interest, required to be made with
respect to the debt instrument through its maturity, other than "qualified
stated interest." "Qualified stated interest" is generally defined as stated
interest that is unconditionally payable in cash or other property, other than
debt instruments of the issuer, at least annually and at a single fixed rate
that appropriately takes into account the lengths of intervals between payments.
The stated interest on the Notes will not qualify as "qualified stated
interest," and thus the "stated redemption price at maturity" of a Note will
include all cash payments of principal and interest through maturity. The "issue
price" of the Notes will be the first price at which a substantial portion are
sold to investors, excluding bond houses, brokers, or similar persons acting as
underwriters, placement agents, or wholesalers, for cash.
Taxation of Original Issue Discount. The amount of OID accruing to and
includible in income by a U.S. Holder of a Note will be the sum of the "daily
portions" of OID with respect to such Note for each day during the taxable year
or portion of such taxable year on which such Holder owns such Note ("accrued
OID"). The daily portion is determined by allocating to each day in any "accrual
period" a pro rata portion of the OID allocable to that accrual period. The
accrual periods are periods of any length and may vary in length over the term
of a Note, provided that each accrual period is no longer than one year and each
scheduled payment of principal or interest occurs either on the final day or on
the first day of an accrual period. The amount of OID accruing during any
accrual period with respect to a Note will be equal to the product of (x) the
"adjusted issue price" of such Note at the beginning of that accrual period and
(y) the yield to maturity of such Note, taking into account the length of the
accrual period. The "adjusted issue price" of a Note at the beginning of its
first accrual period will be equal to its issue price. The "adjusted issue
price" at the beginning of any subsequent accrual period will be equal to (1)
the adjusted issue price at the beginning of the prior accrual period, plus (2)
the amount of OID accrued during the prior accrual period, minus (3) any
payments made on the Note during the prior accrual period. The "yield to
maturity" of a Note is the discount rate that, when used in computing the
present value of all principal and interest payments to be made on the Note,
produces an amount equal to the issue price of the Note.
OID allocable to a final accrual period is the difference between the
amount payable at maturity and the adjusted issue price at the beginning of the
final accrual period. If all accrual periods are of equal length, except for an
initial short accrual period, the amount of OID allocable to the initial short
accrual period may be computed under any reasonable method.
We are required to report the amount of OID accrued on the Notes held of
record by persons other than corporations and certain other Holders. See "--
Information Reporting and Backup Withholding." Because stated interest on the
Notes is taken into account in the accrual of OID, a U.S. Holder will not be
required to recognize any income upon receipt of interest payments on the Notes.
The tax basis of a Note in the hands of a U.S. Holder will be increased by the
amount of OID, if any, on the Note that is included in the U.S. Holder's income
under these rules and will be decreased by the amount of any payments, whether
stated as interest or principal, made with respect to the Note.
Acquisition Premium. A subsequent U.S. Holder of a Note is generally
subject to the rules for accruing OID described above. However, if such U.S.
Holder's purchase price for the Note exceeds the adjusted issue price but is
less than or equal to the sum of all amounts payable on the Note after the
purchase date, the excess ("acquisition premium") is subject to special rules.
Acquisition premium ratably offsets the amount of accrued OID otherwise
includible in such U.S. Holder's taxable income, i.e., such U.S. Holder may
reduce the daily portions of OID by a fraction, the numerator of which is the
excess of such U.S. Holder's purchase price for the Note over the adjusted issue
price, and the denominator of which is the excess of the sum of all amounts
payable on the Note after the purchase date over the Note's adjusted issue
price. As an alternative to reducing the amount of OID otherwise includible in
income by this fraction, the U.S. Holder may elect to compute OID accruals by
treating the purchase as a purchase at original issuance and applying the
constant yield method described above under "Taxation of Original Issue
Discount."
Market Discount. Under the market discount rules of the Code, a U.S.
Holder who purchases a Note at a "market discount" will generally be required to
treat any gain recognized on the disposition of the Note as ordinary income to
the extent of the lesser of such gain or the portion of the market discount that
accrued during the period that the U.S. Holder held such Note. Market discount
is generally defined as the amount by which a U.S. Holder's purchase price for a
Note is less than the revised issue price of the Note on the date of purchase,
subject to a statutory de minimis exception. A Note's revised issue price equals
the sum of the issue price of the Note and the aggregate amount of the OID
includible in the gross income of all Holders of such Note for periods before
the acquisition of the Note by such Holder, likely reduced, although the Code
does not expressly so provide, by any cash payment in respect of the Note. A
U.S. Holder who acquires a Note at a market discount may be required to defer a
portion of any interest expense that otherwise may be deductible on any
indebtedness incurred or continued to purchase or carry such Note until the U.S.
Holder disposes of the Note in a taxable transaction.
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A U.S. Holder who has elected under applicable Code provisions to include
market discount in income annually as such discount accrues will not, however,
be required to treat any gain recognized as ordinary income or to defer any
deductions for interest expense under these rules. A U.S. Holder's tax basis in
a Note is increased by each accrual of amounts treated as market discount. This
election to include market discount in income currently, once made, applies to
all market discount obligations acquired on or after the first day of the
taxable year to which the election applies and may not be revoked without the
consent of the Service. Holders should consult their tax advisors as to the
portion of any gain that would be taxable as ordinary income under these
provisions and any other consequences of the market discount rules that may
apply to them in particular.
Election to Treat All Interest as Original Issue Discount. U.S. Holders may
elect to include in gross income all amounts in the nature of interest that
accrue on a Note, including any stated interest, acquisition discount, OID,
market discount, de minimis OID, de minimis market discount and unstated
interest, as adjusted by amortizable bond premium and acquisition premium, by
using the constant yield method described above under "Taxation of Original
Issue Discount." Such an election for a Note with amortizable bond premium
results in a deemed election to amortize bond premium for all debt instruments
owned and later acquired by the U.S. Holder with amortizable bond premium and
may be revoked only with the permission of the Service. Similarly, such an
election for a Note with market discount results in a deemed election to accrue
market discount in income currently for such Note and for all other bonds
acquired by the U.S. Holder with market discount on or after the first day of
the taxable year to which such election first applies, and may be revoked only
with permission of the Service. A U.S. Holder's tax basis in a Note is increased
by each accrual of the amounts treated as OID under the constant yield election
described in this paragraph.
Change of Control. In the event of a change of control, the Holders will
have the right to require us to purchase their Notes. The Treasury regulations
provide that the right of Holders of the Notes to require redemption of the
Notes upon the occurrence of a change of control will not affect the yield or
maturity date of the Notes unless, based on all the facts and circumstances as
of the issue date, it is more likely than not that a change of control giving
rise to the redemption right will occur. We do not intend to treat this
redemption provision of the Notes as affecting the computation of the yield to
maturity of the Notes.
Redemption of Notes. We may redeem the Notes at any time on or after a
certain date, and, in certain circumstances, may redeem or repurchase all or a
portion of the Notes any time prior to the maturity date. Under Treasury
regulations, we are deemed to exercise any option to redeem if the exercise of
such option would lower the yield of the debt instrument. We believe, and intend
to take the position, that we will not be treated as having exercised an option
to redeem under these rules.
Sale, Redemption, Exchange or Retirement of the Notes. Upon the sale,
redemption, exchange or retirement of the Notes, a U.S. Holder will recognize
gain or loss equal to the difference between (1) the amount of cash and the fair
market value of property received upon the sale, redemption, exchange or
retirement and (2) the U.S. Holder's adjusted tax basis in the Notes. A U.S.
Holder's adjusted tax basis in the Notes will generally be the U.S. Holder's
cost therefor increased by the amount of OID previously accrued on the Notes
through the sale, redemption, exchange or retirement date and decreased by the
amount of all prior cash payments received with respect to the Notes.
Gain or loss recognized by a U.S. Holder on the sale, redemption, exchange,
or retirement of the Notes will be capital gain or loss, except to the extent it
constitutes accrued but unrecognized market discount, and will be long-term
capital gain or loss if the Notes have been held by the U.S. Holder for more
than one year.
U.S. Tax Consequences to Non-U.S. Holders
For purposes of the following discussion, interest income, OID and gain on
the sale, redemption, exchange or retirement of a Note will be U.S. trade or
business income if such income or gain is effectively connected with a trade or
business carried on by the Non-U.S. Holder within the United States.
Interest and OID. In general, any interest or OID paid to a Non-U.S.
Holder of a Note will not be subject to U.S. federal income tax if (1) the
interest or OID is not U.S. trade or business income, and (2) as discussed
below, the interest or OID qualifies as "portfolio interest."
Interest or OID on the Notes generally will qualify as "portfolio interest"
if (1) the Non-U.S. Holder does not actually or constructively own 10% or more
of the total combined voting power of all classes of our stock entitled to vote,
(2) the Non-U.S. Holder is not a controlled foreign corporation (as defined in
the Code) with respect to which we are a "related person" within the meaning of
the Code, and (3) either (A) the Non-U.S. Holder certifies to us or our agent
under penalties of perjury that it is not a U.S. person and such certificate
provides such Non-U.S. Holder's name and address, or (B) in the case of a Note
held by a securities clearing organization, bank, or other financial institution
that holds customers' securities in the ordinary course of its trade or business
(a "financial institution"), the financial institution certifies to us or our
agent under penalties of perjury that such
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certificate has been received from the Non-U.S. Holder by it or by another
financial institution and the financial institution furnishes the payor with a
copy of the Non-U.S. Holder's certificate. Under recently finalized Treasury
Regulations (the "Final Regulations"), the certification requirements described
above may also be satisfied with other documentary evidence for interest paid
after December 31, 1999, with respect to an offshore account or through certain
foreign intermediaries.
If the interest or OID neither qualifies as portfolio interest nor is
treated as U.S. trade or business income, the gross amount of the payment
generally will be subject to U.S. withholding tax at the rate of 30% unless such
rate is reduced or eliminated by an applicable income tax treaty. U.S. trade or
business income generally will be subject to U.S. federal income tax at regular
rates in the same manner as if the Non-U.S. Holder were a U.S. Holder, and, in
the case of a Non-U.S. Holder that is a corporation, such income, under certain
circumstances, may be subject to an additional "branch profits tax" at a 30%
rate or such lower rate as may be applicable under an income tax treaty, but
such income generally will not be subject to the 30% withholding tax. To claim
the benefit of a lower or zero withholding rate under an income tax treaty or to
claim exemption from withholding because the income is U.S. trade or business
income, the Non-U.S. Holder must provide the payor with a properly executed IRS
Form 1001 or 4224, respectively or, in the case of payments after December 31,
1999, IRS Form W-8, prior to the payment of interest or OID.
Sale, Exchange, Redemption, or Other Disposition of a Note. Any gain
realized by a Non-U.S. Holder on the sale, redemption, exchange or other
disposition of a Note generally will not be subject to U.S. federal income or
withholding taxes unless (1) such gain is effectively connected with the conduct
of a trade or business in the United States by the Non-U.S. Holder or (2) in the
case of an individual, such Non-U.S. Holder is present in the United States for
183 days or more and certain other conditions are met.
U.S. Federal Estate Tax. In general, notes held by an individual who is
neither a citizen nor a resident of the United States for U.S. federal estate
tax purposes at the time of such individual's death will not be subject to U.S.
federal estate tax unless the income from such Notes was effectively connected
with a U.S. trade or business of such individual or would not qualify as
portfolio interest (as described above under "Tax Consequences to Non-U.S.
Holders--Interest and OID"), without regard to the certification requirements,
if received by such individual at the time of his or her death.
Information Reporting and Backup Withholding
We will be required to report annually to the IRS, and to each Holder of
record, the amount of OID paid on the Notes, and the amount withheld for federal
income taxes, if any, for each calendar year, except as to exempt Holders,
generally, corporations, tax-exempt organizations, qualified pension and profit-
sharing trusts, individual retirement accounts, or nonresident aliens who
provide certification as to their status. Each Holder, other than Holders who
are not subject to the reporting requirements, will be required to provide to
us, under penalties of perjury, a certificate containing the Holder's name,
address, correct federal taxpayer identification number and a statement that the
Holder is not subject to backup withholding. Should a nonexempt Holder fail to
provide the required certificate, we will be required to withhold 31% of the OID
otherwise payable to the Holder and to remit the withheld amount to the Service
as a credit against the Holder's federal income tax liability.
In the case of payments of OID to Non-U.S. Holders, temporary Treasury
regulations provide that the 31% backup withholding tax and certain information
reporting will not apply to such payments with respect to which the requisite
certification, as described above, for the exemption from the 30% withholding
tax, has been received or an exemption has otherwise been established; provided
that neither we nor our payment agent have actual knowledge that the Holder is a
U.S. person or that the conditions of any other exemption are not in fact
satisfied. Under temporary Treasury regulations, these information reporting and
backup withholding requirements will apply, however, to the gross proceeds paid
to a Non-U.S. Holder on the disposition of Notes by or through a U.S. office of
a U.S. or foreign broker, unless the Holder certifies to the broker under
penalties of perjury as to its name, address and status as a foreign person or
the Holder otherwise establishes an exemption. Information reporting
requirements will also apply to a payment of the proceeds of a disposition of
Notes by or through a foreign office of a U.S. broker or foreign brokers with
certain types of relationships to the United States unless such broker has
documentary evidence in its file that the Holder is not a U.S. person, and such
broker has no actual knowledge to the contrary, or the Holder establishes an
exception; backup withholding will not apply to such payment, absent actual
knowledge that the Holder is a U.S. Holder. Neither information reporting nor
backup withholding generally will apply to a payment of the proceeds of a
disposition of Notes by or through a foreign office of a foreign broker not
subject to the previous sentence.
The Treasury Department recently promulgated final regulations regarding
the withholding and information reporting rules relating to Non-U.S. Holders
discussed above. In general, the final regulations do not significantly alter
the substantive withholding and information reporting requirements but rather
unify current certification procedures and forms and clarify reliance standards.
The final regulations are generally effective for payments made after December
31, 1999, subject to certain transition rules. Non-U.S. Holders should consult
their own tax advisors with respect to the impact, if any, of the new final
regulations.
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Applicable High Yield Discount Obligations
Section 163 of the Code provides that the yield with respect to certain
"applicable high yield discount obligations" will be bifurcated into two
elements: (1) an interest element that is deductible by the issuer only when
paid (generally in cash) and (2) a disqualified portion, if any, as described
below, for which the issuer receives no deduction (the "disqualified portion").
A U.S. Holder of an applicable high yield discount obligation must continue to
include interest or OID on the obligation in income as it accrues. A corporate
U.S. Holder of such obligation, however, is allowed to claim a dividends-
received deduction for the part of the disqualified portion, if any, as
described below, that would have been treated as a dividend had it been
distributed to such Holder by the issuing corporation with respect to its stock.
The deduction by us of OID on the Notes will be limited if the Notes
constitute applicable high yield discount obligations. A Note will be an
applicable high yield discount obligation if (1) its yield to maturity equals or
exceeds the sum of (x) the long-term applicable federal rate for the month in
which it was issued and (y) 5% and (2) the Note has significant OID. A Note will
have significant OID if (1) the aggregate amount that would be included in gross
income with respect to the Note for periods before the close of any accrual
period that ends more than five years after the date of issue exceeds (2) the
sum of (x) the aggregate amount of interest to be paid, generally in cash, under
the Note before the close of such accrual period and (y) the product of the
Note's issue price and its yield to maturity. If the Notes are applicable high
yield discount obligations, the disqualified portion of OID will equal the
lesser of (x) the amount of the OID on the Note and (y) the product of the total
OID on the Notes and a fraction, the numerator of which is (a) the yield to
maturity minus (b) the sum of 6% and the long-term applicable federal rate in
effect for the month in which the Notes are issued, and the denominator of which
is the yield to maturity.
Corporate U.S. Holders generally will be eligible for the dividends-
received deduction with respect to any disqualified portion of OID on a Note to
the extent of our accumulated or current earnings and profits, if any. The
availability of the dividends-received deduction is subject to a number of
complex limitations. Although the issue is not totally clear, any amount
qualifying as a dividend should not be subject to extraordinary dividend
treatment under Section 1059 of the Code. Corporate U.S. Holders should consult
their tax advisors concerning the availability of the dividends-received
deduction.
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BOOK-ENTRY; DELIVERY AND FORM
The Exchange Notes are represented by a permanent global certificate in
definitive, fully registered form (the "Global Note"). The Global Note is
registered in the name of a nominee of DTC.
Certain Book-Entry Procedures for the Global Notes
The descriptions of the operations and procedures of DTC, Euroclear and Cedel
set forth below are provided solely as a matter of convenience. These operations
and procedures are solely within the control of the respective settlement
systems, and are subject to change by them from time to time. Neither we nor any
of the initial purchasers of the Old Notes takes any responsibility for these
operations or procedures, and investors are urged to contact the relevant system
or its participants directly to discuss these matters.
DTC has advised us that it is (1) a limited purpose trust company organized
under the laws of the State of New York, (2) a "banking organization" within the
meaning of the New York Banking Law, (3) a member of the Federal Reserve System,
(4) a "clearing corporation" within the meaning of the Uniform Commercial Code,
as amended, and (5) a "clearing agency" registered under Section 17A of the
Exchange Act. DTC was created to hold securities for its participants
(collectively, the "Participants") and facilitates the clearance and settlement
of securities transactions between Participants through electronic book-entry
changes to the accounts of its Participants, thereby eliminating the need for
physical transfer and delivery of certificates. DTC's Participants include
securities brokers and dealers, including the initial purchasers, banks and
trust companies, clearing corporations and certain other organizations. Indirect
access to DTC's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively, the "Indirect Participants")
that clear through, or maintain a custodial relationship with a Participant,
either directly or indirectly. Investors who are not Participants may
beneficially own securities held by, or on behalf of DTC only through
Participants or Indirect Participants.
We expect that under procedures established by DTC, (1) upon deposit of each
Global Note, DTC will credit the accounts of Participants designated by the
initial purchasers of the Old Notes with an interest in the Global Note and (2)
ownership of the Notes will be shown on, and the transfer of ownership of the
Notes will be effected only through, records maintained by DTC, with respect to
the interests of Participants and the records of Participants and the Indirect
Participants (with respect to the interests of persons other than Participants).
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form.
Accordingly, the ability to transfer interests in the Notes represented by a
Global Note to such persons may be limited. In addition, because DTC can act
only on behalf of its Participants, who in turn act on behalf of persons who
hold interests through Participants, the ability of a person having an interest
in the Notes represented by a Global Note to pledge or transfer such interest to
persons or entities that do not participate in DTC's system, or to otherwise
take actions in respect of such interest, may be affected by the lack of a
physical definitive security in respect of such interest.
So long as DTC or its nominee is the registered owner of a Global Note, DTC or
such nominee, as the case may be, will be considered the sole owner or holder of
the Notes represented by the Global Note for all purposes under the Indenture.
Except as provided below, owners of beneficial interests in a Global Note will
not be entitled to have the Notes represented by such Global Note registered in
their names, will not receive or be entitled to receive physical delivery of
Certificated Notes and will not be considered the owners or holders under the
Indenture for any purpose, including with respect to the giving of any
direction, instruction or approval to the Trustee. Accordingly, each holder
owning a beneficial interest in a Global Note must rely on the procedures of DTC
and, if such holder is not a Participant or an Indirect Participant, on the
procedures of the Participant through which such holder owns its interest, to
exercise any rights of a holder of the Notes under the Indenture or such Global
Note. We understand that, under existing industry practice, if we request any
action of holders of the Notes, or a holder that is an owner of a beneficial
interest in a Global Note desires to take any action that DTC, as the holder of
such Global Note, is entitled to take, DTC would authorize the Participants to
take such action and the Participants would authorize holders owning through
such Participants to take such action or would otherwise act upon the
instruction of such holders. Neither we nor the Trustee will have any
responsibility or liability for any aspect of the records relating to, or
payments made on account of, the Notes by DTC, or for maintaining, supervising
or reviewing any records of DTC relating to such Notes.
Payments with respect to the principal and interest, and premium, if any, and
liquidated damages, if any, on any Notes represented by a Global Note registered
in the name of DTC or its nominee on the applicable record date will be payable
by the Trustee to, or at the direction of, DTC or its nominee in its capacity as
the registered holder of the Global Note representing such Notes under the
Indenture. Under the terms of the Indenture, we and the Trustee will be
permitted to treat the persons in whose names the Notes, including the Global
Notes, are registered as the owners of such Notes for the purpose of receiving
payment thereon and for any and all other purposes whatsoever. Accordingly,
neither we nor the Trustee have or will have any
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responsibility or liability for the payment of such amounts to owners of
beneficial interests in a Global Note (including principal, premium, if any,
liquidated damages, if any, and interest). Payments by the Participants and the
Indirect Participants to the owners of beneficial interests in a Global Note
will be governed by standing instructions and customary industry practice, and
will be the responsibility of the Participants or the Indirect Participants and
DTC.
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures and will be settled in same-day funds. Transfers between
participants in Euroclear or Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the Notes,
cross-market transfers between the Participants in DTC, on the one hand, and
Euroclear or Cedel participants on the other hand, will be effected through DTC
in accordance with DTC's rules on behalf of Euroclear or Cedel, as the case may
be; however, such cross-market transactions will require delivery of
instructions to Euroclear or Cedel, as the case may be, by the counterparty in
such system in accordance with the rules and procedures, and within the
established deadlines (Brussels time), of such system. Euroclear or Cedel, as
the case may be, will, if the transaction meets its settlement requirements,
deliver instructions to its depositary to take action to effect final settlement
on its behalf, by delivering or receiving interests in the relevant Global Notes
in DTC and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Euroclear participants and Cedel
participants may not deliver instructions directly to the depositaries for
Euroclear or Cedel.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global Note from a Participant in
DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing day,
which must be a business day for Euroclear or Cedel, as the case may be,
immediately following the settlement date of DTC. Cash received by Euroclear or
Cedel as a result of sales of interests in a Global Note by or through a
Euroclear or Cedel participant to a Participant in DTC will be received with
value on the settlement date of DTC, but will be available in the relevant
Euroclear or Cedel cash account only as of the business day for Euroclear or
Cedel, as the case may be, following DTC's settlement date.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures to
facilitate transfers of interests in the Global Notes among participants in DTC,
Euroclear and Cedel, they are under no obligation to perform or to continue to
perform such procedures, and such procedures may be discontinued at any time.
Neither we nor the Trustee will have any responsibility for the performance by
DTC, Euroclear or Cedel, or their respective participants or indirect
participants, of their respective obligations under the rules and procedures
governing their operations.
Certificated Notes
If (1) we notify the Trustee in writing that DTC is no longer willing or able
to act as a depositary, or DTC ceases to be registered as a clearing agency
under the Exchange Act and a successor depositary is not appointed within 90
days of such notice or cessation, (2) we, at our option, notify the Trustee in
writing that it elects to cause the issuance of the Notes in definitive form
under the Indenture, or (3) upon the occurrence of certain other events as
provided in the Indenture, then, upon surrender by DTC of the Global Notes,
Certificated Notes will be issued to each person that DTC identifies as the
beneficial owner of the Notes represented by the Global Notes. Upon any such
issuance, the Trustee is required to register such Certificated Notes in the
name of such person or persons, or the nominee of any such person, and cause the
same to be delivered to such person.
Neither we nor the Trustee shall be liable for any delay by DTC or any
Participant or Indirect Participant in identifying the beneficial owners of the
related Notes, and each such person may conclusively rely on, and shall be
protected in relying on, instructions from DTC for all purposes, including with
respect to the registration and delivery, and the respective principal amounts,
of the Notes to be issued.
-123-
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account in the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. A broker-dealer may use this
prospectus, as it may be amended or supplemented from time to time, in
connection with resales of Exchange Notes received in exchange for Old Notes
where such broker-dealer acquired such Old Notes as a result of market-making
activities or other trading activities. For a period of 180 days after the
Expiration Date, we will make this prospectus, as amended or supplemented,
available to any broker-dealer that requests such documents in the Letter of
Transmittal, for use in connection with any such resale. In addition, until
, 1999 (90 days after the date of this prospectus), all dealers effecting
transactions in the Exchange Notes may be required to deliver a prospectus.
Each holder of Old Notes participating in the Exchange Offer will, by
execution of the Letter of Transmittal, represent to us that such holder is not
engaged in nor intends to engage in a distribution of Exchange Notes.
We will not receive any proceeds from any sale of Exchange Notes by broker-
dealers. Exchange Notes received by broker-dealers for their own account in the
Exchange Offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the Exchange Notes or a combination of such methods of resale, at
market prices prevailing at the time of resale, at prices related to such
prevailing market prices or at negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such broker-
dealer or the purchasers of any such Exchange Notes. Any broker-dealer that
resells Exchange Notes that were received by it for its own account in the
Exchange Offer and any broker or dealer that participates in a distribution of
such Exchange Notes may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of Exchange Notes and any
commission or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests such documents in the Letter of
Transmittal. We have agreed to pay all expenses incident to the Exchange Offer
(including the expenses of one counsel for the holders of the Notes) other than
commissions or concessions of any brokers or dealers and will indemnify the
holders of the Notes (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
The Exchange Notes are new securities with no established trading market. We
do not intend to list the Exchange Notes on any securities exchange, but the Old
Notes have been designated for trading in the PORTAL market. We cannot assure
you that a liquid market will develop for the Exchange Notes, that you will be
able to sell your Exchange Notes at a particular time or that the prices that
you receive when you sell will be favorable. Future trading prices of the
Exchange Notes will depend on many factors, including our operating performance
and financial condition, prevailing interest rates and the market for similar
securities.
LEGAL MATTERS
Certain legal matters with regard to the validity of the Notes will be passed
upon for us by McDermott, Will & Emery, New York, New York. Mr. Sullivan, our
Executive Vice President, Chief Financial Officer and a member of our Board is
counsel to McDermott, Will & Emery. Mr. Sullivan owns certain shares of our
capital stock.
EXPERTS
The consolidated balance sheets as of December 31, 1997 and 1998, and the
consolidated statements of operations, changes in stockholders' equity
(deficit), and cash flows for the period July 29, 1996 (date of inception) to
December 31, 1996, and for the years ended December 31, 1997 and 1998, included
in this prospectus, have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
We have filed with the SEC a registration statement on Form S-4 under the
Securities Act with respect to the Exchange Notes here offered. As permitted by
the rules and regulations of the SEC, this prospectus omits certain information,
exhibits and undertakings contained in the registration statement. For further
information with respect to us and the Exchange Notes, you should review the
registration statement, including the exhibits and the financial statements to
such registration statement, notes
-124-
and schedules filed as a part of such registration statement. As a result of the
Exchange Offer, we will become subject to the informational requirements of the
Exchange Act. The registration statement and the exhibits and schedules to such
registration statement, as well as the periodic reports and other information
filed with the SEC, may be inspected and copied at the Public Reference Section
of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, NW, Washington, DC
20549 and at the regional offices of the SEC located at 7 World Trade Center,
Suite 1300, New York, New York 10048. Copies of such materials may be obtained
from the Public Reference Section of the SEC, Room 1024, Judiciary Plaza, 450
Fifth Street, NW, Washington DC 20549, and its public reference facilities in
New York, New York at the prescribed rates. You may obtain information as to the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC maintains a Web site at http://www.sec.gov that contains periodic reports,
proxy and information statements and other information regarding registrants
that file documents electronically with the SEC. Statements contained in this
prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract or document filed as an exhibit to the registration statement, each
such statement being qualified in all respects by such reference. Under the
indenture governing the Notes, we have agreed to file with the SEC and provide
to the holders of the Notes annual reports and the information, documents and
other reports which are specified in Section 13 and 15(d) of the Exchange Act.
-125-
GLOSSARY OF SELECTED TERMS
ANALOG.................. A method of transmission where the wave form of the
output signal is analogous to the wave form of the
input signal.
BANDWIDTH............... The number of bits of information which can move
through a communications medium in a given amount of
time; the capacity of a telecommunications network to
carry voice, data and video information.
BASE STATION............ A fixed site with network equipment that is used for
radio frequency communications with mobile stations,
and is part of a cell, or sector within a cell.
BLOCK................... The distinct radio frequency block in which one-way
radio applications, such as paging or beeper services,
and two-way radio applications such as wireless
communications, cellular telephone and ESMR networks,
are licensed and operated. Blocks are categorized as A-
, B- C-, D-, E- or F- Blocks. A- and B- Blocks are each
PCS 30 MHz licenses covering an MTA. C- Block is a PCS
30 MHz license covering a BTA. D-, E- and F- Block are
each PCS 10 MHz licenses covering a BTA.
BTA..................... One of the 493 basic trading areas, which are smaller
than MTAs, into which the licensing for broadband PCS
has been divided based on the geographic divisions in
the 1992 Rand McNally Commercial Atlas & Marketing
Guide, as modified by the FCC.
CALLER ID............... Caller identification. A service to telephone customers
that allows each such customer to know the identity of
incoming callers.
CDMA.................... Code division multiple access. A digital spread-
spectrum wireless technology which allows a large
number of users to access a single frequency band that
assigns a code to all speech bits, sends a scrambled
transmission of the encoded speech over the air, and
reassembles the speech to its original format.
CELL SITE............... The location of a transmitting/receiving station
serving a given geographic area in a cellular
communications system.
CELLULAR................ Domestic public cellular radio communications service
authorized by the FCC in the 824-893 MHz band, in which
each of two licensees per market employs 25 MHz of
spectrum to provide wireless services.
CMRS.................... Commercial mobile radio service.
COVERED POPS............ The number of Pops in a defined area for whom a
cellular signal is accessible.
DIGITAL................. A method of storing, processing and transmitting
information through the use of distinct electronic or
optical pulses that represent the binary digits 0 and
1. Digital transmission and switching technologies
employ a sequence of discrete, distinct pulses to
represent information, as opposed to the continuously
variable analog signal. Digital wireless networks use
digital transmission.
DUAL-MODE............... A wireless phone which is capable of operating on both
digital and analog technologies.
ESMR.................... Enhanced specialized mobile radio. A radio
communications system that employs digital technology
with multi-site configuration that permits frequency
reuse, offering enhanced dispatch services to
traditional analog SMR users.
FREQUENCY............... The number of cycles per second, measured in hertz, of
a periodic oscillation or wave in radio propagation.
-126-
GSM..................... Global system for mobile communications. The standard
digital cellular telephone service in Europe and Japan,
guided by a set of standards specifying the
infrastructure for digital cellular service, including
the radio interface (900 MHz), switching, signaling and
intelligent network.
HAND-OFF................ The act of transferring communication with a mobile
unit from one base station to another. A hand-off
transfers a call from the current base station to the
new base station. A "soft" hand-off establishes
communications with a new cell before terminating
communications with the old cell.
INTERCONNECTION......... Any variety of arrangements that permits the connection
of communications equipment to a common carrier network
such as a public switched telephone network, and which
defines the terms of revenue-sharing. Terms of
interconnection are either negotiated between the
network operators or imposed by regulatory authorities.
LICENSED POPS........... The number of Pops in the area covered by a license
(cellular or PCS).
MHZ..................... Megahertz. A unit of measurement of bandwidth in the
radiowave spectrum.
MICROWAVE RELOCATION.... The transferal of the business and public safety
agencies which currently utilize radio spectrum within
or adjacent to the spectrum allocated to PCS licensees
by the FCC.
MTA..................... One of the major trading areas into which the licensing
for the A- and B-Blocks of broadband PCS spectrum has
been divided based on the geographic divisions in the
Rand McNally 1992 Commercial Atlas & Guide, as modified
by the FCC.
NOC..................... A network operations center from which a wireless
communications network is monitored and maintained.
PBX..................... Private branch exchange.
POPS.................... A shorthand abbreviation for the population covered by
a license or group of licenses.
RESELLER................ A provider of PCS services that does not hold an FCC
PCS license or own PCS facilities. The reseller
purchases blocks of PCS numbers and capacity from a
licensed carrier and resells service through its own
distribution network to the public. Consequently, a
reseller is both a customer of PCS licensee's services
and a competitor of that licensee.
ROAMING................. A service offered by mobile communications network
operators which allows a subscriber to use his or her
handset while in the service area of another carrier.
Roaming requires an agreement between operators of
different individual markets to permit customers of
either operator to access the other's system.
SMR..................... Specialized mobile radio. A two-way analog mobile radio
telephone system typically used for dispatch services
such as truck and taxi fleets.
SPECTRUM................ The range of electromagnetic frequencies available for
use for telecommunications services.
SWITCH.................. A device that opens or closes circuits or selects the
paths or circuits to be used for transmission of
information. Switching is the process of
interconnecting circuits to form a transmission path
between users.
-127-
TDMA.................... Time division multiple access. A digital spread-
spectrum technology which allocates a discrete amount
of frequency bandwidth to each user to permit more than
one simultaneous conversation on a single radio
frequency channel.
TRI-MODE................ A wireless phone which is capable of operating on
either different digital protocols or both digital and
analog technologies.
WIRELESS LOCAL LOOP..... A system that eliminates the need for a wire (loop)
connecting users to the public switched telephone
network, which is used in conventional wired telephone
systems, by transmitting voice messages over radio
waves for the "last mile" connection between the
location of the customer's telephone and a base station
connected to the network equipment.
-128-
TELECORPS PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
INDEX
Historical Financial Statements Page
- ------------------------------- ----
Report of Independent Accountants F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statement of Changes in Stockholders' Equity (Deficit) F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-8
Unaudited Pro forma Financial Statements
- ----------------------------------------
Unaudited Pro Forma Condensed Consolidated Balance Sheet F-38
Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet F-40
F-1
Report of Independent Accountants
---------------------------------
To the Board of Directors and Stockholders
TeleCorp PCS Inc. and Subsidiaries and Predecessor Company:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, changes in stockholders' equity (deficit)
and cash flows present fairly, in all material respects, the financial position
of TeleCorp PCS Inc. and Subsidiaries and Predecessor Company (the Company) at
December 31, 1997 and 1998, and the consolidated results of their operations and
their cash flows for the period July 29, 1996 (date of inception) to December
31, 1996, and for the years ended December 31, 1997 and 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
McLean, Virginia
March 8, 1999, except for the information in Note 15,
for which the date is June 15, 1999
F-2
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
CONSOLIDATED BALANCE SHEETS
________
ASSETS
March 31,
December 31 March 31, 1999
------------------------------- 1999 pro forma
Current assets: 1997 1998 (unaudited) (unaudited)
------------- -------------- -------------- ---------------
Cash and cash equivalents $ 2,566,685 $ 111,732,841 $ 11,210,696 $ 230,047,360
Accounts receivable, net - - 3,657,709 3,657,709
Inventory - 778,235 7,701,032 7,701,032
Prepaid expenses - 2,185,444 2,471,605 2,471,605
Other current assets 73,468 1,218,263 157,249 157,249
------------- -------------- -------------- --------------
Total current assets 2,640,153 115,914,783 25,198,291 244,034,955
Property and equipment, net 3,609,274 197,468,622 262,653,787 270,653,787
PCS licenses and microwave relocation costs, net 10,018,375 118,107,256 117,531,516 234,742,756
Intangible assets - AT&T agreements, net - 26,285,612 25,369,334 42,679,334
Deferred financing costs, net - 8,584,753 8,490,330 19,065,277
FCC deposit - - 17,818,549 -
Other assets 26,673 283,006 841,730 3,597,668
------------- ------------- -------------- --------------
Total assets $ 16,294,475 $ 466,644,032 $ 457,903,537 $ 814,773,777
============= ============== ============== ==============
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 3,202,295 $ 14,591,922 $ 28,247,873 $ 28,247,873
Accrued expenses 824,164 94,872,262 46,757,448 46,757,448
Microwave relocation obligation, current portion - 6,636,369 5,404,557 5,404,557
Long-term debt, current portion 4,881,073 - - -
Accrued interest, current portion 389,079 4,490,553 4,154,008 4,154,008
------------- -------------- -------------- ---------------
Total current liabilities 9,296,611 120,591,106 84,563,886 84,563,886
Long-term debt 7,727,322 243,385,066 293,889,463 610,578,893
Microwave relocation obligation - 2,481,059 2,525,875 2,525,875
Accrued expenses - - 3,362,364 3,362,364
Deferred rent - 196,063 319,726 319,726
------------- -------------- -------------- ---------------
Total liabilities 17,023,933 366,653,294 384,661,314 701,350,744
------------- -------------- -------------- ---------------
Mandatorily redeemable preferred stock at
carrying value, issued 367; 255,999; 256,206
(unaudited) and 382,803 (pro forma unaudited) shares,
respectively, and outstanding, 367; 255,215; 254,845
(unaudited); and 381,648 (pro forma unaudited) shares,
respectively, (liquidation preference $249,398,289 (unaudited) 4,144,340 240,408,879 245,131,494 362,660,656
as of March 31, 1999)
Deferred compensation - (4,111) (11,078) (304,514)
Treasury stock, none; 784; 1,155 (unaudited) and 1,155 (pro forma
unaudited) shares, respectively, at cost - (8) (12) (12)
Preferred stock subscriptions receivable - (75,914,054) (72,413,769) (149,499,135)
------------- -------------- -------------- ---------------
Total mandatorily redeemable preferred stock, net 4,144,340 164,490,706 172,706,635 212,856,995
------------- -------------- -------------- ---------------
Commitments and contingencies
Stockholders' equity (deficit):
Series F preferred stock, par value $.01 per share,
none, 33,361; 33,361 (unaudited) and 48,261 (pro forma
unaudited) shares issued and outstanding, respectively
(liquidation preference; $333 (unaudited)
as of March 31, 1999) - 333 333 482
Common stock, par value $.01 per share, issued 19,335; 159,733;
159,733 (unaudited), and 243,141 (pro forma unaudited) shares,
respectively, and outstanding 19,335; 157,946; 157,100 (unaudited) 856 1,597 1,597 2,431
and 240,508 (pro forma unaudited) shares, respectively
Additional paid-in capital - 188,374 187,498 433,908
Deferred compensation - (7,177) (5,306) (25,015)
Common stock subscriptions receivable - (86,221) (86,221) (283,455)
Treasury stock, none; 1,787; 2,633 (unaudited) and 2,633
(pro forma unaudited) shares, respectively, at cost - (18) (26) (26)
Accumulated deficit (4,874,654) (64,596,856) (99,562,287) (99,562,287)
------------- -------------- -------------- ---------------
Total stockholders' equity (deficit) (4,873,798) (64,499,968) (99,464,412) (99,433,962)
------------- -------------- -------------- ---------------
Total liabilities, mandatorily redeemable
preferred stock and stockholders' equity (deficit) $ 16,294,475 $ 466,644,032 $ 457,903,537 $ 814,773,777
============= ============== ============== ===============
The accompanying notes are an integral part
of these consolidated financial statements.
F-3
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
__________
For the period For the three For the three
July 29, 1996 months months
(date of For the year For the year ended ended
inception) to ended ended March 31, March 31,
December 31, December 31, December 31, 1998 1999
1996 1997 1998 (unaudited) (unaudited)
-------------- ------------ ------------ ------------- -------------
Revenue:
Service revenue $ - $ - $ - $ - $ 507,285
Equipment revenue - - - - 1,815,224
Roaming revenue - - 29,231 - 1,940,317
-------------- ------------ ------------ ------------- -------------
Total revenue $ - $ - $ 29,231 $ - $ 4,262,826
-------------- ------------ ------------ ------------- -------------
Operating expenses:
Cost of revenue - - - - 2,829,448
Operations and development - - 9,772,485 - 7,352,578
Selling and marketing 9,747 304,062 6,324,666 369,392 8,040,922
General and administrative 515,146 2,637,035 26,239,119 2,246,456 10,278,338
Depreciation and amortization 75 10,625 1,583,864 39,129 3,052,980
-------------- ------------ ------------ ------------- -------------
Total operating expenses 524,968 2,951,722 43,920,134 2,654,977 31,554,266
-------------- ------------ ------------ ------------- -------------
Operating loss (524,968) (2,951,722) (43,890,903) (2,654,977) (27,291,440)
Other (income) expense:
Interest expense - 396,362 11,934,263 132,400 3,715,129
Interest income - (12,914) (4,697,233) (42,256) (741,429)
Other expense - - 27,347 - 70,187
-------------- ------------ ------------ ------------- -------------
Net loss $ (524,968) $ (3,335,170) $(51,155,280) $ (2,745,121) $ (30,335,327)
Accretion of mandatorily
redeemable preferred stock (288,959) (725,557) (8,566,922) (103,608) (4,630,104)
-------------- ------------ ------------ ------------- -------------
Net loss attributable to
common equity $ (813,927) $ (4,060,727) $(59,722,202) $ (2,848,729) $ (34,965,431)
============== ============ ============ ============= =============
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIT)
Series F
preferred stock Common stock Additional
---------------------- ----------------------- paid-in
Shares Amount Shares Amount Capital
-------- ------ -------- -------- ----------
Initial capitalization for cash - $ - 8,750 $ 2,000 $ -
Issuance of common stock for cash - - 34,374 - -
Accretion of mandatorily redeemable preferred
stock - - - - -
Net loss - - - - -
-------- ------ -------- -------- ----------
Balance, December 31, 1996 - - 43,124 2,000 -
Issuance of common stock for cash - - 6,875 - -
Accretion of mandatorily redeemable preferred
stock - - - - -
Noncash redemption of equity interests - - (30,664) (1,144) -
Net loss - - - - -
-------- ------ -------- -------- ----------
Balance, December 31, 1997 - - 19,335 856 -
Noncash redemption of equity interests - - (19,335) (856) -
Issuance of preferred and common stock for cash,
Licenses and AT&T Agreements 33,361 333 149,715 1,497 180,243
Accretion of mandatorily redeemable preferred
stock - - - - -
Noncash issuance of restricted stock to employees - - 10,018 100 9,918
Repurchase of common stock for cash - - - - (1,787)
Amortization of deferred compensation - - - - -
Net loss - - - - -
-------- ------ -------- -------- ----------
Balance, December 31, 1998 33,361 333 159,733 1,597 188,374
Accretion of mandatorily redeemable preferred
stock (unaudited) - - - - -
Noncash issuance of restricted stock to employees
(unaudited) - - - - 428
Amortization of deferred compensation (unaudited) - - - - -
Repurchase of common stock for cash (unaudited) - - - - (1,304)
Net loss (unaudited) - - - - -
-------- ------ -------- -------- ----------
Balance, March 31, 1999 (unaudited) $ 33,361 $ 333 159,733 $ 1,597 $ 187,498
======== ====== ======== ======== ==========
Common
stock
Deferred subscriptions Treasury stock Accumulated
--------------------------
Compensation receivable Shares Amount deficit
------------------------------ ------------ ----------- ------------
Initial capitalization for cash - - - - -
Issuance of common stock for cash - - - - -
Accretion of mandatorily redeemable preferred
stock - - - - (228,959)
Net loss - - - - (524,968)
------------ -------------- ------------ ----------- -------------
Balance, December 31, 1996 - - - - (813,927)
Issuance of common stock for cash - - - - -
Accretion of mandatorily redeemable preferred
stock - - - - (725,557)
Noncash redemption of equity interests - - - - -
Net loss - - - - (3,335,170)
------------ -------------- ------------ ----------- ------------
Balance, December 31, 1997 - - - - (4,874,654)
Noncash redemption of equity interests - - - - -
Issuance of preferred and common stock for cash,
Licenses and AT&T Agreements - (86,221) - - -
Accretion of mandatorily redeemable preferred
stock - - - - (8,566,922)
Noncash issuance of restricted stock to employees (10,018) - - - -
Repurchase of common stock for cash 1,787 - (1,787) (18)
Amortization of deferred compensation 1,054 - - - -
Net loss - - - - (51,155,280)
------------ -------------- ------------ ----------- ------------
Balance, December 31, 1998 (7,177) (86,221) (1,787) (18) (64,596,856)
Accretion of mandatorily redeemable preferred
stock (unaudited) - - - - (4,630,104)
Noncash issuance of restricted stock to employees
(unaudited) (433) - 471 5 -
Amortization of deferred compensation (unuadited) 1,000 - - - -
Repurchase of common stock for cash (unuadited) 1,304 - (1,317) (13) -
Net loss (unaudited) - - - - (30,335,327)
------------ -------------- ------------ ----------- ------------
Balance, March 31, 1999 (unaudited) (5,306) $ (86,221) $ (2,633) $ (26) $(99,562,287)
============ ============== ============ =========== ============
Total
------------
Initial capitalization for cash $ 2,000
Issuance of common stock for cash -
Accretion of mandatorily redeemable preferred
stock (228,959)
Net loss (524,968)
------------
Balance, December 31, 1996 (811,927)
Issuance of common stock for cash -
Accretion of mandatorily redeemable preferred
stock (725,557)
Noncash redemption of equity interests (1,144)
Net loss (3,335,170)
------------
Balance, December 31, 1997 (4,873,798)
Noncash redemption of equity interests (856)
Issuance of preferred and common stock for
cash, (8,566,922)
Licenses and AT&T Agreements 95,852
Accretion of mandatorily redeemable preferred
stock (8,566,922)
Noncash issuance of restricted stock to -
employees
Repurchase of common stock for cash (18)
Amortization of deferred compensation 1,054
Net loss (51,155,280)
------------
Balance, December 31, 1998 (64,499,968)
Accretion of mandatorily redeemable preferred
stock (unaudited) (4,630,104)
Noncash issuance of restricted stock to employees
(unaudited) -
Amortization of deferred compensation (unaudited) 1,000
Repurchase of common stock for cash (unaudited) (13)
Net loss (unaudited) (30,335,327)
------------
Balance, March 31, 1999 (unaudited) $(99,464,412)
============
The accompanying notes are an integral part
of these consolidated financial statements.
F-5
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
__________
For the period
July 29, 1996
(date of For the year For the year
inception) to Ended Ended
December 31, December 31, December 31,
1996 1997 1998
--------------- -------------- --------------
Cash flows from operating activities:
Net loss $ (524,968) $ (3,335,170) $ (51,155,280)
Adjustment to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 75 10,625 1,583,864
Noncash compensation expense associated with the issuance
of common stock and preferred stock - - 1,664
Noncash interest expense associated with Lucent Notes - - 460,400
Noncash general and administrative expense charge by - - 196,622
affiliates
Amortization of deferred financing costs - - 524,924
Amortization of discount on notes payable - 134,040 197,344
Changes in cash flow from operations resulting from changes in
assets and liabilities:
Accounts receivable - - -
Inventory - - (778,235)
Prepaid expenses - - (2,185,444)
Other current assets (21,877) (51,591) (1,144,795)
Other assets - (26,673) (256,333)
Accounts payable 98,570 618,889 11,389,627
Accrued expenses - - 9,145,111
Deferred rent - - 196,063
Accrued interest - 257,682 2,046,432
--------------- ------------- --------------
Net cash used in operating activities (448,200) (2,392,198) (29,778,036)
--------------- ------------- --------------
Cash flows from investing activities:
Expenditures for network under development, wireless network,
property and equipment (904) (1,134,234) (107,542,189)
Capitalized interest on network under development and wireless - - (227,000)
network
Expenditures for microwave relocation - - (3,339,410)
Purchase of PCS licenses - - (21,000,000)
Deposit on PCS licenses (7,500,000) - -
Partial refund of deposit on PCS licenses - 1,561,702 -
--------------- ------------- --------------
Net cash (used in) provided by investing activities (7,500,904) 427,468 (132,108,599)
--------------- ------------- --------------
Cash flows from financing activities:
Proceeds from sale of mandatorily redeemable preferred stock 7,500,000 1,500,000 26,661,420
Receipt of preferred stock subscription receivable - - -
Direct issuance costs from sale of mandatorily redeemable
preferred stock - - (1,027,694)
Proceeds from sale of common stock 2,000 - 38,305
Proceeds from long-term debt 498,750 2,808,500 257,491,500
Purchases of treasury shares - - (26)
Payments on notes payable - - (2,072,573)
Payments of deferred financing costs - - (9,109,677)
Net increase (decrease) in amounts due to affiliates - 171,269 (928,464)
--------------- ------------- --------------
Net cash provided by financing activities 8,000,750 4,479,769 271,052,791
--------------- ------------- --------------
Net increase (decrease) in cash and cash equivalents 51,646 2,515,039 109,166,156
Cash and cash equivalents at the beginning of period - 51,646 2,566,685
--------------- ------------- --------------
Cash and cash equivalents at the end of period $ 51,646 $ 2,566,685 $ 111,732,841
=============== ============= ==============
For the three For the three
months ended months ended
March 31, March 31,
1998 1999
(unaudited) (unaudited)
--------------- ----------------
Cash flows from operating activities:
Net loss $ (2,745,121) $ (30,335,327)
Adjustment to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 39,129 3,051,280
Noncash compensation expense associated with the issuance
of common stock and preferred stock - 86,547
Noncash interest expense associated with Lucent Notes - 448,676
Noncash general and administrative expense charge by - -
affiliates
Amortization of deferred financing costs - 250,241
Amortization of discount on notes payable 54,369 55,721
Changes in cash flow from operations resulting from changes in
assets and liabilities:
Accounts receivable - (3,057,672)
Inventory - (6,922,797)
Prepaid expenses (82,771) (286,161)
Other current assets 26,280 1,061,014
Other assets (59,363) (558,724)
Accounts payable 672,240 13,655,951
Accrued expenses - 2,675,664
Deferred rent 65,211 123,662
Accrued interest 77,556 (1,758,327)
--------------- -----------------
Net cash used in operating activities (1,952,470) (21,510,252)
--------------- -----------------
Cash flows from investing activities:
Expenditures for network under development, wireless network,
property and equipment (4,086,249) (112,233,615)
Capitalized interest on network under development and wireless - (1,273,000)
network
Expenditures for microwave relocation (275,001) (1,186,995)
Purchase of PCS licenses - -
Deposit on PCS licenses - (17,818,549)
Partial refund of deposit on PCS licenses - -
--------------- -----------------
Net cash (used in) provided by investing activities (4,361,250) (132,512,159)
--------------- -----------------
Cash flows from financing activities:
Proceeds from sale of mandatorily redeemable preferred stock - -
Receipt of preferred stock subscription receivable - 3,500,285
Direct issuance costs from sale of mandatorily redeemable
preferred stock - -
Proceeds from sale of common stock - -
Proceeds from long-term debt 13,863,989 50,000,000
Purchases of treasury shares - (19)
Payments on notes payable - -
Payments of deferred financing costs - -
Net increase (decrease) in amounts due to affiliates (480,253) -
--------------- -----------------
Net cash provided by financing activities 13,383,736 53,500,266
--------------- -----------------
Net increase (decrease) in cash and cash equivalents 7,070,016 (100,522,145)
Cash and cash equivalents at the beginning of period 2,566,685 111,732,841
--------------- -----------------
Cash and cash equivalents at the end of period $ 9,636,701 $ 11,210,696
=============== =================
The accompanying notes are an integral part
of these consolidated financial statements.
F-6
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
_______
For the period
July 29, 1996 For the three
(date of For the year For the year months ended
inception) to ended ended March 31,
December 31 December 31, December 31, 1999
1996 1997 1998 (unaudited)
-------------- ------------ ------------- -------------
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ - $ - $ - $ -
Cash paid for interest $ - $ - $ 9,785,829 $ -
Supplemental disclosure of non-cash investing and financing
activities:
Network under development, wireless netowork and microwave
relocation costs financed through accounts payable and
accrued expenses $ - $ 2,484,836 $ 98,091,667 $ 824,999
Issuance of mandatorily redeemable preferred stock and
preferred stock in exchange for PCS licenses and AT&T $ - $ - $ 100,900,000 $ -
agreements
Issuance of mandatorily redeemable preferred stock and
common stock in exchange for stock subscriptions receivable $ - $ - $ 76,000,275 $ -
U.S. Government financing of PCS licenses $ - $ 9,192,938 $ - $ -
Discount on U.S. Government financing $ - $ 1,599,656 $ - $ -
Conversion of notes payable to stockholders into preferred $ - $ 498,750 $ 25,300,000 $ -
stock
Accretion of preferred stock dividends $ 288,959 $ 725,557 $ 8,566,922 $ 103,608
Elimination of equity interests in Holding for equity
interests in TeleCorp $ - $ - $ 4,369,680 $ -
Redemption of equity interests $ - $ 6,368,926 $ - $ -
Distribution of net assets to affiliates $ - $ 3,644,602 $ - $ -
Capitalized interest $ - $ 131,397 $ 2,055,043 $ 198,009
For the three
months ended
March 31,
1998
(unaudited)
-------------
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ -
Cash paid for interest $ 4,201,963
Supplemental disclosure of non-cash investing and financing
activities:
Network under development, wireless netowork and microwave
relocation costs financed through accounts payable and
accrued expenses $ 8,043,467
Issuance of mandatorily redeemable preferred stock and
preferred stock in exchange for PCS licenses and AT&T $ -
agreements
Issuance of mandatorily redeemable preferred stock and
common stock in exchange for stock subscriptions receivable $ -
U.S. Government financing of PCS licenses $ -
Discount on U.S. Government financing $ -
Conversion of notes payable to stockholders into preferred $ -
stock
Accretion of preferred stock dividends $ 4,630,104
Elimination of equity interests in Holding for equity
interests in TeleCorp $ -
Redemption of equity interests $ -
Distribution of net assets to affiliates $ -
Capitalized interest $ 1,421,782
The accompanying notes are an integral part
of these consolidated financial statements.
F-7
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_____________
1. Organization
TeleCorp Holding Corp., Inc. (Holding) was incorporated in the State of
Delaware on July 29, 1996 (date of inception). Holding was formed to
participate in the Federal Communications Commission's (FCC) Auction of F-
Block Personal Communications Services (PCS) licenses (the Auction) in
April 1997. Holding successfully obtained licenses in the New Orleans,
Memphis, Beaumont, Little Rock, Houston, Tampa, Melbourne and Orlando Basic
Trading Areas (BTAs). Holding qualifies as a Designated Entity and Very
Small Business under Part 24 of the rules of the FCC applicable to
broadband PCS.
In April 1997, Holding entered into an agreement to transfer the PCS
licenses for the Houston, Tampa, Melbourne and Orlando BTAs to four newly-
formed entities created by Holding's existing stockholder group: THC of
Houston, Inc.; THC of Tampa, Inc.; THC of Melbourne, Inc.; and THC of
Orlando, Inc. These licenses were transferred along with the related
operating assets and liabilities in exchange for investment units
consisting of Class A, B and C common stock and Series A preferred stock in
August 1997. Concurrently, Holding distributed the investment units, on a
pro rata basis, in a partial stock redemption to Holding's existing
stockholder group. As a result of this distribution, Holding no longer
retains any ownership equity interest in the newly-formed entities. Because
the above transaction was non-monetary in nature and occurred between
entities of the same stockholder group, the transaction was accounted for
at historical cost.
TeleCorp PCS, Inc. (TeleCorp) was incorporated in the State of Delaware on
November 14, 1997 by the controlling stockholders of Holding. TeleCorp will
be the exclusive provider of wireless mobility services in its licensed
regions in connection with a strategic alliance with AT&T Corporation and
its affiliates (collectively AT&T) (see Note 6). Upon finalization of the
AT&T Transaction, Holding became a wholly-owned subsidiary of TeleCorp.
2. Summary of Significant Accounting Policies
Basis of presentation
Holding was formed to explore various business opportunities in the
wireless telecommunications industry. TeleCorp was formed to continue the
activity of Holding through its strategic alliance with AT&T. Since
inception, Holding's and TeleCorp's activities have consisted principally
of hiring a management team, raising capital, negotiating strategic
business relationships and participating in the Auction. Consequently, for
purposes of the accompanying financial statements, Holding has been treated
as a "predecessor" entity. 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 are considered companies under common control.
Therefore, the accompanying financial statements incorporate the combined
business activities of Holding and TeleCorp. Collectively, TeleCorp and
Holding are referred to as the Company in the accompanying consolidated
financial statements.
Continued
F-8
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______________
Historical and pro forma loss per share, basic and diluted, have not been
presented.
Unaudited Interim Financial Information
The unaudited consolidated balance sheet as of March 31, 1999, and the
unaudited consolidated statements of operations, changes in stockholders'
equity (deficit) and cash flows for the three months ended March 31, 1998
and 1999, and related footnotes have been prepared in accordance with
generally accepted accounting principles for interim financial information
and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles. In the opinion of management, all adjustments (consisting of
only normal recurring accruals) considered necessary for the fair
presentation have been included. Operating results for the three months
ended March 31, 1999, are not necessarily indicative of results that may be
expected for the year ending December 31, 1999.
Unaudited Pro Forma Balance Sheet
The unaudited pro forma balance sheet gives effect to certain license
acquisitions and the issuance of high yield debt described in Note 15,
which includes the Digital PCS, Viper Wireless, AT&T-Puerto Rico and
Wireless 2000 transactions and the receipt of gross proceeds of
$327,635,000 from the sale of $575,000,000 of Senior Subordinated Discount
Notes due 2009 (the Notes) on April 23, 1999 as if they had occurred on
March 31, 1999.
Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation. For the quarter ended
March 31, 1999, the Company has consolidated the results of Viper Wireless,
Inc. (see Note 15).
Development Stage Company
Prior to January 1, 1999, the Company's activities principally have been
planning and participation in the Auction, initiating research and
development, conducting market research, securing capital and developing
its proposed service and network. Since the Auction, the Company has been
relying on the borrowing of funds and the issuance of common and preferred
stock rather than recurring revenues, for its primary sources of cash flow.
Accordingly, the Company's financial statements for all periods prior to
January 1, 1999 were presented as a development stage enterprise, as
prescribed by Statement of Financial Accounting Standards No. 7,
"Accounting and Reporting by Development Stage Enterprises." In the first
quarter of 1999, the Company commenced operations in the New Orleans,
Memphis and Little Rock BTA's and began providing wireless mobility
services for its customers. As a result, the Company exited the development
stage in the first quarter ended March 31, 1999.
The Company incurred cumulative losses through December 31, 1998 of
approximately $55,000,000. The Company expects to continue to incur
significant operating losses and to generate negative cash flow from
operating activities for at least the next several years while it
constructs its network and develops its customer base. The Company's
ability to eliminate operating losses and to generate positive cash flow
from operations in the future will depend upon a variety of factors, many
of which it is unable to control. These factors
Continued
F-9
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_____________
include: (1) the cost of constructing its network, (2) changes in
technology, (3) changes in governmental regulations, (4) the level of
demand for wireless communications services, (5) the product offerings,
pricing strategies and other competitive factors of the Company's
competitors and (6) general economic conditions. If the Company is unable
to implement its business plan successfully, it may not be able to
eliminate operating losses, generate positive cash flow or achieve or
sustain profitability which would materially adversely affect its business,
operations and financial results as well as its ability to make payments on
its debt obligations.
Fair Value of Financial Instruments
The Company believes that the carrying amount of its financial instruments
approximate fair value.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities on the date of the
financial statements and the reported amounts of expenses during the
reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash
equivalents. The Company has invested its excess cash in overnight sweep
accounts and U.S. Treasury obligations. The Company has not experienced any
losses on its cash and cash equivalents.
Cash Equivalents
The Company considers all highly liquid instruments with a maturity from
purchase date of three months or less to be cash equivalents. Cash
equivalents consist of overnight sweep accounts and U.S. Treasury
obligations.
Revenue Recognition
The Company earns revenue by providing wireless mobility services to both
its subscribers and subscribers of other wireless carriers traveling in the
Company's service area, as well as the sales of equipment and accessories.
Wireless mobility services revenue consists of monthly access fees, airtime
and long distance access revenue. Generally, access fees, airtime and long
distance charges are billed monthly and are recognized when service is
provided. Prepaid service revenue collected in advance, is recorded as
deferred revenue and recognized as service is provided. As of March 31,
1999, deferred revenue was insignificant.
Roaming revenue consist 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 are recognized when the
service is rendered.
Continued
F-10
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_____________
Equipment revenue is recognized upon delivery of the equipment to the
customer and when future obligations are no longer significant.
PCS Licenses and Microwave Relocation Costs
PCS licenses include costs incurred, including capitalized interest related
to the U.S. Government financing, to acquire FCC licenses in the 1850-1990
MHz radio frequency band. Interest capitalization on the U.S. Government
financing began when the activities necessary to get the Company's network
ready for its intended use were initiated. The PCS licenses are issued
conditionally for ten years. Historically, the FCC has granted license
renewals providing the licensees have complied with applicable rules,
policies and the Communications Act of 1934, as amended. The Company
believes it has complied with and intends to continue to comply with these
rules and policies.
As a condition of each PCS license, the FCC requires each license-holder to
relocate existing microwave users (Incumbent) 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 and are
presented in the financial statements at the estimated present value of the
project cost, net of discount of $908,531 as of December 31, 1998. The
microwave relocation costs were discounted using management's best estimate
of the prevailing market interest rate at the time the relocation costs
were incurred.
PCS licenses, microwave relocation costs and capitalized interest consist
of the following:
March 31,
December 31, 1999
1997 1998 (unaudited)
------------- -------------- --------------
PCS licenses $ 9,886,978 $ 104,736,978 $ 104,736,978
Microwave relocation costs - 12,456,838 11,861,063
Capitalized interest 131,397 913,440 1,004,581
------------- -------------- --------------
10,018,375 118,107,256 117,602,622
Accumulated amortization - - (71,106)
------------- -------------- --------------
$ 10,018,375 $ 118,107,256 $ 117,531,516
============= ============== ==============
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.
Continued
F-11
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_____________
Property and Equipment
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 5 years
equipment
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
network for use. Internal and external costs incurred to develop the
Company's billing, network and financial systems during the application
development stage are capitalized as internal use software. Training costs
and all post implementation internal and external costs are expensed as
incurred.
Intangible assets - AT&T Agreements
The AT&T Agreements consist of the fair value of various agreements with
AT&T (see Note 6) exchanged for mandatorily redeemable preferred stock and
Series F preferred stock. The AT&T Agreements are amortized on a straight-
line basis over the related contractual terms, which range from three to
ten years. Amortization on the AT&T Exclusivity Agreement, Long Distance
Agreement and the Intercarrier Roamer Services Agreement began once
wireless services were available to its customers. Amortization of the
Network Membership License Agreement began on July 17, 1998, the date of
the finalization of the AT&T Transaction. For the year ended December 31,
1998 and for the three months ended March 31, 1999, the Company recorded
amortization expense of $772,497 and $916,278 (unaudited), respectively.
Inventory
Inventory consists of the following:
March 31,
December 31, 1999
1997 1998 (unaudited)
------------ ---------- ---------------
Handsets $ - 778,235 7,258,147
Accessories - - 442,885
------------ ---------- ----------------
Total inventory $ - 778,235 7,701,032
============ ========== ================
Continued
F-12
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_____________
Inventory is valued at the lower of cost or market and is recorded net of
an allowance for obsolescence. No allowance for obsolescence has been
recorded as of December 31, 1998 and March 31, 1999.
Deferred Financing Costs
In connection with entering into a credit facility with a group of
commercial lenders (see Note 5), the Company incurred certain debt issuance
costs. The Company has capitalized financing costs of $9,109,677 and
$9,265,495 (unaudited), as of December 31, 1998 and March 31, 1999,
respectively. The financing costs are being amortized using the straight
line method over the term of the credit facility. For the year ended
December 31, 1998 and for the three months ended March 31, 1999, the
Company recorded interest expense related to the amortization of the
deferred financing costs of $524,924 and $250,041 (unaudited),
respectively.
Long-Lived Assets
The Company periodically evaluates the recoverability of the carrying value
of property and equipment, network under development, wireless network,
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
undiscounted cash flows expected to result from the use of these assets.
Impairment losses are recognized when the sum of the present value of
expected future cash flows are less than the assets' carrying value. No
such impairment losses have been recognized to date.
Income Taxes
The Company accounts for income taxes in accordance with the liability
method. Deferred income taxes are recognized for tax consequences in future
years for differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year-end, based on enacted laws
and statutory tax rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce net deferred tax assets to the
amount expected to be realized. The provision for income taxes consists of
the current tax provision and the change during the period in deferred tax
assets and liabilities.
Start-Up and Advertising Costs
Start-up costs are expensed as incurred. The Company expenses production
costs of print, radio and television advertisements and other advertising
costs as such costs are incurred. Advertising expenses in selling and
marketing for 1996, 1997, and 1998 were insignificant. Advertising expenses
in selling and marketing were $2,540,146 (unaudited) for the three months
ended March 31, 1999.
Interest Rate Swaps
The Company uses interest swaps to hedge the effects of fluctuations in
interest rates from their Senior Credit Facility (see Note 5). These
transactions meet the requirements for hedge accounting, including
designation and correlation. The interest rate swaps are managed in
accordance with the Company's policies and procedures. The Company does not
enter into these transactions for trading purposes. The resulting gains or
Continued
F-13
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______
losses, measured by quoted market prices, are accounted for as part of the
transactions being hedged, except that losses not expected to be recovered
upon the completion of hedged transactions are expensed. Gains or losses
associated with interest rate swaps are computed as the difference between
the interest expense per the amount hedged using the fixed rate compared to a
floating rate over the term of the swap agreement. As of December 31, 1998,
the Company has entered into six interest rate swap agreements with various
commercial lenders totaling a notional amount of $225,000,000 to convert the
Company's variable rate debt of LIBOR plus 3.25% to fixed rate debt. The
interest rate swaps had no material impact on the consolidated financial
statements as of and for the year ended December 31, 1998 and as of and for
the three months ended March 31, 1999.
Segment Reporting
The Company presently operates in a single business segment as a provider of
wireless mobility services in its licensed regions primarily in the south-
central and northeastern United States. The Company operates in various MTAs
including New Orleans, LA, Memphis, TN, Little Rock, AK, and Boston, MA.
Recently Issued Accounting Standards
In 1998, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). SFAS 133 is effective for
all fiscal quarters of fiscal years beginning after June 15, 1999. The
Company has not determined the effect of adopting this standard.
Continued
F-14
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______
3. Property and Equipment
Property and equipment consists of the following:
March 31,
December 31, 1999
1997 1998 (unaudited)
-------------- ---------------- ----------------
Network under development $ 3,269,793 $ 170,885,628 $ 85,748,672
Wireless network - - 139,788,137
Computer equipment 328,875 10,115,063 11,369,207
Internal use software - 11,161,142 15,439,923
Leasehold improvements - 3,204,623 7,575,936
Furniture, fixtures and office
equipment 21,306 2,924,233 5,613,613
-------------- ---------------- ----------------
3,619,974 198,290,689 265,535,488
Accumulated depreciation (10,700) (822,067) (2,881,701)
-------------- ---------------- ----------------
$ 3,609,274 $ 197,468,622 $ 262,653,787
============== ================ =================
4. Accrued Expenses
Accrued expenses consists of the following:
March 31,
December 31, 1999
1997 1998 (unaudited)
------------- ------------ ----------------
Property and equipment $ - $ 85,634,829 $ 26,645,066
Sales taxes - - 11,405,831
Consulting services - 4,237,411 3,494,719
Bonuses and vacation - 2,386,317 1,684,330
Engineering - 676,893 1,378,472
Selling and marketing - 346,552 2,155,363
Other 824,164 1,187,367 2,406,431
Legal fees - 402,893 949,600
------------- ------------ ----------------
824,164 94,872,262 50,119,812
Less: current portion - - (3,362,364)
------------- ------------ ----------------
$ 824,164 $ 94,872,262 $ 46,757,448
============= ============ ================
Continued
F-15
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______
5. Long-term Debt
Long-term debt consists of the following:
March 31,
December 31, 1999
1997 1998 (unaudited)
------------- -------------- -----------------
Senior credit facility $ - $ 225,000,000 $ 225,000,000
Lucent Series A notes - 10,460,400 40,815,926
Lucent Series B notes - - 20,093,150
U.S. Government financing 7,727,322 7,924,666 7,980,387
Notes payable to stockholders 2,808,500 - -
Notes payable to affiliates 2,072,573 - -
(see Note 12) ------------- -------------- -----------------
12,608,395 243,385,066 293,889,463
Less: current portion (4,881,073) - -
------------- -------------- -----------------
$ 7,727,322 $ 243,385,066 $ 293,889,463
============= ============== =================
Senior Credit Facility
In July 1998, the Company entered into a credit facility (the Senior Credit
Facility) with a group of commercial lenders, under which the Company may
borrow up to $525,000,000, in the aggregate, consisting of (i) up to
$150,000,000 in revolving loans (the Senior Revolving Credit Facility) with a
maturity date of January 2007, (ii) a $150,000,000 term loan (the Tranche A
Term Loan) with a maturity date of January 2007, and (iii) a $225,000,000
term loan (the Tranche B Term Loan) with a maturity date of January 2008. A
total of $225,000,000 of indebtedness from the Tranche B Term Loan was
outstanding as of December 31, 1998 and March 31, 1999 (unaudited). The
Senior Credit Facility also provides for an uncommitted $75,000,000 senior
term loan (the Expansion Facility) with a maturity date of January 2008.
Beginning in September 2002, principal repayments will be made in 18
quarterly installments for the Tranche A Term Loan and 22 quarterly
installments for the Tranche B Term Loan. Quarterly principal repayments for
the Tranche A Term Loan are as follows: first six, $3,750,000; next four,
$9,375,000; last eight, $11,250,000. Quarterly principal repayments for the
Tranche B Term Loan are as follows: first 18, $562,500, last four,
$53,718,750. Interest payments on the senior credit facility are made
quarterly. The Senior Credit Facility contains a prepayment provision
whereby certain amounts borrowed must be repaid upon the occurrence of
certain specified events.
The commitment to make loans under the Tranche A Term loan will terminate in
July 2001, or earlier if elected by the Company. Beginning in April 2005,
the commitment to make loans under the Senior
Continued
F-16
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______
Revolving Credit Facility will be permanently reduced on a quarterly basis
through April 2007 as follows: first four reductions, $12,500,000; last four
reductions $25,000,000. The unpaid principal on the Senior Revolving Credit
Facility is due January 2007. In July 2000, if the undrawn portion of the
Tranche A Term Loan exceeds $50,000,000 the amount of the Tranche A Term Loan
will be automatically reduced by such excess.
The interest rate applicable to the Senior Credit Facility is based on, at
the Company's option, (i) LIBOR (Eurodollar Loans) plus the Applicable
Margin, as defined, or (ii) the higher of the administrative agent's prime
rate or the Federal Funds Effective Rate (ABR Loans), plus the Applicable
Margin, as defined. The Applicable Margin for Eurodollar Loans will range
from 125 to 325 basis points based upon certain events by the Company, as
specified. The Applicable Margin for ABR Loans will range from 25 to 225
basis points based upon certain events by the Company, as specified. At
December 31, 1998, the interest rate applicable to the Tranche B Term Loan
was 8.75% and interest expense for the year ended December 31, 1998 was
$9,210,187. For the three months ended March 31, 1999, interest expense on
the Tranche B Term Loan was $3,732,196 (unaudited).
The loans from the Senior Credit Facility are subject to an annual commitment
fee which ranges from 0.50% to 1.25% of the available portion of the Tranche
A Term Loan and the Senior Revolving Credit Facility. The Company has
expensed $3,305,905 for the year ended December 31, 1998 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 March 31, 1999, the Company hedged 100% of its
outstanding indebtedness of $225,000,000 to take advantage of favorable
interest rate swaps.
Initially, borrowings under the Senior Credit Facility are subject to a
maximum Senior Debt to Total Capital ratio, as defined, of 50%. This ratio
is increased to 55% if certain specified operating benchmarks are achieved.
In addition, the Company must comply with certain financial and operating
covenants. The financial covenants include various debt to equity, debt to
EBITDA, interest coverage, and fixed charge coverage ratios, as defined in
the Senior Credit Facility. The operating covenants include minimum
subscribers, minimum aggregate service revenue, minimum coverage of
population and maximum capital expenditure thresholds. As of December 31,
1998 and March 31, 1999 (unaudited), 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.
Continued
F-17
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______
Lucent Note Agreement
In May 1998, the Company entered into a Note Purchase Agreement (the Lucent
Note Agreement) with Lucent Technologies, Inc. (Lucent) which provides for
the issuance of increasing rate 8.5% Series A (the Series A Notes) and 10.0%
Series B (the Series B Notes) junior subordinated notes (the Subordinated
Notes) with an aggregate face value of $80,000,000. The aggregate face value
of the Subordinated Notes shall decrease dollar for dollar, upon the
occurrence of certain events as defined in the Lucent Note Agreement. The
proceeds of the Subordinated Notes are to be used to develop the Company's
network in certain designated areas. As of December 31, 1998, the Company had
$10,460,400 outstanding under the Series A Notes. As of March 31, 1999, the
Company had $40,815,926 (unaudited) and $20,093,150 (unaudited) outstanding
under the Series A Notes and Series B Notes, respectively. Subsequent to
March 31, 1999, the Company repaid the entire amount outstanding under the
Series B Notes with the proceeds received from the Notes (see Note 2).
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. The Series B Notes will have a
mandatory redemption at par, plus accrued interest from the proceeds of the
Company's initial high yield debt offering to the extent the net proceeds of
that offering 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 the lesser of (i) 12.5%
per annum or (ii) if the Company completes a Qualifying High Yield Offering
before May 2001 (in the case of the Series A Notes) or May 1, 2000 (in the
case of the Series B Notes), the initial yield on such offering plus 0.5% per
annum. Interest payable on the Series A Notes and the Series B Notes on or
prior to May 11, 2004 shall be payable in additional Series A and Series B
Notes. Thereafter, interest shall be paid in arrears in cash on each six
month and yearly anniversary of the Series A and Series B closing date or, if
cash interest payments are prohibited under the Senior Credit Facility and or
the Qualifying High Yield Debt Offering, in additional shares of Series A and
Series B Notes. As of December 31, 1998, interest accrued under the Series A
Notes of $460,400 has been included in long-term debt. As of March 31, 1999,
interest accrued under the Series A Notes and Series B Notes of $815,926
(unaudited) and $93,150 (unaudited), respectively, have 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 March 31, 1999 are held by Lucent.
The Company must comply with certain operating covenants. As of December 31,
1998 and March 31, 1999 (unaudited), the Company was in compliance with these
operating covenants.
Continued
F-18
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______
In addition, Lucent has agreed to make available up to an additional
$80,000,000 of junior subordinated vendor financing in amounts up to 30% of
the value of the equipment, software and services provided by Lucent in
connection with any additional markets the Company acquires, subject to
certain conditions as specified (the Vendor Expansion Facility). The
expiration date for any notes issued pursuant to the Vendor Expansion
Facility is the date which is six months after the scheduled maturity of the
Notes, subject to mandatory prepayment if certain future events occur.
U.S. Government financing
In 1996, the Company placed $7,500,000 on deposit with the FCC in order to
bid on F Block broadband PCS licenses. In April 1997, the Company's
application for the PCS licenses was approved. The Company made a down
payment of $5,942,835 using the funds from the FCC deposit and issued
promissory notes to the FCC for $23,771,342. The balance of the Company's
deposit of $1,557,165 was refunded in April 1997. In April 1997, certain of
the PCS licenses with a cost of $15,678,814 and related US. Government
financing in the amount of $12,034,212, net of a discount of $2,544,192, was
transferred to four newly-formed entities created by the Company's existing
stockholder group (See Notes 1 and 12) in August 1997. The terms of the
notes include: an interest rate of 6.25%, quarterly interest payments which
commenced in July 1998 and continue for the one year thereafter, then
quarterly principal and interest payments for the remaining 9 years. The
promissory notes are collateralized by the underlying PCS licenses.
The notes are net of a discount of $1,465,616, $1,268,272, and $1,212,552
(unaudited) as of December 31, 1997 and 1998 and March 31, 1999,
respectively. The notes were discounted using management's best estimate of
the prevailing market interest rate at the time of issuance of 10.25%.
Notes payable to stockholders
In July 1996, the Company issued $498,750 of subordinated promissory notes to
two stockholders. The notes bore interest at a rate of 10%, compounded semi-
annually, and were due in full in July 2002. In April 1997, these notes were
converted into 50 shares of Series A preferred stock (See Note 7).
In December 1997, the Company issued various promissory notes totaling
$2,808,500 to stockholders. The notes bore interest at a rate of 6% and were
converted into mandatorily redeemable preferred stock of the Company in July
1998. The notes were discounted using management's best estimate of the
prevailing market interest rate at the time of issuance of 10.25%. The
effect on the Company's 1997 financial statements of discounting these notes
was not material.
From January 1, 1998 to June 30, 1998, the Company borrowed approximately
$22,491,500 in the form of promissory notes from existing and prospective
stockholders to satisfy the working capital needs of the Company. The
promissory notes bore interest at the rate of 6.25% per annum compounded
quarterly and were payable in one lump sum on August 31, 1998. In July 1998,
these notes were converted to mandatorily redeemable preferred stock of the
Company (see Note 9) in connection with the AT&T Transaction.
Continued
F-19
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
___________
As of December 31, 1998, minimum required annual principal repayment
(undiscounted) under all of the Company's outstanding debt obligations were
as follows:
1999 $ -
2000 450,719
2001 944,470
2002 1,004,897
2003 1,631,691
Thereafter 291,070,238
--------------
$ 295,102,015
==============
6. AT&T Transaction
In January 1998, the Company entered into a Securities Purchase Agreement
(the Securities Purchase Agreement) with AT&T Wireless PCS, Inc. and TWR
Cellular, Inc. (both subsidiaries of AT&T Corporation and collectively
referred to as AT&T PCS), the stockholders of Holding and various venture
capital investment firms (the Cash Equity Investors). The Securities
Purchase Agreement provides the Company will be a provider of wireless
mobility services in its licensed regions utilizing the AT&T brand name.
Upon the receipt of FCC approval in July 1998, the Company finalized the
transaction contemplated in the Securities Purchase Agreement (the AT&T
Transaction). In connection therewith, the Company issued mandatorily
redeemable preferred stock, preferred stock and common stock and paid AT&T
$21,000,000 in exchange for (i) 20 MHz PCS licenses with an independently
appraised value of $94,850,000; (ii) certain operating agreements with AT&T
for exclusivity, network membership, long distance and roaming with an
independently appraised value of $27,050,000; (iii) 100% of the outstanding
ownership interests in Holding, which includes 10 MHz PCS licenses; and (iv)
a cash commitment from the Cash Equity Investors of $128,000,000 to be paid
over a three year term (see Note 9) plus additional $5,000,000 upon the
closing of the Digital PCS transaction (see Note 15).
The general terms of the operating agreements with AT&T are summarized below:
. AT&T Exclusivity: The Company will be AT&T's exclusive
facilities-based provider of mobile wireless telecommunications
services within the Company's BTAs for an initial ten year
period. This agreement will automatically renew for a one-year
term and then operate on a year-to-year basis unless one party
terminates at least ninety (90) days prior to the end of any one-
year term.
The Company has determined the fair value of this agreement to be
$11,870,000 based upon an independent appraisal and is amortizing
this value over the initial 10 year term.
Continued
F-20
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________
. 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 has determined the fair value of this agreement to be
$8,480,000 based upon an independent appraisal and is amortizing
this value over the initial five year term.
. Intercarrier Roamer Services Agreement: AT&T and the Company have
entered into a twenty-year reciprocal roaming agreement provided
that their customers who own tri-mode phones will roam on the
other's mobile wireless systems. 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. AT&T also agrees to permit the Company to have
outbound roaming on its network for twenty years at commercially
reasonable rates to the extent commercially and technologically
feasible. The outbound roaming agreement shall continue with
automatic ten-year renewals subject to a one-year cancellation
notice.
. The Company has determined the value of this roaming agreement to
be $3,500,000 based upon an independent appraisal and is
amortizing this value over the initial 10 year term.
. Long Distance Agreement: The long distance agreement provides
that AT&T will be the exclusive provider for long distance
services to the Company's customers within the Company's licensed
regions for an initial three year period. The long distance
agreement requires that the Company meet a minimum traffic volume
commitment during the term of the agreement. If the Company fails
to meet such volume commitments, the Company must pay to AT&T the
difference between the expected fee based on the volume of the
commitment and the fees based on actual volume.
The Company had determined the fair value of this agreement to be
$3,200,000 based upon an independent appraisal and is amortizing
this value over the initial three year term.
Continued
F-21
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_________
7. Mandatorily Redeemable Preferred Stock and Stockholders' Equity (Deficit)
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.
TeleCorp
Following the closing of the AT&T Transaction, the Company restated its
Certificate of Incorporation. The Restated Certificate of Incorporation
provides the Company with the authority to issue 1,914,010 shares of stock,
consisting of the following:
Preferred Par Shares Par Shares
Stock Value authorized Common Stock Value authorized
----------------- ---------- ----------- -------------- -------- ------------
Mandatorily redeemable Series A $ 0.01 70,000 Senior $ 0.01 70,000
Mandatorily redeemable Series B $ 0.01 140,000 Class A $ 0.01 700,000
Mandatorily redeemable Series C $ 0.01 140,000 Class B $ 0.01 700,000
Mandatorily redeemable Series D $ 0.01 35,000 Class C tracked $ 0.01 1,000
Mandatorily redeemable Series E $ 0.01 20,000 Class D tracked $ 0.01 3,000
Series F $ 0.01 35,000 Voting Preference $ 0.01 10
----------- ------------
Total 440,000 Total 1,474,010
=========== ============
Continued
F-22
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following schedules represents the transactions that took place with respect
to Holding's Mandatorily redeemable preferred stock and common stock for the
period from July 29, 1996 (date of inception) to December 31, 1998:
Series A
preferred stock
-----------------------------
Shares Amount
--------- ----------------
Mandatorily redeemable preferred stock
--------------------------------------
Initial capitalization for cash 750 $ 7,500,000
Accretion of preferred stock dividends - 288,959
--------- ----------------
Balance, December 31, 1996 750 7,788,959
Issuance of preferred stock for cash 150 1,500,000
Accretion of preferred stock dividends - 725,557
Conversion of promissory note to preferred
stock 50 498,750
Noncash redemption of equity interests (see
Note 12) (583) (6,368,926)
--------- ----------------
Balance, December 31, 1997 367 4,144,340
Accretion of preferred stock dividends - 224,484
Recapitalization of Holding (367) (4,368,824)
--------- ----------------
Balance, December 31, 1998 - $ -
========= ================
Class A Class B Class C
common stock common stock common stock Common stock
--------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount Shares Amount Total
----------- -------- -------- -------- -------- -------- ------- -------- ---------
Common stock
------------------------
Initial capitalization for cash 8,750 $ 2,000 - $ - 25,520 $ - - $ - $ 2,000
Issuance of common stock 3,750 - 5,104 - - - - - -
----------- -------- -------- -------- -------- -------- ------- -------- ---------
Balance, December 31, 1996 12,500 2,000 5,104 - 25,520 - - - 2,000
Issuance of common stock for
cash - - - - 6,875 - - - -
Noncash redemption of equity
interests (See Note 12) (7,666) (1,144) (3,130) - (19,868) - - - (1,144)
----------- -------- -------- -------- -------- -------- ------- -------- ---------
Balance, December 31, 1997 4,834 856 1,974 - 12,527 - - 856
Recapitalization of Holding (4,834) (856) (1,974) - (12,527) - 100 - (856)
Elimination of 100% of equity
interests in Holding - - - - - - (100) - -
----------- -------- -------- -------- -------- -------- ------- -------- ---------
Balance, December 31, 1998 - $ - - $ - - $ - - $ - $ -
----------- -------- -------- -------- -------- -------- ------- -------- ---------
Continued
F-23
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
___________
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 March 31, 1999:
Series A Series C
preferred stock preferred stock
-------------------------- --------------------------
Shares Amount Shares Amount
---------- ------------ ---------- ------------
Mandatorily redeemable preferred stock
- --------------------------------------
Issuance of preferred stock to AT&T PCS for
licenses and AT&T Agreements 66,723 $ 66,723,000 - $ -
Issuance of preferred stock to Cash Equity
Investors, net of issuance costs of $1,027,695 - - 128,000 126,847,780
Accretion of preferred stock dividends - 3,039,603 - 3,818,827
Noncash issuance of restricted stock - - - -
Repurchase of restricted stock for cash - - - -
Noncash issuance of preferred stock for
equity of Holding - - 7,348 4,334,276
---------- ------------ ---------- ------------
Balance, December 31, 1998 66,723 69,762,603 135,348 $135,000,883
Accretion of preferred stock dividends (unaudited) - 1,744,065 - 2,137,884
Noncash issuance of restricted stock (unaudited) - - - -
Repurchase of restricted stock for cash (unaudited) - - - -
---------- ------------ ---------- ------------
Balance, March 31, 1999 (unaudited) 66,723 $ 71,506,668 135,348 $137,138,767
========== ============ ========== ============
Series D Series E
preferred stock preferred stock
-------------------------- --------------------------
Shares Amount Shares Amount Total
---------- ------------ ---------- ------------ -------------
Mandatorily redeemable preferred stock
- --------------------------------------
Issuance of preferred stock to AT&T PCS for
licenses and AT&T Agreements 34,267 $ 34,143,639 - $ - $ 100,866,639
Issuance of preferred stock to Cash Equity
Investors, net of issuance costs of $1,027,695 - - - - 126,847,780
Accretion of preferred stock dividends - 945,780 - 541,038 8,345,248
Noncash issuance of restricted stock - - 5,505 5,505 5,505
Repurchase of restricted stock for cash - - (784) (792) (792)
Noncash issuance of preferred stock for
equity of Holding - - 14,156 10,215 4,344,491
---------- ------------ ---------- ------------ -------------
Balance, December 31, 1998 34,267 $ 35,089,419 18,877 $ 555,966 $ 240,408,871
Accretion of preferred stock dividends (unaudited) - 529,971 - 303,031 4,714,951
Noncash issuance of restricted stock (unaudited) - - 207 8,236 8,236
Repurchase of restricted stock for cash (unaudited) - - (577) (576) (576)
---------- ------------ ---------- ------------ -------------
Balance, March 31, 1999 (unaudited) 34,267 $ 35,619,390 18,507 $ 866,657 $ 245,131,482
========== ============ ========== ============ =============
Series F Class A
preferred stock Common stock
-------------------------- --------------------------
Shares Amount Shares Amount
---------- ------------ ---------- ------------
Series F preferred and common stock
- -----------------------------------
Issuance of common stock to Cash Equity
Investors for cash - $ - 121,490 $ 1,214
Issuance of preferred stock to AT&T PCS for
licenses and AT&T Agreements 33,361 333 - -
Exchange of 100% of equity interests in Predecessor
Company for equity in the Company - - 24,541 245
Noncash issuance of restricted stock - - 10,018 100
Repurchase of restricted stock for cash - - (1,787) -
---------- ------------ ---------- ------------
Balance, December 31, 1998 33,361 $ 333 154,262 $ 1,559
Noncash issuance of restricted stock (unaudited) - - 471 -
Repurchase of restricted stock for cash (unaudited) - - (1,317) -
---------- ------------ ---------- ------------
Balance, March 31, 1999 (unaudited) 33,361 $ 333 153,416 $ 1,559
========== ============ ========== ============
Class C tracked Class D tracked
common stock common stock
-------------------------- --------------------------
Shares Amount Shares Amount
---------- ------------ ---------- ------------
Series F preferred and common stock
- -----------------------------------
Issuance of common stock to Cash Equity
Investors for cash 358 $ 4 2,678 $ 27
Issuance of preferred stock to AT&T PCS for
licenses and AT&T Agreements - - - -
Exchange of 100% of equity interests in Predecessor
Company for equity in the Company 561 6 77 1
Noncash issuance of restricted stock - - - -
Repurchase of restricted stock for cash - - - -
---------- ------------ ---------- ------------
Balance, December 31, 1998 919 $ 10 2,755 $ 28
Noncash issuance of restricted stock (unaudited) - - - -
Repurchase of restricted stock for cash (unaudited) - - - -
---------- ------------ ---------- ------------
Balance, March 31, 1999 (unaudited) 919 $ 10 2,755 $ 28
========== ============ ========== ============
Voting Preference
common stock
--------------------------
Shares Amount Total
---------- ------------ -------------
Series F preferred and common stock
- -----------------------------------
Issuance of common stock to Cash Equity
Investors for cash - $ - $ 1,245
Issuance of preferred stock to AT&T PCS for
licenses and AT&T Agreements - - 333
Exchange of 100% of equity interests in Predecessor
Company for equity in the Company 10 252
Noncash issuance of restricted stock - - 100
Repurchase of restricted stock for cash - -
---------- ------------ -------------
Balance, December 31, 1998 10 $ - $ 1,930
Noncash issuance of restricted stock (unaudited) - - -
Repurchase of restricted stock for cash (unaudited) - - -
---------- ------------ -------------
Balance, March 31, 1999 (unaudited) 10 $ - $ 1,930
========== ============ =============
There are no issued or outstanding shares of Series B preferred stock, Senior
common stock or Class B common stock as of March 31, 1999 (unaudited).
Continued
F-24
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
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 Series A conversion rate is equal
the holders' option, to the liquidation preference of the
into Class A common Series A preferred stock on the
stock conversion date divided by the market
price of the Class A common stock on
the conversion date.
Series C preferred stock At the option of the The liquidation preference of the
Company at the IPO Series C preferred stock divided by
date into either the IPO price.
Class A or B common
stock
Series D and Series F If Series C preferred The liquidation preference divided by
preferred stock stock is converted the IPO price.
then automatically at
the IPO date into
Senior common stock
Series E preferred stock At the option of the The liquidation preference of the
Company at the IPO Series E preferred stock divided by
date into either the IPO price.
Class A or Class B
common stock
Series F preferred stock At the holders' One share of Series F preferred stock
and Senior common stock option, into Class A, or Senior common stock for one share
Class B or Class D of either Class A, Class B or Class D
common stock, common stock.
depending upon the
occurrence of certain
defined events
Class A common stock At the holders' One share of Class B common stock for
option into Class B one share of Class A common stock.
common stock
Class C tracked common Subject to FCC One share of Class A or Class B common
stock constraints and Board stock for one share of Class C tracked
approval, at the common stock.
holders' option and
by affirmative vote
of at least 66 2/3%
of Class A common
stock into Class A
or Class B common stock
Class D tracked common Subject to FCC One share of Class A or Class B common
stock constraints and Board stock for one share of Class D tracked
approval, at the common stock.
holders' option and
by affirmative vote
of at least 66 2/3%
of Class A common
stock into Class A or
Class B common stock
Continued
F-25
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
The conversion features and conversion prices of the Company's issued stock are
summarized below:
Liquidation rights
In the event of any liquidation, dissolution or winding up of the Company,
as defined, the stockholders of the Company are entitled to liquidation
preferences as follows:
Order of Distribution Stock Classification Distribution Preference
--------------------- --------------------------- ----------------------------------------
First Series A and Series B $1,000 per share plus accrued and
preferred stock unpaid dividends.
Second Series C and Series D Series C: actual paid-in capital per
preferred stock share plus accrued and unpaid
dividends plus interest of 6% per
annum on the actual paid-in capital,
compounded quarterly, less amount of
dividends declared and paid.
Series D: $1,000 per share plus
accrued and unpaid dividends plus an
amount equal to interest on $1,000
per share at a rate of 6% per annum,
compounded quarterly, less amount of
dividends declared and paid.
Third Series E preferred stock Accrued and unpaid dividends, plus an
amount equal to interest on $1,000
per share at 6% per annum, compounded
quarterly, less dividends declared
and paid.
Fourth Series F preferred stock Series F preferred: $0.01 per share
and Senior common stock plus accrued and unpaid dividends.
Senior common stock: The sum of the
liquidation preference of each share
of Series D and Series F preferred
stock converted in Senior common
stock divided by the aggregate number
of shares of Senior common stock
issued upon conversion of shares of
Series D and Series F preferred stock
Dividends and voting rights
The holders of the Series A and Series B preferred stock are entitled to
cumulative quarterly cash dividends at an annual rate of 10% of the
liquidation preference of the then outstanding shares. The holders of the
remaining shares of preferred and common stock are entitled to dividends if
and when declared.
The Class A common stock has 4,990,000 voting rights and the Voting
Preference common stock has 5,010,000 voting rights. For so long as AT&T
holds at least two-thirds of the shares of Series A preferred stock, they
shall be entitled, but not obliged, to nominate two of the Company's
directors. 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
Continued
F-26
TELECORP PCS, INC. AND SUSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______________
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 $8,345,248 of dividends in
connection with this redemption feature.
Tracked common stock
The Class C and Class D common stock have been designated as Tracked common
stock. The holders of the Tracked common stock are entitled to a dividend,
when available, equal to the excess of the fair value of the net assets of
Holding over the aggregate par value of the outstanding shares of the
Tracked common stock. After all other preferential liquidating
distributions have been made, the holders of the Tracked common stock will
be entitled to a liquidation preference equal to the excess of the fair
value of the net assets of Holding.
Participating stock
The Series F preferred stock, the Senior common stock and the Class A and B
common stock are participating stock, and the Board of Directors may not
declare dividends on or redeem, purchase or otherwise acquire for
consideration any shares of the Participating Stock, unless the Board of
Directors makes such declaration or payment on the same terms with respect
to all shares of participating stock, ratably in accordance with each class
and series of participating stock then outstanding.
8. Restricted Stock Plan
In July 1998, the Company adopted a Restricted Stock Plan (the Plan) to
attract and retain key employees and to reward outstanding performance. Key
employees selected by management may elect to become participants in the
Plan by entering into an agreement which provides for issuance of fixed and
variable units consisting of Series E mandatorily redeemable preferred
stock and Class A common stock. The fixed units typically vest over a five
or six year period. The variable units vest based upon certain events
taking place, such as buildout milestones, Pop coverage 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 5,505 units or a defined number of shares of Series E
preferred stock and Class A common stock, respectively, as determined upon
award. Any units not granted on or prior to July 17, 2003 shall be awarded
to two officers of the Company. Each participant has voting, dividend and
Continued
F-27
TELECORP PCS, INC. AND SUSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______________
distribution rights with respect to all shares of both vested and unvested
common stock. Prior to the Class A shares becoming publicly traded, the
Company retains the right of first offer to buy the employees' vested
shares at the offer price. After the Class A shares become publicly traded,
the right of first offer will no longer exist for the Series E preferred
shares. In addition the shares contain rights of inclusion and first
negotiation. The Company may repurchase unvested shares, and under certain
circumstances, vested shares of participants whose employment with the
Company terminates. The repurchase price is equal to $0.01 per share. Some
of the awards granted under the Plan are variable awards. When it is
probable the future events will occur, the Company determines the fair
value of the variable awards of the Series E preferred stock and Class A
common stock, subject to a final measurement date upon the occurrence of
defined events. Outstanding fixed awards and variable awards as of December
31, 1998 and March 31, 1999 (unaudited) for each class of stock are as
follows:
March 31,
December 31, 1999
1998 (unaudited)
------------------------------
Series E preferred stock:
Fixed awards 3,664 3,411
Variable awards 1,057 939
----------- -----------
Total Series E awards 4,721 4,350
=========== ===========
Class A common stock:
Fixed awards 3,728 3,493
Variable awards 4,503 3,892
----------- ---------------
Total Class A awards 8,231 7,385
=========== ===============
Compensation expense, related to the issuance of restricted stock to
employees based on the estimated fair value of the preferred and common
stock, was immaterial for the year ended December 31, 1998 and for the
three months ended March 31, 1999.
9. Preferred and Common Stock Subscriptions Receivable
In connection with the AT&T Transaction described in Note 6, the Company
received a cash commitment of $128,000,000 from the Cash Equity Investors
in exchange for Series C preferred stock and various classes of common
stock. The Securities Purchase Agreement requires the Cash Equity Investors
to fund their unconditional and irrevocable obligations in installments in
accordance with the following schedule:
Due Date Amount
--------------------------------------- -------------
Initial closing (July 17, 1998) $ 39,375,005
December 31, 1998 16,125,005
Second anniversary of initial closing 36,250,005
Continued
F-28
TELECORP PCS, INC. AND SUSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______________
Third anniversary of initial closing 36,249,985
-----------
$ 128,000,000
===========
The initial contributions were provided in the form of short-term interest
bearing promissory notes (see Note 5). These notes were converted to
mandatorily redeemable preferred and common stock of the Company as partial
satisfaction of the $128,000,000 of committed contributions in connection
with the closing of the AT&T Transaction. Through December 31, 1998, the
Company received $51,999,725 of the above committed equity and received
$3,500,285 in January 1999. The Company has recorded a preferred stock
subscription receivable of $75,914,054 as of December 31, 1998 as a
reduction to the mandatorily redeemable preferred stock and a common stock
subscription receivable of $86,221 as of December 31, 1998 as a reduction
to stockholders equity (deficit) for the unpaid commitment.
10. Income Taxes
The tax effect of temporary differences which gives rise to significant
portions of the deferred tax assets as of December 31, 1997 and 1998,
respectively, are as follows:
December 31,
-----------------------------------
1997 1998
--------------- ----------------
Capitalized start-up costs $ 1,321,340 $ 17,599,251
Net operating losses 145,710 3,634,809
Depreciation and amortization - 288,985
Deferred rent - 74,504
Capitalized interest - (917,107)
Other (4,220) 174,952
-------------- ---------------
1,462,830 20,855,394
Less valuation allowance (1,462,830) (20,855,394)
-------------- ---------------
$ - $ -
============== ===============
For federal income tax purposes, start-up costs will be amortized over five
years once active business operations commence. 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. The net operating losses start expiring in 2017. 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.
11. Commitments
In May 1998, the Company entered into a vendor procurement contract (the
Vendor Procurement Contract) with Lucent, pursuant to which the Company
will purchase up to $285,000,000 of radio, switching and
Continued
F-29
TELECORP PCS, INC. AND SUSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______________
related equipment and services for the development of the Company's
wireless communications network. Through December 31, 1998, the Company has
purchased approximately $90,900,000 of equipment and services from Lucent.
The Company has operating leases primarily related to retail store
locations, distribution outlets, office space, and rent for the Company's
network build-out. The terms of some of the leases include a reduction of
rental payments and scheduled rent increases at specified intervals during
the term of the leases. The Company is recognizing rent expense on a
straight-line basis over the life of the lease, which establishes deferred
rent on the balance sheet. As of December 31, 1998, the aggregate minimum
rental commitments under noncancelable operating leases are as follows:
1999 $ 10,755,694
2000 10,752,666
2001 10,507,474
2002 10,369,758
2003 8,520,560
Thereafter 23,139,323
-------------
Total $ 74,045,475
=============
Rental expense, which is recorded ratably over the lease terms, was
approximately $2,000, $157,000, and $3,193,000 for the period ended
December 31, 1996 and for the years ended December 31, 1997 and 1998,
respectively.
The Company has entered into a series of agreements for software licenses,
consulting, transition support and maintenance with various vendors. The
total future commitments under the agreements is approximately $6,000,000
as of December 31, 1998.
The Company has entered into letters of credit to facilitate local business
activities. The Company is liable under the letters of credit for
nonperformance of certain criteria under the individual contracts. The
total amount of outstanding letters of credit was $1,425,000 at December
31, 1998. The outstanding letters of credit reduce the amount available to
be drawn under the Senior Credit Facility (see Note 5). The Company is
unaware of any events that would have resulted in nonperformance of a
contract during the year ended December 31, 1998.
12. Related Parties
The Company utilizes the services of a law firm in which the Executive Vice
President and Chief Financial Officer of the Company was also a partner.
The Company incurred expenses of approximately $110,000, $250,000,
$2,123,000 and $747,198 (unaudited) for the period ended December 31, 1996,
for the years ended December 31, 1997, 1998 and for the three months ended
March 31, 1999, respectively, for legal services. As of December 31, 1997
and 1998 and March 31, 1999, the Company owed the law firm $70,464,
$160,000
Continued
F-30
TELECORP PCS, INC. AND SUSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______________
and $907,442 (unaudited), respectively. Subsequent to December 31, 1997,
the individual resigned from the law firm but continues as special counsel.
The Company receives site acquisition, construction management, program
management, microwave relocation, and engineering services pursuant to a
Master Services Agreement with WFI/Entel Technologies, Inc. (Entel). The
Chief Executive Officer and Executive Vice President and Chief Financial
Office of the Company were formerly stockholders and senior officers of
Entel. Fees for the above services are as follows: $12,000 per site for
site acquisition services, $7,000 per site for construction management
services, $9,000 per site for program management and $1,100,000 for
microwave relocation services for all of the Company's existing regions.
Fees for engineering services are based upon Entel's customary hourly
rates. For the period ended December 31, 1996 and for the years ended
December 31, 1997 and 1998 and the three months ended March 31, 1999, the
Company paid $30,829, $1,939,795, $30,719,865 and $22,331,512 (unaudited),
respectively, to Entel for these services. As of December 31, 1997 and 1998
and March 31, 1999, the Company owed Entel $170,596, $21,177,516 and
$20,000,620 (unaudited), respectively. Subsequent to December 31, 1997, the
Chief Executive Officer and Executive Vice President and Chief Financial
Officer sold 100% of their interests in Entel.
As of December 31, 1997, the Company had notes payable to affiliates of
$2,072,573. The notes represented the net of the recorded historical costs
of the assets, liabilities and equity interests distributed to THC Houston,
Inc.; THC of Tampa, Inc.; THC of Melbourne, Inc.; and THC of Orlando, Inc.
(see Note 1), and were originally comprised of the following:
Due from (to)
Amount
----------------
PCS licenses $ 15,678,814
U.S. Government financing,
net of discount (12,034,212)
Equity interests (6,370,070)
--------------
$ (2,725,468)
==============
In connection with the transfer of the PCS licenses, U.S. Government
financing and equity interests, the Company reduced the notes payable to
affiliates by $652,895, which represented certain costs incurred by the
Company on behalf of the affiliates for the year ended December 31, 1997
pursuant to Transfer Agreements and Management Agreements. The combined
amounts owed THC Houston, Inc., THC Tampa, Inc., THC Melbourne, Inc., and
THC Orlando, Inc. of $2,072,573 as of December 31, 1997 were repaid in full
during 1998. As of December 31, 1998 and March 31, 1999, the combined
amounts owed by the Company to THC Houston, Inc., THC Tampa, Inc., THC
Melbourne, Inc., and THC Orlando, Inc. for various legal and administrative
costs were $547,047 and $543,219 (unaudited), respectively.
As of December 31, 1997, the Company had amounts payable of $824,164 to
TeleCorp WCS, Inc. (WCS), an affiliate, formerly TeleCorp Management
Corporation, Inc. The amount payable to WCS represented
Continued
F-31
TELECORP PCS, INC. AND SUSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______________
$1,200,000 of funds received by the Company on behalf of WCS related to
wireless communications service licenses owned by WCS reduced by expenses
and other payments owed by WCS to the Company. The entire balance due WCS
as of December 31, 1997 was repaid during 1998
Pursuant to a Management Agreement, TeleCorp Management Corp. (TMC)
provides assistance to the Company in the form of administrative,
operational, marketing, regulatory and general business services. For these
services, beginning in July 1998, the Company pays a management fee to TMC
of $550,000 per year plus reimbursement of certain business expenses,
payable in equal monthly installments, plus an annual bonus. The management
agreement has a five-year term, but may be terminated by the Company upon
the occurrence of certain defined events. TMC may terminate the agreement
at any time with proper notice. The Officers of TMC own all of the
ownership interest in TMC. For the year ended December 31, 1998, the
Company paid approximately $250,000 to TMC for these services plus $282,500
in bonuses to TMC officers. For the quarter ended March 31, 1999, the
Company paid approximately $168,000 (unaudited) 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 Tower provides network site leases
for PCS deployment. The Company has incurred $16,862 and $22,639
(unaudited) of expense for the year ended December 31, 1998 and the three
months ended march 31, 1999, respectively.
13. Defined Contribution Plan
During 1998, the Company established the TeleCorp Communications, Inc.
401(k) Plan (the 401(k) Plan), a defined contribution plan in which all
employees over the age of 21 are immediately eligible to participate in the
401(k) Plan. TeleCorp Communications, Inc. is a wholly-owned subsidiary of
the Company. Under the 401(k) Plan, participants may elect to withhold up
to 15% of their annual compensation, limited to $160,000 of total
compensation as adjusted for inflation. The Company may make a matching
contribution based on a percentage of the participant's contributions.
Participants vest in the Company's matching contributions as follows: 20%
after one year; 60% after two years and 100% after three years. Total
Company contributions to the 401(k) Plan were $505,495 and $275,268
(unaudited) for the year ended December 31, 1998 and for the three months
ended March 31, 1999.
Continued
F-32
TELECORP PCS, INC. AND SUSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______________
14. Subsidiary Guarantee
In March 1999, the Board of Directors approved the issuance of Notes (see
Note 15). The Notes will be fully and unconditionally guaranteed 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 March 31, 1999, and for the year ended December 31, 1998 and for the
three months ended March 31, 1999 are as follows:
TeleCorp
December 31,1998 Communications,
- ----------------- Inc. -
Guarantor Non-Guarantor
TeleCorp Subsidiary Subsidiaries Eliminations Consolidated
-------------------------------------------------------------------------------------------------
Balance sheet information:
Current assets $ 372,761,282 $ 23,612,116 $ (1,381,050) $ (279,077,565) $ 115,914,783
Total assets 387,215,715 126,148,400 236,743,694 (283,463,777) 466,644,032
Current liabilities 4,004,914 149,535,035 246,128,722 (279,077,565) 120,591,106
Total liabilities 239,465,314 152,016,093 254,249,452 (279,077,565) 366,653,294
Total mandatorily
redeemable preferred
stock, net $ 164,490,706 $ - $ - $ - $ 164,490,706
Total stockholders'
deficit $ (16,740,306) $ (25,867,693) $ (17,505,757) $ (4,386,212) $ (64,499,968)
Statements of operation
information:
Revenue $ - $ 806,418 $ 260,509 $ (51,037,696) $ 29,231
Operating expenses 974,761 26,734,170 17,232,368 (1,021,165) 43,920,134
Net loss (8,491,946) $ (25,845,788) $ (16,801,015) $ (16,531) $ (51,155,280)
TeleCorp
March 31, 1999 Communications,
(unaudited) Inc. -
- -------------- Guarantor Non-Guarantor
TeleCorp Subsidiary Subsidiaries Eliminations Consolidated
-------------------------------------------------------------------------------------------------
Balance sheet
information:
Current assets $ 421,086,940 $ 11,656,431 $ 196,882 $ (407,741,962) $ 25,198,291
Total assets 438,147,052 143,554,804 288,384,417 (412,182,736) 457,903,537
Current liabilities 3,902,657 188,777,777 299,625,414 (407,741,962) 84,563,886
Total liabilities 289,811,751 191,303,651 311,287,874 (407,741,962) 384,661,314
Total mandatorily
redeemable
preferred stock,
net $ 172,706,635 $ - $ - $ - $ 172,706,635
Continued
F-33
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________
Total stockholders'
deficit $ (24,371,334) $ (42,748,847) $ (22,903,457) $ (4,440,774) $ (99,464,412)
Statement of operations
information:
Revenue $ - $ 4,364,371 $ 485,215 $ (586,760) $ 4,262,826
Operating expenses 59,981 26,264,610 5,762,417 (532,742) 31,554,266
Net loss (3,000,301) $ (21,908,028) $ (5,372,980) $ (54,018) $ (30,335,327)
15. Subsequent Events
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. The Company currently owns 85% of Viper and the Company's
Chief Executive Officer and Executive Vice President and Chief Financial
Officer collectively own the remaining 15%. Mr. Vento and Mr. Sullivan
together currently have voting control over Viper. Upon final award of
licenses to Viper, the Company will solicit the approval of the FCC for the
consolidation of Viper into the Company. Any such consolidation will be
subject to a final FCC order approving the transaction. In April 1999, Viper
participated in the FCC's reauction of C-Block licenses for additional
spectrum. On April 15, 1999, the FCC announced the reauction ended, and
Viper was the current high bidder for 15 MHz licenses in New Orleans, Houma
and Alexandria, Louisiana, San Juan, Puerto Rico and Jackson, Tennessee.
Viper was also the current high bidder for a 30 MHz licenses in Beaumont,
Texas. The total auction price for these licenses is approximately
$32,286,000 plus legal costs of $46,566. During the quarter ended March 31,
1999, the Company paid the FCC an initial deposit of $17,818,549 (unaudited)
related to the reauction. Subsequent to March 31, 1999, the FCC refunded
$11,361,351(unaudited) of the initial deposit. The finalization of this
transaction is conditioned upon the receipt of final regulatory approval
from the FCC, which is expected in the second half of 1999. The purchase
price will be allocated to the licenses acquired, subject to adjustment,
based upon their estimated fair value as follows:
PCS licenses $ 32,286,000
Other intangible assets relating
to legal costs 46,566
-------------
$ 32,332,566
=============
AT&T and certain of the Company's other stockholders have committed an
aggregate of up to approximately $32,300,000 in exchange for additional
shares of mandatorily redeemable preferred stock, Series F preferred stock
and common stock in the event Viper is ultimately awarded these licenses. As
part of this financing, the Company paid approximately $500,000 to an
affiliate of a Cash Equity Investor in closing this transaction. In May
1999, AT&T and the certain Cash Equity Investors funded approximately
$6,460,000 of their commitment, with the remaining $25,840,000 to be funded
when the Company must make payments to the FCC with respect to these
licenses, or if the FCC does not refund amounts the Company paid to the FCC
as deposits in connection with the reauction within 180 days of the date of
deposit. On June 3, 1999, a petition was filed by
Continued
F-34
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________
certain collateralized creditors of DCR PCS, Inc. and Pocket Communications
Inc. against the application of Viper for the Houma and New Orleans
licenses. The petition seeks deferral of the grant of these licenses to
Viper until an appeal by the collateralized creditors of DCR PCS, Inc. and
Pocket Communications, Inc. has been resolved or, in the alternative, a
condition noting that a pre-existing claim to the licenses may exist if the
collateralized creditors of DCR PCS, Inc. and Pocket Communications are
successful in that appeal. The appeal seeks review of the bankruptcy court's
ruling concering DCR PCS, Inc. and Pocket Communications, Inc. permitting
DCR PCS, Inc. to file its election notice, which ultimately resulted in the
return of these licenses to the FCC, over the objection of the
collateralized creditors of DCR PCS, Inc. and Pocket Communications, Inc.
On June 15, 1999, Viper filed an opposition to the petition.
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, Inc. 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 (the SunCom Marks) and to license the
SunCom marks to Triton, Tritel and the Company. Triton, Tritel and TeleCorp
Communications, Inc. each have a 33% membership interest in Affiliate
License Co., L.L.C. On April 16, 1999, Triton entered into an agreement, to
settle a potential dispute regarding prior use of the SunCom brand. In
connection with this settlement, Triton agreed to pay $975,000 to acquire
the SunCom Marks which were contributed to Affiliate License Co., L.L.C. The
Company paid $325,000 in royalty payments to reimburse Triton for the
contributed SunCom Marks.
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, Inc. The total purchase price of $5,979,561 was
comprised of $2,310,000 of mandatorily redeemable preferred stock and common
stock of the Company, the assumption of U.S. Government financing with the
FCC of $4,100,000, less a discount of $716,995, and $286,556 in cash as
reimbursement to Digital PCS for interest due to the FCC incurred prior to
close and legal costs. The terms of the notes include: interest rate of
6.25%, quarterly interest payments for a two year period and then quarterly
principal and interest payments for the remaining 8 years. The promissory
notes are collateralized by the underlying PCS licenses. The notes and
related PCS licenses will be recorded net of a discount of $716,995 based on
management's best estimate of the prevailing market interest rate at the
time of the transaction. The purchase price has been preliminarily allocated
to the assets acquired, subject to adjustment, based upon their estimated
fair value as follows:
PCS licenses $ 5,693,005
Other intangible assets relating
to legal costs and reimbursement
of FCC interest 286,556
-------------
$ 5,979,561
=============
In addition, the Cash Equity Investors will contribute $5,000,000 in
exchange for mandatorily redeemable preferred stock and common stock over a
two year period from the close of this transaction.
On April 20, 1999, the Company restated its Certificate of Incorporation to
increase the total authorized number of shares to the following:
Continued
F-35
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______________
Preferred Par Shares Par Shares
Stock Value authorized Common Stock Value authorized
------------------------------- ---------- ------------- ----------------- ---------- ------------
Mandatorily redeemable Series A $ 0.01 100,000 Senior $ 0.01 70,000
Mandatorily redeemable Series B $ 0.01 200,000 Class A $ 0.01 950,000
Mandatorily redeemable Series C $ 0.01 215,000 Class B $ 0.01 950,000
Mandatorily redeemable Series D $ 0.01 50,000 Class C tracked $ 0.01 1,000
Mandatorily redeemable Series E $ 0.01 30,000 Class D tracked $ 0.01 3,000
Series F $ 0.01 50,000 Voting Preference $ 0.01 10
----------- -----------
Total 645,000 Total 1,974,010
=========== ===========
On April 23, 1999, the Company completed the issuance and sale of 11 5/8%
Senior Subordinated Discount Notes (the Notes) with an aggregate principal
amount at maturity of $575,000,000. The Notes mature April 15, 2009, unless
previously redeemed by the Company. The total gross proceeds from the sale
of the Notes were $327,635,000. Offering expenses consisting of
underwriting, printing, legal and accounting fees totaled $10,574,947. The
Notes will increase to $575,000,000 through April 15, 2004 at a rate of 11
5/8% compounded semi-annually. As interest accrues, it will be added to the
principal as an increase to interest expense and the carrying value of the
Notes until April 15, 2004. The Company will begin paying interest semi-
annually on April 15 and October 15 of each year beginning October 15,
2004. The Notes are not collateralized. The Notes are subordinate to all of
the Company's existing and future senior debt and ranks equally with all
other senior subordinated debt, and ranks senior to all of the Company's
existing and future subordinated debt. The Notes are guaranteed by the
Company's wholly owned subsidiary, TeleCorp Communications, Inc.
On May 24, 1999, the Company sold mandatorily redeemable preferred stock
and preferred stock to AT&T with an aggregate value of $40,000,000.
Subsequently, 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. In addition, the Company
incurred legal fees of $500,000 related to this acquisition. The total
purchase price of this asset acquisition was $99,672,877 in cash. The
purchase price has been preliminarily allocated to the assets acquired,
subject to adjustment, based upon their estimated fair value as follows:
PCS licenses $ 69,690,000
Intangible assets - AT&T Agreements 17,310,000
Cell sites, site acquisition, switching
facility assets, and other assets 8,000,000
Microwave relocation costs 3,200,000
Continued
F-36
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______________
Other intangible assets relating
to salary and lease
reimbursement costs 1,472,877
--------------
$ 99,672,877
Legal fees $ 500,000
--------------
$ 100,172,877
==============
As a result of completing this transaction, the Company's available
borrowings under the Lucent Note Agreement (see Note 6) increased by
$15,000,000 ($7,500,000 of Series A and $7,500,000 of Series B) and certain
Cash Equity Investors have committed $39,996,600 in cash in exchange for
mandatorily redeemable preferred and common stock. As part of the
financing, the Company paid $2,000,000 to a Cash Equity Investor upon
closing the transaction. The Cash Equity Investors cash commitment of
$39,996,600 will be funded over a three year period from the close of this
transaction. In addition, certain employees, the Chief Executive Officer
and the Executive Vice President and Chief Financial Officer of the Company
were issued a total of 5,643 shares and 8,212 shares of mandatorily
redeemable Series E preferred stock and Class A common stock, respectively.
The value of these shares will be recorded as deferred compensation and
amortized over the related vesting periods resulting in future compensation
expense.
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 $7,192,174 was comprised of $370,810 of mandatorily
redeemable preferred stock and common stock of the Company, the assumption
of U.S. Government financing with the FCC of $7,449,190, less a discount of
$1,277,765, and $649,939 in cash as reimbursement of microwave relocation
costs and reimbursement of FCC interest and legal costs. The purchase price
has been preliminarily allocated to the assets acquired, subject to
adjustment, based upon their estimated fair value as follows:
PCS licenses $ 6,542,235
Other intangible assets relating
to legal and reimbursement of
FCC interest 449,939
Microwave relocation costs 200,000
-------------
$ 7,192,174
=============
Continued
F-37
Unaudited Pro Forma Balance Sheet
---------------------------------
The following unaudited pro forma condensed consolidated balance sheet is
based upon the historical consolidated financial statements of the Company. The
unaudited pro forma adjustments are based upon available information and certain
assumptions that management of the Company believes are reasonable. The
unaudited pro forma condensed consolidated balance sheet as of March 31, 1999
has been prepared to illustrate the effects of the Transactions (Notes a, b, c,
d and e) as if these Transactions had occurred as of March 31, 1999.
The unaudited pro forma condensed consolidated balance sheet and
accompanying notes thereto should be read in conjunction with the historical
consolidated financial statements of the Company and the other financial
information included elsewhere in this Prospectus. The unaudited pro forma
condensed consolidated balance sheet does not purport to be indicative of what
the Company's consolidated financial position would actually have been had the
Transactions been completed on such date, or to project the Company's
consolidated financial position for any future period.
Continued
F-38
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
as of March 31, 1999
_______
Puerto Digital Wireless
Rico PCS 2000
Historical (a) (b) (c)
-------------- --------------- -------------- -------------
Cash and cash equivalents $ 11,210,696 $ (62,172,877) $ (286,556) $ (649,939)
Other current assets 13,987,595 - - -
-------------- --------------- -------------- -------------
Total current assets 25,198,291 (62,172,877) (286,556) (649,939)
Property and equipment, net 262,653,787 8,000,000 - -
PCS licenses and microwave relocation costs 117,531,516 72,890,000 5,693,005 6,742,235
Intangible assets - AT&T agreements 25,369,334 17,310,000 - -
Deferred financing costs, net 8,490,330 - - -
FCC deposit 17,818,549 - - -
Other assets 841,730 1,972,877 286,556 449,939
-------------- --------------- -------------- -------------
Total assets $ 457,903,537 $ 38,000,000 $ 5,693,005 $ 6,542,235
============== =============== ============== =============
Total current liabilities 84,563,886 - - -
-------------- --------------- -------------- -------------
Long-term debt 293,889,463 - 3,383,005 6,171,425
Other liabilities 6,207,965 - - -
-------------- --------------- -------------- -------------
384,661,314 - 3,383,005 6,171,425
-------------- --------------- -------------- -------------
Mandatorily redeemable preferred stock 245,131,494 40,269,666 2,304,266 369,864
- 37,894,524 4,987,239 -
Deferred compensation (11,078) (293,436) - -
Treasury stock, at cost (12) - - -
Preferred stock subscriptions receivable (72,413,769) (39,894,524) (4,987,239) -
-------------- --------------- -------------- -------------
Total mandatorily redeemable preferred stock 172,706,635 37,976,230 2,304,266 369,864
-------------- --------------- -------------- -------------
Series F preferred stock 333 100 - -
Common stock 1,597 482 73 5
Additional paid-in capital 187,498 144,973 18,422 941
Deferred compensation (5,306) (19,709) - -
Common stock subscriptions receivable (86,221) (102,076) (12,761) -
Treasury stock, at cost (26) - - -
Accumulated deficit (99,562,287) - - -
-------------- --------------- -------------- -------------
Total stockholders equity (deficit) (99,464,412) 23,770 5,734 946
-------------- --------------- -------------- -------------
Total liabilities, mandatorily redeemable
preferred stock and stockholders' equity
(deficit) $ 457,903,537 $ 38,000,000 $ 5,693,005 $ 6,542,235
============== =============== ============== =============
Offering Pro
Viper Wireless (d) (e) Forma
------------------- -------------- ---------------
Cash and cash equivalents $ (15,014,017) $ 296,960,053 $ 230,047,360
Other current assets - - 13,987,595
------------------- -------------- ---------------
Total current assets (15,014,017) 296,960,053 244,034,955
Property and equipment, net - - 270,653,787
PCS licenses and microwave relocation costs 32,286,000 - 235,142,756
Intangible assets - AT&T agreements - - 42,679,334
Deferred financing costs, net - 10,574,947 19,065,277
FCC deposit (17,818,549) - -
Other assets 46,566 - 3,597,668
------------------- -------------- ---------------
Total assets $ (500,000) $ 307,535,000 $ 815,173,777
=================== ============== ===============
Total current liabilities - - 84,563,886
------------------- -------------- ---------------
Long-term debt - 307,535,000 610,978,893
Other liabilities - - 6,207,965
------------------- -------------- ---------------
- 307,535,000 701,750,744
------------------- -------------- ---------------
Mandatorily redeemable preferred stock 31,703,603 - 362,660,656
- -
Deferred compensation - - (304,514)
Treasury stock, at cost - - (12)
Preferred stock subscriptions receivable (32,203,603) - (149,499,135)
------------------- -------------- ---------------
Total mandatorily redeemable preferred stock (500,000) - 212,856,995
------------------- -------------- ---------------
Series F preferred stock 49 - 482
Common stock 274 - 2,431
Additional paid-in capital 82,074 - 433,908
Deferred compensation - - (25,015)
Common stock subscriptions receivable (82,397) - (283,455)
Treasury stock, at cost - - (26)
Accumulated deficit - - (99,562,287)
------------------- -------------- ---------------
Total stockholders equity (deficit) - (99,433,962)
------------------- -------------- ---------------
Total liabilities, mandatorily redeemable
preferred stock and stockholders' equity
(deficit) $ (500,000) $ 307,535,000 $ 815,173,777
=================== ============== ===============
The accompanying notes are an integral part of this unaudited pro forma
condensed balance sheet.
F-39
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
_____
(a) On May 24, 1999, the Company sold mandatorily redeemable preferred stock
and preferred stock to AT&T with an aggregate value of $40,000,000.
Subsequently, 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. In addition, the Company
incurred legal fees of $500,000 related to this acquisition. The total
purchase price of this asset acquisition was $99,672,877 in cash. The
purchase price has been preliminarily allocated to the assets acquired,
subject to adjustment, based upon their estimated fair value as follows:
PCS licenses $ 69,690,000
Intangible assets- AT&T Agreements 17,310,000
Cell sites, site acquisition, switching
facility assets, and other assets 8,000,000
Microwave relocation costs 3,200,000
Other intangible assets relating to salary
and lease reimbursement costs 1,972,877
--------------
$ 99,672,877
Legal fees 500,000
--------------
$ 100,172,877
==============
As a result of completing this transaction, the Company's available
borrowings under the Lucent Note Agreement (see Note 6) shall increase
$15,000,000 ($7,500,000 of series A and $7,500,000 of series B) and certain
Cash Equity Investors have committed $39,996,600 in cash in exchange for
mandatorily redeemable preferred and common stock. As part of this
financing, the Company paid $2,000,000 to a Cash Equity Investor upon
closing this transaction. The Cash Equity Investors cash commitment of
$39,996,600 will be funded over a three year period from the close of this
transaction. In addition, certain employees, the Chief Executive Officer
and the Executive Vice President and Chief Financial Officer of the Company
will be issued a total of 5,643 shares and 8,212 shares of mandatorily
redeemable Series E preferred stock and Class A common stock, respectively.
The value of these shares will be recorded as deferred compensation and
amortized over the related vesting periods resulting in future compensation
expense.
(b) 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, Inc. The total purchase price of $5,979,561,
comprised of $2,310,000 of mandatorily redeemable preferred stock and
common stock of the Company, the assumption of U.S. Government financing
with the FCC of $4,100,000, less a discount of $716,995, and $286,556 in
cash as reimbursement to Digital PCS for interest due to the FCC incurred
prior to close and legal costs. The terms of the notes include: interest
rate of 6.25%, quarterly interest payments for a two year period and then
quarterly principal and interest payments for the remaining 8 years. The
promissory notes are collateralized by the underlying PCS licenses. The
notes and related PCS licenses will be recorded net of a discount of
$716,995 based on management's best estimate of the prevailing market
interest rate at the time of the transaction. The purchase price has been
preliminarily allocated to the assets acquired, subject to adjustment,
based upon their estimated fair value as follows:
PCS licenses $ 5,693,005
Other intangible assets relating to legal
costs and reimbursement of FCC interest 286,556
F-40
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
_____
--------------
$ 5,979,561
==============
In addition, the Cash Equity Investors will contribute $5,000,000 in
exchange for mandatorily redeemable preferred stock and common stock over a
two year period from the close of this transaction.
(c) 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 $7,192,174, was comprised of $370,810 of
mandatorily redeemable preferred stock and common stock of the Company, the
assumption of U.S. Government financing with the FCC of $7,449,190, less a
discount of $1,277,765 and $649,939 in cash as reimbursement of microwave
relocation costs and reimbursement of FCC interest and legal costs. The
purchase price has been preliminarily allocated to the assets acquired,
subject to adjustment, based upon their estimated fair value as follows:
PCS licenses $ 6,542,235
Other intangible assets relating to legal and
reimbursement of FCC interest 449,939
Microwave relocation costs 200,000
-------------
$ 7,192,174
=============
(d) In February 1999, Viper was formed to participate in the C-Block PCS
license reauction for additional spectrum in most of the Company's markets.
The Company currently owns 85% of Viper and the Company's Chief Executive
Officer and Executive Vice President and Chief Financial Officer
collectively own the remaining 15%. Mr.Vento and Mr.Sullivan together
currently have voting control over Viper. Upon final award of licenses to
Viper, the Company will solicit the approval of the FCC for the
consolidation of Viper into the Company. Any such consolidation will be
subject to a final FCC order approving the transaction.
In April 1999, Viper participated in the FCC's reauction of C-Block
licenses for additional spectrum. On April 15, 1999, the FCC announced the
reauction ended, and Viper was the current high bidder for 15 MHz licenses
in New Orleans, Houma and Alexandria, Louisiana, San Juan, Puerto Rico and
Jackson, Tennessee. Viper was also the current high bidder for a 30 MHz
licenses in Beaumont, Texas. The total auction price for these licenses is
approximately $32,286,000. During the quarter ended March 31, 1999, the
Company paid the FCC an initial deposit of $17,818,549 related to the
reauction. Subsequent to March 31, 1999, the FCC refunded $11,361,351 of
the initial deposit. The finalization of this transaction is conditioned
upon the receipt of final regulatory approval from the FCC, which is
expected in the second half of 1999. The purchase price will be allocated
to the licenses acquired, subject to adjustment, based upon their estimated
fair value as follows:
PCS licenses $ 32,286,000
Other intangible assets relating
to legal costs 46,566
--------------
$ 32,332,566
==============
AT&T and certain of the Company's other stockholders have committed an
aggregate of up to approximately $32,300,000 in exchange for additional
shares of mandatorily redeemable preferred stock, Series F preferred stock
and common stock in the event Viper is ultimately awarded these licenses.
As part of this financing, the Company paid $500,000 to an affliate of a
Cash Equity Investor upon closing this transaction. In May 1999, AT&T and
the certain Cash Equity Investors funded approximately $6,460,000 of their
commitment, with the remaining $25,840,000 to be funded when the Company
must make payments to the FCC with respect to these licenses, or if the FCC
does not refund amounts the Company paid to the FCC as deposits in
connection with the reauction within 180 days of the date of deposit. On
June 3, 1999, a petition was filed by certain collateralized creditors of
DCR PCS, Inc. and Pocket Communications Inc. against the application of
Viper
F-41
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
_____
for the Houma and New Orleans licenses. The petition seeks deferral of the
grant of these licenses to Viper until an appeal by the collateralized
creditors of DCR PCS, Inc. and Pocket Communications, Inc. has been
resolved or, in the alternative, a condition noting that a pre-existing
claim to the licenses may exist if the collateralized creditors of DCR PCS,
Inc. and Pocket Communications are successful in that appeal. The appeal
seeks review of the bankruptcy court's ruling concerning DCR PCS, Inc. and
Pocket Communications, Inc. permitting DCR PCS, Inc. to file its election
notice, which ultimately resulted in the return of these licenses to the
FCC, over the objection of the collateralized creditors of DCR PCS, Inc.
and Pocket Communications, Inc. On June 15, 1999, Viper filed an opposition
to the petition.
(e) Adjustments reflect the receipt of $296,960,053 of proceeds for the sale of
the Notes, net of offering expenses of $10,574,947 and the repayment of the
Lucent Series B Notes of approximately $20,100,000 outstanding as of March
31, 1999 (unaudited).
F-42
================================================================================
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT
RELY ON ANY UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO SELL OR
BUY ANY SECURITIES IN ANY JURISDICTION WHERE IT IS UNLAWFUL. THE INFORMATION IN
THIS PROSPECTUS IS CURRENT AS OF , 1999.
TABLE OF CONTENTS
Prospectus Summary.......................................................... 1
Risk Factors................................................................ 13
Use of Proceeds............................................................. 27
Capitalization.............................................................. 28
Selected Historical and Pro Forma Consolidated
Financial Information...................................................... 30
Management's Discussion and Analysis of
Financial Condition and Results of Operations.............................. 31
Business.................................................................... 37
The Exchange Offer.......................................................... 50
Management.................................................................. 56
Securities Ownership of Certain Beneficial Owners
and Management............................................................. 62
Certain Relationships and Related Transactions.............................. 65
Certain Indebtedness........................................................ 72
Description of Capital Stock................................................ 77
Description of the Notes.................................................... 82
Certain U.S. Federal Tax Considerations..................................... 117
Book-Entry; Delivery and Form............................................... 122
Plan of Distribution........................................................ 124
Legal Matters............................................................... 124
Experts..................................................................... 124
Available Information....................................................... 124
Glossary of Selected Terms.................................................. 126
Index to Financial Statements............................................... F-1
UNTIL , 1999, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED
TO DELIVER A PROSPECTUS IN CONNECTION THEREWITH. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS. WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
TELECORP PCS, INC.
575,000,000
OFFER TO EXCHANGE ALL OF OUR
OUTSTANDING AND UNREGISTERED
11 5/8% SENIOR SUBORDINATED DISCOUNT
NOTES DUE 2009
FOR OUR REGISTERED
11 5/8% SENIOR SUBORDINATED DISCOUNT
NOTES DUE 2009
----------------------
PROSPECTUS
----------------------
, 1999
================================================================================
[ALTERNATIVE PAGE]
THIS PROSPECTUS, DATED JUNE __, 1999, IS SUBJECT TO COMPLETION AND AMENDMENT
PROSPECTUS
TELECORP PCS, INC.
11 5/8% SENIOR SUBORDINATED DISCOUNT NOTES DUE 2009
YOU SHOULD CAREFULLY REVIEW THE RISK FACTORS BEGINNING ON PAGE __ OF THIS
PROSPECTUS.
INFORMATION ABOUT THE NOTES
Maturity Change of Control
. The Notes will mature on April 15, 2009, . If we experience a change of control, you may require us to
unless previously redeemed. purchase the Notes.
Interest and Accretion Security and Ranking
. We issued the Notes at a discount to their principal . The Notes are not secured by any collateral.
amount at maturity. . The Notes are subordinate to all of our existing and future
. The Notes will accrete in value until April 15, 2004 at a senior debt.
rate of 11 5/8% compounded semi-annually. . The Notes rank equally with all of our other senior
. We will pay interest semiannually on April 15 and October subordinated debt.
15 of each year beginning October 15, 2004. . The Notes rank senior to all of our existing and future
subordinated debt.
Redemption Guarantees
. We may redeem some or all of the Notes at any time after . If we fail to make payments on the Notes, our guarantor
April 15, 2004. subsidiaries must make them instead. These guaranties will be
. We also may redeem up to 35% of the aggregate principal senior subordinated obligations of our guarantor subsidiaries.
amount at maturity of the Notes using the proceeds of Not all of our subsidiaries will be guaranteeing our payments
certain equity offerings completed before April 15, 2002. on the Notes.
. See page __ for the redemption prices.
Neither the SEC nor any state securities commission has approved or disapproved
of the Notes, or determined that this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
Chase Securities Inc. ("CSI") may use this prospectus in connection with
offers and sales of the Notes in market-making transactions at negotiated prices
related to prevailing market prices at the time of sale. CSI may act as a
principal or agent in such transactions. We will receive no portion of the
proceeds of the sale of such Notes and will bear the expenses incident to their
registration. For as long as a market-making prospectus is required to be
delivered, the ability of CSI to make a market in the Notes may in part depend
on our ability to maintain a current market-making prospectus.
The date of this prospectus is , 1999.
A-1
[ALTERNATIVE PAGE]
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
All statements contained in this prospectus, as well as statements made in
press releases and oral statements that may be made by us or any of our
officers, directors or employees acting on our behalf, that are not statements
of historical fact, including, but not limited to, statements regarding our
current business strategy, future operations, technical capabilities,
construction plan and schedule, commercial operations schedule, funding needs,
prospective acquisitions or joint ventures, financing sources, pricing, future
regulatory approvals, markets, size of markets for wireless communications
services, financial position, estimated revenues, projected costs, prospects,
plans and objectives of management, as well as information concerning expected
actions of third parties, such as equipment suppliers, service providers and
roaming partners, and expected characteristics of competing systems, are based
upon current expectations and constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 and, as such,
speak only as of the date made. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors that could cause our actual
results to be materially different from historical results or from any future
results expressed or implied by such forward-looking statements. Among the
factors that could cause actual results to differ materially are the following:
the availability of sufficient capital to finance our business plan on terms
satisfactory to us; competitive factors; changes in labor, equipment and capital
costs; our ability to obtain necessary regulatory approvals; technological
changes; our ability to comply with the indenture governing the Notes and the
terms of our other credit agreements; future acquisitions or strategic
partnerships; general business and economic conditions; and other factors
described under the heading "Risk Factors." We caution readers not to place
undue reliance on any forward-looking statements. In addition to statements that
explicitly describe such risks and uncertainties, readers are urged to consider
statements that include the terms "believes," "belief," "expects," "plans,"
"anticipates," "intends," "estimates," "projects" or the like to be uncertain
and forward-looking. We have no obligation to update or revise publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise. Although we believe that the expectations underlying the
forward-looking statements are reasonable, we cannot assure that such
expectations will prove to be correct.
We disclose important factors that could cause our actual results to differ
materially from our expectations ("cautionary statements") under the heading
"Risk Factors" and elsewhere in the prospectus. The cautionary statements
qualify all forward-looking statements attributable to us or persons acting on
our behalf.
A-2
[ALTERNATIVE PAGE]
Risk Factors
You should consider carefully all of the information set forth in this
prospectus and, in particular, you should evaluate the specific factors under
"Risk Factors" beginning on the next page before you invest in the Notes.
A-3
[ALTERNATIVE PROVISIONS]
[The following provisions replace the provisions under the same headings in the
prospectus in the "Risk Factors" section.]
RISK FACTORS
We may need additional financing to complete our network and fund operating
losses.
We will make significant capital expenditures to finish the designing,
building, testing and deployment of our network. We estimate that the proceeds
from the original private offering of the Notes, together with the proceeds from
sales of our equity securities, borrowings under our senior credit facilities
and the vendor financing provided by Lucent, and internally generated cash, will
be sufficient to:
. fund the planned construction of our network;
. fund operating losses; and
. satisfy debt service requirements through December 31, 2002.
See "Use of Proceeds" and "Business--Network Development." The actual
expenditures necessary to achieve these goals may differ significantly from our
estimates. We would have to obtain additional financing, if:
. any of our sources of capital are unavailable or insufficient;
. we significantly depart from our business plan;
. we experience unexpected delays or cost overruns in the
construction of our network;
. we have increases in operating costs;
. changes in technology or governmental regulations create
unanticipated costs; or
. we acquire additional licenses.
We cannot predict whether any additional financing will be available, the
terms on which any additional financing would be available or whether our
existing debt agreements will allow additional financing. If we cannot obtain
additional financing when needed, we will have to delay, modify or abandon some
of our plans to construct the remainder of our network.
We have sold $205.3 million of equity securities. As of March 31, 1999, we
had received payments of $55.5 million in payment for such securities. The
remaining $149.8 million (including $32.3 million of commitments to reimburse us
for costs incurred in connection with the FCC's reauction of C-Block licenses)
has been irrevocably committed and will be paid within three years. If we do not
receive the proceeds from sales of our equity securities in a timely manner, our
ability to complete construction of our network, successfully implement our
business plan and capitalize on opportunities for growth could be materially
adversely affected.
This prospectus contains forward-looking statements that may be incorrect.
All statements in this prospectus that are not statements of historical
facts are forward-looking statements. Forward-looking statements concern our
strategy, future operations, technical capabilities, construction plan and
schedule, commercial operations schedule, funding needs, prospective
acquisitions or joint ventures, financing sources, pricing, future regulatory
approvals, markets, size of markets for wireless communications services,
financial position, estimated revenues, projected costs, prospects, plans and
objectives of management, as well as information concerning expected actions of
third parties such as equipment suppliers, service providers and roaming
partners, and expected characteristics of competing systems. Although we believe
that the expectations underlying such forward-looking statements are reasonable,
forward-looking statements are inherently speculative, and they may be
incorrect. Our business, operations and financial results may differ materially
from the expectations expressed or implied in the forward-looking statements in
this prospectus. You should consider carefully the factors described in this
section and the other information in this prospectus before you invest in the
Notes.
A-4
[ALTERNATIVE PROVISIONS]
The information set forth under "Business--Network Development," other than
historical information, the statements in this prospectus regarding the years
during which we expect to continue to incur significant operating losses and to
generate negative cash flow from operating activities and the statements in this
prospectus regarding our anticipated capital needs are forward-looking
statements based upon a number of specific assumptions. These assumptions
include the following:
. we will not incur any unanticipated costs in the construction of
our network;
. we will be able to compete successfully in each of our markets;
. demand for our services will meet wireless communications industry
projections;
. our network will satisfy the requirements set forth in our
agreements with AT&T and support the services we expect to provide;
. the capacity of our network will be sufficient to meet the level of
service reflected in our business plan;
. we will be successful in working with AT&T and the other SunCom
companies, as well as with other providers of wireless
communications services and roaming partners, to ensure effective
marketing of our network and the services we intend to offer;
. there will be no change in any governmental regulation or the
administration of existing governmental regulations that requires a
material change in the operation of our business; and
. there will be no change in any of our material contracts that
adversely affects us.
Although we believe that these assumptions are reasonable, they may be
incorrect. If one or more of these assumptions is incorrect, our business,
operations and financial results may differ materially from the expectations,
expressed or implied, in the forward-looking statements in this prospectus.
A market for unregistered Notes may weaken the market for the registered Notes,
and vice versa.
The existence of a market for registered Notes could adversely affect the
market for unregistered Notes due to the limited amount, or "float," of the
unregistered Notes that remain outstanding. Generally, a lower "float" of a
security could result in less demand to purchase such security and could result
in lower prices for such security. For the same reasons, the existence of a
market for unregistered Notes could adversely affect the trading market for the
registered Notes.
There is no public market for the Notes and there are restrictions on the resale
of the Notes.
The Notes are new securities with no established trading market. We do not
intend to list the Notes on any securities exchange. CSI, one of the initial
purchasers of the Notes in the original private offering, has told us that they
intend to make a market in the Notes, as the law permits. CSI is not obligated
to make a market, and may discontinue any such activities at any time without
notice. If CSI conducts any market-making activities, it may be required to
deliver a market-making prospectus when effecting offers and sales of the Notes
because affiliates of CSI beneficially own some of our capital stock. For so
long as a market-making prospectus is required to be delivered, the ability of
CSI to make a market in the Notes depends, in part, on our ability to maintain a
current market-making prospectus. We cannot ensure that an active market for
the Notes will develop.
A-5
[ALTERNATIVE SECTION]
USE OF PROCEEDS
The net proceeds from the original private offering of the Notes, after
deducting the initial purchasers' discounts and estimated fees and expenses
payable by us, were approximately $317.0 million. We used $40.0 million of the
net proceeds to repay vendor financing from Lucent. We intend to use the
remaining net proceeds from the private offering of the Notes, together with
proceeds from sales of our equity securities, borrowings under our senior credit
facilities, other vendor financing provided by Lucent and internally generated
cash, to fund capital expenditures, acquisitions of PCS licenses, operating
losses and other working capital requirements. We did not receive proceeds from
the exchange offer relating to the Notes, and will not receive any proceeds from
market-making transactions by CSI. See "Business--Network Development" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
A-6
[ALTERNATIVE PROVISIONS]
[The following provisions replace the provisions under the same headings in the
prospectus in the "Description of the Notes" section.]
DESCRIPTION OF THE NOTES
General
As used in this section entitled "Description of the Notes," the terms
"we," "us" and "our" means TeleCorp PCS, Inc., a Delaware corporation, but does
not include any of our subsidiaries. Capitalized terms used in this section and
not otherwise defined have the meanings set forth under "--Certain Definitions."
The Notes have been issued under the Indenture, dated as of April 23, 1999
(the "Indenture"), among us, TeleCorp Communications, as our subsidiary
guarantor, and Bankers Trust Company, as Trustee (the "Trustee"), a copy of
which is available.
The following summary of certain provisions of the Indenture and the Notes
is not complete and is subject to, and is qualified in its entirety by reference
to, all the provisions of the Indenture, including the definitions of certain
terms in and those terms made a part of the Indenture and the Notes by the TIA.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at our office or agency in the
Borough of Manhattan, The City of New York (which initially shall be the
corporate trust office of the Trustee, at 4 Albany Street, New York, New York
10006), except that, at our option, payment of interest may be made by check
mailed to the registered holders of the Notes at their registered addresses.
The Notes are and will be issued only in fully registered form, without
coupons, in denominations of $1,000 and integral multiples of $1,000. No
service charge will be made for any registration of transfer or exchange of
Notes, but we may require payment of a sum sufficient to cover any transfer tax
or other similar governmental charge payable in connection with such transfer or
exchange.
Certain Covenants
Provision of Financial Information. The Indenture provides that, whether or
not required by the rules and regulations of the SEC, so long as any Notes are
outstanding, we will furnish to the holders of the Notes:
(1) all quarterly and annual financial information that would be required
to be contained in a filing with the SEC on Forms 10-Q and 10-K if we
were required to file such forms, including a section entitled
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" that describes our financial condition and
results of operations and that of our consolidated Subsidiaries and a
report on such annual information only by our certified independent
accountants; and
(2) all current reports that would be required to be filed with the SEC on
Form 8-K if we were required to file such reports, in each case within
the time period specified in the SEC's rules and regulations.
We will file a copy of all such information and reports with the SEC for
public availability within the time periods specified in the SEC's rules and
regulations (unless the SEC will not accept such a filing) and make such
information available to prospective investors upon request. In addition, the
Company will, for so long as any Notes remain outstanding, furnish to the
holders of Notes, upon request, the information required to be delivered under
Rule 144A(d)(4) of the Securities Act. The Company will also comply with Section
314(a) of the TIA.
Amendments and Waivers
Subject to certain exceptions, the Indenture or the Notes may be amended
with the written consent of the holders of a majority in aggregate principal
amount at maturity of the Notes then outstanding, and any past default or
compliance with any provisions may be waived with the consent of the holders of
a majority in aggregate principal amount at maturity of the Notes then
outstanding. However, without the consent of each holder of an outstanding Note
affected, no amendment may, among other things:
(1) reduce the amount of the Notes whose holders must consent to an
amendment;
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(2) reduce the rate of, or extend the time for payment of, interest or any
liquidated damages on any Note;
(3) reduce the principal of, or extend the Stated Maturity of, any Note;
(4) reduce the premium payable upon the redemption of any Note or change
the time at which any Note may be redeemed as described under "--
Optional Redemption;"
(5) make any Note payable in money other than that stated in the Note;
(6) make any change to the subordination provisions of the Indenture that
adversely affects the rights of any holder of Notes;
(7) impair the right of any holder of Notes to receive payment of
principal of and interest or any liquidated damages on such holder's
Notes on or after the due dates for such payment or to institute suit
for the enforcement of any payment on or with respect to such holder's
Notes;
(8) make any change in the amendment provisions which requires the consent
of each holder of the Notes or in the waiver provisions; or
(9) modify the Subsidiary Guarantees in any manner adverse to the holders
of the Notes.
Without the consent of any holder of the Notes, we and the Trustee may
amend the Indenture to:
(1) cure any ambiguity, omission, defect or inconsistency;
(2) provide for the assumption by a successor corporation of our
obligations under the Indenture;
(3) provide for uncertificated Notes in addition to, or in place of,
certificated Notes (provided that the uncertificated Notes are issued
in registered form for purposes of Section 163(f) of the Code, or in a
manner such that the uncertificated Notes are described in Section
163(f)(2)(B) of the Code);
(4) make any change in the subordination provisions of the Indenture that
would limit or terminate the benefits available to any holder of our
Senior Indebtedness or any representative of such holder under such
subordination provisions;
(5) add additional guarantees with respect to the Notes;
(6) secure the Notes;
(7) add to our covenants for the benefit of the Noteholders;
(8) surrender any right or power conferred upon us;
(9) make any change that does not adversely affect the rights of any
holder of the Notes; or
(10) comply with any requirement of the SEC in connection with the
qualification of the Indenture under the TIA.
No amendment may be made to the subordination provisions of the Indenture,
however, that adversely affects the rights of any holder of our Senior
Indebtedness then outstanding unless the holders of such Senior Indebtedness, or
any group or representative of such holders authorized to give a consent,
consent to such change.
The consent of the Noteholders will not be necessary under the Indenture to
approve the particular form of any proposed amendment. It will be sufficient if
such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, we will be
required to mail to Noteholders a notice briefly describing such amendment.
However, the failure to give such notice to all Noteholders, or any defect in
such notice, will not impair or affect the validity of the amendment.
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Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
Indenture, which is attached as an exhibit to the registration statement.
"Accreted Value" means, as of any date of determination prior to April 15,
2004, the sum of:
(1) the initial offering price of each Note; and
(2) the portion of the excess of the principal amount of each Note over
such initial offering price which we shall have amortized in
accordance with GAAP through such date, such amount to be so amortized
on a daily basis and compounded semiannually on each interest payment
date at a rate of 11 5/8% per annum from the date of the Indenture
through the date of determination computed on the basis of a 360-day
year of twelve 30-day months.
"Acquired Indebtedness" means, with respect to any Person, Indebtedness of
such Person:
(1) existing at the time such Person becomes a Restricted Subsidiary; or
(2) assumed in connection with the acquisition of assets from another
Person, including Indebtedness Incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary or such
acquisition, as the case may be.
"Acquisitions" means the Digital Acquisition, the Puerto Rico Acquisition
and the Wireless 2000 Acquisition.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by, or under direct or indirect common
control with, any specified Person. For purposes of this definition, "control"
when used with respect to any Person means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Annualized Pro Forma Consolidated Operating Cash Flow" means Consolidated
Cash Flow for the latest two full fiscal quarters for which our consolidated
financial statements are available multiplied by two. For purposes of
calculating "Consolidated Cash Flow" for any period for purposes of this
definition only:
(1) any of our Subsidiaries that is a Restricted Subsidiary on the date of
the transaction giving rise to the need to calculate "Annualized Pro
Forma Consolidated Operating Cash Flow" (the "Transaction Date") shall
be deemed to have been a Restricted Subsidiary at all times during
such period; and
(2) any of our Subsidiaries that is not a Restricted Subsidiary on the
Transaction Date shall be deemed not to have been a Restricted
Subsidiary at any time during such period.
In addition to and without limitation of the foregoing, for purposes of this
definition only, "Consolidated Cash Flow" shall be calculated after giving
effect on a pro forma basis for the applicable period to, without duplication,
any Asset Dispositions or Asset Acquisitions, including, without limitation, any
Asset Acquisition giving rise to the need to make such calculation as a result
of our or one of the Restricted Subsidiaries, including any Person who becomes a
Restricted Subsidiary as a result of the Asset Acquisition Incurring, assuming
or otherwise being liable for Acquired Indebtedness, occurring during the period
commencing on the first day of such two-fiscal-quarter period to and including
the Transaction Date (the "Reference Period"), as if such Asset Sale or Asset
Acquisition occurred on the first day of the Reference Period.
"Asset Acquisition" means:
(1) any purchase or other acquisition, by means of transfer of cash,
Indebtedness or other property to others or payment for property or
services for the account or use of others or otherwise, of Capital
Stock of any Person by us or any Restricted Subsidiary, in either
case, under which such Person shall become a Restricted Subsidiary or
shall be merged with or into us or any Restricted Subsidiary; or
(2) any acquisition by us or any Restricted Subsidiary of the property or
assets of any Person which constitute all or substantially all of an
operating unit or line of business of such Person.
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"Asset Disposition" means any sale, transfer or other disposition
(including, without limitation, by merger, consolidation or Sale/Leaseback
Transaction) of:
(1) shares of Capital Stock of any of our Subsidiaries, other than
directors' qualifying shares;
(2) any License for the provision of wireless telecommunications services
held by us or any Restricted Subsidiary, whether by sale of Capital
Stock or otherwise; or
(3) any other property or assets of ours or any of our Subsidiaries other
than in the ordinary course of business;
provided, however, that an Asset Disposition shall not include:
(A) any sale, transfer or other disposition of shares of Capital Stock,
property or assets by a Restricted Subsidiary to us or to any other
Restricted Subsidiary or by us to any Restricted Subsidiary;
(B) any sale, transfer or other disposition of defaulted receivables for
collection;
(C) the sale, lease, conveyance or disposition or other transfer of all or
substantially all of our assets as permitted under "--Covenants--
Merger, Consolidation and Certain Sales of Assets;"
(D) any disposition that constitutes a Change of Control; or
(E) any sale, transfer or other disposition of shares of Capital Stock of
any Marketing Affiliate; provided that such Marketing Affiliate is not
engaged in any activity other than the registration, holding,
maintenance or protection of trademarks and such related licensing; or
(F) any sale, transfer or other disposition that does not, together with
all related sales, transfers or dispositions, involve aggregate
consideration in excess of $5.0 million.
"AT&T Wireless" means AT&T Wireless PCS Inc., a Delaware corporation.
"Average Life" means, as of the date of determination, with respect to any
Indebtedness for borrowed money or Preferred Stock, the quotient obtained by
dividing:
(1) the sum of the products of the number of years from the date of
determination to the dates of each successive scheduled principal or
liquidation value payments of such Indebtedness or Preferred Stock,
respectively, and the amount of such principal or liquidation value
payments by
(2) the sum of all such principal or liquidation value payments.
"Bank Indebtedness" means any and all amounts payable under or in respect
of the Credit Agreement and any Refinancing Indebtedness with respect to the
Credit Agreement, as amended from time to time, including principal, premium, if
any, interest, including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to us whether or not a
claim for post-filing interest is allowed in such proceedings, fees, charges,
expenses, reimbursement obligations, guarantees and all other amounts payable
under or in respect of such Credit Agreement.
"board" of any Person means the board of directors, management committee or
other governing body of such Person.
"BTA" means a Basic Trading Area, as defined in 47 C.F.R. (S)24.202.
"Business Day" means any date which is not a Legal Holiday.
"C-Block License" means any License in the C block as set forth in parts 1
and 24 of Title 47 of the Code of Federal Regulations.
"Capital Lease Obligations" of any Person means the obligations to pay rent
or other amounts under a lease of, or other Indebtedness arrangements conveying
the right to use, real or personal property of such Person which are required to
be classified and accounted for as a capital lease or liability on the face of a
balance sheet of such Person in accordance with GAAP. The
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[ALTERNATIVE PROVISIONS]
amount of such obligations shall be the capitalized amount of such obligations
in accordance with GAAP, and the Stated Maturity of such obligations shall be
the date of the last payment of rent or any other amount due under such lease
prior to the first date upon which such lease may be terminated by the lessee
without payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants options, participations or other equivalents of or
interests in, however, designated, of corporate stock or other equity
participations, including partnership interests, whether general or limited, of
such Person.
"Cash Equity Investors" means CB Capital Investors, L.P., Equity-Linked
Investors-II, Private Equity Investors III, L.P., Hoak Communications Partners,
L.P., HCP Capital Fund, L.P., Whitney Equity Partners, L.P., J. H. Whitney III,
L.P., Whitney Strategic Partners III, L.P., Entergy Technology Holding Company,
Media/Communications Partners III Limited Partnership, Media/Communications
Investors Limited Partnership, One Liberty Fund III, L.P., One Liberty Fund IV,
L.P., Toronto Dominion Investments, Inc., Northwood Ventures LLC, Northwood
Capital Partners LLC, Gerald Vento, Thomas Sullivan and Gilde International B.V.
"Cash Equivalents" means:
(1) direct obligations of, or obligations the principal of and interest on
which are unconditionally guaranteed by, the United States of America
(or by any agency to the extent such obligations are backed by the
full faith and credit of the United States of America), in each case
maturing within one year from the date of such acquisition;
(2) investments in commercial paper maturing within 365 days from the date
of such acquisition and having, at such date of acquisition, the
highest credit rating obtainable from Standard & Poor's Corporation or
from Moody's Investors Service;
(3) investments in certificates of deposit, banker's acceptance and time
deposits maturing within 365 days from the date of such acquisition
issued or guaranteed by or placed with, and money market deposit
accounts issued or offered by, any domestic office of any commercial
bank organized under the laws of the United States of America or any
of its States which has a combined capital and surplus and undivided
profits of not less than $500,000,000;
(4) fully collateralized repurchase agreements with a term of not more
than 30 days for securities described in clause (1) above and entered
into with a financial institution satisfying the criteria described in
clause (3) above; and
(5) money market funds substantially all of whose assets comprise
securities of the type described in clauses (1) through (3) above.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Communications Act" means the Communications Act of 1934, and any similar
or successor Federal statute, and the rules and regulations and published
policies of the FCC thereunder, all as amended and as the same may be in effect
from time to time.
"Consolidated Cash Flow" of any Person means, for any period, the
Consolidated Net Income of such Person for such period:
(1) increased, to the extent Consolidated Net Income for such period has
been reduced thereby, by the sum of, without duplication"
(A) Consolidated Interest Expense of such Person for such period;
plus
(B) Consolidated Income Tax Expense of such Person for such period;
plus
(C) the consolidated depreciation and amortization expense of such
Person and its Restricted Subsidiaries for such period; plus
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[ALTERNATIVE PROVISIONS]
(D) any other non-cash charges of such Person and its Restricted
Subsidiaries for such period except for any non-cash charges that
represent accruals of, or reserves for, cash disbursements to be
made in any future accounting period; and
(2) decreased, to the extent Consolidated Net Income for such period has
been increased thereby, by any non-cash gains from Asset Dispositions.
"Consolidated Income Tax Expense" of any Person means, for any period, the
consolidated provision for income taxes of such Person and its Restricted
Subsidiaries for such period calculated on a consolidated basis in accordance
with GAAP.
"Consolidated Interest Expense" for any Person means, for any period,
without duplication:
(1) the consolidated interest expense included in a consolidated income
statement, without deduction of interest or finance charge income, of
such Person and its Restricted Subsidiaries for such period calculated
on a consolidated basis in accordance with GAAP, including, without
limitation, (a) any amortization of debt discount, (b) the net costs
under Hedging Agreements, (c) all capitalized interest, (d) the
interest portion of any deferred payment obligation and (e) all
amortization of any premiums, fees and expenses payable in connection
with the Incurrence of any Indebtedness; plus
(2) the interest component of Capital Lease Obligations paid, accrued
and/or scheduled to be paid or accrued, by such Person and its
Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Net Income" of any Person means for any period the
consolidated net income (or loss) of such Person and its Restricted Subsidiaries
for such period determined on a consolidated basis in accordance with GAAP;
provided, however, that there shall be excluded therefrom:
(1) the net income or loss of any Person acquired by such Person or a
Restricted Subsidiary of such Person in a pooling-of-interests
transaction for any period prior to the date of such transaction;
(2) the net income but not loss of any Restricted Subsidiary of such
Person which is subject to restrictions which prevent or limit the
payment of dividends or the making of distributions to such Person to
the extent of such restrictions, regardless of any waiver;
(3) the net income of any Person that is not a Restricted Subsidiary of
such Person, except to the extent of the amount of dividends or other
distributions representing such Person's proportionate share of such
other Person's net income for such period actually paid in cash to
such Person by such other Person during such period;
(4) gains or losses, other than for purposes of calculating Consolidated
Net Income under clause (c) the first paragraph under "--Certain
Covenants--Limitation on Restricted Payments," on Asset Dispositions
by such Person or its Restricted Subsidiaries;
(5) all extraordinary gains, but not, other than for purposes of
calculating Consolidated Net Income under clause (c) of the first
paragraph under "--Certain Covenants--Limitation on Restricted
Payments," losses, determined in accordance with GAAP; and
(6) in the case of a successor to such Person by consolidation or merger
or as a transferee of such Person's assets, any earnings or losses of
the successor corporation prior to such consolidation, merger or
transfer of assets.
"Credit Agreement" means the Credit Agreement dated as of July 17, 1998, as
amended, waived or otherwise modified from time to time, among the Company, the
financial institutions named in the Credit Agreement as lenders, The Chase
Manhattan Bank, as Administrative Agent and Issuing Bank, TD Securities (USA)
Inc., as Syndication Agent, and Bankers Trust Company, as Documentation Agent,
except to the extent that any such amendment, waiver or other modification to
the Credit Agreement would be prohibited by the terms of the Indenture, unless
otherwise agreed to by the holders of at least a majority in aggregate principal
amount at maturity of the Notes at the time outstanding.
"Default" means any event that is, or after notice or lapse of time or both
would become, an Event of Default.
"Designated Senior Indebtedness of us" means:
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(1) so long as outstanding, Bank Indebtedness; and
(2) so long as outstanding, any other Senior Indebtedness which has at the
time of initial issuance an aggregate outstanding principal amount in
excess of $25.0 million and which has been so designated as Designated
Senior Indebtedness by our Board at the time of its initial issuance
in a resolution delivered to the Trustee. "Designated Senior
Indebtedness" of our subsidiary guarantors has a correlative meaning.
"Designation" has the meaning set forth under "--Certain Covenants--
Limitation on Designations of Unrestricted Subsidiaries."
"Designation Amount" has the meaning set forth under "--Certain Covenants--
Limitation on Designations of Unrestricted Subsidiaries."
"Digital Acquisition" means our purchase by us from Digital PCS of 10 MHz
of F-Block Licenses for the Baton Rouge, Houma, Hammond and Lafayette, Louisiana
BTAs together with related assets.
"Digital PCS" means Digital PCS, L.L.C.
"Disqualified Stock" of any Person means any Capital Stock of such Person
which, by its terms, or by the terms of any security into which it is
convertible or for which it is exchangeable, or upon the happening of any event,
matures or is mandatorily redeemable, under a sinking fund obligation or
otherwise, or is redeemable at the option of the holder thereof, in whole or in
part, on or prior to the first anniversary of the Stated Maturity of the Notes;
provided, however, that any Capital Stock that would not constitute Disqualified
Stock but for such provisions giving such holders the right to require such
Person to repurchase or redeem such Capital Stock upon the occurrence of an
"asset sale" or "change of control" occurring prior to the first anniversary of
the Stated Maturity of the Notes shall not constitute Disqualified Stock if the
"asset sale" or "change of control" provisions applicable to such Capital Stock
are no more favorable to the holders of such Capital Stock than the provisions
of the covenant described under "Change of Control."
"Equipment Subsidiary" means TeleCorp Equipment Leasing L.P. and/or any
other of our Wholly Owned Subsidiaries designated as an Equipment Subsidiary
under the Credit Agreement.
"Equity Offering" means any public or private sale of Qualified Stock that
we make on a primary basis by the Company, including through the issuance or
sale of Qualified Stock to one or more Strategic Equity Investors.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the SEC thereunder.
"Excluded Cash Proceeds" means the first $128 million of net cash proceeds
received by us subsequent to the date of the Indenture from capital
contributions in respect of our Qualified Stock or from the issue or sale, other
than to a Restricted Subsidiary, of Qualified Stock.
"F-Block License" means any License in the F block as set forth in parts 1
and 24 of Title 47 of the Code of Federal Regulations.
"Fair Market Value" means, with respect to any asset or property, the price
that could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of which is under pressure
or compulsion to complete the transaction. Unless otherwise specified in the
Indenture, Fair Market Value shall be determined by our Board acting in good
faith.
"FCC" means the Federal Communications Commission, or any other similar or
successor agency of the Federal government administering the Communications Act.
"FCC Debt" means Indebtedness owed to the United States Treasury Department
or the FCC that is incurred in connection with the acquisition of a License.
"GAAP" means generally accepted accounting principles, consistently
applied, as in effect from time to time in the United States of America, as set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as is approved by a significant segment of the
accounting profession in the United States.
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"Hedging Agreement" means any interest rate, currency or commodity swap
agreement, interest rate, currency or commodity future agreement, interest rate
cap or collar agreement, interest rate, currency or commodity hedge agreement
and any put, call or other agreement designed to protect against fluctuations in
interest rates, currency exchange rates or commodity prices.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the registrar's books.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur, including by conversion, exchange or otherwise,
assume, guarantee or otherwise become liable in respect of such Indebtedness or
other obligation or the recording, as required under GAAP or otherwise, of any
such Indebtedness or other obligation on the balance sheet of such Person, and
"Incurrence," "Incurred" and "Incurring" shall have meanings correlative to the
foregoing. Indebtedness of any Person or any of its Restricted Subsidiaries
existing at the time such Person becomes a Restricted Subsidiary, or is merged
into, or consolidates with, us or any Restricted Subsidiary, whether or not such
Indebtedness was Incurred in connection with, or in contemplation of, such
Person becoming a Restricted Subsidiary, or being merged into, or consolidated
with, us or any Restricted Subsidiary, shall be deemed Incurred at the time any
such Person becomes a Restricted Subsidiary or merges into, or consolidates
with, us or any Restricted Subsidiary.
"Indebtedness" means without duplication, with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent:
(1) every obligation of such Person for money borrowed;
(2) every obligation of such Person evidenced by bonds, debentures, notes
or other similar instruments, including obligations Incurred in
connection with the acquisition of property, assets or businesses;
(3) every reimbursement obligation of such Person with respect to letters
of credit, bankers' acceptances or similar facilities issued for the
account of such Person;
(4) every obligation of such Person issued or assumed as the deferred
purchase price of property or services, but excluding trade accounts
payable or accrued liabilities arising in the ordinary course of
business which are not overdue or which are being contested in good
faith;
(5) every Capital Lease Obligation of such Person;
(6) every net obligation under Hedging Agreements or similar agreements of
such Person; and
(7) every obligation of the type referred to in clauses (1) through (6) of
another Person and all dividends of another Person the payment of
which, in either case, such Person has guaranteed or is responsible or
liable for, directly or indirectly, as obligor, guarantor or
otherwise.
Indebtedness shall:
(1) include the liquidation preference and any mandatory redemption
payment obligations in respect of any of our Disqualified Stock and
any Restricted Subsidiary and any Preferred Stock of any of our
Subsidiaries;
(2) never be calculated taking into account any cash and Cash Equivalents
held by such Persons;
(3) not include obligations arising from our agreements or agreement of a
Restricted Subsidiary to provide for indemnification, adjustment of
purchase price, earn-out or other similar obligations, in each case,
Incurred or assumed in connection with the disposition of any business
or assets of a Restricted Subsidiary.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value of such indebtedness, in the case of any
Indebtedness issued with original issue discount;
(2) the principal amount of such indebtedness, in the case of any
Indebtedness other than Indebtedness issued with original issue
discount; and
(3) the greater of the maximum repurchase or redemption price or
liquidation preference of such indebtedness, in the case of any
Disqualified Stock or Preferred Stock.
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[ALTERNATIVE PROVISIONS]
"Ineligible Subsidiary" means:
(1) any Special Purpose Subsidiary;
(2) any of our subsidiary guarantors;
(3) any of our Subsidiaries that, directly or indirectly, own any Capital
Stock or Indebtedness of, or own or hold any Lien on any property of,
us or any of our other Subsidiaries that is not a Subsidiary of the
Subsidiary to be so designated; and
(4) any of our Subsidiaries that, directly or indirectly, own any Capital
Stock or Indebtedness of, or own or hold any Lien on any property of,
any other Subsidiaries that is not eligible to be designated as an
Unrestricted Subsidiary.
"initial purchasers" means Chase Securities Inc., BT Alex. Brown
Incorporated and Lehman Brothers Inc.
"Investment" in any Person means any direct or indirect loan, advance,
guarantee or other extension of credit or capital contribution to, by means of
transfers of cash or other property to others or payments for property or
services for the account or use of others or otherwise, or purchase or
acquisition of Capital Stock, bonds, notes, debentures or other securities or
evidence of Indebtedness issued by, any other Person.
"Legal Holiday" means a Saturday, Sunday or other day on which banking
institutions in the State of New York are authorized or required by law to
close.
"License" means any broadband Personal Communications Services license
issued by the FCC in connection with the operation of a System.
"License Subsidiary" means TeleCorp PCS, L.L.C. and THC and/or any of our
other Wholly Owned Restricted Subsidiaries designated as a License Subsidiary
under the Credit Agreement.
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, security interest, lien, charge,
easement other than any easement not materially impairing usefulness or
marketability, encumbrance, preference, priority or other security agreement
with respect to such property or assets, including, without limitation, any
conditional sale or other title retention agreement having substantially the
same economic effect as any of the foregoing.
"Lucent" means Lucent Technologies Inc., a Delaware corporation.
"Lucent Note Purchase Agreement" means the Note Purchase Agreement dated as
of May 11, 1998, between us and Lucent, as amended as of the date of the
Indenture.
"Management Stockholders" means Gerald Vento and Thomas Sullivan.
"Marketing Affiliate" means any Person which engages in no activity other
than the registration, holding, maintenance or protection of trademarks and such
related licensing.
"MTA" means a Major Trading Area, as defined in 47 C.F.R. (S)24.202.
"Net Available Proceeds" from any Asset Disposition by any Person means
cash or readily marketable Cash Equivalents received, including by way of sale
or discounting of a note, installment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquiror of Indebtedness or other obligations relating to such properties or
assets or received in any other non-cash form, from such Asset Disposition by
such Person, including any cash received by way of deferred payment or upon the
monetization or other disposition of any non-cash consideration, including notes
or other securities received in connection with such Asset Disposition, net of:
(1) all legal, title and recording tax expenses, commissions and other
fees and expenses incurred and all federal, state, foreign and local
taxes required to be accrued as a liability as a consequence of such
Asset Disposition;
(2) all payments made by such Person or any of its Restricted Subsidiaries
on any Indebtedness which is secured by such assets in accordance with
the terms of any Lien upon or with respect to such assets or which
must, by the terms of such
A-15
[ALTERNATIVE PROVISIONS]
Lien, or in order to obtain a necessary consent to such Asset
Disposition or by applicable law, be repaid out of the proceeds from
such Asset Disposition;
(3) all payments made with respect to liabilities associated with the
assets which are the subject of the Asset Disposition, including,
without limitation, trade payables and other accrued liabilities;
(4) appropriate amounts to be provided by such Person or any Restricted
Subsidiary, as the case may be, as a reserve in accordance with GAAP
against any liabilities associated with such assets and retained by
such Person or any Restricted Subsidiary, as the case may be, after
such Asset Disposition, including, without limitation, liabilities
under any indemnification obligations and severance and other employee
termination costs associated with such Asset Disposition, until such
time as such amounts are no longer reserved or such reserve is no
longer necessary at which time any remaining amounts will become Net
Available Proceeds to be allocated in accordance with the provisions
of clause (3) of the covenant described under "--Certain Covenants--
Limitation on Certain Asset Dispositions"; and
(5) all distributions and other payments made to minority interest holders
in Restricted Subsidiaries of such Person or joint ventures as a
result of such Asset Disposition.
"Net Investment" means the excess of:
(1) the aggregate amount of all Investments made in any Unrestricted
Subsidiary or joint venture by us or any Restricted Subsidiary on or
after the date of the Indenture, in the case of an Investment made
other than in cash, the amount shall be the Fair Market Value of such
Investment as determined in good faith by our Board or the board of
such Restricted Subsidiary; over
(2) the aggregate amount returned in cash on or with respect to such
Investments whether through interest payments, principal payments,
dividends or other distributions or payments; provided, however, that
such payments or distributions shall not be, and have not been,
included in clause (c) of the first paragraph described under "--
Certain Covenants--Limitation on Restricted Payments;" provided
further that, with respect to all Investments made in any Unrestricted
Subsidiary or joint venture, the amounts referred to in clause (1)
above with respect to such Investments shall not exceed the aggregate
amount of all such Investments made in such Unrestricted Subsidiary or
joint venture.
"Note" or "Notes" means any Note or Note issued under the Indenture.
"Noteholder" or "Holder" means the Person in whose name a Note is
registered on the registrar's books.
"Offer to Purchase" means a written offer (the "Offer") sent by us by first
class mail, postage prepaid, to each holder of the Notes at such holder's
address appearing in the register for the Notes on the date of the Offer
offering to purchase up to (a) the Accreted Value of Notes, if such Offer is on
or prior to April 15, 2004, or (b) the principal amount at maturity of the
Notes, if such Offer is after April 15, 2004, specified in such Offer at the
purchase price specified in such Offer as determined under the Indenture. Unless
otherwise required by applicable law, the Offer shall specify an expiration date
(the "Expiration Date") of the Offer to Purchase which shall be not less than 30
days nor more than 60 days after the date of such Offer and a settlement date
(the "Purchase Date") for purchase of the Notes within five Business Days after
the Expiration Date. We shall notify the Trustee at least 15 Business Days, or
such shorter period as is acceptable to the Trustee, prior to the mailing of the
Offer of our obligation to make an Offer to Purchase, and the Offer shall be
mailed by us or, at our request, by the Trustee in our name and at our expense.
The Offer shall contain all the information required by applicable law to be
included in such Offer. The Offer shall contain all instructions and materials
necessary to enable holders of the Notes to tender their Notes under the Offer
to Purchase. The Offer shall also state:
(1) the provision of the Indenture under which we make the Offer to
Purchase;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount at maturity of the Old Notes offered
which we will purchase in the Offer to Purchase, including, if less
than 100%, the manner by which such amount has been determined under a
specified provision of the Indenture requiring the Offer to Purchase
(the "Purchase Amount");
(4) the purchase price that we will pay for each $1,000 aggregate
principal amount at maturity of Notes accepted for payment, as
specified under the Indenture (the "Purchase Price");
A-16
[ALTERNATIVE PROVISIONS]
(5) that such holder may tender all or any portion of the Notes registered
in the name of such holder and that any portion of a Note tendered
must be tendered in an integral multiple of $1,000 principal amount at
maturity;
(6) the place or places where the Notes are to be surrendered for tender
in the Offer to Purchase;
(7) that interest on any Note not tendered or tendered but which we do not
purchase in the Offer to Purchase will continue to accrue;
(8) that on the Purchase Date the Purchase Price will become due and
payable upon each Note being accepted for payment in the Offer to
Purchase and that interest on such note shall cease to accrue on and
after the Purchase Date;
(9) that each holder electing to tender all or any portion of a Note under
the Offer to Purchase will be required to surrender such Note at the
place or places specified in the Offer prior to the close of business
on the Expiration Date, such Note being, if we or the Trustee so
require, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to us and the Trustee duly executed by,
the holder of such Note or such holder's attorney duly authorized in
writing;
(10) that holders will be entitled to withdraw all or any portion of Notes
tendered if we or our paying agent receive, not later than the close
of business on the fifth Business Day next preceding the Expiration
Date, a telegram, telex, facsimile transmission or letter setting
forth the name of the holder, the principal amount at maturity of the
Note the holder tendered, the certificate number of the Note the
holder tendered and a statement that such holder is withdrawing all or
a portion of such holder's tender;
(11) that (a) if Notes in an aggregate principal amount at maturity less
than or equal to the Purchase Amount are duly tendered and not
withdrawn in the Offer to Purchase, we shall purchase all such Notes
and (b) if Notes in an aggregate principal amount at maturity in
excess of the Purchase Amount are tendered and not withdrawn in the
Offer to Purchase, we shall purchase Notes having an aggregate
principal amount at maturity equal to the Purchase Amount on a pro
rata basis with such adjustments as may be deemed appropriate so that
only Notes in denominations of $1,000 or integral multiples of $1,000
shall be purchased; and
(12) that in the case of any holder whose Note is purchased only in part,
we shall execute and the Trustee shall authenticate and deliver to the
holder of such Note without service charge, a new Note or Notes, of
any authorized denomination as requested by such holder, in an
aggregate principal amount at maturity equal to and in exchange for
the unpurchased portion of the Note so tendered.
An Offer to Purchase shall be governed by and effected in accordance with the
provisions above pertaining to any Offer.
"Officer" means the Chief Executive Officer, the Executive Vice President,
the Chief Financial Officer, the Chief Operating Officer, the President, any
Vice President, the Treasurer or any Secretary of us or any of our Subsidiaries,
as the case may be.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to us or
the Trustee.
"Permitted Asset Swap" means any exchange of assets by us or a Restricted
Subsidiary where we and/or our Restricted Subsidiaries receive consideration at
least 75% of which consists of (1) cash, (2) assets that are used or useful in a
Permitted Business or (3) any combination of such cash and such assets.
"Permitted Business" means:
(1) the delivery or distribution of telecommunications, voice, data or
video services;
(2) any business or activity reasonably related or ancillary to,
including, without limitation, any business conducted by us or any
Restricted Subsidiary on the date of the Indenture and the
acquisition, holding or exploitation of any license relating to the
delivery of the services described in clause (1) above; or
(3) any other business or activity in which we and the Restricted
Subsidiaries are expressly contemplated to be engaged under the
provisions of our certificate of incorporation and by-laws in effect
on the date of the Indenture.
A-17
[ALTERNATIVE PROVISIONS]
"Permitted Holder" means:
(1) each of AT&T Wireless, TWR Cellular, the Cash Equity Investors, the
Management Stockholders, Digital PCS, Wireless 2000 and any of their
respective Affiliates and the respective successors by merger,
consolidation, transfer or otherwise to all or substantially all of
the respective businesses and assets of any of the foregoing; and
(2) any "person" or "group" as such terms are used in Sections 13(d) and
14(d) of the Exchange Act controlled by one or more persons identified
in clause (1) above.
"Permitted Investments" means:
(1) Investments in Cash Equivalents;
(2) Investments representing Capital Stock or obligations issued to us or
any Restricted Subsidiary in the course of the good faith settlement
of claims against any other Person or by reason of a composition or
readjustment of debt or a reorganization of any debtor of us or any
Restricted Subsidiary;
(3) deposits including interest-bearing deposits, maintained in the
ordinary course of business in banks;
(4) any Investment in any Person; provided, however, that, after giving
effect to such Investment, such Person is or becomes a Restricted
Subsidiary or such Person is merged, consolidated or amalgamated with
or into, or transfers or conveys substantially all of its assets to,
or is liquidated into, us or a Restricted Subsidiary;
(5) trade receivables and prepaid expenses, in each case arising in the
ordinary course of business; provided, however, that such receivables
and prepaid expenses would be recorded as assets of such Person in
accordance with GAAP;
(6) endorsements for collection or deposit in the ordinary course of
business by such Person of bank drafts and similar negotiable
instruments of such other Person received as payment for ordinary
course of business trade receivables;
(7) any interest rate agreements with an unaffiliated Person otherwise
permitted by clause (5) or (6) under "--Certain Covenants--Limitation
on Incurrence of Indebtedness;"
(8) Investments received as consideration for an Asset Disposition in
compliance with the provisions of the Indenture described under "--
Certain Covenants--Limitation on Certain Asset Dispositions;"
(9) loans or advances to employees of us or any Restricted Subsidiary in
the ordinary course of business in an aggregate amount not to exceed
$5.0 million in the aggregate at any one time outstanding;
(10) any Investment acquired by us or any of our Restricted Subsidiaries as
a result of a foreclosure by us or any of our Restricted Subsidiaries
or in connection with the settlement of any outstanding Indebtedness
or trade payable;
(11) loans and advances to officers, directors and employees for business-
related travel expense, moving expense and other similar expenses,
each incurred in the ordinary course of business; and
(12) other Investments with each such Investment being valued as of the
date made and without giving effect to subsequent changes in value in
an aggregate amount not to exceed $7.5 million at any one time
outstanding.
"Person" means any individual, corporation, limited or general partnership,
joint venture, association, joint stock company, trust, unincorporated
organization or government or any agency or political subdivision.
"Plan of Liquidation" means, with respect to any Person, a plan including
by operation of law that provides for, contemplates, or the effectuation of
which is preceded or accompanied by whether or not substantially
contemporaneously:
(1) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such Person; and
(2) the distribution of all or substantially all of the proceeds of such
sale, lease, conveyance or other disposition and all or substantially
all of the remaining assets of such Person to holders of Capital Stock
of such Person.
A-18
[ALTERNATIVE PROVISIONS]
"Preferred Stock," as applied to the Capital Stock of any Person, means
Capital Stock of such Person of any class or classes, however designated, that
ranks prior, as to the payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person.
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Public Sale" means any underwritten public offering, made on a primary
basis under a registration statement filed with, and declared effective by, the
SEC in accordance with the Securities Act.
"Puerto Rico Acquisition" means the merger of Puerto Rico Acquisition Corp.
into us and the purchase by us from AT&T Wireless of 20 MHz of A-Block Licenses
covering the San Juan MTA together with related assets.
"Qualified License" means, as of the date of determination, any License
covering or adjacent to any geographical area in respect of which we or any
Restricted Subsidiary owns, as of the Business Day immediately prior to such
date of determination, at least one other License covering a substantial portion
of such area.
"Qualified Stock" means any of our Capital Stock other than Disqualified
Stock.
"Real Property Subsidiary" means TeleCorp Realty L.L.C., Puerto Rico
Acquisition Corp. and/or any of our other Wholly Owned Subsidiaries that we
designate as a Real Property Subsidiary under the Credit Agreement.
"Refinance" means refinance, renew, extend, replace or refund; and
"Refinancing" and "Refinanced" have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend, including under any defeasance or
discharge mechanism, any of our Indebtedness or any Restricted Subsidiary
existing on the date of the Indenture or Incurred in compliance with the
Indenture, including our Indebtedness that Refinances Refinancing Indebtedness;
provided, however, that:
(1) the Refinancing Indebtedness has a Stated Maturity no earlier than the
Stated Maturity of the Indebtedness being Refinanced;
(2) the Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than
the Average Life of the Indebtedness being refinanced;
(3) such Refinancing Indebtedness is Incurred in an aggregate principal
amount, or if issued with original issue discount, an aggregate issue
price, that is equal to or less than the aggregate principal amount,
or if issued with original issue discount, the aggregate accreted
value, then outstanding of the Indebtedness being Refinanced plus the
amount of any premium required to be paid in connection with such
Refinancing under the terms of the Indebtedness being Refinanced or
the amount of any premium reasonably determined by the issuer of such
Indebtedness as necessary to accomplish such Refinancing by means of a
tender offer, exchange offer or privately negotiated repurchase, plus
the expenses of such issuer reasonably incurred in connection with
such Refinancing; and
(4) if the Indebtedness being Refinanced is pari passu with the Notes,
such Refinancing Indebtedness is made pari passu with, or subordinate
in right of payment to, the Notes, and, if the Indebtedness being
Refinanced is subordinate in right of payment to the Notes, such
Refinancing Indebtedness is subordinate in right of payment to the
Notes on terms no less favorable to the holders of Notes than those
contained in the Indebtedness being Refinanced;
provided further, however, that Refinancing Indebtedness shall not include :
(A) Indebtedness of a Restricted Subsidiary that Refinances our
Indebtedness; or
(B) Our Indebtedness or Indebtedness of a Restricted Subsidiary that
Refinances Indebtedness of an Unrestricted Subsidiary.
"Restricted Subsidiary" means any of our Subsidiaries other than an
Unrestricted Subsidiary.
A-19
[ALTERNATIVE PROVISIONS]
"Revocation" has the meaning set forth under "--Certain Covenants--
Limitation on Designations of Unrestricted Subsidiaries."
"Sale/Leaseback Transaction" means an arrangement relating to property
owned on the date of the Indenture or acquired by us or a Restricted Subsidiary
after the date of the Indenture that involves our or a Restricted Subsidiary's
transferring of such property to a Person and our or such Restricted
Subsidiary's leasing it from such Person, other than leases between us and a
Wholly Owned Subsidiary or between Wholly Owned Subsidiaries.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Purchase Agreement" means the Securities Purchase Agreement
dated January 23, 1998, among AT&T Wireless, TWR Cellular, the stockholders of
THC, the Cash Equity Investors, the Management Stockholders and us, as the such
agreement may be amended from time to time in accordance with the provisions of
such agreement, so long as the terms of any such amendment are no less favorable
to the Noteholders than the terms of the Securities Purchase Agreement in effect
on the date of the Indenture.
"Senior Subordinated Indebtedness" of us means the Notes and any of our
other Indebtedness that specifically provides that such Indebtedness is to rank
pari passu with the Notes in right of payment and is not subordinated by its
terms in right of payment to any Indebtedness or any other of our obligations
which is not Senior Indebtedness. "Senior Subordinated Indebtedness" of our
subsidiary guarantors has a correlative meaning.
"Series A Notes" means our Series A Notes purchased by Lucent under the
Lucent Note Purchase Agreement.
"Significant Subsidiary" means any Restricted Subsidiary that would be our
"Significant Subsidiary" within the meaning of Rule 1-02 under Regulation S-X
promulgated by the SEC.
"Special Purpose Subsidiary" means any Equipment Subsidiary, License
Subsidiary or Real Property Subsidiary.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including under any mandatory redemption
provision, but excluding any provision providing for the repurchase of such
security at the option of the holder of such security upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred.
"Stockholders' Agreement" means the Stockholders' Agreement dated as of
July 17, 1998, among AT&T Wireless, TWR Cellular, the Cash Equity Investors, the
Management Stockholders and us, as such agreement may be amended from time to
time in accordance with the provisions of such agreement, so long as the terms
of any such amendment are no less favorable to the Noteholders than the terms of
the Stockholders' Agreement in effect on the date of the Indenture.
"Strategic Equity Investor" means any of the Cash Equity Investors, any
such Affiliate, any other Person engaged in a Permitted Business whose Total
Equity Market Capitalization exceeds $500 million or any other Person who has at
least $100 million total funds under management and who has issued an
irrevocable, unconditional commitment to purchase our Qualified Stock for an
aggregate purchase price that does not exceed 20% of the value of the funds
under management by such Person.
"Subordinated Indebtedness" means any of our Indebtedness or any
Indebtedness of any of our subsidiary guarantors whether outstanding on the date
of the Indenture or Incurred after such date, which is by its terms expressly
subordinate or junior in right of payment to the Notes or the Subsidiary
Guarantee of such subsidiary guarantor, as the case may be.
"Subsidiary" of any Person means:
(1) a corporation more than 50% of the outstanding Voting Stock of which
is owned, directly or indirectly, by such Person or by one or more
other Subsidiaries of such Person or by such Person and one or more
other Subsidiaries of such Person; or
(2) any other Person, other than a corporation, in which such Person, or
one or more other Subsidiaries of such Person or such Person and one
or more other Subsidiaries of such Person, directly or indirectly, has
at least a majority ownership and voting power relating to the
policies, management and affairs of such Person.
A-20
[ALTERNATIVE PROVISIONS]
"Subsidiary Guarantee" means each guarantee of the obligations with respect
to the Notes issued by any of our Subsidiaries under the terms of the Indenture,
each such Subsidiary Guarantee having subordination provisions equivalent to
those contained in the Indenture with respect to the Notes and being
substantially in the form prescribed in the Indenture.
"System" means, as to any Person, assets constituting a radio
communications system authorized under the rules for wireless communications
services, including any license and the network, marketing, distribution, sales,
customer interface and operations and functions relating to such license, owned
and operated by such Person.
"THC" means TeleCorp Holding Corp., Inc., a Delaware corporation and a
Wholly Owned Subsidiary.
"Total Consolidated Indebtedness" means, at any date of determination, an
amount equal to:
(1) the accreted value of all Indebtedness, in the case of any
Indebtedness issued with original issue discount; plus
(2) the principal amount of all Indebtedness, in the case of any other
Indebtedness,
of us and our Restricted Subsidiaries outstanding as of the date of
determination; provided, however, that no amount owing by us or any of our
Restricted Subsidiaries in respect of any Series A Notes outstanding as of the
date of determination shall be included in the determination of Total
Consolidated Indebtedness.
"Total Equity Market Capitalization" of any Person means, as of any day of
determination, the sum of (a) the product of (1) the aggregate number of
outstanding primary shares of common stock of such Person on such day, which
shall not include any options or warrants on, or securities convertible or
exchangeable into, shares of common stock of such Person, multiplied by (2) the
average closing price of such common stock listed on a national securities
exchange or the Nasdaq National Market System over the 20 consecutive Business
Days immediately preceding such day plus (b) the liquidation value of any
outstanding shares of preferred stock of such Person on such day.
"Total Invested Capital" means, as of any date of determination, the sum
of, without duplication:
(1) the total amount of equity contributed to us as of the date of the
Indenture, as set forth on our December 31, 1998 consolidated balance
sheet; plus
(2) irrevocable, unconditional commitments from any Strategic Equity
Investor to purchase our Capital Stock other than Disqualified Stock,
within 36 months of the date of issuance of such commitment, but in
any event not later than the Stated Maturity of the Notes; provided,
however, that such commitments shall exclude commitments related to
any Investment in any Person incorporated, formed or created for the
purpose of acquiring one or more Qualified Licenses unless such Person
shall become a Restricted Subsidiary; plus
(3) the aggregate net cash proceeds received by us from capital
contributions or the issuance or sale of our Capital Stock, other than
Disqualified Stock, but including Qualified Stock issued upon the
conversion of convertible Indebtedness or upon the exercise of
options, warrants or rights to purchase Qualified Stock, subsequent to
the date of the Indenture, other than issuances or sales of Capital
Stock to a Restricted Subsidiary and other than capital contributions
from, or issuances or sales of Capital Stock to, any Strategic Equity
Investor in connection with (a) any Investment in any Person
incorporated, formed or created for the purpose of acquiring one or
more Qualified Licenses and (b) any Investment in any Person engaged
in a Permitted Business, unless, in either case, such Person shall
become a Restricted Subsidiary; provided, however, such aggregate net
cash proceeds shall exclude any amounts included as commitments to
purchase Capital Stock in the preceding clause (2); plus
(4) the Fair Market Value of assets that are used or useful in a Permitted
Business or of the Capital Stock of a Person engaged in a Permitted
Business received by us as a capital contribution or in exchange for
our Capital Stock, other than Disqualified Stock, subsequent to the
date of the Indenture, other than (x) capital contributions from a
Restricted Subsidiary or issuance or sales of our Capital Stock to a
Restricted Subsidiary or (y) the proceeds from the sale of Qualified
Stock to an employee stock ownership plan or other trust established
by us or any of our subsidiaries; plus
(5) the aggregate net cash proceeds received by us or any Restricted
Subsidiary from the sale, disposition or repayment of any Investment
made after the date of the Indenture and constituting a Restricted
Payment in an amount equal to the lesser of (a) the return of capital
with respect to such Investment and (b) the initial amount of such
Investment, in either case, less the cost of the disposition of such
Investment; plus
A-21
[ALTERNATIVE PROVISIONS]
(6) an amount equal to the consolidated Net Investment of us and/or any of
our Restricted Subsidiaries in any Subsidiary that has been designated
as an Unrestricted Subsidiary after the date of the Indenture upon its
redesignation as a Restricted Subsidiary in accordance with the
covenant described under "--Certain Covenants--Limitation on
Designations of Unrestricted Subsidiaries;" plus
(7) cash proceeds from the sale to Lucent of the Series A Notes, less
payments made by us or any of our Subsidiaries with respect to Series
A Notes, other than payments of additional Series A Notes; plus
(8) Total Consolidated Indebtedness; minus
(9) the aggregate amount of all Restricted Payments including any
Designation Amount, but other than a Restricted Payment of the type
referred to in clause (3)(b) of the third paragraph of the covenant
described under "--Certain Covenants--Limitations on Restricted
Payments," declared or made on or after the date of the Indenture.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S)77aaa-77bbbb)
as in effect on the date of the Indenture.
"Trustee" means the party named as such in the Indenture until a successor
replaces it and, after such replacement, means the successor.
"Trust Officer" means the Chairman of the board of directors, the President
or any other officer or assistant officer of the Trustee assigned by the Trustee
to administer its corporate trust matters.
"TWR Cellular" means TWR Cellular, Inc., a Delaware corporation, and an
Affiliate of AT&T Wireless.
"Unrestricted Subsidiary" means (1) any of our Subsidiaries, other than an
Ineligible Subsidiary, designated after the date of the Indenture as such under,
and in compliance with, the covenant described under "--Certain Covenants--
Limitation on Designations of Unrestricted Subsidiaries" and (2) any Marketing
Affiliate. Any such designation of any of our Subsidiaries may be revoked by a
resolution of our Board delivered to the Trustee certifying compliance with such
covenant, subject to the provisions of such covenant.
"U.S. Government Obligations" means direct obligations, or certificates
representing an ownership interest in such obligations, of the United States of
America, including any agency or instrumentality of the United States of
America, for the payment of which the full faith and credit of the United States
of America is pledged and which are not callable or redeemable at the issuer's
option.
"Vendor Credit Arrangement" means any Indebtedness, including, without
limitation, Indebtedness under any credit facility entered into with any vendor
or supplier or any financial institution acting on behalf of such vendor or
supplier; provided that the net proceeds of such Indebtedness are used solely
for the purpose of financing the cost, including, without limitation, the cost
of design, development, site acquisition, construction, integration, handset
manufacture or acquisition or microwave relocation, of assets used or usable in
a Permitted Business, including, without limitation, through the acquisition of
Capital Stock of an entity engaged in a Permitted Business.
"Voting Stock" of any Person means the Capital Stock of such Person which
ordinarily has voting power for the election of directors, or Persons performing
similar functions, of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"Wholly Owned Subsidiary" means a Restricted Subsidiary, all of the
outstanding Capital Stock or other ownership interests of which, other than
directors' qualifying shares, shall at the time be owned by us and/or by one or
more Wholly Owned Subsidiaries.
"Wireless 2000" means Wireless 2000, Inc.
"Wireless 2000 Acquisition" means our purchase from Wireless 2000 of 15 MHz
of C-Block Licenses for the Monroe, Alexandria and Lake Charles, Louisiana BTAs.
A-22
[ALTERNATIVE PROVISIONS]
[The following provisions replace the provisions under the same headings in the
prospectus in the "Book-Entry; Delivery and Form" section.]
BOOK-ENTRY; DELIVERY AND FORM
The Notes are represented by a permanent global certificate in definitive,
fully registered form (the "Global Note"). The Global Note is registered in the
name of a nominee of DTC.
Certain Book-Entry Procedures for the Global Notes
The descriptions of the operations and procedures of DTC, Euroclear and
Cedel set forth below are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems, and are subject to change by them from time to time. Neither
we nor any of the initial purchasers of the Notes takes any responsibility for
these operations or procedures, and investors are urged to contact the relevant
system or its participants directly to discuss these matters.
DTC has advised us that it is (1) a limited purpose trust company organized
under the laws of the State of New York, (2) a "banking organization" within the
meaning of the New York Banking Law, (3) a member of the Federal Reserve System,
(4) a "clearing corporation" within the meaning of the Uniform Commercial Code,
as amended, and (5) a "clearing agency" registered under Section 17A of the
Exchange Act. DTC was created to hold securities for its participants
(collectively, the "Participants") and facilitates the clearance and settlement
of securities transactions between Participants through electronic book-entry
changes to the accounts of its Participants, thereby eliminating the need for
physical transfer and delivery of certificates. DTC's Participants include
securities brokers and dealers, including the initial purchasers, banks and
trust companies, clearing corporations and certain other organizations. Indirect
access to DTC's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively, the "Indirect Participants")
that clear through, or maintain a custodial relationship with a Participant,
either directly or indirectly. Investors who are not Participants may
beneficially own securities held by, or on behalf of DTC only through
Participants or Indirect Participants.
We expect that under procedures established by DTC, (1) upon deposit of
each Global Note, DTC will credit the accounts of Participants designated by the
initial purchasers of the Notes in the original private offering with an
interest in the Global Note and (2) ownership of the Notes will be shown on, and
the transfer of ownership will be effected only through, records maintained by
DTC, with respect to the interests of Participants and the records of
Participants and the Indirect Participants (with respect to the interests of
persons other than Participants).
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form.
Accordingly, the ability to transfer interests in the Notes represented by a
Global Note to such persons may be limited. In addition, because DTC can act
only on behalf of its Participants, who in turn act on behalf of persons who
hold interests through Participants, the ability of a person having an interest
in the Notes represented by a Global Note to pledge or transfer such interest to
persons or entities that do not participate in DTC's system, or to otherwise
take actions in respect of such interest, may be affected by the lack of a
physical definitive security in respect of such interest.
So long as DTC or its nominee is the registered owner of a Global Note, DTC
or such nominee, as the case may be, will be considered the sole owner or holder
of the Notes represented by the Global Note for all purposes under the
Indenture. Except as provided below, owners of beneficial interests in a Global
Note will not be entitled to have the Notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of Certificated Notes and will not be considered the owners or holders
under the Indenture for any purpose, including with respect to the giving of any
direction, instruction or approval to the Trustee. Accordingly, each holder
owning a beneficial interest in a Global Note must rely on the procedures of DTC
and, if such holder is not a Participant or an Indirect Participant, on the
procedures of the Participant through which such holder owns its interest, to
exercise any rights of a holder of the Notes under the Indenture or such Global
Note. We understand that, under existing industry practice, if we request any
action of holders of the Notes, or a holder that is an owner of a beneficial
interest in a Global Note desires to take any action that DTC, as the holder of
such Global Note, is entitled to take, DTC would authorize the Participants to
take such action and the Participants would authorize holders owning through
such Participants to take such action or would otherwise act upon the
instruction of such holders. Neither we nor the Trustee will have any
responsibility or liability for any aspect of the records relating to, or
payments made on account of, the Notes by DTC, or for maintaining, supervising
or reviewing any records of DTC relating to such Notes.
Payments with respect to the principal and interest, and premium, if any,
and liquidated damages, if any, on any Notes represented by a Global Note
registered in the name of DTC or its nominee on the applicable record date will
be payable by the Trustee to, or at the direction of, DTC or its nominee in its
capacity as the registered holder of the Global Note representing such
A-23
[ALTERNATIVE PROVISIONS]
Notes under the Indenture. Under the terms of the Indenture, we and the Trustee
will be permitted to treat the persons in whose names the Notes, including the
Global Notes, are registered as the owners of such Notes for the purpose of
receiving payment thereon and for any and all other purposes whatsoever.
Accordingly, neither we nor the Trustee have or will have any responsibility or
liability for the payment of such amounts to owners of beneficial interests in a
Global Note (including principal, premium, if any, liquidated damages, if any,
and interest). Payments by the Participants and the Indirect Participants to the
owners of beneficial interests in a Global Note will be governed by standing
instructions and customary industry practice, and will be the responsibility of
the Participants or the Indirect Participants and DTC.
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures and will be settled in same-day funds. Transfers between
participants in Euroclear or Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
Notes, cross-market transfers between the Participants in DTC, on the one hand,
and Euroclear or Cedel participants on the other hand, will be effected through
DTC in accordance with DTC's rules on behalf of Euroclear or Cedel, as the case
may be; however, such cross-market transactions will require delivery of
instructions to Euroclear or Cedel, as the case may be, by the counterparty in
such system in accordance with the rules and procedures, and within the
established deadlines (Brussels time), of such system. Euroclear or Cedel, as
the case may be, will, if the transaction meets its settlement requirements,
deliver instructions to its depositary to take action to effect final settlement
on its behalf, by delivering or receiving interests in the relevant Global Notes
in DTC and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Euroclear participants and Cedel
participants may not deliver instructions directly to the depositaries for
Euroclear or Cedel.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global Note from a Participant in
DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing day,
which must be a business day for Euroclear or Cedel, as the case may be,
immediately following the settlement date of DTC. Cash received by Euroclear or
Cedel as a result of sales of interests in a Global Note by or through a
Euroclear or Cedel participant to a Participant in DTC will be received with
value on the settlement date of DTC, but will be available in the relevant
Euroclear or Cedel cash account only as of the business day for Euroclear or
Cedel, as the case may be, following DTC's settlement date.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures
to facilitate transfers of interests in the Global Notes among participants in
DTC, Euroclear and Cedel, they are under no obligation to perform or to continue
to perform such procedures, and such procedures may be discontinued at any time.
Neither we nor the Trustee will have any responsibility for the performance by
DTC, Euroclear or Cedel, or their respective participants or indirect
participants, of their respective obligations under the rules and procedures
governing their operations.
Certificated Notes
If (1) we notify the Trustee in writing that DTC is no longer willing or
able to act as a depositary, or DTC ceases to be registered as a clearing agency
under the Exchange Act and a successor depositary is not appointed within 90
days of such notice or cessation, (2) we, at our option, notify the Trustee in
writing that it elects to cause the issuance of the Notes in definitive form
under the Indenture, or (3) upon the occurrence of certain other events as
provided in the Indenture, then, upon surrender by DTC of the Global Notes,
Certificated Notes will be issued to each person that DTC identifies as the
beneficial owner of the Notes represented by the Global Notes. Upon any such
issuance, the Trustee is required to register such Certificated Notes in the
name of such person or persons, or the nominee of any such person, and cause the
same to be delivered to such person.
Neither we nor the Trustee shall be liable for any delay by DTC or any
Participant or Indirect Participant in identifying the beneficial owners of the
related Notes, and each such person may conclusively rely on, and shall be
protected in relying on, instructions from DTC for all purposes, including with
respect to the registration and delivery, and the respective principal amounts,
of the Notes to be issued.
A-24
[ALTERNATIVE SECTION]
PLAN OF DISTRIBUTION
CSI may use this prospectus in connection with offers and sales of the
Notes in market-making transactions at negotiated prices relating to prevailing
market prices at the time of sale. CSI may act as principal or agent in such
transaction.
The Notes are new securities with no established trading market. We do
not intend to list the Notes on any securities exchange. Any trading that does
develop will occur on the over-the-counter market. CSI has advised us that it
intends to make a market in the Notes, but it has no obligation to do so. CSI
may discontinue any market-making at any time. We cannot assure you that a
liquid market will develop for the Notes, that you will be able to sell your
Notes at a particular time or that the prices that you receive when you sell
will be favorable. Future trading prices of the Notes will depend on many
factors, including our operating performance and financial condition, prevailing
interest rates and the market for similar securities.
CSI acted as an initial purchaser in connection with the initial
private offering of the Notes, and received customary compensation in connection
with such offering. CSI and its affiliates perform various investment banking
and commercial banking services from time to time for us and our affiliates. The
Chase Manhattan Bank, an affiliate of CSI, is the agent bank and a lender under
our senior credit facilities. Mr. Michael R. Hannon, a member of our Board,
is a General Partner of Chase Capital Partners, an affiliate of CSI. In
addition, affiliates of Chase Capital Partners own a portion of our common
stock. For further information concerning these relationships, see "Securities
Ownership of Certain Beneficial Owners and Management."
Although there are no agreements to do so, CSI, and others, may act as
a broker or dealer in connection with the sale of Notes contemplated by this
prospectus and may receive fees or commissions in connection with such sales.
We have agreed to indemnify CSI against certain liabilities under the
Securities Act or to contribute to payments that CSI may have to make in respect
of such liabilities.
A-25
[ALTERNATIVE SECTION]
AVAILABLE INFORMATION
We have filed with the SEC a registration statement on Form S-4 under the
Securities Act with respect to the Notes. As permitted by the rules and
regulations of the SEC, this prospectus omits certain information, exhibits and
undertakings contained in the registration statement. For further information
with respect to us and the Notes, you should review the registration statement,
including the exhibits and the financial statements to such registration
statement, notes and schedules filed as a part of the registration statement.
The registration statement and the exhibits and schedules to such registration
statement, as well as the periodic reports and other information filed with the
SEC, may be inspected and copied at the Public Reference Section of the SEC at
Room 1024, Judiciary Plaza, 450 Fifth Street, NW, Washington, DC 20549 and at
the regional offices of the SEC located at 7 World Trade Center, Suite 1300,
New York, New York 10048. Copies of such materials may be obtained from the
Public Reference Section of the SEC, Room 1024, Judiciary Plaza, 450 Fifth
Street, NW, Washington DC 20549, and its public reference facilities in New
York, New York at the prescribed rates. You may obtain information as to the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC maintains a Web site at http://www.sec.gov that contains periodic
reports, proxy and information statements and other information regarding
registrants that file documents electronically with the SEC. Statements
contained in this prospectus as to the contents of any contract or other
document are not necessarily complete, and in each instance reference is made to
the copy of such contract or document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such
reference. Under the indenture governing the Notes, we have agreed to file with
the SEC and provide to the holders of the Notes annual reports and the
information, documents and other reports which are specified in Section 13 and
15(d) of the Exchange Act.
A-26
[ALTERNATIVE PAGE]
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT
RELY ON ANY UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO SELL OR
BUY ANY SECURITIES IN ANY JURISDICTION WHERE IT IS UNLAWFUL. THE INFORMATION IN
THIS PROSPECTUS IS CURRENT AS OF , 1999.
TABLE OF CONTENTS
Prospectus Summary............................................................. 1
Risk Factors...................................................................
Use of Proceeds................................................................
Capitalization.................................................................
Selected Historical and Pro Forma
Consolidated Financial Information............................................
Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................
Business.......................................................................
Management.....................................................................
Securities Ownership of Certain Beneficial Owners and Management...............
Certain Relationships and Related Transactions.................................
Certain Indebtedness...........................................................
Description of Capital Stock...................................................
Description of the Notes.......................................................
Certain U.S. Federal Tax Considerations........................................
Book-Entry; Delivery and Form..................................................
Plan of Distribution...........................................................
Legal Matters..................................................................
Experts........................................................................
Available Information..........................................................
Glossary of Selected Terms.....................................................
Index to Financial Statements.................................................. F-1
UNTIL , 1999, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES MAY BE REQUIRED TO DELIVER A PROSPECTUS IN CONNECTION THEREWITH. THIS
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS. WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
TELECORP PCS, INC.
$575,000,000
11 5/8% SENIOR SUBORDINATED DISCOUNT
NOTES DUE 2009
______________________
PROSPECTUS
______________________
, 1999
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law ("DGCL") provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, or investigative (other
than an action by or in the right of the corporation) by reason of the fact that
such person is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe such person's conduct was
unlawful. Section 145 further provides that a corporation similarly may
indemnify any such person serving in any such capacity who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its
favor, against expenses actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper. The
provisions regarding indemnification and advancement of expenses under Section
145 of the DGCL shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, stockholders' or disinterested directors' vote or otherwise.
Section 102(b)(7) of the DGCL permits a corporation to include in its
certificate of incorporation a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such provision
shall not eliminate or limit the liability of a director: (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders; (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) under Section 174 of the DGCL (relating to
unlawful payment of dividends and unlawful stock purchase and redemption); or
(iv) for any transaction from which the director derived an improper personal
benefit.
As permitted by Section 145(e) of the DGCL, our Third Amended and Restated
Certificate of Incorporation and our Amended and Restated Bylaws provide that we
shall indemnify our directors and officers, and, to the extent our Board at any
time authorizes, incorporators, employees or agents, as such, to the fullest
extent permitted by applicable law, and that expenses reasonably incurred by any
officer or director or such other person entitled to indemnification in
connection with a threatened or actual action or proceeding shall be advanced or
promptly reimbursed by us in advance of the final disposition of such action or
proceeding, provided that, if required to do so under the DGCL, we receive an
undertaking by or on behalf of such officer or director or other person to repay
such amount if and to the extent that it is ultimately determined by final
judicial decision from which there is no further right of appeal that such
officer or director or other person is not entitled to indemnification. Our
Third Amended and Restated Certificate of Incorporation provides that such
rights are not exclusive.
ITEM 21. EXHIBITS AND FINANCIAL SCHEDULES.
(a) The following exhibits are, unless indicated below, filed herewith.
EXHIBIT INDEX
Exhibit
Number Description of Document
- ------- -----------------------
3.1 Third Amended and Restated Certificate of Incorporation, dated May 14,
1999, of TeleCorp PCS, Inc.
3.2 Amended and Restated Bylaws, dated July 17, 1998, of TeleCorp PCS,
Inc.
4.1 Indenture, dated as of April 23, 1999, by and between Bankers Trust
Company, as trustee, and TeleCorp PCS, Inc. relating to the 11 5/8%
Senior Subordinated Discount Notes due 2009
II-1
EXHIBIT INDEX
Exhibit
Number Description of Document
- ------- -----------------------
5.1* Opinion of McDermott, Will & Emery regarding the legality of the
securities being registered
10.1 Note Purchase Agreement by and between TeleCorp PCS, Inc. and Lucent
Technologies, Inc., dated as of May 11, 1998
10.2 General Agreement for Purchase of PCS Systems and Services by and
between TeleCorp PCS, Inc. and Lucent Technologies, Inc., dated as of
May 12, 1998, as amended
10.3 Securities Purchase Agreement by and among TeleCorp PCS, Inc., AT&T
Wireless PCS Inc, TWR Cellular, Inc. and certain Cash Equity
Investors, TeleCorp Investors and Management Stockholders identified,
dated as of January 23, 1998
10.4.1 Network Membership License Agreement by and among AT&T Corp.,
including AT&T Wireless Services, Inc., and TeleCorp PCS, Inc., dated
as of July 17, 1998
10.4.2 Amendment No. 1 to Network Membership License Agreement, dated March
30, 1999
10.5.1 Management Agreement by and between TeleCorp Management Corp. and
TeleCorp PCS, Inc., dated as of July 17, 1998
10.5.2 Amendment No. 1 to the Management Agreement between TeleCorp
Management Corp. and TeleCorp PCS, Inc., dated as of May 25, 1999
10.6.1 Intercarrier Roamer Service Agreement by and between AT&T Wireless
Services, Inc. and TeleCorp PCS, Inc., dated as of July 17, 1998
10.6.2 Amendment No. 1 to Intercarrier Roamer Service Agreement, dated May
25, 1999
10.7 Roaming Administration Service Agreement by and between AT&T Wireless
Services, Inc. and TeleCorp PCS, Inc., dated as of July 17, 1998
10.8.1 Credit Agreement by and among TeleCorp PCS, Inc., the Lenders party
to, and the Chase Manhattan Bank, as Administrative Agent and Issuing
Bank, TD Securities (USA) Inc., as Syndication Agent, and Bankers
Trust Company, as Documentation Agent, dated as of July 17, 1998 (the
"Credit Agreement")
10.8.2 First Amendment, Consent, and Waiver to the Credit Agreement, dated as
of December 18, 1998
10.8.3 Second Amendment and Waiver to the Credit Agreement, dated as of March
1, 1999
10.8.4 Third Amendment to the Credit Agreement, dated as of March 30, 1999
10.8.5 Fourth Amendment to the Credit Agreement, dated as of March 31, 1999
10.8.6 Fifth Amendment and Acceptance to the Credit Agreement, dated as of
April 7, 1999
10.8.7 Sixth Amendment to the Credit Agreement, dated as of April 7, 1999
10.8.8 Seventh Amendment to the Credit Agreement, dated as of May 21, 1999
10.9 Stock Purchase Agreement by and among TeleCorp PCS, Inc., AT&T
Wireless PCS, Inc. and certain Cash Equity Investors identified in,
dated as of March 22, 1999
10.10 Stock Purchase Agreement by and among Viper Wireless, Inc., TeleCorp
Holding Corp., Inc. and TeleCorp PCS, Inc., dated as of March 1, 1999
10.11 Puerto Rico Stock Purchase Agreement by and among TeleCorp PCS, Inc.,
Puerto Rico Acquisition Corp. and certain Management Stockholders and
Cash Equity Investors, dated as of March 30, 1999
II-2
EXHIBIT INDEX
Exhibit
Number Description of Document
- ------- -----------------------
10.12 Letter of Agreement by and between AT&T Wireless Services, Inc. and
TeleCorp Communications, Inc., dated as of December 21, 1998
10.13 Asset Purchase Agreement, dated May 25, 1999, by and between AT&T
Wireless PCS Inc. and TeleCorp PCS, Inc.
10.14 Preferred Stock Purchase Agreement, dated May 24, 1999, by and between
AT&T Wireless PCS Inc. and TeleCorp PCS, Inc.
10.15 License Acquisition Agreement, dated May 15, 1998, by and between
Mercury PCS II, LLC and TeleCorp PCS, Inc.
10.16 License Acquisition Agreement, dated May 15, 1998, by and between
Wireless 2000, Inc. and TeleCorp PCS, Inc.
10.17.1 Stockholders' Agreement, dated as of July 17, 1998, by and among AT&T
Wireless PCS, Inc., TWR Cellular, Inc., Cash Equity Investors,
Management Stockholders, and TeleCorp PCS, Inc.
10.17.2 Amendment No. 1 to the Stockholders' Agreement, dated March 30, 1999
10.18 Purchase Agreement, dated April 20, 1999, by and among Chase
Securities Inc., BT Alex. Brown Incorporated, Lehman Brothers Inc.,
TeleCorp PCS, Inc. and TeleCorp Communications, Inc.
10.19 Exchange and Registration Rights Agreement, dated April 23, 1999, by
and among Chase Securities Inc., BT Alex. Brown Incorporated, Lehman
Brothers Inc., TeleCorp PCS, Inc. and TeleCorp Communications, Inc.
10.20 Agreement, dated as of July 17, 1998, by and among AT&T Wireless PCS
Inc., TWR Cellular, Inc., the Cash Equity Investors, the TeleCorp
Investors and the Management Stockholders.
10.21 Employee Agreement, dated as of July 17, 1998, by and between TeleCorp
PCS, Inc. and Steven Chandler.
10.22 Share Grant Agreement, dated July 16, 1998, by and between TeleCorp
PCS, Inc. and Steven Chandler.
10.23 Employee Agreement, dated as of July 17, 1998, by and between TeleCorp
PCS, Inc. and Julie Dobson.
10.24 Share Grant Agreement, dated July 16, 1998, by and between TeleCorp
PCS, Inc. and Julie Dobson.
10.25 Separation Agreement, dated as of March 8, 1999, by and among TeleCorp
PCS, Inc., TeleCorp Communications, Inc. and Robert Dowski.
12.1 Statement re: computation of ratios.
21.1 Subsidiaries of TeleCorp PCS, Inc.
23.1* Consent of McDermott, Will & Emery (contained in Exhibit 5.1)
23.2 Consent of PricewaterhouseCoopers, LLP
24.1 Power of Attorney for TeleCorp PCS, Inc. (included on signature page)
25.1 Statement of Eligibility of Trustee on Form T-1
27.1 Financial Data Schedule
99.1* Letter of Transmittal
99.2* Notice of Guaranteed Delivery
II-3
Exhibit
Number Description of Document
- ------- -----------------------
99.3* Exchange Agent Agreement
________________
* To be filed by amendment.
II-4
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement. In spite of the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low
or high end of the estimated maximum offering range may be reflected in the
form of prospectus filed with the SEC under Rule 424(b) if , in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering.
(c) To respond to requests for information that is incorporated by
reference into the prospectus under Items 4, 10(b), 11, or 13 of this Form,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(d) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved, that was not
the subject of and included in the registration statement when it became
effective.
(e) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(f) The registrant undertakes that every prospectus (i) that is filed
under paragraph (c) immediately preceding, or (ii) that purposes to meet the
requirements of section 10(a)(3) of the Securities Act of 1933 and is used in
connection with an offering of securities subject to Rule 415, will be filed as
part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effectiveness amendment shall
be deemed to be a new registration statement relating to the securities offered
here, and the offering of such securities at that time shall be deemed to the
initial bona fide offering.
(g) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant under the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling persons of the registrant
in the successful defense of any action suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Arlington, State of
Virginia, on June 22, 1999.
TELECORP PCS, INC.
By: /s/ Gerald T. Vento
---------------------------------
Gerald T. Vento
Chief Executive Officer
POWER OF ATTORNEY
TeleCorp PCS, Inc. and each person whose signature appears below constitutes
and appoints Thomas H. Sullivan and Gerald T. Vento, and each of them, as true
and lawful attorneys-in-fact and agents with full power of substitution and
resubstitution for each such person and in such person's name, in any and all
capacities, (A) to sign all amendments (including pre-effective and post-
effective amendments) to this registration statement (and any registration
statement filed under Rule 462(b) of the Securities Act); (B) to file such
amendments with all exhibits and other related documents with the Securities and
Exchange Commission; and (C) to perform every act necessary in connection with
(A) or (B); and (2) ratifies and confirms everything that such attorneys-in-fact
and agents, or any or them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue of this appointment.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
June 21 , 1999 By: /s/ Gerald T. Vento
- -------------- -----------------------------------------------
Gerald T. Vento
Chief Executive Officer and Chairman (Principal
Executive Officer)
June 21 , 1999 By: /s/ Thomas H. Sullivan
- -------------- -----------------------------------------------
Thomas H. Sullivan
Executive Vice President, Chief Financial
Officer and Director (Principal Financial and
Accounting Officer)
June 21 , 1999 By: /s/ Michael R. Hannon
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Michael R. Hannon
Director
______________, 1999 By:_______________________________________________
Scott Anderson
Director
______________, 1999 By:_______________________________________________
Rohit M. Desai
Director
______________, 1999 By:_______________________________________________
Gary S. Fuqua
Director
June 22 , 1999 By: /s/ James M. Hoak
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James M. Hoak
Director
June 21 , 1999 By: /s/ Mary Hawkins-Key
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Mary Hawkins-Key
Director
June 21 , 1999 By: /s/ William Kussell
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William Kussell
Director
June 21 , 1999 By: /s/ William Laverack, Jr.
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William Laverack, Jr.
Director
June 22 , 1999 By: /s/ Joseph O'Donnell
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Joseph O'Donnell
Director
June 21 , 1999 By: /s/ Michael Schwartz
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Michael Schwartz
Director
June 21 , 1999 By: /s/ James F. Wade
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James F. Wade
Director
EXHIBIT INDEX
Exhibit
Number Description of Document
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3.1 Third Amended and Restated Certificate of Incorporation, dated May 14,
1999, of TeleCorp PCS, Inc.
3.2 Amended and Restated Bylaws, dated July 17, 1998, of TeleCorp PCS,
Inc.
4.1 Indenture, dated as of April 23, 1999, by and between Bankers Trust
Company, as trustee, and TeleCorp PCS, Inc. relating to the 11 5/8%
Senior Subordinated Discount Notes due 2009
5.1* Opinion of McDermott, Will & Emery regarding the legality of the
securities being registered
10.1 Note Purchase Agreement by and between TeleCorp PCS, Inc. and Lucent
Technologies, Inc., dated as of May 11, 1998
10.2 General Agreement for Purchase of PCS Systems and Services by and
between TeleCorp PCS, Inc. and Lucent Technologies, Inc., dated as of
May 12, 1998, as amended
10.3 Securities Purchase Agreement by and among TeleCorp PCS, Inc., AT&T
Wireless PCS Inc, TWR Cellular, Inc. and certain Cash Equity
Investors, TeleCorp Investors and Management Stockholders identified,
dated as of January 23, 1998
10.4.1 Network Membership License Agreement by and among AT&T Corp.,
including AT&T Wireless Services, Inc., and TeleCorp PCS, Inc., dated
as of July 17, 1998
10.4.2 Amendment No. 1 to Network Membership License Agreement, dated March
30, 1999
10.5.1 Management Agreement by and between TeleCorp Management Corp. and
TeleCorp PCS, Inc., dated as of July 17, 1998
10.5.2 Amendment No. 1 to the Management Agreement between TeleCorp
Management Corp. and TeleCorp PCS, Inc., dated as of May 25, 1999
10.6.1 Intercarrier Roamer Service Agreement by and between AT&T Wireless
Services, Inc. and TeleCorp PCS, Inc., dated as of July 17, 1998
10.6.2 Amendment No. 1 to Intercarrier Roamer Service Agreement, dated May
25, 1999
10.7 Roaming Administration Service Agreement by and between AT&T Wireless
Services, Inc. and TeleCorp PCS, Inc., dated as of July 17, 1998
10.8.1 Credit Agreement by and among TeleCorp PCS, Inc., the Lenders party
to, and the Chase Manhattan Bank, as Administrative Agent and Issuing
Bank, TD Securities (USA) Inc., as Syndication Agent, and Bankers
Trust Company, as Documentation Agent, dated as of July 17, 1998 (the
"Credit Agreement")
10.8.2 First Amendment, Consent, and Waiver to the Credit Agreement, dated as
of December 18, 1998
10.8.3 Second Amendment and Waiver to the Credit Agreement, dated as of March
1, 1999
10.8.4 Third Amendment to the Credit Agreement, dated as of March 30, 1999
10.8.5 Fourth Amendment to the Credit Agreement, dated as of March 31, 1999
10.8.6 Fifth Amendment and Acceptance to the Credit Agreement, dated as of
April 7, 1999
10.8.7 Sixth Amendment to the Credit Agreement, dated as of April 7, 1999
10.8.8 Seventh Amendment to the Credit Agreement, dated as of May 21, 1999
10.9 Stock Purchase Agreement by and among TeleCorp PCS, Inc., AT&T
Wireless PCS, Inc. and certain Cash Equity Investors identified in,
dated as of March 22, 1999
10.10 Stock Purchase Agreement by and among Viper Wireless, Inc., TeleCorp
Holding Corp., Inc. and TeleCorp PCS, Inc., dated as of March 1, 1999
10.11 Puerto Rico Stock Purchase Agreement by and among TeleCorp PCS, Inc.,
Puerto Rico Acquisition Corp. and certain Management Stockholders and
Cash Equity Investors, dated as of March 30, 1999
EXHIBIT INDEX
Exhibit
Number Description of Document
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10.12 Letter of Agreement by and between AT&T Wireless Services, Inc. and
TeleCorp Communications, Inc., dated as of December 21, 1998
10.13 Asset Purchase Agreement, dated May 25, 1999, by and between AT&T
Wireless PCS Inc. and TeleCorp PCS, Inc.
10.14 Preferred Stock Purchase Agreement, dated May 24, 1999, by and between
AT&T Wireless PCS Inc. and TeleCorp PCS, Inc.
10.15 License Acquisition Agreement, dated May 15, 1998, by and between
Mercury PCS II, LLC and TeleCorp PCS, Inc.
10.16 License Acquisition Agreement, dated May 15, 1998, by and between
Wireless 2000, Inc. and TeleCorp PCS, Inc.
10.17.1 Stockholders' Agreement, dated as of July 17, 1998, by and among AT&T
Wireless PCS, Inc., TWR Cellular, Inc., Cash Equity Investors,
Management Stockholders, and TeleCorp PCS, Inc.
10.17.2 Amendment No. 1 to the Stockholders' Agreement, dated March 30, 1999
10.18 Purchase Agreement, dated April 20, 1999, by and among Chase
Securities Inc., BT Alex. Brown Incorporated, Lehman Brothers Inc.,
TeleCorp PCS, Inc. and TeleCorp Communications, Inc.
10.19 Exchange and Registration Rights Agreement, dated April 23, 1999, by
and among Chase Securities Inc., BT Alex. Brown Incorporated, Lehman
Brothers Inc., TeleCorp PCS, Inc. and TeleCorp Communications, Inc.
10.20 Agreement, dated as of July 17, 1998, by and among AT&T Wireless PCS
Inc., TWR Cellular, Inc., the Cash Equity Investors, the TeleCorp
Investors and the Management Stockholders.
10.21 Employee Agreement, dated as of July 17, 1998, by and between TeleCorp
PCS, Inc. and Steven Chandler.
10.22 Share Grant Agreement, dated July 16, 1998, by and between TeleCorp
PCS, Inc. and Steven Chandler.
10.23 Employee Agreement, dated as of July 17, 1998, by and between TeleCorp
PCS, Inc. and Julie Dobson.
10.24 Share Grant Agreement, dated July 16, 1998, by and between TeleCorp
PCS, Inc. and Julie Dobson.
10.25 Separation Agreement, dated as of March 8, 1999, by and among TeleCorp
PCS, Inc., TeleCorp Communications, Inc. and Robert Dowski.
12.1 Statement re: computation of ratios.
21.1 Subsidiaries of TeleCorp PCS, Inc.
23.1* Consent of McDermott, Will & Emery (contained in Exhibit 5.1)
23.2 Consent of PricewaterhouseCoopers, LLP
24.1 Power of Attorney for TeleCorp PCS, Inc. (included on signature page)
25.1 Statement of Eligibility of Trustee on Form T-1
27.1 Financial Data Schedule
99.1* Letter of Transmittal
99.2* Notice of Guaranteed Delivery
Exhibit
Number Description of Document
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99.3* Exchange Agent Agreement
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* To be filed by amendment.