-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QVE072Z50ils0Pn6eMZ9rZk+jR8IXEM9JR+5T1JCqq3yz1YKGuupJ9ssSrvBLoZG mfa+B/L2uaQZfqLmKlGTUg== 0000950123-96-003630.txt : 19960717 0000950123-96-003630.hdr.sgml : 19960717 ACCESSION NUMBER: 0000950123-96-003630 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19960716 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PCS DEVELOPMENT CORP CENTRAL INDEX KEY: 0001010396 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 571010782 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-02162 FILM NUMBER: 96595336 BUSINESS ADDRESS: STREET 1: 15 SOUTH MAIN ST STREET 2: STE 810 CITY: GREENVILLE STATE: SC ZIP: 29601 BUSINESS PHONE: 8642350940 MAIL ADDRESS: STREET 1: 15 SOUTH MAIN STREET STREET 2: SUITE 810 CITY: GREENVILLE STATE: SC ZIP: 29601 S-1/A 1 PCS DEVELOPMENT CORPORATION 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 16, 1996 REGISTRATION NO. 333-2162 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- PRE-EFFECTIVE AMENDMENT NO. 3 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- PCS DEVELOPMENT CORPORATION (Exact name of Registrant as specified in its charter) --------------------- DELAWARE 4812 57-1010782 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
15 SOUTH MAIN STREET, SUITE 810, GREENVILLE, SOUTH CAROLINA 29601 (864) 235-0940 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) CECIL L. DUFFIE, JR. VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER PCS DEVELOPMENT CORPORATION 15 SOUTH MAIN STREET, STE. 810 GREENVILLE, SOUTH CAROLINA 29601 (864) 235-0940 (864) 235-0841 (FAX) (Name, address, including zip code, and telephone number, including area code, of agent for service) --------------------- COPIES TO: H. BRYAN IVES III, ESQ. VINCENT PAGANO, JR., ESQ. C. MARK KELLY, ESQ. SIMPSON THACHER & BARTLETT NELSON MULLINS RILEY & SCARBOROUGH, L.L.P. 425 LEXINGTON AVENUE 100 NORTH TRYON STREET, SUITE 3350 NEW YORK, NEW YORK 10017-3954 CHARLOTTE, NORTH CAROLINA 28202 (212) 455-2000 (704) 417-3100
--------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 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, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / --------------------- CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- PROPOSED TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE - --------------------------------------------------------------------------------------------------------- Units(3)....................................................... $165,000,000 $5,173(2) - --------------------------------------------------------------------------------------------------------- % Senior Discount Notes due 2006(3)....................... -- -- - --------------------------------------------------------------------------------------------------------- Warrants to purchase Common Stock(3)......................... -- -- - --------------------------------------------------------------------------------------------------------- Common Stock issuable upon exercise of the Warrants.......... -- -- - --------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of determining the registration fee. (2) Calculated pursuant to Rule 457 under the Securities Act of 1933, as amended (the "Securities Act"). A registration fee of $51,724 was previously paid by the Company. (3) Each Unit will consist of Senior Discount Notes Due 2006 and Warrants to purchase Class B Common Stock. The Senior Discount Notes and Warrants will be offered only in Units. --------------------- 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 THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 CROSS REFERENCE SHEET PURSUANT TO ITEM 501 OF REGULATION S-K
ITEM NUMBER AND CAPTION HEADING IN PROSPECTUS ------------------------------------------- ------------------------------------------- 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus... Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages of Prospectus............................ Inside front and outside back cover pages of Prospectus 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges............. Prospectus Summary; Risk Factors; Selected Consolidated Financial Data 4. Use of Proceeds............................ Prospectus Summary; Use of Proceeds 5. Determination of Offering Price............ Underwriting 6. Dilution................................... Not Applicable 7. Selling Security Holders................... Not Applicable 8. Plan of Distribution....................... Outside Front Cover Page; Underwriting 9. Description of Securities to be Registered............................... Outside Front Cover Page; Prospectus Summary; Description of the Units; Description of the Notes; Description of the Warrants; Description of Capital Stock 10. Interests of Named Experts and Counsel..... Legal Matters 11. Information with Respect to the Registrant............................... Outside Front Cover Page; Prospectus Summary; Risk Factors; Use of Proceeds; Dividend Policy; Capitalization; Selected Consolidated Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Management; Certain Transactions; Principal Stockholders; Description of the Units; Description of the Notes; Description of the Warrants; Description of Capital Stock; Consolidated Financial Statements 12. Disclosure of Commission Position on Indemnification for Securities Act Liabilities.............................. Not Applicable
3 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH JURISDICTION. Subject to Completion, dated July 16, 1996 PROSPECTUS UNITS LOGO $165,000,000 INITIAL ACCRETED VALUE OF % SENIOR DISCOUNT NOTES DUE 2006 WITH WARRANTS TO PURCHASE SHARES OF CLASS B COMMON STOCK --------------------------- PCS Development Corporation ("PCSD" or the "Company") is offering (the "Offering") Units (the "Units"), each consisting of $1,000 principal amount at maturity of % Senior Discount Notes due 2006 (the "Notes") and warrants (the "Warrants") to purchase shares of Class B Common Stock, par value $1.00 per share, of PCSD (the "Class B Common Stock"). The Notes and the Warrants will not be separately transferable until the Separability Date (as defined herein) which shall be no later than , 1996. The Units, the Notes and the Warrants are sometimes collectively referred to as the "Securities." The Notes will mature on , 2006. The Notes will be issued at a substantial discount from their principal amount, and interest will not accrue on the Notes prior to , 2001. Thereafter, interest on the Notes will be payable in cash semi-annually on and of each year, commencing , 2002. The Notes will be redeemable at the option of the Company, in whole or in part, at any time on or after , 2001, at the redemption prices set forth herein, plus accrued and unpaid interest, if any, to the date of redemption. Additionally, prior to , 1999, the Company may on any one or more occasions redeem up to 33% of the aggregate principal amount of the Notes at a redemption price of % of the Accreted Value (as defined herein) thereof with the net proceeds of either (i) one or more public offerings of common stock of the Company registered under the Securities Act of 1933, as amended (the "Securities Act") or (ii) a sale by the Company of at least $25.0 million of its Capital Stock (as defined herein) to a Strategic Equity Investor (as defined herein) in a single transaction. The Notes will not be subject to any mandatory sinking fund. In the event of a Change of Control (as defined herein), each holder of the Notes will have the right, at such holder's option, to require the Company to purchase such holder's Notes at a purchase price equal to 101% of the Accreted Value thereof, plus accrued and unpaid interest, if any, to the date of any purchase prior to , 2001 or 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of any purchase on or after , 2001. See "Description of the Notes." The Notes will be senior, unsecured indebtedness of the Company, ranking pari passu in right of payment with all existing and future unsecured, unsubordinated obligations of the Company and will be senior in right of payment to all existing and future subordinated indebtedness of the Company. Although the Notes are titled "senior" securities, the Company has not issued, and does not have any current firm arrangements to issue, any significant indebtedness to which the Notes would be senior, other than the issuance of subordinated indebtedness of the Company upon the conversion of its Series A Preferred Stock. The Company is a holding company with no material assets other than the capital stock of its subsidiary. The Notes will be obligations exclusively of the Company; none of the Company's direct or indirect subsidiaries will have any obligation to pay any amounts due with respect to the Notes or to make funds available therefor. As such, the Notes will be structurally subordinated to all liabilities of the Company's subsidiaries, including trade payables, capitalized lease obligations and indebtedness that may be incurred by the Company's subsidiaries under current or future bank credit facilities. The Offering is conditioned upon the establishment by a subsidiary of the Company of a $225.0 million Credit Facility (as defined herein). At March 31, 1996, the Notes would have been structurally subordinated to approximately $76.4 million of liabilities of the Company's subsidiaries, excluding amounts available under the Credit Facility. See "Description of the Notes -- Ranking." Each Warrant will entitle the holder thereof to purchase one share of Class B Common Stock of the Company, subject to adjustment under certain circumstances, at an exercise price of $0.01 per share. The Warrants will entitle the holders thereof initially to purchase, in the aggregate, approximately 2.0% of the outstanding Common Stock of the Company as of the date hereof, on a fully-diluted basis immediately after the issuance of the Warrants. The aggregate number of Warrants set forth herein is an estimate only and is subject to change prior to issuance. The Warrants will be exercisable on or after the occurrence of an Exercise Event (as defined herein), which will be no later than , 2006, and will expire 180 days after becoming exercisable, but in any event not later than , 2006. --------------------------- FOR A DISCUSSION OF CERTAIN RISKS TO BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SECURITIES, SEE "RISK FACTORS" BEGINNING ON PAGE 11. --------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ----------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- Price to Underwriting Proceeds to Public(1) Discount(2) Company(1)(3) - ----------------------------------------------------------------------------------------------------------- Per Unit.................................... $ $ $ - ----------------------------------------------------------------------------------------------------------- Total....................................... $ $ $ - ----------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------
(1) Plus accreted original issue discount on the Notes, if any, from , 1996. (2) The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act. See "Underwriting." (3) Before deducting expenses payable by the Company estimated at $1.5 million. --------------------------- The Units offered by this Prospectus are offered by the Underwriters subject to prior sale, withdrawal, cancellation or modification of the offer without notice, to delivery to and acceptance by the Underwriters and to certain further conditions. It is expected that delivery of the Units will be made in book-entry form through The Depository Trust Company on or about , 1996. --------------------------- LEHMAN BROTHERS DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION CHASE SECURITIES INC. TORONTO DOMINION SECURITIES , 1996 4 [INSERT ARTWORK] The Indenture pursuant to which the Notes will be issued (the "Indenture") and the Warrant Agreement pursuant to which the Warrants will be issued (the "Warrant Agreement") will require the Company, and the Company intends, to distribute to the registered holders of the Notes and the registered holders of the Warrants annual reports containing audited consolidated financial statements and a report thereon by the Company's independent public accountants and quarterly reports containing unaudited condensed consolidated financial data for the first three quarters of each fiscal year. --------------------- IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS, NOTES AND WARRANTS AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. --------------------- This Prospectus includes product names and trademarks of the Company and of other organizations. 5 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and consolidated financial statements, including the notes thereto, appearing elsewhere in this Prospectus. Unless the context otherwise requires, references in this Prospectus to "PCSD" and to the "Company" refer to PCS Development Corporation and its consolidated subsidiaries. This Prospectus contains certain forward-looking statements which involve risks and uncertainties. The Company's actual results could differ materially from the results anticipated in these forward-looking statements as a result of certain of the factors set forth under "Risk Factors" and elsewhere in this Prospectus. THE COMPANY PCSD intends to become a leading provider of wireless narrowband personal communications services ("PCS") in the United States. Organized in 1994, the Company was one of only five bidders in the FCC's 1994 narrowband PCS auctions that succeeded in acquiring licenses for paired 50 kHz inbound/50 kHz outbound frequencies covering the entire United States and the U.S. territories, including Puerto Rico and the U.S. Virgin Islands (the "Licenses"). PCSD intends to employ the Licenses to offer a full array of two-way wireless advanced messaging services. These services will include stored voice and data messaging utilizing state-of-the-art InFLEXion(TM) technology developed by Motorola, Inc. ("Motorola"). The Company believes that its network, utilizing the InFLEXion(TM) technology, will have significant advantages over traditional one-way paging networks, including increased capacity, higher transmission speed and two-way capability (allowing subscriber units to signal their location to the network). This enhanced technology, in combination with the Company's nationwide coverage, will enable PCSD to offer stored voice messaging, data messaging and other services on a local, regional and nationwide basis. The Company's first service, expected to be commercially available in the second quarter of 1997, will be a stored voice messaging service. This service will allow a subscriber to receive a high quality wireless transmission of a sender's voice on a pager-like subscriber unit where the message can be stored and retrieved for later playback. No other company currently offers this or any other type of service commercially using the InFLEXion(TM) technology. Of the four other companies with licenses for nationwide 50/50 kHz PCS spectrum, only two, Paging Network, Inc. ("PageNet") and PageMart Nationwide, Inc. ("PageMart"), have announced an intention to offer stored voice messaging services. Based on industry studies and the Company's proprietary market research, management believes that stored voice messaging will be one of the most widely accepted new paging services. A 1994 study conducted by FGI, Inc., a leading wireless telecommunications market research firm ("FGI"), indicated that stored voice messaging services could ultimately achieve a 20% penetration of the U.S. population. Moreover, according to a 1995 Motorola study, approximately 84% of current paging subscribers would consider replacing their existing pager for a voice messaging unit. A subsequent, more comprehensive market research study conducted for the Company by FGI in 1996 indicated that 74% of current paging subscribers are likely (40% somewhat likely and 34% very likely) to purchase stored voice messaging at costs within the Company's anticipated price ranges. Finally, management anticipates significant demand for its voice messaging services based on the growing popularity of answering machines in U.S. households and voice mail services in office environments. See "Business -- Potential Market," "Business -- Distribution -- Pricing of Airtime and Subscriber Units" and "Certain Transactions -- Relationship with FGI." Following the commercial introduction of its stored voice messaging service, the Company also plans to introduce in 1998 enhanced InFLEXion(TM) data services. These services will allow subscribers to receive alphanumeric messages of up to several thousand characters, compared to the 80 character limit typical of one-way alphanumeric paging services available today and, eventually, will enable message recipients to initiate brief alphanumeric responses. PCSD plans to market local, regional and nationwide services initially through indirect channels by forming marketing relationships with telecommunications companies, including established paging companies that have installed customer bases but that do not have the capability to deliver over their networks the enhanced services that the Company plans to market. Unlike the other companies that acquired licenses for 3 6 nationwide 50/50 kHz PCS spectrum, PCSD does not offer one-way paging services. Consequently, the Company believes that other paging companies desiring to offer narrowband PCS services will be more likely to form marketing relationships with PCSD than with these competitors. Consistent with the Company's indirect marketing strategy, PCSD has formed marketing alliances with A+ Network, Inc. ("A+ Network") and Arch Communications Group, Inc. ("Arch Communications") (collectively, the "Paging Company Investors"), which together own 14.5% of the outstanding capital stock of the Company and have an aggregate of approximately 3 million existing subscribers. In addition, as of July 1, 1996, the Company has signed memoranda of understanding to form marketing relationships with 19 other paging companies that have an aggregate of approximately 13 million existing subscribers. These 16 million subscribers represent approximately one-half of all pagers currently in service in the United States. In addition, the Company believes that other telecommunications companies, such as cellular and long distance service providers, Enhanced Specialized Mobile Radio ("ESMR") operators and Regional Bell Operating Companies ("RBOCs"), will also distribute the Company's services together with their existing product offerings. PCSD is currently designing and constructing its nationwide narrowband PCS network, and is in the process of securing transmitter and receiver sites and purchasing network infrastructure equipment from Motorola and Glenayre Electronics, Inc. ("Glenayre"), two leading providers of paging equipment. The Company has commenced network buildout in its initial test markets, Boston and Atlanta, and anticipates that system tests will begin in the third quarter of 1996. The Company expects to have completed the buildout of its InFLEXion(TM) network in the top ten BTAs (as defined herein) by the time of the commercial introduction of the Company's stored voice messaging service, which is expected to occur in the second quarter of 1997, and to have completed its nationwide network buildout in the first quarter of 1998. To fund the acquisition of the Licenses, the buildout of its nationwide narrowband PCS network and the commercial introduction of its services, PCSD raised approximately $92.7 million in two private equity offerings, obtained relatively low-cost financing from the Federal Communications Commission ("FCC"), and is in the process of entering into the Credit Facility and issuing the Units. The Company raised $37.2 million in November 1994 from the sale of its Common Stock (as defined herein) to the Paging Company Investors and other financial partners and $55.5 million in November 1995 from the sale of Preferred Stock (as defined herein) to an investor group which was led by Chase Capital Partners (formerly Chemical Venture Partners) and which included several of the Company's initial investors. Because the Company was considered a "Small Business" for purposes of the FCC narrowband regional PCS auction, the Company is entitled to pay $72.7 million of the $90.9 million purchase price for the Licenses over ten years at a 7.5% annual interest rate (the "FCC Obligation"). See "Description of FCC Auction Benefits -- "Designated Entity" Status in FCC Narrowband PCS Regional Auction" and "Description of Other Indebtedness -- FCC Obligation." In addition, concurrently with the Offering, a subsidiary of the Company will establish a secured Credit Facility in the amount of $225.0 million. Upon completion of the Offering, the Company believes that its cash balances, together with available borrowings under the Credit Facility, will be adequate to fund the Company's expected capital expenditures necessary to complete the buildout of its nationwide narrowband PCS network, to fund debt service and working capital requirements and to fund other operating expenses until such time as the Company generates sufficient positive cash flow from operations, which is not expected to occur prior to 1999. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." PCSD's strategic objective is to become a leading provider of stored voice and data messaging services in the United States. To achieve this objective, the Company intends to offer competitively priced, easy-to-use voice and data messaging services targeted at broad market segments. Key elements of the Company's strategy include: Nationwide spectrum position. Upon acquiring the Licenses, the Company became one of only five companies with nationwide 50/50 kHz PCS spectrum, thereby positioning itself to create a nationwide network for wireless stored voice and enhanced data messaging services. The geographic scope of the system should enable the Company to achieve significant economies of scale as it attracts a large customer base by offering local, regional and nationwide messaging services. In addition, the Company purchased specialized mobile radio ("SMR") spectrum in 29 major metropolitan areas during the FCC's 4 7 900 MHz SMR auction which concluded April 15, 1996 ("SMR Auction Spectrum") and has purchased or intends to purchase from third parties SMR spectrum or options to purchase SMR spectrum in nine other metropolitan areas. Together with the Licenses, the SMR Auction Spectrum and the SMR spectrum purchased or to be purchased from third parties, the Company's network will have at least 175 kHz/175 kHz spectrum capacity in 37 of the 50 largest BTAs, including each of the top nine BTAs. Services with broad market appeal. The Company's stored voice and data messaging services will offer the low-cost, long battery life and portability advantages of current paging services. These services delivered over the Company's InFLEXion(TM) network will also offer improved functionality compared to traditional one-way paging such as high quality transmission of voice messages, confirmation of message receipt to the network, delivery of significantly longer alphanumeric messages and the initiation of brief alphanumeric responses. Established distribution channels. The Company expects to use existing distribution channels to achieve rapid market penetration and minimize marketing and selling expenses. PCSD has formed marketing relationships with established paging companies and cellular operators and plans to form marketing relationships with (i) other established paging companies that have installed customer bases, (ii) other telecommunications companies including cellular and long distance service providers, ESMR operators and RBOCs, (iii) industry "integrators" such as voice mail and e-mail system providers, interconnect dealers and computer industry value added resellers and (iv) consumer mass marketing companies including national retailers, telemarketing companies and commercial on-line services. Rapid network buildout. The Company expects to be among the first to construct a nationwide narrowband PCS network utilizing InFLEXion(TM) technology and to offer enhanced stored voice messaging services through its network on a local, regional and nationwide basis. The Company has already commenced network buildout in its initial test markets of Atlanta and Boston and expects to have completed the buildout of its network in the top ten BTAs by the time of the commercial introduction of the Company's stored voice messaging service, which is expected to occur in the second quarter of 1997. The Company plans to complete its nationwide network buildout in the first quarter of 1998. Low-cost provider. PCSD's network operation, marketing strategy and administrative structure have been designed to support the Company's efforts to be a low cost provider of its services. Management expects that the capacity benefits of its nationwide network and its use of Motorola's state-of-the-art InFLEXion(TM) technology will reduce its cost per unit of network capacity compared to traditional one-way networks. PCSD also expects its indirect distribution strategy to reduce the costs associated with recruiting, training, compensating and managing a large in-house marketing and sales staff. The Company will seek to control administrative costs through a combination of centralized network management, customer service, billing, credit, collections and accounting. The Company has assembled an experienced management team to execute its business strategy. Members of the senior management team have held managerial positions with leading wireless telecommunications companies, including AT&T Corp. ("AT&T"), Dial Page Inc. ("Dial Page"), GeoTek Communications, Inc. ("GeoTek"), MCI Communications, Inc. ("MCI"), Mobile Communications Corporation of America ("MobileComm"), Motorola, PageNet, RAM Mobile Data, Inc. ("RAM Mobile Data"), SkyTel Corporation ("SkyTel"), Sprint Corporation ("Sprint") and USA Mobile Communications Holdings, Inc. ("USA Mobile"). PCSD's executive team brings to the Company extensive experience in the development, design and manufacture of wireless products, the construction and operation of wireless networks and the sale and marketing of wireless services. The Company's principal executive offices are located at 15 South Main Street, Suite 810, Greenville, South Carolina 29601, and its telephone number is (864) 235-0940. 5 8 THE OFFERING THE UNITS Securities Offered......... Units consisting of $ aggregate principal amount at maturity of % Senior Discount Notes due 2006 and Warrants to purchase shares of Class B Common Stock. Each Unit consists of $1,000 principal amount at maturity of Notes and Warrants to purchase shares of Class B Common Stock. Separability............... The Notes and the Warrants will not be separately transferable until the Separability Date (as defined herein), which shall be no later than , 1996. Use of Proceeds............ The net proceeds from the Offering are estimated to be $157.7 million and will be used, together with borrowings under the Credit Facility and existing cash, principally to fund capital expenditures in connection with the buildout of the Company's nationwide PCS network, including the acquisition of additional radio spectrum, to fund debt service requirements, operating expenses, and for working capital and general corporate purposes. See "Use of Proceeds." THE NOTES Notes Offered.............. $ aggregate principal amount at maturity ($165.0 million initial Accreted Value) of % Senior Discount Notes due 2006. Maturity Date.............. , 2006. Yield and Interest Rate.... % per annum (computed on a semi-annual bond equivalent basis) calculated from , 1996. No interest will accrue on the Notes prior to , 2001. Commencing , 2001, interest on the Notes will accrue at the rate of % per annum and will be payable in cash semi-annually on and , commencing , 2002 to holders of record on the immediately preceding and . See "Description of the Notes -- General." Optional Redemption........ The Notes will be redeemable, in whole or in part, at the option of the Company at any time on or after , 2001, at the redemption prices set forth herein plus accrued and unpaid interest, if any, to the date of redemption. Additionally, prior to , 1999, the Company may redeem up to 33% of the aggregate principal amount of the Notes at a redemption price of % of the Accreted Value (as defined herein) thereof, with the net proceeds of either (A) one or more public offerings of Common Stock (as defined in the Indenture) of the Company or (B) a sale by the Company of at least $25.0 million of its Capital Stock (as defined herein) to a Strategic Equity Investor (as defined herein) in a single transaction; provided in each case that at least 67% of the original aggregate principal amount of the Notes remains outstanding immediately after the occurrence of any such redemption. See "Description of the Notes -- Optional Redemption." Mandatory Redemption....... None. 6 9 Ranking.................... The Notes will be senior, unsecured indebtedness of the Company, ranking pari passu in right of payment with all existing and future unsubordinated unsecured indebtedness of the Company and senior in right of payment to all existing and future subordinated indebtedness of the Company. Although the Notes are titled "senior" securities, the Company has not issued, and does not have any current firm arrangements to issue, any significant indebtedness to which the Notes would be senior, other than the issuance of subordinated indebtedness of the Company upon conversion of the Series A Preferred Stock. The Company is a holding company with no material assets other than the shares of stock of its direct wholly-owned subsidiary. The Notes will be obligations exclusively of the Company; none of the Company's direct and indirect subsidiaries will have any obligation to pay any amounts due with respect to the Notes or to make funds available therefor. As such, the Notes will be structurally subordinated to all liabilities of the Company's direct and indirect subsidiaries, including trade payables, capitalized lease obligations and indebtedness that may be incurred by the Company's subsidiaries under current or future bank credit facilities. At March 31, 1996, the Notes would have been structurally subordinated to approximately $76.4 million of liabilities of the Company's subsidiaries, excluding amounts available under the Credit Facility. Although the Indenture under which the Notes will be issued (the "Indenture") contains certain covenants which limit the ability of the Company and its subsidiaries to take certain actions, these covenants permit the Company and its subsidiaries, in certain circumstances, to incur additional indebtedness and to grant liens on certain assets. See "Risk Factors -- Holding Company Structure; Structural Subordination of the Notes," "Description of the Notes -- Ranking" and "Description of the Notes -- Covenants." Change of Control.......... In the event of a Change of Control (as defined herein), the holders of the Notes will have the right to require the Company to purchase their Notes, in whole or in part, at a price equal to 101% of the Accreted Value thereof, together with accrued and unpaid interest, if any, to the date of any purchase prior to , 2001 or 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of any purchase on or after , 2001. See "Description of the Notes -- Repurchase of Notes upon a Change of Control." Certain Covenants.......... The Indenture will contain certain covenants that, among other things, will limit the ability of the Company and its Restricted Subsidiaries (as defined herein) to incur indebtedness, pay dividends, make investments or other Restricted Payments (as defined herein), issue or sell stock of Restricted Subsidiaries, restrict the ability of Restricted Subsidiaries to pay dividends to the Company, engage in transactions with shareholders and affiliates, create liens, sell assets, undertake sale and leaseback transactions and engage in mergers and consolidations. All of these limitations, however, are subject to a number of important qualifications and exceptions. The term Restricted Subsidiaries will include all of the Company's subsidiaries on the date hereof. See "Corporate Reorganization and Structure" and "Description of the Notes -- Covenants." 7 10 Original Issue Discount................. The Notes will be issued at a substantial discount from their principal amount and consequently will be issued at an Original Issue Discount for federal income tax purposes. Consequently, purchasers of the Notes generally will be required to include amounts in gross income for federal income tax purposes in advance of receipt of the cash payments attributable to such income. See "Certain Federal Income Tax Considerations." Book-Entry; Delivery and Form................. The Notes will initially be issued in the form of one or more Global Notes held in book-entry form. The Global Notes will be deposited with or on behalf of The Depository Trust Company and registered in the name of Cede & Co., as nominee thereof. See "Description of the Notes -- Book-Entry; Delivery and Form." For additional information concerning the Notes, see "Description of the Notes." THE WARRANTS Securities Offered......... Warrants which entitle the holders thereof to acquire shares of Class B Common Stock (the "Warrant Shares"). Upon consummation of the Offering, the Class B Common Stock issuable upon exercise of the Warrants collectively will represent approximately 2.0% of the Company's outstanding Class A Common Stock and Class B Common Stock (collectively, the "Common Stock") on a fully-diluted basis. The aggregate number of Warrants is an estimate only and is subject to change prior to issuance. Holders of the Company's Class B Common Stock are not entitled to vote at any meeting of stockholders for the election of directors. The holders of the Company's Class A Common Stock are entitled to elect 16 of the 17 members of the Company's Board of Directors and, therefore, exert substantial control over matters that are subject to the discretion of the Board of Directors. However, shares of Class B Common Stock may be exchanged for an equal number of shares of Class A Common Stock immediately upon and after the consummation of an Initial Public Offering (as defined herein). See "Description of Capital Stock." Registration Rights........ Following an Exercise Event (as defined herein), holders of the Warrant Shares will be entitled to certain demand registration rights. Holders of Warrant Shares will also have the right to include such Warrant Shares in any registration statement under the Securities Act filed by the Company (other than a registration statement on Form S-4 or S-8) for sale on the same terms and conditions as the securities of the Company or any other selling securityholder included therein. The foregoing rights will be set forth in the Warrant Registration Rights Agreement between the Underwriters and the Company and will be subject to certain conditions and other provisions. Separation of Notes and Warrants; Exercise... The Warrants will not be transferred separately from the Notes prior to the Separability Date. The "Separability Date" shall be the earliest of (i) , 1996, (ii) such earlier date as may be determined by Lehman Brothers Inc., (iii) the occurrence of a Change of Control and (iv) in the event of an Offer to Purchase in connection with any Asset 8 11 Sale (each as defined herein), the date the Company mails notice thereof to the holders of the Notes, at which time the Notes and the Warrants will become separately transferable. Each Warrant will entitle the holder thereof to purchase one share of Class B Common Stock, subject to adjustment upon the occurrence of certain events, at an exercise price of $0.01 per share. The Warrants will be exercisable upon the occurrence of an Exercise Event, which shall occur on the earliest of (1) the occurrence of a Change of Control (as defined under "Description of the Warrants"), (2) the consummation of a Public Equity Offering (as defined herein) after which there shall exist a Public Market (as defined herein) and (3) , 2006. See "Description of the Warrants." Expiration Date............ The Warrants will expire 180 days after becoming exercisable, but in any event not later than , 2006. Offer to Repurchase........ Upon the occurrence of an Exercise Event, the Company shall have the right to make an offer to purchase all outstanding Warrants and Warrant Shares in cash at a price equal to the Current Market Value (as defined herein) thereof. For additional information concerning the Warrants, see "Description of the Warrants." For additional information concerning the Class B Common Stock, see "Description of Capital Stock." 9 12 SUMMARY CONSOLIDATED FINANCIAL DATA The following table presents summary consolidated financial data for the Company as of the dates and for the periods indicated. The consolidated financial data as of December 31, 1994 and 1995 and for the period from September 21, 1994 (date of incorporation) to December 31, 1994 and for the year ended December 31, 1995 were derived from the audited consolidated financial statements of the Company. The consolidated financial data for the Company as of March 31, 1996 and for the three months ended March 31, 1995 and 1996 have been derived from unaudited consolidated financial statements of the Company. In the opinion of management of the Company, such unaudited consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements referred to above and include all adjustments necessary for a fair presentation of the financial information for the interim periods. Results of operations for the three months ended March 31, 1996 are not necessarily indicative of the results to be expected for fiscal 1996. The following data should be read in conjunction with "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the Company's consolidated financial statements and related notes thereto included elsewhere in this Prospectus.
PERIOD FROM THREE MONTHS ENDED SEPTEMBER 21, 1994 MARCH 31, (DATE OF INCORPORATION) YEAR ENDED ------------------------ TO DECEMBER 31, 1994 DECEMBER 31, 1995 1995 1996 ------------------------ ----------------- --------- ---------- STATEMENT OF OPERATIONS DATA: Operating expenses: Sales and marketing.......... $ -- $ 796,100 $ -- $ 756,041 Administrative............... 394,918 1,922,163 317,659 1,236,390 Depreciation................. -- 137,374 472 73,217 Amortization................. 4,058 19,479 4,869 4,869 ------------------------ ----------------- --------- ---------- 398,976 2,875,116 323,000 2,070,517 Interest income(1)............. (23,873) (794,405) (132,613) (414,944) ------------------------ ----------------- --------- ---------- Net loss....................... $ 375,103 $ 2,080,711 $ 190,387 $1,655,573 ================= ============= ========= ========= Net loss per common share(2)... $ 10.08 $ 77.34 $ 5.12 $ 81.96 Ratio of earnings to fixed charges(3)................... -- -- -- --
MARCH 31, 1996 DECEMBER 31, ----------------------------- ---------------------------- AS 1994 1995 ACTUAL ADJUSTED(4) ----------- ------------ ------------ ------------ BALANCE SHEET DATA: Current assets..................... $ 786,913 $ 26,783,944 $ 30,882,887 $188,582,887 Total assets....................... 10,053,954 126,698,359 142,099,425 307,099,425 Total debt(5)...................... -- 73,801,260 74,100,260 239,100,260 Redeemable convertible preferred stock............................ -- 23,112,325 40,107,923 40,107,923 Stockholders' equity............... 9,563,413 28,658,705 25,623,931 25,623,931
- --------------- (1) Includes interest income from a related party of $22,190, $526,075, $102,867 and $77,308 for the period from September 21, 1994 (date of incorporation) to December 31, 1994, for the year ended December 31, 1995 and for the three months ended March 31, 1995 and 1996, respectively. See "Certain Transactions." (2) Net loss attributable to common stockholders of $2,876,910 for the year ended December 31, 1995 and $3,048,921 for the three months ended March 31, 1996 includes accretion of preferred stock dividends of $796,199 and $1,393,348, respectively. (3) Earnings were insufficient to cover fixed charges by $375,103, $7,725,587, $929,008 and $4,435,788 for the period from September 21, 1994 (date of incorporation) to December 31, 1994, for the year ended December 31, 1995 and for the three months ended March 31, 1995 and 1996, respectively. The ratio of earnings to fixed charges is calculated by adding (i) earnings (loss) before income taxes plus (ii) fixed charges, with the resulting sum divided by fixed charges. Fixed charges consist of interest on all indebtedness, accretion of preferred stock dividends, amortization of debt issuance costs, plus that portion of operating lease rentals representative of the interest factor. (4) As adjusted to give effect to the application of the estimated net proceeds of the Offering prior to allocating the portion of the proceeds of the Offering attributable to the Warrants. See "Use of Proceeds" and "Capitalization." (5) Includes $418,582 and $338,062 at December 31, 1995 and March 31, 1996, respectively, classified as current portion of long-term debt. 10 13 RISK FACTORS In addition to the other information in this Prospectus, the following factors should be considered carefully in evaluating an investment in the Units offered hereby. FUTURE OPERATING LOSSES; NET CASH USED IN OPERATING ACTIVITIES The Company is a development stage company in a new segment of the wireless telecommunications industry. It owns five regional narrowband PCS licenses on the same frequency, having acquired those licenses in an FCC auction. The Company is now developing a nationwide narrowband PCS wireless network and it plans to offer wireless stored voice and data messaging services through existing wireless messaging providers and other channels. At the date of this Prospectus, however, the Company has not commenced commercial operation. From its incorporation in 1994 through March 31, 1996, the Company experienced operating losses and used net cash in operating activities of approximately $5.3 million and $2.6 million, respectively. The Company expects that during the buildout of its nationwide network and as it seeks market penetration it will continue to experience operating losses and negative operating cash flow at or greater than historical levels. The ability to generate positive net income and operating cash flow in the future is dependent upon many factors, including general economic conditions, the timely completion of the Company's network buildout, the level of market acceptance for the Company's services and the degree of competition encountered by the Company. There can be no assurance when or if the Company will generate positive operating cash flow or net income. See "Business -- General," "Business -- Paging Industry Overview" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." IMPLEMENTATION OF NARROWBAND PCS NETWORK SUBJECT TO RISKS OF DEVELOPING TECHNOLOGY Much of the technology that the Company intends to use in its nationwide narrowband PCS network to deliver wireless stored voice and data messaging services is still undergoing development. While the switches, transmitters and receivers will be similar to the equipment used in traditional one-way paging, the InFLEXion(TM) technology and the TENOR(TM) voice messaging unit that the Company plans to use have never been placed in commercial operation and are still being tested. There can be no assurance that this technology will be able to deliver to subscribers marketable wireless stored voice and data messaging services. In addition, delayed delivery of new technology is not uncommon in the telecommunications industry. There can be no assurance that the Company's suppliers will be able to meet their test completion and delivery target dates for the Company's InFLEXion(TM) infrastructure equipment or TENOR(TM) voice messaging units. To the extent that technologies required to deliver these services over the Company's InFLEXion(TM) network are unavailable within the time frames anticipated by management, the commercial introduction of the Company's services will be delayed, adversely affecting the Company's financial condition and results of future operations. The Company, its distribution partners or their respective subscribers also might experience technical problems with the system infrastructure or with other hardware or software, including subscriber units, once the Company's system is operational. Such problems might discourage customers from using the Company's services. Extreme problems might require a subscriber unit recall, the cost of which might be substantial and might be absorbed in whole or in part by the Company. While management believes that the Company's suppliers have strong incentives to supply the Company in a timely fashion with reliable technology and equipment, the Company does not control the performance of its vendors. Any such untimely delivery or unreliable equipment could adversely impact the commercial introduction of the Company's services. See "Business -- Network Buildout." NETWORK BUILDOUT The Company is engineering and designing its own network. Part of this process involves identification of the optimal number of sites to transmit and receive signals necessary to deliver marketable quality voice and data messaging services. In this identification process, known as radio frequency ("RF") propagation analysis, engineers utilize computer software programs to analyze terrain, topography, building penetration, population concentrations and other factors. Once sites are identified in the network design process, the Company must 11 14 secure leases for the sites upon which it will install antennae, transmitters, receivers and other infrastructure equipment. The site acquisition process requires the negotiation of site leases and verification by the Company that the site owner has obtained the necessary governmental approvals and permits. There is a limited number of attractive telecommunications sites, particularly in large metropolitan areas. There can be no assurance that the Company will be able to secure leases for the sites necessary to construct and operate its network within its budgeted time frames and costs. In addition to site identification and acquisition, the implementation of the Company's PCS network will require equipment installation and systems testing. Each stage involves various risks and contingencies, many of which are not within the control of the Company and all of which could adversely affect the implementation of the Company's proposed PCS network should there be delays or other problems. See "Business -- Strategy," "Business -- Distribution" and "Business -- Network Buildout." UNPROVEN MARKET; DEPENDENCE ON OTHERS FOR MARKETING The services that the Company intends to offer have not yet been marketed to the public. With respect to sales of both voice and data services, the Company intends to target broad market segments with diverse messaging requirements by providing easy-to-use services at reasonable prices on a local, regional and nationwide basis. The potential markets for these services include corporate users, business travelers, portable personal computer users and household consumers. The Company will employ a variety of direct and indirect distribution channels to market and sell its PCS services. To speed marketing and sales and quickly build a broad customer base, the Company intends initially to distribute its PCS services through its Paging Company Investors and other distribution partners, which in the aggregate have a significant installed customer base. The final terms of these arrangements have not yet been negotiated, although the Company's Common Stockholders Agreement (as defined herein) with the Paging Company Investors requires them to enter into exclusive distribution agreements with the Company with respect to those narrowband PCS services which such Paging Company Investors desire to purchase, provided such services are competitive in price and quality with similar services that may be available from others. Failure to negotiate acceptable arrangements, to identify additional distribution partners or to provide services to the Paging Company Investors on terms competitive in price and quality with similar services that may be available from others could adversely affect the Company's financial condition and results of future operations. See "Business -- Distribution." INDEBTEDNESS OF THE COMPANY; HIGH DEGREE OF LEVERAGE After giving effect to the issuance of the Notes, the Company will have a substantial amount of indebtedness outstanding. After giving effect to the Offering, at March 31, 1996, total consolidated long-term indebtedness of the Company would have been approximately $238.8 million, representing approximately 78.4% of the Company's total capitalization. See "Capitalization." In addition, the accretion of original issue discount on the Notes will cause an increase in indebtedness of $141.1 million by , 2001 (assuming an interest rate of 12.75% on the Notes). The Company's subsidiaries also may incur up to $225.0 million of indebtedness under the Credit Facility, subject to the Company's compliance with certain specified financial and operating covenants. The ability of the Company and its subsidiaries to make payments of principal and interest will be largely dependent upon its future performance. Such performance can be subject to many factors, some of which will be beyond the Company's control, such as prevailing economic conditions. There can be no assurance that the Company will be able to generate sufficient cash flow to cover required interest and principal payments. The level of the Company's indebtedness also could have other adverse consequences to holders of the Notes including the effect of such indebtedness on: (i) the Company's ability to fund internally, or obtain additional debt or equity financing in the future for, capital expenditures, acquisitions, working capital, operating losses and other purposes; (ii) the Company's flexibility in planning for, or reacting to, changes to its business and market conditions; (iii) the Company's ability to compete with less highly leveraged competitors; and (iv) the Company's financial vulnerability in the event of a downturn in its business or the general economy. See "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Description of Other Indebtedness -- The Credit Facility" and "Description of the Notes." 12 15 HOLDING COMPANY STRUCTURE; STRUCTURAL SUBORDINATION OF THE NOTES The Notes will be obligations exclusively of the Company. The Company is a holding company with no material business operations, sources of income or assets of its own other than the shares of its wholly-owned direct subsidiary PCSD Financial Corp. Upon completion of the Offering, the Company's operations will be conducted through its wholly-owned indirect subsidiaries. The Company's cash flow and, consequently, its ability to meet its debt service obligations, including payments of principal of, premium, if any, and interest on the Notes, is dependent upon the cash flow of the Company's subsidiaries and the payment of funds by the subsidiaries to the Company in the form of loans, dividends, fees or otherwise. The Company's subsidiaries are separate and distinct legal entities and will have no obligation, contingent or otherwise, to pay any amounts due pursuant to the Notes or to make any funds available therefor, whether in the form of loans, dividends or otherwise. Because the subsidiaries will not guarantee the payment of principal of or interest on the Notes, any right of the Company to receive assets of its subsidiaries upon their liquidation or reorganization (and the consequent right of the holders of the Notes to participate in the distribution of proceeds from those assets) will be structurally subordinated to the claims of such subsidiaries' creditors (including tax authorities, trade creditors and lenders). As of March 31, 1996, after giving effect to the Reorganization, as defined herein, the Company's subsidiaries had approximately $76.4 million of indebtedness and other liabilities outstanding, all of which would have been structurally senior to the Notes. Upon completion of the Offering, the Company's subsidiaries also will have approximately $75.0 million of immediate availability under the Credit Facility, and, upon the achievement and maintenance by the Company of certain operating results and financial ratios, the Company's subsidiaries will have an additional $150.0 million of availability under the Credit Facility, all of which will be structurally senior to the Notes. The Credit Facility will limit the ability of the Company's subsidiaries to pay dividends or make distributions to the Company. In addition, although the Indenture limits the ability of the Company and its subsidiaries to incur additional indebtedness and to enter into new agreements that restrict their ability to pay dividends or make or repay loans or other payments to the Company, the subsidiaries will be able to incur substantial additional indebtedness and will likely do so pursuant to the Credit Facility. See "Corporate Reorganization and Structure" and "Description of the Notes." In addition, the Notes will not be secured by any of the Company's assets. The obligations of the Company's subsidiaries under the Credit Facility will be secured by a first priority security interest on equipment purchased from Glenayre and other vendors, an equal and ratable pledge of all capital stock of PCSD Financial Corp.'s three subsidiaries, and all accounts receivable, inventory and subscriber contracts of PCSD Network, Inc. If the Company becomes insolvent or is liquidated, or if payment under the Credit Facility is accelerated, the lenders under the Credit Facility would be entitled to exercise the remedies available to a secured lender under applicable law and pursuant to the terms of the Credit Facility. Accordingly, any claims of such lenders with respect to such assets and pledged shares will be prior to any claim of the holders of the Notes with respect to such assets and pledged shares. See "Corporate Reorganization and Structure" and "Description of Other Indebtedness -- The Credit Facility." SUBSTANTIAL CAPITAL REQUIREMENTS; RESTRICTIONS IMPOSED BY LENDERS Borrowings under the Credit Facility and the proceeds of the Offering will be used to purchase infrastructure equipment, to fund capital expenditures (including the possible acquisition of additional radio spectrum), to fund debt service requirements and for working capital and general corporate purposes. The Company believes that the proceeds of the Offering and the availability under the Credit Facility together with the Company's existing cash will be sufficient to fund the construction of the Company's network, the acquisition of radio spectrum currently under contract or purchased at auction and operating losses until the Company generates sufficient positive cash flow from operations. Given the risks in an undertaking of this nature and scale, no assurance can be given that actual cash requirements will not materially exceed the Company's estimated capital requirements and available capital. Moreover, the Company's ability to access the total availability of the Credit Facility is dependent on maintaining certain specified financial and operating covenants, which might not occur. Thus, despite these arrangements, there can be no assurance that the Company will have sufficient funds to finance the continued development of the Company's network buildout and operations. In addition, the amount of capital required will depend upon a number of factors, 13 16 including capital costs, growth in the number of subscribers, technological developments, marketing and sales expense, competitive conditions and the need for additional spectrum. No assurance can be given that, in the event the Company were to require additional financing, such additional financing would be available to the Company or available on terms satisfactory to the Company. The Credit Facility contains financial and operating covenants including, among other things, requirements that the Company maintain certain financial ratios and satisfy certain financial tests and limitations on the Company's ability to incur other indebtedness, pay dividends, engage in transactions with affiliates, sell assets and engage in mergers and consolidations and other acquisitions. If the Company fails to comply with these covenants, the lenders under the Credit Facility will be able to accelerate the maturity of the applicable indebtedness. See "Managements Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources," "Description of Other Indebtedness -- The Credit Facility" and "Description of the Notes." COMPETITION AND TECHNOLOGICAL CHANGE Competition in the wireless telecommunications industry is becoming increasingly intense. The Company will face competition for its services from other narrowband PCS service providers and, to a lesser extent, from broadband PCS, ESMR, cellular, paging and other operators. In addition, competition could come from certain voice mail applications offered by broadband PCS and cellular providers. Other companies, including AT&T, PageNet, Mobile Telecommunications Technologies Corp. ("Mtel") and PageMart have acquired, and will acquire, narrowband PCS licenses in FCC auctions. Accordingly, the Company will face direct competition in all of the markets in which it intends to operate. The presence of multiple direct competitors in some or all of the Company's markets could result in price reductions for its services, which may adversely affect its financial condition and results of future operations. The industry includes major telecommunications companies, including long distance carriers AT&T, Sprint and MCI, national and regional paging companies and RBOCs. Most of these companies have much greater resources than the Company, have been in operation for many years and have large subscriber bases. Such companies may be able to offer wireless service to customers at prices below those offered by the Company. The Company understands that Motorola has an agreement with PageNet pursuant to which Motorola has agreed to refrain from delivering its TENOR(TM) voice subscriber units for commercial use to customers other than PageNet until six months after Motorola commences commercial production of the units. Consequently, the Company's commercial introduction of TENOR(TM) voice subscriber units in Atlanta, Boston and other markets could be delayed if such markets are ready for commercial service prior to the expiration of Motorola's agreement with PageNet. A variety of wireless two-way communication technologies are under development and could result in increased competition for the Company. There can be no assurance that additional competitors will not enter markets that the Company plans to serve or that the Company will be able to withstand the competition. Moreover, changes in technology could lower the cost of competitive services to a level where the Company's services would become less competitive or where the Company would need to reduce its service prices in order to remain competitive. See "Business -- Competition." RELIANCE ON LIMITED NUMBER OF SUPPLIERS The InFLEXion(TM) infrastructure equipment that the Company intends to purchase is manufactured only by Motorola and Glenayre. As a result, the Company will rely exclusively on Motorola and Glenayre for the manufacture of a substantial portion of the equipment necessary to construct its narrowband PCS network. The Company's ability to develop, construct and implement its network on the Company's projected schedule may be adversely affected by Motorola's and Glenayre's development, manufacturing and delivery capabilities. Motorola is the only manufacturer of the subscriber equipment necessary to deliver stored voice messaging services over the Company's InFLEXion(TM) network. While Motorola has agreed to negotiate to enter into licenses with at least one alternative manufacturer of subscriber equipment, there can be no assurance that 14 17 alternate suppliers of subscriber equipment will be available in the future. The limited number of suppliers for equipment crucial to the delivery of the Company's services makes the Company vulnerable to development, manufacturing and delivery delays, as well as to the lack of competitive pricing. See "Business -- Network Buildout." POTENTIAL LOSS OF FCC FINANCING AND BIDDING CREDITS Because the Company qualified as a "Designated Entity" satisfying the requirements for a "Small Business" and a "Business Owned by Members of Minority Groups and/or Women" at the time of the FCC's narrowband PCS regional auction, the Company received bidding credits of approximately $60.6 million toward its purchase of the Licenses in the auction and became entitled to pay 80% of the $90.9 million net purchase price for the Licenses over ten years at a 7.5% annual interest rate, with no payment of principal for the first two years. If prior to February 3, 2000 the Company ceases to satisfy the criteria applicable to a Business Owned by Members of Minority Groups and/or Women or transfers control of the Licenses to an entity which does not qualify as such, then the Company may be required to pay to the FCC some or all of the $60.6 million in bidding credits it received. If prior to February 3, 2005, the Company transfers control of the Licenses to an entity which does not satisfy the Small Business criteria applicable in the narrowband PCS auction, the Company may be required to prepay its installment obligation for the Licenses to the FCC. In addition, if the Company effects an Initial Public Offering (as defined in the Common Stockholders Agreement) prior to these dates, unjust enrichment payments to the FCC may be due and installment treatment may be lost unless the Company obtains a waiver from the FCC. There can be no assurance that such a waiver can be obtained. See "Principal Stockholders" and "Description of FCC Auction Benefits -- "Designated Entity" Status in FCC Narrowband PCS Regional Auction." In order to be considered a Designated Entity in the narrowband PCS regional auction, the Company was required to have a properly constituted "Control Group" that owned 50.1% of the voting interests and 25% of the equity interests in the Company. See "Description of FCC Auction Benefits -- "Designated Entity" Status in FCC Narrowband PCS Regional Auction." The Company's Control Group currently consists of Sloan Communications, Inc. ("SCI"), Sloan PCS Limited Partnership ("Sloan LP"), Dobson Family Corp. and the Sullivan Family Revocable Trust. Upon the issuance of the Company's Series A Preferred Stock, the Control Group's equity interest was diluted from approximately 26% to approximately 14.98%, and thus the Company ceased to satisfy the 25% equity ownership requirement for Designated Entity status. Upon the issuance of the Units, the Control Group's equity interest will be diluted to approximately %. In conjunction with the sale of the Company's Series A Preferred Stock, the Company received the opinion of its special FCC counsel, Lukas McGowan Nace and Gutierrez, Chartered ("Lukas McGowan"), that, based upon a ruling obtained from the FCC staff, the dilution of the Control Group's total equity interest in the Company as a result of the issuance of the Series A Preferred Stock would not result in the loss of financial benefits that accrued to the Company due to its status as a "Designated Entity" in the narrowband PCS regional auction. In connection with the issuance of the Units, the Company has received the opinion of Lukas McGowan that the dilution of the Control Group's equity interest as a result of the issuance and exercise of the Warrants will not result in the loss of the financial benefits that have accrued to it as a Designated Entity in the narrowband PCS regional auction and that after the issuance of the Units the Company will continue to be eligible for such benefits. The Company does not, however, intend to seek a ruling from the FCC staff on the dilution issue in connection with the issuance of the Units. Both the FCC staff ruling obtained in connection with the sale of the Series A Preferred Stock and the opinions of counsel are subject to certain conditions and qualifications, including the conditions that the Control Group continue to own 50.1% of the Company's voting rights and that no investor outside of the Control Group own more than 25% of the total equity, or more than 15% of the voting equity of the Company. Neither the FCC staff ruling nor the opinions of counsel are binding on the FCC. There can be no assurance that the FCC will not successfully contend that the dilution of the Control Group's equity ownership in the Company in connection with the sale of the Series A Preferred Stock or the issuance of the Units has caused the Company to cease to qualify for the bidding credits and installment payment right it received upon acquisition of the Licenses in the narrowband PCS regional auction. The Common Stockholders Agreement prohibits the transfer of stock of 15 18 the Company, requires each stockholder of the Company to prohibit its stockholders or owners from transferring their interests in such stockholder, and prohibits the exercise of any other rights under the Common Stockholders Agreement if the Company's Designated Entity status would be adversely affected. While the Company believes that it has adequate legal restrictions to ensure a properly constituted Control Group consistent with the FCC staff ruling and opinions of counsel, it is possible that the Company could cease to have a properly constituted Control Group with the result that the Company would no longer qualify for the bidding credits and the installment payment right it received upon the acquisition of the Licenses in the narrowband PCS regional auction. See "Description of FCC Auction Benefits -- "Designated Entity" Status in FCC Narrowband PCS Regional Auction." In addition to the Licenses, the Company was the winning bidder for specialized mobile radio ("SMR") frequencies in 29 metropolitan areas in the FCC's 900 MHz auction completed on April 15, 1996 (the "SMR Auction Spectrum"). Because the Company qualified as a "Small Business" under the SMR auction criteria, it will be allowed a 10% bidding credit ($1.1 million) and be entitled to pay 90% of the $9.7 million net purchase price over ten years with interest at the 10-year Treasury note rate plus 250 basis points, with no payment of principal for the first two years. The Company anticipates that licenses for its SMR Auction Spectrum will be granted in July 1996. If the Company assigns or transfers control of its SMR Auction Spectrum to an entity not meeting the Small Business criteria applicable in the SMR auction within five years of the date of grant, it will be subject to unjust enrichment payments with respect to its bidding credit and installment financing for the SMR Auction Spectrum. See "Description of FCC Auction Benefits -- "Small Business" Status in FCC 900 MHz SMR Auction." In the event the Company were to lose the favorable financing terms provided by the FCC, any refinancing thereof at market rates may have a material adverse effect on the Company's financial condition and results of future operations. The Company may participate in the upcoming FCC narrowband PCS MTA/BTA auction. Although it is unlikely that the FCC will provide any financial benefits based upon race or gender classification, the Company currently anticipates that it may qualify for bidding credits and be permitted to pay for spectrum acquired at such auction on the installment basis by virtue of the Company's status as a "Small Business." There can be no assurance, however, that bidding credits or installment payments will be available to the Company. See "Business -- Spectrum" and "Description of FCC Auction Benefits -- Status in Future FCC Narrowband PCS MTA/BTA Auction." FCC DEBT OBLIGATIONS Because the Company qualified as a "Designated Entity" satisfying the FCC's requirements for a "Small Business" and a "Business Owned by Members of Minority Groups and/or Women" at the time of the FCC's narrowband PCS regional auction, the Company received bidding credits of approximately $60.6 million toward its purchase of the Licenses in the auction and became entitled to pay 80% of the $90.0 million net purchase price for the Licenses through two 10% deposits that were made in late 1994 and early 1995, with the balance payable to the FCC over ten years at a 7.5% annual interest rate, with no payment of principal the first two years (the "FCC Obligation"). At March 31, 1996, the FCC Obligation was $72.7 million. In the event that the Company becomes unable to make its payments under the FCC Obligation, the FCC could take a variety of actions, including requiring immediate repayment of all amounts under the FCC Obligation, repayment of some or all of the $60.6 million in bidding credits the Company received, revoking the Company's Licenses and/or fining the Company. There can be no assurance that the Company will be able to make its payments under the FCC Obligation or, in the event the Company fails to make such payments, that the FCC will not take the actions described above. See also "-- Potential Loss of FCC Financing and Bidding Credits," "-- Government Regulation; Possible Loss of Licenses," "Description of FCC Auction Benefits" and "Description of Other Indebtedness -- FCC Obligation." 16 19 GOVERNMENT REGULATION; POSSIBLE LOSS OF LICENSES The Company and the wireless telecommunications industry are subject to federal, state and local legislation, as well as regulations promulgated by the FCC and various state and municipal regulatory agencies, with respect to licensing, service standards, land use and other matters. There can be no assurance that governmental authorities will not propose or adopt legislation or regulations that would have a materially adverse impact on the financial condition, results of future operations or business prospects of the Company. Under existing FCC regulations, nationwide narrowband PCS licensees are generally required, at the risk of license forfeiture, to construct networks that serve 37.5% of the U.S. population within five years of the initial license grant date (February 3, 2000, in the case of the Company) and serve 75% of the U.S. population within ten years of the license grant date (February 3, 2005, in the case of the Company). The Company's network buildout plan anticipates that these requirements will be met well in advance of such dates, but such compliance cannot be assured. Under existing regulations, operating licenses are issued for ten-year terms, subject to renewal by application upon expiration of their initial terms. Renewal is not automatic, although current FCC regulations provide that renewal applications may be denied only for specific causes. The exercise of the Warrants (and the ownership of Class B Common Stock issuable upon the exercise thereof) may also be limited by the Company in order to ensure compliance with the FCC's rules and regulations, and the Warrants will not be exercisable by any holder if such exercise would cause the Company to be in violation of the Communications Act of 1934, as amended (the "Communications Act") or the FCC rules. See "Regulation." SUBSTANTIAL DISCRETION OF MANAGEMENT CONCERNING USE OF PROCEEDS The Company has allocated approximately $115.1 million of the net proceeds of this Offering for specific purposes, with the remainder of approximately $42.6 million to be used for operating expenses, working capital and general corporate purposes. Accordingly, management will have substantial discretion in spending a large percentage of the proceeds to be received by the Company. See "Use of Proceeds." LIMITED VOTING RIGHTS OF CLASS B STOCKHOLDERS If an Exercise Event occurs prior to the Company's consummation of a Public Equity Offering (as defined in the Warrant Agreement), the Warrants will be exercisable to purchase shares of the Company's Class B Common Stock. Holders of the Company's Class B Common Stock are not entitled to vote at any meeting of stockholders for the election of directors. The holders of the Company's Class A Common Stock are entitled to elect a majority of the Company's Board of Directors and, therefore, exert substantial control over matters that are subject to the discretion of the Board of Directors. Upon an Initial Public Offering (as defined in the Common Stockholders Agreement), the holders of the Class B Common Stock may exchange their Class B Common Stock for an equal number of shares of Class A Common Stock. See "Description of Capital Stock -- Common Stock." ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE RESTATED CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE LAW Certain provisions of the Company's Restated Certificate of Incorporation and Bylaws, as amended, as well as provisions of the Delaware General Corporation Law, may have the effect of delaying or preventing transactions involving a change of control of the Company, including transactions in which stockholders might otherwise receive a substantial premium for their shares over then current market prices, and may limit the ability of stockholders to approve transactions that they may deem to be in their best interests. In addition, under the Restated Certificate of Incorporation, the Board of Directors is authorized to issue one or more classes of preferred stock having such designations, rights and preferences as may be determined by the Board. See "Description of Capital Stock." 17 20 ABSENCE OF DIVIDENDS The Company has never declared or paid dividends on its capital stock, including the Class B Common Stock for which the Warrants may be exercised. The Company currently intends to retain any earnings to finance its operations, capital expenditures and future growth. No dividends can be paid on the Company's Common Stock without the consent of the holders of at least 50% of the Company's Preferred Stock. In addition, the Credit Facility and the Indenture prohibit or limit the Company's ability to pay dividends. See "Dividend Policy," "Description of Other Indebtedness -- The Credit Facility" and "Description of the Notes -- Covenants -- Limitation on Restricted Payments." CURRENT REGISTRATION OR EXEMPTION REQUIRED TO EXERCISE WARRANTS Upon an Exercise Event, purchasers of the Units will be able to exercise the Warrants at any time that a registration statement relating to the Warrant Shares is then in effect or if the exercise of such Warrants is exempt from the registration requirements of the Securities Act, and only if such securities are then qualified for sale or exempt from qualification under the applicable securities laws of the states in which the various holders of the Warrants reside. The Company, however, has no obligation to update this Prospectus; any offering of Warrant Shares pursuant to the following sentence will be made by a separate prospectus. Although the Warrant Agreement requires the Company to use its best efforts to cause to be effective a shelf registration statement covering the Warrant Shares by the Exercisability Date, there can be no assurance that the Company will be able to fulfill such obligation or comply with such agreement. The Company will be unable to issue shares of Common Stock to those persons desiring to exercise their Warrants if a registration statement covering the Warrant Shares is not then effective (unless the issuance of shares upon the exercise of such Warrants is exempt from the registration requirements of the Securities Act) or if such securities are not qualified or exempt from qualification in the states in which the holders of the Warrants reside. See "Description of the Warrants." CHANGE OF CONTROL A Change of Control, as defined in the Indenture, would entitle the holders of the Notes to require that the Company offer to purchase the Notes at a purchase price of 101% of the Accreted Value thereof plus accrued and unpaid interest, if any, to the date of any purchase prior to , 2001 or 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of any purchase on or after , 2001. The Credit Facility may, however, prohibit the repurchase of the Notes by the Company in the event of such a Change of Control, unless and until such time as the borrowings under the Credit Facility are repaid in full. The inability to repay indebtedness under the Credit Facility, if required, and to purchase all of the tendered Notes, would also constitute an event of default under the Indenture, which could have adverse consequences to the Company and holders of the Notes and the Warrants. Generally, the acquisition by any person or group (other than companies with debt securities rated investment grade) of beneficial ownership of capital stock of the Company having a majority of the combined voting power of the Company's capital stock would constitute a Change of Control under the Indenture. There can be no assurance that in the event of a Change of Control, in which the Company was required to repay or refinance its debt obligations, the Company would have sufficient assets or borrowing ability to satisfy all of its obligations under the Indenture and the Credit Facility. The Credit Facility will also contain certain provisions regarding a change of control. See "Description of Other Indebtedness -- The Credit Facility" and "Description of the Notes." ORIGINAL ISSUE DISCOUNT CONSEQUENCES The Notes will be issued at a substantial discount from their principal amount at maturity. Although interest will not accrue on the Notes prior to , 2001, and there will be no periodic payments of interest on the Notes prior to , 2002, original issue discount (the difference between the stated redemption price at maturity and the issue price of the Notes) will accrue from the issue date of the Notes. Consequently, purchasers of Notes generally will be required to include amounts in gross income for United States federal income tax purposes in advance of their receipt of the cash payments attributable to such income. Such amounts in the aggregate will be equal to the difference between the stated redemption price at 18 21 maturity (inclusive of stated interest on the Notes) and the issue price of the Notes. See "Certain Federal Income Tax Considerations" for a more detailed discussion of the federal income tax consequences of the purchase, ownership and disposition of the Notes. See "Certain Federal Income Tax Consequences -- Notes -- Original Issue Discount." If a bankruptcy case is commenced by or against the Company under the United States Bankruptcy Code after the issuance of the Notes, the claim of a holder of Notes may be limited to an amount equal to the sum of (i) the initial offering price and (ii) that portion of the original issue discount which is not deemed to constitute "unmatured interest" for purposes of the Bankruptcy Code. Any original issue discount that was not amortized as of the date of any such bankruptcy filing would constitute "unmatured interest." To the extent that the Bankruptcy Code differs from the Internal Revenue Code in determining the method of amortization of original issue discount, a holder of Notes may realize taxable gain or loss upon payment of such holder's claim in bankruptcy. ABSENCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF MARKET PRICE FOR THE NOTES Prior to the Offering of the Units (including the Notes and the Warrants) hereby, there has been no existing trading market for the Units, the Notes or the Warrants, nor has there been any existing trading market for the Company's Common Stock. The Company does not intend to have the Units, the Notes, the Warrants or the Common Stock listed for trading on any securities exchange or quoted on any automated dealer quotation system. Although each Underwriter has advised the Company that it presently intends to make a market in the Units (prior to separation), the Notes and the Warrants, it is not obligated to do so and any such market-making may be discontinued at any time without notice. Accordingly, there can be no assurance as to the prices or liquidity of, or trading markets for, the Units, the Notes or the Warrants. The offering price of the Units was determined by negotiations between the Company and the Underwriters and is not necessarily related to the Company's book value, net worth or any other established criteria of value. The liquidity of any market for the Units, the Notes or the Warrants will depend upon the number of holders of such Units, Notes or Warrants, the interest of securities dealers in making a market in the Units, the Notes or the Warrants and other factors. The absence of an active market for Units, the Notes or the Warrants offered hereby could adversely affect their market price and liquidity. The liquidity of, and trading markets for, the Notes may also be adversely affected by general declines in the market for noninvestment grade debt. Such declines may adversely affect the liquidity of, and trading markets for, the Notes independent of the financial performance of, or prospects for, the Company. Historically, the market for noninvestment grade debt has been subject to disruptions that have caused substantial volatility in the prices of securities similar to the Notes. There can be no assurance that the market for the Notes will not be subject to similar disruptions. Any such disruptions may have an adverse effect on the value of the Notes. CORPORATE REORGANIZATION AND STRUCTURE Immediately prior to the consummation of the Offering, the Company will effect a corporate reorganization (the "Reorganization") by creating an intermediate holding company, PCSD Financial Corp., which will, in turn, create three wholly-owned subsidiaries, PCSD Spectrum, Inc., SGI Communications, Inc. and PCSD Network, Inc. PCSD Spectrum, Inc. will own all of the FCC Licenses, subject to the FCC Obligation. SGI Communications, Inc. will acquire and own all real estate leasehold interests in transmitter and receiver sites for the network, and PCSD Network, Inc. will own all of the other assets of the Company and will operate the business of the Company. PCSD Financial Corp. will enter into the Credit Facility and its three subsidiaries will guarantee its obligations thereunder. Following the Reorganization, the Notes will be obligations exclusively of the Company and the Company will not have any other significant indebtedness to which the Notes will be senior, other than the subordinated indebtedness of the Company upon the conversion of its Series A Preferred Stock after November 10, 2004. See "Description of Capital Stock -- Preferred Stock-Conversion into Subordinated Notes." 19 22 USE OF PROCEEDS The net proceeds to the Company from the sale of the Units offered hereby will be approximately $157.7 million, after deducting estimated discounts, commissions and offering expenses. The Company intends to use (i) approximately $60.6 million of the net proceeds from the Offering to fund capital expenditures in connection with the buildout of the Company's nationwide PCS network, including approximately $21.0 million to finance the acquisition of additional radio spectrum currently under contract (see "Business -- Spectrum"), (ii) approximately $29.9 million of the net proceeds of the Offering to repay amounts due on the FCC Obligation (which is payable quarterly over ten years at a 7.5% annual interest rate, with no payment of principal in the first two years) (see "Description of Other Indebtedness -- FCC Obligation"), (iii) approximately $3.5 million of the net proceeds of the Offering to repay amounts due on the $8.7 million obligation which will be due the FCC in connection with the SMR Auction Spectrum (which is payable quarterly over ten years at an interest rate equal to the 10-year U.S. Treasury note rate plus 2.5% per annum, with no payment of principal in the first two years) (see "Business -- Spectrum"), (iv) approximately $21.1 million of the net proceeds of the Offering to pay fees in connection with the Credit Facility and to pay interest due under the $75.0 million Glenayre Facility (which is payable quarterly at a variable rate which will not exceed, at the Company's option, 3% per annum over a base lending rate or 4% per annum over a eurodollar rate) (see "Description of Other Indebtedness -- Credit Facility") and (v) approximately $42.6 million of net proceeds of the Offering, together with approximately $37.4 million of existing cash, for operating expenses, working capital requirements and general corporate purposes (see "Management's Discussion and Analysis of Financial Condition and Results of Operations"). The Company estimates capital expenditures for 1996, 1997 and 1998 in connection with the buildout of its nationwide PCS network (including spectrum acquisitions) to total approximately $71.6 million, $79.1 million and $38.5 million, respectively. The Company estimates that debt service requirements on the FCC Obligation and the FCC obligation with respect to the SMR Auction Spectrum and fees and debt service requirements on the Credit Facility will approximate $12.6 million in 1996, $19.1 million in 1997 and $22.7 million in 1998. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." The $225.0 million Credit Facility will consist of a Glenayre Facility providing for term loans in an amount not to exceed $75.0 million (the "Glenayre Facility"), a Tranche A Facility providing for revolving loans in an amount not to exceed $35.0 million (the "Tranche A Facility"), and a Tranche B Facility providing for revolving loans in an amount not to exceed $115.0 million (the "Tranche B Facility"). Borrowings under the Glenayre Facility will be used to acquire equipment and related services from Glenayre in connection with the buildout of the Company's nationwide PCS network. When available, the Tranche A Facility will be used principally to fund additional capital expenditure needs of the Company, and the Tranche B Facility will be used to repay maturing loans under the Glenayre Facility and the Tranche A Facility and to fund other working capital and capital expenditure needs. DIVIDEND POLICY The Company has never declared or paid dividends on its capital stock, including the Class B Common Stock for which the Warrants may be exercised, and the Company does not anticipate paying dividends in the foreseeable future. It is the present policy of the Company's Board of Directors to retain earnings to finance the Company's operations, capital expenditures and future growth. In addition, no dividends can be paid on the Company's Common Stock without the consent of the holders of at least 50% of the Company's Preferred Stock. Therefore, the payment of dividends on Common Stock in the future will be at the discretion of the Board of Directors and the holders of the Company's Preferred Stock. Certain provisions of the Credit Facility and the Indenture will further prohibit or limit the Company's ability to pay dividends. See "Description of Other Indebtedness -- The Credit Facility" and "Description of the Notes -- Covenants -- Limitation on Restricted Payments." 20 23 CAPITALIZATION The following table sets forth as of March 31, 1996 the actual capitalization of the Company and the capitalization of the Company as adjusted to reflect the sale by the Company of the Units offered hereby and the application of the net proceeds therefrom. This information should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Prospectus.
AS OF MARCH 31, 1996 ------------------------------- ACTUAL AS ADJUSTED ------------ ------------ Cash and cash equivalents..................................... $ 29,865,057 $187,565,057(1) =========== =========== Long-term debt: Credit facility(2).......................................... $ -- $ -- % Senior discount notes due 2006.......................... -- 165,000,000(3) FCC obligation(4)........................................... 72,741,121 72,741,121 Other....................................................... 1,021,077 1,021,077 ------------ ------------ Total long-term debt................................ 73,762,198 238,762,198 ------------ ------------ Redeemable convertible preferred stock(5)..................... 40,107,923 40,107,923 ------------ ------------ Stockholders' equity: Common stock: Class A, par value $1.00 per share, 300,000 shares authorized, 8,718 shares issued and outstanding........ 8,718 8,718 Class B, par value $1.00 per share, 200,000 shares authorized, 28,482 shares issued and outstanding....... 28,482 28,482 Common stock additional paid-in capital..................... 34,973,253 34,973,253 Deficit accumulated during development stage................ (4,111,387) (4,111,387) ------------ ------------ 30,899,066 30,899,066 Less notes receivable from stockholder...................... (5,275,135) (5,275,135) ------------ ------------ Total stockholders' equity.......................... 25,623,931 25,623,931 ------------ ------------ Total capitalization................................ $139,494,052 $304,494,052 =========== ===========
- --------------- (1) Reflects the net proceeds from the sale of the Units. (2) Concurrently with the Offering, a subsidiary of the Company will establish the Credit Facility in the amount of $225.0 million, approximately $75.0 million of which will be available at the closing of the Offering and the balance of which will be available upon the achievement and maintenance by the Company of certain operating results and financial ratios. See "Description of Other Indebtedness -- The Credit Facility." (3) Reflects the aggregate initial Accreted Value of the Notes prior to allocating the portion of the proceeds of the Offering attributable to the Warrants. (4) See "Description of Other Indebtedness -- FCC Obligation." (5) Excludes approximately $15.1 million of Preferred Stock subscriptions receivable which have been collected as of April 25, 1996. See "Description of Capital Stock -- Preferred Stock." 21 24 SELECTED CONSOLIDATED FINANCIAL DATA The following table sets forth certain selected consolidated financial information for the Company as of the dates and for the periods indicated. The consolidated financial data as of December 31, 1994 and 1995 and for the period from September 21, 1994 (date of incorporation) to December 31, 1994 and for the year ended December 31, 1995 were derived from the audited consolidated financial statements of the Company. The consolidated financial data for the Company as of March 31, 1996 and for the three months ended March 31, 1995 and 1996 have been derived from unaudited consolidated financial statements of the Company. In the opinion of management of the Company, such unaudited consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements referred to above and include all adjustments necessary for a fair presentation of the financial information for the interim periods. Results of operations for the three months ended March 31, 1996 are not necessarily indicative of the results to be expected for fiscal 1996. The following data should be read in conjunction with "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's consolidated financial statements and related notes thereto included elsewhere in this Prospectus.
PERIOD FROM SEPTEMBER 21, 1994 THREE MONTHS ENDED MARCH (DATE OF INCORPORATION) YEAR ENDED 31, TO DECEMBER 31, DECEMBER 31, ------------------------ 1994 1995 1995 1996 --------------------------- ------------ --------- ---------- STATEMENT OF OPERATIONS DATA: Operating expenses: Sales and marketing........... $ -- $ 796,100 $ -- $ 756,041 Administrative................ 394,918 1,922,163 317,659 1,236,390 Depreciation.................. -- 137,374 472 73,217 Amortization.................. 4,058 19,479 4,869 4,869 ----------- ------------ --------- ---------- 398,976 2,875,116 323,000 2,070,517 Interest income(1).............. (23,873) (794,405) (132,613) (414,944) ----------- ------------ --------- ---------- Net loss........................ $ 375,103 $2,080,711 $ 190,387 $1,655,573 =================== ========== ========= ========= Net loss per common share(2).... $ 10.08 $ 77.34 $ 5.12 $ 81.96 Ratio of earnings to fixed charges(3).................... -- -- -- --
DECEMBER 31, MARCH 31, 1996 -------------------------------- ----------------------------- 1994 1995 ACTUAL AS ADJUSTED(4) ----------- ------------ ------------ -------------- BALANCE SHEET DATA: Current assets...................... $ 786,913 $ 26,783,944 $ 30,882,887 $ 188,582,887 Total assets........................ 10,053,954 126,698,359 142,099,425 307,099,425 Total debt(5)....................... -- 73,801,260 74,100,260 239,100,260 Redeemable convertible preferred stock............................. -- 23,112,325 40,107,923 40,107,923 Stockholders' equity................ 9,563,413 28,658,705 25,623,931 25,623,931
- --------------- (1) Includes interest income from a related party of $22,190, $526,075, $102,867 and $77,308 for the period from September 21, 1994 (date of incorporation) to December 31, 1994, for the year ended December 31, 1995, and for the three months ended March 31, 1995 and 1996, respectively. See "Certain Transactions." (2) Net loss attributable to common stockholders of $2,876,910 for the year ended December 31, 1995 and $3,048,921 for the three months ended March 31, 1996 includes accretion of preferred stock dividends of $796,199 and $1,393,348, respectively. (3) Earnings were insufficient to cover fixed charges by $375,103, $7,725,587, $929,008 and $4,435,788 for the period from September 21, 1994 (date of incorporation) to December 31, 1994, for the year ended December 31, 1995, and for the three months ended March 31, 1995 and 1996, respectively. The ratio of earnings to fixed charges is calculated by adding (i) earnings (loss) before income taxes plus (ii) fixed charges, with the resulting sum divided by fixed charges. Fixed charges consist of interest on all indebtedness, accretion of preferred stock dividends, amortization of debt issuance costs, plus that portion of operating lease rentals representative of the interest factor. (4) As adjusted to give effect to the application of the estimated net proceeds of the Offering prior to allocating the portion of the proceeds of the Offering attributable to the Warrants. See "Use of Proceeds" and "Capitalization." (5) Includes $418,582 and $338,062 at December 31, 1995 and March 31, 1996, respectively, classified as current portion of long-term debt. 22 25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Company's consolidated financial statements and notes thereto appearing elsewhere in this Prospectus. GENERAL The Company is a development stage company incorporated for the purpose of establishing, constructing and operating a nationwide network for the delivery of narrowband PCS wireless telecommunications services. By acquiring five regional licenses on the same frequency at the FCC's November 1994 narrowband PCS auction, the Company has strategically positioned itself to develop a narrowband PCS network covering the entire United States and the U.S. territories, including Puerto Rico and the U.S. Virgin Islands. The Company's strategic objective is to become a leading provider of two-way wireless advanced messaging services in the United States. Based upon industry surveys and the Company's proprietary research, management believes its service offerings, which are expected to include stored voice messaging in the second quarter of 1997 and data messaging in 1998, will have significant market appeal. The Company believes that the geographic scope of its network, which will enable it to offer local, regional and nationwide messaging services, will allow the Company to attract a broad customer base and that its distribution through established channels will allow it to achieve rapid market penetration while minimizing marketing and selling expenses. The Company's operating losses during the period from September 21, 1994 (date of incorporation) to December 31, 1994 (the "1994 Period"), during the year ended December 31, 1995 and during the three months ended March 31, 1995 and 1996, respectively, resulted from expenses incurred in connection with its development stage activities such as the formation of the Company's administrative structure and management team, market research and the initial development of its network. The Company reported net losses of $375,000, $2.1 million, $190,000 and $1.7 million, respectively, for the 1994 Period, for the year ended December 31, 1995 and for the three months ended March 31, 1995 and 1996. The Company has not yet generated operating revenue and, as a result, it has not generated EBITDA. The degree to which the Company generates revenue and EBITDA will be dependent on a number of business factors, including future levels of market demand for the Company's services and future developments in the telecommunications industry. The Company anticipates that operating expenses and capital expenditures will increase in connection with the expansion of the Company's network. Once the Company begins generating revenue, it expects that average revenue per subscriber will decline over time as a result of increased competition, which will affect the pricing of its services to its customers, including the Paging Company Investors and the other established paging companies. The Company believes the effect of this trend on the Company's earnings will be mitigated by corresponding increases in the number of subscribers of narrowband PCS services. As used herein, "EBITDA" represents earnings before other income (expense), taxes, depreciation and amortization. Other income (expense) consists primarily of interest expense. EBITDA is a standard measure of financial performance in the paging industry and is also similar to one of the financial measures used to calculate whether the Company and its subsidiaries are in compliance with certain covenants under the Indenture and the Credit Facility. EBITDA is not a term defined under generally accepted accounting principles and it should not be construed as an alternative to operating income, cash flows from operating activities or other measures of liquidity determined in accordance with generally accepted accounting principles. RESULTS OF OPERATIONS Three Months Ended March 31, 1995 compared to Three Months Ended March 31, 1996. Sales and marketing expenses consist of all salaries, benefits, equipment and costs incurred in developing a marketing staff and the professional fees associated with market research projects and public relations programs. Sales and marketing expenses were $756,000 for the three months ended March 31, 1996. The sales 23 26 and marketing department had not yet been formed at March 31, 1995; therefore, no sales and marketing expenses were incurred during the three months ended March 31, 1995. Administrative expenses are comprised of all salaries, benefits and expenses of administrative personnel, including the executive officers, in addition to the ancillary expenses of the Company such as rent, professional fees, taxes and general office expenses. Administrative expense increased $919,000 from $318,000 for the three months ended March 31, 1995 to $1.2 million for the three months ended March 31, 1996 reflecting additional costs to support the increased activity of the Company. Depreciation for the three months ended March 31, 1996 was $73,000. Minimal depreciation was recorded for the three months ended March 31, 1995 as the Company had not yet accumulated significant fixed assets. Interest income increased $282,000 from $133,000 for the three months ended March 31, 1995 to $415,000 for the three months ended March 31, 1996. Interest income is comprised of the interest on idle cash and interest received from a $9.2 million loan to a stockholder who purchased shares of Common Stock of the Company. Approximately $5.3 million of this loan was outstanding at March 31, 1996. On April 18, 1996 and April 30, 1996, the stockholder made repayments on this loan aggregating approximately $3.9 million, thereby reducing the outstanding amount to approximately $1.7 million. The Company expects this amount, plus all accrued and unpaid interest, to be paid on its due date, April 30, 1997. See "Certain Transactions -- Stockholder Loan." Due to the Preferred Stock offering in November 1995, the collection of $3.9 million of notes receivable and the collections of subscriptions receivable throughout 1995, the average cash balance available to earn interest increased $23.9 million from $3.3 million for the three months ended March 31, 1995 to $27.2 million for the three months ended March 31, 1996. The 1994 Period compared to year ended December 31, 1995. Sales and marketing expense was $796,000 for the year ended December 31, 1995. No sales and marketing expense was incurred during the 1994 Period. Administrative expense, which was $395,000 for the 1994 Period, increased by $1.5 million to $1.9 million for the year ended December 31, 1995, representing a 36.0% increase over the annualized administrative expense for the 1994 Period. This increase was primarily due to additional costs to support the formation of the Company's administrative structure and management team, market research, development of its network and the administrative costs associated with increases in the total number of employees. The Company increased total employees from three at December 31, 1994 to 33 at December 31, 1995. Depreciation for the year ended December 31, 1995 was $137,000. No depreciation was recorded for the 1994 Period as the amount was nominal. The increase in depreciation expense is directly related to capital expenditures of $2.5 million for the year ended December 31, 1995. Interest income increased $770,000 to $794,000 for the year ended December 31, 1995 from $24,000 for the 1994 Period. Interest income is comprised of the interest on idle cash and interest received from a $9.2 million loan to a stockholder who purchased shares of Common Stock of the Company. Approximately $5.3 million of this loan was outstanding at December 31, 1995. See "Certain Transactions -- Stockholder Loan." LIQUIDITY AND CAPITAL RESOURCES The Company's net cash used in operating activities was $971,000 and $1.6 million for the three month period ended March 31, 1996 and for the year ended December 31, 1995, respectively, and consisted primarily of operating losses offset, in part, by increases in accounts payable and accrued liabilities. The Company's net cash provided by operating activities was $21,000 during the 1994 Period. The Company's net cash used in investing activities totaled $10.3 million for the three months ended March 31, 1996 and primarily related to the acquisition of several SMR licenses held by third parties. The Company's net cash used in investing activities totaled $17.6 million for the year ended December 31, 1995 and consisted of $15.6 million in payments for the Licenses, including $4.8 million in capitalized interest, $1.5 million in equipment and fixture 24 27 purchases and $500,000 in deposits placed with the FCC enabling the Company to participate in radio frequency auctions. The Company's net cash used in investing activities for the 1994 Period totaled $9.2 million and primarily related to the down payment made to the FCC for the Licenses acquired in the November 1994 regional narrowband PCS auctions. The Company's net cash provided by financing activities was $15.2 million, $44.4 million and $9.9 million for the three months ended March 31, 1996, the year ended December 31, 1995 and for the 1994 Period, respectively. The Company's business strategy requires substantial capital to finance the buildout of its nationwide PCS network, fund purchases of radio spectrum currently under contract or purchased at auction, fund debt service requirements on a portion of its indebtedness and fund operating and working capital requirements. Costs associated with the network buildout include expenditures on switches, radio frequency controllers, transmitters, receivers and ancillary equipment such as coaxial cable and antennas. Management estimates capital and spectrum expenditures relating to the initial buildout of the network, which is expected to be completed in the first quarter of 1998, will total approximately $189.2 million (approximately $71.6 million in 1996, $79.1 million in 1997 and $38.5 million in 1998). In order to help meet its future capital requirements, the Company has raised approximately $92.7 million in two private equity offerings. A portion of the net proceeds from the private equity offerings was used to fund the down payment on the Licenses and commence development activities for the Company's business, and the balance will be used to fund capital expenditures, spectrum acquisitions and working capital needs. The Company has also incurred an approximately $72.7 million obligation to the FCC, which represents the remaining unpaid purchase price for the Licenses granted to the Company in February 1995. The Company also expects to incur an additional $8.7 million obligation to the FCC, which will represent the remaining unpaid purchase price for the SMR Auction Spectrum purchased by the Company in the April 15, 1996 FCC auction. The Company anticipates that it may incur additional obligations to the FCC in connection with the PCS MTA/BTA auction anticipated to occur in late 1996 or early 1997. See "Business -- Spectrum" and "Description of FCC Auction Benefits -- Status in Future FCC Narrowband PCS MTA/BTA Auction." The Company expects net proceeds of the Offering to approximate $157.7 million. The Company's subsidiary, PCSD Financial Corp., has obtained a commitment from Chase Securities Inc. to arrange the establishment of a new Credit Facility in the aggregate amount of $225.0 million effective upon the closing of the Offering. PCSD Financial Corp. anticipates having available approximately $75.0 million of borrowing capacity under the Credit Facility immediately with the balance available upon the achievement and maintenance by PCSD Financial Corp. of certain operating results and financial ratios. See "Description of Other Indebtedness -- The Credit Facility." The Credit Facility will consist of (i) a Glenayre Facility providing for term loans in an amount not to exceed $75.0 million (the "Glenayre Facility") to be made available by Glenayre for the purpose of financing the acquisition of equipment and technical services from Glenayre, (ii) a Tranche A Facility providing for revolving loans in an amount not to exceed $35.0 million (the "Tranche A Facility") to be made available by a syndicate of banks, financial institutions and other entities (the "Syndicate"), including The Chase Manhattan Bank ("Chase"), for the purpose of financing the working capital and capital expenditure needs of PCSD Financial Corp. and its subsidiaries in the ordinary course of business, and (iii) a Tranche B Facility providing for revolving loans in an amount not to exceed $115.0 million (the "Tranche B Facility") to be made available by the Syndicate, including Chase, for the purpose of (x) financing the working capital and capital expenditure needs of PCSD Financial Corp. and its subsidiaries in the ordinary course of business and (y) repaying maturing loans under the Glenayre Facility and Tranche A Facility. Glenayre has committed to provide the Glenayre Facility. Chase has committed to provide the entire $150.0 million of the Tranche A Facility and the Tranche B Facility. The availability of the Credit Facility will be conditioned upon among other things PCSD Financial Corp. having entered into equipment supply contracts with Motorola and Glenayre containing satisfactory terms and conditions. Borrowings under the Glenayre Facility and Tranche A Facility will be available from the closing date of the Credit Facility to the date which is three and one half years thereafter, at which time all of the loans outstanding will be repayable in two equal installments on March 31, 2000 and June 30, 2000. Availability under the Tranche B Facility will commence on the closing date of the Credit Facility and end on June 30, 25 28 2004, except that if the initial borrowing thereunder is not made on or before June 30, 2000, such facility will automatically terminate on such date. The Tranche B Facility will be reduced in fourteen consecutive quarterly installments, beginning on March 31, 2001 and ending on June 30, 2004. The making of each loan under the Glenayre Facility will be subject to the satisfaction of certain customary closing conditions which the Company expects to satisfy prior to or simultaneously with the Offering. The making of each loan under the Tranche A Facility will be subject to the satisfaction of certain conditions, including expending certain amounts received from the issuance of common stock by PCSD Financial Corp. to the Company, borrowing the full amount under the Glenayre Facility, having a minimum number of "qualified pagers in service" (pagers in service for more than 60 days) and maintaining a minimum level of average monthly revenue per subscriber unit. The Company expects to satisfy the conditions to the Tranche A Facility by the third quarter of 1998. The making of each loan under the Tranche B Facility will be subject to the satisfaction of certain conditions, including expending certain amounts received from the issuance of common stock by PCSD Financial Corp. to the Company and maintaining a maximum ratio of total debt to "qualified pagers in service" and a maximum ratio of total debt to operating cash flow. The Company anticipates that the conditions to the Tranche B Facility will be met by the third quarter of 1999. In addition, certain mandatory prepayments of loans extended under the Credit Facility are to be made from (i) subject to certain exceptions to be agreed upon, 50% of the net proceeds of any sale or issuance of equity or incurrence of indebtedness after the closing date of the Credit Facility by the Company, PCSD Financial Corp. or any of its subsidiaries, (ii) 100% of the net proceeds of (x) certain sales or other dispositions by PCSD Financial Corp. or any of its subsidiaries of material assets or (y) certain insurance or condemnation recoveries and (iii) 75% of Excess Cash Flow (as defined in the Credit Facility) when the Leverage Ratio (as defined in the Credit Facility) is greater than 3:1 and 50% of Excess Cash Flow when such Ratio is less than 3:1 but greater than 2:1, for each fiscal year, commencing with the fiscal year ending December 31, 1998. PCSD Financial Corp. may elect that all or a portion of the borrowings under the Credit Facility bear interest at a rate per annum equal to either (i) Chase's Base Rate plus the Applicable Margin or (ii) Chase's Eurodollar Rate plus the Applicable Margin. In the case of borrowings under the Glenayre Facility and the Tranche A Facility, the Applicable Margin will be (a) 3% per annum when applying the Base Rate, or (b) 4% per annum when applying the Eurodollar Rate. In the case of borrowings under the Tranche B Facility, the Applicable Margin will be (x) 2% per annum (when the Debt to Operating Cash Flow Ratio (as such terms are defined in the Credit Facility) is equal to or greater than 5:1) or 1 1/2% per annum (when such Ratio is less than 5:1), in each case when applying the Base Rate, or (y) 3% per annum (when such Ratio is equal to or greater than 5:1) or 2 1/2% per annum (when such Ratio is less than 5:1), in each case when applying the Eurodollar Rate. As used herein, "Base Rate" means the higher of (i) Chase's prime rate and (ii) the federal funds effective rate from time to time plus 1/2% per annum. As used herein, "Eurodollar Rate" means the rate at which eurodollar deposits for one, two, three and six months (as selected by PCSD Financial Corp.) are offered to Chase in the interbank eurodollar market in the approximate amount of Chase's share of the relevant loan. Upon completion of the Offering, the Company believes that its cash balances, together with available borrowings under the Credit Facility, will be adequate (i) to fund the Company's expected capital expenditure requirements of approximately $189.2 million necessary to complete the buildout of its nationwide narrowband PCS network (including spectrum expenditures) and (ii) to fund debt service requirements of approximately $54.4 million (approximately $12.6 million in 1996, $19.1 million in 1997 and $22.7 million in 1998) until such time as the Company generates sufficient positive cash flow from operations, which is not expected to occur prior to 1999. Management believes the Company will generate positive cash flow from operations beginning in 1999. However, no assurance can be or is given as to when or if the Company will generate positive cash flow from operations. INFLATION Inflation is not currently a material factor affecting the Company's business. General operating expenses such as salaries, employee benefits and occupancy costs are subject to normal inflationary pressures. 26 29 ACCOUNTING STANDARDS In March 1995 the Financial Accounting Standards Board (FASB) issued Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No. 121"). SFAS No. 121, which is effective for fiscal years beginning after December 15, 1995, requires that certain long-lived assets and intangible assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company is not aware of any events or changes in circumstances that will result in a material effect on its financial statements upon the Company's 1996 adoption of SFAS No. 121. In October 1995 the FASB issued Statement No. 123 "Accounting for Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 123, which is also effective for fiscal years beginning after December 15, 1995, allows companies either to continue to measure compensation cost based on the method prescribed by Accounting Principles Board Opinion No. 25 ("APB No. 25") or adopt a "fair value" method of accounting for all employee stock-based compensation. The Company has elected to continue utilizing the accounting for stock issued to employees prescribed by APB No. 25 and, therefore, the required adoption of SFAS No. 123 will have no impact on the financial position or results of operations of the Company. 27 30 BUSINESS GENERAL PCSD intends to become a leading provider of narrowband PCS wireless telecommunications services in the United States. Organized in 1994 as a Delaware corporation, the Company was one of only five bidders in the FCC's 1994 narrowband PCS auctions that succeeded in acquiring licenses for paired 50 kHz inbound/50 kHz outbound frequencies covering the entire United States and the U.S. territories, including Puerto Rico and the U.S. Virgin Islands. PCSD intends to employ the Licenses to offer a full array of two-way wireless advanced messaging services. These services will include stored voice and data messaging utilizing Motorola's state-of-the-art InFLEXion(TM) technology. The Company believes that its network, utilizing the InFLEXion(TM) technology, will have significant advantages over traditional one-way paging networks, including increased capacity, higher transmission speed and two-way capability. This enhanced technology, in combination with the Company's nationwide spectrum coverage, will enable PCSD to offer stored voice messaging, data messaging and other services on a local, regional and nationwide basis. The Company's first service, expected to be commercially available in the second quarter of 1997, will be a stored voice messaging service. This service will allow a subscriber to receive a high quality wireless transmission of a sender's voice on a pager-like subscriber unit where the message can be stored and retrieved for later playback. Of the four other companies with licenses for nationwide 50/50 kHz PCS spectrum, only PageNet and PageMart have announced an intention to offer stored voice messaging services. Based on paging industry studies and surveys of potential subscribers, as well as the popularity of telephone answering machines in the home and the growth of voice mail in office environments, the Company believes that there will be significant demand for a mobile stored voice messaging service when it becomes available. A 1994 study conducted by FGI indicated that stored voice messaging could achieve a 20% penetration of the U.S. population. Moreover, according to a 1995 Motorola survey, approximately 84% of current paging subscribers would consider replacing their existing subscriber unit with a stored voice messaging unit. A subsequent, more comprehensive market research study conducted for the Company by FGI in 1996 indicated that 74% of current paging subscribers are likely (40% somewhat likely and 34% very likely) to purchase stored voice messaging at costs within the Company's anticipated price ranges. See "Potential Market" and "Distribution -- Pricing of Airtime and Subscriber Units." Following the commercial introduction of its stored voice messaging service, the Company also plans to introduce in 1998 enhanced InFLEXion(TM) data services allowing subscribers to receive alphanumeric messages of up to several thousand characters, compared to the 80 character limit typical of one-way alphanumeric paging service available today, and eventually, enabling message recipients to initiate brief alphanumeric responses. PCSD plans to market local, regional and nationwide services initially through indirect channels by forming marketing relationships with telecommunications companies, including established paging companies that have installed customer bases but that do not have the capability to deliver over their own networks the enhanced services that the Company plans to market. Unlike the other companies that acquired licenses for nationwide 50/50 kHz PCS spectrum, PCSD does not offer one-way paging services. Consequently, the Company believes that other paging companies desiring to offer enhanced PCS services will be more likely to form a marketing relationship with PCSD than with these competitors. Consistent with this strategy, PCSD has formed marketing alliances with its two Paging Company Investors, which together have an aggregate of approximately 3 million existing subscribers, and through July 1, 1996, has signed memoranda of understanding to form marketing relationships with 19 other paging companies, which together have an aggregate of approximately 13 million subscribers. These 16 million subscribers represent approximately one-half of all pagers currently in service in the United States. PCSD is currently designing and constructing its nationwide narrowband PCS network and is in the process of securing transmitter and receiver sites and purchasing network infrastructure equipment from Motorola and Glenayre, two leading providers of paging equipment. By the time the Company anticipates that its stored voice messaging service will be commercially available in the second quarter of 1997, the Company expects to have completed the buildout of its InFLEXion(TM) network in the top ten BTAs, which are New York City, Los Angeles, Chicago, San Francisco, Philadelphia, Detroit, Dallas, Boston, Washington, D.C. and 28 31 Houston, and to have completed its nationwide network buildout in the first quarter of 1998. A BTA or "basic trading area" is one of 493 specified geographical areas surrounding a city in the United States, its territories and possessions (as opposed to the 51 MTAs, each of which consists of at least 2 BTAs), as set forth in the Rand McNally Commercial Atlas & Marketing Guide (124(th)ed. 1993), which the FCC has recognized in the licensing of PCS radio frequencies. To fund the acquisition of the Licenses, the buildout of its nationwide narrowband PCS network and the commercial introduction of its services, PCSD raised approximately $92.7 million in two private equity offerings, obtained relatively low-cost financing from the FCC and is in the process of entering into the Credit Facility and issuing the Units. The Company raised $37.2 million in November 1994 from the sale of its Common Stock to the Paging Company Investors and other financial investors and raised $55.5 million in November 1995 from the sale of Preferred Stock to an investor group which was led by Chase Capital Partners (formerly, Chemical Venture Partners) and which included several of the Company's initial financial investors. Because it was considered a "Designated Entity" under the FCC rules applicable to the narrowband PCS regional auction, the Company is entitled to pay $72.7 million of the $90.9 million purchase price for the Licenses over ten years at a 7.5% annual interest rate. See "Description of FCC Auction Benefits -- "Designated Entity" Status in FCC Narrowband PCS Regional Auction" and "Description of Other Indebtedness -- FCC Obligation." In addition, concurrently with the Offering, the Company will establish a secured Credit Facility of approximately $225.0 million. Upon completion of the Offering, the Company believes that its cash balances, together with available borrowings under the Credit Facility, will be adequate to fund the Company's expected capital expenditures necessary to complete the buildout of its nationwide narrowband PCS network and fund operating requirements, including debt service, until such time as the Company generates sufficient positive cash flow from operations, which is not expected to occur prior to 1999. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and "Description of Other Indebtedness -- The Credit Facility." The Company has assembled an experienced management team to execute its business strategy. Members of PCSD's management team have held managerial positions with leading wireless and other telecommunications companies, including AT&T, Dial Page, GeoTek, MCI, MobileComm, Motorola, PageNet, RAM Mobile Data, SkyTel, Sprint and USA Mobile. PCSD's executive team brings to the Company extensive experience in the development, design and manufacture of wireless products, the construction and operation of wireless networks and the sale and marketing of wireless services and products. STRATEGY PCSD's strategic objective is to become a leading provider of stored voice and data messaging services in the United States. To achieve this objective, the Company intends to offer competitively priced, easy-to-use stored voice and data messaging services targeted at broad market segments. Key elements of the Company's strategy include: Nationwide spectrum position. Upon acquiring the Licenses, the Company became one of only five companies with nationwide 50/50 kHz PCS spectrum, thereby positioning itself to create a nationwide network for wireless stored voice and data messaging services. The geographic scope of the system should enable the Company to achieve significant economies of scale as it attracts a large customer base by offering local, regional and nationwide messaging services. In addition, the Company purchased specialized mobile radio ("SMR") spectrum in 29 major metropolitan areas during the FCC's 900 MHz SMR auction which concluded April 15, 1996 ("SMR Auction Spectrum") and has purchased or intends to purchase from third parties SMR spectrum or options to purchase SMR spectrum in nine other metropolitan areas. Together with the Licenses, the SMR Auction Spectrum and the SMR spectrum purchased or to be purchased from third parties, the Company's network will have at least 175 kHz/175 kHz spectrum capacity in 37 of the 50 largest BTAs, including each of the top nine BTAs. Services with broad market appeal. Narrowband PCS stored voice and data messaging services will offer the low-cost, long battery life and portability advantages of current paging services. These services delivered over the Company's InFLEXion(TM) network will offer improved functionality compared to 29 32 traditional one-way paging services, such as the high quality transmission of messages in the sender's own voice and confirmation of receipt of messages to the network. It is anticipated that InFLEXion(TM) data services will enable the delivery of significantly longer alphanumeric messages and the initiation of brief alphanumeric responses. Based on the growing use of voice mail in office environments and telephone answering machines in homes, as well as the growing number of one-way paging subscribers, manage- ment expects that the Company's services will generate demand by offering an attractive, mobile alternative to these answering services. Management believes, based on market research conducted by Motorola, FGI and the Company's own market research personnel, that enhanced voice messaging will be one of the most widely accepted new paging services, with the potential to penetrate 20% or more of the U.S. population. Established distribution channels. The Company expects to use existing distribution channels to achieve rapid market penetration and to minimize marketing and selling expense. Consistent with this strategy, through July 1, 1996, the Company has formed marketing relationships with the Paging Company Investors as well as 19 other paging companies, which together have an aggregate of approximately 16 million subscribers, pursuant to which these paging companies have indicated their intention to sell the Company's stored voice messaging services to their customers. The Paging Company Investors have agreed to contract exclusively with the Company for the purchase of narrowband PCS services rendered by the Company which such Paging Company Investors desire to purchase, provided the Company's services are competitive in price and quality with similar services that may be available from others. The 19 other paging companies currently have entered into memoranda of understanding with the Company pursuant to which they have stated their intentions to sell PCSD's advanced messaging services to their subscribers, if those services are competitive in price and quality. These 16 million subscribers represent approximately one-half of all pagers currently in service in the United States. The Company believes that other telecommunications companies, such as cellular and long distance service providers, ESMR operators and RBOCs, will also package the Company's services with their product offerings. Rapid network buildout. The Company expects to be among the first to construct a nationwide narrowband PCS network utilizing InFLEXion(TM) technology and to offer enhanced stored voice messaging services through its network on a local, regional and nationwide basis. By utilizing its proprietary market research, the Company will target initial buildout and marketing in areas projected to have high demand for stored voice services. The Company has already commenced network buildout in its initial test markets, Boston and Atlanta, and anticipates that system tests will begin in the third quarter of 1996 with commercial introduction of its voice messaging service beginning in the second quarter of 1997. By this time, the Company expects to have completed the buildout of its network in the top ten BTAs, and expects its nationwide network buildout to be completed in the first quarter of 1998. Low-cost provider. PCSD's network operation, marketing strategy and administrative structure have been designed to support the Company's efforts to be a low-cost provider of its services. Management expects that the capacity benefits of its nationwide network and its use of Motorola's state-of-the-art InFLEXion(TM) technology will reduce its cost per unit of network capacity compared to traditional one-way networks. The Company intends to maximize the number of subscribers on its network by utilizing the distribution channels of the Paging Company Investors and other paging company partners, as well as other existing distribution channels. PCSD also expects this distribution strategy to reduce the costs associated with recruiting, training, compensating and managing a large in-house marketing and sales staff. The Company will seek to control administrative costs through a combination of centralized network management, customer service, billing, credit, collections and accounting. MARKET POTENTIAL Upon completion of its nationwide narrowband PCS network, the Company expects to have the capacity to offer a broad variety of advanced messaging services. Industry sources estimate that customer reception of narrowband PCS services and traditional paging services will exceed the demand for both broadband PCS and 30 33 cellular services. In a 1994 report, the Personal Communications Industry Association ("PCIA") forecasts 56.2 million narrowband PCS and traditional paging subscribers in 2000, as compared to 14.8 million and 46.9 million subscribers in 2000 for broadband PCS and cellular services, respectively. Moreover, industry sources estimate that there were more than 30 million pagers in service at December 31, 1995 and that the number of pagers in service will grow at an annual rate of approximately 15% for the next five years, to over 60 million subscribers by the end of 2000. According to the 1994 PCIA report, the number of narrowband PCS and traditional paging subscribers will continue to grow and will total approximately 92 million in 2005. The Company's first service, expected to be commercially available in the second quarter of 1997, will deliver stored voice messages wirelessly to a pager-like subscriber unit. Based on industry studies and the Company's proprietary market research, management believes that there will be significant demand for such a service. In 1994 FGI conducted a study of 750 households and 500 businesses in order to assess the demand for voice paging and estimated that stored voice messaging services could ultimately achieve a 20% penetration of the U.S. population. Moreover, according to a 1995 Motorola study, approximately 84% of current paging subscribers would consider replacing their existing pager with a voice messaging unit. A subsequent, more comprehensive market research study conducted for the Company by FGI in 1996 indicated that 74% of current paging subscribers are likely (40% somewhat likely and 34% very likely) to purchase stored voice messaging at costs within the Company's anticipated price ranges. Finally, management anticipates significant demand for its voice messaging services based on the estimated penetration of answering machines in U.S. households of approximately 63% according to a 1995 International Mass Retail Association poll, and the popularity of voice mail services in office environments. Management believes that consumers will view the stored voice product as a convenient alternative to answering machines and voice mail. SERVICES The Company's planned service offerings will be delivered to a pocket-sized subscriber unit containing a transmitter, enabling it to send a signal identifying its location to the Company's network. Thus, unlike current one-way paging in which all transmitters in the coverage area must simultaneously broadcast the message, PCSD's InFLEXion(TM) network will be able to transmit the message to the subscriber unit from the network's nearest transmitter, thus dramatically increasing the network's capacity and efficiency. Management estimates that the Company's stored voice messaging services and enhanced alphanumeric services (each of which is described in more detail below) will be offered to customers at monthly prices competitive with current one-way alphanumeric paging services in similar service areas. The Company's service offerings are expected to include: Voice Messaging. The Company's first major offering will be an entirely new class of messaging service -- a wireless stored voice messaging product utilizing Motorola's state-of-the-art InFLEXion(TM) technology to deliver a high quality stored transmission of the sender's voice to the subscriber unit. The unit will store up to four minutes of voice messages, which the subscriber will be able to play, fast-forward, rewind and delete, much like an answering machine or voice mailbox. If the subscriber unit is full, the sender's message will be stored in a network server. The network will then transmit a "message waiting" notification to the subscriber unit. The subscriber can delete old messages to enable the unit to receive immediately messages stored by the network. While the subscriber will not be able to respond directly to the caller by speaking into the unit, the subscriber unit will acknowledge receipt of the voice message to the network. The subscriber unit will have a volume control to allow the subscriber to listen to messages privately, or to play them aloud for others to hear. Enhanced Alphanumeric Messaging. The alphanumeric messaging service which the Company expects to offer will enable the subscriber to receive alphanumeric messages of up to several thousand characters in length (compared to the approximately 80 characters in traditional one-way alphanumeric messaging) which will be input by either a computer or other device with the proper software and a modem that can access the Company's network or by a dispatch operator. As in the case of the Company's voice messaging service, the Company's network will be designed to seek out the subscriber unit until the subscriber unit acknowledges to the Company's network that it has received the message. 31 34 The Company believes that penetration of alphanumeric service has been limited to date due to the reluctance of many one-way paging operators to promote the service because of its relatively high use of system capacity during transmission. The Licenses and InFLEXion(TM) technology will offer significant increases in capacity and delivery speed over the spectrum and technology currently delivering alphanumeric messaging services. The Company expects that its alphanumeric service will improve upon traditional service by permitting longer messages, by guaranteeing and acknowledging delivery and, eventually, by permitting the subscriber to initiate limited data responses. Management believes that these service enhancements, along with its competitive pricing, will appeal to subscribers of traditional alphanumeric messaging services and to cost conscious customers who have not previously subscribed to such services. Other InFLEXion(TM) Services. Over time, the Company intends to participate in the growth of wireless data messaging services by working with software companies and electronic component manufacturers in the development of additional data messaging services. In addition to pocket-sized pagers, the Company expects that wireless data transmissions will be received by computers or Personal Digital Assistants ("PDAs") equipped with two-way radio frequency modems or built-in radio frequency capability. It is anticipated that a limited response by the computer or PDA will be possible. The Company may package one or more of the above services with cellular, ESMR and broadband PCS applications, as well as with e-mail, facsimile, location determination, credit card verification, PDA information delivery and broadcast data applications. The Company also anticipates that future technological advances will eventually enable the Company's network to deliver both stored voice and data transmissions to a single subscriber unit. DISTRIBUTION The Company intends to offer its services to a broad variety of business and consumer segments through both indirect and, over time, direct distribution channels. Distribution support will be tailored to specific distribution channels and will include market research, product and sales training and promotional materials. The Company also will have the flexibility to accommodate bulk billing to resellers, as well as direct billing to end users. Initially, the Company intends to market its stored voice and data messaging services indirectly by forming marketing relationships with resellers, such as one-way paging operators and other third-party distributors. The Company's planned distribution strategy is detailed below. Indirect Distribution The Company believes that utilizing existing distribution channels will be a rapid and cost-effective method of establishing market share. Management has identified three indirect distribution channels that together should give the Company access to the widest possible group of end users. Established Telecommunications Companies. This category includes one-way paging operators and other providers of telecommunications services. PCSD is forming marketing relationships with established paging companies that have installed customer bases but that do not have the capability to deliver the Company's wireless stored voice or data messaging products over their existing networks. Consistent with this strategy, through July 1, 1996, the Company has entered into arrangements with its Paging Company Investors as well as 19 other paging companies, which together have an aggregate of approximately 16 million subscribers, pursuant to which these paging companies have indicated their intention to sell the Company's stored voice services to their customers. The Common Stockholders Agreement (as defined herein) provides that the Paging Company Investors must enter into exclusive operating agreements with the Company with respect to those narrowband PCS services rendered by the Company which such Paging Company Investors desire to purchase, provided such services are competitive in price and quality with comparable services offered by others. The Paging Company Investors have indicated that they plan to market the Company's services directly to their subscribers through their own sales forces. On May 16, 1996, A+ Network announced that, subject to certain conditions, it had agreed to be acquired by Metrocall, Inc. ("Metrocall"), one of the other paging 32 35 companies that has entered into a memorandum of understanding with the Company. The Company expects that Metrocall, as the successor to the rights and obligations of A+ Network under the Common Stockholders Agreement, will enter into an exclusive operating agreement with the Company as outlined above upon the consummation of the merger of A+ Network into Metrocall. The 19 other paging companies currently have nonbinding memoranda of understanding with the Company pursuant to which they have stated their intention to sell PCSD's advanced messaging services to their subscribers if those services are competitive in price and quality. The Company is currently in the process of presenting marketing proposals and definitive contracts to the paging companies and expects definitive contracts to be concluded by the fall of 1996. The Company believes that these established paging companies will be likely to offer stored voice messaging services to their subscribers even though such services may be viewed as competitive with traditional paging services because of the expected market demand for stored voice messaging services by current and future paging subscribers. The Company also believes that other telecommunications companies, such as cellular and long distance service providers, ESMR operators and the RBOCs, will package the Company's services together with their existing product offerings. Management is currently negotiating with several such providers for the distribution of the Company's wireless stored voice messaging services. Industry Integrators. The second indirect distribution channel that management expects to pursue includes industry "integrators" such as voice mail and e-mail providers, interconnect dealers and computer industry value-added resellers. Such companies control access to large, diversified customer bases and, through this channel, the Company expects to distribute its wireless stored voice and data messaging services to the mobile computer user market. Management expects that PCSD's network functions, such as transmission of e-mail, facsimile, PDA information delivery and broadcast data applications, will be complementary to many of the multimedia-based software applications currently being developed. In addition to the mobile computer user, the Company believes that its services will also appeal to subscribers of business voice mail services. Management expects that its stored voice messaging service will enhance passive voice mail systems by providing immediate notification of receipt of messages and eliminating the need to call into a fixed voice mail system to retrieve messages. Consumer Mass Marketing Companies. The third indirect marketing channel that the Company expects to utilize consists of a broad array of consumer mass marketing companies, including national chain retailers, telemarketing companies and commercial on-line services, among others. Management expects this channel to be the most cost-effective way to reach the "retail consumer." The Company expects retailers to sell units to end users who will call one of PCSD's toll-free operators for service activation and billing. The Company expects to provide sales incentives and advertising support, and will emphasize the training of sales personnel to enhance the retailers' effectiveness and to ensure the customer is well educated regarding the Company's services. The Company expects to develop a national "brand name" for use in marketing its services through these mass retailers. Direct Distribution While the indirect distribution channel is expected to account initially for substantially all of the Company's subscriber additions, the Company is currently developing direct marketing programs and alliances to supplement its indirect distribution and to provide customized, higher-value-added products to select customer segments. The Company will endeavor to sell "applications" designed to address specific customer segments and needs. These applications could include multimedia (voice and data) messaging services integrated with portable computers, digital organizers and other hand-held computing devices. Successfully selling these applications will require the establishment of strategic alliances and direct marketing programs with technology partners and computer industry distribution partners. Management believes that the sale of applications could generate enhanced margins that would more than offset the costs associated with direct marketing and sales. 33 36 PRICING OF AIRTIME AND SUBSCRIBER UNITS Currently, monthly airtime charges for subscribers to traditional one-way local paging services range from approximately $8 to $12 for digital service and $15 to $20 for alphanumeric service. One-way paging subscribers either purchase their pagers at prices ranging from approximately $50 to $120 for numeric pagers and $150 to $250 for alphanumeric pagers, or lease their pagers for monthly charges ranging from approximately $1 to $7 depending on the term of the lease. The Company is still developing its airtime pricing strategies and subscriber unit sale and rental options. As discussed above, the Company's initial plan is to market its stored voice messaging service indirectly through resellers. The Company will not control the airtime or subscriber unit prices charged by its resellers to the end user subscribers. The Company anticipates, however, that the pricing packages it will offer its volume resellers will enable them to offer PCSD's local stored voice messaging services, including subscriber unit rental, at prices ranging from $18 to $20 per month. The Company anticipates that these pricing packages will enable the Company to generate positive cash flow from operations beginning in 1999. However, no assurance can be or is given as to when or if the Company will generate positive cash flow from operations. The stored voice messaging subscriber unit is expected initially to cost approximately $250, with volume purchase discounts potentially available. Management's present intention is to sell the subscriber units to its resellers at cost. The resellers will have the flexibility to either resell the units to the end user subscribers on a customer-owned-and-maintained ("COAM") basis or lease the subscriber unit. Thus, from the Company's perspective, the majority of the subscriber units will be COAM but from the resellers' perspective, the units may be either COAM or leased to the end user. As the Company's direct sales grow, however, it is likely that the Company will lease an increasing portion of subscriber units directly to end users. As this occurs, management will attempt to optimize profitability by determining the proper blend of COAM and leased subscriber units. SPECTRUM The Company's nationwide spectrum consists of five regional 50/50 kHz narrowband radio frequency licenses acquired at the November 1994 FCC auction (the "Licenses"). The FCC granted the Licenses to the Company on February 3, 1995, and that grant became nonappealable by final order on March 15, 1995. The Licenses are on the same frequency, which allows the Company to create a seamless nationwide network covering the United States and its territories, including Puerto Rico and the U.S. Virgin Islands. Management believes that the Licenses give the Company adequate capacity to execute its business plan for the provision of services on a local, regional and nationwide basis. If demand for the Company's services exceeds the Company's expectations, the Company could increase network capacity by adding more transmitters and receivers or by acquiring additional spectrum. Anticipating that the acquisition of additional spectrum in major metropolitan areas would be a cost-effective alternative to adding more network infrastructure, the Company participated in the FCC's 900 MHz specialized mobile radio ("SMR") auction that concluded on April 15, 1996 (the "SMR Auction"). The Company was the winning bidder in the SMR Auction for SMR licenses in 29 major metropolitan areas (the "SMR Auction Spectrum"). The Company's winning bids (net of a 10% bidding credit) totaled $9.7 million. Because the Company satisfied "small business" criteria applicable in the SMR Auction, it was entitled to a 10% bidding credit and is entitled to pay 90% of the net price for SMR Auction Spectrum over the ten-year term of the licenses, with interest only payable for the first two years and the remaining principal and interest payable quarterly over the remaining eight years. See "Description of FCC Auction Benefits -- "Small Business" Status in FCC 900 MHz SMR Auction." The Company expects that the licenses for its SMR Auction Spectrum will be granted in July 1996, which grants will become nonappealable by final order in September 1996, unless challenged. The Company is fully qualified to hold the SMR Auction Spectrum and expects that its applications for this spectrum will be granted in the ordinary course. The interest rate on the installment payments will be set at 250 basis points in excess of the 10-year U.S. Treasury note rate as of the date of grant. In addition to its SMR Auction Spectrum, the Company has purchased or has contracts or letters of intent to purchase from third parties SMR spectrum in five other metropolitan areas for an aggregate purchase 34 37 price of approximately $15.6 million. Additionally, the Company has options or is actively negotiating to acquire options on SMR spectrum in four metropolitan areas, the option fees under which are approximately $3.5 million and the total purchase price for which (inclusive of the option fees) is expected to be approximately $11.4 million if the options are exercised. The options are long term options, the shortest of which expires June 30, 2000 if not earlier exercised. The purchase prices and option fees for these pending acquisitions will be funded from a combination of the proceeds of the Units, existing cash balances and seller financing. The SMR licenses typically consist of ten channels with 125 kHz inbound and a 125 kHz outbound capacity. Together with the Licenses, the SMR Auction Spectrum and the SMR spectrum purchased or under contract or option with third parties, the Company's network will have at least 175 kHz/175 kHz spectrum capacity in 37 of the 50 largest BTAs, including each of the top nine BTAs. The Company anticipates that it may acquire or may obtain options to acquire additional SMR spectrum from private owners. Moreover, the Company may acquire additional narrowband PCS spectrum in the FCC narrowband PCS MTA/BTA auction anticipated to occur in late 1996 or early 1997. See "Description of FCC Auction Benefits -- Status in Future FCC Narrowband PCS MTA/BTA Auction." These additional acquisitions would be funded through FCC financing that may be available (in the case of spectrum acquired through auction), seller financing (including deferred payments for spectrum under option), sales or exchanges of spectrum owned by the Company or other financing. In order to utilize SMR spectrum to deliver its stored voice messaging and other narrowband PCS services over the Company's InFLEXion(TM) network, it will be necessary for the InFLEXion(TM) infrastructure equipment and TENOR(TM) subscriber unit to be type-accepted by the FCC for use with SMR spectrum. Such acceptance, required under Part 15 of the FCC rules, involves routine laboratory testing of transmission equipment to determine that such equipment operates within appropriate specifications. Motorola and Glenayre have indicated to the Company that they will seek such approval from the FCC with respect to the equipment manufactured by them and that they know of no reason why such approval cannot be obtained. See "Business -- Network Buildout." In addition to its United States spectrum, the Company intends to enter into a joint venture arrangement to acquire radio frequency for the purpose of providing stored voice messaging services in Canada. NARROWBAND PCS PROTOCOLS Paging networks use various "protocols" to provide seamless communication between the various components which make up a paging network. Protocols regulate the format and flow of messages which are transmitted over the network. Motorola has developed, and licensed to Glenayre, several protocols, including FLEX(TM), ReFLEX(TM) and InFLEXion(TM). Of the three protocols, ReFLEX(TM) and InFLEXion(TM) both permit two-way alphanumeric messaging, but only InFLEXion(TM) has the capability to offer cost-efficient stored voice messaging, very-high-speed data delivery and the transmission of data to the subscriber unit from the network's nearest transmitter, thus allowing greater "frequency reuse." AT&T has also developed a proprietary protocol, "Personal Air Communications Technology," or pACT(TM), for two-way wireless transmission of voice and alphanumeric messages. Management believes, however, that the InFLEXion(TM) protocol is superior to pACT(TM) in terms of cost-efficient stored voice messaging and very-high-speed data delivery. 35 38 Various protocols have different transmission speed and capacity characteristics. Consequently, the ability to deliver various types of wireless messaging services, including stored voice messaging, on a cost-efficient basis is dependent upon the protocol used. The following table illustrates certain characteristics of various protocols based on current publicly available information.
INFLEXION(TM) REFLEX 50(TM) REFLEX 25(TM) PACT(TM) Outbound Transmission Speed per 6,400 bits per 6,400 bits per 8,000 bits per Channel 16,000 bits per second second second second Number of Channels(1) 7 4 2 3 Outbound Throughput(1) 112,000 bits per 25,600 bits per 12,800 bits per 24,000 bits per second second second second Frequency Reuse Nearest All Regional All Regional Nearest Transmitter Transmitters Transmitters Transmitter Message Acknowledgement Yes Yes Yes Yes Limited Alphanumeric Message Response Yes Yes Yes Yes Stored Voice Messaging(2) Yes No No Yes Subscriber Unit Size 5.5 oz 5.5 oz 5.5 oz (3) Estimated Initial Subscriber Unit Price $250 $400 $300 (3) Typical Battery Life 45 days 30 days 30 days (3)
- --------------- (1) Based on narrowband PCS networks with 50 kHz outbound frequency. (2) Though the ReFLEX 50(TM) and ReFLEX 25(TM) protocols technically have the ability to support these service offerings, management believes that neither of these protocols can cost-effectively support these service offerings. (3) Not disclosed in publicly available information. As indicated in the table above, the InFLEXion(TM) protocol is a superior alternative to other protocols in terms of transmission speed and network capacity. The InFLEXion(TM) protocol has the ability to support outbound (i.e. the message from the sender to the subscriber) transmission speeds of up to 16,000 bits per second, or approximately twice that of its nearest competitor. Further, its utilization of seven outbound channels allows the InFLEXion(TM) protocol to maximize the amount of data which can be transmitted over the network over a given period of time ("outbound throughput"). The InFLEXion(TM) protocol allows for outbound throughput of up to 112,000 bits per second (or 16,000 bits per second multiplied by seven channels). Networks utilizing the InFLEXion(TM) protocol are able to realize greater capacity through the protocol's ability to optimize frequency transmission. With both ReFLEX(TM) and InFLEXion(TM) protocols, when a caller sends a message to a subscriber, the network will broadcast a brief message over the outbound channel signaling the subscriber unit to register its location on the network. Once the unit registers its location, the network transmits the message to the unit. In the case of ReFLEX(TM), the network has the ability to transmit the message from a regional group of transmitters. In the case of InFLEXion(TM), however, the network has the ability to transmit the message from the transmitter closest to the unit. In doing so, the InFLEXion(TM) protocol frees the other transmitters within a regional group to send and receive other messages, dramatically increasing network capacity compared to a ReFLEX(TM) network. NETWORK BUILDOUT The Company is designing and constructing its own nationwide narrowband PCS network and plans to provide coverage in the top ten BTAs by the time of the commercial introduction of the Company's stored voice messaging service, which is expected to occur in the second quarter of 1997, and to complete its nationwide network buildout in the first quarter of 1998. The key elements of the network buildout are as follows: Design. The design of the Company's nationwide narrowband PCS network is based upon Motorola's InFLEXion(TM) technology with its frequency reuse capability in order to achieve more efficient use of the Company's spectrum and to accommodate a greater number of subscribers. The design process requires extensive radio frequency planning, which involves the selection of specific sites for the placement of transmitters and receivers. As part of the design process, the Company's engineers are identifying sites using the Company's proprietary database (as well as other sources), which contains 36 39 specific information about available sites throughout the nation. Sites are chosen on the basis of their coverage and on frequency propagation characteristics, such as terrain, topography, building penetration and population density. Radio frequency plans for the initial implementation of the networks in Atlanta and Boston are substantially complete and preliminary radio frequency plans are currently being formulated by the Company's engineers for the buildout of the nation's largest population centers. The Company's engineers are currently projecting that the Company's nationwide narrowband PCS network will consist of approximately 2,000 transmitter/receiver sites and approximately 600 stand-alone receiver sites in 1998 when the network is expected to be completed. Site Acquisition. The Company also has commenced its site acquisition process. The Company is in the process of leasing sites for terms of varying lengths. One of PCSD's objectives is to reduce the risk of delays during the buildout of the network while maintaining the integrity of the system design. Where feasible, the Company plans to use existing site locations occupied by other communications service providers such as paging, cellular, SMR and radio and television broadcasters, and other sites where zoning approvals and other necessary permits are likely to be easily obtained. Equipment. The infrastructure of the Company's InFLEXion(TM) network will consist of radio transmitters and receivers, switches, radio frequency controllers and ancillary equipment, such as coaxial cable and antennae. The switch is the "keeper" of the core data base which stores subscriber data, as well as the coordination unit for all system parameters and diagnostics. This infrastructure equipment (other than the ancillary equipment) which the Company intends to purchase is manufactured only by two industry leaders, Motorola and Glenayre. Management expects that each component of the network infrastructure will be available for purchase from either technology vendor and that these components will be interchangeable. The Company has entered into purchase agreements covering the acquisition of infrastructure equipment and TENOR(TM) subscriber units from Motorola and infrastructure equipment from Glenayre. The purchase agreements require each manufacturer to assist the Company in the buildout and testing of its network in the Company's initial over-the-air test markets with a view to supplying the Company with the infrastructure equipment for the construction of its nationwide network. Glenayre has agreed to finance the acquisition of equipment and related services by the Company. See "Description of Other Indebtedness -- The Credit Facility." The purchase agreement with Motorola covers the acquisition and testing of both infrastructure equipment and TENOR(TM) subscriber units. Motorola will provide infrastructure equipment and TENOR(TM) subscriber units to the Company for initial over-the-air testing in metropolitan Atlanta to commence in the fall of 1996. In consideration of Motorola's agreement to advance funds to cover the Company's monthly costs for site leases, telco lines, ancillary equipment and similar costs for the Atlanta test system and delayed payment terms on the over-the-air test site equipment, the Company has agreed to purchase from Motorola at least 25% of its infrastructure equipment requirements in each year for a three year period beginning in June 1996; provided that Motorola is competitive overall on price, quality and delivery. The Company has committed to an initial order of commercial quantities of TENOR(TM) subscriber units, which the Company expects to receive in the second quarter of 1997. See "Competition." The purchase agreement provides that Motorola shall enter into good faith negotiations to license an alternative provider of subscriber units. Motorola and potential Motorola licensees will be the only providers of TENOR(TM) subscriber units. Pursuant to the Glenayre purchase agreement, the Company will purchase from Glenayre infrastructure equipment and Glenayre will cooperate in over-the-air testing of its equipment in metropolitan Boston scheduled to commence in the fall of 1996. The Company has agreed to purchase from Glenayre $75.0 million of its infrastructure equipment requirements through June 1999, which Glenayre has agreed to finance by participating in the Credit Facility. Glenayre has agreed to provide the Company with pricing on its infrastructure equipment that is no less favorable than prices provided to other customers purchasing the same equipment in similar quantities. Both Motorola and Glenayre have agreed to 37 40 cooperate with the Company to confirm the compatibility of each manufacturer's equipment with the other for use on the Company's network. Motorola and Glenayre also have committed to pursue FCC type-approval of their equipment for use with the SMR spectrum. The design of the Company's alphanumeric data messaging subscriber unit has not yet been determined, but it is expected that such data will be delivered over the Company's InFLEXion(TM) network utilizing a pager-like device similar to the TENOR(TM) unit. System Testing. Motorola has conducted successful over-the-air testing of its InFLEXion(TM) technology, infrastructure equipment and TENOR(TM) subscriber units in its factory in Fort Worth, Texas as well as live field testing in the metropolitan Fort Worth area. While the factory and Fort Worth field tests do not take into account all factors the Company will encounter in the design and buildout of its nationwide network such as variable terrain, topography, building penetration and population density, Motorola's factory and field tests have established that the technology and equipment can deliver a wireless voice message to a TENOR(TM) subscriber unit under controlled circumstances and to date support the commercial viability of the Company's proposed stored voice messaging services. The Company has selected metropolitan Atlanta and Boston for its initial over-the-air tests of its wireless stored voice messaging service. These test markets reflect management's view of the optimal mix of three factors: variety of technical characteristics, population density and proximity to customers of the Company's Paging Company Investors. The Company has substantially completed the initial system design phase for the buildout of its Atlanta and Boston test network systems and is currently acquiring transmitter/receiver sites and installing ancillary equipment. Management plans to conduct over-the-air testing with Motorola infrastructure equipment in Atlanta and Glenayre infrastructure equipment in Boston in the fall of 1996. Motorola has agreed to provide a sufficient number of TENOR(TM) subscriber units to complete these tests notwithstanding Motorola's agreement with PageNet. Motorola has also indicated that commercial quantities of TENOR(TM) subscriber units will be deliverable to PCSD in the second quarter of 1997. Thus, PCSD's commercial introduction of wireless voice messaging services is planned for the second quarter of 1997. See "Competition." PAGING INDUSTRY OVERVIEW Industry sources indicate that, as of December 31, 1995, there were estimated to be over 30 million pagers in service in the United States, which represents a penetration rate in excess of 10% of the population, and that the number of pagers in domestic service has grown at an annual rate of approximately 20% since 1989. This growth is expected to continue at a rate of 15% for the next five years. Factors contributing to historical and projected growth include: (i) a continuing shift toward a service-based economy; (ii) increasing awareness of the benefits of mobile communication among the population at large; (iii) the relatively high cost of traditional two-way mobile communication, such as cellular telephone service; (iv) significant price, performance and coverage area improvements in paging services; (v) improved paging product functionality; and (vi) proliferation of retail distribution outlets. While paging subscribers have traditionally been business users, pager use among other consumers is increasing. The paging industry has existed since 1949, when the FCC allocated a group of radio frequencies for use in providing one-way mobile communication service. Historically, the industry has been highly fragmented, being characterized by a large number of small, local operators. During the 1990's, however, consolidation increased significantly as some paging companies grew rapidly, either internally or by acquisition. As a result, industry sources have reported that over 50% of the estimated number of pagers in service in the United States are now provided by the five companies with the largest subscriber bases. Several hundred small licensed domestic paging companies nevertheless remain in existence. Many of them provide only local paging service. Basic Paging Service. Paging is a method of wireless communication that uses an assigned radio frequency to contact a subscriber virtually anywhere within a local, regional or nationwide service area. The subscriber carries the pager, which receives messages by the broadcast of a one-way radio signal. To page a 38 41 subscriber, a caller first dials the subscriber's designated telephone number. The call is routed to a central paging terminal, which prompts the caller to enter a message (usually a telephone number) with a tone (usually a series of "beeps"). After hearing the tone, the caller uses the key pad of a touch-tone phone to enter the message (telephone number) into the paging terminal. Within seconds, the paging terminal sends the caller's input to radio transmitters in the subscriber's service area. Depending upon the topography of the service area, the operating radius of a typical paging transmitter is from 3 to 20 miles. Each of the transmitters in the service area simultaneously broadcasts the signal to the pager. As the pager receives the broadcast from the nearest transmitter, it alerts the subscriber with a beep or vibration and simultaneously displays and stores the broadcast message. The Company believes that paging is the most cost-effective form of mobile wireless communication. The equipment and "air time" required to transmit an average message cost much less than the equipment and air time required for cellular telephone calls. The majority of paging subscribers in the United States pay $13.00 or less for virtually unlimited monthly local numeric service, while cellular telephone subscribers pay multiples of this amount for limited monthly service. Some consumers use pagers in lieu of, or in conjunction with, cellular telephones in order to screen incoming calls and thereby lower or eliminate the expense of cellular telephone service. Pagers also are smaller and lighter and have longer battery lives than cellular telephones. Advanced Messaging Services. While paging has historically been a one-way communications service, technological advances are now providing a two-way capability for wireless messaging. In 1994 the FCC enhanced the potential for two-way messaging by allocating and auctioning new frequencies for two-way paging services. By the end of 1994 the FCC had successfully auctioned frequencies for both nationwide and regional two-way services. With the advent of two-way narrowband PCS technology, management believes that it will be able to provide its customers with inexpensive voice and/or data acknowledgement paging services complementary to cellular, broadband PCS and ESMR. The newly-auctioned narrowband PCS spectrum is expected to allow greater functionality than traditional paging spectrum because it has broader bandwidth and offers both "inbound" and "outbound" spectrum, allowing efficient two-way communication. With two-way transmission capability, a subscriber unit will be able to indicate its location to the network. As a result, the message can be broadcast from the closest transmission site, rather than from all transmission sites in the entire national, regional or local network, as is the case with existing paging systems. This should enable more efficient use of the spectrum in a given geographic area and should greatly increase overall system capacity. Advanced messaging services are likely to be delivered through several kinds of subscriber equipment and technology such as Motorola's voice messaging product (which will deliver voice messages to a pocket-sized pager-like device), enhanced alphanumeric subscriber units, PC plug-in cards for laptop computers, palmtop computers and PDAs allowing these devices to receive and acknowledge data messages. Eventually these capabilities may be "built in," obviating the need to purchase add-on devices such as PC cards. In addition, it is expected that the enhanced functionality of two-way messaging will attract new subscribers through value-added services such as voice messaging, wireless origination and delivery of e-mail, integration of wireless devices into corporate wide area and local area networks, database access and transaction services. COMPETITION The Company expects competition from several direct and indirect sources, including: other companies that won nationwide and regional narrowband PCS licenses in the FCC's 1994 auctions; local service providers who may obtain MTA/BTA licenses in subsequent FCC auctions of narrowband PCS spectrum; cellular, ESMR and broadband PCS providers; and, to some degree, one-way paging providers. Management expects to compete on the basis of product quality, price of service and breadth of geographic coverage. Other Narrowband PCS Licensees. In addition to the Company, the only companies that were awarded 50/50 kHz narrowband PCS licenses with nationwide coverage in the FCC auctions were PageNet, AT&T, Mtel and PageMart. Both PageNet and AT&T have two nationwide 50/50 kHz narrowband PCS licenses. PageNet, PageMart and Mtel also have unpaired 50 kHz outbound channels in addition to their 50/50 kHz paired channels. 39 42 PageNet and PageMart have announced their intentions to market voice messaging products using the same Motorola InFLEXion(TM) technology that the Company will employ. Mtel has announced that it will use its license for data products utilizing Motorola's ReFLEX(TM) technology and has introduced its two-way data product known as "SkyTel 2-Way." AT&T has announced its plans to introduce a data-oriented system utilizing its proprietary pACT(TM) technology and a subscriber unit manufactured by Ericsson, Inc. AT&T has not yet announced plans for a voice messaging product, but no assurances may be given that it will not compete in that product line. Unlike the other companies that acquired licenses for nationwide 50/50 kHz PCS spectrum, PCSD does not offer one-way paging services. Consequently, the Company believes that other paging companies desiring to offer enhanced PCS services will be more likely to form marketing relationships with PCSD than with these competitors. The Company understands that Motorola has an agreement with PageNet pursuant to which Motorola has agreed to refrain from delivering its TENOR(TM) voice subscriber units for commercial use to customers other than PageNet until six months after Motorola commences commercial production of the units. Motorola has agreed to provide PCSD with TENOR(TM) subscriber units for testing purposes prior to the expiration of the six month period. Thus, the Company's ability to complete and test its Atlanta and Boston systems and to complete its buildout in other cities should not be affected by the PageNet/Motorola agreement. Management expects that PageNet's agreement with Motorola will allow PageNet to commence commercial service of its stored voice product in New York, San Francisco and Dallas prior to the Company commencing its services; however, the Company anticipates that it will receive TENOR(TM) voice subscriber units for commercial use from Motorola by the second quarter of 1997 thereby allowing the Company to provide commercial service of its stored voice service in Atlanta and Boston prior to PageNet and its other competitors and allowing the Company to be one of the first to provide commercial service in the other BTAs and throughout the U.S. In addition to the companies with 50/50 kHz PCS licenses with nationwide coverage, AirTouch, Mtel, MobileMedia Corporation and Advanced Wireless Messaging each own 50/12.5 kHz nationwide narrowband PCS licenses. Several other companies have regional 50/12.5 kHz coverage. The companies that own these licenses will compete with the Company in enhanced alphanumeric and basic acknowledgment paging services, but the Company does not currently expect those companies to offer stored voice messaging services unless they acquire more spectrum. This is because the Company believes that the only currently available technology for the cost effective delivery of wireless stored voice messaging is the InFLEXion(TM) protocol utilizing greater spectrum capacity than 50/12.5 kHz. The FCC is expected to hold auctions for narrowband PCS licenses for 51 MTAs and 493 BTAs in late 1996 or early 1997. Each MTA consists of at least two BTAs. It is anticipated that in each MTA three 50/12.5 kHz paired licenses, two 50/50 kHz paired licenses and two 50 kHz unpaired licenses will be available. It is anticipated that in each BTA two 50/12.5 kHz paired licenses will be available. Management believes that persons acquiring 50/50 kHz paired licenses in the MTA/BTA auctions could, after building or obtaining access to network facilities, compete with the Company in the geographic area covered by their licenses with respect to both voice, enhanced alphanumeric and basic acknowledgement paging. The Company believes that those persons acquiring 50/12.5 kHz licenses in BTAs or MTAs would be unlikely voice paging competitors so long as cost effective delivery of such a service requires an InFLEXion(TM) protocol using greater spectrum capacity than 50/12.5 kHz. Cellular, ESMR and Broadband PCS. While cellular, ESMR and broadband PCS networks will offer extensive wireless services, management believes that most of the Company's service offerings will complement those services rather than compete directly with them. Cellular, ESMR and broadband PCS have approximately 100 to 300 times the bandwidth of narrowband PCS and therefore can provide real-time two-way voice communications and long data transmissions with file transfer capability. The higher broadband PCS infrastructure and spectrum cost, along with the cost of relocating existing users of the spectrum (as required by FCC rules), will likely result in higher prices to the end-user of broadband PCS. In contrast, narrowband PCS will allow providers to offer short stored voice and data messaging services coupled with message receipt acknowledgement. Due to the smaller amount of spectrum used in narrowband PCS, there will be a lower infrastructure cost to cover the same area. Also, unlike broadband PCS, the narrowband PCS spectrum is clear of existing users, thus eliminating the need for costly relocation of incumbent users. 40 43 During the FCC broadband PCS auctions completed on March 13, 1995, 99 broadband PCS licenses in 51 MTAs were auctioned for a total of approximately $7.7 billion. These licenses cover approximately 253 million POPs, POPs being the number of persons within the licensed coverage area based on 1990 U.S. Census data. The average spectrum cost per POP in the 1995 broadband auctions was approximately $15.29. On May 6, 1996, the FCC completed an auction of broadband spectrum in various BTAs to so-called "entrepreneurs" in its "C Block" auction. At the close of the auction, the net bid price (after allowing for a 25% bid credit) was $39.88 per POP. These broadband spectrum costs compare to the $90.9 million, or $0.36 per POP, that the Company paid for its nationwide narrowband PCS spectrum. In addition to the spectrum cost, the estimated cost to build a narrowband PCS network is significantly lower than the estimated cost to build a broadband PCS network. Management expects that the cost to build its nationwide network, including site acquisition, purchase of transmitters and receivers and other expenditures, will approximate $0.55 to $0.65 per POP, compared to approximately $25.00 per POP in network buildout costs for broadband PCS based on recent industry estimates. Both cellular and broadband PCS networks currently offer voice mail as a complement to their mobile telephone services. Due to the design characteristics of an InFLEXion(TM) narrowband PCS network, the Company's management believes that the stored voice messaging service to be offered by PCSD will be superior to cellular and broadband voice mail applications in three respects: Service Cost. Because the spectrum and buildout costs for cellular and broadband networks are significantly higher than the cost of PCSD's narrowband spectrum and buildout, management does not believe that cellular and broadband networks can offer cost-effective alternatives to PCSD's stored voice messaging service. For example, assuming an average of 100 messages per month and service rates of $0.30 per minute, a cellular or broadband PCS subscriber would pay $30.00 per month in incremental air time for stored voice messaging service, which is more than twice what subscribers to narrowband stored voice messaging services are likely to be charged to receive up to several hundred messages per month. Coverage. PCSD's InFLEXion(TM) network will offer nationwide coverage and in-building penetration comparable to current one-way paging networks. Broadband telephone services will be available in BTAs and MTAs, and, like cellular services, will require roaming agreements with various carriers to permit subscribers to use their broadband phone outside their home BTA or MTA. Due to cost considerations, cellular and broadband telephone networks are not currently designed to achieve in-building penetration comparable to paging networks. Thus, management does not believe that cellular or broadband mobile telephone voice mail applications can cost effectively offer the level and quality of coverage that PCSD's nationwide stored voice services will offer. Battery Life. The TENOR(TM) subscriber units that will receive PCSD's stored voice messages will use disposable nine volt batteries and have an anticipated battery life of 45 days. Cellular and broadband telephones use rechargeable batteries which currently offer less than one-tenth of the battery life anticipated for PCSD's voice subscriber unit before requiring recharging. Because of these factors, management does not believe that cellular and broadband mobile telephone networks will compete with PCSD's stored voice messaging service to a significant degree. Rather, the Company believes that PCSD's service offerings will complement cellular and broadband telephone services and expects that companies offering such services could serve as additional distribution outlets for PCSD. The Company believes that the number of large telecommunications companies, including AT&T, AirTouch, Ameritech Corp., BellSouth Corporation and Telephone and Data Systems, Inc., that have acquired both broadband and narrowband PCS spectrum demonstrates that narrowband PCS technologies will offer services quite distinct from cellular and broadband telephone services. The Company understands that at least one firm is attempting to develop technology to utilize excess spectrum capacity on existing cellular systems to deliver a wireless voice messaging product to subscribers at prices less than cellular telephone prices. The Company believes that such a system depends on the efficient and timely capture of cellular spectrum capacity that is not then being used for cellular telephone communications. Because the Company's narrowband PCS network spectrum capacity will be devoted entirely to wireless voice and data messaging, the Company believes that its stored voice messaging service will offer higher quality and more timely 41 44 message delivery than services that depend on finding "excess" spectrum over networks principally devoted to other uses. Nevertheless, should such a technology be successfully developed and should the cellular systems used to deliver the product have sufficient spectrum regularly available, such a service could be competitive with PCSD's two-way wireless voice messaging product. One-Way Paging. While management believes that the Company's services will offer significant functional advantages over existing one-way services, inevitably PCSD's products will compete to some extent with traditional one-way paging systems and devices. While price-sensitive customers may continue to use one-way paging because of its expected lower pricing, management believes that many or most customers will prefer the convenience and features of the Company's services. Motorola's market research indicates that approximately 84% of current one-way paging subscribers would consider converting to voice units when such units are available, and FGI estimates that stored voice services could achieve a 20% market penetration of the U.S. population. REGULATION The construction, operation and acquisition of PCS systems in the U.S. are subject to regulation by the FCC under the Communications Act. In addition, pursuant to congressional authorization granted to the FCC in the 1993 Omnibus Budget Reconciliation Act (the "Budget Act"), the FCC has been charged with conducting spectrum auctions to determine how PCS licenses, for which mutually exclusive applications were filed initially, will be awarded. In preparation for such auctions, the FCC adopted comprehensive rules that (i) outline the bidding process, (ii) describe the bidding application and payment process, (iii) establish penalties for bid withdrawal, default and disqualification, (iv) establish regulatory safeguards and (v) define the regulatory treatment of Designated Entities. Designated Entities are entitled to special treatment. See "Description of FCC Auction Benefits." The FCC's national and regional narrowband auctions were completed in 1994. The Company was awarded the Licenses pursuant to the regional auctions concluded in November 1994. Other companies obtained narrowband PCS licenses in the national and regional auctions. See "Competition." The FCC is anticipated to hold MTA and BTA auctions in late 1996 or early 1997. The Company may participate in those auctions as well. See "Competition." The Company was granted its Licenses on February 3, 1995, which grant became a nonappealable final order on March 15, 1995. Because the Company qualified as a "Designated Entity" in participating in the regional auctions, it received certain financial benefits which are subject to repayment if the Company fails in certain respects to retain that status. See "Description of FCC Auction Benefits -- "Designated Entity" Status in FCC Narrowband PCS Regional Auction." In addition, every narrowband PCS licensee must construct facilities that offer coverage to 37.5% of the population of its service areas within five years of its initial license grant and to 75% of the population within ten years. Licensees that fail to meet the coverage requirements will be subject to revocation of their licenses. The Company's buildout plan is designed to meet these requirements by the close of 1998. All narrowband PCS licenses expire automatically ten years after their initial grant date; thus, the Company's Licenses will expire on February 3, 2005. The Company expects that the FCC will grant it and other licensees renewals of the narrowband PCS licenses upon their expiration provided such licensees have complied with the FCC's rules and regulations in all material respects. Commercial Mobile Radio Service Regulation The Company's provision of PCS will be regulated by the FCC as a commercial mobile radio service, or a CMRS, which is a new class of service created by the Budget Act. While the FCC's rules relating to certain aspects of the operational and technical regulation of such services are not yet final, PCS, when offered as a for-profit interconnected service to the public, will be subject to certain common-carrier type regulations at the federal level. PCS providers will be required to provide service upon reasonable request to any customer and are prohibited from unjust or unreasonable discrimination in charges, practices, classifications, regulations, facilities or services for or in connection with like communications services. From time to time, legislation 42 45 which could potentially effect the Company, either beneficially or adversely, may be proposed by federal and state legislators. On February 8, 1996, the Telecommunications Act of 1996 was signed into law, revising the Communications Act to eliminate unnecessary regulation and to increase competition among providers of communications services. The Company cannot predict the future impact of this or other legislation on its operations. Commercial Mobile Radio Spectrum Limit The FCC has imposed a limit on the amount of spectrum certain categories of CMRS can aggregate in a given geographic area. The total amount of broadband PCS, cellular and SMR spectrum in which a single entity may have an attributable interest in a given area is 45 Mhz. Although the Company's interest in its narrowband PCS spectrum is not included in this spectrum aggregation cap, the FCC does prohibit a narrowband PCS licensee from holding an ownership interest in more than three of the 26 channels allocated for narrowband PCS. Foreign Ownership Restrictions The Communications Act restricts foreign investment in and ownership of certain FCC licensees, including common carrier PCS licensees. Among other things, aliens or corporations otherwise subject to domination or control by aliens may not own more than 20% of a common carrier PCS licensee directly or more than 25% of the parent of a common carrier PCS licensee. Aliens may not serve as officers of a common carrier PCS licensee or as members of a common carrier PCS licensee's board of directors, although up to one-fourth of the board of directors of a common carrier licensee's parent may be aliens. The FCC has authority to permit a licensee to exceed the 25% limit if it finds that the public interest would be served. State Regulations The FCC has ruled that PCS providers presumptively will be considered CMRS providers, which are exempt from state rate and entry regulation under the Budget Act. The Budget Act allows states to seek to initiate rate regulation by showing that existing market conditions cannot protect consumers from unreasonable and unjust rates or that the service is a replacement for traditional wireline telephone service for a substantial portion of the wireline service within the state. The Budget Act also allows states that regulated CMRS rates as of June 1, 1993 to petition the FCC to continue such regulation by making the same showing. States are not, however, prohibited from regulating other terms and conditions of CMRS. Several states petitioned the FCC to continue such regulation, but the FCC denied all such petitions. As a result, appeals are now pending on the FCC's denial of the states' petitions. International Considerations The Company's use of spectrum in certain areas of the United States adjoining Canada and Mexico may be limited pursuant to arrangements between the FCC and Canadian and Mexican regulatory authorities. In September 1994, representatives of the FCC and Industry Canada (the Canadian regulatory body) concluded discussions for an interim sharing arrangement for narrowband PCS in the Detroit/Windsor and Toronto/Buffalo regions. This arrangement provides for the use of spectrum for narrowband PCS near the border between the United States and Canada. Among other things, the arrangement specifies which narrowband channels are available for use by each of the FCC and Industry Canada within 75 miles of the border. The FCC reached a similar agreement with Mexico's Secretaria de Communicaciones y Transportes (the Mexican regulatory body) in May 1995. Management is confident that these arrangements will have no material adverse effect on the Company. One-way paging companies have dealt with this issue satisfactorily as they built their industry into its present position. 43 46 FACILITIES AND EMPLOYEES The Company currently occupies approximately 13,000 square feet of leased space and has options to lease an additional 11,000 square feet in Greenville, South Carolina. All of the Company's management functions occupy this new facility, which should be adequate for such purposes for the foreseeable future. Additional facilities will be needed eventually to house customer service and network monitoring personnel. Management believes that the Company will be able to lease office space as needed on acceptable terms. The Company also will lease space for transmitter/receivers as it constructs its nationwide network. Portions of existing towers and rooftops of buildings will be leased for the great majority of sites. At December 31, 1995, the Company employed 33 full-time personnel, none of whom is represented by a labor union. Management believes that the Company's employee relations are excellent. The Company anticipates that the development of its nationwide narrowband PCS system and the delivery of its services will require the hiring of a substantial number of new employees. TRADEMARKS The Company does not currently own any trademarks, service marks or patents. However, the Company expects to apply for and develop trademarks and service marks in the ordinary course of business. LEGAL PROCEEDINGS The Company is not currently party to any legal proceeding that is material to the Company's business or its financial condition. 44 47 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The Company's directors and executive officers and their positions with the Company are as follows:
NAME POSITION - ---------------------------------------------------------- ---------------------------------- Maceo K. Sloan(1)......................................... Chairman of the Board Cecil L. Duffie, Jr.(1)................................... Vice Chairman of the Board, Chief Executive Officer and Director William D. deKay.......................................... President and Director Harry L. Latham III....................................... Senior Vice President of Sales and Marketing Jerome C. Leonard......................................... Senior Vice President for Engineering and Network Operations Mark A. Moore............................................. Senior Vice President of Finance, Treasurer and Chief Financial Officer C.E. Baker, Jr.(1)(2)..................................... Director Justin F. Beckett......................................... Director R. Schorr Berman.......................................... Director James E. Daverman(1)...................................... Director Richard D. Frisbie........................................ Director Jeffery C. Garvey(1)...................................... Director James D. Kallman(1)....................................... Director Steven J. Lerner.......................................... Director Malcolmn Pryor............................................ Director Stan F. Sech.............................................. Director Pamela R. Simmons......................................... Director Elliott H. Singer(3)...................................... Director
- --------------- (1) Member of Finance Committee. See "Description of Capital Stock -- Common Stock -- Common Stockholders Agreement -- Finance Committee." (2) Mr. Baker is Arch Communications' designee to the Board of PCSD. On or about May 20, 1996, Arch Communications acquired the stock of Westlink Holdings, Inc. ("Westlink") which owns 49.9% of the outstanding stock of Benbow PCS Ventures, Inc., ("Benbow"), which owns two 50 kHz/12.5 kHz regional narrowband PCS licenses. Westlink also has a five-year management agreement with Benbow under which Westlink is responsible for the day-to-day operations of Benbow. In addition, Arch Communications has notified the Company that it plans to transfer all of the Common Stock of the Company owned by Arch Communications to its wholly-owned subsidiary, Arch Communications Enterprises, Inc. ("ACE"). As a result of the closing of the Westlink acquisition and the transfer of the PCSD Common Stock to ACE, Arch Communications has lost its right to designate a director to PCSD's Board and Mr. Baker is required to resign from PCSD's Board. Under the Common Stockholders Agreement, open Board seats created by the termination of a Paging Company Investor's right to designate a director shall be filled by an individual designated by the Board who is employed by or associated with the remaining Paging Company Investor, if any, or another person otherwise experienced in the telecommunications industry. (3) Mr. Singer is A+ Network's designee to the Board of PCSD. A+ Network has entered into a definitive agreement to be acquired by Metrocall that will result in the merger of A+ Network into Metrocall. Under the Common Stockholders Agreement, a stockholder who has the right to designate a director and who sells, assigns, conveys or otherwise transfers its Common Stock by operation of law or otherwise loses its right to designate a director. Accordingly, upon the consummation of the merger of A+ Network into Metrocall, A+ Network will lose its right to designate a director to PCSD's Board. Under the Common Stockholders Agreement, open board seats created by the termination of a Paging Company Investor's 45 48 right to designate a director shall be filled by an individual designated by the Board who is employed by or associated with the remaining Paging Company Investor, if any, or another person otherwise experienced in the telecommunications industry. BACKGROUND OF DIRECTORS AND EXECUTIVE OFFICERS Maceo K. Sloan, age 46, has been the Chairman of the Board of the Company since its inception in 1994. He is also Chairman, President and Chief Executive Officer of SCI and Sloan Financial Group, Inc., a holding company for various investment advisory, research and financial services organizations. The largest of these is NCM Capital Management Group, Inc., an SEC-registered investment advisor that Mr. Sloan founded in 1986 and that currently has more than $3 billion in assets under management. Mr. Sloan serves as Chairman, President, Chief Executive Officer and Chief Investment Officer of NCM Capital Management Group, Inc. Before founding NCM Capital Management Group, Inc., Mr. Sloan spent 13 years with North Carolina Mutual Life Insurance Company and its subsidiary, NCM Life Communications, Inc., which had holdings in cable, cellular and radio telecommunications. Cecil L. Duffie, Jr., age 47, has been the Vice Chairman, Chief Executive Officer and a director of the Company since its inception in 1994. He was a co-founder of Dial Page Inc. in 1982 and served as a director of Dial Page until March 1994. Mr. Duffie was the President and Chief Executive Officer of Dial Page from July 1983 through September 1986 and was Chairman from August 1989 through August 1990. Mr. Duffie provided consulting services to Dial Page from January 1993 through March 1994 in conjunction with the formation of the Dial Page subsidiary that merged with Nextel Communications, Inc. His other business experience includes serving as Chairman, President and Chief Executive Officer of Beverage Properties, Inc., a producer and distributor of soft drinks, from 1991 through 1994. William D. deKay, age 40, has been the President and a director of the Company since its organization in 1994. He joined the Company from Dial Page, having been employed by Dial Page since 1985, except for one year (January 1988 through January 1989) when he served as Chief Operating Officer of Providence Journal Telecommunications, Inc., a cellular telephone company. At Dial Page, Mr. deKay served from September 1990 until July 1994 as Executive Vice President of Business Development, Vice Chairman of the Board of Directors and Secretary. From January 1989 to September 1990 he served as Vice President and Chief Operating Officer of Dial Page, and from October 1985 until January 1988 he was Vice President of Marketing of Dial Page. Prior to that time, he held various marketing and sales positions for Sprint and AT&T Long Lines. Harry L. Latham III, age 35, joined the Company as its Senior Vice President of Sales and Marketing in April 1995. He served from October 1992 to April 1995 as Vice President of Marketing at SkyTel, where he was responsible for Product Development, Marketing Strategy, Marketing Alliances, Distribution Development and Communications. Prior to joining SkyTel in October 1992, Mr. Latham spent approximately eight years in the Consumer Package Goods Industry and brand management with the Nabisco Foods Group and the Quaker Oats Corporation. Jerome C. Leonard, age 58, joined the Company as its Senior Vice President for Engineering and Network Operations in March 1995. For 33 years before joining the Company he was employed by Motorola, where he served in several key management positions. From March 1992 until March 1995 he was Motorola's Corporate Vice President and General Manager of Strategic Programs for the Messaging, Information and Media Sector, which focused during this period on narrowband and broadband PCS. From 1981 to 1993 Mr. Leonard held key management positions in Paging Operations, including six years as General Manager of two major Paging Products Divisions with responsibilities including manufacturing, research, design and sales. Mark A. Moore, age 35, is the Company's Chief Financial Officer and Senior Vice President of Finance. He served as USA Mobile's Controller from May 1990 through February 1992, as its Vice President of Finance from February 1992 through November 1993 and as its Chief Financial Officer, Vice President of Finance and Secretary from November 1993 until he joined the Company in May 1995. From 1984 through 1990, Mr. Moore held various management positions with the Paging Division of Graphic Scanning Corporation. 46 49 C.E. Baker, Jr., age 45, has been a director of the Company since November 1994. He has also served as President, Chief Executive Officer and a director of Arch Communications since 1988 and became Chairman of the Board of Arch Communications in May 1989. Justin F. Beckett, age 32, has been a director of the Company since May 1995. He serves as President and a director of Sloan Communications, Inc., where he has been employed in various executive capacities during the past five years. He is also President and Chief Executive Officer of New Africa Advisers, Inc., a wholly-owned subsidiary of Sloan Financial Group. Mr. Beckett is also Executive Vice President of Sloan Financial Group. R. Schorr Berman, age 47, has been a director of the Company since November 1994. He has also been a director of Arch Communications since 1986. Since 1987, he has been the President and Chief Executive Officer of MDT Advisers, Inc. and was an investment officer at Memorial Drive Trust from 1984 to 1988. James E. Daverman, age 46, has been a director of the Company since November 1994. He has served as Managing General Partner of Marquette Venture Partners, a venture capital firm, for the past five years. Richard D. Frisbie, age 46, has been a director of the Company since November 1994. He has been Managing General Partner of Battery Ventures I, II and III since he founded it in 1984. He serves on a number of Board of Directors of privately owned companies. Jeffery C. Garvey, age 47, has been a director of the Company since November 1994. He has been General Partner of Austin Ventures during the past five years. James D. Kallman, age 33, has been a director of the Company since November 10, 1995. He has been a Principal of Chase Capital Partners (formerly Chemical Venture Partners) since January 1, 1992. From January 1990 until December 1991, he served as the president of M.H. Capital Partners, Inc. Steven J. Lerner, age 41, has been a director of the Company since May 1995. He also serves as Vice President and a director of Sloan Communications, Inc. He has been the Chairman of FGI and CMS, Inc. since he co-founded them in 1982 and 1990, respectively. FGI and CMS, Inc. are marketing companies headquartered in Chapel Hill, North Carolina. Malcolmn Pryor, age 49, has been a director of the Company since November 1995. During the past five years he has served as Chairman of Pryor, McLendon, Counts & Co., Inc., an investment advisory firm. Stan F. Sech, age 52, has been a director of the Company since November 1994. Mr. Sech was the President and Chief Operating Officer of USA Mobile Communications, Inc. from 1990 until September 1995 and continues to be employed by such company in an executive capacity. Pamela R. Simmons, age 45, has been a director of the Company since May 1995. She is Vice President and General Counsel of Sloan Financial Group and NCM Capital Management Group, Inc. and serves as Vice President and Secretary of SCI. From 1990 until she joined Sloan Financial Group in 1994, she worked as a Senior Attorney with the Land Loss Prevention Project. Elliott H. Singer, age 54, has been a director of the Company since November 1994. He also has been Chairman of the Board and Chief Executive Officer of A+ Network since its formation in 1985. Mr. Singer was the owner and Chief Executive Officer of A+ Network predecessor entities, through which he had been engaged in the telemessaging service business since 1974 and in the paging business since 1983. BOARD OF DIRECTORS All directors hold office by virtue of their designation by certain stockholders pursuant to the terms of the Common Stockholders Agreement, as defined herein. There are no family relationships between any of the directors or executive officers of the Company. See "Common Stockholders Agreement -- Board of Directors." The Company's Board of Directors has established a Finance Committee which is responsible for developing the Company's annual business plans. The Board of Directors has also established a Compensation 47 50 Committee which is responsible for making recommendations to the Board of Directors regarding compensation arrangements for key employees of the Company. See "Common Stockholders Agreement -- Finance Committee." COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The members of the Compensation Committee are R. Schorr Berman, Steven J. Lerner, Stan F. Sech and Elliott H. Singer, who were also the sole members of the Compensation Committee during the Company's last fiscal year. No member is or has ever been an employee of the Company. DIRECTORS' COMPENSATION Directors do not receive any compensation or reimbursement of expenses incurred by them in connection with their attendance at Board meetings. The Company has issued warrants to Austin Ventures and to Marquette Ventures and has paid FGI to perform marketing services on the Company's behalf. None of these arrangements, however, were to compensate Mr. Jeffery Garvey, a Board designee of Austin Ventures, Mr. James Daverman, a Board designee of Marquette Ventures, or Mr. Steven Lerner, a Board designee of SCI and Sloan LP, in connection with their role as directors of the Company. See "Certain Transactions -- Option Agreements; Warrant Agreements" and "Relationship with FGI." EXECUTIVE COMPENSATION Summary Compensation of Executive Officers. The following table sets forth certain information regarding the compensation of the Company's Chief Executive Officer and the Company's three other most highly compensated executive officers other than the Chief Executive Officer whose total salary and bonus exceeded $100,000 during the year ended December 31, 1995 (the "Named Executives"). SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION(1) --------------- ANNUAL COMPENSATION SECURITIES ---------------------------- UNDERLYING NAME AND PRINCIPAL POSITION SALARY BONUS OTHER(2) OPTIONS (#) - --------------------------------------------------- -------- ------- ------- --------------- Cecil L. Duffie, Jr................................ $122,436 $24,487 $ 3,500 -- Chief Executive Officer William D. deKay................................... 122,436 24,487 3,500 -- President Harry L. Latham, III............................... 102,846 18,761 35,500 200 Senior Vice President of Sales and Marketing Jerome C. Leonard.................................. 184,615 30,011 50,692 400 Senior Vice President for Engineering & Network Operations
- --------------- (1) Options to acquire shares of Class B Common Stock. (2) Amounts related to the reimbursement of relocation expenses and car allowances. 48 51 Option Grants in Last Fiscal Year. The following table summarizes options to acquire shares of Class B Common Stock granted to the Named Executives during 1995. No options to acquire Class A Common Stock were granted to the Named Executives in 1995 and no options were granted in the last fiscal year to any of the Named Executives which are not listed in the following table. OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL REALIZABLE -------------------------------------------------- VALUE AT ASSUMED NUMBER OF PERCENTAGE OF ANNUAL RATES OF STOCK SECURITIES TOTAL PRICE APPRECIATION UNDERLYING OPTIONS EXERCISE FOR OPTION TERM(1) OPTIONS GRANTED TO PRICE EXPIRATION ----------------------- NAME GRANTED EMPLOYEES ($/SHARE) DATE 5% 10% - ---------------------------- --------- ------------- --------- ---------- ---------- ---------- Harry L. Latham III(2)(3)(4).............. 200 2.7 1,000 04/15/2005 125,800 318,800 Jerome C. Leonard(2)(3)(4).......... 400 5.4 1,000 03/01/2005 251,600 637,600
- --------------- (1) Potential realizable value illustrates the respective values that might be realized upon exercise of the options immediately prior to the expiration of their term assuming the respective indicated compounded rates of appreciation of the value of the Company's Common Stock over the term of the options. The prices of Common Stock at the end of the ten-year term of the options would be $1,629 assuming 5% annual appreciation and $2,594 assuming 10% annual appreciation. Such amounts represent assumed rates of appreciation only. Actual gains, if any, on stock option exercises will depend on the future performance of the Common Stock and overall market conditions. (2) All options were granted pursuant to Stock Option Agreements between the Company and each of the Named Executives. The exercise price is greater than the fair market value of the Company's Class B Common Stock on the date of grant. See "-- The Employment Agreements; Option and Warrant Agreements." (3) No options may be exercised until the first to occur of several specified events. See "-- The Employment Agreements; Option and Warrant Agreements." (4) The options vest 20% on the first anniversary date of employment, and in 5% quarterly increments thereafter, and thus become fully vested after five years of employment. All options, unless previously vested, will automatically vest upon a "Change in Control" of the Company, as defined below. Option Exercises and Holdings. During the year ended December 31, 1995, no stock options were exercised by the Named Executives. The following table sets forth information with respect to each of the Named Executives concerning the value of all unexercised options held by such individuals at December 31, 1995. FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(A) - --------------------------------------------- -------------------------- ------------------------------ Cecil L. Duffie, Jr.......................... 0/2,626 $0/2,232,100 William D. deKay............................. 0/2,626 0/2,232,100 Harry L. Latham III.......................... 0/200 0/170,000 Jerome C. Leonard............................ 0/400 0/340,000
- --------------- (a) Represents the difference between the exercise price per share and the market value of the Common Stock at December 31, 1995. 49 52 THE EMPLOYMENT AGREEMENTS; OPTION AND WARRANT AGREEMENTS The Company has entered into an Employment Agreement with each Named Executive (collectively, the "Employment Agreements"). It also has entered into an Option Agreement with each Named Executive and with certain other employees (collectively, the "Option Agreements"). In addition, the Company has entered into a Warrant Agreement (collectively, the "Warrant Agreements") with each of Austin Ventures III-A, L.P., Austin Ventures III-B, L.P., Austin Ventures IV-A, L.P. and Austin Ventures IV-B, L.P. (collectively, "Austin Ventures") and Marquette Venture Partners II, L.P. and MVP II Affiliates Fund L.P. (collectively, "Marquette Ventures"). The following summary of these agreements is qualified in its entirety by reference to the complete texts of such agreements, copies of which are available from the Company upon request. Each Employment Agreement provides that the relevant Named Executive will receive a base salary and bonus to be set by the Board of Directors and contains certain noncompetition, nonsolicitation and confidentiality covenants. Under the Option Agreements with Messrs. Duffie and deKay, the Company has granted each of them options to purchase from the Company up to 2,626 shares of Class B Common Stock, in each case at an exercise price of $1,000 per share, subject to adjustments for stock splits and stock dividends. Options held by Messrs. Duffie and deKay to purchase 1,313 shares of Class B Common Stock are currently vested, and, subject to certain conditions, the remainder of the options will vest 20% on each June 1 beginning June 1, 1996 and ending on June 1, 2000, whereupon they will be fully vested until they expire on October 31, 2004. The Company also has an Option Agreement with Mr. Latham dated March 31, 1995, as amended, under which it has granted options covering an additional 200 shares of Class B Common Stock exercisable at $1,000 per share and 200 shares of Class B Common Stock exercisable at $1,850 per share. The Option Agreement between Mr. Leonard and the Company entered into on January 13, 1995 granted options to purchase 400 shares of Class B Common Stock exercisable at $1,000 per share. The options granted to the Named Executives (other than to Messrs. Duffie and deKay) will vest 20% on the first anniversary of employment, and in 5% quarterly increments thereafter, and will expire ten years after the date of commencement of employment. Prior to the incorporation of the Company in September of 1994, Messrs. Duffie and deKay incorporated and organized another corporation ("First Corp.") in early 1994 to investigate and pursue potential business opportunities in the advanced wireless messaging industry. Austin Ventures and Marquette Ventures committed to fund up to $1.2 million of start-up and organizational expenses of First Corp. with the understanding that they would receive a 58% equity interest in First Corp. as consideration for their funding. Pursuant to this commitment, Austin Ventures and Marquette Ventures advanced approximately $232,000 to First Corp. When additional investors were attracted in the fall of 1994, the Company was incorporated and organized and acquired the rights, benefits and intangible value attendant to the start-up activities of First Corp. The acquired assets included First Corp.'s proprietary business plans, strategies, market research, furniture and fixtures, and supplies. The Company acquired these assets by reimbursing approximately $193,000 to First Corp. and by entering into certain special rights agreements in the nature of stock appreciation rights with Austin Venture and Marquette Ventures effective October 31, 1994. After receiving the reimbursement from the Company, First Corp. returned approximately $141,000 to Austin Ventures and Marquette Ventures. In the summer of 1995, in substitution for the special rights agreements, the Company granted Austin Ventures and Marquette Ventures warrants to acquire up to 692 and 621 shares of Class B Common Stock, respectively, in each case at a price of $1,360.49 per share. Subject to certain conditions, the warrants will vest over a period beginning on February 1, 1995 and ending on November 1, 1997, and will expire on October 31, 2004. The warrants granted to Austin Ventures and Marquette Ventures, as well as the options granted to the Named Executives unless previously vested, will automatically vest upon a Change in Control of the Company. For purposes of the Warrant Agreements and the Option Agreements, a "Change in Control" shall be deemed to have occurred if any person or group of related persons (other than the stockholders of the Company as of November 10, 1995) shall acquire in any transaction or series of transactions (X) all or substantially all of the assets of the Company, (Y) beneficial ownership (within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended) of more than 50% of the sum of (i) all shares of Common Stock then outstanding and (ii) all shares of Common Stock then underlying 50 53 outstanding shares of stock (other than Common Stock) or (Z) beneficial ownership of that number of outstanding stock of any corporate successor to the Company by merger or consolidation sufficient to elect a majority of the directors of such successor or sufficient equity interests in any non-corporate successor to the Company to control its affairs (within Section 13 of the Securities Act). Pursuant to the terms of the Option Agreements and Warrant Agreements, the rights to purchase shares do not come into existence, regardless of whether the rights have otherwise vested, until the first to occur of: (i) the Company receives an opinion of FCC counsel, in form and substance reasonably satisfactory to the Company, to the effect that exercise will not result in the loss of or materially jeopardize the Company's Designated Entity status, (ii) the Company consummates a public offering at a price of $10.00 or more per share in an underwritten transaction registered under the Securities Act and realizes gross proceeds of $10.0 million or more or (iii) the first date after which the failure of the Company to qualify for "Designated Entity" status as a "Business Owned by Members of Minority Groups and/or Women" would not result in the loss of material benefits by the Company, provided, however, if such date is later than February 3, 2000, the Optionee shall have the right by written notice to the Company to cause the Company to reinstate the Optionees' special compensation rights under its Employment Agreement. CERTAIN TRANSACTIONS STRATEGIC ALLIANCES WITH CERTAIN STOCKHOLDERS As part of their strategic alliance with the Company, each of the Paging Company Investors has entered into a subscription agreement and the Common Stockholders Agreement with the Company. In particular, while the Paging Company Investors are not entitled to purchase services from the Company at prices less than those available to non-stockholders, the Paging Company Investors as well as the Company's other current stockholders are entitled to the best rates available to non-stockholders based on comparable type and volume of service and other contractual provisions. The Paging Company Investors, however, are required to purchase narrowband PCS services exclusively from the Company, provided that the Company's services are competitive in price and quality with comparable services offered by others. The Paging Company Investors and the Company also have agreed to negotiate in good faith to enter into mutually acceptable intercarrier network access and similar agreements. The Company has agreed that, in the event of a merger of the Company or a sale of its assets or business, any agreements that the Company may have with the Paging Company Investors that may enable them to offer narrowband PCS services over a broader geographic area must remain in effect. The details of these strategic alliances are expected to be documented as the Company develops its business. OPTION AGREEMENTS; WARRANT AGREEMENTS The Company has entered into the Option Agreements with the Named Executives and with certain other management employees and has entered into the Warrant Agreements with Austin Ventures and Marquette Ventures. Austin Ventures owns 714, 4,110 and 889 shares of Class A Common Stock, Class B Common Stock and Series A Preferred Stock, respectively, representing approximately 9.07% of all classes and series of the Company's capital stock, assuming the exercise of all outstanding options, warrants and convertible securities. Mr. Jeffery Garvey, a director of the Company, is a general partner of AV Partners III, L.P. and AV Partners IV, L.P., the general partners of Austin Ventures. Marquette Ventures owns 640, 3,685 and 889 shares of the Class A Common Stock, Class B Common Stock and Series A Preferred Stock, respectively, representing approximately 8.26% of all classes and series of the Company's capital stock, assuming the exercise of all outstanding options, warrants and convertible securities. Mr. James Daverman, a director of the Company, is a general partner of JED Limited Partnership, which is the general partner of Marquette General II, L.P., the general partner of Marquette Ventures. See "Management -- The Employment Agreements; Option and Warrant Agreements." 51 54 STOCKHOLDER LOAN SCI, one of the Company's original shareholders and a member of its "Control Group" for purposes of FCC "Designated Entity" status, purchased 4,200 shares of Class A Common Stock and 5,100 shares of Class B Common Stock in the Company for $9.3 million in October 1994, in part with the proceeds of a $9.2 million loan from the Company (the "Sloan Loan"). Messrs. Sloan and Beckett, directors of the Company, own all of the outstanding stock of SCI. Each advance under the Sloan Loan bears interest at 6% per annum for the first year and 10% per annum thereafter. In the event of a default, the interest rate increases on all outstanding principal and unpaid accrued interest to 15% for the first six months of the default, 20% for months seven through 12, and 25% thereafter. The largest amount due the Company under the Sloan Loan in 1995 was approximately $9.8 million. In connection with the formation and capitalization of Sloan LP, a limited partnership organized in order to own SCI's shares in the Company, SCI transferred 4,211 shares (1,895 Class A and 2,316 Class B) of the Company's Common Stock to Sloan LP, and Sloan LP assumed approximately $4.4 million of the Sloan Loan attributable thereto. Sloan LP repaid that $4.4 million portion of the Sloan Loan with the proceeds of the sale of limited partnership interests in Sloan LP. In April 1996, SCI transferred an additional 3,519 shares (1,583 Class A and 1,936 Class B) of the Company's Common Stock to Sloan LP. Sloan LP assumed approximately $3.9 million of the Sloan Loan attributable thereto and repaid that $3.9 million portion of the Sloan Loan with the proceeds of the sale of additional limited partnership interests in Sloan LP. As a result of these transactions, the Sloan Loan currently has a principal balance of approximately $1.7 million and is secured by a pledge of 1,570 shares of Common Stock. While the Sloan Loan is a recourse obligation of SCI, SCI's only assets are the pledged shares of Common Stock and its general partner interest in Sloan LP. The Sloan Loan is due on April 30, 1997. RELATIONSHIP WITH CHASE The Chase Manhattan Bank ("Chase") has committed to act as the administrative agent and the manager of the Credit Facility and as a lender under the Tranche A and Tranche B Facilities (as defined herein). Chase is an affiliate of Chase Manhattan Capital Corporation and Chase Venture Capital Associates, L.P. Chase Manhattan Capital Corporation and Chase Venture Capital Associates, L.P. own 3.60% and 18.02%, respectively, of the Series A Preferred Stock. RELATIONSHIP WITH FGI FGI has been engaged as a marketing consultant to the Company. The Company has formulated its business plan in reliance upon market research, analysis and recommendations, some of which has been performed and made by FGI. The Company paid FGI $69,000 and $116,500 in 1995 and 1996, respectively, for marketing services rendered. FGI became a stockholder in the Company subsequent to its 1994 study but prior to the 1996 study. See "Prospectus Summary -- The Company," "Business -- General" and "Business -- Market Potential." FGI owns 15 and 85 shares of Class A and Class B Common Stock, respectively, of the Company, representing approximately .14% of all classes and series of the Company's capital stock, assuming the exercise of all outstanding options, warrants and convertible securities. Mr. Steven Lerner is the Chairman of FGI and a director of the Company. SECURITIES SALES In October 1994 the Company sold 37,200 shares of Common Stock for $1,000 per share to various parties, including certain executive officers and directors of the Company and parties who are beneficial holders of more than four percent of a class of the Company's voting securities. In November 1995, the Company sold 24,667 shares of Series A Preferred Stock for $2,250 per share to various parties, including certain executive officers and directors of the Company and parties who are beneficial holders of more than four percent of a class of the Company's voting securities. These purchases are reflected in the beneficial ownership table under "Principal Stockholders." 52 55 PRINCIPAL STOCKHOLDERS The following table sets forth certain information as of March 31, 1996, regarding (i) the amount and nature of the beneficial ownership of each class of the Company's equity securities owned by directors, Named Executives and all of the Company's directors and executive officers as a group, (ii) the ownership of the Company's Class A Common Stock and Series A Preferred Stock, which are the only two classes of the Company's securities that have the right to vote for the election of Directors, by each person or entity known to the Company to be the beneficial owner of more than five percent of any class of such voting securities, and (iii) the percent of all of the Company's equity securities considered as a single class owned beneficially by each person, entity or group named in the table.
SERIES A CONVERTIBLE PERCENT OF CLASS A CLASS B ALL EQUITY COMMON STOCK(1) COMMON STOCK(1) PREFERRED STOCK(1) SECURITIES -------------------- ----------------------- -------------------- CONSIDERED NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT AS A SINGLE OF SHARES OF CLASS OF SHARES OF CLASS(2) OF SHARES OF CLASS CLASS --------- -------- --------- ----------- --------- -------- ------------ SCI(3).................................. 4,200 48.18% -- -- -- -- 15.03% Sloan LP(4)............................. 3,478 39.89 -- -- -- -- 12.49 Arch Communications(5).................. 962 11.03 -- -- -- -- 10.51 Austin Ventures III-A, L.P.(6).......... 714 8.19 -- -- -- -- 9.23 Austin Ventures III-B, L.P.(6).......... 714 8.19 -- -- -- -- 9.23 Austin Ventures IV-A, L.P.(6)........... 714 8.19 -- -- -- -- 9.23 Austin Ventures IV-B, L.P.(6)........... 714 8.19 -- -- -- -- 9.23 Battery Ventures III, L.P.(7)........... 518 5.94 -- -- -- -- 5.66 Chancellor Capital Management, Inc.(8)............................... -- -- -- -- 2,223 9.01 3.59 Chase Manhattan Capital Corporation(9)........................ -- -- -- -- 5,334 21.62 8.62 Chase Venture Capital Associates, L.P.(10).............................. -- -- -- -- 5,334 21.62 8.62 Eos Partners, SBIC, L.P.(11)............ -- -- -- -- 1,289 5.23 2.08 Fayez Sarofim(12)....................... -- -- -- -- 1,289 5.23 2.08 Kingdon Capital Management Corp.(13).... -- -- -- -- 2,223 9.01 3.59 MVP II Affiliates Fund, L.P.(14)........ 640 7.34 -- -- -- -- 8.43 Marquette Venture Partners II, L.P.(14).............................. 640 7.34 -- -- -- -- 8.43 Toronto Dominion Investments, Inc.(15).............................. -- -- -- -- 2,223 9.01 3.59 Maceo K. Sloan(3)(16)................... 4,200 48.18 5,100 17.91 -- -- 15.03 Cecil L. Duffie, Jr.(17)................ 26 0.30 149 0.52 -- -- .28 William D. deKay(17).................... 26 0.30 149 0.52 -- -- .28 Harry L. Latham III(17)................. -- -- -- -- -- -- -- Jerry Leonard(17)....................... -- -- -- -- -- -- -- C.E. Baker, Jr.(5)...................... -- -- -- -- -- -- -- Justin F. Beckett(4).................... -- -- -- -- -- -- -- R. Schorr Berman(18).................... 370 4.24 2,825 9.02 695 2.82 5.16 James E. Daverman(14)................... 640 7.34 4,574 15.57 889 3.62 8.43 Richard D. Frisbie(19).................. 518 5.94 2,982 10.47 -- -- 5.66 Jeffery C. Garvey(6).................... 714 8.19 4,999 17.02 889 3.62 9.23 James D. Kallman(20).................... -- -- 5,334 15.77 5,334 21.62 8.62 Steven J. Lerner(21).................... 15 .17 85 .30 -- -- .16 Malcolmn Pryor(22)...................... -- -- -- -- -- -- -- Stan F. Sech(23)........................ -- -- -- -- -- -- -- Pamela R. Simmons(4).................... -- -- -- -- -- -- -- Elliott H. Singer(24)................... -- -- -- -- -- -- -- All directors and executive officers as a group (17 persons).................. 6,509 71.51 26,197 68.04 7,807 31.65 52.85
- --------------- (1) The holders of the Class A shares have the right to elect 16 of the Company's 17 directors. Pursuant to the Common Stockholders Agreement, such holders have agreed to elect these directors from designees selected by the stockholders of the Company as prescribed in the Common Stockholders Agreement. See "Description of Capital Stock -- Common Stock -- Common Stockholders Agreement -- Directors." The holders of the Class B shares do not elect directors of the Company. So long as no less than one-third of the Series A shares remain outstanding, the holders of the Series A shares have the right to 53 56 elect one member to the Company's Board of Directors. See "Description of Capital Stock -- Preferred Stock -- Voting Rights." The holders of the Class A shares are entitled to one vote for each share held on all matters as to which stockholders are entitled to vote. Shares of Class B confer on the holders thereof no right to vote except with respect to each of the matters listed in the Company's Restated Certificate of Incorporation, as to which each holder is entitled to one vote for each share held, voting as a single class with the Class A shares. The holders of the Series A shares will vote together with the Common Stockholders as though part of such class on those specific matters as to which the holders of the Class B shares are entitled to vote. (2) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, a person is deemed to be the beneficial owner for purposes of this table of any shares of stock if such person has or shares voting power or investment power with respect to such security, or has the right to acquire beneficial ownership at any time within 60 days from March 31, 1996. Accordingly, the table gives effect to (i) the conversion of Series B Preferred Stock held by Toronto Dominion Investments, Inc. into the Series A Preferred Stock and (ii) the conversion of Series A Preferred Stock of each Named Executive and the directors into Class B Common Stock and assumes, for purposes of the calculations under (ii) above, that the Series A Preferred Stock of the other holders remain outstanding and are not converted into Class B Common Stock. Unless otherwise indicated, to the Company's knowledge each of the shareholders listed above has sole voting and investment power with respect to the shares beneficially owned. (3) Includes 3,478 Class A and 4,252 Class B shares owned by Sloan LP, of which SCI is the general partner. (4) The address of this person is 103 West Main Street, 4th Floor, Durham, NC 27701-3638. (5) Arch Communications has advised the Company that Arch Communications proposes to transfer all of its Class A and Class B shares to its wholly-owned subsidiary, ACE. The address of this person is 1800 West Park Drive, Ste. 350, Westborough, MA 01581. (6) Includes all Class A shares and Series A shares owned by Austin Ventures. AV Partners III, L.P. is a general partner of Austin Ventures III-A, L.P. and Austin Ventures III-B, L.P. AV Partners IV, L.P. is a general partner of Austin Ventures IV-A, L.P. and Austin Ventures IV-B, L.P. All of these shares are deemed to be beneficially owned by Mr. Garvey because he is a general partner of AV Partners III, L.P. and AV Partners IV, L.P. Mr. Garvey disclaims beneficial ownership of these shares. The address of this person is 114 West 7th Street, Suite 1300, Austin, Texas 78701. (7) The address of this person is 200 Portland Street, Boston, MA 02114. (8) Chancellor Capital Management Inc. is the investment manager for various fiduciary accounts which own Series A shares and it has voting and dispository power over such shares. The address of this person is 1166 Avenue of the Americas, New York, NY 10036. (9) Includes 4,445 Series A shares owned of record by Chase Venture Capital Associates, L.P. The address of this person is 380 Madison Avenue, 12th Floor, New York, NY 10017. (10) Includes 889 Series A shares owned of record by Chase Manhattan Capital Corporation. The address of this person is 380 Madison Avenue, 12th Floor, New York, NY 10017. (11) The address of this person is 520 Madison Avenue, New York, NY 10022. (12) Includes 645 Series A shares owned of record by FSI Corporation. Mr. Sarofim has voting power and investment power over such shares. The address of this person is Two Houston Center, Ste. 2907, Houston, TX 77010. (13) Kingdon Capital Management Corp. is a general partner of various fiduciary accounts which own Series A shares and it has voting and dispository power over such shares. The address of this person is 152 West 57th St., New York, NY 10019. (14) Includes 18 Class A shares owned of record by MVP II Affiliates Fund, L.P. and 622 Class A shares owned of record by Marquette Venture Partners II, L.P., both of which Marquette General II, L.P. is a general partner. All of these shares are deemed to be beneficially owned by Mr. Daverman because he is a general partner of JED, Limited Partnership, which is the general partner of Marquette Venture Partners II, L.P. Mr. Daverman disclaims beneficial ownership of these shares. The address of this person is 520 Lake Cook Rd., Ste. 450, Deerfield, IL 60015. 54 57 (15) Includes 1,067 Series B shares which are convertible into 1,067 Series A shares at the option of the holder. The address of this person is 31 West 52nd St., New York, NY 10019. (16) Includes all shares owned of record by SCI, of which Mr. Sloan owns two-thirds of the equity securities, and all shares owned by Sloan LP, of which SCI is the general partner. The address of this person is 103 West Main St., 4th Floor, Durham, NC 27701-3638. (17) The address of this person is 15 S. Main St., Ste. 810, Greenville, SC 29601. (18) Includes 370 Class A, 2,825 Class B and 695 Series A shares owned by Memorial Drive Trust. Mr. Berman is the administrator and Chief Executive Officer of Memorial Drive Trust. Mr. Berman disclaims beneficial ownership of the shares owned by Memorial Drive Trust. The address of this person is 125 Cambridge Park Drive, Cambridge, MA 02140-2314. (19) Includes 518 Class A and 2,982 Class B shares owned of record by Battery Ventures III, L.P., of which Battery Partners III, L.P. is a general partner. Mr. Frisbie is a managing partner of Battery Partners III, L.P. Mr. Frisbie disclaims beneficial ownership of these shares. The address of this person is 200 Portland Street, Boston, MA 02114. (20) Includes 4,445 Series A shares owned by Chase Venture Capital Associates, L.P., and 889 Series A shares owned by Chase Manhattan Capital Corporation. Mr. Kallman is a principal of Chase Capital Partners, the general partner of Chase Venture Capital Associates, L.P. Chase Manhattan Capital Corporation has agreed to grant to Chase Capital Partners a voting proxy with respect to all shares of the Company owned by Chase Manhattan Capital Corporation. The address of Chase Capital Partners is 380 Madison Avenue, 12th Floor, New York, NY 10017. (21) Includes 15 Class A shares and 85 Class B shares owned by FGI, of which Mr. Lerner is Chairman. The address of this person is 206 West Franklin Street, Chapel Hill, NC 27516. (22) The address of this person is 1515 Market Street, 819, Philadelphia, PA 19102. (23) The address of this person is 11300 Cornell Park Drive, Suite 200, Cincinnati, OH 45242. (24) A+ Network has entered into a definitive agreement to be acquired by Metrocall. The address of this person is 24165 Hillsboro Road, Nashville, TN 37212. 55 58 DESCRIPTION OF FCC AUCTION BENEFITS "DESIGNATED ENTITY" STATUS IN FCC NARROWBAND PCS REGIONAL AUCTION Because the Company satisfied FCC eligibility requirements for "Designated Entity" status as both a "Small Business" and as a "Business Owned by Members of Minority Groups and/or Women," as those terms are defined by the FCC for purposes of the narrowband PCS regional auction in which the Company acquired the Licenses, the Company received both bidding credits and installment payment options that were not available to all auction participants. Thus, while the Company's winning bids for the Licenses totalled $151.5 million, the total purchase price was only $90.9 million due to the 40%, or $60.6 million, bidding credit received from the FCC because of the Company's status as a "Designated Entity" satisfying the requirements for a "Business Owned by Members of Minority Groups and/or Women." Due to the auction dynamics, however, the bidding credit did not enable the Company to purchase its Licenses for an amount less than other companies that acquired nationwide licenses in the auctions. Specifically, in the narrowband PCS regional auction there were two 50kHz/50kHz radio frequency licenses auctioned in each of the five regions of the United States (in addition to four 50kHz/12.5kHz licenses in each region). Designated Entity bidders that qualified as a "Business Owned by Members of Minority Groups and/or Women" could bid on either of the two 50/50 kHz licenses, but could use their 40% bidding credits only on one of the two 50/50 kHz licenses auctioned in each region that was designated as eligible for the bidding credits (the "Bid Credit License"). Thus, for example, a bid by a Designated Entity of $30 million for the Bid Credit License was equivalent to a bid of $18 million for the other 50/50 kHz license. Any bid by a Designated Entity for the Bid Credit License at a price less than $30 million would attract bids of other Designated Entities who would find the Bid Credit License (net of the bid credit) less expensive than an $18 million bid for the other license. Thus, because Designated Entities could bid on both the Bid Credit Licenses and the other licenses, the bids for the Bid Credit Licenses net of the bidding credit tended to approximate the bids for the other licenses. Moreover, the average price paid for nationwide 50kHz/50kHz licenses in the FCC's narrowband PCS nationwide auction concluded in July of 1994 was $83.4 million, while the Company's net price after bidding credits to acquire the same coverage in the PCS regional auctions concluded in November 1994 was $90.9 million. In addition to the bidding credits, as a Designated Entity that satisfied the requirements for a "Small Business" applicable in the narrowband PCS regional auction, the Company was entitled to pay the $90.9 million purchase price for the Licenses through two 10% deposits that were made in late 1994 and early 1995, with the $72.7 million balance payable to the FCC over ten years at a 7.5% annual interest rate, with no payment of principal for the first two years. In order to be considered a Designated Entity under the rules governing the narrowband PCS regional auction as both a Small Business and a Business Owned by Members of Minority Groups and/or Women, it was necessary that the Company have a "Control Group" that owned at least 50.1% of the Company's voting rights (including the right to elect a majority of the directors) and at least 25% of the Company's total equity on a fully diluted basis. In addition, no other equity investor or related group of investors is permitted to own more than 25% of the total equity in the Company, or more than 15% of the voting equity of the Company. The Company's Control Group currently consists of SCI, Sloan LP, the Sullivan Family Revocable Trust and Dobson Family Corp. Such shareholders together own approximately 53% of the Company's Class A Common Stock and, pursuant to the terms of the Company's Common Stockholders' Agreement, are entitled to designate nine of the Company's 17 directors. Prior to the closing of the issuance of the Company's Series A Preferred Stock, the members of the Control Group owned 26% of the Company's total equity on a fully diluted basis. Upon the issuance of the Series A Preferred Stock on November 30, 1995, the Control Group's total equity interest in the Company was diluted to approximately 14.98%. As a result of this dilution PCSD ceased to satisfy the requirements for Designated Entity status because the members of its Control Group owned on a fully diluted basis less than 25% of the Company's equity. In conjunction with the closing of the sale of the Company's Series A Preferred Stock, the Company, through Lukas McGowan, its special FCC counsel, obtained a written ruling from the FCC staff that the dilution of the Control Group's equity interest in the Company as a result of the issuance of the Series A Preferred Stock would not result in the loss of the financial benefits that accrued to the Company due to its status as a Designated Entity in the narrowband PCS regional auction. This finding was based on the assumption that the Control Group would continue its 56 59 ownership of 50.1% of the voting equity of the Company and that no investor outside of the Control Group would hold more than 25% of the total equity of the Company, or more than 15% of the total voting equity of the Company. The members of the Control Group may transfer their interests in the Company before February 3, 2000 only if no transfer of control of the Company occurs and if the Control Group continues to satisfy the ownership requirements. Upon the issuance of the Units, it is anticipated that the Control Group's equity interest will be further diluted from approximately 14.98% to approximately %, but that the Company will continue to satisfy the other three percentage tests. In connection with the issuance of the Units the Company has received the opinion of Lukas McGowan that the dilution of the Control Group's equity interest as a result of the issuance and exercise of the Warrants will not result in the loss of the financial benefits that have accrued to it as a Designated Entity in the narrowband PCS regional auction and that after the issuance of the Units the Company will continue to be eligible for the benefits that have accrued to it as a Designated Entity. In order to qualify as a "Small Business", the Company and certain of its owners had to satisfy certain gross income and total asset limitations. Specifically, neither the Company, any affiliate of the Company, any person with an attributable interest in the Company, nor any of the affiliates of such person could have a net worth in excess of $40 million, and those persons taken together could not have in excess of $40 million in average gross revenues for the three preceding years. The Company will not lose its Small Business status if the thresholds are exceeded due to events occurring with respect to those persons after the grant of the License, including permitted equity investments, revenue from operations, business development or expanded operations. Should the Company, prior to February 3, 2000, lose its status as a Business Owned by Members of Minority Groups and/or Women (other than as a result of the dilution of the Control Group's equity interest that occurred upon the issuance of the Series A Preferred Stock or that will occur upon the issuance of the Units), the Company may be required to make an "unjust enrichment" payment to the FCC to reimburse the FCC for all or a portion of the value of the bidding credit received by the Company, plus interest thereon at a rate of 7.5% per annum. Such a payment would also be due if the Company assigned or transferred its Licenses prior to February 3, 2000 to another entity that did not qualify as a Business Owned by Members of Minority Groups and/or Women. The amount of any penalty depends upon when the status is lost or the transfer occurs and the value of the bidding credit. A loss of status or transfer in the first two years of the License term will result in a forfeiture of 100% of the value of the bidding credit; in year three of the license term, the penalty will be 75%; in year four the penalty will be 50%; and in year five the penalty will be 25% of the bidding credit, after which there is no penalty. It is unclear whether the value of the bidding credit for unjust enrichment purposes will be the entire amount of the bidding credit ($60.6 million) or some lesser amount that would take into account that the bidding credit did not permit the Company to acquire the Licences for a price any less than comparable licenses acquired by persons who did not receive bidding credits. Should the Company, prior to February 3, 2005, transfer control of its Licenses to an entity which does not qualify as a Small Business under the criteria applicable for the narrowband PCS regional auction, the balance due to the FCC with respect to the installment financing received by the Company in connection with the acquisition of the Licenses would then become due and payable. The FCC conducts random audits to ensure that licensees are in compliance with the applicable rules. If the Company is unable to make the unjust enrichment payments or pay the balance of the purchase price in the event of the loss of installment treatment, the FCC could revoke the Company's Licenses. Because the regulatory penalty for failure to comply with applicable Designated Entity rules is the unjust enrichment payment, failure to comply with the Designated Entity rules will not itself provide a basis for the revocation of the Licenses, absent aggravating circumstances such as misrepresentation or bad faith. In the event of an Initial Public Offering (as defined below under "Description of the Capital Stock -- Preferred Stock -- Conversion into Class B Common Stock"), the Common Stockholders Agreement will be terminated and the Company's Class B Common Stock will be convertible into Class A Common Stock. In such a case, it is likely that the Company's existing Control Group will cease to be entitled to elect a majority of the Company's directors. If this occurs prior to February 3, 2000, the Company will be subject to unjust 57 60 enrichment payments to the FCC with respect to its bidding credits unless it receives a waiver from the FCC. If this occurs prior to February 3, 2005, the Company will be required to prepay its FCC installment obligations unless it receives a waiver from the FCC. There can be no assurance that the Company can receive such waivers. Affirmative action programs, such as the one applicable in the narrowband PCS regional auction in which the Company obtained its Licenses, have come under increased scrutiny in Congress and in the courts. As a result of the June 12, 1995 decision by the United States Supreme Court in Adarand Constructors, Inc. v. Pena, which subjected all federal race based classifications to "strict scrutiny," the FCC eliminated race and gender based preferences in the auctions of certain broadband PCS licenses that commenced on December 18, 1995. However, the FCC granted the Licenses to the Company on February 3, 1995 and those grants became nonappealable by Final Order on March 15, 1995. Thus, the grants of the narrowband PCS Licenses to the Company are final and those grants are beyond administrative and judicial review and the Company has been advised by Lukas McGowan that the Company's ownership and use of the Licenses could not be adversely affected by the Adarand decision. It is likely, however, that the Company's Designated Entity status as a "Business owned by Members of Minority Groups and/or Women" will not provide advantages in any future FCC auctions of radio frequency spectrum. "SMALL BUSINESS" STATUS IN FCC 900 MHZ SMR AUCTION Because the Company satisfied FCC eligibility requirements for a "Small Business" applicable in the FCC's 900 MHz SMR auction, the Company received a 10% bidding credit, reducing the total cost of its SMR Auction Spectrum from $10.8 million to $9.7 million. See "Business -- Spectrum." In addition, this status will permit the Company to pay 90% of $9.7 million net purchase price in quarterly installments over ten years with interest at the 10-year Treasury note rate plus 250 basis points, with no payment of principal for the first two years. The Company qualified as a "Small Business" in the SMR auction because the Company's average gross revenues for the preceeding three years, together with the average gross revenues of its affiliates, persons that hold attributable interests in the Company and affiliates of such persons did not exceed $15 million. If the Company assigns or transfers control of the licenses for its SMR Auction Spectrum within the first five years after the licenses are granted, it will be subject to unjust enrichment provisions similar to those applicable to its narrowband PCS Licenses requiring prepayment of all or a portion of the value of its bidding credits and requiring prepayment of its installment obligations. There were no race or gender preferences, Control Group requirements or net worth limitations applicable to the Company in the SMR auction. STATUS IN FUTURE FCC NARROWBAND PCS MTA/BTA AUCTION The Company may participate in the FCC's narrowband PCS MTA/BTA auction anticipated to occur in late 1996 or early 1997. See "Business -- Spectrum." While the rules for this auction have not yet been issued, the Company anticipates that there will be no race or gender preferences, but there could well be bidding credits and installment payment options based on small business status. Depending upon the timing of the auction relative to the Company's generation of revenues and the revenue thresholds that may be applicable in determining small business status, the Company may qualify for bidding credits and installment payments that may be available should it choose to participate in that auction. 58 61 DESCRIPTION OF OTHER INDEBTEDNESS THE CREDIT FACILITY The Company's wholly-owned direct subsidiary, PCSD Financial Corp., has obtained a commitment from Chase Securities Inc., as Arranger, to arrange the establishment of senior credit facilities in the amount of $225.0 million effective upon the closing of the Offering (the "Credit Facility"). PCSD Financial Corp. will have approximately $75.0 million immediately available at the Closing Date for borrowing under the Credit Facility. The Credit Facility will consist of (i) a Glenayre Facility providing for term loans in an amount not to exceed $75.0 million (the "Glenayre Facility") to be made available by Glenayre for the purpose of financing the acquisition of equipment and technical services from Glenayre, (ii) a Tranche A Facility providing for revolving loans in an amount not to exceed $35.0 million (the "Tranche A Facility") to be made available by a syndicate of banks, financial institutions and other entities (the "Syndicate"), including The Chase Manhattan Bank ("Chase"), for the purpose of financing the working capital and capital expenditure needs of PCSD Financial Corp. and its subsidiaries in the ordinary course of business, and (iii) a Tranche B Facility providing for revolving loans in an amount not to exceed $115.0 million (the "Tranche B Facility") to be made available by the Syndicate, including Chase, for the purpose of (x) financing the working capital and capital expenditure needs of PCSD Financial Corp. and its subsidiaries in the ordinary course of business and (y) repaying maturing loans under the Glenayre Facility and the Tranche A Facility. Chase has committed to provide the entire $150.0 million of the Tranche A Facility and Tranche B Facility. The availability of the Credit Facility will be conditioned upon among other things PCSD Financial Corp. having entered into equipment supply contracts with Glenayre and Motorola containing satisfactory terms and conditions. Borrowings under the Glenayre Facility and the Tranche A Facility will be available from the closing date of the Credit Facility to the date which is three and one half years thereafter, at which time all of the loans outstanding will be repayable in two equal installments on March 31, 2000 and on June 30, 2000. Availability under the Tranche B Facility will commence on such closing date and end on June 30, 2004, except that if the initial borrowing thereunder is not made on or before June 30, 2000, such facility will automatically terminate on such date. The Tranche B Facility will be reduced in fourteen consecutive quarterly installments, beginning on March 31, 2001 and ending on June 30, 2004. The making of each loan under the Tranche A Facility will be subject to the satisfaction of certain conditions, including expending certain amounts received from the issuance of common stock by PCSD Financial Corp. to the Company, borrowing the full amount under the Glenayre Facility, having a minimum number of "qualified pagers in service" (pagers in service for more than 60 days) and maintaining a minimum level of average monthly revenue per subscriber unit. The making of each loan under the Tranche B Facility will be subject to the satisfaction of certain conditions, including expending certain amounts received from the issuance of common stock by PCSD Financial Corp. to the Company and maintaining a maximum ratio of total debt to "qualified pagers in service" and a maximum ratio of total debt to operating cash flow. In addition, certain mandatory prepayments of loans extended under the Credit Facility are to be made from (i) subject to certain exceptions to be agreed upon, 50% of the net proceeds of any sale or issuance of equity or incurrence of indebtedness after the closing date of the Credit Facility by the Company, PCSD Financial Corp. or any of its subsidiaries, (ii) 100% of the net proceeds of (x) certain sales or other dispositions by PCSD Financial Corp. or any of its subsidiaries of material assets or (y) certain insurance or condemnation recoveries and (iii) 75% of Excess Cash Flow (as defined in the Credit Facility) when the Leverage Ratio (as defined in the Credit Facility) is greater than 3:1 and 50% of Excess Cash Flow when such Ratio is less than 3:1 but greater than 2:1, for each fiscal year of PCSD Financial Corp., commencing with the fiscal year ending December 31, 1998. Borrowings by PCSD Financial Corp. will be unconditionally guaranteed by each of PCSD Financial Corp.'s three direct subsidiaries, and such borrowings will be secured by an equal and ratable pledge of all of the capital stock of such subsidiaries and a first priority security interest on (i) the equipment purchased from Glenayre with the proceeds of the Glenayre Facility and (ii) all accounts receivable, inventory and subscriber contracts of PCSD Network, Inc. 59 62 PCSD Financial Corp. may elect that all or a portion of the borrowings under the Credit Facility bear interest at a rate per annum equal to either (i) Chase's Base Rate plus the Applicable Margin or (ii) Chase's Eurodollar Rate plus the Applicable Margin. In the case of borrowings under the Glenayre Facility and the Tranche A Facility, the Applicable Margin will be (a) 3% per annum when applying the Base Rate, or (b) 4% per annum when applying the Eurodollar Rate. In the case of borrowings under the Tranche B Facility, the Applicable Margin will be (x) 2% per annum (when the Debt to Operating Cash Flow Ratio (as such terms are defined in the Credit Facility) is equal to or greater than 5:1) or 1 1/2% per annum (when such Ratio is less than 5:1), in each case when applying the Base Rate, or (y) 3% per annum (when such Ratio is equal to or greater than 5:1) or 2 1/2% per annum (when such Ratio is less than 5:1), in each case when applying the Eurodollar Rate. As used herein, "Base Rate" means the higher of (i) Chase's prime rate and (ii) the federal funds effective rate from time to time plus 1/2% per annum. As used herein, "Eurodollar Rate" means the rate at which eurodollar deposits for one, two, three and six months (as selected by PCSD Financial Corp.) are offered to Chase in the interbank eurodollar market in the approximate amount of Chase's share of the relevant loan. At any time when PCSD Financial Corp. is in default in the payment of any amount due under the Credit Facility, the principal of all loans made under the Credit Facility will bear interest at 3% per annum above the rate otherwise applicable thereto. PCSD Financial Corp. will pay a commitment fee on the unused amounts under the Credit Facility calculated at a rate of 1/2 of 1% per annum, payable quarterly in arrears. PCSD Financial Corp. will also pay to the Arranger a customary structuring, syndication and agency fee. The Credit Facility will contain a number of significant covenants that, among other things, limit the ability to incur additional indebtedness and guarantee obligations, create liens and other encumbrances, make certain payments, investments, loans and advances, pay dividends or make other distributions in respect of common stock, sell or otherwise dispose of assets, make capital expenditures, merge or consolidate with another entity, make amendments to the charter and by-laws, transact with affiliates, make certain sales and leasebacks, change the line of business, or change the holding company status of the Company. In addition, the Credit Facility will require the maintenance of certain specified financial and operating covenants, including, minimum interest and fixed charge coverage ratios, a maximum ratio of total debt to "qualified pagers in service" and a maximum ratio of total debt to operating cash flow. The Credit Facility will contain representations, warranties, covenants and events of default customary for senior credit facilities of similar size and nature. FCC OBLIGATION As a Designated Entity satisfying the FCC's requirements for a "Small Business," the Company is entitled to pay the $90.9 million purchase price for the Licenses through two 10% deposits that were made in late 1994 and early 1995, with the $72.7 million balance payable to the FCC over ten years at a 7.5% annual interest rate, with no payment of principal the first two years (the "FCC Obligation"). On , 1996 the Company transferred the Licenses to its wholly-owned indirect subsidiary, PCSD Spectrum, Inc. following the FCC's grant of consent to such transfer, which became a nonappealable final order on May 15, 1996. In connection with such transfer, PCSD Spectrum, Inc. assumed all obligations to repay the FCC Obligation. At March 31, 1996, the FCC Obligation was $72.7 million. Should the Company or PCSD Spectrum, Inc., prior to February 3, 2005, transfer control of the Licenses to an entity that does not qualify as a "Small Business," the entire principal amount of the FCC Obligation would become immediately due and payable, together with accrued and unpaid interest thereon. See "Description of FCC Auction Benefit -- "Designated Entity" Status in FCC Narrowband PCS Regional Auctions." 60 63 DESCRIPTION OF THE UNITS Each Unit offered hereby consists of a $1,000 principal amount Note and Warrants to purchase initially shares of Class B Common Stock. The Notes and the Warrants will not be separately transferable until the "Separability Date," which shall be the earliest of (i) , 1996, (ii) such earlier date as may be determined by Lehman Brothers Inc. and specified to the Company, the Trustee, the Warrant Agent and the Unit Agent in writing, (iii) the occurrence of a Change of Control and (iv) in the event of an Offer to Purchase in connection with any Asset Sale (each as defined herein), the date the Company mails notice thereof to the holders of the Notes, at which time the Notes and the Warrants will become separately transferable. 61 64 DESCRIPTION OF THE NOTES The Notes are to be issued under an Indenture, to be dated as of the Closing Date (the "Indenture"), between the Company and United States Trust Company of New York, as trustee (the "Trustee"). The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act as in effect on the date of the Indenture. The Notes are subject to all such terms, and holders of Notes are referred to the Indenture and the Trust Indenture Act for a statement thereof. The following summary of certain provisions of the Notes and the Indenture does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Notes and the Indenture, including the definitions of certain terms therein and those terms made a part thereof by the Trust Indenture Act. GENERAL The Notes will be unsecured senior obligations of the Company, limited to $ million aggregate principal amount ($165 million aggregate initial Accreted Value), and will mature on , 2006. Interest on the Notes will accrue at the rate shown on the front cover of this Prospectus from , 2001 or from the most recent Interest Payment Date to which interest has been paid or provided for, payable semiannually (to Holders of record at the close of business on the and immediately preceding the Interest Payment Date) on and of each year, commencing , 2002. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Although for U.S. federal income tax purposes a significant amount of original issue discount, taxable as ordinary income, will be recognized by a Holder of Notes as such discount is amortized from the date of issuance of the Notes, Holders of Notes will not receive any cash payments of interest on the Notes until , 2002. See "Certain Federal Income Tax Considerations." Principal of, premium, if any, and interest on the Notes will be payable, and the Notes may be exchanged or transferred, at the office or agency of the Company (which initially will be the corporate trust office of the Trustee in New York, New York); provided that, at the option of the Company, payment of interest may be made by check mailed to the address of the Holders as such address appears in the Security Register. The Notes will be issued only in fully registered form, without coupons, in denominations of $1,000 of principal amount at maturity and any integral multiple thereof. See "Description of the Notes -- Book-Entry, Delivery and Form." OPTIONAL REDEMPTION The Notes will be redeemable, at the Company's option, in whole or in part, at any time and from time to time, on or after , 2001 and prior to maturity, upon not less than 30 nor more than 60 days' prior notice mailed by first class mail to each Holders' last address as it appears in the Security Register, at the following Redemption Prices (expressed in 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 Regular Record Date that is on or prior to the Redemption Date to receive interest due on an Interest Payment Date), if redeemed during the 12-month period commencing on of the years set forth below:
REDEMPTION YEAR PRICE ---------------------------------------------------------------- ---------- 2001............................................................ % 2002............................................................ % 2003............................................................ % 2004 and thereafter............................................. 100.000%
Notwithstanding the foregoing, prior to , 1999, the Company may on any one or more occasions redeem up to 33% of the aggregate principal amount of the Notes at a redemption price of % of the Accreted Value thereof with the net proceeds of either (A) one or more public offerings of Common Stock of the Company registered under the Securities Act or (B) a sale by the Company of at least $25.0 million of its Capital Stock (other than Redeemable Stock or Preferred Stock) to a Strategic Equity 62 65 Investor in a single transaction; provided in each case that at least 67% of the aggregate principal amount at maturity of the Notes remains outstanding immediately after the occurrence of any such redemption; and provided, further, that any such redemption shall occur within 90 days of the date of the closing of any such public offering of common stock or sale to Strategic Equity Investor of Capital Stock (other than Redeemable Stock or Preferred Stock) of the Company, as the case may be. In the case of any partial redemption, selection of the Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not listed on a national securities exchange, on a pro rata basis or by lot; provided that redemptions shall be made in $1,000 principal amount increments. If any Note is to be redeemed in part only, the notice of redemption relating to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note. The Notes will not have the benefit of any sinking fund. RANKING The Notes will be senior, unsecured Indebtedness of the Company, ranking pari passu in right of payment with all existing and future unsubordinated unsecured Indebtedness of the Company and senior in right of payment to all existing and future subordinated Indebtedness of the Company, but will be structurally subordinated to all existing and future obligations of the Company's Subsidiaries. The Company is a holding company with no material assets other than the shares of stock of its Subsidiary. The Notes will be obligations exclusively of the Company; none of the Company's Subsidiaries will have any obligation to pay any amounts due with respect to the Notes or to make funds available therefor. The Notes will be structurally subordinated to all liabilities of the Company's Subsidiaries, including trade payables, capitalized lease obligations and indebtedness that may be incurred by the Company's Subsidiaries under current or future bank credit facilities. At March 31, 1996, the Notes would have been structurally subordinated to approximately $76.4 million of liabilities of the Company's Subsidiaries, excluding amounts available under the Credit Facility. Upon completion of the Offering, the Company's Subsidiaries also will have approximately $75.0 million of immediate availability under the Credit Facility, and, upon the achievement and maintenance by the Company's Subsidiaries of certain operating results and financial ratios, the Company's Subsidiaries will have an additional $150.0 million of availability under the Credit Facility, all of which will be structurally senior to the Notes. The obligations of the Company's Subsidiaries under the Credit Facility will be secured by substantially all of their assets (other than the Licenses) including the proceeds of any disposition of the Licenses. In addition, the obligations of PCSD Financial Corp. under the Credit Facility will be guaranteed by PCSD Operations, Inc. and PCSD Spectrum, Inc. The Notes will be effectively subordinated to such security interests to the extent of such security interests. See "Risk Factors -- Indebtedness of the Company; High Degree of Leverage" and "-- Holding Company Structure; Structural Subordination of the Notes." COVENANTS The Indenture will contain, among others, the following covenants: Limitation on Indebtedness Under the terms of the Indenture, the Company will not, and will not permit any of its Restricted Subsidiaries to, Incur any Indebtedness (other than the Notes and Indebtedness existing on the Closing Date); provided that the Company or any Restricted Subsidiary may Incur Indebtedness if, after giving effect to the Incurrence of such Indebtedness and the receipt and application of the net proceeds therefrom, the Indebtedness to EBITDA Ratio would be greater than zero and less than 5.5:1. Notwithstanding the foregoing, the Company, and (except as specified below) any Restricted Subsidiary, may Incur each and all of the following: (i) Indebtedness of the Company or any Restricted Subsidiary under one or more commercial bank credit facilities in an aggregate principal amount not to exceed at any time 63 66 $20.0 million, less up to an equal amount of Indebtedness permanently repaid as provided under the "Limitation on Asset Sales" covenant described below; (ii) Indebtedness of the Company or any Restricted Subsidiary to the Company or any of its Wholly Owned Restricted Subsidiaries; provided that any subsequent issuance or transfer of any Capital Stock which results in any such Wholly Owned Restricted Subsidiary ceasing to be a Wholly Owned Restricted Subsidiary or any subsequent transfer of such Indebtedness (other than to the Company or another Wholly Owned Restricted Subsidiary) shall be deemed, in each case, to constitute an Incurrence of such Indebtedness not permitted by this clause (ii); (iii) Refinancing Indebtedness; (iv) Indebtedness of the Company or any Restricted Subsidiary (A) in respect of performance, surety or appeal bonds provided in the ordinary course of business, (B) under Interest Rate Agreements, provided that such Interest Rate Agreements do not increase the Indebtedness of the obligor outstanding at any time other than as a result of fluctuations in interest rates or by reason of fees, indemnities and compensation payable thereunder; and (C) arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or from Guarantees or letters of credit, surety bonds or performance bonds securing any obligations of the Company or any of its Restricted Subsidiaries pursuant to such agreements, in any case Incurred in connection with the disposition of any business, assets or Restricted Subsidiary of the Company (other than Guarantees of Indebtedness Incurred by any Person acquiring all or any portion of such business, assets or Restricted Subsidiary for the purpose of financing such acquisition), in a principal amount not to exceed the gross proceeds actually received by the Company or any Restricted Subsidiary in connection with such disposition; (v) Indebtedness of the Company (or of any Restricted Subsidiary to the extent and only to the extent that such Indebtedness is Spectrum Acquisition Debt and is a direct obligation owing to the FCC), not to exceed, at any one time outstanding, an amount equal to 2.0 times the amount of Net Cash Proceeds received by the Company after the Closing Date from the issuance and sale of its Capital Stock or rights to purchase its Capital Stock (in each case other than Redeemable Stock or Preferred Stock) to a Person that is not a Subsidiary of the Company, less the amount of any Investments made pursuant to clause (vi) of the second paragraph of the "Limitation on Restricted Payments" covenant; provided that such Indebtedness (other than such Spectrum Acquisition Debt) does not mature prior to the Stated Maturity of the Notes and has an Average Life longer than the remaining Average Life of the Notes; (vi) Indebtedness of the Company or any Restricted Subsidiary (including, without limitation, Indebtedness under the Credit Facility) Incurred solely for the purpose of financing the cost (including the cost of design, development, site acquisition, construction, installation or integration) of PCS systems or other wireless telecommunications networks for which the Company or any Restricted Subsidiary has obtained the applicable licenses or authorizations to utilize the radio frequencies necessary for the operation of such systems or networks; (vii) Spectrum Acquisition Debt of the Company or any Restricted Subsidiary outstanding at any time in an aggregate principal amount not to exceed $25.0 million; and (viii) Indebtedness of the Company or any Restricted Subsidiary outstanding at any time in an aggregate amount not to exceed $20.0 million, less up to an equal amount of Indebtedness permanently repaid as provided under the "Limitation on Asset Sales" covenant described below. For purposes of determining any particular amount of Indebtedness under this "Limitation on Indebtedness" covenant, Guarantees, Liens or obligations with respect to letters of credit supporting Indebtedness otherwise included in the determination of such particular amount shall not be included. For purposes of determining compliance with this "Limitation on Indebtedness" covenant, in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described in the above clauses, the Company, in its sole discretion, shall classify such item of Indebtedness and only be required to include the amount and type of such Indebtedness in one of such clauses. The Indenture further provides that, notwithstanding any other provision of this "Limitation on Indebtedness" covenant, the Company will not, and will not permit any Restricted Subsidiary to, Incur any Guarantee of Indebtedness of any Unrestricted Subsidiary. 64 67 Limitation on Restricted Payments So long as any of the Notes are outstanding, the Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, (i) declare or pay any dividend or make any distribution on its Capital Stock (other than dividends or distributions payable solely in shares of the Company's Capital Stock (other than Redeemable Stock) of the same class held by such holders or in options, warrants or other rights to acquire such shares of Capital Stock) held by Persons other than the Company or any of its Wholly Owned Restricted Subsidiaries (and other than pro rata dividends or distributions on common stock of Restricted Subsidiaries), (ii) purchase, redeem, retire or otherwise acquire for value any shares of Capital Stock of the Company or any Subsidiary (including options, warrants or other rights to acquire such shares of Capital Stock) held by Persons other than the Company or any of its Wholly Owned Restricted Subsidiaries, (iii) make any voluntary or optional principal payment, or voluntary or optional redemption, repurchase, defeasance or other acquisition or retirement for value, of Indebtedness of the Company that is subordinated in right of payment to the Notes, or (iv) make any Investment, other than a Permitted Investment, in any Person (such payments or any other actions described in clauses (i) through (iv) being collectively "Restricted Payments") if, at the time of, and after giving effect to, the proposed Restricted Payment: (A) a Default or Event of Default shall have occurred and be continuing, (B) the Company could not Incur at least $1.00 of Indebtedness under the first paragraph of the "Limitation on Indebtedness" covenant or (C) the aggregate amount expended for all Restricted Payments (the amount so expended, if other than in cash, to be determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution) after the date of the Indenture shall exceed the sum of (1) the excess of (x) 100% of Consolidated EBITDA from the first day of the fiscal quarter beginning after the Closing Date through the last day of the last full fiscal quarter immediately preceding the Transaction Date for which reports have been filed pursuant to the "Commission Reports and Reports to Holders" covenant over (y) the product of 2.0 times cumulative Consolidated Fixed Charges from the first day of the fiscal quarter beginning after the Closing Date through the last day of the last full fiscal quarter immediately preceding such Transaction Date for which such reports have been filed, plus (2) the aggregate Net Cash Proceeds received by the Company after the Closing Date from the issuance and sale permitted by the Indenture of its Capital Stock (other than Redeemable Stock) to a Person who is not a Subsidiary of the Company, or from the issuance to a Person who is not a Subsidiary of the Company of any options, warrants or other rights to acquire Capital Stock of the Company (in each case, exclusive of any Redeemable Stock or any options, warrants or other rights that are redeemable at the option of the holder, or are required to be redeemed, prior to the Stated Maturity of the Notes) plus (3) an amount equal to the net reduction in Investments (other than reductions in Permitted Investments) in any Person resulting from payments of interest on Indebtedness, dividends, repayments of loans or advances, or other transfers of assets, in each case to the Company or any Restricted Subsidiary from such Person (except to the extent any such payment is included in the calculation of Adjusted Consolidated Net Income), or from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the definition of "Investment"), not to exceed the amount of Investments previously made by the Company and its Restricted Subsidiaries in such Person. The foregoing provision shall not be violated by reason of: (i) the payment of any dividend within 60 days after the date of declaration thereof if, at said date of declaration, such payment would comply with the foregoing paragraph; (ii) the redemption, repurchase, defeasance or other acquisition or retirement for value of Indebtedness that is subordinated in right of payment to the Notes, including premium, if any, and accrued and unpaid interest, with the proceeds of, or in exchange for, permitted Refinancing Indebtedness; (iii) the repurchase, redemption or other acquisition of Capital Stock of the Company in exchange for, or out of the proceeds of a substantially concurrent issuance or sale of, shares of Capital Stock (other than Redeemable Stock) of the Company; (iv) the acquisition of Indebtedness of the Company which is subordinated in right of payment to the Notes, in exchange for, or out of the proceeds of, a substantially concurrent issuance or sale of, shares of Capital Stock (other than Redeemable Stock) of the Company; (v) Investments in an aggregate amount not to exceed $15.0 million, in any Person the primary business of which is related, ancillary or complementary to the businesses of the Company and its Restricted Subsidiaries on the date of such Investments; (vi) Investments in an aggregate amount not to exceed the Net Cash Proceeds received by the Company after the Closing Date from the issuance and sale of its Capital Stock or rights to purchase its 65 68 Capital Stock (other than Redeemable Stock and Preferred Stock) to a Person that is not a Subsidiary of the Company, provided that the Investment is made within 12 months after the sale of such Capital Stock; (vii) the purchase, redemption, acquisition, cancellation or other retirement for value of shares of Capital Stock of the Company to the extent necessary, in the judgment of the Board of Directors of the Company, to prevent the loss or secure the renewal or reinstatement of any license or franchise held by the Company or any Restricted Subsidiary from any governmental agency or to retain the financial benefits of the Company's "Designated Entity" status as a "Small Business" or as a "Business Owned by Members of Minority Groups and/or Women" as such terms are defined by the FCC; (viii) the purchase, redemption, acquisition, cancellation or other retirement for value of shares of Capital Stock of the Company, or options to acquire shares of such Capital Stock, held by any employee or former employee of the Company or any of their respective heirs or administrators or executors of their respective estates, or by any Person substantially all the beneficial ownership of which is held by members of such employee's or former employee's family, in each case in connection with such employee's or former employee's termination of employment with the Company, the aggregate payments of which shall (A) have been approved by a majority of the Board of Directors of the Company, including the approval of a majority of the independent, disinterested directors, as fair to the Company from a financial point of view and is evidenced by a resolution of the Board of Directors of the Company and (B) not exceed $1 million in any single calendar year; (ix) the cancellation and retirement after November 10, 2004, through conversion at the option of the holders thereof into subordinated Indebtedness of the Company, of the Company's Series A Preferred Stock in accordance with the terms thereof; and (x) the purchase for value of the Warrants pursuant to an offer to purchase the Warrants in accordance with the terms of the Warrant Agreement; provided, that, except in the case of clause (i) above, no Default or Event of Default shall have occurred and be continuing or occur as a consequence of the actions or payments set forth therein. Each Restricted Payment permitted pursuant to the preceding paragraph (other than the Restricted Payments referred to in clauses (ii) and (ix) thereof), and the Net Cash Proceeds from any issuance of Capital Stock referred to in clause (iii), (iv) and (vi) shall be included in calculating whether the conditions of clause (C) of the first paragraph of this "Limitation on Restricted Payments" covenant have been met with respect to any subsequent Restricted Payments. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries So long as any of the Notes are outstanding, the Company will not, and will not permit any Restricted Subsidiary to, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Restricted Subsidiary to (i) pay dividends or make any other distributions permitted by applicable law on any Capital Stock of such Restricted Subsidiary owned by the Company or any other Restricted Subsidiary, (ii) pay any Indebtedness owed to the Company or any other Restricted Subsidiary, (iii) make loans or advances to the Company or any other Restricted Subsidiary, (iv) transfer any of its property or assets to the Company or any other Restricted Subsidiary or (v) make any payments to the Company for the purpose of satisfying any tax liabilities or obligations of the Company. The foregoing provisions shall not apply to any encumbrances or restrictions: (i) existing on the Closing Date in any agreement in effect on the Closing Date, including, without limitation, in the Credit Facility, and any extensions, refinancings, renewals or replacements of such agreements; provided that the encumbrances and restrictions in any such extensions, refinancings, renewals or replacements are no less favorable in any material respect to the Holders than those encumbrances or restrictions that are then in effect and that are being extended, refinanced, renewed or replaced; (ii) existing under or by reason of applicable law; (iii) existing with respect to any Person or the property or assets of such Person acquired by the Company or any Restricted Subsidiary, existing at the time of such acquisition and not incurred in contemplation thereof, which encumbrances or restrictions are not applicable to any Person or the property or assets of any Person other than such Person or the property or assets of such Person so acquired; (iv) in the case of clause (iv) of the first paragraph of this "Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries" covenant, (A) that restrict in a customary manner the subletting, assignment or transfer of any property or asset that is a lease, license, conveyance or contract or similar property or asset, (B) existing by 66 69 virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the Company or any Restricted Subsidiary not otherwise prohibited by the Indenture or (C) arising or agreed to in the ordinary course of business, not relating to any Indebtedness, and that do not, individually or in the aggregate, detract from the value of property or assets of the Company or any Restricted Subsidiary in any manner material to the Company or any Restricted Subsidiary; or (v) with respect to a Restricted Subsidiary and imposed pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock of, or property and assets of, such Restricted Subsidiary. Nothing contained in this "Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries" covenant shall prevent the Company or any Restricted Subsidiary from (1) creating, incurring, assuming or suffering to exist any Liens otherwise permitted in the "Limitation on Liens" covenant or (2) restricting the sale or other disposition of property or assets of the Company or any of its Restricted Subsidiaries that secure Indebtedness of the Company or any of its Restricted Subsidiaries. Limitation on the Issuance and Sale of Capital Stock of Restricted Subsidiaries Under the terms of the Indenture, the Company will not, and will not permit any Restricted Subsidiary, directly or indirectly, to issue, transfer, convey, sell, lease or otherwise dispose of any shares of Capital Stock (including options, warrants or other rights to purchase shares of such Capital Stock) of such or any other Restricted Subsidiary to any Person (other than to the Company or a Wholly Owned Restricted Subsidiary) unless (A) the Net Cash Proceeds from such issuance, transfer, conveyance, sale, lease or other disposition are applied in accordance with the provisions of the "Limitation on Asset Sales" covenant and (B) if, immediately after giving effect to such issuance or sale, such Restricted Subsidiary would no longer constitute a Restricted Subsidiary, any Investment in such Person remaining after giving effect to such issuance or sale would have been permitted to be made under the "Limitation on Restricted Payments" covenant if made on the date of such sale (valued as provided in the definition of "Investment"). Notwithstanding the foregoing, for as long as any of the Notes are outstanding the Company will own 100% of the Capital Stock of PCSD Financial Corp. Limitation on Issuances of Guarantees by Restricted Subsidiaries The Company will not permit any Restricted Subsidiary, directly or indirectly, to Guarantee any Indebtedness of the Company, unless (i) such Restricted Subsidiary simultaneously executes and delivers a supplemental indenture to the Indenture providing for a Guarantee of payment of the Notes by such Restricted Subsidiary (a "Subsidiary Guarantee") and (ii) such Restricted Subsidiary waives and will not in any manner whatsoever claim or take the benefit or advantage of, any rights of reimbursement, indemnity or subrogation or any other rights against the Company or any other Restricted Subsidiary as a result of any payment by such Restricted Subsidiary under its Subsidiary Guarantee; provided that this paragraph shall not be applicable, to (x) the Guarantees by the Company's Restricted Subsidiaries pursuant to the Credit Facility or (y) any Guarantee of any Restricted Subsidiary that existed at the time such Person became a Restricted Subsidiary and was not Incurred in connection with, or in contemplation of, such Person becoming a Restricted Subsidiary. If the Guaranteed Indebtedness is (A) pari passu with the Notes, then the Guarantee of such Guaranteed Indebtedness shall be pari passu with, or subordinated to, the Subsidiary Guarantee or (B) subordinated to the Notes, then the Guarantee of such Guaranteed Indebtedness shall be subordinated to the Subsidiary Guarantee at least to the extent that the Guaranteed Indebtedness is subordinated to the Notes. Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted Subsidiary shall provide by its terms that it shall be automatically and unconditionally released and discharged upon any sale, exchange or transfer, to any Person that is not an Affiliate of the Company of all of the Company's and each Restricted Subsidiary's Capital Stock in, or all or substantially all the assets of, such Restricted Subsidiary (which sale, exchange or transfer is not prohibited by the Indenture). The release or discharge of the Indebtedness or the Guarantee which resulted in the creation of such Subsidiary Guarantee will not release or discharge such Subsidiary Guarantee. 67 70 Limitation of Transactions with Shareholders and Affiliates Under the terms of the Indenture, the Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, enter into, renew or extend any transaction or series of related transactions (including, without limitation, the purchase, sale, lease or exchange of property or assets, or the rendering of any service) with any holder of 5% or more of any class of Capital Stock of the Company (or any Affiliate of such holder) or with any Affiliate of the Company or any Restricted Subsidiary, unless (i) such transaction or series of transactions is on terms no less favorable to the Company or such Restricted Subsidiary than those that could be obtained, at the time of such transaction or at the time of the execution of the agreement providing therefor, in a comparable arm's-length transaction with a Person that is not such a holder or an Affiliate and (ii) if such transaction or series of transactions involves aggregate payments and other consideration having a fair market value at the time of the transaction or series of transactions in excess of $1 million, (A) such transaction or series of transactions is approved by a majority of the Board of Directors of the Company, including the approval of a majority of the independent, disinterested directors, as fair to the Company from a financial point of view and is evidenced by a resolution of the Board of Directors of the Company or (B) the Company shall have obtained and delivered to the Trustee a written opinion of a nationally recognized investment banking firm stating that such transaction or series of transactions is fair to the Company or such Restricted Subsidiary from a financial point of view. The foregoing limitation does not limit, and shall not apply to, (i) any transaction between the Company and any of its Wholly Owned Restricted Subsidiaries or between Wholly Owned Restricted Subsidiaries; (ii) the payment of reasonable and customary regular fees to directors of the Company who are not employees of the Company; (iii) any payments or other transactions pursuant to any tax-sharing agreement between the Company and any other Person with which the Company files a consolidated tax return or with which the Company is part of a consolidated group for tax purposes; (iv) any Restricted Payment not prohibited by the "Limitation on Restricted Payments" covenant; (v) any extension, renewal or modification of the terms and provisions of the Sloan Loan, which extension, renewal or modification shall have been previously approved by a majority of the Board of Directors of the Company, including the approval of a majority of the independent, disinterested directors, as fair to the Company from a financial point of view and evidenced by a resolution of the Board of Directors; and (vi) the execution of any reseller agreement, operating agreement, network build-out agreement, management agreement or joint venture relating to the telecommunications business with any Person who was a stockholder on the date of the Indenture, which execution shall have been previously approved by a majority of the Board of Directors of the Company, including the approval of a majority of the independent, disinterested directors, as fair to the Company from a financial point of view and evidenced by a resolution of the Board of Directors. Limitation on Liens Under the terms of the Indenture, the Company will not, and will not permit any Restricted Subsidiary to, create, incur, assume or suffer to exist any Lien on any of its assets or properties of any character, or any shares of Capital Stock or Indebtedness of any Restricted Subsidiary, without making effective provision for all of the Notes and all other amounts due under the Indenture to be directly secured at least equally and ratably with the obligation or liability secured by such Lien. The foregoing limitation does not apply to (i) Liens created pursuant to agreements existing on the Closing Date; (ii) Liens granted after the Closing Date on any assets or Capital Stock of the Company or its Restricted Subsidiaries created in favor of the Holders; (iii) Liens with respect to the assets of a Restricted Subsidiary granted by such Restricted Subsidiary to the Company or a Wholly Owned Restricted Subsidiary to secure Indebtedness owing to the Company or such other Wholly Owned Restricted Subsidiary; (iv) Liens securing permitted Refinancing Indebtedness which is Incurred to refinance secured Indebtedness; provided that such Liens do not extend to or cover any property or assets of the Company or any Restricted Subsidiary other than the property or assets securing the Indebtedness being refinanced; (v) Liens with respect to assets or properties of any Person that becomes a Restricted Subsidiary after the Closing Date; provided that such Liens do not extend to or cover any assets or properties of the Company or any of its Restricted Subsidiaries other than the assets or properties of such Person subject to such Liens on the date such Person becomes a 68 71 Restricted Subsidiary; and provided further that such Liens are not incurred in contemplation of, or in connection with, such Person becoming a Restricted Subsidiary; or (vi) Permitted Liens. Limitation on Sale and Leaseback Transactions Under the terms of the Indenture, neither the Company nor any Restricted Subsidiary will, directly or indirectly, enter into any Sale and Leaseback Transaction, except that the Company or any Restricted Subsidiary may enter into a Sale and Leaseback Transaction if (i) immediately prior thereto, and after giving effect to such Sale and Leaseback Transaction (the Indebtedness thereunder being equivalent to the Attributable Value thereof), the Company could Incur at least $1.00 of additional Indebtedness under the first paragraph of the "Limitation on Indebtedness" covenant and (ii) the Sale and Leaseback Transaction constitutes an Asset Sale effected in accordance with the requirements of the "Limitation on Asset Sales" covenant. Limitation on Asset Sales Under the terms of the Indenture, the Company will not, and will not permit any Restricted Subsidiary to, consummate any Asset Sale, unless (I) the consideration received by the Company or such Restricted Subsidiary is at least equal to the fair market value of the assets sold or disposed of and (II) at least 80% of the consideration received consists of cash or Temporary Cash Investments or the assumption of unsubordinated Indebtedness of the Company to the extent that the Company or such Restricted Subsidiary is released from all liability on such unsubordinated Indebtedness. In the event of an Asset Sale, the Company shall or shall cause the relevant Restricted Subsidiary to (i) within nine months after the date the Net Cash Proceeds are received either (A) apply an amount equal to such Net Cash Proceeds to permanently repay unsubordinated Indebtedness of the Company (other than the Notes), or Indebtedness of any Restricted Subsidiary, in each case owing to a Person other than the Company or any of its Restricted Subsidiaries or (B) invest an equal amount, or the amount not so applied pursuant to clause (A) (or enter into a definitive agreement committing to invest, and actually invest, such Net Cash Proceeds within one year of the receipt of such Net Cash Proceeds), in property or assets (other than current assets) of a nature or type or that are used in a business (or in a company having property and assets of a nature or type, or engaged in a business) similar or related to the nature or type of the property and assets of, or the business of, the Company and its Restricted Subsidiaries existing on the date of such investment (as determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution) and (ii) apply (no later than the end of the nine-month or one-year period, as the case may be, referred to in clause (i)) such Net Cash Proceeds (to the extent not applied pursuant to clause (i)) as provided in the following paragraph of this "Limitation on Asset Sales" covenant. The amount of such Net Cash Proceeds required to be applied (or to be committed to be applied) during such nine-month or one-year period, as the case may be, as set forth in clause (i) of the preceding sentence and not applied as so required by the end of such period, as the case may be, shall constitute "Excess Proceeds." If, as of the first day of any calendar month, the aggregate amount of Excess Proceeds totals at least $10.0 million, the Company must commence, not later than the fifteenth Business Day of such month, and consummate an Offer to Purchase from the Holders on a pro rata basis an aggregate Accreted Value of Notes equal to the Excess Proceeds on such date, at a purchase price equal to the Accreted Value of the Notes, plus, in each case, accrued interest (if any) to the date of purchase. To the extent that the Accreted Value of Notes tendered pursuant to such Offer to Purchase is less than the Excess Proceeds, the Company may use such deficiency for general corporate purposes. If the Accreted Value of Notes validly tendered and not withdrawn by Holders thereof exceeds the Excess Proceeds, Notes to be purchased will be selected on a pro rata basis. Upon completion of such Offer to Purchase, the amount of Excess Proceeds will be reset to zero. Activities of the Company and Restricted Subsidiaries The Indenture will provide that the Company will not, and will not permit any Restricted Subsidiary to, engage in any business other than the telecommunications business and related activities and services. 69 72 CONSOLIDATION, MERGER AND SALE OF ASSETS The Company shall not consolidate with, merge with or into, or sell, convey, transfer, lease or otherwise dispose of all or substantially all of its property and assets (as an entirety or substantially an entirety in one transaction or a series of related transactions) to, any Person or permit any Person to merge with or into the Company unless: (i) the Company shall be the continuing Person, or the Person (if other than the Company) formed by such consolidation or into which the Company is merged or that acquired or leased such property and assets of the Company shall be a corporation organized and validly existing under the laws of the United States or any jurisdiction thereof and shall expressly assume, by a supplemental indenture executed and delivered to the Trustee, all of the obligations of the Company in respect of all of the Notes under the Indenture; (ii) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; (iii) immediately after giving effect to such transaction on a pro forma basis, the Company, or any Person becoming the successor obligor of the Notes, as the case may be, could Incur at least $1.00 of Indebtedness under the first paragraph of the "Limitation on Indebtedness" covenant; and (iv) the Company delivers to the Trustee an Officers' Certificate (attaching the arithmetic computations to demonstrate compliance with clause (iii)) and an Opinion of Counsel, in each case stating that such consolidation, merger or transfer and such supplemental indenture complies with this provision and that all conditions precedent provided for herein relating to such transaction have been complied with; provided that the provisions of clause (iii) shall not apply to transactions described above which are between or among two or more Wholly Owned Subsidiaries of the Company. Notwithstanding the immediately preceding paragraph, this covenant shall not prohibit a transaction the sole purpose of which (as determined in good faith by the Board of Directors of the Company) is to change the state of incorporation of the Company. REPURCHASE OF NOTES UPON A CHANGE OF CONTROL The Company must commence, within 30 days of the occurrence of a Change of Control, and consummate an Offer to Purchase in respect of all Notes then outstanding, at a purchase price equal to 101% of the Accreted Value thereof, plus accrued interest (if any) to the date of purchase (if the date is prior to , 2001) or 101% of the principal amount thereof, plus accrued interest (if any) to the date of purchase (if such date is on or after , 2001). The failure by the Company to repurchase Notes at the conclusion of the Offer to Purchase will constitute an Event of Default without any waiting period or notice requirements. There can be no assurance that the Company will have sufficient funds available at the time of any Change of Control to make any debt payment (including repurchases of Notes) required by the foregoing covenant (as well as any that may be contained in other securities of the Company which might be outstanding at the time). The above covenant requiring the Company to repurchase the Notes will, unless any required consents are obtained, require the Company to repay all indebtedness then outstanding which by its terms would prohibit such Note repurchase, either prior to or concurrently with such Note repurchase. The Company will comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder, to the extent such laws and regulations are applicable, in the event that the Company is required to repurchase Notes pursuant to an Offer to Purchase. Other than the requirement to make an Offer to Purchase upon a Change of Control, the Indenture will not contain any provisions which afford holders of the Notes specific protection in the event of a highly leveraged transaction which results in a Change of Control. Further, other than the "Limitation on Indebtedness" covenant described above, the Indenture will not contain any provisions which afford holders of the Notes specific protection in the event of a highly leveraged transaction which does not result in a Change of Control. The Company does not have the ability to waive either the requirement to make an Offer to Purchase or the provisions of the "Limitation on Indebtedness" covenant. 70 73 EVENTS OF DEFAULT The following events will be defined as "Events of Default" in the Indenture: (a) default in the payment of principal of (or premium, if any, on) any Note when the same becomes due and payable, whether at maturity, upon acceleration, redemption or otherwise; (b) default in the payment of interest on any Note when the same becomes due and payable, and such default continues for a period of 30 days; (c) default in the payment of principal (or premium, if any) and interest on Notes required to be purchased pursuant to an Offer to Purchase as described under the "Limitation on Asset Sales" covenant and under "Repurchase of Notes upon a Change of Control" when due and payable; (d) failure to perform or comply with the provisions described under the "Consolidation, Merger and Sale of Assets" covenant; (e) default in the performance of or breach of any other covenant or agreement of the Company in the Indenture or under the Notes and such default or breach continues for a period of 60 consecutive days after written notice by the Trustee or the Holders of 25% or more in aggregate principal amount of the Notes; (f) there occurs with respect to any issue or issues of Indebtedness of the Company or any Restricted Subsidiary having an outstanding principal amount of $5.0 million or more in the aggregate for all such issues of all such Persons, whether such Indebtedness now exists or shall hereafter be created, (I) an event of default that has caused the holder thereof to declare such Indebtedness to be due and payable prior to its Stated Maturity and/or (II) the failure to make a payment when due of principal, premium, if any, or interest and such defaulted payment shall not have been made, waived or extended by the earliest of (x) the expiration of any applicable grace period and (y) the 30th day after such payment default; (g) any final judgment or order (not covered by insurance) for the payment of money in excess of $5.0 million in the aggregate for all such final judgments or orders against all such Persons (treating any deductibles, self-insurance or retention as not so covered) shall be rendered against the Company or any Restricted Subsidiary and shall not be paid or discharged, and there shall be any period of 60 consecutive days following entry of the final judgment or order that causes the aggregate amount for all such final judgments or orders outstanding and not paid or discharged against all such Persons to exceed $5.0 million during which a stay of enforcement of such final judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; (h) a court having jurisdiction in the premises enters a decree or order for (A) relief in respect of the Company or any Restricted Subsidiary in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, (B) appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or any Restricted Subsidiary or for all or substantially all of the property and assets of the Company or any Restricted Subsidiary or (C) the winding up or liquidation of the affairs of the Company or any Restricted Subsidiary and, in each case, such decree or order shall remain unstayed and in effect for a period of 30 consecutive days; or (i) the Company or any Restricted Subsidiary (A) commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case under any such law, (B) consents to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or any Restricted Subsidiary or for all or substantially all of the property and assets of the Company or any Restricted Subsidiary or (C) effects any general assignment for the benefit of creditors. If an Event of Default (other than an Event of Default specified in clause (h) or (i) above) occurs and is continuing under the Indenture, the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding, by written notice to the Company (and to the Trustee if such notice is given by the Holders), may, and the Trustee at the request of such Holders shall, declare the principal (or Accreted Value) of, premium, if any, and accrued interest, if any, on the Notes to be immediately due and payable. Upon a declaration of acceleration, such principal (or Accreted Value), premium, if any, and accrued interest, if any, shall be immediately due and payable. In the event of a declaration of acceleration because an Event of Default set forth in clause (f) above has occurred and is continuing, such declaration of acceleration shall be automatically rescinded and annulled if the event of default triggering such Event of Default pursuant to clause (f) shall be remedied or cured by the Company or the relevant Subsidiary or waived by the holders of the relevant Indebtedness within 30 days after the declaration of acceleration with respect thereto. If an Event of Default specified in clause (h) or (i) above occurs, the principal (or Accreted Value) of, premium, if any, and accrued interest, if any, on the Notes then outstanding shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. The Holders of at 71 74 least a majority in principal amount of the outstanding Notes, by written notice to the Company and to the Trustee, may waive all past defaults and rescind and annul a declaration of acceleration and its consequences if (i) all existing Events of Default, other than the nonpayment of the principal of, premium, if any, and interest on the Notes that have become due solely by such declaration of acceleration, have been cured or waived, and (ii) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction. For information as to the waiver of defaults, see "--Modification and Waiver." The Holders of at least a majority in aggregate principal amount of the outstanding Notes may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or the Indenture, that may involve the Trustee in personal liability, or that the Trustee determines in good faith may be unduly prejudicial to the rights of Holders of Notes not joining in the giving of such direction and may take any other action it deems proper that is not inconsistent with any such direction received from Holders of Notes. A Holder may not pursue any remedy with respect to the Indenture or the Notes unless: (i) the Holder gives the Trustee written notice of a continuing Event of Default; (ii) the Holders of at least 25% in aggregate principal amount of outstanding Notes make a written request to the Trustee to pursue the remedy; (iii) such Holder or Holders offer the Trustee indemnity satisfactory to the Trustee against any costs, liability or expense; (iv) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and (v) during such 60-day period, the Holders of a majority in aggregate principal amount of the outstanding Notes do not give the Trustee a direction that is inconsistent with the request. However, such limitations do not apply to the right of any Holder of a Note to receive payment of the principal of, premium, if any, or interest on, such Note or to bring suit for the enforcement of any such payment, on or after the due date expressed in the Notes, which right shall not be impaired or affected without the consent of the Holder. See "Book Entry; Delivery and Form." The Indenture will require certain officers of the Company to certify, within 90 days after the end of each fiscal year and within 45 days after the end of the first, second and third fiscal quarters, whether or not any Default or Event of Default has occurred, that a review has been conducted of the activities of the Company and its Restricted Subsidiaries and the Company's and its Restricted Subsidiaries' performance under the Indenture and that the Company has fulfilled all obligations thereunder, or, if there has been a default in the fulfillment of any such obligation, specifying each such default and the nature and status thereof. The Company will also be obligated to notify promptly the Trustee of any default or defaults in the performance of any covenants or agreements under the Indenture. DEFEASANCE Defeasance and Discharge. The Indenture will provide that the Company will be deemed to have paid and will be discharged from any and all obligations in respect of the Notes on the 123rd day after the deposit referred to below, and the provisions of the Indenture will no longer be in effect with respect to the Notes (except for, among other matters, certain obligations to register the transfer or exchange of the Notes, to replace stolen, lost or mutilated Notes, to maintain paying agencies and to hold monies for payment in trust) if, among other things, (A) the Company has deposited with the Trustee, in trust, money and/or U.S. Government Obligations that through the payment of interest and principal in respect thereof in accordance with their terms will provide money in an amount sufficient to pay the principal of, premium, if any, and accrued interest on the Notes on the Stated Maturity of such payments in accordance with the terms of the Indenture and the Notes, (B) the Company has delivered to the Trustee (i) either (x) an Opinion of Counsel to the effect that Holders will not recognize income, gain or loss for federal income tax purposes as a result of the Company's exercise of its option under this "Defeasance" provision and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred, which Opinion of Counsel must be based upon (and accompanied by a copy of) a ruling of the Internal Revenue Service to the same effect unless there has been a change in applicable federal income tax law after the date of the Indenture such that a ruling is no longer required or (y) a ruling directed to the Trustee received from the Internal Revenue Service to the same effect as the aforementioned Opinion of Counsel and (ii) an Opinion of Counsel to the effect that the creation of the 72 75 defeasance trust does not violate the Investment Company Act of 1940, as amended, and after the passage of 123 days following the deposit, the trust fund will not be subject to the effect of Section 547 of the United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law, (C) immediately after giving effect to such deposit on a pro forma basis, no Event of Default, or event that after the giving of notice or lapse of time or both would become an Event of Default, shall have occurred and be continuing on the date of such deposit or during the period ending on the 123rd day after the date of such deposit, and such deposit shall not result in a breach or violation of, or constitute a default under, any other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound and (D) if at such time the Notes are listed on a national securities exchange, the Company has delivered to the Trustee an Opinion of Counsel to the effect that the Notes will not be delisted as a result of such deposit, defeasance and discharge. Defeasance of Certain Covenants and Certain Events of Default. The Indenture further will provide that the provisions of the Indenture will no longer be in effect with respect to clause (iii) under "--Consolidation, Merger and Sale of Assets" and all the covenants described herein under "--Covenants," clause (e) under "--Events of Default" with respect to such covenants and clause (iii) under "--Consolidation, Merger and Sale of Assets," and clauses (f) and (g) under "Events of Default" shall be deemed not to be Events of Default, upon, among other things, the deposit with the Trustee, in trust, of money and/or U.S. Government Obligations that through the payment of interest and principal in respect thereof in accordance with their terms will provide money in an amount sufficient to pay the principal of, premium, if any, and accrued interest on the Notes at the Stated Maturity of such payments in accordance with the terms of the Indenture and the Notes, the satisfaction of the provisions described in clauses (B)(ii), (C) and (D) of the preceding paragraph and the delivery by the Company to the Trustee of an Opinion of Counsel to the effect that, among other things, the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and defeasance of certain covenants and Events of Default and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred. Defeasance and Certain Other Events of Default. In the event the Company exercises its option to omit compliance with certain covenants and provisions of the Indenture with respect to the Notes as described in the immediately preceding paragraph and the Notes are declared due and payable because of the occurrence of an Event of Default that remains applicable, the amount of money and/or U.S. Government Obligations on deposit with the Trustee will be sufficient to pay amounts due on the Notes at the time of their Stated Maturity but may not be sufficient to pay amounts due on the Notes at the time of the acceleration resulting from such Event of Default. However, the Company will remain liable for such payments. MODIFICATION AND WAIVER Modifications and amendments of the Indenture may be made by the Company and the Trustee with the consent of the Holders of not less than a majority in aggregate principal amount of the outstanding Notes; provided, however, that no such modification or amendment may, without the consent of each Holder affected thereby, (i) change the Stated Maturity of the principal of, or any installment of interest on, any Note, (ii) reduce the principal amount of, or premium, if any, or interest on, any Note, (iii) change the place or currency of payment of principal of, or premium, if any, or interest on, any Note, (iv) impair the right to institute suit for the enforcement of any payment on or after the Stated Maturity (or, in the case of a redemption, on or after the Redemption Date) of any Note, (v) reduce the above-stated percentage of outstanding Notes the consent of whose Holders is necessary to modify or amend the Indenture, (vi) waive a default in the payment of principal of, premium, if any, or interest on the Notes, (vii) reduce the percentage or aggregate principal amount of outstanding Notes the consent of whose Holders is necessary for waiver of compliance with certain provisions of the Indenture or for waiver of certain defaults or (viii) following the mailing of an offer with respect to an Offer to Purchase the Notes as described under the "Limitation on Asset Sales" covenant and "Repurchase of Notes upon Change of Control," modify the Indenture with respect to such Offer to Purchase in a manner adverse to such Holders. 73 76 COMMISSION REPORTS AND REPORTS TO HOLDERS So long as any of the Notes are outstanding, the Company will file with the Commission the annual reports, quarterly reports and other documents which the Company would have been required to file with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act if the Company were subject to such Sections and will also provide to all Holders and file with the Trustee copies of such reports. NO PERSONAL LIABILITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS, DIRECTORS OR EMPLOYEES The Indenture provides that no recourse for the payment of the principal of, premium, if any, or interest on any of the Notes or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Company in the Indenture, or in any of the Notes or because of the creation of any Indebtedness represented thereby, shall be had against any incorporator, shareholder, officer, director, employee or controlling person of the Company or of any successor Person thereof. Each Holder, by accepting the Notes, waives and releases all such liability. CONCERNING THE TRUSTEE The Indenture provides that, except during the continuance of a Default, the Trustee will not be liable, except for the performance of such duties as are specifically set forth in such Indenture. If an Event of Default has occurred and is continuing, the Trustee will use the same degree of care and skill in its exercise as a prudent person would exercise under the circumstances in the conduct of such person's own affairs. The Indenture and provisions of the Trust Indenture Act, incorporated by reference therein, contain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases or to realize on certain property received by it in respect of any such claims, as security or otherwise. The Trustee is permitted to engage in other transactions; provided, however, that if it acquires any conflicting interest, it must eliminate such conflict or resign. GOVERNING LAW The Indenture and the Notes will be governed by the laws of the State of New York. DEFINITIONS Set forth below is a summary of certain of the defined terms used in the covenants and other provisions of the Indenture. Reference is made to the Indenture for the full definition of all terms set forth below as well as the definition of any other capitalized term used herein for which no definition is provided. "Accreted Value" is defined to mean, for any Specified Date, the amount provided below with respect to each $1,000 principal amount at maturity of Notes: (i) if the Specified Date occurs on one of the following dates (each a "Semi-Annual Accrual Date"), the Accreted Value will equal the amount set forth below for such Semi-Annual Accrual Date:
ACCRETED SEMI-ANNUAL ACCRUAL DATE VALUE ---------------------------------------------------------------- --------- , 1997................................................ $ , 1997................................................ $ , 1998................................................ $ , 1998................................................ $ , 1999................................................ $ , 1999................................................ $ , 2000................................................ $ , 2000................................................ $ , 2001................................................ $ , 2001................................................ $1,000.00
(ii) if the Specified Date occurs before the first Semi-Annual Accrual Date, the Accreted Value will equal the sum of (a) the issue price (as determined for U.S. federal income tax purposes) 74 77 and (b) an amount equal to the product of (1) the Accreted Value for the first Semi-Annual Accrual Date less the original issue price multiplied by (2) a fraction, the numerator of which is the number of days from the issue date of the Notes to the Specified Date, using a 360-day year of twelve 30-day months, and the denominator of which is the number of days from the issue date of the Notes to the first Semi-Annual Accrual Date, using a 360-day year of twelve 30-day months; (iii) if the Specified Date occurs between two Semi-Annual Accrual Dates, the Accreted Value will equal the sum of (a) the Accreted Value for the Semi-Annual Accrual Date immediately preceding such Specified Date and (b) an amount equal to the product of (1) the Accreted Value for the immediately following Semi-Annual Accrual Date less the Accreted Value for the immediately preceding Semi Annual Accrual Date multiplied by (2) a fraction, the numerator of which is the number of days from the immediately preceding Semi-Annual Accrual Date to the Specified Date, using a 360-day year of twelve 30-day months, and the denominator of which is 180; or (iv) if the Specified Date occurs after the last Semi-Annual Accrual Date, the Accreted Value will equal $1,000. "Acquired Indebtedness" means Indebtedness of a Person existing at the time such Person becomes a Restricted Subsidiary or assumed in connection with an Asset Acquisition by the Company or a Restricted Subsidiary and not incurred in connection with, or in anticipation of, such Person becoming a Restricted Subsidiary or such Asset Acquisition, as the case may be; provided that Indebtedness of such Person which is redeemed, defeased, retired or otherwise repaid at the time of or immediately upon consummation of the transactions by which such Person becomes a Restricted Subsidiary or such Asset Acquisition shall not be Acquired Indebtedness. "Adjusted Consolidated Net Income" means, for any period, the aggregate net income (or loss) of the Company and its Restricted Subsidiaries for such period determined in conformity with GAAP; provided that the following items shall be excluded in computing Adjusted Consolidated Net Income (without duplication): (i) the net income of any Person (other than net income attributable to a Restricted Subsidiary) in which any Person (other than the Company or any of its Restricted Subsidiaries) has a joint interest and the net income of any Unrestricted Subsidiary, except to the extent of the amount of dividends or other distributions actually paid to the Company or any of its Restricted Subsidiaries by such other Person or such Unrestricted Subsidiary during such period; (ii) solely for the purposes of calculating the amount of Restricted Payments that may be made pursuant to clause (C) of the first paragraph of the "Limitation on Restricted Payments" covenant described above (and in such case, except to the extent includable pursuant to clause (i) above), the net income (or loss) of any Person accrued prior to the date it becomes a Restricted Subsidiary or is merged into or consolidated with the Company or any of its Restricted Subsidiaries or all or substantially all of the property and assets of such Person are acquired by the Company or any of its Restricted Subsidiaries; (iii) the net income of any Restricted Subsidiary to the extent that the declaration or payment of dividends or similar distributions by such Restricted Subsidiary of such net income is not at the time permitted by the operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Restricted Subsidiary; (iv) any gains or losses (on an after-tax basis) attributable to Asset Sales; (v) any amount paid or accrued as dividends on Preferred Stock of the Company or any Restricted Subsidiary owned by Persons other than the Company and any of its Restricted Subsidiaries; and (vi) all extraordinary gains and extraordinary losses. "Affiliate" means, as applied to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. 75 78 "Asset Acquisition" means (i) an investment by the Company or any of its Restricted Subsidiaries in any other Person pursuant to which such Person shall become a Restricted Subsidiary or shall be merged into or consolidated with the Company or any Restricted Subsidiary; provided that such Person's primary business is related, ancillary or complementary to the businesses of the Company and its Restricted Subsidiaries on the date of such investment, or (ii) an acquisition by the Company or any of its Restricted Subsidiaries of the property and assets of any Person other than the Company or any of its Restricted Subsidiaries that constitute substantially all of a division or line of business of such Person; provided that the property and assets acquired are related, ancillary or complementary to the businesses of the Company and its Restricted Subsidiaries on the date of such acquisition. "Asset Sale" means any sale, transfer or other disposition (including by way of merger, consolidation, or sale-leaseback transactions) in one transaction or a series of related transactions by the Company or any of its Restricted Subsidiaries to any Person other than the Company or any of its Restricted Subsidiaries of (i) all or any of the Capital Stock of any Restricted Subsidiary, (ii) all or substantially all of the property and assets of an operating unit or business of the Company or any of its Restricted Subsidiaries or (iii) any other property and assets of the Company or any of its Restricted Subsidiaries outside the ordinary course of business of the Company or such Restricted Subsidiary and, in each case, that is not governed by the provisions of the Indenture applicable to mergers, consolidations, and sales of assets of the Company; provided that "Asset Sale" shall not include (i) sales or other dispositions of inventory, receivables and other current assets in the ordinary course of business, (ii) substantially contemporaneous exchanges by the Company or any Restricted Subsidiary of property or equipment for other property or equipment; provided that the property or equipment received in any such exchange by the Company or such Restricted Subsidiary (A) constitutes Telecommunications Assets and (B) has at least substantially equal market value to the Company or such Restricted Subsidiary (as determined by the Board of Directors whose good faith determination shall be conclusive and evidenced by a board resolution) or (iii) sales or other dispositions of assets with a fair market value (as certified in an Officers' Certificate) not in excess of $500,000. "Attributable Value" means, as to any particular lease under which any Person is at the time liable other than a Capitalized Lease Obligation, and at any date as of which the amount thereof is to be determined, the total net amount of rent required to be paid by such Person under such lease during the initial term thereof as determined in accordance with GAAP, discounted from the last date of such initial term to the date of determination at a rate per annum equal to the discount rate which would be applicable to a Capitalized Lease Obligation with a like term in accordance with GAAP. The net amount of rent required to be paid under any such lease for any such period shall be the aggregate amount of rent payable by the lessee with respect to such period after excluding amounts required to be paid on account of insurance, taxes, assessments, utility, operating and labor costs and similar charges. In the case of any lease which is terminable by the lessee upon the payment of a penalty, such net amount shall also include the amount of such penalty, but no rent shall be considered as required to be paid under such lease subsequent to the first date upon which it may be so terminated. "Attributable Value" means, as to a Capitalized Lease Obligation under which any Person is at the time liable and at any date as of which the amount thereof is to be determined, the capitalized amount thereof that would appear on the face of a balance sheet of such person in accordance with GAAP. "Average Life" means, at any date of determination with respect to any debt security, the quotient obtained by dividing (i) the sum of the products of (a) the number of years from such date of determination to the dates of each successive scheduled principal payment of such debt security and (b) the amount of such principal payment by (ii) the sum of all such principal payments. "Board of Directors" means the Board of Directors of the Company or any committee of such Board of Directors duly authorized to act under the Indenture. "Board Resolution" means a copy of a resolution, certified by the Secretary or Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification and delivered to the Trustee. 76 79 "Business Day" means any day except Saturday, Sunday or other day on which commercial banks in the City of New York, or in the city of the office of the Trustee at which the corporate trust business of the Trustee shall, at any particular time, be principally administered, are authorized by law to close. "Capital Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) in the equity of such Person, whether now outstanding or issued after the date of the Indenture. "Capitalized Lease" means, as applied to any Person, any lease of any property (whether real, personal or mixed) of which the discounted present value of the rental obligations of such Person as lessee, in conformity with GAAP, is required to be capitalized on the balance sheet of such Person; and "Capitalized Lease Obligations" means the discounted present value of the rental obligations under such lease. "Change of Control" means the occurrence of any of the following events: (i) a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of Voting Stock having more than 50% of the voting power of the total Voting Stock of the Company on a fully diluted basis; (ii) individuals who at the beginning of any period of two consecutive calendar years constituted the Board of Directors of the Company (together with any new directors whose election by the Board of Directors or whose nomination for election by the Company's shareholders was approved by a vote of at least two-thirds of the members of the Board of Directors then in office who either were members of the Board of Directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the members of the Board of Directors then in office; (iii) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole to any such "person" or "group" (other than to the Company or a Wholly Owned Restricted Subsidiary); (iv) the merger or consolidation of the Company with or into another corporation or the merger of another corporation with or into the Company with the effect that immediately after such transaction any such "person" or "group" of persons or entities shall have become the beneficial owner of securities of the surviving corporation of such merger or consolidation representing a majority of the combined voting power of the outstanding securities of the surviving corporation ordinarily having the right to vote in the election of directors; or (v) the adoption of a plan relating to the liquidation or dissolution of the Company; provided, that a Change of Control will be deemed not to occur pursuant to clauses (i), (ii), (iii) or (iv) above if either (x) the acquiring "person" is a corporation with outstanding senior, unsecured corporate debt securities having a maturity at original issuance of at least one year and such debt securities are rated Investment Grade (without giving effect to any third-party credit support or enhancement) by S&P or Moody's for a period of at least 90 consecutive days, beginning on the date of such event (which period will be extended up to 90 additional days for as long as the rating of such debt securities is under publicly announced consideration for possible downgrading by the applicable rating agency), or (y) in the event that the acquiring "person" is a corporation that either (1) does not have any outstanding senior, unsecured corporate debt securities that are rated by S&P or Moody's at any time during a period of 90 consecutive days beginning on the date of such event (which period will be extended up to an additional 90 days for as long as any such rating agency has publicly announced that such debt securities will be rated), or (2) after the date of such event but during such 90 day period, has outstanding senior, unsecured corporate debt securities having a maturity at original issuance of at least one year that have been rated Investment Grade (without giving effect to any third-party credit support or enhancement) by S&P or Moody's which rating continues in effect for the remainder of the period specified in clause (x) above, the Notes shall be rated Investment Grade immediately upon such Change of Control. "Closing Date" means the date on which the Units are originally issued under the Unit Agreement. "Closing Price" on any Trading Day with respect to the per share price of any shares of Capital Stock means the last reported sale price regular way or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case on the New York Stock Exchange or, if such shares of Capital Stock are not listed or admitted to trading on such exchange, on the principal national securities exchange on which such shares are listed or admitted to trading or, if not listed or 77 80 admitted to trading on any national securities exchange, on the Nasdaq National Market or, if such shares are not listed or admitted to trading on any national securities exchange or quoted on such automated quotation system, the average of the closing bid and asked prices in the over-the-counter market as furnished by any New York Stock Exchange member firm that is selected from time to time by the Company for that purpose and is reasonably acceptable to the Trustee. "Common Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of such Person's common stock, whether now outstanding or issued after the date of the Indenture, including, without limitation, all series and classes of such common stock. "Consolidated EBITDA" means, for any period, the sum of the amounts for such period of (i) Adjusted Consolidated Net Income, (ii) Consolidated Interest Expense to the extent such amount was deducted in calculating Adjusted Consolidated Net Income, (iii) income taxes, to the extent such amount was deducted in calculating Adjusted Consolidated Net Income (other than income taxes (either positive or negative) attributable to extraordinary and non-recurring gains or losses or sales of assets), (iv) depreciation expense, to the extent such amount was deducted in calculating Adjusted Consolidated Net Income, (v) amortization expense, to the extent such amount was deducted in calculating Adjusted Consolidated Net Income, and (vi) all other non-cash charges (excluding any such non-cash charge to the extent that it represents an accrual of or reserve for cash charges in any future period) of such Person and its Subsidiaries for such period to the extent that such other non cash charges were deducted in computing such Adjusted Consolidated Net Income, less (vii) all non-cash items increasing Adjusted Consolidated Net Income for such period (excluding any such non-cash income to the extent it represents an accrual of cash income to be received in any future period), in each case on a consolidated basis and determined in accordance with GAAP; provided that, if any Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary, Consolidated EBITDA shall be reduced (to the extent not otherwise reduced in accordance with GAAP) by an amount equal to (A) the amount of the Adjusted Consolidated Net Income attributable to such Restricted Subsidiary multiplied by (B) the quotient of (1) the number of outstanding common shares of such Restricted Subsidiary not owned on the last day of such period by the Company or any of its Restricted Subsidiaries divided by (2) the total number of outstanding common shares of such Restricted Subsidiary on the last day of such period. "Consolidated Fixed Charges" of any Person means for any period (i) Consolidated Interest Expense of such Person plus (ii) Preferred Stock dividends declared and payable in cash in such period by such Person or any of its Restricted Subsidiaries, other than any such dividends payable by a Restricted Subsidiary of such Person to such Person or one of its Wholly Owned Restricted Subsidiaries. "Consolidated Interest Expense" means, for any period, the aggregate of the following amounts for such period determined on a consolidated basis (without taking into account Unrestricted Subsidiaries) in accordance with GAAP: the amount of interest in respect of Indebtedness (including amortization of original issue discount on any Indebtedness; the interest portion of any deferred payment obligation and any premiums, fees and expenses (and any amortization thereof) payable in connection with Indebtedness; all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing; the net costs associated with Interest Rate Agreements; interest on Indebtedness that is Guaranteed or secured by the Company or any of its Restricted Subsidiaries; and amounts paid to repurchase the Warrants to the extent such amounts have been expensed for purposes of determining Adjusted Consolidated Net Income) and all but the principal component of rentals in respect of Capitalized Lease Obligations paid, accrued or scheduled to be paid or to be accrued by the Company and its Restricted Subsidiaries during such period; excluding, however, any amount of such interest of any Restricted Subsidiary if the net income of such Restricted Subsidiary is excluded in the calculation of Adjusted Consolidated Net Income pursuant to clause (iii) of the definition thereof (but only in the same proportion as the net income of such Restricted Subsidiary is excluded from the calculation of Adjusted Consolidated Net Income pursuant to clause (iii) of the definition thereof). "Consolidated Net Worth" means, at any date of determination, shareholders' equity as set forth on the most recently available quarterly or annual consolidated balance sheet of the Company and its Restricted 78 81 Subsidiaries (which shall be as of a date not more than 90 days prior to the date of such computation, and which shall not take into account Unrestricted Subsidiaries), less any amounts attributable to Redeemable Stock or any equity security convertible into or exchangeable for Indebtedness, the cost of treasury stock and the principal amount of any promissory notes receivable from the sale of Capital Stock of the Company or any of its Restricted Subsidiaries, each item to be determined in conformity with GAAP. "Credit Facility" means the credit agreement to be entered into prior to or simultaneously with the completion of the Offering of the Units, as such credit agreement may be amended, modified, supplemented, restated or replaced from time to time. "Default" means any event that is, or after notice or passage of time or both would be, an Event of Default. "FCC" means the Federal Communications Commission or any successor governmental authority. "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the date of the Indenture, including, without limitation, those 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 approved by a significant segment of the accounting profession. "Guarantee" means, with respect to any Person, any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Indebtedness or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such other Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Holder" means the registered holder of any Note. "Incur" means, with respect to any Indebtedness, to incur, create, issue, assume, Guarantee or otherwise become liable for or with respect to, or become responsible for, the payment of, contingently or otherwise, such Indebtedness, including Acquired Indebtedness; provided that neither the accrual of interest nor the accretion of original issue discount shall be considered an Incurrence of Indebtedness. "Indebtedness" means, with respect to any Person at any date of determination (without duplication), (i) all indebtedness of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (other than the Company's Series A Preferred Stock) (iii) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto), (iv) all obligations of such Person to pay the deferred and unpaid purchase price of property or services, which purchase price is due more than six months after the date of placing such property in service or taking delivery and title thereto or the completion of such services, except trade payables, (v) all obligations of such Person as lessee under Capitalized Leases, (vi) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; provided that the amount of such Indebtedness shall be the lesser of (A) the fair market value of such asset at such date of determination and (B) the amount of such Indebtedness, (vii) all Indebtedness of other Persons Guaranteed by such Person to the extent such Indebtedness is Guaranteed by such Person and (viii) to the extent not otherwise included in this definition, obligations under Interest Rate Agreements. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the obligation, provided (i) that the amount outstanding at any time of any Indebtedness issued with original issue 79 82 discount is the accreted value of such Indebtedness, (ii) that Indebtedness shall not include any liability for federal, state, local or other taxes (iii) that Indebtedness shall not include any liability under health, life, accident or disability plans for employees of the Company or any Restricted Subsidiary generally, and (iv) Indebtedness shall not include any commitment for the purchase by the Company or any Restricted Subsidiary of equipment or telecommunications services requiring the Company or such Restricted Subsidiary to purchase minimum quantities to achieve discount pricing prior to the time the Company or such Restricted Subsidiary is required pursuant to GAAP to record a liability on its balance sheet under such commitment to pay increased prices. "Indebtedness to EBITDA Ratio" means, as at any date of determination (the "Determination Date"), the ratio of (i) the aggregate amount of Indebtedness of the Company and its Restricted Subsidiaries on a consolidated basis ("Consolidated Indebtedness") at the Determination Date to (ii) the product of four times the Consolidated EBITDA of the Company for the most recent full fiscal quarter for which reports have been filed pursuant to the "Commission Reports and Reports to Holders" covenant described above (such full fiscal quarter being referred to herein as the "Most Recent Quarter"); provided that (x) pro forma effect shall be given to (A) any Indebtedness Incurred during the period commencing on the first day of the Most Recent Quarter through the Determination Date (the "Reference Period"), including any Indebtedness Incurred on the Determination Date, to the extent outstanding at the close of the Determination Date, and (B) the discharge of any other Indebtedness permanently retired, repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness, in each case as if the Incurrence or retirement of such Indebtedness had occurred on the first date of such Reference Period, (y) if during the Reference Period, the Company or any of its Restricted Subsidiaries shall have engaged in any Asset Sale, Consolidated EBITDA for such period shall be decreased by an amount equal to the portion thereof (if positive), or increased by an amount equal to the portion thereof (if negative), directly attributable to the assets which are the subject of such Asset Sale (including, as part of the amount directly attributable to such Asset Sale, any transfer, retirement or other satisfaction of Indebtedness of the Company or any of its Restricted Subsidiaries as part of the consideration for such Asset Sale) as if such Asset Sale and related retirement of Indebtedness had occurred on the first day of such Reference Period or (z) if during such Reference Period the Company or any of its Restricted Subsidiaries shall have made any Asset Acquisition, the Consolidated EBITDA of the Company shall be calculated on a pro forma basis as if such Asset Acquisition and any related financing had occurred on the first day of such Reference Period. "Interest Payment Date" means each semiannual interest payment date on and of each year, commencing , 2002. "Interest Rate Agreement" means any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement, option or future contract or other similar agreement or arrangement designed to protect the Company or any of its Subsidiaries against fluctuations in interest rates. "Investment" in any Person means any direct or indirect advance, loan or other extension of credit (including, without limitation, by way of Guarantee or similar arrangement; but excluding advances to customers in the ordinary course of business that are, in conformity with GAAP, recorded as accounts receivable on the balance sheet of the Company or its Restricted Subsidiaries) to, capital contribution (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others) to, or any purchase or acquisition of Capital Stock, bonds, notes, debentures or other similar instruments issued by, such Person and shall include the designation of a newly formed or newly acquired Subsidiary as an Unrestricted Subsidiary. For purposes of the definition of "Unrestricted Subsidiary", the "Limitation on Restricted Payments" covenant and the "Limitation on the Issuance and Sale of Capital Stock of Restricted Subsidiaries" covenant described above, (i) "Investment" shall include (a) the fair market value of the assets (net of liabilities) of any newly formed or newly acquired Subsidiary of the Company at the time that such newly formed or newly acquired Subsidiary is designated an Unrestricted Subsidiary and (b) the fair market value, in the case of a sale of Capital Stock in accordance with the "Limitation on the Issuance and Sale of Capital Stock of Restricted Subsidiaries" covenant such that a Person no longer constitutes a Restricted Subsidiary, of the remaining assets (net of liabilities) of such Person after 80 83 such sale, and shall exclude the fair market value of the assets (net of liabilities) of any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is designated a Restricted Subsidiary of the Company and (ii) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, in each case as determined by the Board of Directors in good faith. "Investment Grade" shall mean BBB- or higher by S&P or Baa3 or higher by Moody's. "L.A. Note" means the $500,000 aggregate principal amount promissory note or notes of the Company issued to the seller in connection with the acquisition of radio frequency licenses in Los Angeles, California. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including, without limitation, any conditional sale or other title retention agreement or lease in the nature thereof, any sale with recourse against the seller or any Affiliate of the seller, or any agreement to give any security interest). "Moody's" means Moody's Investors Service, Inc. and its successors. "Net Cash Proceeds" means, (a) with respect to any Asset Sale, the proceeds of such Asset Sale in the form of cash or cash equivalents, including payments in respect of deferred payment obligations (to the extent corresponding to the principal, but not interest, component thereof) when received in the form of cash or cash equivalents (except to the extent such obligations are financed or sold with recourse to the Company or any Restricted Subsidiary of the Company) and proceeds from the conversion of other property received when converted to cash or cash equivalents, net of (i) brokerage commissions and other fees and expenses (including fees and expenses of counsel and investment bankers) related to such Asset Sale, (ii) provisions for all taxes (whether or not such taxes will actually be paid or are payable) as a result of such Asset Sale without regard to the consolidated results of operations of the Company and its Restricted Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness or any other obligation outstanding at the time of such Asset Sale that either (A) is secured by a Lien on the property or assets sold or (B) is required to be paid as a result of such sale and (iv) appropriate amounts to be provided by the Company or any Restricted Subsidiary of the Company as a reserve against any liabilities associated with such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as determined in conformity with GAAP and (b) with respect to any issuance or sale of Capital Stock, the proceeds of such issuance or sale in the form of cash or cash equivalents, including payments in respect of deferred payment obligations (to the extent corresponding to the principal, but not interest, component thereof) when received in the form of cash or cash equivalents (except to the extent such obligations are financed or sold with recourse to the Company or any Restricted Subsidiary of the Company) and proceeds from the conversion of other property received when converted to cash or cash equivalents, net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "Offer to Purchase" means an offer to purchase Notes by the Company from the Holders commenced by mailing a notice to the Trustee and each Holder stating: (i) the covenant pursuant to which the offer is being made and that all Notes validly tendered will be accepted for payment on a pro rata basis; (ii) the purchase price and the date of purchase (which shall be a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the "Payment Date"); (iii) that any Note not tendered will continue to accrue interest (or accrete original issue discount) pursuant to its terms; (iv) that, unless the Company defaults in the payment of the purchase price, any Note accepted for payment pursuant to the Offer to Purchase shall cease to accrue interest (or accrete original issue discount) on and after the Payment Date; (v) that Holders electing to have a Note purchased pursuant to the Offer to Purchase will be required to surrender the Note, together with the form entitled "Option of the Holder to Elect Purchase" on the reverse side of the Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day immediately preceding the Payment Date; (vi) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the third Business Day immediately preceding the Payment Date, a telegram, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Notes delivered for purchase and a statement that such Holder 81 84 is withdrawing his election to have such Notes purchased; and (vii) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered; provided that each Note purchased and each new Note issued shall be in a principal amount of $1,000 or integral multiples thereof. On the Payment Date, the Company shall (i) accept for payment on a pro rata basis Notes or portions thereof tendered pursuant to an Offer to Purchase; (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Notes or portions thereof so accepted; and (iii) cause the Paying Agent to deliver to the Trustee all Notes or portions thereof so accepted together with an Officers' Certificate specifying the Notes or portions thereof accepted for payment by the Company. The Paying Agent shall promptly mail to the Holders of Notes so accepted payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate and mail to such Holders a new Note equal in principal amount to any unpurchased portion of the Note surrendered; provided that each Note purchased and each new Note issued shall be in a principal amount of $1,000 or integral multiples thereof. The Company will publicly announce the results of an Offer to Purchase as soon as practicable after the Payment Date. The Trustee shall act as the Paying Agent for an Offer to Purchase. The Company will comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable, in the event that the Company is required to repurchase Notes pursuant to an Offer to Purchase. "Officer" means, with respect to the Company, (i) the Chairman, the Chief Executive Officer, a Vice Chairman, the President, any Vice President and (ii) the Treasurer or any Assistant Treasurer, or the Secretary or any Assistant Secretary. "Officers' Certificate" means a certificate signed by one Officer listed in clause (i) of the definition thereof and one Officer listed in clause (ii) of the definition thereof, provided, however, that any such certificate may be signed by any two of the Officers listed in clause (i) of the definition thereof in lieu of being signed by one Officer listed in clause (i) of the definition thereof and one Officer listed in clause (ii) of the definition thereof. Each Officers' Certificate (other than certificates provided pursuant to TIA Section 314(a)(4)) shall include the statements provided for in TIA Section 314(e). "Opinion of Counsel" means a written opinion signed by legal counsel who may be an employee of or counsel to the Company. Each such Opinion of Counsel shall include the statements provided for in TIA Section 314(e). "Permitted Investment" means (i) an Investment in a Restricted Subsidiary or a Person which will, upon the making of such Investment, become a Restricted Subsidiary or be merged or consolidated with or into or transfer or convey all or substantially all its assets to, the Company or a Restricted Subsidiary; provided that, such Person's primary business is related, ancillary or complementary to the businesses of the Company and its Restricted Subsidiaries on the date of such Investment; (ii) a Temporary Cash Investment; (iii) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses in accordance with GAAP; and (iv) loans or advances to employees made in the ordinary course of business in accordance with past practice of the Company or its Restricted Subsidiaries and that do not in the aggregate exceed $500,000 at any time outstanding. "Permitted Liens" means (i) Liens for taxes, assessments, governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate legal proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; (ii) statutory Liens of landlords and carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other similar Liens arising in the ordinary course of business and with respect to amounts not yet delinquent or being contested in good faith by appropriate legal proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; (iii) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security; (iv) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory or regulatory obligations, bankers' acceptances, surety and appeal bonds, government contracts, performance and return-of-money bonds and other obligations of a similar nature 82 85 incurred in the ordinary course of business (exclusive of obligations for the payment of borrowed money); (v) easements, rights-of-way, municipal and zoning ordinances and similar charges, encumbrances, title defects or other irregularities that do not materially interfere with the ordinary course of business of any Telecommunications Subsidiary individually or the Company and its Restricted Subsidiaries taken as a whole; (vi) Liens upon real or personal property acquired after the Closing Date; provided that (a) such Lien is created solely for the purpose of securing Indebtedness Incurred in accordance with the "Limitation on Indebtedness" covenant described above, (1) to finance the cost (including the cost of improvement or construction) of the item of property or assets subject thereto and such Lien is created prior to, at the time of or within six months after the later of the acquisition, the completion of construction or the commencement of full operation of such property or (2) to refinance any Indebtedness previously so secured, (b) the principal amount of the Indebtedness secured by such Lien does not exceed 100% of such cost and (c) any such Lien shall not extend to or cover any property or assets other than such item of property or assets and any improvements on such item; (vii) leases, subleases, licenses or sublicenses granted to others that do not materially interfere with the ordinary course of business of the Company and its Restricted Subsidiaries, taken as a whole; (viii) Liens encumbering property or assets under construction arising from progress or partial payments by a customer of the Company or its Restricted Subsidiaries relating to such property or assets; (ix) any interest or title of a lessor in the property subject to any Capitalized Lease or operating lease; (x) Liens arising from filing Uniform Commercial Code financing statements (or substantially equivalent filings outside of the United States) regarding leases; (xi) Liens on property of, or on shares of stock or Indebtedness of, any corporation existing at the time such corporation becomes, or becomes a part of, any Restricted Subsidiary; provided that such Liens do not extend to or cover any property or assets of the Company or any Restricted Subsidiary other than the property or assets acquired or property or assets of the corporation that becomes a Restricted Subsidiary; (xii) Liens in favor of the Company or any Restricted Subsidiary; (xiii) Liens arising from the rendering of a final judgment or order against the Company or any Restricted Subsidiary of the Company that does not give rise to an Event of Default; (xiv) Liens securing reimbursement obligations with respect to letters of credit that encumber documents and other property relating to such letters of credit and the products and proceeds thereof; (xv) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (xvi) Liens encumbering customary initial deposits and margin deposits, and other Liens that are either within the general parameters customary in the industry and incurred in the ordinary course of business, in each case, securing Indebtedness under Interest Rate Agreements; (xvii) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business of the Company and its Restricted Subsidiaries; (xviii) Liens on or sales of receivables; (xix) Liens securing Indebtedness permitted to be Incurred pursuant to clause (vi) of the second paragraph of the "Limitation on Indebtedness" covenant (including, without limitation, Indebtedness under the Credit Facility permitted to be Incurred pursuant to such clause (vi)); provided, however, that any such Indebtedness shall not be secured by any property or assets of the Company or any Restricted Subsidiary of the Company other than the Telecommunications Assets so constructed or acquired with the proceeds of such Indebtedness or by the stock of any Restricted Subsidiary, the assets of which consist solely of such Telecommunications Assets so constructed or acquired; (xx) Liens on licenses granted by the FCC to utilize narrowband radio frequency or on the interests in any entity, the material assets of which consist of such licenses to the extent they secure Indebtedness permitted to be Incurred under clauses (v) and (vii) of the second paragraph of the "Limitation on Indebtedness" covenant, provided that the aggregate amount of Indebtedness secured by any such Lien shall not at any time exceed the amount of Indebtedness permitted to be Incurred pursuant to such clauses (v) and (vii); (xxi) Liens (including Liens on Capital Stock of any Restricted Subsidiary) to the extent they secure Indebtedness outstanding under the Credit Facility, provided that the aggregate amount of Indebtedness secured by any such Lien (without duplication of any Indebtedness secured by Liens pursuant to clause (xix) above) shall not at any time exceed the amount of Indebtedness permitted to be Incurred under any such facility pursuant to the terms of the Indenture; (xxii) Liens (including Liens on Capital Stock of any Restricted Subsidiary) to the extent they secure Indebtedness outstanding permitted to be Incurred under clause (i) or (viii) of the second paragraph of the "Limitation on Indebtedness" covenant, provided that the fair market value, as determined by the Board of Directors of the Company in good faith, of the property and other assets subject to 83 86 such Liens (determined at the time such Liens are granted) does not exceed an amount equal to 150% of the amount of such Indebtedness; and (xxiii) any extension, renewal or replacement, in whole or in part, of any Lien described in clauses (i) through (xxii); provided that any such extension, renewal or replacement shall not extend to any additional property or assets. "Person" means an individual, partnership, corporation, trust or unincorporated organization, and a government or agency or political subdivision thereof. "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. "Redeemable Stock" means any class or series of Capital Stock of any Person that by its terms or otherwise is (i) required to be redeemed prior to the Stated Maturity of the Notes, (ii) redeemable at the option of the holder of such class or series of Capital Stock at any time prior to the Stated Maturity of the Notes or (iii) convertible into or exchangeable for Capital Stock referred to in clause (i) or (ii) above or Indebtedness having a scheduled maturity prior to the Stated Maturity of the Notes; provided that any Capital Stock that would not constitute Redeemable Stock but for provisions thereof giving holders thereof 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 Stated Maturity of the Notes shall not constitute Redeemable 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 contained in "Limitation on Asset Sales" and "Repurchase of Notes upon a Change of Control" covenants described above and such Capital Stock specifically provides that such Person will not repurchase or redeem any such stock pursuant to such provision prior to the expiration of the Company's Offer to Purchase Notes as required pursuant to the "Limitation on Asset Sales" and "Repurchase of Notes upon a Change of Control" covenants described above. "Redemption Date," when used with respect to any Note to be redeemed, means the date fixed for such redemption by or pursuant to the Indenture. "Refinancing Indebtedness" means Indebtedness of the Company or any Restricted Subsidiary issued in exchange for, or the net proceeds of which are used to refinance or refund, then outstanding Indebtedness of such Person, other than Indebtedness Incurred under clause (i), (v) or (viii) of the second paragraph under the "Limitation on Indebtedness" covenant, and any refinancings thereof in an amount not to exceed the amount so refinanced or refunded (plus premiums, accrued interest, fees and expenses); provided that Indebtedness the proceeds of which are used to refinance or refund the Notes or Indebtedness that is pari passu with, or subordinated in right of payment to, the Notes shall only be permitted if (A) in case the Notes are refinanced in part or the Indebtedness to be refinanced is pari passu with the Notes, such new Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such new Indebtedness is outstanding, is expressly made pari passu with, or subordinate in right of payment to, the remaining Notes, (B) in case the Indebtedness to be refinanced is subordinated in right of payment to the Notes, such new Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such new Indebtedness is issued or remains outstanding, is expressly made subordinate in right of payment to the Notes at least to the extent that the Indebtedness to be refinanced is subordinated to the Notes and (C) such new Indebtedness, determined as of the date of Incurrence of such new Indebtedness, does not mature prior to the Stated Maturity of the Indebtedness to be refinanced or refunded and the Average Life of such new Indebtedness is at least equal to the remaining Average Life of the Indebtedness to be refinanced or refunded; and provided further that in no event may Indebtedness of the Company (other than the L.A. Note) be refinanced by means of any Indebtedness of any Restricted Subsidiary pursuant to this definition. "Regular Record Date" for the interest payable on any Interest Payment Date means the or (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. "Restricted Subsidiary" means any Subsidiary of the Company other than an Unrestricted Subsidiary. 84 87 "Sale and Leaseback Transaction" means any direct or indirect arrangement with any Person or to which any such Person is a party providing for the leasing to the Company or a Restricted Subsidiary of any property, whether owned by the Company or any Restricted Subsidiary at the Closing Date or later acquired, which has been or is to be sold or transferred by the Company or such Restricted Subsidiary to such Person or to any other Person from whom funds have been or are to be advanced by such Person on the security of such property. "Security Register" means the register of the Notes and of their transfer and exchange to be kept by the office or agency maintained by the Company where Notes may be presented for registration of transfer or for exchange. "Series A Preferred Stock" means the Series A Preferred Stock of the Company outstanding on the date of the Indenture and any Series B Preferred Stock of the Company issuable upon the exchange of such Series A Preferred Stock. "Sloan Loan" means the promissory notes in favor of the Company issued in connection with the original issuance of the Company's Capital Stock, of which approximately $1.7 million was outstanding on the date hereof. "Specified Date" means any redemption date, any date of purchase for any purchase of Notes pursuant to the covenants described under "Limitation on Asset Sales" or "Repurchase of Notes upon a Change of Control" above or any date on which the Notes first become due and payable after an Event of Default. "Spectrum Acquisition Debt" means Indebtedness Incurred solely for the purpose of financing the costs of licenses or other rights granted by the FCC to utilize radio frequency and which is either a direct obligation owing to the FCC or recourse solely to such licenses or to the Capital Stock of a Restricted Subsidiary which has no material assets other than such licenses. "S&P" means Standard & Poor's Corporation and its successors. "Stated Maturity" means, (i) with respect to any debt security, the date specified in such debt security as the fixed date on which the final installment of principal of such debt security is due and payable and (ii) with respect to any scheduled installment of principal of or interest on any debt security, the date specified in such debt security as the fixed date on which such installment is due and payable. "Strategic Equity Investor" means any Person the common stock of which is publicly traded that, both as of the Trading Day immediately before the day of a sale and the Trading Day immediately after the day of such sale, has Total Common Equity of at least $400 million and is engaged in the business of (a) providing emission, transmission or reception of signs, signals, writing, images, sound, data or video; (b) the sale, resale, lease or provision of cellular services, PCS, dispatch services, paging services, telephone services and other telecommunications or radiocommunications services; (c) the operation of PCS networks and other telecommunications or radiocommunications networks; (d) the provision of telecommunications or radiocommunications facilities or equipment; or (e) any business ancillary or directly related to the businesses referred to in clauses (a), (b), (c) or (d) above. "Subsidiary" means, with respect to any Person, any corporation, association or other business entity of which more than 50% of the outstanding Voting Stock is owned, directly or indirectly, by such Person and one or more other Subsidiaries of such Person. "Telecommunications Assets" means (i) any entity or business which holds telecommunications or radiocommunications licenses, or a substantial portion of the revenues of which are derived from (a) providing emission, transmission or reception of signs, signals, writing, images, sound, data or video; (b) the sale, resale, lease or provision of cellular services, PCS, dispatch services, paging services, telephone services and other telecommunications or radiocommunications services; (c) the operation of PCS networks and other telecommunications or radiocommunications networks; (d) the provision of telecommunications or radiocommunications facilities or equipment; or (e) any business ancillary or directly related to the businesses referred in clauses (a), (b), (c) or (d) above and (ii) any assets used primarily to provide such products or services or to conduct such businesses, including licenses or other rights to use radio frequency. 85 88 "Telecommunications Subsidiary" means (i) PCSD Financial Corp., SGI Communications, Inc., PCSD Spectrum, Inc., PCSD Network, Inc. and their respective successors and (ii) any other Subsidiary of the Company that holds more than a de minimis amount of Telecommunications Assets. "Temporary Cash Investment" means any of the following: (i) direct obligations of the United States or any agency thereof or obligations fully and unconditionally guaranteed by the United States or any agency thereof with maturities of twelve months or less from the date of acquisition, (ii) time deposit accounts, certificates of deposit and money market deposits maturing within 365 days of the date of acquisition thereof, bankers' acceptances with maturities not exceeding 365 days, and overnight bank deposits, in each case issued by or with a bank or trust company that is organized under the laws of the United States or any state thereof and which bank or trust company has capital, surplus and undivided profits aggregating in excess of $500 million and has outstanding debt which is rated "A" (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act), or any money market fund sponsored by a registered broker dealer or mutual fund distributor, (iii) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (i) above entered into with a bank meeting the qualifications described in clause (ii) above, (iv) commercial paper, maturing not more than 365 days after the date of acquisition, issued by a corporation (other than an Affiliate of the Company) organized and in existence under the laws of the United States of America, any state thereof or any foreign country recognized by the United States with a rating at the time as of which any investment therein is made of "P-l" (or higher) according to Moody's Investors Service, Inc. or "A-l" (or higher) according to Standard & Poor's and (v) securities with maturities of twelve months or less from the date of acquisition issued or fully and unconditionally guaranteed by any state, commonwealth or territory of the United States, or by any political subdivision or taxing authority thereof, and rated at least "A" by Standard & Poor's or Moody's Investors Service, Inc. "Total Common Equity" of any Person means, as of any day of determination, the product of (i) the aggregate number of outstanding 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) and (ii) the average Closing Price of such Common Stock over the 20 consecutive Trading Days immediately preceding such day. For purposes of calculating Total Common Equity on the Trading Day immediately following an event described under "Change of Control," the average closing price shall be equal to the Closing Price on such Trading Day. If no Closing Price exists with respect to shares of any such class, the value of such shares for purposes of clause (ii) of the preceding sentence shall be determined by a nationally recognized independent investment banking firm. "Trading Day" with respect to a securities exchange or automated quotation system, means a day on which such exchange or system is open for a full day of trading. "Transaction Date" means, with respect to the Incurrence of any Indebtedness by the Company or any of its Restricted Subsidiaries, the date such Indebtedness is to be Incurred and, with respect to any Restricted Payment, the date such Restricted Payment is to be made. "TIA" or "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended (15 U.S. Code sec.sec. 77aaa-77bbb), as in effect on the date the Indenture was executed. "Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below and (ii) any Subsidiary of such an Unrestricted Subsidiary. The Board of Directors may, at the time of acquisition or formation, designate any Subsidiary of the Company which has been either newly acquired or newly formed after the date of the Indenture to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, the Company or any Restricted Subsidiary; provided that (i) either (A) the Subsidiary to be so designated has total assets of $1,000 or less or (B) if such Subsidiary has assets greater than $1,000, that such designation would be permitted under the "Limitation on Restricted Payments" covenant described above and (ii) the holders of any permitted Indebtedness of such Subsidiary do not have direct or indirect recourse against the Company or any Restricted Subsidiary of the Company and neither the Company nor any Restricted Subsidiary of the Company otherwise has any liability 86 89 for any payment obligations in respect of such Indebtedness. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary of the Company; provided that immediately after giving effect to such designation (x) the Company could Incur $1.00 of additional Indebtedness under the first paragraph of the "Limitation on Indebtedness" covenant described above and (y) no Default or Event of Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "U.S. Government Obligations" means securities that are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof at any time prior to the Stated Maturity of the Notes, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such U.S. Government Obligation or a specified payment of interest on or principal of any such U.S. Government Obligation held by such custodian for the account of the holder of a depository receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of interest on or principal of the U.S. Government Obligation evidenced by such depository receipt. "Voting Stock" means, with respect to any Person, Capital Stock of any class or kind ordinarily having the power to vote for the election of directors, managers or other voting members of the governing body of such Person. "Wholly Owned" means, with respect to any Subsidiary of any Person, such Subsidiary if all of the outstanding Capital Stock in such Subsidiary (other than any director's qualifying shares or Investments by foreign nationals mandated by applicable law) is owned by such Person or one or more Wholly Owned Subsidiaries of such Person. BOOK-ENTRY, DELIVERY AND FORM Except as set forth below, the Notes will initially be issued in the form of one or more Global Notes (the "Global Note") held in book-entry form. The Global Note will be deposited on the Closing Date with, or on behalf of, The Depository Trust Company ("DTC" or the "Depository") and registered in the name of Cede & Co., as nominee of the Depository (such nominee being referred to herein as the "Global Note holder"). DTC has advised the Company that it is a limited-purpose trust company that was created to hold securities for its participating organizations (collectively, the "Participants" or the "Depository's Participants") and to facilitate the clearance and settlement of transactions in such securities between Participants through electronic book-entry changes in accounts of its Participants. The Depository's Participants include securities brokers and dealers (including the Underwriters), banks and trust companies, clearing corporations and certain other organizations. Access to the Depository's system is also available to other entities such as banks, brokers, dealers and trust companies (collectively, the "Indirect Participants" or the "Depository's Indirect Participants") that clear through or maintain a custodial relationship with a Participant, either directly or indirectly. Persons who are not Participants may beneficially own securities held by or on behalf of the Depository only through the Depository's Participants or the Depository's Indirect Participants. The Company has been advised by the Depository that (i) upon deposit of the Global Note, the Depository will credit the accounts of Participants designated by the Underwriters with portions of the principal amount of the Global Note and (ii) ownership of the Notes evidenced by the Global Note will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by the Depository (with respect to the interests of the Depository's Participants), the Depository's Participants and the Depository's Indirect Participants. Prospective purchasers are advised that the laws of some states require 87 90 that certain persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer Notes evidenced by the Global Note will be limited to such extent. So long as the Global Note holder is the registered owner of any Notes, the Global Note holder will be considered the sole holder under the Indenture of any Notes evidenced by the Global Note. Beneficial owners of Notes evidenced by the Global Note will not be considered the owners or holders thereof under the Indenture for any purpose, including with respect to the giving of any directions, instructions or approvals to the Trustee thereunder. Neither the Company nor the Trustee will have any responsibility or liability for any aspect of the records of the Depository or for maintaining, supervising or reviewing any records of the Depository relating to the Notes. Payments in respect of the principal of, premium, if any, and interest on any Notes registered in the name of the Global Note holder on the applicable record date will be payable by the Trustee to or at the direction of the Global Note holder in its capacity as the registered holder under the Indenture. Under the terms of the Indenture, the Company and the Trustee may treat the persons in whose names the Notes, including the Global Note, are registered as the owners thereof for the purpose of receiving such payments. Consequently, neither the Company nor the Trustee has or will have any responsibility or liability for the payment of such amounts to beneficial owners of the Notes (including principal, premium, if any, or interest). The Company believes, however, that it is currently the policy of the Depository to immediately credit the accounts of the relevant Participants with such payments, in amounts proportionate to their respective holdings of beneficial interests in the relevant security as shown on the records of the Depository. Payments by the Depository's Participants and the Depository's Indirect Participants to the beneficial owners of the Notes will be governed by standing instructions and customary practice and will be the responsibility of the Depository's Participants or the Depository's Indirect Participants. CERTIFICATED SECURITIES Subject to certain conditions, any person having a beneficial interest in the Global Note may, upon request to the Trustee, exchange such beneficial interest for Notes in the form of Certificated Notes. Upon any such issuance, the Trustee is required to register such Certificated Notes in the name of, and cause the same to be delivered to, such person or persons (or the nominee of any thereof). In addition, if (i) the Company notifies the Trustee in writing that the Depository is no longer willing or able to act as a depository and the Company is unable to locate a qualified successor within 90 days or (ii) the Company, at its option, notifies the Trustee in writing that it elects to cause the issuance of Notes in the form of Certificated Notes under the Indenture, then, upon surrender by the Global Note holder of its Global Note, Notes in such form will be issued to each person that the Global Note holder and the Depository identify as being the beneficial owner of the related Notes. Neither the Company nor the Trustee will be liable for any delay by the Global Note holder or the Depository in identifying the beneficial owners of Notes and the Company and the Trustee may conclusively rely on, and will be protected in relying on, instructions from the Global Note holder or the Depository for all purposes. SAME-DAY SETTLEMENT AND PAYMENT The Indenture will require that payments in respect of the Notes (including principal, premium, if any, and interest) be made in immediately available funds. 88 91 DESCRIPTION OF THE WARRANTS GENERAL The Warrants are to be issued under a Warrant Agreement (the "Warrant Agreement") between the Company and United States Trust Company of New York, as Warrant Agent (the "Warrant Agent"). The following summaries of certain provisions of the Warrant Agreement do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all the provisions of the Warrants and the Warrant Agreement. Each Warrant initially will entitle the registered holder thereof (the "holder"), subject to and upon compliance with the provisions thereof and of the Warrant Agreement, at such holder's option, prior to 5:00 P.M., New York City time, on the Expiration Date, to purchase at a price of $0.01 per Warrant (the "Exercise Price") from the Company one (or such other number as may result from adjustments as provided in the Warrant Agreement) share of Class B Common Stock. The Class B Common Stock issuable upon exercise of the Warrants collectively will represent approximately 2.0% of the Company's outstanding Common Stock on a fully diluted basis. THE AGGREGATE NUMBER OF WARRANTS SET FORTH HEREIN IS AN ESTIMATE ONLY AND IS SUBJECT TO CHANGE PRIOR TO ISSUANCE. As of July 1, 1996, the Company had issued warrants to acquire 1,313 shares of the Class B Common Stock. Subject to the terms and conditions established in the Warrant Agreement, unless exercised the Warrants will expire at 5:00 p.m., New York time, on the earliest to occur of (i) 180 days after an Exercise Event (as defined below) and (ii) , 2006 (the "Expiration Date"). Each Warrant may be exercised on any business day on or after the Exercisability Date (as defined below) and on or prior to the Expiration Date. Any Warrant not exercised before the close of business on the Expiration Date shall become void, and all rights of the holder under the Warrant Certificate evidencing such Warrant and under the Warrant Agreement shall cease. Subject to the terms of the Warrant Agreement, the Warrant Certificates evidencing the Warrants may be surrendered for exercise or exchange, and the transfer of Warrant Certificates will be registrable, at the office or agency of the Company maintained for such purpose, which initially will be the corporate trust office of the Warrant Agent in New York, New York. The Warrant Certificates will be issued either in global form or physical form as definitive Warrant Certificates. No service charge will be made for any exercise, exchange or registration of transfer of Warrant Certificates, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. In general, holders of Warrants will not be entitled, by virtue of being such holders, to receive notice of any meetings of stockholders or otherwise have any rights of stockholders of the Company. However, if at any time the Company (i) grants, issues or sells options, convertible securities, or rights to purchase stock, warrants or other securities pro rata to the record holders of the Common Stock (the "Distribution Rights") or (ii) without duplication, makes any dividend or otherwise makes any distribution (a "Distribution") on shares of the Common Stock, then the Company will grant, issue, sell or make to each registered holder of Warrants the aggregate Distribution Rights or Distribution, as the case may be, which such holder would have acquired if such holder had held the maximum number of shares of Common Stock acquirable upon complete exercise of each holder's Warrants immediately before the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Distribution Rights or Distribution, as the case may be. The number of shares of Common Stock issuable upon exercise of a Warrant (the "Exercise Rate") is subject to adjustment from time to time upon the occurrence of certain events, including certain (a) subdivisions, combinations or certain reclassifications of the Common Stock and (b) sales by the Company of Common Stock or of securities convertible into or exchangeable or exercisable for Common Stock (other than (1) pursuant to the exercise of the Warrants, (2) any security convertible into, or exchangeable or exercisable for, Common Stock as to which the issuance thereof has previously been the subject of any required adjustment pursuant to the Warrant Agreement and (3) grants to employees of options to purchase shares of Common Stock in the ordinary course of business in accordance with past 89 92 practice) at a price per share less than the Current Market Value (as defined below) at the time and date of the determination of stockholders entitled to receive such rights (the "Time of Determination"). The Warrant Agreement permits the Company voluntarily to increase the Exercise Rate from time to time for a period of time not less than 20 business days. If the Company is a party to a consolidation, merger or binding share exchange, or certain transfers of all or substantially all of its assets occur, the right to exercise a Warrant for Class B Common Stock may be changed into a right to receive securities, cash or other assets of the Company or another person which such holder would have received immediately after such transaction if such holder had exercised the Warrant immediately before the effective date of such transaction. The Warrant Agreement permits, with certain exceptions, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the holders of Warrant Certificates under the Warrant Agreement at any time by the Company and the Warrant Agent with the consent of the holders of Warrant Certificates representing a majority in number of the then outstanding Warrants. WARRANT EXERCISE Warrants may be exercised on or after the Exercisability Date and on or prior to the Expiration Date by surrendering the Warrant Certificate evidencing such Warrants with the form of election to purchase Class B Common Stock set forth on the reverse side thereof duly completed and executed by the holder thereof and paying in full the Exercise Price for such Warrant at the office or agency designated for such purpose, which will initially be the corporate trust office of the Warrant Agent in New York, New York. Each Warrant may only be exercised in whole and the Exercise Price may be paid only in cash or by certified or official bank check or through the surrender of unexercised Warrants. Upon the occurrence of an Exercise Event, the Company shall (i) send promptly to each holder of Warrants, by first class mail at the addresses appearing on the Warrant Register, a notice of such Exercise Event, which notice shall describe the type of Exercise Event and the date of the occurrence thereof and (ii) cause a notice of such Exercise Event to be published in the Wall Street Journal, National Edition, for two consecutive business days, which notice shall identify the Warrants, describe the type of Exercise Event and the date of the occurrence thereof. Fractional shares of Common Stock are not required to be issued upon exercise of Warrants, but in lieu thereof the Company will pay a cash adjustment. NOTWITHSTANDING THE FOREGOING, THE EXERCISE OF THE WARRANTS (AND THE OWNERSHIP OF CLASS B COMMON STOCK ISSUABLE UPON THE EXERCISE THEREOF) MAY BE LIMITED BY THE COMPANY IN ORDER TO ENSURE COMPLIANCE WITH THE FCC'S RULES, AND THE WARRANTS WILL NOT BE EXERCISABLE BY ANY HOLDER IF SUCH EXERCISE WOULD CAUSE THE COMPANY TO BE IN VIOLATION OF THE COMMUNICATIONS ACT OR THE FCC'S RULES, REGULATIONS OR POLICIES. SEE "RISK FACTORS -- GOVERNMENT REGULATION; POSSIBLE LOSS OF LICENSES." In the event the Company is restricted by the Communications Act or the FCC's rules, regulations or policies from issuing Warrant Shares upon exercise of any Warrants, the Company shall be required to pay to each holder of each Warrant seeking to exercise such Warrant an amount per Warrant in cash equal to the Current Market Value thereof as of the date of such proposed exercise as set forth below under "Offer to Repurchase." "Common Stock" means both the Class A Common Stock, par value $1.00 per share, and the Class B Common Stock of the Company, par value $1.00 per share, and any other capital stock of the Company into which such Common Stock may be converted or reclassified or that may be issued in respect of, in exchange for, or in substitution for, such Common Stock by reason of any stock splits, stock dividends, distributions, mergers, consolidations or other like events. 90 93 "Exercisability Date" is defined in the Warrant Agreement as the date of occurrence of any Exercise Event, provided that if an Exercise Event occurs prior to the Separability Date, the Separability Date shall instead be the Exercisability Date. "Exercise Event" means, with respect to each Warrant as to which such event is applicable, the date of the earliest of: (1) the occurrence of a Change of Control (which definition is identical to the definition of "Change of Control" set forth above under "Description of the Notes -- Definitions", except that the proviso to such definition under "Description of the Notes" is not included in such definition), (2) the consummation of a Public Equity Offering (as defined herein) after which there shall exist a Public Market (as defined herein) and (3) , 2006. "Separability Date" is defined in the Warrant Agreement to mean the earliest to occur of: (i) , 1996, (ii) such earlier date as may be determined by Lehman Brothers Inc. and specified to the Company, the Trustee, the Warrant Agent and the Unit Agent in writing, (iii) the occurrence of a Change of Control and (iv) in the event of an Offer to Purchase in connection with any Asset Sale (each as defined herein), the date the Company mails notice thereof to the holders of the Notes, at which time the Notes and the Warrants will become separately transferable. "Public Equity Offering" means a primary public offering (whether or not underwritten, but excluding any offering pursuant to Form S-4 or S-8 under the Securities Act) of Common Stock of the Company pursuant to an effective registration statement under the Securities Act. "Public Market" means any time after (x) a Public Equity Offering has been consummated and (y) at least 20% of the total issued and outstanding Common Stock of the Company has been distributed by means of an effective registration statement under the Securities Act. The Company has agreed to file and to use its best efforts to make effective by the Exercisability Date a shelf registration statement on an appropriate form covering the issuance of the Warrant Shares, unless an exemption from the registration requirements under the Securities Act is then available for the issuance of such Warrant Shares. The Company will keep such registration statement effective until the Expiration Date of the Warrants. OFFER TO REPURCHASE Upon the occurrence of an Exercise Event, the Company shall have the right to make an offer to purchase all outstanding Warrants and Warrant Shares in cash, within 120 days after such Exercise Event, at a price equal to the Current Market Value thereof. In the event the Company makes any such offer the Company shall have selected an Independent Financial Expert reasonably satisfactory to a majority of the holders of Warrants and Warrant Shares prior to 90 days before the Expiration Date. If the Company has not selected an Independent Financial Expert prior to 90 days before the Expiration Date, then a majority of the holders of Warrants and Warrant Shares shall have the right to select one at the expense of the Company. "Current Market Value" per share of Class B Common Stock or any other security at any date means (1) if the security is not registered under the Exchange Act, the value of the security determined as of such date by such Independent Financial Expert and approved by the Board of Directors of the Company, or (2) if the security is registered under the Exchange Act, the average of the daily closing bid prices for each business day during the period commencing 15 business days before such date and ending on the date one day prior to such date or, if the security has been registered under the Exchange Act for less than 15 consecutive business days before such date, then the average of the daily closing bid prices for all of the business days before such date for which daily closing bids prices are available. If the closing bid price is not determinable for at least 10 business days in such period, the Current Market Value of the security shall be determined as if the security was not registered under the Exchange Act. Current Market Value with respect to a Warrant means the Current Market Value of a Warrant Share and all other property acquirable upon exercise in full of such Warrant. Current Market Value shall be determined without any discount for lack of liquidity, the amount of Class B Common Stock proposed to be sold or the fact that the Warrant Shares or Class B Common Stock held may represent a minority interest in a private company. 91 94 "Independent Financial Expert" means a nationally recognized investment banking firm which is not an affiliate of the Company. REGISTRATION RIGHTS The Company and the Underwriters will enter into a Class B Common Stock and Warrant Registration Rights Agreement (the "Warrant Registration Rights Agreement") with respect to the Warrant Shares. The Warrant Registration Rights Agreement will provide among other things, that the Underwriters and persons to whom Warrant Shares are transferred will have the registration rights with respect to the Warrant Shares described below. Holders of Warrant Shares will have the demand registration rights described in this paragraph only following the occurrence of an Exercise Event. After the occurrence of an Exercise Event, the holders of at least 25% of the outstanding Warrant Shares will be entitled to require the Company to use its best efforts to effect one registration under the Securities Act of such Warrant Shares (a "Demand Registration"), subject to certain limitations, unless an exemption from the registration requirements of the Securities Act is then available for the sale of the Warrant Shares. Upon a demand, the Company will prepare, file and use its best efforts to cause to be effective within 120 days of such demand a registration statement in respect of all of the Warrant Shares; provided, that in lieu of filing such registration statement the Company may make an offer to purchase all of the Warrant Shares at the Current Market Value per share thereof. Holders of Warrant Shares will also have the right to include such Warrant Shares in any registration statement under the Securities Act filed by the Company for its own account or for the account of any of its securityholders (other than a registration statement on Form S-4 or S-8) for sale on the same terms and conditions as the securities of the Company or any other selling securityholder included therein (a "Piggy-Back Registration"), unless an exemption from the registration requirements of the Securities Act is then available for the sale of the Warrant Shares. In the case of a Piggy-Back Registration, the number of Warrant Shares requested to be included therein is subject to reduction to the extent that the Company is advised by the managing underwriter therefor that the total number of shares proposed to be included therein is such as to materially and adversely affect the success of the offering. The Warrant Registration Rights Agreement will include customary covenants on the part of the Company and will provide that the Company will indemnify the holders of Warrant Shares included in any registration statement and any underwriter with respect thereto against certain liabilities. 92 95 DESCRIPTION OF CAPITAL STOCK COMMON STOCK General The Company is authorized to issue two classes of Common Stock, designated "Class A Common Stock" and "Class B Common Stock". The Company is authorized to issue up to 500,000 shares of Common Stock in the aggregate. Of that amount, up to 300,000 shares may be shares of Class A Common Stock, par value $1.00 per share, and up to 200,000 shares may be shares of Class B Common Stock, par value $1.00 per share. As of July 1, 1996, there were issued and outstanding 8,718 shares of Class A Common Stock and 28,482 shares of Class B Common Stock each held of record by 26 stockholders. The holders of shares of Class A Common Stock are entitled to one vote for each share held on all matters as to which stockholders are entitled to vote. Shares of Class B Common Stock confer on the holders thereof no right to vote except with respect to each of the matters listed in items (i) through (xiv) below, as to which each holder is entitled to one vote for each share of Class B Common Stock held, voting together with the holders of the Class A Common Stock as a single class with respect to each such matter. The affirmative vote or consent of the holders of two-thirds or more of the outstanding shares of Common Stock is required to: (i) alter or change the rights, preferences or privileges of the Class A Common Stock or Class B Common Stock or increase the authorized number of shares thereof; (ii) authorize or issue any Common Stock, any debt or equity security convertible into Common Stock or any rights or options to purchase Common Stock or any debt or equity securities convertible into Common Stock (other than (i) pursuant to or as permitted by the Common Stockholders Agreement or (ii) pursuant to rights generally granted to employees, either directly or pursuant to employee benefit plans, in each case, with the approval of the Board of Directors and a two-thirds vote of the holders of the Class A Common Stock and, if applicable, in accordance with waivers obtained from the FCC with respect to the application to such employees of its rules and regulations pertaining to Designated Entity status); (iii) authorize or issue any new class or series of stock, any debt or equity security convertible into any new class or series of stock or any rights or options to purchase the same; (iv) amend or restate the certificate of incorporation or bylaws of the Company; (v) effect the sale, merger, consolidation, recapitalization or reorganization of the Company or any subsidiary thereof which would result in a change of control of the Company or a sale of all or substantially all of the assets of the Company; (vi) repurchase or otherwise acquire shares of Common Stock or other securities of the Company (other than (i) pursuant to the Common Stockholders Agreement, (ii) pursuant to the terms of employee benefit plans approved by the Board of Directors or (iii) in connection with the cessation of the employment of employees or former employees of the Company, in each case not to exceed $500,000 in the aggregate during any fiscal year); (vii) change the number of directors prescribed in the bylaws of the Company; (viii) effect any issuances of stock or any securities convertible into or exchangeable for stock by any subsidiary of the Company; (ix) change the line of business engaged in by the Company or any of its subsidiaries in any material fashion; (x) incur any indebtedness for borrowed money or any financing leases in any fiscal year in excess of $2 million in the aggregate; incur or approve any capital expenditures in any fiscal year in excess of $2 million in the aggregate; or pledge, encumber, purchase, sell or otherwise transfer or dispose of any assets of the Company or any subsidiary (other than in the ordinary course of business) in any fiscal year 93 96 in excess of $500,000 in the aggregate; provided that nothing shall restrict the Company from incurring such indebtedness, leases or capital expenditures or effecting any such transfer or disposition referred to above if in accordance with a business plan (which business plan shall have been approved as provided in clause (xii) below) then in effect for such fiscal year; (xi) liquidate or dissolve the Company (other than pursuant to the Common Stockholders Agreement); (xii) approve the business plan each year and any material changes during the year as submitted to the Stockholders of the Company by the Board of Directors in accordance with the Common Stockholders Agreement; (xiii) create any committees of the Board of Directors that are delegated power or authority of the Board of Directors except the Finance Committee, the Compensation Committee and the Corporate Opportunity Committee; or (xiv) take any action or cause to suffer the occurrence of any event which, in the opinion of FCC Counsel to the Company, would result in the loss of or materially jeopardize the Company's status as a Designated Entity. Common Stockholders Agreement Certain of the rights and obligations of the holders of the Common Stock of the Company are governed by the Stockholders Agreement dated as of November 14, 1994 and subsequently amended (as amended, the "Common Stockholders Agreement") among the Company and the holders of the Common Stock party thereto (the "Common Stockholders"). The shares of Common Stock underlying the Preferred Stock (as defined below), and the shares of Common Stock for which the Warrants may be exercised, will be subject, upon issuance, to rights and restrictions set forth in the Common Stockholders Agreement. The Common Stockholders Agreement is summarized below, which is qualified in its entirety by reference to the complete text of the Common Stockholders Agreement. Stock Transfer Restrictions. A Common Stockholder may transfer his, her or its Common Stock only if the transfer complies with the provisions in the Common Stockholders Agreement. If the proposed transferee is a "Permitted Transferee" (as defined below), then the following requirements apply: (i) the Common Stockholder proposing to make the transfer must give written notice to the Company of the proposed transfer, identifying the proposed transferee; (ii) in the opinion of counsel satisfactory to the Company, the proposed transfer must not violate the registration requirements under the Securities Act or state securities laws; (iii) the transfer, in the reasonable opinion of special FCC counsel to the Company, must not result in the loss of or materially jeopardize the Designated Entity status of the Company; (iv) the transfer must not cause a transfer of control by the Company under FCC rules and regulations (other than a transfer specifically contemplated by the Common Stockholders Agreement); and (v) the transferee must execute and deliver to the Company a written instrument, in form and substance reasonably satisfactory to the Company, acknowledging the receipt of a copy of the Common Stockholders Agreement and agreeing to comply with and be bound by it. In the case of a Common Stockholder that is a corporation or partnership, a "Permitted Transferee" is a general or limited partner, stockholder, beneficial owner, equity holder or subsidiary or subsidiaries of such Common Stockholder. For this purpose, a "subsidiary" means any corporation, partnership, joint venture, trust or estate of which (or in which) the Common Stockholder owns or controls directly or indirectly 50% or more of (i) the voting stock with power to elect a majority of the directors, (ii) the capital and profit and loss interests of a partnership or joint venture or (iii) the beneficial interests of a trust or estate. 94 97 If the proposed transferee is not a "Permitted Transferee," then, in addition to the above requirements, the transfer notice must set forth all of the terms and conditions of the proposed transfer, the transferor and the transferee must notify the Company of completion of the transfer, and the rights of co-sale and rights in the case of the sale of the business, as described in the following two paragraphs, will apply. Co-Sale Rights and Requirements. If Common Stock is to be transferred to a Person other than a Permitted Transferee by a holder of 5% or more of the Common Stock and such stock constitutes one-third or more of the Common Stock owned by such Person, then the Company shall notify all other Common Stockholders and all other holders of the Preferred Stock (the "Preferred Stockholders" and collectively, the "Stockholders") of the transfer. Such other Stockholders shall then have the option to participate in the contemplated transfer by selling, at the same price and on the same terms as the proposed transfer, a proportionate number of their shares of Common Stock based on the relative holdings of those Stockholders electing to sell (on an as-if-converted basis). The Common Stockholders and Preferred Stockholders may exercise their options to participate in such transfer by giving notice to the transferor and to the Company within thirty days after receipt of notice from the Company. Notwithstanding the foregoing, no Common Stockholder may obtain a majority of the Common Stock or of the Class A Common Stock in the Company by acquiring Common Stock from the other Common Stockholders in a single transaction or series of related transactions unless the acquiring Stockholder offers to acquire on identical terms and conditions Common Stock from the other stockholders in proportion to their relative shareholdings. In the event that a bona fide offer of any type, other than an offer by a Common Stockholder or any Permitted Transferee of a Common Stockholder or any affiliate thereof, is made to purchase the business of the Company, including without limitation a proposed merger or consolidation, an offer to purchase more than 50% of the Common Stock or an offer to purchase all or substantially all of the assets of the Company, then, if Stockholders with an aggregate holding of two-thirds or more of the Common Stock and Preferred Stock, voting together as a single class on an as-if-converted basis, approve the offer, all of the Common Stockholders are required to consent to and participate on a pro rata basis in the transaction approved by such two-thirds majority. Conversion of Class B Common Stock. The Common Stockholders Agreement allows the holders of the Class B Common Stock to exchange such Class B Common Stock for an equal number of shares of Class A Common Stock immediately upon and after the consummation of an Initial Public Offering (as defined below). Voting Requirements. The Common Stockholders Agreement contains provisions identical to the voting requirements discussed above under "-- General." In addition, the Common Stockholders Agreement provides that decisions by the Board of Directors shall be by majority vote, except that not less than two-thirds of the total number of directors then in office must vote in favor of the following actions if such actions are to be duly authorized: (i) hiring, terminating or materially changing the compensation and benefits of any key employee of the Company; (ii) engaging in any transactions with a Stockholder or any affiliate thereof other than pursuant to agreements specifically referenced in the Common Stockholders Agreement; (iii) approving and submitting to the Stockholders the business plan each year and any material changes during the year, as submitted to the Board of Directors by the Finance Committee or as developed by the Board of Directors itself absent a timely submission by the Finance Committee all in accordance with the Common Stockholders Agreement; or (iv) changing the accounting or reporting systems in any material manner from that previously approved by the Stockholders. Directors. The Board of Directors of the Company consists of 17 directors. The holders of the Class A Common Stock have agreed to elect the directors of the Company from designees selected by the 95 98 Stockholders as prescribed in the Common Stockholders Agreement. The following is a list of the present designees of such Stockholders and the number of directors such Stockholders are entitled to designate:
NUMBER OF STOCKHOLDER DIRECTORS DESIGNEE ------------------------------------------------------ --------- ------------------- Paging Company Investors: A+ Network(1)....................................... 1 Elliott H. Singer Arch Communications(2).............................. 1 C.E. Baker, Jr. Board Designee(3)..................................... 1 Stan F. Sech Venture Capital Funds: Austin Ventures..................................... 1 Jeffery C. Garvey Battery Ventures III, L.P. ......................... 1 Richard D. Frisbie Marquette Venture Partners.......................... 1 James E. Daverman Memorial Drive Trust................................ 1 R. Schorr Berman Control Group: Dobson Family Corp.................................. 1 Vacant Sloan LP(4)......................................... 8 Maceo K. Sloan Steven J. Lerner Cecil L. Duffie William D. deKay Malcolmn Pryor Justin F. Beckett Pamela R. Simmons Vacant Holders of Series A Preferred Stock................... 1 James D. Kallman -- Total....................................... 17 ========
- --------------- (1) A+ Network has entered into a definitive agreement to be acquired by Metrocall that will result in the merger of A+ Network into Metrocall. Under the Common Stockholders Agreement, a stockholder who has the right to designate a director and who sells, assigns, conveys or otherwise transfers its Common Stock by operation of law or otherwise loses its right to designate a director. Accordingly, upon the consummation of the merger of A+ Network into Metrocall, A+ Network will lose its right to designate a director to PCSD's Board. Under the Common Stockholders Agreement, open board seats created by the termination of a Paging Company Investor's right to designate a director shall be filled by an individual designated by the Board who is employed by or associated with the remaining Paging Company Investor, if any, or another person otherwise experienced in the telecommunications industry. (2) On or about May 20, 1996, Arch Communications acquired the stock of Westlink Holdings, Inc. ("Westlink") which owns 49.9% of the outstanding stock of Benbow PCS Ventures, Inc., ("Benbow"), which owns two 50 kHz/12.5 kHz regional narrowband PCS licenses. Westlink also has a five-year management agreement with Benbow under which Westlink is responsible for the day-to-day operations of Benbow. In addition, Arch Communications has notified the Company that it plans to transfer all of the Common Stock of the Company owned by Arch Communications to its wholly-owned subsidiary, Arch Communications Enterprises, Inc. ("ACE"). As a result of the closing of the Westlink acquisition and the transfer of the PCSD Common Stock to ACE, Arch Communications has lost its right to designate a director to PCSD's Board and Mr. Baker is required to resign from PCSD's Board. Under the Common Stockholders Agreement, open Board seats created by the termination of a Paging Company Investor's right to designate a director shall be filled by an individual designated by the Board who is employed by or associated with the remaining Paging Company Investor, if any or another person otherwise experienced in the telecommunications industry. (3) Holders of the Class A Common Stock have agreed to vote their shares for an individual designated by the Company's Board of Directors who shall be employed by or associated with either Arch Communications, A+ Network or another company in the wireless telecommunications industry. (4) These eight directors will be designated by either Sloan LP or SCI, or jointly by them. 96 99 Except as provided in the following paragraph, the number of directors can be changed by an amendment to the Company's bylaws. Such amendment requires a vote of the holders of two-thirds of the outstanding shares of Common Stock and Series A Preferred Stock, voting together as a single class. If for any reason a designee is unable to continue serving as a director, then the Stockholders shall immediately vote their Class A Common Stock, if necessary, in such a manner as to fill the vacancy with another nominee designated by the Stockholder who designated the former director. In the event a Stockholder who has the right to designate a director or directors to the Company's Board of Directors (1) does not continue to hold at least 1% of the then total equity of the Company, (2) sells, assigns, conveys or otherwise transfers the Common Stock by operation of law or otherwise or (3) becomes a competitor or associated with a competitor, then its right to designate a director shall cease. Open Board seats created by the termination of a Paging Company Investor's right to designate a director as described above will be filled by an individual designated by the Board of Directors who is employed by or associated with the remaining Paging Company Investor or another person otherwise experienced in the telecommunications industry. Other vacancies created by the termination of other Stockholder rights to designate directors will be filled by a majority of the votes of the Stockholders voting their Class A Common Stock. In addition, the holders of the Preferred Stock (the "Series A Preferred Stockholders") will lose their right to designate a director when (i) less than one-third of the shares of Preferred Stock are outstanding or (ii) more than 50% of the shares of Preferred Stock become owned, directly or indirectly, by a competitor or an affiliate of a competitor (as each is defined in the Certificate of Designations for the Preferred Stock). Upon the occurrence of either of these events, Sloan LP will also lose the right to designate one of its eight directors, and the two vacancies on the Board of Directors created thereby will be filled by a majority of the votes of the Stockholders voting their Class A Common Stock for persons who are not affiliated with the Company or any of its Stockholders. Finance Committee; Annual Business Plan. The Common Stockholders Agreement provides that the Board of Directors shall establish a Finance Committee consisting of seven members to be designated as follows: - One member shall be selected by the designees to the Board of SCI, or of Sloan LP to extent SCI has transferred its rights to designate directors of the Company to Sloan LP. - One member shall be selected by the designees of Arch Communications and A+ Network. - One member shall be selected by the Chief Executive Officer of the Company. - Two members shall be selected by the designees of Austin Ventures, Marquette Ventures Partners Battery Ventures III, L.P. and Memorial Drive Trust. - Two members shall be selected by the designee of the Series A Preferred Stockholders. The Common Stockholders Agreement provides that the Company's annual business plan is to be developed by the Finance Committee, submitted to the Board of Directors for approval by a two-thirds vote of the Board of Directors, and then submitted to the Stockholders (including the Series A Preferred Stockholders) for approval by a two-thirds vote. If any person or group of persons loses its right to designate a director of the Company pursuant to the Common Stockholders Agreement, it will also lose the right to designate a member of the Finance Committee. Preemptive Rights. The Common Stockholders Agreement provides that the Company shall not issue, sell or exchange any shares of Common Stock or any debt obligation or security convertible into or exchangeable for Common Stock or any option, warrant or other right to subscribe for, purchase or otherwise acquire Common Stock or any other equity security of the Company unless, in each case, the Company first offers to sell to each Common Stockholder such Common Stockholder's proportionate share of the securities offered at the same price and on the same terms at which they were proposed to be issued, sold or exchanged. Such Common Stockholder shall have 30 days after delivery of notice from the Company to exercise its preemptive rights. If some Common Stockholders exercise their options, but at least one Common Stockholder does not, then the Company shall notify the exercising Common Stockholders, who shall have an additional 15 days to elect to purchase the remaining portion of the securities offered in proportion to the 97 100 relative shareholdings of the Common Stockholders who have exercised their options. This procedure shall be repeated until either (i) there is no additional portion of the securities to be purchased or (ii) no Common Stockholder elects to purchase the remaining portion of the securities. If the Common Stockholders fail to exercise their successive rights to purchase all of such securities, then, within 120 days of such failure, the Company may sell such securities on the terms and prices specified in the notice of such offering. Notwithstanding any other provision of the Common Stockholders Agreement, the exercise of preemptive rights is forbidden to the extent that, in the reasonable opinion of special FCC counsel to the Company, it would result in the loss of or materially jeopardize the Designated Entity status of the Company. Moreover, the preemptive rights do not apply to the issuance or exercise of certain options and warrants, the conversion of the Preferred Stock, or the issuance of stock in an Initial Public Offering or the issuance of the Notes. Termination. The Common Stockholders Agreement will terminate in the event that either: (i) the holders of two-thirds of the then outstanding Common Stock and Series A Preferred Stock, each voting separately as a class, approve termination or consent to it in writing; or (ii) the Company consummates an Initial Public Offering. In any event, the provisions of the Common Stockholders Agreement with respect to voting arrangements and restrictions will terminate no later than 10 years from the date of the Common Stockholders Agreement in accordance with applicable law, subject to extension by agreement of the remaining parties to the Common Stockholders Agreement. Application to Future Share Issuances. The Common Stockholders Agreement applies to Common Stock now held and Common Stock that may be acquired in the future by existing Common Stockholders and their Permitted Transferees, including Common Stock acquired by existing Common Stockholders and their Permitted Transferees through the exercise of preemptive rights. The Common Stockholders Agreement will not apply in any event to additional shares of Common Stock issued by the Company to Persons other than existing Common Stockholders and their Permitted Transferees. The Registration Rights Agreement for Holders of Common Stock The following is a summary of certain provisions of the Registration Rights Agreement dated as of November 14, 1994 and subsequently amended (as amended, the "Common Stockholders Registration Rights Agreement") between the Company and all of the Common Stockholders of the Company. Such summary is qualified in its entirety by reference to the complete text of the Common Stockholders Registration Rights Agreement, a copy of which is available upon request. The Common Stock underlying the Preferred Stock will be subject, upon issuance, to rights and restrictions set forth in the Common Stockholders Registration Rights Agreement. The Common Stockholders Registration Rights Agreement provides that, on or after November 14, 1997, the holders of a majority of all shares of the Common Stock owned by the Common Stockholders and not otherwise registered under the Securities Act or sold in reliance on an exemption from the registration requirements of the Securities Act (the "Registrable Securities") may make one written demand to the Company for registration under the Securities Act of all or a portion of the Registrable Securities in a public offering that the Company anticipates will result in gross proceeds to such holders of not less than $10 million and a price of at least $10.00 per share. Upon becoming qualified to use Form S-3 under the Securities Act, the holders of at least 10% of the Registrable Securities then outstanding also may make written requests (which requests may not be made more than once in any twelve-month period) to the Company for registration of the Registrable Securities on Form S-3 pursuant to Rule 415 under the Securities Act. The Company must honor these requests, too, provided that it shall not be required to effect such a registration unless the holder or holders requesting registration thereunder propose to dispose of Registrable Securities which they reasonably anticipate to result in gross proceeds to such holders of not less than $1 million. The holders of the Registrable Securities also have certain "piggyback" registration rights to include the Registrable Securities, subject to certain limitations, in other registration statements filed by the Company. Whenever the Company effects a registration pursuant to the registration rights provisions of the Common Stockholders Registration Rights Agreement, the Company (i) has agreed, and the Common Stockholder parties have agreed if requested, not to effect any public sale or distribution of securities similar to 98 101 those being registered, or of any securities convertible into or exchangeable or exercisable for such securities, for a specified period of time prior to and after such registration statement becomes effective and (ii) will be required to pay the cost of such registration of securities, except that each selling stockholder will bear its pro-rata share of customary underwriting discounts and commissions, customary fees and expenses of its counsel and applicable transfer taxes. The Common Stockholders Registration Rights Agreement contains customary indemnification and contribution provisions relating to the exercise by the holders of Registrable Securities of their registration rights thereunder. The Common Stockholders Registration Rights Agreement will apply to the Common Stock received by holders of the Preferred Stock upon conversion. PREFERRED STOCK General The authorized capital stock of the Company includes 100,000 shares of preferred stock, par value $1.00 per share. A total of 27,000 of such shares have been designated "Series A Preferred Stock" and a total of 3,000 of such shares have been designated "Series B Preferred Stock" (referred to together in this Prospectus as the "Preferred Stock"). As of July 1, 1996, there were issued and outstanding 23,600 shares of Series A Preferred Stock held of record by 70 stockholders and 1,067 shares of Series B Preferred Stock held of record by one stockholder. The Board of Directors is authorized by the Restated Certificate of Incorporation of the Company to issue one or more additional series of preferred stock from time to time, without further stockholder action, in one or more series and, with respect to each such series, to fix the designation and the number of shares to be issued, the voting rights of the shares, the dividend rights, if any, the redemption rights, if any, sinking fund requirements, if any, rights upon the liquidation, dissolution or winding up of the Company or upon the distribution of the assets of the Company, the terms of the conversion or exchange into any other class or series of shares, if provided for, and other powers, preferences, rights, qualifications, limitations or restrictions thereof. The Series A Preferred Stock and Series B Preferred Stock have identical rights and designations in all respects, except that the holders of the Series B Preferred Stock shall have no voting rights and their consent shall not be required for the taking of any corporate action, except to the extent otherwise required by law. Holders of the Series B Preferred Stock will have the right to convert any or all of such Series B Preferred Stock into shares of Series A Preferred Stock on a share-for-share basis upon the occurrence of events specified in the Certificate of Designations relating to the Preferred Stock. Conversion into Class B Common Stock Each holder of shares of the Preferred Stock will have the right, exercisable at any time and from time to time, to convert all or any such Preferred Stock into shares of Class B Common Stock, initially on a share-for- share basis. The conversion ratio of the Preferred Stock is subject to adjustment in the event of (i) any subdivision or combination of the Common Stock, (ii) any payment by the Company of a stock dividend to the holders of the Common Stock or (iii) the issuance of equity or rights to acquire equity at a price per share less than $2,250 (as adjusted). If the Company consummates an underwritten public offering of its Class A Common Stock arranged by a nationally recognized underwriter at a price of at least $10.00 per share at any time (i) before the fifth anniversary of the issuance of the Preferred Stock in which the Company receives at least $40 million of net proceeds and reflects at least a $4,500 value per original share of Preferred Stock, (ii) after the fifth anniversary and prior to the sixth anniversary of the issuance of the Preferred Stock in which the Company receives at least $50 million of net proceeds and reflects at least a $5,000 value per original share of the Preferred Stock, or (iii) at any time after the sixth anniversary of the issuance of the Preferred Stock in which the Company receives at least $50 million of net proceeds and reflects a value per original share of the Preferred Stock equal to the greater of $5,000 or the initial purchase price plus the Preferred Stock Dividend (each an "Initial Public Offering"), then the Preferred Stock will be converted automatically into shares of 99 102 the Common Stock which is to be sold in such Initial Public Offering at an initial conversion rate of one-for-one, subject to adjustment in certain circumstances. Liquidation Preference In the event of any voluntary or involuntary dissolution, winding up, or liquidation of the Company (including liquidation following the sale or disposition of substantially all of the Company's assets) or a "change of control," whether voluntary or otherwise, after payment or provision for payment of all of the Company's debts and other liabilities, the holders of the Preferred Stock will be entitled to receive, out of the remaining net assets of the Company and in preference to the Common Stockholders, the amount of $2,250 for each share of the Preferred Stock, plus the Preferred Stock Dividend, as defined below (whether or not declared). If, upon any liquidation of the Company, the assets distributable among the Preferred Stockholders and all other classes and series of preferred stock ranking (as to any such distribution) senior to or on a parity with the Preferred Stock are insufficient to permit the payment in full to the holders of all such shares of all preferential amounts payable to all such holders, then the entire assets of the Company thus distributable will be distributed ratably among the Preferred Stockholders and of all classes and series of preferred stock ranking (as to any such distribution) on a parity with the Preferred Stock in proportion to the full preferential amount that would be payable per share if such assets were sufficient to permit payment in full. If, after payment of a liquidation preference to Preferred Stockholders and the payment of the per share amount equal to the liquidation preference on the Preferred Stock to the Common Stockholders, assets remain in the Company, then all such remaining assets of the Company shall be distributed to the Preferred Stockholders and the Common Stockholders on a pro-rata, as-if-converted basis. The proceeds distributable to the Company's shareholders with respect to a sale of substantially all of the assets of the Company or a merger or consolidation of the Company with or into any other entity will be distributed in the same manner as in a liquidation of the Company unless, with respect to a merger or consolidation, other arrangements are made in the successor entity for the protection of the rights granted to the holders of the Preferred Stock. Conversion into Subordinated Notes At any time after the ninth anniversary of the issuance of the Preferred Stock and upon the vote or consent of the holders of not less than 40% of the shares of the Series A Preferred Stock at the time outstanding all, but not less than all, of the Preferred Stock shall automatically be converted into subordinated notes of the Company (the "Subordinated Notes"), provided that the conversion of the Preferred Stock and the issuance of the Subordinated Notes does not cause a default or an incipient default under the Indenture. The Subordinated Notes will be subordinate in right of payment to the prior payment in full of the Notes and all other indebtedness of the Company that is not by its terms subordinate to, or pari passu with, the Subordinated Notes and will be redeemable at the option of the Company in full or in part at any time for the principal plus accrued interest (and, if redeemed in part, will be acquired from the holders thereof ratably in accordance with the principal amounts thereof then held by the holders). The Subordinated Notes will otherwise be payable in full on , 2007 and will accrue interest at the rate of 10% per annum, compounded semiannually, payable upon the final scheduled maturity of the Subordinated Notes. The only events of default upon the Subordinated Notes will be (i) the Company's failure to pay principal and interest at their scheduled maturity, (ii) the occurrence of bankruptcy or certain liquidation events with respect to the Company and (iii) the declared acceleration of the Notes or other material indebtedness of the Company following a default thereunder, which acceleration has not been withdrawn after 10 days. Upon exercise of this conversion right, each holder will receive, in exchange for all of the holder's Preferred Stock, Subordinated Notes whose principal amount will equal the sum of the initial purchase price of the Preferred Stock plus the Preferred Stock Dividend. This conversion right will expire upon payment in full of the Notes. 100 103 If and to the extent that the conversion of the Preferred Stock and the issuance of the Subordinated Notes would cause a default or an incipient default under the Indenture, then the terms of the Subordinated Notes may be amended prior to their issuance with the approval of the holders of a majority of the shares of the Preferred Stock at the time outstanding. Notwithstanding the foregoing, the Company shall not treat the Preferred Stock as debt (for federal income tax purposes) so long as the Preferred Stock remains outstanding. Optional Redemption The Preferred Stock may be redeemed at the option of the Company, in whole or in part, on a pro rata basis at any time after the tenth anniversary of the issuance of the Preferred Stock at a price equal to the purchase price of the Preferred Stock plus the Preferred Stock Dividend. The holders of the Preferred Stock may, however, convert the Preferred Stock into Class B Common Stock or Subordinated Notes prior to redemption but after notice of redemption by the Company. Dividend Rights The Preferred Stock will accrue a 10% per annum dividend, compounded semiannually, on a liquidation preference of $2,250 per share (adjusted for certain events) (the "Preferred Stock Dividend"), payable only under the circumstances described in "Liquidation Preference." If, after receiving the consent of the holders of at least 50% of the Series A Preferred Stock, the Company should declare and pay in full a dividend, then holders of all of the Company's Preferred Stock, Common Stock and all other capital stock not ranking junior to the Preferred Stock as to payment of dividends would be entitled to participate in such dividend in equal per share amounts; provided, however, that, if the Board declares a dividend to the holders of any class of capital stock of the Company other than stock senior to the Preferred Stock, but is unable to pay such dividend in full, then such dividend shall be paid first to the Preferred Stockholders, in preference to the Common Stockholders. No dividend or distribution on, or purchase or redemption of, any Class A Common Stock or Class B Common Stock shall be permitted without the affirmative vote or consent of the holders of at least 50% of the Series A Preferred Stock, other than the redemption of shares held by employees or former employees in connection with the cessation of their employment. Voting Rights The Series A Preferred Stockholders will be entitled to vote together with the Common Stockholders as though part of such class on those specific matters as to which the holders of the Class B Common Stock are entitled to vote. Series A Preferred Stockholders will have the right to that number of votes equal to the number of shares of Common Stock which would be held by such holders if conversion of the Preferred Stock were to occur at the close of business on the day immediately prior to the date of the vote. The Company shall not, without the affirmative vote or consent of the holders of at least two-thirds of the number of shares of Series A Preferred Stock outstanding, voting separately as a class, (i) create any class of capital stock having any preference or priority as to dividends, or upon liquidation, distribution or winding up, over the Preferred Stock, (ii) reclassify any shares of capital stock of the Company into shares of Preferred Stock, (iii) issue or reserve for issuance any security exchangeable for, convertible into or evidencing the right to purchase Preferred Stock or (iv) change the preferences, rights or powers with respect to the Preferred Stock so as to adversely affect the Preferred Stock. So long as no less than one-third of the shares of Preferred Stock remain outstanding, the Series A Preferred Stockholders, voting separately as a single class, also have the right to elect one member to the Company's Board of Directors. If and when less than one-third of the shares of Preferred Stock are outstanding, the Preferred Stockholders will be divested of their directorship. In addition, in the event that more than 50% of the shares of Preferred Stock become owned by a competitor or an affiliate of a competitor of the Company, the Preferred Stockholders will be divested of their directorship. Except as provided by law, the Series B Preferred Stock shall have no voting rights. Preferred Stockholders Agreement Certain of the rights and obligations of the Preferred Stockholders will be governed by a Stockholders Agreement (the "Preferred Stockholders Agreement") among the Company and all Preferred Stockholders. 101 104 The Preferred Stockholders Agreement is summarized below and is qualified in its entirety by reference to the complete text of the Preferred Stockholders Agreement. A copy of the Preferred Stockholders Agreement is available from the Company upon request. Stock Transfer Restrictions. A Preferred Stockholder may transfer its Preferred Stock only if the transfer complies with the following requirements: (i) the Preferred Stockholder proposing to make the transfer (other than to Permitted Transferees) must give written notice to the Company of the proposed transfer, identifying the proposed transferee and all of the terms and conditions of the proposed transfer; (ii) in the opinion of counsel satisfactory to the Company, the proposed transfer must not violate the registration requirements under the Securities Act or state securities laws; (iii) if the transferor is a member of the Control Group, then the transfer, in the reasonable opinion of special FCC counsel to the Company, must not result in the loss of or materially jeopardize the Designated Entity status of the Company; (iv) the transfer must not cause a transfer of control of the Company under FCC rules and regulations (other than a transfer specifically contemplated by the Preferred Stockholders Agreement); and (v) the transferee must execute and deliver to the Company a written instrument, in form and substance reasonably satisfactory to the Company, acknowledging the receipt of a copy of the Preferred Stockholders Agreement and agreeing to comply with and be bound by it. If Preferred Stock is to be transferred to a Person other than a Permitted Transferee by a holder of 4.9% or more of the Preferred Stock and such stock constitutes one-third or more of the Preferred Stock owned by such Preferred Stockholder, then the Company shall notify all other Preferred Stockholders of such transfer. Such other Preferred Stockholders shall have the option to participate in the contemplated transfer by selling, at the same price and on the same terms as the proposed transfer, a proportionate number of their shares of Preferred Stock based upon the relative holdings of those Preferred Stockholders electing to sell. Notwithstanding the foregoing, no Preferred Stockholder may obtain a majority of the Preferred Stock by acquiring Preferred Stock from other Preferred Stockholders in a single transaction or series of related transactions unless the acquiring Preferred Stockholder offers to acquire on identical terms and conditions Preferred Stock from other stockholders in proportion to their relative shareholdings. In the event that a bona fide offer of any type other than an offer by a Stockholder or any Permitted Transferee of a Stockholder or any affiliate thereof is made to purchase the business of the Company, including without limitation a proposed merger or consolidation, an offer to purchase more than 50% of the Common Stock or an offer to purchase all or substantially all of the assets of the Company, then, if two-thirds or more of the number of shares of Common Stock and Preferred Stock then outstanding, voting as a single class on an as-if-converted basis, approve the offer, all of the Preferred Stockholders are required to consent to and participate on a pro rata basis in the transaction approved by the two-thirds majority. Preemptive Rights. The Preferred Stockholders Agreement provides that the Company shall not issue, sell or exchange any shares of Common Stock or any debt obligation or security convertible into or exchangeable for Common Stock or any option, warrant or other right to subscribe for, purchase or otherwise acquire Common Stock or any other equity security of the Company unless, in each case, the Company first offers to sell to each Preferred Stockholder and each Common Stockholder such Stockholder's proportionate share of the securities offered at the same price and on the same terms at which they were proposed to be issued, sold or exchanged. Such Stockholder shall have 30 days after delivery of notice from the Company to exercise its preemptive rights. If some Stockholders exercise their options, but at least one Stockholder does not, then the Company shall notify the exercising Stockholders, who shall have an additional 15 days to elect to purchase the remaining portion of the securities offered in proportion to the relative shareholdings of the Stockholders who have exercised their options. This procedure shall be repeated until either (i) there is no additional portion of the securities to be purchased or (ii) no Stockholder elects to purchase the remaining 102 105 portion of the securities. If the Stockholders fail to exercise their successive rights to purchase all of such securities, then, within 120 days of such failure, the Company may sell such securities on the terms and prices specified in the notice of such offering. These preemptive rights shall not apply to the issuance of options or warrants simultaneously and in connection with the issuance of indebtedness by the Company. Notwithstanding any other provision of the Preferred Stockholders Agreement, the exercise of preemptive rights is forbidden to the extent that, in the reasonable opinion of special FCC counsel to the Company, it would result in the loss of or materially jeopardize the Designated Entity status of the Company. Information. The Preferred Stockholders Agreement provides that each of the Preferred Stockholders is entitled to receive financial and other information regarding the Company, including copies of the Company's business plans, for so long as such Preferred Stockholder is not a competitor or affiliated with a competitor of the Company. Termination. The Preferred Stockholders Agreement will terminate pro tanto as and when the Preferred Stock is converted into Common Stock or the Company consummates an Initial Public Offering. In any event, the provisions of the Preferred Stockholders Agreement with respect to voting arrangements and restrictions will terminate no later than 10 years from the date of the Preferred Stockholders Agreement in accordance with applicable law, subject to extension by agreement of the remaining parties to the Preferred Stockholders Agreement. Registration Rights Agreement for Holders of Preferred Stock The following is a summary of certain provisions of the Registration Rights Agreement (the "Preferred Stockholder Registration Rights Agreement") to be entered into among the Company and all of the Preferred Stockholders. Such summary is qualified in its entirety by reference to the complete text of the Preferred Stockholder Registration Rights Agreement, a copy of which is available upon request. The Preferred Stockholder Registration Rights Agreement provides that, on or after November 14, 1997, the holders of a majority of all shares of the Preferred Stock may make one written demand to the Company for registration under the Securities Act of all or a portion of the Common Stock (including Common Stock which has been issued following the conversion of the Preferred Stock) not otherwise registered under the Securities Act or sold in reliance on an exemption from the registration requirements of the Securities Act (the "Registrable Securities") in a public offering. Upon becoming qualified to use Form S-3 under the Securities Act, the holders of at least 10% of the Preferred Stock then outstanding also may make written requests (which requests may not be made more than once in any twelve-month period) to the Company for registration of the Registrable Securities on Form S-3 pursuant to Rule 415 under the Securities Act. The Company must honor these requests, too, provided that it shall not be required to effect such a registration unless the holder or holders requesting registration thereunder propose to dispose of Registrable Securities which they reasonably anticipate to result in gross proceeds to such holders of not less than $1 million. The holders of the Preferred Stock also have certain "piggyback" registration rights to include the Registrable Securities, subject to certain limitations, in other registration statements filed by the Company. Any Preferred Stock included in any registration pursuant to rights granted under the Preferred Stockholders Registration Rights Agreement will convert automatically into shares of Common Stock to be sold in such public offering immediately prior to the closing. Whenever the Company effects a registration pursuant to the registration rights provisions of the Preferred Stockholder Registration Rights Agreement, the Company (i) has agreed, and the Preferred Stockholder parties have agreed if requested, not to effect any public sale or distribution of securities similar to those being registered, or of any securities convertible into or exchangeable or exercisable for such securities, for a specified period of time prior to and after such registration statement becomes effective, and (ii) will be required to pay the cost of such registration of securities, except that each selling stockholder will bear its pro rata share of customary underwriting discounts and commissions, customary fees and expenses of its counsel and applicable transfer taxes. The Preferred Stockholder Registration Rights Agreement contains customary 103 106 indemnification and contribution provisions relating to the exercise by the holders of Registrable Securities of their registration rights thereunder. LIMITATION ON DIRECTORS' LIABILITY The Company's Certificate of Incorporation provides that to the fullest extent permitted by Delaware Law a director of the Company shall not be liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director. Under current Delaware law, liability of a director may not be limited (i) for any breach of the director's duty of loyalty to the company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) in respect of certain unlawful dividend payments or stock redemptions or repurchases and (iv) for any transaction from which the director derives an improper personal benefit. The effect of this provision of the Company's Certificate of Incorporation is to limit or eliminate the rights of the Company and its stockholders (through stockholders' derivative suits on behalf of the company) to recover monetary damages against a director for breach of the fiduciary duty of care as a director (including breaches resulting from negligent or grossly negligent behavior) except in those circumstances described in clauses (i) through (iv) above. This provision does not limit or eliminate the rights of the Company or any stockholder to seek nonmonetary relief such as an injunction or rescission in the event of a breach of a director's duty to care. In addition, the Company's Certificate of Incorporation and Bylaws as provide that the Company shall indemnify its directors, officers, employees and agents to the fullest extent permitted by Delaware law. DELAWARE TAKEOVER STATUTE Section 203 of the Delaware Law, as amended ("Section 203"), provides that, subject to certain exceptions specified therein, an "interested stockholder" of a Delaware corporation shall not engage in any business combination, including mergers or consolidations or acquisitions of additional shares of the corporation, with the corporation for a three-year period following the date at which the stockholder becomes an "interested stockholder" unless (i) prior to such date, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an "interested stockholder," (ii) upon consummation of the transaction which resulted in the stockholder becoming an "interested stockholder," the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced (excluding certain shares), or (iii) or subsequent to such date, the business combination is approved by the board of directors of the corporation and authorized at an annual or special meeting of stockholders by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the "interested stockholder." Except as otherwise specified in Section 203, an "interested stockholder" is defined to include (x) any person which is the owner of 15% or more of the outstanding voting stock of the corporation, or is an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation at any time within three years immediately prior to the relevant date and (y) the affiliates and associates of any such person. These provisions could have the effect of delaying, deferring or preventing a change of control of the Company. The Company's stockholders, by adopting an amendment to its Certificate of Incorporation or Bylaws, may elect not to be governed by Section 203, effective twelve months after adoption. Neither the Certificate nor the bylaws presently exclude the Company from the restrictions imposed by Section 203. 104 107 CERTAIN FEDERAL INCOME TAX CONSIDERATIONS The following discussion summarizes the material United States federal income tax considerations applicable to an investment in the Notes or Warrants by U.S. Holders who hold such Notes or Warrants as capital assets. For purposes of this discussion, the term "U.S. Holder" means a beneficial owner of a Note or Warrant that is (i) a citizen or resident of the United States, (ii) a corporation, partnership or other entity created or organized under the laws of the United States or a political subdivision thereof, (iii) an estate or trust the income of which is subject to United States federal income taxation regardless of source or (iv) any other person defined as a United States person under the Internal Revenue Code of 1986, as amended (the "Code"). The discussion does not apply to dealers in securities, financial institutions, life insurance companies, tax-exempt organizations, foreign individuals and entities, persons whose functional currency is not the U.S. Dollar or to persons that will hold a Note or Warrant as a position in a "straddle" or "conversion transaction" for tax purposes, or aspects of Federal income taxation that may be relevant to a prospective investor based upon such investor's particular tax situation. It does not address any tax consequences arising under the laws of any state, local or foreign jurisdiction. This summary is based on the Code, Treasury Regulations promulgated thereunder, and judicial and administrative interpretations thereof, all as in effect on the date hereof and all of which are subject to prospective or retroactive change. PURCHASERS OF UNITS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES TO THEM OF HOLDING AND DISPOSING OF UNITS. NOTES Original Issue Discount. The Notes will be issued with original issue discount ("OID") for federal income tax purposes. Accordingly, each U.S. Holder of a Note generally will be required to include OID in income as it accrues under a constant yield method in advance of cash payments attributable to such income (regardless of whether the U.S. Holder is a cash or accrual basis taxpayer). The amount of OID with respect to each Note will be the excess of the "stated redemption price at maturity" of such Note over its "issue price." The "stated redemption price at maturity" of the Notes will include all cash payments required to be made on the Notes until maturity, whether denominated as principal or interest. The issue price of the Notes is the first price at which a substantial amount of the Notes is sold to the public for money. Because the original purchasers of the Notes will also purchase Warrants, each Note will likely be treated by the IRS as having been issued as part of an "investment unit" consisting of Notes and Warrants. Pursuant to final Treasury Regulations regarding OID (the "OID Regulations"), the "issue price" of an investment unit is equal to the first price at which a substantial amount of Units is sold to the public. For this purpose, the public does not include bond houses, brokers or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers. The issue price of a Unit, as so determined, must be allocated between its component parts based on their relative fair market values. The holder of an investment unit must use the issuer's allocation unless the holder discloses on its Federal income tax return for the year that includes the acquisition date of such Unit that it plans to use an allocation that is inconsistent with the issuer's allocation. The Company will allocate to each $1,000 principal amount of Notes and $ to the Warrant comprising each Unit and will use such allocation to determine the respective "issue prices" of the Notes and the Warrants. Such allocation is not binding on the IRS. Each U.S. Holder of a Note will be required to include in gross income an amount equal to the sum of the daily portions of OID for each day during the taxable year in which such holder holds the Note ("accrued OID") without regard to when the cash attributable to such income is received. The daily portions of OID are determined by allocating to each day in an accrual period the pro rata portion of the OID that is allocable to that accrual period. The "accrual period" for a debt instrument may be of any length and may vary in length over the term of the Note, provided that each accrual period is no longer than one year and each scheduled payment of principal or interest occurs on the first day or the final day of an accrual period. The amount of OID that is allocable to an accrual period will be determined by multiplying the adjusted issue price of the Note at the beginning of the accrual period by the yield to maturity of such Note (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period). 105 108 OID allocable to a final accrual period is the difference between the amount payable at maturity (other than a payment of qualified stated interest) and the adjusted issue price at the beginning of the final accrual period. Special rules will apply for calculating OID for an initial short accrual period. The adjusted issue price of the Note at the beginning of an accrual period will be equal to its issue price increased by all previously accrued OID (determined without regard to the amortization of any acquisition premium, as described below) and reduced by the amount of all previous payments made on such Note on or before the first day of the accrual period. The yield to maturity is the discount rate that, when used in computing the present value of the payments to be made under the Note, produces an amount equal to the issue price of the Note. The Company will report annually to the Internal Revenue Service (the "IRS") and to record U.S. Holders of Notes, other than corporations and other exempt holders, information with respect to the amount of OID that has accrued with respect to the Notes during the calendar year. This information will be based upon the adjusted issue price of the Note as if the holder were the original holder of the Note. In addition, each Note will bear a legend setting forth the issue date, the issue price, the total amount of OID, the yield to maturity and certain other information, or such legend will indicate how a holder can receive such information. Subsequent holders who purchase Notes for an amount other than the adjusted issue price, and/or on a date other than the end of an accrual period, will be required to determine for themselves the amount of OID they are required to include in gross income for Federal income tax purposes. The subsequent purchaser's aggregate amount of includible income may vary depending upon the amount paid for the Notes. See "Acquisition Premium" and "Market Discount" below. Effect of Mandatory Offer to Redeem on Original Issue Discount. In the event of a Change of Control or in the event of certain asset sales, the Company will be required, subject to certain conditions, to offer to redeem all of the Notes. The OID Regulations provide that a required redemption upon the occurrence of a contingent event such as a change of control or such asset sale will not affect the yield or maturity date of the Notes and will not affect the computation of OID unless, based on all of the facts and circumstances as of the issue date, it is more likely than not that the contingent event will occur. The Company has no present intention of treating the offer to redeem the Notes as affecting the computation of the yield to maturity or OID of any Note. Acquisition Premium. A subsequent purchaser of a Note issued with OID who purchases the Note for an amount that is less than or equal to the sum of all amounts payable on the Note after the purchase date but greater than its adjusted issue price immediately before such purchase (i.e., a purchase at an "acquisition premium") also will be required to include in gross income the sum of the daily portions of OID on that Note. In computing the daily portions of OID for such a purchaser (as well as an initial purchaser that purchases at a price higher than the adjusted issue price but less than or equal to the stated redemption price at maturity), however, the daily portion of OID is reduced by a portion of the acquisition premium equal to the product of (A) the daily portion of OID for such day (computed in accordance with the rules set forth above) and (B) a fraction, the numerator of which is the excess of the cost of the Note over its adjusted issue price, and the denominator of which is the sum of all amounts payable on the Note after the date of acquisition reduced by the Note's adjusted issue price. Disposition of Notes. A U.S. Holder of a Note generally will recognize gain or loss upon the sale, exchange, redemption, retirement or other taxable disposition of a Note in an amount equal to the difference between the amount realized on such sale, exchange, redemption, retirement or other taxable disposition and the U.S. Holder's adjusted tax basis in the Note. A U.S. Holder's adjusted tax basis in a Note will generally be equal to the price paid by such Holder for such Note, increased by the portion of OID previously included in gross income to the date of disposition (and the accruals of market discount, if any, which the U.S. Holder has previously elected to include in gross income on an annual basis as described below) and decreased by any cash payments, regardless of whether such payments are denominated as interest or principal. Such gain or loss generally will be capital gain or loss provided the Note was a capital asset in the hands of the U.S. Holder, and will be long-term capital gain or loss if the Note has been held for more than one year. Market Discount. Purchasers of Notes should be aware that a purchase of Notes in this offering or a subsequent resale of Notes may be affected by the market discount provisions of the Code. These rules 106 109 generally provide that, subject to a statutorily defined de minimis exception, if a U.S. Holder of a Note (including a purchaser in this offering) purchases the Note at a price below its issue price plus the amount of OID includible in income by all prior U.S. Holders of the Note and thereafter receives a principal payment on, or recognizes gain upon a disposition of the Note (including dispositions by gift or redemption), the lesser of such principal payment or of such gain (or appreciation, in the case of a gift) and the portion of the market discount that has accrued ("Accrued Market Discount") while the Note was held by such U.S. Holder will be treated as ordinary interest income at the time of disposition rather than as capital gain. The market discount rules also provide that a U.S. Holder who acquires a Note at a market discount may be required to defer a portion of any interest expense that may otherwise be deductible on any indebtedness incurred or maintained to purchase or carry such Note until the U.S. Holder disposes of the Note in a taxable transaction. "Market discount" generally is the excess of the adjusted issue price of a Note over the tax basis of the Note in the hands of the U.S. Holder immediately after its acquisition. Under a de minimis exception, the amount of market discount is considered to be zero if it is less than 0.25 percent of the Note's stated redemption price at maturity multiplied by the number of complete years from acquisition to maturity. Market discount generally will accrue ratably during the period from the date of acquisition to the maturity date of the Note, unless the U.S. Holder elects to accrue such discount on the basis of the constant yield method. In lieu of including the Accrued Market Discount in income at the time of disposition, a U.S. Holder of a Note acquired at a market discount may elect to include the Accrued Market Discount in income currently (either ratably or using the constant yield method). Once made, such an election applies to all Notes and other obligations that the U.S. Holder purchases at a market discount during the taxable year for which the election is made and in all subsequent taxable years of the U.S. Holder, unless the IRS consents to a revocation of the election. If an election is made to include Accrued Market Discount in income currently, the basis of a Note in the hands of the U.S. Holder will be increased by the Accrued Market Discount thereon as it is includible in income and the rule described above requiring deferral of interest expense on indebtedness incurred with respect to the Note will not apply. High-Yield Discount Obligations. If the yield-to-maturity on the Notes equals or exceeds the sum of (x) the "applicable federal rate" (as determined under Section 1274(d) of the Code) in effect for the month in which the Notes are issued (the "AFR") and (y) 5%, the Notes will be considered "applicable high yield discount obligations" under Section 163(i) of the Code. Consequently, the Company will not be allowed to take a deduction for interest (including OID) accrued on the Notes for U.S. federal income tax purposes until such time as the Company actually pays such interest (including OID) in cash or in other property (other than stock or debt of the Company or a person deemed to be related to the Company under Section 453(f)(1) of the Code). Moreover, if the yield-to-maturity on the Notes exceeds the sum of (x) the AFR and (y) 6% (such excess shall be referred to hereinafter as the "Disqualified Yield"), the deduction for interest (including OID) accrued on the Notes will be permanently disallowed (regardless of whether the Company actually pays such interest or OID in cash or in other property) for U.S. federal income tax purposes to the extent such interest or OID is attributable to the Disqualified Yield on the Notes ("Dividend-Equivalent Interest"). For purposes of the dividends-received deduction, such Dividend-Equivalent Interest will be treated as a dividend to the extent it is deemed to have been paid out of the Company's current or accumulated earnings and profits. Accordingly, a United States Holder of a Note that is a corporation may be entitled to take a dividends-received deduction with respect to any Dividend-Equivalent Interest received by such corporate holder on such Note. Backup Withholding. The backup withholding rules require a payor to deduct and withhold tax if (i) the payee fails to furnish a taxpayer identification number ("TIN") to the payor, (ii) the IRS notifies the payor that the TIN furnished by the payee is incorrect, (iii) the IRS has notified the payor that withholding is required with respect to the payee or (iv) there has been a failure of the payee to certify under penalty of perjury that a payee is not subject to withholding under Section 3406 of the Code. If any one of the above events occurs, the Company, its paying agent or other withholding agent will be required to withhold a tax equal to 31% of any "reportable payment" made in connection with the Notes. A "reportable payment" includes, among other things, OID and amounts paid through brokers in retirement of a Note. Any amounts 107 110 withheld from a payment to a Holder under the backup withholding rules will be allowed as a refund or credit against such Holder's federal income tax, provided that the required information is furnished to the IRS. Certain holders (including, among others, corporations and certain tax exempt organizations) are not subject to the backup withholding and information reporting requirements, and no withholding will be imposed on such holders provided that they certify their exemption from such requirements to the payor in the necessary manner. WARRANTS Characterization of Warrants as Stock. The Company believes that the Warrants are in substance equivalent to stock of the Company, and thus for federal income tax purposes should be treated as stock because, among other things, the Warrants are exercisable for nominal consideration and the holders of the Warrants are entitled to receive certain distributions if the Company pays a dividend or makes a distribution to holders of the Common Stock. As set forth in more detail below, the likely federal income tax treatment upon exercise and sale of the Warrants and the sale of the Common Stock received upon exercise of the Warrants will be affected by whether the Warrants are treated as warrants or stock for federal tax purposes. The federal income tax treatment in the case of lapse or adjustments will likely not be affected. Exercise -- Payment of Cash. No gain or loss will be recognized for Federal income tax purposes by holders of the Warrants upon the exercise thereof in exchange for Common Stock (except to the extent of cash, if any, received in lieu of the issuance of fractional shares of Common Stock). A holder's tax basis in the Common Stock acquired upon exercise of a Warrant generally will equal its tax basis in the Warrant (i.e., generally the portion of the price of a Unit allocated to the Warrant) plus the amount paid upon exercise. The holding period of the Common Stock received upon the exercise of the Warrants will begin on the date of exercise of the Warrant, unless the Warrant is itself treated as stock for federal income tax purposes (as discussed above). In the event the Warrant is treated as stock, the holding period of the shares of Common Stock received upon exercise should include the period during which the Warrants were held by such holder. If any cash is received in lieu of fractional shares, the holder will recognize gain or loss, and the character and the amount of such gain or loss will be determined as if the holder had received such fractional shares and then immediately sold them for cash. Exercise -- Payment with other Warrants. If the Warrants are not treated as Common Stock (as discussed above), a holder who exercises a Warrant by surrendering Warrants (the "Surrendered Warrants") other than the exercised Warrant in payment of the exercise price thereof should be treated as disposing of the Surrendered Warrants in a taxable transaction. Accordingly, a holder should recognize gain or loss equal to the difference between the exercise price and the holder's tax basis in the Surrendered Warrants (and taking into account any cash received by the holder in lieu of the issuance of fractional shares of Common Stock). Such gain or loss should be capital gain or loss; however, such gain or loss may be ordinary income or loss on the grounds that the Surrendered Warrants were not sold or exchanged. A holder's tax basis in the Common Stock received upon exercise generally will equal its tax basis in the exercised Warrant (i.e., generally the portion of the price of a Unit allocated to the Warrant) plus the amount deemed paid upon exercise. However, the IRS may argue that the holder is deemed to have exercised both the exercised Warrant and the Surrendered Warrants in exchange for the Common Stock, in which case the receipt of Common Stock by the holder will not be a taxable transaction (except to the extent of cash, if any, received in lieu of the issuance of fractional shares of Common Stock), and such holder's basis in the Common Stock will equal the sum of its tax basis in the exercised Warrant and its tax basis in the Surrendered Warrants. The holding period for such Common Stock will begin on the date of exercise of the Warrant, unless the Warrant is itself treated as stock for federal income tax purposes (as discussed above). In the event the Warrant exercised is itself treated as stock, the holding period of the shares of Common Stock received upon exercise will include the period during which the Warrant was held by such holder. Moreover, if the Warrants are treated as stock for federal income tax purposes (as discussed above), the surrender of Surrendered Warrants in payment of the exercise price of the exercised Warrant may be treated as a tax-free recapitalization of stock for stock under Section 368(a)(1)(E) of the Code or as a tax-free exchange of Common Stock for Common Stock under Section 1036 of the Code. In such a case, a holder will not recognize gain or loss upon the surrender of the Surrendered Warrants 108 111 (except to the extent of cash, if any, received in lieu of the issuance of fractional shares of Common Stock), and the holder's tax basis in the Common Stock received upon exercise will equal the sum of its tax basis in the exercised Warrant and its tax basis in the Surrendered Warrants, increased by any gain and decreased by any loss recognized in the transaction. Because of the uncertain tax consequences of a surrender of Warrants in connection with the exercise of Warrants, U.S. Holders considering the use of Warrants to pay any part of the exercise price of a Warrant should consult their own tax advisors. Sale of Warrants. The sale of a Warrant ordinarily will result in the recognition of gain or loss to the holder for Federal income tax purposes in an amount equal to the difference between the amount realized on such sale or exchange and the holder's tax basis in the Warrant. Such gain or loss will be capital gain or loss, provided the Common Stock would have been a capital asset in the hands of the Warrant holder had the Warrant been exercised, and will be long-term capital gain or loss with respect to Warrants held for more than one year. However, the IRS might assert that the sale of a Warrant to the Company does not constitute a sale or exchange and that the holder recognized ordinary income or loss. In the event the Warrants are treated as stock for federal income tax purposes (as discussed above), the sale of Warrants to the Company should be governed by the stock redemption provisions of the Code. In such a case, redemptions of Warrants by the Company would be treated as a dividend and taxed as ordinary income to the extent of the Company's current and accumulated earnings and profits, unless, taking into account certain constructive ownership rules, the holder terminated his entire equity interest in the Company or the redemptions were "not essentially equivalent to a dividend." In a published ruling, the IRS has indicated that a holder whose actual and constructive stock ownership in an issuer was minimal and who exercised no control over corporate affairs was generally entitled to capital gain or loss treatment upon the redemption of his stock so long as his percentage stock ownership was thereby reduced. Similarly, gain or loss will generally be recognized upon a sale of the Common Stock received upon exercise of a Warrant in an amount equal to the difference between the amount realized on the transfer and the holder's adjusted tax basis in the Common Stock. Such gain or loss will be capital gain or loss, provided the Common Stock is held as a capital asset, and will be long-term capital gain or loss with respect to Common Stock with a more than one-year holding period. In the event the Warrants are treated as stock for federal income tax purposes, gain or loss on the sale of the Warrants should be long-term capital gain or loss with respect to Warrants held more than one year. Lapse. If the Warrants lapse without exercise, the holder generally will recognize a capital loss (assuming the sale or exchange of the Warrants by the holder would have given rise to capital gain or loss) equal to the holder's tax basis in the Warrants. Any such capital loss would be long-term if the holding period for the Warrants exceeds one year. Adjustments. The Exercise Rate of the Warrants are subject to adjustments under certain circumstances and the Warrant holders may be entitled to certain distributions in the event of distributions to holders of the Common Stock. Under Section 305 of the Code and the Treasury Regulations issued thereunder, holders of the Warrants will be treated as having received a constructive distribution, resulting in ordinary income (subject to a possible dividends-received deduction in the case of corporate holders) to the extent of the Company's current and/or accumulated earnings and profits, if, and to the extent that, certain adjustments in the Exercise Rate that may occur in limited circumstances, increase the proportionate interest of a holder of a Warrant in the earnings and profits of the Company. Thus, under certain circumstances that may or may not occur, such an adjustment may be treated as taxable distributions to holders of Warrants, without regard to whether such holders receive any cash or other property. The Warrant holders may be entitled to receive certain distributions if the Company pays a dividend or makes a distribution to holders of the Common Stock, and the Company may waive payment of the exercise price when a holder exercises a Warrant, in which case it would be deemed to have distributed cash to the holder in an amount equal to the payments waived by the Company. Any such distribution or deemed distribution would likely be taxable as ordinary income to the holder to the extent of the Company's current and/or accumulated earnings and profits. 109 112 UNDERWRITING The underwriters named below (the "Underwriters") have severally agreed, subject to the terms and conditions of the underwriting agreement (the form of which has been filed as an exhibit to the Registration Statement of which this Prospectus is a part) (the "Underwriting Agreement"), to purchase from the Company, and the Company has agreed to sell to the Underwriters, the number of Units set forth opposite their respective names below.
UNDERWRITERS UNITS ----------------------------------------------------------------------- ------------ Lehman Brothers Inc.................................................... Donaldson, Lufkin & Jenrette Securities Corporation.................... Chase Securities Inc. ................................................. Toronto Dominion Securities (USA) Inc.................................. ------------ Total........................................................ ===========
The Underwriting Agreement provides that the obligations of the Underwriters to purchase the Units are subject to the approval of certain legal matters by their counsel and to certain conditions, and that if any Units are purchased by the Underwriters pursuant to the Underwriting Agreement, all of the Units agreed to be purchased by the Underwriters pursuant to the Underwriting Agreement must be so purchased. The Company has been advised by the Underwriters that they propose to offer the Units offered hereby initially at the public offering price set forth on the cover page of this Prospectus and to certain selected dealers (who may include the Underwriters) at such public offering price less a concession not to exceed $ per Unit. The Underwriters or such selected dealers may reallow a commission to certain other dealers not to exceed $ per Unit. After the initial public offering of the Units the public offering price, the concession to selected dealers and the reallowance to other dealers may be changed by the Underwriters. In the Underwriting Agreement, the Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments that the Underwriters may be required to make in respect thereof. The offering price for the Units and the provisions of the Notes and the Warrants have been determined by negotiations between the Company and the Underwriters. The material factors considered in such negotiations were prevailing market conditions, the results of operations of the Company in recent periods, the market capitalizations and stages of development of other companies which the Company and the Underwriters believed to be comparable to the Company, estimates of business potential of the Company and the present stage of the Company's development. There is no public market for the Units, Notes or Warrants and the Company has no plans to apply for listing of the Units, Notes or Warrants on any national securities exchange or for quotation on any automated quotation system. The Company has been advised by certain of the Underwriters that they currently intend to make a market in the Units (prior to separation), Notes and Warrants, as permitted by applicable laws and regulations, however, such Underwriters are not obligated to do so. Any such market-making may be discontinued at any time, for any reason, without notice. If any of such Underwriters ceases to act as a market-maker for the Units, Notes or Warrants for any reason, there can be no assurance that another firm or person will make a market in the Units, Notes or Warrants. Accordingly, there can be no assurance as to the liquidity of, or the existence of trading markets for, the Units, Notes or Warrants. Certain of the Underwriters have provided certain financial advisory and investment banking services to the Company in the past. Lehman Brothers Inc. was the placement agent for the private placement by the Company of the Series A Preferred Stock in November 1995 for which it received customary commissions. Lehman Brothers Inc. is presently engaged on a best efforts basis as placement agent for the private placement by Sloan LP of the remaining limited partnership interests in Sloan LP, for which Lehman Brothers Inc. will also receive customary commissions. The Chase Manhattan Bank, an affiliate of Chase Securities Inc., is Administrative Agent and a lender under the Credit Facility. The Chase Manhattan Bank and its affiliates 110 113 may from time to time perform financial and banking services for the Company. The Chase Manhattan Bank is also an affiliate of Chase Manhattan Capital Corporation and Chase Venture Capital Associates, L.P. Chase Manhattan Capital Corporation and Chase Venture Capital Associates, L.P. own 3.60% and 18.02%, respectively, of the Series A Preferred Stock. Toronto Dominion Investments, Inc., an affiliate of Toronto Dominion Securities (USA) Inc., owns 9.01% of the Series A Preferred Stock and Series B Preferred Stock, collectively. Chase Manhattan Capital Corporation, which in the aggregate beneficially owns 21.6% of the Series A Preferred Stock outstanding as of the date hereof, is an affiliate of Chase Securities Inc., a member of the National Association of Securities Dealers, Inc. (the "NASD") and a participant as an underwriter in the Offering of the Units covered by this Prospectus. As a result of the foregoing, this Offering is subject to the provisions of Schedule E to the Bylaws of the NASD. Accordingly, the underwriting arrangements for the Offering will conform with the requirements set forth in Schedule E. In particular, the price (in the case of equity) or the yield (in the case of debt) at which such Offering is to be distributed to the public must be at a price no higher or a yield no lower, as the case may be, than that recommended by a "qualified independent underwriter" who has also participated in the preparation of the registration statement and the prospectus, and who meets certain standards. In accordance with this requirement, Lehman Brothers Inc. will serve in such role and will recommend the public offering price in compliance with the requirements of Schedule E. Lehman Brothers Inc., in its role as qualified independent underwriter, has performed due diligence investigations and reviewed and participated in the preparation of this Prospectus and the Registration Statement of which this Prospectus forms a part. LEGAL MATTERS Certain legal matters in connection with the Units offered hereby are being passed upon for the Company by Nelson Mullins Riley & Scarborough, L.L.P. ("NMRS"), Charlotte, North Carolina and Atlanta, Georgia. Patrick Daugherty, a partner of NMRS, beneficially owns 30 shares of the Company's Series A Preferred Stock. Certain communications-related legal matters are being passed upon for the Company by Lukas McGowan Nace & Gutierrez, Chartered, Washington, D.C. ("Lukas McGowan"). Gerald S. McGowan, a partner of Lukas McGowan, beneficially owns 12 shares of the Company's Class A Common Stock and 63 shares of the Company's Class B Common Stock. Certain legal matters are being passed upon for the Underwriters by Simpson Thacher & Bartlett (a partnership which includes professional corporations), New York, New York. EXPERTS The financial statements included in this Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein, and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. 111 114 AVAILABLE INFORMATION The Company has filed with the Commission a Registration Statement on Form S-1 under the Securities Act with respect to the Securities offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. Certain items are omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and the Securities offered hereby, reference is made to the Registration Statement and to the exhibits and schedules filed as part thereof. Statements contained in this Prospectus as to the contents of any contract or other document referred to 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. The Registration Statement, including the exhibits and schedules thereto, may be inspected without charge at the principal office of the Commission in Washington, D.C. and copies may be obtained from the Public Reference Section at the Commission's principal office, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's regional offices at Seven World Trade Center, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, upon payment of the fees prescribed by the Commission. 112 115 PCS DEVELOPMENT CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Independent Auditors' Report.......................................................... F-2 Consolidated Balance Sheets as of December 31, 1994 and December 31, 1995............. F-3 Consolidated Statements of Operations for the period from September 21, 1994 (date of incorporation) to December 31, 1994, for the year ended December 31, 1995 and cumulative amounts from September 21, 1994 to December 31, 1995..................... F-4 Consolidated Statements of Stockholders' Equity for the period from September 21, 1994 (date of incorporation) to December 31, 1995........................................ F-5 Consolidated Statements of Cash Flows for the period from September 21, 1994 (date of incorporation) to December 31, 1994, for the year ended December 31, 1995 and cumulative amounts from September 21, 1994 to December 31, 1995..................... F-6 Notes to Consolidated Financial Statements............................................ F-7 Consolidated Balance Sheets (unaudited) as of March 31, 1996.......................... F-16 Consolidated Statements of Operations (unaudited) for the Three Months Ended March 31, 1995 and March 31, 1996 and cumulative amounts from September 21, 1994 (date of incorporation) to March 31, 1996.................................................... F-17 Consolidated Statements of Stockholders' Equity (unaudited) for the period from December 31, 1995 to March 31, 1996................................................. F-18 Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 1995 and March 31, 1996 and cumulative amounts from September 21, 1994 (date of incorporation) to March 31, 1996.................................................... F-19 Notes to Consolidated Financial Statements (unaudited)................................ F-20
F-1 116 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of PCS Development Corporation Greenville, South Carolina We have audited the accompanying consolidated balance sheets of PCS Development Corporation (a development stage company) as of December 31, 1994 and 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for the period from September 21, 1994 (date of incorporation) to December 31, 1994, for the year ended December 31, 1995 and cumulative amounts from September 21, 1994 to December 31, 1995. 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 in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 1994 and 1995, and the results of its operations and its cash flows for the period from September 21, 1994 (date of incorporation) to December 31, 1994, for the year ended December 31, 1995 and cumulative amounts from September 21, 1994 to December 31, 1995, in conformity with generally accepted accounting principles. Deloitte & Touche LLP Greenville, South Carolina February 16, 1996 (except with respect to Note 12, as to which the date is April 25, 1996) F-2 117 PCS DEVELOPMENT CORPORATION (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------------------------- 1994 1995 ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents................................... $ 763,878 $ 25,947,791 Interest receivable from stockholder (Note 9)............... 22,190 84,343 Prepaid expenses and other current assets................... 845 751,810 ------------ ------------ Total current assets................................ 786,913 26,783,944 EQUIPMENT AND FIXTURES -- Net (Note 3)........................ 13,941 2,360,057 INTANGIBLE ASSETS -- Net (Note 4)............................. 9,253,100 97,554,358 ------------ ------------ TOTAL............................................... $ 10,053,954 $126,698,359 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable............................................ $ 146,379 $ 215,581 Due to related company (Note 6)............................. 193,320 -- Accrued payroll withholdings................................ 39,342 225,416 Other accrued liabilities................................... 111,500 550,502 Current portion of long-term debt (Note 7).................. -- 418,582 ------------ ------------ Total current liabilities........................... 490,541 1,410,081 ------------ ------------ OTHER LIABILITIES............................................. -- 134,570 ------------ ------------ LONG-TERM DEBT (Note 7)....................................... -- 73,382,678 ------------ ------------ COMMITMENTS (Note 5) REDEEMABLE CONVERTIBLE PREFERRED STOCK (Notes 10 and 12)...... -- 23,112,325 STOCKHOLDERS' EQUITY (Notes 9 and 11): Common stock: Class A, $1.00 par value, 300,000 shares authorized, 8,718 shares issued and outstanding.................... 8,718 8,718 Class B, $1.00 par value, 200,000 shares authorized, 28,482 shares issued and outstanding................... 28,482 28,482 Common stock additional paid-in capital..................... 37,162,800 36,366,601 Deficit accumulated during the development stage............ (375,103) (2,455,814) ------------ ------------ 36,824,897 33,947,987 Less amounts receivable from stockholders................ (23,993,979) (14,147) Less notes receivable from stockholder................... (3,267,505) (5,275,135) ------------ ------------ Total stockholders' equity.......................... 9,563,413 28,658,705 ------------ ------------ TOTAL............................................... $ 10,053,954 $126,698,359 =========== ===========
See notes to consolidated financial statements. F-3 118 PCS DEVELOPMENT CORPORATION (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD FROM SEPTEMBER 21, 1994 (DATE OF YEAR ENDED CUMULATIVE AMOUNTS INCORPORATION) DECEMBER 31, FROM SEPTEMBER 21, 1994 TO DECEMBER 31, 1994 1995 TO DECEMBER 31, 1995 --------------------- ------------ -------------------------- OPERATING EXPENSES: Sales and Marketing..................... $ -- $ 796,100 $ 796,100 Administrative.......................... 394,918 1,922,163 2,317,081 Depreciation............................ -- 137,374 137,374 Amortization............................ 4,058 19,479 23,537 ----------- ------------ ------------- 398,976 2,875,116 3,274,092 INTEREST INCOME FROM STOCKHOLDER (Note 9)...................................... (22,190) (526,075) (548,265) INTEREST INCOME -- OTHER.................. (1,683) (268,330) (270,013) ----------- ------------ ------------- NET LOSS........................ $ 375,103 $2,080,711 $2,455,814 ================ ========== ==================== PER SHARE DATA: NET LOSS........................ $ 375,103 $2,080,711 ACCRETION OF PREFERRED STOCK DIVIDENDS..................... -- 796,199 ----------- ------------ NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS.................. $ 375,103 $2,876,910 ================ ========== NET LOSS PER COMMON SHARE....... $ 10.08 $ 77.34 ================ ==========
See notes to consolidated financial statements. F-4 119 PCS DEVELOPMENT CORPORATION (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY PERIOD FROM SEPTEMBER 21, 1994 (DATE OF INCORPORATION) TO DECEMBER 31, 1995
AMOUNTS COMMON STOCK DEFICIT ACCUMULATED RECEIVABLE NOTES RECEIVABLE COMMON STOCK COMMON STOCK ADDITIONAL DURING THE FROM FROM CLASS A CLASS B PAID-IN CAPITAL DEVELOPMENT STAGE STOCKHOLDERS STOCKHOLDER TOTAL ------------ ------------ --------------- ------------------- ------------ ---------------- ----------- BALANCE, SEPTEMBER 21, 1994...... $ -- $ -- $ -- $ -- $ -- $ -- $ -- Issuance of 37,200 shares of common stock ($1,000 per share) on October 1, 1994... 8,718 28,482 37,162,800 -- (23,993,979) (3,267,505) 9,938,516 Net loss from date of incorporation to December 31, 1994...... -- -- -- (375,103) -- -- (375,103) ------------ ------------ --------------- ------------------- ------------ ---------------- ----------- BALANCE, DECEMBER 31, 1994...... 8,718 28,482 37,162,800 (375,103) (23,993,979) (3,267,505) 9,563,413 Collection of amounts receivable from stockholders... -- -- -- -- 23,979,832 (5,932,495) 18,047,337 Collection of notes receivable from stockholder... -- -- -- -- -- 3,924,865 3,924,865 Preferred stock accretion... -- -- (796,199) -- -- -- (796,199) Net loss.... -- -- -- (2,080,711) -- -- (2,080,711) ------------ ------------ --------------- ------------------- ------------ ---------------- ----------- BALANCE, DECEMBER 31, 1995...... $8,718 $ 28,482 $36,366,601 $(2,455,814) $ (14,147) $ (5,275,135) $28,658,705 ============ ============ ============ ================ ============= ============= ============
See notes to consolidated financial statements. F-5 120 PCS DEVELOPMENT CORPORATION (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FROM CUMULATIVE SEPTEMBER 21, 1994 AMOUNTS FROM (DATE OF INCORPORATION) YEAR ENDED SEPTEMBER 21, 1994 TO DECEMBER 31, 1994 DECEMBER 31, 1995 TO DECEMBER 31, 1995 ----------------------- ----------------- -------------------- OPERATING ACTIVITIES: Net Loss.................................. $ (375,103) $ (2,080,711) $ (2,455,814) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization.......... 4,058 156,853 160,911 Changes in assets and liabilities: Increase in interest receivable from shareholder....................... (22,190) (62,153) (84,343) Increase in prepaid expenses and other current assets.............. (845) (250,965) (251,810) Increase in accounts payable......... 146,379 69,202 215,581 (Decrease) increase in due to related company........................... 117,557 (193,320) (75,763) Increase in accrued payroll withholdings...................... 39,342 186,074 225,416 Increase in other accrued liabilities....................... 111,500 420,379 531,879 Increase in other liabilities........ -- 134,570 134,570 ----------------------- ----------------- -------------------- Net cash provided by (used in) operating activities............ 20,698 (1,620,071) (1,599,373) INVESTING ACTIVITIES: Purchases of equipment and fixtures....... (3,233) (1,488,351) (1,491,584) Payments for FCC licenses................. (9,192,103) (15,579,616) (24,771,719) Increase in accrued interest payable...... -- 18,623 18,623 FCC deposit............................... -- (500,000) (500,000) ----------------------- ----------------- -------------------- Net cash used in investing activities...................... (9,195,336) (17,549,344) (26,744,680) FINANCING ACTIVITIES: Proceeds from the issuance of common stock and collection of amounts receivable from stockholders...................... 9,938,516 18,047,337 27,985,853 Proceeds from the issuance of preferred stock and collection of subscriptions receivable............................. -- 22,316,126 22,316,126 Proceeds from the issuance of note payable................................ -- 65,000 65,000 Collection of notes receivable from stockholder............................ -- 3,924,865 3,924,865 ----------------------- ----------------- -------------------- Net cash provided by financing activities...................... 9,938,516 44,353,328 54,291,844 INCREASE IN CASH AND CASH EQUIVALENTS....... 763,878 25,183,913 25,947,791 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.................................... -- 763,878 -- ----------------------- ----------------- -------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD.... $ 763,878 $ 25,947,791 $ 25,947,791 ================= ============= =============== SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING INFORMATION: Debt incurred to acquire FCC Licenses..... -- $ 72,741,121 $ 72,741,121 Debt incurred to acquire certain fixed assets................................. -- 995,139 995,139 Issuance of notes receivable to stockholder for stock.................................. $ 3,267,505 5,932,495 9,200,000 Preferred stock accretion................. -- 796,199 796,199
See notes to consolidated financial statements. F-6 121 PCS DEVELOPMENT CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM SEPTEMBER 21, 1994 (DATE OF INCORPORATION) TO DECEMBER 31, 1994 AND YEAR ENDED DECEMBER 31, 1995 1. ORGANIZATION PCS Development Corporation and its subsidiary (the "Company") is a development stage company incorporated on September 21, 1994, for the purpose of establishing, constructing and operating regional narrowband personal communications systems in the United States. During 1994, the Company successfully bid on five regional narrowband licenses, which were officially granted by the Federal Communications Commission (the "FCC") in February, 1995. The Company plans to employ the licenses to offer a full array of two-way narrowband wireless voice and data messaging. The Company is subject to the regulatory authority of the FCC and qualified as a "Designated Entity" in the FCC narrowband PCS regional auction whereby the Company received from the FCC certain bidding credits and financing terms as part of its purchase of the licenses. The Company continues to satisfy the applicable Designated Entity criteria because it is a small business and it is controlled by a control group composed of minorities and women. The Company is in a new segment of the wireless telecommunications industry and is now developing a nationwide narrowband PCS wireless network. It plans to offer two-way wireless stored voice and data messaging services through existing wireless messaging providers and other channels. The development, construction and initial start-up phase associated with the implementation of the Company's services will require substantial capital. The Company has experienced operating losses and negative cash flow from operating activities since its incorporation in 1994. The Company expects that during the buildout of its nationwide network and as it seeks market penetration, operating losses and negative cash flow from operating activities will continue at historical or greater levels. The ability to generate positive net income and cash flow from operations in the future is dependent upon many factors, including general economic conditions, attainment of significant additional financing, the timely completion of the Company's network buildout, the level of market acceptance for the Company's products and services and the degree of competition encountered by the Company. The Company intends to purchase its infrastructure equipment from two suppliers. As a result, the Company will rely on these suppliers for the manufacture of a substantial portion of the equipment necessary to construct its narrowband PCS network. One of these suppliers is the only current manufacturer of the subscriber equipment necessary to deliver stored voice messaging services over the Company's network. No market currently exists for the stored voice messaging services proposed to be offered by the Company. With respect to sales of both voice and data services, the Company intends to target broad market segments with diverse messaging requirements by providing nationwide, easy-to-use services at a reasonable price. The potential markets for these services include corporate users, business travelers, portable personal computer users and household consumers. The Company will employ a variety of direct and indirect distribution channels to market and sell its PCS products and services. To speed marketing and sales and quickly build a broad customer base, the Company intends initially to distribute its PCS services through certain of its investors and other distribution partners, deriving leverage from their existing customer relationships. 2. SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, SGI Communications, Inc. Significant intercompany accounts and transactions have been eliminated in consolidation. F-7 122 PCS DEVELOPMENT CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Cash and cash equivalents consist of cash in banks and short-term, highly liquid investments purchased with original maturities of less than three months. Equipment and fixtures are recorded at cost. Equipment and fixtures will be depreciated using the straight-line method over the lives of the related assets. The Company capitalizes interest costs related to network buildout, where activities are in progress, necessary to get the asset ready for its intended use. Intangible assets are amortized on the straight-line method over the period of the related asset. The Company will periodically review the values assigned to intangible assets to determine whether any impairments are other than temporary. This assessment is based on the estimated undiscounted future cash flows from operating activities compared with the carrying value of intangible assets. Management believes that the intangible assets in the accompanying balance sheets are appropriately valued. The Company provides for deferred income taxes for temporary differences between the tax basis and financial reporting basis of assets and liabilities pursuant to the requirements of Statement of Financial Accounting Standards No. 109. Net loss per common share and common equivalent share are computed using the weighted average number of outstanding common and dilutive common equivalent shares outstanding. Additionally, net loss per share includes the accretion of preferred stock dividends for the periods presented. 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 at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain 1994 amounts have been reclassified to conform to current presentation. 3. EQUIPMENT AND FIXTURES Equipment and fixtures at December 31 is comprised of the following:
USEFUL LIFE 1994 1995 ----------- ------- ---------- Computer Hardware..................................... 5 $ 6,029 $ 323,423 Computer Software..................................... 5 1,057 839,512 Furniture and Fixtures................................ 10 3,862 180,840 Office Equipment...................................... 7 2,993 77,744 Leasehold Improvements................................ 15 -- 192,866 Assets Under Construction............................. -- 883,046 ------- ---------- 13,941 2,497,431 Less: accumulated depreciation...................... -- (137,374) ------- ---------- $13,941 $2,360,057 ======= =========
F-8 123 PCS DEVELOPMENT CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. INTANGIBLE ASSETS Intangible assets at December 31 is comprised of the following:
1994 1995 ---------- ----------- Costs of FCC licenses (including deposits with FCC of $9,092,640 at December 31, 1994 and interest capitalized of $4,824,081 through December 31, 1995)...................... $9,159,261 $95,817,102 Option to acquire radio spectrum............................. -- 1,656,359 Organization costs........................................... 97,397 97,397 Other........................................................ 500 7,037 ---------- ----------- 9,257,158 97,577,895 Less: accumulated amortization............................... (4,058) (23,537) ---------- ----------- $9,253,100 $97,554,358 ========= ==========
Amortization recorded in 1994 and 1995 relates to organization costs consisting of legal fees incurred in organizing and incorporating the Company, which are being amortized over a five year period. Amortization of FCC licenses will commence when placed in service, which is expected to be during the first half of 1997, and will be computed on a straight line basis over a period not to exceed 40 years. In December of 1995, the Company acquired an option to purchase radio spectrum for $1,500,000 and expenses of $156,359. The option is exercisable from September 14, 1998 to September 14, 2001 for an additional fee of $2,875,000. Under the terms of the option, the Company can acquire FCC licenses which provide additional capacity in one of its geographical areas of operation. If acquired, the FCC licenses will be amortized over their estimated useful life not to exceed 40 years. 5. COMMITMENTS Lease Agreements -- In 1995, the Company entered into operating lease agreements for office space and certain office equipment with noncancelable lease terms ranging from three months to five years. The office lease has a seven year term, with an option to terminate the lease at the end of five years. Rental expense under these leases was $30,745 for the year ended December 31, 1995. Aggregate rental commitments under the noncancelable portion of these operating leases are as follows: 1996.............................................................. $ 87,723 1997.............................................................. 131,220 1998.............................................................. 131,220 1999.............................................................. 131,220 2000.............................................................. 71,284 -------- $552,667 ========
6. DUE TO RELATED COMPANY During 1995, the Company reimbursed certain costs and expenses incurred by a related company in 1994 totaling $193,320. These reimbursements were primarily for consulting services and certain organization costs, market research, legal fees, office fixtures, equipment and supplies, which were incurred prior to the Company's formation, and certain other operating expenses which were incurred on its behalf subsequent to the date of incorporation. F-9 124 PCS DEVELOPMENT CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. LONG-TERM DEBT Long-term debt at December 31, 1995 is comprised of the following: FCC obligation, maturing December 30, 2004, bearing interest at 7.5% payable quarterly; principal payments beginning March 30, 1997........ $72,741,121 Equipment financing agreement, maturing July 14, 1998, bearing interest at 9.5%, collateralized by computer equipment and software, payable monthly beginning January 14, 1996.................................... 995,139 Note payable to bank, maturing January 1999, bearing interest at 6.55%, collateralized by a certificate of deposit, payable monthly beginning February 28, 1996..................................................... 65,000 ----------- 73,801,260 Less: current portion................................................... (418,582) ----------- $73,382,678 ==========
The fair value of the Company's long-term debt is estimated based on the present value of the future cash payments of the long-term debt at borrowing rates currently available to the Company for loans with similar terms and average maturities. The fair value of long-term debt at December 31, 1995 is $72,290,000. Maturities of long-term debt at December 31, 1995 are as follows: 1996................................................................ $ 418,582 1997................................................................ 7,272,269 1998................................................................ 7,648,792 1999................................................................ 8,090,103 2000................................................................ 8,635,332 Thereafter.......................................................... 41,736,182 ----------- $73,801,260 ==========
Total interest paid was $4,830,054 for the twelve month period ended December 31, 1995. F-10 125 PCS DEVELOPMENT CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. INCOME TAXES The components of income tax expense (benefit) are as follows:
1994 1995 --------- ----------- Current tax benefit: Federal................................................ $(111,117) $(1,275,743) State.................................................. (13,073) (121,859) --------- ----------- Total.......................................... (124,190) (1,397,602) Deferred tax (benefit) provision: Federal................................................ (16,418) 568,274 State.................................................. (1,932) 52,868 --------- ----------- Total.......................................... (18,350) 621,142 Valuation Allowance...................................... 142,540 776,460 --------- ----------- Income tax expense (benefit)............................. $ -- $ -- ========= ========== At December 31, the Company had deferred tax assets (liabilities) as follows: Depreciable assets..................................... $ -- $ (372,000) Amortizable assets..................................... -- (3,866,000) --------- ----------- Gross deferred tax liabilities................. -- (4,238,000) Development stage expenses capitalized for income tax purposes as start-up expenditures................... 18,350 3,607,000 Net operating loss carryforward........................ 124,190 1,521,000 Other.................................................. -- 29,000 --------- ----------- Gross deferred tax assets...................... 142,540 5,157,000 Valuation allowance.................................... (142,540) (919,000) --------- ----------- Net deferred tax asset................................. $ -- $ -- ========= ==========
A valuation allowance has been recorded against the deferred income tax asset as realization of this asset is uncertain as of December 31, 1994 and 1995. At December 31, 1995, the Company had $4,080,000 of net operating loss carryforwards available to reduce future taxable income which will expire in 2009 and 2010 if not previously utilized. The net changes in the valuation allowance for deferred tax assets were increases of $142,540 for the period from September 21, 1994 to December 31, 1994 and $776,460 for the year ended December 31, 1995, both of which were primarily related to increased net operating loss carryfowards of the Company. 9. STOCKHOLDERS' EQUITY On October 1, 1994, the Company and its stockholders entered into Common Stock Subscription Agreements (the "Agreements") for the issuance of 37,200 shares of common stock in a private placement offering at a price of $1,000 per share. Common stock consists of two classes. Class A common stock entitles the holder to one vote for each share on all matters as to which stockholders are entitled to vote. Class B common stock has no voting rights except with respect to certain matters as specified in the restated certificate of incorporation. In accordance with the Agreements, the Company made a capital call prior to the close of business on November 14, 1994 (First Payment) and prior to the close of business on the third business day following the day one or more licenses were granted by the FCC (Second Payment). The balance due was F-11 126 PCS DEVELOPMENT CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) payable at various times according to a board-approved schedule. Amounts receivable from stockholders collected by the Company in relation to the Agreements at December 31, 1994 and 1995 were $9,938,516 and $18,047,337, respectively. The Company entered into an agreement on October 4, 1994 (as amended effective December 31, 1994) with Sloan Communications, Inc. ("Sloan") whereby the Company committed to loan to Sloan up to $9,200,000, subject to certain limitations on the dollar amount of individual loan/stock purchase transactions. This loan commitment was made for Sloan to satisfy its obligation to purchase 9,300 shares of common stock under the Agreements. The loan commitment was drawn under the following promissory notes:
DATE AMOUNT ------------------------------------------------------------------------- ---------- September 30, 1994....................................................... $ 325,000 November 14, 1994........................................................ 2,942,505 January 19, 1995......................................................... 3,311,000 April 20, 1995........................................................... 366,667 June 23, 1995............................................................ 983,333 September 20, 1995....................................................... 1,271,495 ---------- $9,200,000 =========
Interest accrues on the notes at 6% until the first anniversary date of each note. Thereafter, interest accrues at a fixed, annual rate of 10%. In the event of default, the interest rate on the principal amount of the notes increases at the following rate:
PERIOD OF DEFAULT INTEREST RATE ------------------------------------------------------------------------- ------------- First 6 months........................................................... 15% After 6 through 12 months................................................ 20% After 12 months.......................................................... 25%
Upon repayment of all overdue principal and accrued interest, the interest rate reverts to 10% prospectively at the next principal due date. Sloan also has pledged its common stock in the Company as collateral for the notes. Accrued interest on the unpaid principal balance is payable at each principal repayment date. During 1995, Sloan repaid $3,924,865 of the outstanding principal, including a letter of credit in the amount of $750,000 issued in the name of the Company with a maturity date of April 30, 1996, and $441,732 in interest. The unpaid promissory notes call for repayment of principal as follows: October 4, 1996.......................................................... $1,595,135 April 30, 1997........................................................... 3,680,000 ---------- $5,275,135 =========
From October 4, 1995 through November 29, 1995, the stockholder notes receivable were in default resulting in default interest due in the amount of $126,000. The Company agreed to waive the default interest on the condition that all notes were repaid in full on or prior to April 30, 1996. Based upon its contingent nature, no default interest has been recorded. As of December 31, 1995, the Stockholder note receivable was current. The loan to Sloan is recorded as a reduction in stockholders' equity in the financial statements. Accrued interest receivable at December 31, 1994 and 1995 was $22,190 and $84,343, respectively. F-12 127 PCS DEVELOPMENT CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 10. REDEEMABLE CONVERTIBLE PREFERRED STOCK On November 9, 1995, the Company and its stockholders entered into Preferred Stock Subscription Agreements for the issuance of 24,667 shares of Series A Convertible Preferred Stock (the "Preferred Stock") in a private placement offering at a price of $2,250 per share. The Preferred Stock is convertible, at the option of the holder, into Class B Common Stock at any time provided that the exercise of the conversion does not adversely impact the Company's "Designated Entity" status under FCC rules. Additionally, the Preferred Stock is automatically converted to Class B Common Stock in the event of a public offering of the Company's common stock sufficient in value to give the holders of the Preferred Stock certain investment returns as described in the Preferred Stock purchase agreements. The Preferred Stock has limited voting rights and grants preferences to the holders regarding dividends, liquidation and merger. Dividends on the Class A or Class B Common Stock require the consent of the holders of at least 50% of the Preferred Stock. The Preferred Stock entitles the holders to participate in cumulative dividends accreting at the rate of 10% per annum, compounded semi-annually on the anniversary of its initial issuance. Subsequent to November 10, 2004, the Preferred Stock is redeemable at the option of the holder by conversion into subordinated notes of the Company whose principal amount equals the accreted value of the Preferred Stock at the time of conversion. Upon conversion, the subordinated notes will bear interest at 10% per annum and will be due in 2007. The Company incurred $2,790,124 in expenses associated with the offering of Preferred Stock. The costs associated with the offering include underwriting, legal and professional fees and were recorded as a reduction of the proceeds from the offering. The net proceeds of $52,710,626 will be used to construct the Company's network and for general corporate purposes. In accordance with the Preferred Stock subscription agreements, the Company made a capital call prior to the close of business on November 9, 1995. The balance due is payable at various times according to a board-approved schedule. Capital subscriptions collected by the Company in relation to the Preferred Stock subscription agreements at December 31, 1995 were $25,106,250. Subscriptions receivable in relation to the Preferred Stock subscription agreement at December 31, 1995 were $30,394,500 and are due in two installments on February 1, 1996 and May 1, 1996. 11. STOCK OPTIONS AND WARRANTS Officers -- The Company entered into Employment Agreements with two principal officers (the "Officers") of the Company effective October 31, 1994. The Employment Agreements provide the Officers the option to acquire 2,626 shares each of Class B Common Stock at an exercise price of $1,000 per share of common stock. This exercise price represents the initial subscription price upon formation of the Company. Half of the options for the Officers (i.e., 1,313 shares each) became fully vested at the effective date of the Employment Agreements. The remaining options vest in accordance with the following schedule as long as the respective officer remains employed by the Company: June 1, 1996...................................................... 263 June 1, 1997...................................................... 263 June 1, 1998...................................................... 263 June 1, 1999...................................................... 262 June 1, 2000...................................................... 262 ----- 1,313
Cessation of employment for any reason cancels unvested options. The Officers may retain vested options after cessation of employment. The vesting schedule above may be accelerated in certain instances where a change in ownership occurs of more than 50% of the common stock of the Company. F-13 128 PCS DEVELOPMENT CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Stockholders -- Certain stockholders of the Company were granted warrants to acquire 1,313 shares of Class B Common Stock at an exercise price of approximately $1,360 per share in an agreement effective October 31, 1994, which became vested 31.25% on February 1, 1995 and an additional 6.25% of the warrants vest every successive three months until fully vested on November 1, 1997. Vesting of half of the warrants is dependent on the continued employment of one of the officers and vesting of the other half of the warrants is dependent on continued employment of the other officer. For the officer options and stockholder warrants, vested options and warrants become exercisable on the earlier of the following dates: (1) the date on which the holder provides the Company with an opinion from the Company's FCC counsel that the exercise of the option or warrant would not jeopardize the status of the Company as a Designated Entity, (2) the date the Company consummates a public offering of common stock at $10 or more per share and realizes gross proceeds of at least $10,000,000, or (3) the first date after which the failure of the Company to qualify for "Designated Entity" status as a "Business Owned by Members of Minority Groups and/or Women" would not result in the loss of material benefits by the Company. The options and warrants expire ten years from the date of issuance (October 31, 2004). Other Employee Options -- In 1995, several employees were granted options to exercise, collectively, 1,200 and 300 shares of Class B Common Shares at an exercise price of $1,000 and $1,850, respectively, per common share. Vesting occurs at a rate of 5% per quarter over five years with the initial 20% vesting at the first anniversary of each employee's employment date. Cessation of employment for any reason cancels unvested options. The employees may retain vested options after cessation of employment. The vesting schedule above may be accelerated in certain instances where a change in ownership occurs of more than 50% of the common stock of the Company. Provisions for exercise limitations are similar to those for the Officers. At December 31, 1994 and 1995, no expense for options or warrants was recorded as Company management believes that the fair value of the Class B common stock at the date of issuance of the options and warrants was not in excess of the exercise price. Subsequent to December 31, 1995, additional options to acquire up to 700 shares of Class B Common Stock were issued to employees upon approval by a committee of the Board of Directors. 12. SUBSEQUENT EVENTS Capital Stock Transactions -- All amounts outstanding relating to the Preferred Stock Subscription Agreements on December 31, 1995, were collected as of April 25, 1996. On April 18, 1996, Sloan repaid $2,722,005 of outstanding principal and $189,079 of interest related to the notes receivable from stockholders. Purchase of Radio Spectrum -- In early 1996, radio spectrum was purchased in two metropolitan areas of the United States for a total of $7,250,000. These purchases were financed through cash and a $500,000 note payable. During April 1996, the Company successfully bid, by auction, on radio spectrum in various metropolitan areas throughout the United States. The Company qualifies as a "Small Business", and as such was permitted a 10% credit on the bid price made during the auction. The Company was required to make an advance payment of 5% of the committed price of the licenses within five business days of the end of the auction. Another 5% is due within five business days of the date the licenses are granted (expected to be in July of 1996). The balance of the committed purchase price is due and payable in accordance with the rules and regulations of the FCC. This obligation will be incurred on the date the licenses are granted. F-14 129 PCS DEVELOPMENT CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The total consideration for the licenses is as follows: Deposit paid in 1995..................................................... $ 500,000 Deposit to be paid....................................................... 480,386 Aggregate balance of unpaid FCC obligation............................... 8,722,485 ---------- Total purchase price of licenses (after 10% credit)...................... $9,702,871 =========
The terms of the FCC obligation consist of a fixed interest rate equal to the ten-year treasury note at the time of license grant plus 2.5%, with quarterly payments. Interest only payments are required for the first two years of the ten-year term. Principal and interest payments will commence following the second anniversary of the obligation and will continue through the final payment date. Additional Financing -- The Company is in the process of registering with the Securities and Exchange Commission for the issuance of approximately $150 million in Senior Discount Notes due 2006 (the "Notes") and Warrants to purchase Class B common stock (collectively, the "Units"). The proceeds from the issuance of the Units will be used to fund capital expenditures, general working capital and debt service requirements, operating losses, future acquisitions of spectrum and other general corporate purposes. The indenture governing the Notes will contain covenants that will limit the ability of the Company to incur indebtedness, pay dividends and dispose of assets, among others. The Company is negotiating a commitment from an investment advisory firm to arrange the establishment of senior credit facilities in the amount of $225 million effective upon the closing of the Notes discussed above. The credit facilities will consist of a $75 million term loan, a $35 million term loan and a $115 million reducing revolving credit facility. Under the proposed terms, the Company will have approximately $75 million immediately available for borrowing under the credit facilities, and the balance will be available upon the achievement and maintenance of certain operating results and financial ratios. The credit facilities will be used to fund capital expenditures, working capital and debt service requirements, operating losses, future acquisitions of spectrum and other general corporate purposes. Borrowings under the facilities will bear interest, at the option of the Company, at a maximum rate of the agent bank's base rate plus 3% or the agent bank's Eurodollar rate plus 4%. Borrowings under the facilities will initially be available on the closing date of the facility and end on June 30, 2004. The $75 million and $35 million term loans will be repayable in two equal installments on March 31, 2000 and June 30, 2000. The $115 million reducing revolving loans will be retired in quarterly installments beginning on March 31, 2000 and ending on June 30, 2004. The $115 million reducing revolving credit facility's availability are conditioned upon the satisfaction of certain conditions including expending certain amounts previously received from the issuance of equity by the Company, borrowing the full amount under the term loan and maintaining certain financial ratios. The credit facilities will contain covenants that will limit the Company's ability to incur additional indebtedness, pay dividends and dispose of assets, among others. The investment advisory firm and the lender under the $35 million term loan and the $115 million reducing revolving credit facility are affiliates of two of the Company's preferred stockholders who own 3.6% and 18.0% of the Company's Series A Preferred Stock, respectively. F-15 130 PCS DEVELOPMENT CORPORATION (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEET (UNAUDITED)
MARCH 31, 1996 ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents.................................................... $ 29,865,057 Interest receivable from stockholder......................................... 161,834 Prepaid expenses and other current assets.................................... 855,996 ------------ Total current assets................................................. 30,882,887 DEFERRED OFFERING EXPENSES..................................................... 607,655 EQUIPMENT AND FIXTURES -- Net.................................................. 4,128,866 INTANGIBLE ASSETS -- Net....................................................... 106,480,017 ------------ TOTAL................................................................ $142,099,425 =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable............................................................. $ 499,825 Accrued payroll withholdings................................................. 319,938 Other accrued liabilities.................................................... 1,312,978 Current portion of long-term debt............................................ 338,062 ------------ Total current liabilities............................................ 2,470,803 ------------ OTHER LIABILITIES.............................................................. 134,570 ------------ LONG-TERM DEBT................................................................. 73,762,198 ------------ COMMITMENTS REDEEMABLE CONVERTIBLE PREFERRED STOCK......................................... 40,107,923 STOCKHOLDERS' EQUITY: Common stock: Class A, $1.00 par value, 300,000 shares authorized, 8,718 shares issued and outstanding.......................................................... 8,718 Class B, $1.00 par value, 200,000 shares authorized, 28,482 shares issued and outstanding.......................................................... 28,482 Common stock additional paid-in capital...................................... 34,973,253 Deficit accumulated during the development stage............................. (4,111,387) ------------ 30,899,066 Less notes receivable from stockholder....................................... (5,275,135) ------------ Total stockholders' equity........................................... 25,623,931 ------------ TOTAL................................................................ $142,099,425 ===========
See notes to consolidated financial statements. F-16 131 PCS DEVELOPMENT CORPORATION (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
CUMULATIVE AMOUNTS FROM SEPTEMBER 21, 1994 THREE MONTHS THREE MONTHS (DATE OF ENDED ENDED INCORPORATION) MARCH 31, 1995 MARCH 31, 1996 TO MARCH 31, 1996 -------------- -------------- ------------------ OPERATING EXPENSES: Sales and Marketing............................. $ -- $ 756,041 $1,552,141 Administrative.................................. 317,659 1,236,390 3,553,471 Depreciation.................................... 472 73,217 210,591 Amortization.................................... 4,869 4,869 28,406 -------------- -------------- ------------------ 323,000 2,070,517 5,344,609 -------------- -------------- ------------------ INTEREST INCOME FROM STOCKHOLDER.................. (102,867) (77,308) (625,573) INTEREST INCOME -- OTHER.......................... (29,746) (337,636) (607,649) -------------- -------------- ------------------ NET LOSS................................ $ 190,387 $1,655,573 $4,111,387 =========== =========== ============== PER SHARE DATA: NET LOSS................................ $ 190,387 $1,655,573 ACCRETION OF PREFERRED STOCK DIVIDENDS............................. -- 1,393,348 -------------- -------------- NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS.......................... $ 190,387 $3,048,921 =========== =========== NET LOSS PER COMMON SHARE............... $ 5.12 $ 81.96 =========== ===========
See notes to consolidated financial statements. F-17 132 PCS DEVELOPMENT CORPORATION (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY PERIOD FROM DECEMBER 31, 1995 TO MARCH 31, 1996 (UNAUDITED)
AMOUNTS COMMON STOCK DEFICIT ACCUMULATED RECEIVABLE NOTES RECEIVABLE COMMON STOCK COMMON STOCK ADDITIONAL DURING THE FROM FROM CLASS A CLASS B PAID-IN CAPITAL DEVELOPMENT STAGE STOCKHOLDERS STOCKHOLDER TOTAL ------------ ------------ --------------- ------------------- ------------ ---------------- ----------- BALANCE, December 31, 1995...... $8,718 $ 28,482 $36,366,601 $(2,455,814) $ (14,147) $ (5,275,135) $28,658,705 Collection of amounts receivable from stockholders... -- -- -- -- 14,147 -- 14,147 Preferred stock accretion... -- -- (1,393,348) -- -- -- (1,393,348) Net loss.... -- -- -- (1,655,573) -- -- (1,655,573) ------------ ------------ --------------- ------------------- ------------ ---------------- ----------- BALANCE, March 31, 1996...... $8,718 $ 28,482 $34,973,253 $(4,111,387) $ -- $ (5,275,135) $25,623,931 ============ ============ ============ ================ ============= ============= ============
See notes to consolidated financial statements. F-18 133 PCS DEVELOPMENT CORPORATION (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
CUMULATIVE AMOUNTS FROM THREE MONTHS THREE MONTHS SEPTEMBER 21, 1994 ENDED ENDED (DATE OF INCORPORATION) MARCH 31, 1995 MARCH 31, 1996 TO MARCH 31, 1996 -------------- -------------- ----------------------- OPERATING ACTIVITIES: Net Loss............................................. $ (190,387) $ (1,655,573) $(4,111,387) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization...................... 5,341 78,086 238,997 Changes in assets and liabilities: Increase in accrued interest receivable.......... -- (592) (592) Increase in interest receivable from shareholder................................... (102,747) (77,491) (161,834) Increase in prepaid expenses and other current assets........................................ (5,150) (103,594) (355,404) (Decrease) increase in accounts payable.......... (89,132) 284,244 499,825 Decrease in due to related company............... (139,333) -- (75,763) Increase in accrued payroll withholdings......... -- 94,522 319,938 Increase in other accrued liabilities............ 8,096 409,447 941,326 Increase in other liabilities.................... -- -- 134,570 -------------- -------------- ----------------------- Net cash used in operating activities......... (513,312) (970,951) (2,570,324) INVESTING ACTIVITIES: Purchases of equipment and fixtures.................. (16,194) (1,842,026) (3,333,610) Payments for FCC licenses............................ (9,830,761) (8,430,530) (33,202,249) FCC deposit.......................................... -- -- (500,000) Increase (decrease) in accrued interest payable...... 738,621 (13,601) 5,022 -------------- -------------- ----------------------- Net cash used in investing activities......... (9,108,334) (10,286,157) (37,030,837) FINANCING ACTIVITIES: Proceeds from the issuance of common stock and collection of amounts receivable from stockholders....................................... 9,246,257 14,147 28,000,000 Proceeds from the issuance of preferred stock and collection of subscriptions receivable............. -- 15,602,250 37,918,376 Payments on debt..................................... -- (200,998) (200,998) Proceeds from the issuance of note payable........... -- -- 65,000 Collection of notes receivable from stockholder...... -- -- 3,924,865 Deferred offering expenses, net of accrued expenses........................................... -- (241,025) (241,025) -------------- -------------- ----------------------- Net cash provided by financing activities..... 9,246,257 15,174,374 69,466,218 (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS....... (375,389) 3,917,266 29,865,057 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD......... 763,878 25,947,791 -- -------------- -------------- ----------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD............... $ 388,489 $ 29,865,057 $29,865,057 ============== ============== ===================== SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING INFORMATION: Debt incurred to acquire FCC Licenses................ $ 72,741,121 -- $72,741,121 Debt incurred to acquire SMR Licenses................ -- $ 500,000 $ 500,000 Debt incurred to acquire certain fixed assets........ -- -- $ 995,139 Issuance of notes receivable to stockholder for stock.............................................. $ 3,311,000 -- $ 9,200,000 Preferred stock accretion............................ -- $ 1,393,348 $ 2,189,547
See notes to consolidated financial statements. F-19 134 PCS DEVELOPMENT CORPORATION (A DEVELOPMENT STAGE COMPANY) MARCH 31, 1996 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF INTERIM PRESENTATION The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Company, all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position and the results of operations for the interim period presented herein have been included. These unaudited financial statements should be read in conjunction with the financial statements and the accompanying notes thereto as of and for the period ended December 31, 1995, included elsewhere in this registration statement. 2. SUBSEQUENT EVENTS Purchase of radio spectrum -- The Company has purchased or has contracts or letters of intent to purchase from third parties radio spectrum in five metropolitan areas for an aggregate purchase price of approximately $15.6 million. Additionally, the Company has options or is actively negotiating to acquire options on radio spectrum in four metropolitan areas, the option fees under which are approximately $3.5 million and the total purchase price for which (inclusive of the option fees) would be approximately $11.4 million if the options are exercised. The options are long term options, the shortest of which expires on June 30, 2000 if not earlier exercised. Additional financing -- The Company has amended its registration with the Securities and Exchange Commission for the issuance of its $150 million initial Accreted Value of Senior Discount Notes due 2006 to increase the initial Accreted Value to $165 million (the "Notes") and Warrants to purchase Class B common stock (collectively, the "Units"). The proceeds from the issuance of the Units will be used to fund capital expenditures, general working capital and debt service requirements, operating losses, future acquisitions of spectrum and other general corporate purposes. The indenture governing the Notes will contain covenants that will limit the ability of the Company to incur indebtedness, pay dividends and dispose of assets, among others. The Company has received a commitment from an investment advisory firm to arrange the establishment of senior credit facilities in the amount of $225 million effective upon the closing of the Notes discussed above. The credit facilities consist of a $75 million term loan, a $35 million revolving credit facility and a $115 million reducing revolving credit facility. The Company has approximately $75 million immediately available for borrowing under the credit facilities, and the balance is available upon the achievement and maintenance of certain operating results and financial ratios. The Chase Manhattan Bank has committed to provide the entire $35 million and $115 million revolving loans and Glenayre Electronics Inc. has agreed to provide the entire $75 million term loan. The credit facilities will be used to fund capital expenditures, working capital and debt service requirements, operating losses, future acquisitions of spectrum and other general corporate purposes. Borrowings under the facilities will bear interest, at the option of the Company, at a maximum rate of the agent bank's base rate plus 3% or the agent bank's Eurodollar rate plus 4%. Borrowings under the facilities will initially be available on the closing date of the facility and end on June 30, 2004. The $75 million and $35 million loans will be repayable in two equal installments on March 31, 2000 and June 30, 2000. The $115 million reducing revolving loans will be retired in quarterly installments beginning on March 31, 2001 and ending on June 30, 2004. F-20 135 The availability of the $35 million and the $115 million revolving loans is conditioned upon the satisfaction of certain conditions including expending certain amounts previously received from the issuance of equity by the Company, borrowing the full amount under the $75 million term loan and maintaining certain financial ratios. The credit facilities will contain covenants that will limit the Company's ability to incur additional indebtedness, pay dividends and dispose of assets, among others. The investment advisory firm and the lender under the $35 million revolving loan and the $115 million reducing revolving credit facility are affiliates of two of the Company's preferred stockholders who own 3.6% and 18.0% of the Company's Series A Preferred Stock, respectively. F-21 136 ------------------------------------------------------ ------------------------------------------------------ NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL TO, OR A SOLICITATION OF AN OFFER TO BUY FROM, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. --------------------------- TABLE OF CONTENTS
Page ---- Prospectus Summary.................... 3 Risk Factors.......................... 11 Corporate Reorganization and Structure........................... 19 Use of Proceeds....................... 20 Dividend Policy....................... 20 Capitalization........................ 21 Selected Consolidated Financial Data................................ 22 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 23 Business.............................. 28 Management............................ 45 Certain Transactions.................. 51 Principal Stockholders................ 53 Description of FCC Auction Benefits... 56 Description of Other Indebtedness..... 59 Description of the Units.............. 61 Description of the Notes.............. 62 Description of the Warrants........... 89 Description of Capital Stock.......... 93 Certain Federal Income Tax Considerations...................... 105 Underwriting.......................... 110 Legal Matters......................... 111 Experts............................... 111 Available Information................. 112 Index to Consolidated Financial Statements.......................... F-1
UNTIL , 1996 (90 DAYS AFTER THE DATE OF THE OFFERING), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES OFFERED HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT 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. ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ UNITS LOGO $ OF % SENIOR DISCOUNT NOTES DUE 2006 WITH WARRANTS TO PURCHASE SHARES OF CLASS B COMMON STOCK --------------------------- PROSPECTUS , 1996 --------------------------- LEHMAN BROTHERS DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION CHASE SECURITIES INC. TORONTO DOMINION SECURITIES ------------------------------------------------------ ------------------------------------------------------ 137 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. Set forth below is an estimate of the approximate amount of fees and expenses (other than underwriting discounts and commissions) payable by the Registrant in connection with the issuance and distribution of the securities registered hereby. Securities and Exchange Commission registration fee.............................. $ 56,896 Printing and engraving........................................................... 250,000 Accountants' fees and expenses................................................... 100,000 Blue sky fees and expenses....................................................... 8,000 Counsel fees and expenses........................................................ 500,000 Rating services.................................................................. 100,000 Miscellaneous.................................................................... 485,103 ---------- Total.................................................................. $1,500,000 =========
- --------------- *Estimate ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS Under Section 145 of the Delaware General Corporation Law (the "Delaware Law"), a corporation may indemnify its directors, officers, employees and agents and its former directors, officers, employees and agents and those who serve, at the corporation's request, in such capacity with another enterprise, against expenses (including attorneys' fees), as well as judgments, fines and settlements in nonderivative lawsuits, actually and reasonably incurred in connection with the defense of any action, suit or proceeding in which they or any of them were or are made parties or are threatened to be made parties by reason of their serving or having served in such capacity. The Delaware Law provides, however, that such person must have 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, in the case of a criminal action, such person must have had no reasonable cause to believe his or her conduct was unlawful. In addition, the Delaware Law does not permit indemnification in an action or suit by or in the right of the corporation, where such person has been adjudged liable to the corporation, unless, and only to the extent that, a court determines that such person fairly and reasonably is entitled to indemnity for costs the court deems proper in light of liability adjudication. Indemnity is mandatory to the extent a claim, issue or matter has been successfully defended. The Company's Restated Certificate of Incorporation and Restated By-laws, as amended, provide for mandatory indemnification of directors and officers on generally the same terms as permitted by the Delaware Law. Under the Restated Certificate of Incorporation, the Company is required to advance expenses incurred by an officer or director in defending any such action if the director or officer undertakes to repay such amount if it is determined that the director or officer is not entitled to indemnification. The Underwriting Agreement provides for indemnification by the Underwriters of the directors, officers and controlling persons of the Company against certain liabilities, including liabilities under the Securities Act, under certain circumstances. II-1 138 ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. In October, 1994 the Company sold 8,718 shares of Class A Common Stock and 28,482 shares of Class B Common Stock to its 26 founding stockholders for $1,000 per share. The purchasers were officers and directors of the Company, the Paging Company Investors, members of the law firm that is the Company's special FCC counsel, venture capital funds and certain accredited investors. A portion of the consideration for this Common Stock remains payable by the subscribers upon a board-approved schedule. The Company simultaneously issued warrants to Austin Ventures and Marquette Ventures to purchase 692 and 621 shares of Class B Common Stock, respectively. These issuances of Common Stock and warrants were exempt from the registration requirements of the Securities Act pursuant to Section 4(2) of the Securities Act. From October 31, 1994 until the date hereof, the Company has issued to officers and employees options to purchase an aggregate of 7,452 shares of Class B Common Stock. These issuances were exempt from the registration requirements of the Securities Act pursuant to Section 4(2) and Rule 701 of the Securities Act. On November 10, 1995 the Company sold 24,667 shares of its Series A Preferred Stock to 70 accredited investors for $2,250 per share. A portion of the subscription price for these shares remains payable by the subscribers upon a board-approved schedule. This issuance was exempt from the registration requirements of the Securities Act pursuant to Section 4(2) and Regulation D of the Securities Act. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (A) EXHIBITS 1.1 Form of Underwriting Agreement by and among PCS Development Corporation and Lehman Brothers Inc., Donaldson, Lufkin & Jenrette Securities Corporation, Chase Securities Inc. and Toronto Dominion Securities (USA) Inc. as Underwriters. 2.1 Subscription Agreement between PCS Development Corporation and PCSD Financial Corporation.* 2.2 Subscription Agreement among PCSD Financial Corporation, PCSD Spectrum, Inc. and PCSD Network, Inc.* 2.3 Application for Assignment of Authorization or Consent to Transfer of Control of Licensee filed by Registrant with the FCC and FCC Consent to Assignment of Commercial Radio Station Construction Permit or License with respect to the KNKV213 License.+ 2.4 Application for Assignment of Authorization or Consent to Transfer of Control of Licensee filed by Registrant with the FCC and FCC Consent to Assignment of Commercial Radio Station Construction Permit or License with respect to the KNKV219 License.+ 2.5 Application for Assignment of Authorization or Consent to Transfer of Control of Licensee filed by Registrant with the FCC and FCC Consent to Assignment of Commercial Radio Station Construction Permit or License with respect to the KNKV225 License.+ 2.6 Application for Assignment of Authorization or Consent to Transfer of Control of Licensee filed by Registrant with the FCC and FCC Consent to Assignment of Commercial Radio Station Construction Permit or License with respect to the KNKV231 License.+ 2.7 Application for Assignment of Authorization or Consent to Transfer of Control of Licensee filed by Registrant with the FCC and FCC Consent to Assignment of Commercial Radio Station Construction Permit or License with respect to the KNKV237 License.+ 3.1 Restated Certificate of Incorporation of PCS Development Corporation dated November 14, 1994.+ 3.2 Certificate of Amendment of Restated Certificate of Incorporation of PCS Development Corporation dated October 30, 1995.+ 3.3 Certificate of Designations of Series A Preferred Stock and Series B Preferred Stock of PCS Development Corporation dated November 9, 1995.+
II-2 139 3.4 Certificate of Correction of PCS Development Corporation dated January 29, 1996.+ 3.5 Amended and Restated Bylaws of PCS Development Corporation.+ 4.1 Form of Indenture (including form of Note) between PCS Development Corporation and United States Trust Company of New York, as Trustee, relating to the Senior Discount Notes due 2006 of PCS Development Corporation. 4.2 PCS Development Corporation Stockholders Agreement dated November 14, 1994, by and among the Registrant and each of the Stockholders.+ 4.3 PCS Development Corporation Stockholders Agreement First Amendment dated March 1, 1995, by and among the Registrant and each of the Common Stockholders.+ 4.4 Second Amendment to PCS Development Corporation Stockholders Agreement dated June 14, 1995, by and among the Registrant and each holder of Common Stock.+ 4.5 Third Amendment to PCS Development Corporation Stockholders Agreement dated October 30, 1995, by and among the Registrant and each holder of Common Stock.+ 4.6 Fourth Amendment to PCS Development Corporation Stockholders Agreement dated November 9, 1995, by and among the Registrant and each holder of Common Stock.+ 4.7 Fifth Amendment to PCS Development Corporation Stockholders Agreement dated December 5, 1995, by and among the Registrant and each of the Common Stockholders and each Purchaser of Series A Preferred Stock.+ 4.8 Preferred Stockholders Agreement of PCS Development Corporation dated November 10, 1995, by and among the Registrant and each Purchaser of Series A Preferred Stock.+ 4.9 PCS Development Corporation Subscription Agreement dated October 1, 1994, by and among the Registrant and certain holders of the Common Stock.+ 4.10 Form of Unit Agreement between PCS Development Corporation and United States Trust Company, as Unit Agent, Trustee and Warrant Agent. 4.11 Form of Warrant Agreement between PCS Development Corporation and United States Trust Company, as Warrant Agent. 4.12 Form of Class B Common Stock and Warrant Registration Rights Agreement among PCS Development Corporation and Lehman Brothers Inc., on behalf of itself and Donaldson, Lufkin & Jenrette Securities Corporation, Chase Securities Inc. and Toronto Dominion Securities (USA) Inc., as Underwriters. 5.1 Opinion of Nelson Mullins Riley & Scarborough, L.L.P., counsel to the Registrant, as to the legality of the Securities being registered.* 5.2 Opinion of Lukas McGowan Nace & Gutierrez, Chartered, special FCC counsel to the Registrant ("Lukas McGowan"), as to the dilution of the control group in connection with the sale of Series A Preferred Stock. 5.3 Opinion of Lukas McGowan regarding the Adarand decision. 5.4 Form of Opinion of Lukas McGowan as to certain communications related legal matters, including the dilution of the control group in connection with the sale of the Units. 8.1 Form of Opinion of Nelson Mullins Riley & Scarborough, L.L.P., with respect to certain tax matters. 10.1 PCS Development Corporation Class B Common Stock Warrant Agreement dated October 31, 1994, among the Registrant and Austin Ventures III-A, L.P., Austin Ventures III-B, L.P., Austin Ventures IV-A, L.P., and Austin Ventures IV-B, L.P.+ 10.2 First Amendment to PCS Development Corporation Class B Common Stock Warrant Agreement dated October 31, 1994, between the Registrant and Austin Ventures III-A, L.P., Austin Ventures III-B, L.P., Austin Ventures IV-A, L.P., and Austin Ventures IV-B, L.P.+
II-3 140 10.3 PCS Development Corporation Class B Common Stock Warrant Agreement dated October 31, 1994, between the Registrant and Marquette Venture Partners II, L.P. and MVP II Affiliates Fund, L.P.+ 10.4 First Amendment to PCS Development Corporation Class B Common Stock Warrant Agreement dated October 31, 1994, between the Registrant and Marquette Venture Partners II, L.P. and MVP II Affiliates Fund, L.P.+ 10.5 Employment Agreement dated October 31, 1994, between the Registrant and William D. deKay.+ 10.6 First Amendment to Employment Agreement dated July, 1995, between the Registrant and William D. deKay.+ 10.7 PCS Development Corporation Class B Common Stock Option Agreement dated October 31, 1994, between the Registrant and William D. deKay.+ 10.8 First Amendment to PCS Development Corporation Class B Common Stock Option Agreement dated October 31, 1994, between the Registrant and William D. deKay.+ 10.9 Employment Agreement dated October 31, 1994, between the Registrant and Cecil L. Duffie, Jr.+ 10.10 First Amendment to Employment Agreement dated July 25, 1995, between the Registrant and Cecil L. Duffie, Jr.+ 10.11 PCS Development Corporation Class B Common Stock Option Agreement dated October 31, 1994, between the Registrant and Cecil L. Duffie, Jr.+ 10.12 First Amendment to PCS Development Corporation Class B Common Stock Option Agreement dated October 31, 1994, between the Registrant and Cecil L. Duffie, Jr.+ 10.13 Employment Agreement dated March 31, 1995, between the Registrant and Harry L. Latham III.+ 10.14 First Amendment to Employment Agreement dated July 25, 1995, between the Registrant and Harry L. Latham III.+ 10.15 PCS Development Corporation Class B Common Stock Option Agreement dated March 31, 1995, between the Registrant and Harry L. Latham III.+ 10.16 First Amendment to PCS Development Corporation Class B Common Stock Option Agreement dated March 31, 1995, between the Registrant and Harry L. Latham III.+ 10.17 Second Amendment to PCS Development Corporation Class B Common Stock Option Agreement dated January 1, 1996, between the Registrant and Harry L. Latham III.+ 10.18 Employment Agreement dated January 13, 1995, between the Registrant and Jerry Leonard.+ 10.19 First Amendment to Employment Agreement dated January 13, 1995, between the Registrant and Jerry Leonard.+ 10.20 PCS Development Corporation Class B Common Stock Option Agreement dated January 13, 1995, between the Registrant and Jerry Leonard.+ 10.21 First Amendment to PCS Development Corporation Class B Common Stock Option Agreement dated January 13, 1995, between the Registrant and Jerry Leonard.+ 10.22 Preferred Stockholders Registration Rights Agreement of PCS Development Corporation dated November 10, 1995, by and among the Registrant and each Purchaser of Series A Preferred Stock.+ 10.23 Convertible Preferred Stock Purchase Agreement dated November 10, 1995, by and among the Registrant and certain Purchasers named therein.+ 10.24 First Amendment to Convertible Preferred Stock Purchase Agreement dated December 5, 1995, by and among the Registrant and each of the Purchasers of the Convertible Preferred Stock.+ 10.25 PCS Development Corporation Stockholders Agreement (included in Exhibit 4.2). 10.26 PCS Development Corporation Stockholders Agreement First Amendment (included in Exhibit 4.3).
II-4 141 10.27 Second Amendment to PCS Development Corporation Stockholders Agreement (included in Exhibit 4.4). 10.28 Third Amendment to PCS Development Corporation Stockholders Agreement (included in Exhibit 4.5). 10.29 Fourth Amendment to PCS Development Corporation Stockholders Agreement (included in Exhibit 4.6). 10.30 Fifth Amendment to PCS Development Corporation Stockholders Agreement (included in Exhibit 4.7). 10.31 PCS Development Corporation Registration Rights Agreement dated November 14, 1994, by and among the Registrant and each holder of Common Stock.+ 10.32 First Amendment to PCS Development Corporation Registration Rights Agreement dated October 30, 1995, by and among the Registrant and each holder of Common Stock.+ 10.33 Second Amendment to PCS Development Corporation Registration Rights Agreement dated November 9, 1995, by and among the Registrant and each holder of Common Stock.+ 10.34 Preferred Stockholders Agreement (included in Exhibit 4.3). 10.35 Office Lease Agreement by and between 15 S. Main, Inc. and PCS Development Corporation dated April 17, 1995, for the premises located at 15 S. Main St., Suite 810, Greenville, S.C. 29601+. 10.36 PCS Development Corporation Subscription Agreement (included in Exhibit 4.9). 10.37 Commitment Letter dated June 25, 1996 for $225 million Equipment Financing Credit Facility from The Chase Manhattan Bank, N.A. as Administrative Agent, Chase Securities Inc. as Arranger, and Glenayre Electronics Inc. to PCSD Financial Corp. 10.38 FCC Radio Station Authorization granted to PCS Development Corporation on February 3, 1995, for call sign KNKV213, File No. 00013-CN-L-95.+ 10.39 FCC Radio Station Authorization granted to PCS Development Corporation on February 3, 1995, for call sign KNKV219, File No. 00019-CN-L-95.+ 10.40 FCC Radio Station Authorization granted to PCS Development Corporation on February 3, 1995, for call sign KNKV225, File No. 00025-CN-L-95.+ 10.41 FCC Radio Station Authorization granted to PCS Development Corporation on February 3, 1995, for call sign KNKV231, File No. 00031-CN-L-95.+ 10.42 FCC Radio Station Authorization granted to PCS Development Corporation on February 3, 1995, for call sign KNKV237, File No. 00037-CN-L-95.+ 10.43 Loan Agreement dated October 4, 1994, between the Registrant and Sloan Communications, Inc.+ 10.44 Promissory Note dated September 30, 1994, executed and delivered by Sloan Communications, Inc. in favor of the Registrant.+ 10.45 Promissory Note dated January 19, 1995, executed and delivered by Sloan Communications, Inc. in favor of the Registrant.+ 10.46 Promissory Note dated April 20, 1995, executed and delivered by Sloan Communications, Inc. in favor of the Registrant.+ 10.47 Promissory Note dated June 23, 1995, executed and delivered by Sloan Communications, Inc. in favor of the Registrant.+ 12.1 Statement regarding Computation of Ratio of Earnings to Fixed Charges.+ 21.1 Subsidiary of PCS Development Corporation.+ 23.1 Consent of Deloitte & Touche LLP.** 23.2 Consent of Nelson Mullins Riley & Scarborough, L.L.P. (included in the legal opinions filed as Exhibits 5.1 and 8.1 hereto).*
II-5 142 23.3 Consent of Lukas McGowan. 24.1 Powers of Attorney (included on the signature page to the Registration Statement). 25.1 Statement of Eligibility of Trustee on Form T-1 (separately bound).* 27 Financial Data Schedule.+ 99.1 Ruling from the FCC's Commercial Wireless Division dated 10/25/95 as to the dilution of the control group to an amount less than 25% of the total equity.+
- --------------- * To be filed by amendment. ** Revised from Exhibit filed on May 24, 1996. + Previously filed. (B) FINANCIAL STATEMENT SCHEDULES. All information required by the financial statement schedules is included in the notes to the financial statements. ITEM 17. UNDERTAKINGS. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to 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 person 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 Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that, (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-6 143 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Greenville, State of South Carolina, on July 16, 1996. PCS Development Corporation By: /s/ CECIL L. DUFFIE, JR. ------------------------------------ Cecil L. Duffie, Jr. Vice Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment to Registration Statement has been signed by the following persons in the capacities and on this 16th day of July, 1996.
SIGNATURES TITLE - --------------------------------------------- ---------------------------------------------- * Chairman of the Board - --------------------------------------------- Maceo K. Sloan /s/ CECIL L. DUFFIE, Vice Chairman of the Board and Chief Executive JR. Officer (principal executive officer) - --------------------------------------------- Cecil L. Duffie, Jr. * President and Director - --------------------------------------------- William D. deKay * Senior Vice President of Sales and Marketing - --------------------------------------------- Harry L. Latham, III * Senior Vice President for Engineering and - --------------------------------------------- Network Operations Director Jerome C. Leonard * Senior Vice President of Finance, Treasurer & - --------------------------------------------- Chief Financial Officer (principal financial Mark A. Moore and accounting officer) * Director - --------------------------------------------- C.E. Baker, Jr. * Director - --------------------------------------------- Justin F. Beckett * Director - --------------------------------------------- R. Schorr Berman * Director - --------------------------------------------- James E. Daverman * Director - --------------------------------------------- Richard D. Frisbie
II-7 144
SIGNATURES TITLE - --------------------------------------------- ---------------------------------------------- * Director - --------------------------------------------- Jeffery C. Garvey * Director - --------------------------------------------- James D. Kallman * Director - --------------------------------------------- Steven J. Lerner * Director - --------------------------------------------- Malcolmn Pryor * Director - --------------------------------------------- Stan F. Sech * Director - --------------------------------------------- Pamela R. Simmons * Director - --------------------------------------------- Elliott H. Singer *By: /s/ CECIL L. DUFFIE, JR. - --------------------------------------------- Cecil L. Duffie, Jr. Attorney-in-fact
II-8 145 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS - ------ ----------------------------------------------------------------------------------- 1.1 Form of Underwriting Agreement by and among PCS Development Corporation and Lehman Brothers Inc., Donaldson, Lufkin & Jenrette Securities Corporation, Chase Securities Inc. and Toronto Dominion Securities (USA) Inc. as Underwriters. 2.1 Subscription Agreement between PCS Development Corporation and PCSD Financial Corporation.* 2.2 Subscription Agreement among PCSD Financial Corporation, PCSD Spectrum, Inc. and PCSD Network, Inc.* 2.3 Application for Assignment of Authorization or Consent to Transfer of Control of Licensee filed by Registrant with the FCC and FCC Consent to Assignment of Commercial Radio Station Construction Permit or License with respect to the KNKV213 License.+ 2.4 Application for Assignment of Authorization or Consent to Transfer of Control of Licensee filed by Registrant with the FCC and FCC Consent to Assignment of Commercial Radio Station Construction Permit or License with respect to the KNKV219 License.+ 2.5 Application for Assignment of Authorization or Consent to Transfer of Control of Licensee filed by Registrant with the FCC and FCC Consent to Assignment of Commercial Radio Station Construction Permit or License with respect to the KNKV225 License.+ 2.6 Application for Assignment of Authorization or Consent to Transfer of Control of Licensee filed by Registrant with the FCC and FCC Consent to Assignment of Commercial Radio Station Construction Permit or License with respect to the KNKV231 License.+ 2.7 Application for Assignment of Authorization or Consent to Transfer of Control of Licensee filed by Registrant with the FCC and FCC Consent to Assignment of Commercial Radio Station Construction Permit or License with respect to the KNKV237 License.+ 3.1 Restated Certificate of Incorporation of PCS Development Corporation dated November 14, 1994.+ 3.2 Certificate of Amendment of Restated Certificate of Incorporation of PCS Development Corporation dated October 30, 1995.+ 3.3 Certificate of Designations of Series A Preferred Stock and Series B Preferred Stock of PCS Development Corporation dated November 9, 1995.+ 3.4 Certificate of Correction of PCS Development Corporation dated January 29, 1996.+ 3.5 Amended and Restated Bylaws of PCS Development Corporation.+ 4.1 Form of Indenture (including form of Note) between PCS Development Corporation and United States Trust Company of New York, as Trustee, relating to the Senior Discount Notes due 2006 of PCS Development Corporation. 4.2 PCS Development Corporation Stockholders Agreement dated November 14, 1994, by and among the Registrant and each of the Stockholders.+ 4.3 PCS Development Corporation Stockholders Agreement First Amendment dated March 1, 1995, by and among the Registrant and each of the Common Stockholders.+ 4.4 Second Amendment to PCS Development Corporation Stockholders Agreement dated June 14, 1995, by and among the Registrant and each holder of Common Stock.+ 4.5 Third Amendment to PCS Development Corporation Stockholders Agreement dated October 30, 1995, by and among the Registrant and each holder of Common Stock.+ 4.6 Fourth Amendment to PCS Development Corporation Stockholders Agreement dated November 9, 1995, by and among the Registrant and each holder of Common Stock.+ 4.7 Fifth Amendment to PCS Development Corporation Stockholders Agreement dated December 5, 1995, by and among the Registrant and each of the Common Stockholders and each Purchaser of Series A Preferred Stock.+ 4.8 Preferred Stockholders Agreement of PCS Development Corporation dated November 10, 1995, by and among the Registrant and each Purchaser of Series A Preferred Stock.+
146
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS - ------ ----------------------------------------------------------------------------------- 4.9 PCS Development Corporation Subscription Agreement dated October 1, 1994, by and among the Registrant and certain holders of the Common Stock.+ 4.10 Form of Unit Agreement between PCS Development Corporation and United States Trust Company, as Unit Agent, Trustee and Warrant Agent. 4.11 Form of Warrant Agreement between PCS Development Corporation and United States Trust Company, as Warrant Agent. 4.12 Form of Class B Common Stock and Warrant Registration Rights Agreement among PCS Development Corporation and Lehman Brothers Inc., on behalf of itself and Donaldson, Lufkin & Jenrette Securities Corporation, Chase Securities Inc. and Toronto Dominion Securities (USA) Inc., as Underwriters. 5.1 Opinion of Nelson Mullins Riley & Scarborough, L.L.P., counsel to the Registrant, as to the legality of the Securities being registered.* 5.2 Opinion of Lukas McGowan Nace & Gutierrez, Chartered, special FCC counsel to the Registrant ("Lukas McGowan"), as to the dilution of the control group in connection with the sale of Series A Preferred Stock. 5.3 Opinion of Lukas McGowan regarding the Adarand decision. 5.4 Form of Opinion of Lukas McGowan as to certain communications related legal matters, including the dilution of the control group in connection with the sale of the Units. 8.1 Form of Opinion of Nelson Mullins Riley & Scarborough, L.L.P., with respect to certain tax matters. 10.1 PCS Development Corporation Class B Common Stock Warrant Agreement dated October 31, 1994, among the Registrant and Austin Ventures III-A, L.P., Austin Ventures III-B, L.P., Austin Ventures IV-A, L.P., and Austin Ventures IV-B, L.P.+ 10.2 First Amendment to PCS Development Corporation Class B Common Stock Warrant Agreement dated October 31, 1994, between the Registrant and Austin Ventures III-A, L.P., Austin Ventures III-B, L.P., Austin Ventures IV-A, L.P., and Austin Ventures IV-B, L.P.+ 10.3 PCS Development Corporation Class B Common Stock Warrant Agreement dated October 31, 1994, between the Registrant and Marquette Venture Partners II, L.P. and MVP II Affiliates Fund, L.P.+ 10.4 First Amendment to PCS Development Corporation Class B Common Stock Warrant Agreement dated October 31, 1994, between the Registrant and Marquette Venture Partners II, L.P. and MVP II Affiliates Fund, L.P.+ 10.5 Employment Agreement dated October 31, 1994, between the Registrant and William D. deKay.+ 10.6 First Amendment to Employment Agreement dated July, 1995, between the Registrant and William D. deKay.+ 10.7 PCS Development Corporation Class B Common Stock Option Agreement dated October 31, 1994, between the Registrant and William D. deKay.+ 10.8 First Amendment to PCS Development Corporation Class B Common Stock Option Agreement dated October 31, 1994, between the Registrant and William D. deKay.+ 10.9 Employment Agreement dated October 31, 1994, between the Registrant and Cecil L. Duffie, Jr.+ 10.10 First Amendment to Employment Agreement dated July 25, 1995, between the Registrant and Cecil L. Duffie, Jr.+ 10.11 PCS Development Corporation Class B Common Stock Option Agreement dated October 31, 1994, between the Registrant and Cecil L. Duffie, Jr.+ 10.12 First Amendment to PCS Development Corporation Class B Common Stock Option Agreement dated October 31, 1994, between the Registrant and Cecil L. Duffie, Jr.+ 10.13 Employment Agreement dated March 31, 1995, between the Registrant and Harry L. Latham III.+
147
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS - ------ ----------------------------------------------------------------------------------- 10.14 First Amendment to Employment Agreement dated July 25, 1995, between the Registrant and Harry L. Latham III.+ 10.15 PCS Development Corporation Class B Common Stock Option Agreement dated March 31, 1995, between the Registrant and Harry L. Latham III.+ 10.16 First Amendment to PCS Development Corporation Class B Common Stock Option Agreement dated March 31, 1995, between the Registrant and Harry L. Latham III.+ 10.17 Second Amendment to PCS Development Corporation Class B Common Stock Option Agreement dated January 1, 1996, between the Registrant and Harry L. Latham III.+ 10.18 Employment Agreement dated January 13, 1995, between the Registrant and Jerry Leonard.+ 10.19 First Amendment to Employment Agreement dated January 13, 1995, between the Registrant and Jerry Leonard.+ 10.20 PCS Development Corporation Class B Common Stock Option Agreement dated January 13, 1995, between the Registrant and Jerry Leonard.+ 10.21 First Amendment to PCS Development Corporation Class B Common Stock Option Agreement dated January 13, 1995, between the Registrant and Jerry Leonard.+ 10.22 Preferred Stockholders Registration Rights Agreement of PCS Development Corporation dated November 10, 1995, by and among the Registrant and each Purchaser of Series A Preferred Stock.+ 10.23 Convertible Preferred Stock Purchase Agreement dated November 10, 1995, by and among the Registrant and certain Purchasers named therein.+ 10.24 First Amendment to Convertible Preferred Stock Purchase Agreement dated December 5, 1995, by and among the Registrant and each of the Purchasers of the Convertible Preferred Stock.+ 10.25 PCS Development Corporation Stockholders Agreement (included in Exhibit 4.2). 10.26 PCS Development Corporation Stockholders Agreement First Amendment (included in Exhibit 4.3). 10.27 Second Amendment to PCS Development Corporation Stockholders Agreement (included in Exhibit 4.4). 10.28 Third Amendment to PCS Development Corporation Stockholders Agreement (included in Exhibit 4.5). 10.29 Fourth Amendment to PCS Development Corporation Stockholders Agreement (included in Exhibit 4.6). 10.30 Fifth Amendment to PCS Development Corporation Stockholders Agreement (included in Exhibit 4.7). 10.31 PCS Development Corporation Registration Rights Agreement dated November 14, 1994, by and among the Registrant and each holder of Common Stock.+ 10.32 First Amendment to PCS Development Corporation Registration Rights Agreement dated October 30, 1995, by and among the Registrant and each holder of Common Stock.+ 10.33 Second Amendment to PCS Development Corporation Registration Rights Agreement dated November 9, 1995, by and among the Registrant and each holder of Common Stock.+ 10.34 Preferred Stockholders Agreement (included in Exhibit 4.3). 10.35 Office Lease Agreement by and between 15 S. Main, Inc. and PCS Development Corporation dated April 17, 1995, for the premises located at 15 S. Main St., Suite 810, Greenville, S.C. 29601+. 10.36 PCS Development Corporation Subscription Agreement (included in Exhibit 4.9). 10.37 Commitment Letter dated June 25, 1996 for $225 million Equipment Financing Credit Facility from The Chase Manhattan Bank, N.A. as Administrative Agent, Chase Securities Inc. as Arranger, and Glenayre Electronics Inc. to PCSD Financial Corp. 10.38 FCC Radio Station Authorization granted to PCS Development Corporation on February 3, 1995, for call sign KNKV213, File No. 00013-CN-L-95.+
148
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS - ------ ----------------------------------------------------------------------------------- 10.39 FCC Radio Station Authorization granted to PCS Development Corporation on February 3, 1995, for call sign KNKV219, File No. 00019-CN-L-95.+ 10.40 FCC Radio Station Authorization granted to PCS Development Corporation on February 3, 1995, for call sign KNKV225, File No. 00025-CN-L-95.+ 10.41 FCC Radio Station Authorization granted to PCS Development Corporation on February 3, 1995, for call sign KNKV231, File No. 00031-CN-L-95.+ 10.42 FCC Radio Station Authorization granted to PCS Development Corporation on February 3, 1995, for call sign KNKV237, File No. 00037-CN-L-95.+ 10.43 Loan Agreement dated October 4, 1994, between the Registrant and Sloan Communications, Inc.+ 10.44 Promissory Note dated September 30, 1994, executed and delivered by Sloan Communications, Inc. in favor of the Registrant.+ 10.45 Promissory Note dated January 19, 1995, executed and delivered by Sloan Communications, Inc. in favor of the Registrant.+ 10.46 Promissory Note dated April 20, 1995, executed and delivered by Sloan Communications, Inc. in favor of the Registrant.+ 10.47 Promissory Note dated June 23, 1995, executed and delivered by Sloan Communications, Inc. in favor of the Registrant.+ 12.1 Statement regarding Computation of Ratio of Earnings to Fixed Charges.+ 21.1 Subsidiary of PCS Development Corporation.+ 23.1 Consent of Deloitte & Touche LLP.** 23.2 Consent of Nelson Mullins Riley & Scarborough, L.L.P. (included in the legal opinions filed as Exhibits 5.1 and 8.1 hereto).* 23.3 Consent of Lukas McGowan. 24.1 Powers of Attorney (included on the signature page to the Registration Statement). 25.1 Statement of Eligibility of Trustee on Form T-1 (separately bound).* 27 Financial Data Schedule.+ 99.1 Ruling from the FCC's Commercial Wireless Division dated 10/25/95 as to the dilution of the control group to an amount less than 25% of the total equity.+
- --------------- * To be filed by amendment. ** Revised from Exhibit filed on May 24, 1996. + Previously filed. EX-1.1 2 UNDERWRITING AGREEMENT 1 EXHIBIT 1.1 PCS DEVELOPMENT CORPORATION _______ UNITS CONSISTING OF $_______ ___% SENIOR DISCOUNT NOTES DUE 2006 AND WARRANTS TO PURCHASE _______ SHARES OF CLASS B COMMON STOCK UNDERWRITING AGREEMENT July __, 1996 LEHMAN BROTHERS INC. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION CHASE SECURITIES INC. TORONTO DOMINION SECURITIES (USA) INC., As Representatives of the several Underwriters named in Schedule 1, c/o Lehman Brothers Inc. 3 World Financial Center New York, New York 10285 Dear Sirs: PCS Development Corporation, a Delaware corporation (the "Company"), proposes to issue and sell ________ Units consisting of $________ aggregate principal amount of ___% Senior Discount Notes due 2006 (the "Notes") and Warrants (the "Warrants") to purchase ________ shares (the "Warrant Shares") of Class B Common Stock, par value $1.00, of the Company (the "Class B Common Stock," and together with the Class A Common Stock, the "Common Stock") (the Units, Notes and Warrants are referred to collectively as the "Securities"). The Units are to be issued pursuant to a Unit Agreement, dated as of _________, 1996 (the "Unit Agreement"), to be entered into between the Company and United States Trust Company of New York, as unit agent (the "Unit Agent"), the form of which has been filed as an exhibit to the Registration Statement (as defined below). The Notes are to be issued pursuant to an Indenture dated as of ________, 1996 (the "Indenture") to be entered into between the Company and United States Trust Company of New York, as trustee (the "Trustee"), the form of which has been filed as an exhibit to the Registration Statement. The Warrants are to be issued pursuant to a Warrant Agreement (the "Warrant Agreement"), dated as of ________, 1996, to be entered into between the Company and United States Trust Company of New York, as warrant agent (the "Warrant Agent"), the form of which has been filed as an exhibit to the Registration Statement and the holders thereof will be entitled to the benefits of the Class B Common Stock and Warrant Registration Rights Agreement (the "Registration Rights Agreement"), dated as of _______, 1996, to be entered into between the Company and the Underwriters. This is to confirm the agreement concerning the purchase of the Securities from the Company by the Underwriters named in Schedule I hereto (the "Underwriters"). 1. Representations, Warranties and Agreements of the Company. The Company represents, warrants and agrees that: (a) A registration statement on Form S-1 (Registration No. 333-2162), and one or more amendments thereto, with respect to the Securities have (i) been prepared by the Company in conformity in all material respects with the requirements of the Securities Act of 1933 (the "Securities Act") and the rules and regulations (the "Rule and Regulations") of the Securities and Exchange Commission (the "Commission") thereunder in effect as of the applicable filing date as to such registration statement or amendment and (ii) been filed with the Commission under the Securities Act; no other document with respect to such registration statement has heretofore been filed with the Commission; and an amendment to such registration statement, including a final prospectus as part thereof, is now proposed to be filed with the Commission. Copies of such registration statement, the amendments thereto and the form of such final prospectus have been delivered by the Company to you as the representatives (the "Representatives") of the Underwriters. 2 2 As used in this Agreement, "Effective Time" means the date and the time as of which such registration statement is declared effective by the Commission; "Effective Date" means the date of the Effective Time; "Preliminary Prospectus" means each prospectus included in such registration statement, or amendments thereof, before it becomes effective under the Securities Act and any prospectus filed with the Commission by the Company with the consent of the Representatives pursuant to Rule 424(a) of the Rules and Regulations; "Registration Statement" means such registration statement as amended at the Effective Time; and "Prospectus" means such final prospectus, with any changes thereto made by the Company with the consent of the Representatives. (b) The Registration Statement and the Prospectus and any further amendments or supplements thereto will, when they become effective or are filed with the Commission, as the case may be, conform in all material respects to the requirements of the Securities Act and the Rules and Regulations as in effect as of the Effective Time and do not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein (in case of the Prospectus, in the light of the circumstances under which they were made) not misleading; provided that no representation or warranty is made as to information contained in or omitted from the Registration Statement or the Prospectus in reliance upon and in conformity with written information furnished to the Company through the Representatives by or on behalf of any Underwriter specifically for inclusion therein; and the Indenture conforms in all material respects to the requirements of the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), and the applicable rules and regulations thereunder. (c) The Company and each of its subsidiaries (as defined in Section 15) have been duly incorporated and are validly existing as corporations in good standing under the laws of their respective jurisdictions of incorporation, are duly qualified to do business and are in good standing as foreign corporations in each jurisdiction in which their respective ownership or lease of property or the conduct of their respective businesses requires such qualification, and have all power and authority necessary to own or hold their respective properties and to conduct the businesses in which they are engaged as described in the Registration Statement and the Prospectus, except where the failure to be so qualified, or failure to have such power and authority, does not have a material adverse effect on the condition of the business, properties, financial position or results of operations of the Company and its subsidiaries taken as a whole. (d) The Company has an authorized capitalization as set forth in the Prospectus, and all of the issued shares of capital stock of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and conform to the description thereof contained in the Prospectus; and all of the issued shares of capital stock of each subsidiary of the Company have been duly and validly authorized and issued and are fully paid, non-assessable and (except for directors' qualifying shares and liens described in the Prospectus) are owned directly or indirectly by the Company, free and clear of all perfected liens, encumbrances, equities or claims. (e) All of the Warrant Shares issuable upon exercise of the Warrants have been duly and validly authorized and reserved for issuance upon such exercise and, when issued and delivered upon exercise of the Warrants in accordance with the terms of the Warrant Agreement, will be duly and validly issued, fully paid and non-assessable and free of any preemptive or similar rights and will be entitled to the benefits of the Warrant Agreement; and the Securities and Warrant Shares issuable upon exercise of the Warrants will conform to the description of the Units, Notes, Warrants and Class B Common Stock contained in the Prospectus. The Company has a sufficient number of authorized but unissued shares of Class B Common Stock to enable the Company to issue, without further stockholder action, the Warrant Shares. (f) The execution, delivery and performance of this Agreement, the Unit Agreement, the Indenture, the Warrant Agreement, the Registration Rights Agreement and the Securities by the 3 3 Company and the consummation of the transactions contemplated hereby and thereby, and the issuance and delivery of the Warrant Shares issuable upon exercise of the Warrants, will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, nor will such actions result in any violation of the provisions of the charter or by-laws of the Company or any of its subsidiaries or any statute or any order, rule or regulation of any court or governmental agency or body (including, without limitation, the Communications Act of 1934, as amended, and the rules and regulations of the FCC thereunder (collectively, the "Communications Act") and any order or decision of the Federal Communications Commission (the "FCC") having jurisdiction over the Company or any of its subsidiaries or any of their properties or assets, except where such breach, default or violation would not have a material adverse effect on the business, prospects, net worth or results of operations of the Company and its subsidiaries, taken as a whole; and except for the registration of the Securities and the Warrant Shares issuable upon exercise of the Warrants under the Securities Act, the qualification of the Indenture under the Trust Indenture Act and such consents, approvals, authorizations, registrations or qualifications as may be required under the Exchange Act and applicable state securities laws in connection with the purchase and distribution of the Securities by the Underwriters, no consent, approval, authorization or order of, or filing or registration with, any such court or governmental agency or body (including, without limitation, the FCC) or any other person is required for the execution, delivery and performance of this Agreement, the Unit Agreement, the Indenture, the Warrant Agreement, the Registration Rights Agreement or the Securities by the Company and the consummation of the transactions contemplated hereby and thereby, and the issuance of the Warrant Shares upon exercise of the Warrants. (g) The Unit Agreement, the Indenture, the Warrant Agreement and the Registration Rights Agreement have been duly authorized, and when duly executed by the proper officers of the Company (assuming due execution and delivery by the Unit Agent, Trustee and Warrant Agent) and delivered by the Company, will constitute valid and binding agreements of the Company enforceable against the Company in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law) or by an implied covenant of good faith and fair dealing; and the Units, Notes and Warrants have been duly authorized, and when duly executed, authenticated, issued and delivered as provided in the Unit Agreement, the Indenture and the Warrant Agreement, will be duly and validly issued and outstanding and will constitute valid and binding obligations of the Company entitled to the benefits of the Unit Agreement, the Indenture and the Warrant Agreement and enforceable against the Company in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law) or by an implied covenant of good faith and fair dealing; the Warrants are exercisable into Warrant Shares in accordance with the terms of the Warrant Agreement; and the Unit Agreement, the Indenture, the Warrant Agreement and the Registration Rights Agreement and the Units, Notes, Warrants and Warrant Shares will conform to the descriptions thereof contained in the Prospectus. (h) Except as described in the Prospectus, there are no contracts, agreements or understandings between the Company and any person granting such person the right (other than rights which have been waived or satisfied) to require the Company to file a registration statement under the Securities Act with respect to any securities of the Company owned or to be owned by such person or to require the Company to include such securities in the securities registered pursuant to the Registration Statement or in any securities being registered pursuant to any other registration statement filed by the Company under the Securities Act. 4 4 (i) Neither the Company nor any of its subsidiaries has sustained, since the date of the latest audited financial statements included in the Prospectus, any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus; and, since such date, there has not been any change in the capital stock or long-term debt of the Company or any of its subsidiaries or any material adverse change, or any development involving a prospective material adverse change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries, taken as a whole, otherwise than as set forth or contemplated in the Prospectus. (j) The financial statements (including the related notes and supporting schedules) filed as part of the Registration Statement or included in the Prospectus present fairly in all material respects the financial condition and results of operations of the entities purported to be shown thereby, at the dates and for the periods indicated, and have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved, except as disclosed therein. (k) Deloitte & Touche, L.L.P., who have certified certain financial statements of the Company and whose report appears in the Prospectus and who have delivered the initial letter referred to in Section 7(f) hereof, are independent public accountants as required by the Securities Act and the Rules and Regulations. The consolidated historical financial statements of the Company, together with related schedules and notes, set forth in the Prospectus and the Registration Statement comply as to form in all material respects with the requirements of the Securities Act. Such historical financial statements fairly present the consolidated financial position of the Company and its subsidiaries at the respective dates indicated and the results of their operations and their cash flows for the respective periods indicated, in accordance with generally accepted accounting principles consistently applied throughout such periods. The other financial and statistical information and data included in the Prospectus and in the Registration Statement are, in all material respects, accurately presented and prepared on a basis consistent with such financial statements and the books and records of the Company. (l) The Company and each of its subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them, in each case free and clear of all liens, encumbrances and defects except such as are described in the Prospectus or such as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and its subsidiaries; and all real property and buildings held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases, with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries, taken as a whole; and all other material leases to which the Company or any of its subsidiaries is a party, including, without limitation, leases for transmitter sites, as described in the Prospectus, are valid and binding and no default on the part of the Company or its subsidiaries, or to the knowledge of the Company, any other party thereto, has occurred or is continuing thereunder. (m) The Company and each of its subsidiaries carry, or are covered by, insurance in such amounts and covering such risks as is adequate for the conduct of their respective businesses and the value of their respective properties and as is customary for companies engaged in similar businesses in similar industries. (n) The Company and each of its subsidiaries own or possess adequate rights to use all material patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights and licenses necessary for the conduct of their respective businesses and have no reason to believe that the conduct of their respective businesses 5 5 will conflict with, and have not received any notice of any claim of conflict with, the rights of others in respect thereof. (o) There are no legal or governmental proceedings pending to which the Company or any of its subsidiaries is a party or of which any property or asset of the Company or any of its subsidiaries is the subject which, if determined adversely to the Company or any of its subsidiaries, might have a material adverse effect on the consolidated financial position, stockholders' equity, results of operations, business or prospects of the Company and its subsidiaries, taken as a whole; and to the best of the Company's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others. (p) There are no contracts or other documents which are required to be described in the Prospectus or filed as exhibits to the Registration Statement by the Securities Act or by the Rules and Regulations which have not been described in the Prospectus or filed as exhibits to the Registration Statement. (q) No relationship, direct or indirect, exists between or among the Company on the one hand, and the directors, officers, stockholders, customers or suppliers of the Company on the other hand, which is required to be described in the Prospectus which is not so described. (r) No labor disturbance by the employees of the Company exists or, to the knowledge of the Company, is imminent which might reasonably be expected to have a material adverse effect on the consolidated financial position, stockholders' equity, results of operations, business or prospects of the Company and its subsidiaries. (s) The Company is in compliance in all material respects with all presently applicable provisions of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder ("ERISA"); and no "reportable event" (as defined in ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) of the Company, and the Company has not incurred and does not expect to incur liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended, including the regulations and published interpretations thereunder (the "Code"), except where such liability would not have a material adverse effect on the Company and the subsidiaries, taken as a whole; and each "pension plan" for which the Company would have any liability that is intended to be qualified under Section 401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification. (t) The Company has filed all federal, state and local income and franchise tax returns required to be filed through the date hereof (or obtained extensions thereof) and has paid all taxes due thereon, and no tax deficiency has been determined adversely to the Company or any of its subsidiaries which has had (nor does the Company have any knowledge of any tax deficiency which, if determined adversely to the Company or any of its subsidiaries, might have) a material adverse effect on the consolidated financial position, stockholders' equity, results of operations, business or prospects of the Company and its subsidiaries, taken as a whole. (u) Since the date as of which information is given in the Prospectus through the date hereof, and except as may otherwise be disclosed in the Prospectus, the Company has not (i) issued or granted any securities, (ii) incurred any liability or obligation, direct or contingent, other than liabilities and obligations which were incurred in the ordinary course of business or would not be material to the Company and its subsidiaries, taken as a whole, (iii) entered into any transaction not in the ordinary course of business that would be material to the Company and its subsidiaries, taken as a whole, or (iv) declared or paid any dividend on its capital stock. 6 6 (v) The Company (i) makes and keeps accurate books and records and (ii) maintains internal accounting controls which provide reasonable assurance that (A) transactions are executed in accordance with management's general or specific authorization, (B) transactions are recorded as necessary to permit preparation of its financial statements and to maintain accountability for its assets, (C) access to its assets is permitted only in accordance with management's general or specific authorization and (D) the reported accountability for its assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (w) Neither the Company nor any of its subsidiaries (i) is in violation of its charter or by-laws, (ii) is in default in any material respect, and no event has occurred which, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition contained in any material indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which it is a party or by which it is bound or to which any of its properties or assets is subject and which is material to the Company and its subsidiaries, taken as a whole, or (iii) is in violation in any material respect of any law, ordinance, governmental rule, regulation or court decree to which it or its property or assets may be subject except where such violation would not have a material adverse effect on the Company and its subsidiaries, taken as a whole, or has failed to obtain any material license, permit, certificate, franchise or other governmental authorization or permit necessary to the ownership of its property or to the conduct of its business and which is material to the Company and its subsidiaries, taken as a whole. (x) Neither the Company nor any of its subsidiaries, nor any director, officer, agent, employee or other person associated with or acting on behalf of the Company or any of its subsidiaries, has used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977; or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment. (y) There has been no storage, disposal, generation, manufacture, refinement, transportation, handling or treatment of toxic wastes, medical wastes, hazardous wastes or hazardous substances by the Company or any of its subsidiaries (or, to the knowledge of the Company, any of their predecessors in interest) at, upon or from any of the property now or previously owned or leased by the Company or its subsidiaries in violation of any applicable law, ordinance, rule, regulation, order, judgment, decree or permit or which would require remedial action under any applicable law, ordinance, rule, regulation, order, judgment, decree or permit, except for any violation or remedial action which would not have, or could not be reasonably likely to have, singularly or in the aggregate with all such violations and remedial actions, a material adverse effect on the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries, taken as a whole; there has been no material spill, discharge, leak, emission, injection, escape, dumping or release of any kind onto such property or into the environment surrounding such property of any toxic wastes, medical wastes, solid wastes, hazardous wastes or hazardous substances due to or caused by the Company or any of its subsidiaries or with respect to which the Company or any of its subsidiaries have knowledge, except for any such spill, discharge, leak, emission, injection, escape, dumping or release which would not have or would not be reasonably likely to have, singularly or in the aggregate with all such spills, discharges, leaks, emissions, injections, escapes, dumpings and releases, a material adverse effect on the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries, taken as a whole; and the terms "hazardous wastes", "toxic wastes", "hazardous substances" and "medical wastes" shall have the meanings specified in any applicable local, state and federal laws or regulations with respect to environmental protection. 7 7 (z) Neither the Company nor any subsidiary is an "investment company" within the meaning of such term under the United States Investment Company Act of 1940 and the rules and regulations of the Commission thereunder. 2. Purchase of the Securities by the Underwriters. On the basis of the representations and warranties contained in, and subject to the terms and conditions of, this Agreement, the Company hereby agrees to issue and sell to the several Underwriters and each of the Underwriters, severally and not jointly, agrees to purchase from the Company, at a purchase price of $________ per Unit, the respective number of Units set forth opposite that Underwriter's name in Schedule 1 hereto. The Company shall not be obligated to deliver any of the Securities to be delivered on the Delivery Date (as hereinafter defined), except upon payment for all the Securities to be purchased on the Delivery Date as hereinafter provided. 3. Offering of Securities by the Underwriters. Upon authorization by the Representatives of the release of the Securities, the several Underwriters propose to offer the Securities for sale upon the terms and conditions set forth in the Prospectus. 4. Delivery of and Payment for the Securities. Delivery of and payment for the Securities shall be made at the office of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York 10017, at 10:00 A.M., New York City time, on the third full business day following the Effective Date or at such other date or place as shall be determined by agreement between the Representatives and the Company. This date and time are sometimes referred to as the "Delivery Date." On the Delivery Date, the Company shall deliver or cause to be delivered certificates representing the Securities to the Representatives for the account of each Underwriter against payment to or upon the order of the Company of the purchase price in same day funds by wire transfer to the account of PCS Development Corporation at a bank acceptable to Lehman Brothers Inc. or by official Federal Reserve Bank check or checks. Time shall be of the essence, and delivery at the time and place specified pursuant to this Agreement is a further condition of the obligation of each Underwriter hereunder. Upon delivery, the Securities shall be registered in such names and in such denominations as the Representatives shall request in writing not less than two full business days prior to the Delivery Date. For the purpose of expediting the checking and packaging of the certificates for the Securities, the Company shall make the certificates representing the Securities available for inspection by the Representatives in New York, New York, not later than 2:00 P.M., New York City time, on the business day prior to the Delivery Date. 5. Further Agreements of the Company. The Company agrees: (a) To make no further amendment or any supplement to the Registration Statement or to the Prospectus except as permitted herein; to advise the Representatives, promptly after it receives notice thereof, of the time when the Registration Statement, or any amendment thereto, has been filed or becomes effective or any supplement to the Prospectus or any amended Prospectus has been filed and to furnish the Representatives with copies thereof; to advise the Representatives, promptly after it receives notice thereof, of the issuance by the Commission of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or the Prospectus, of the suspension of the qualification of the Securities for offering or sale in any jurisdiction, of the initiation or threatening of any proceeding for any such purpose, or of any request by the Commission for the amending or supplementing of the Registration Statement or the Prospectus or for additional information; and, in the event of the issuance of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or the Prospectus or suspending any such qualification, to use promptly its best efforts to obtain its withdrawal; (b) To furnish promptly to each of the Representatives and to counsel for the Underwriters a signed copy of the Registration Statement as originally filed with the Commission, and each amendment thereto filed with the Commission, including all consents and exhibits filed therewith; 8 8 (c) To deliver promptly to the Representatives in New York City such number of the following documents as the Representatives shall reasonably request: (i) conformed copies of the Registration Statement as originally filed with the Commission and each amendment thereto (in each case excluding exhibits other than this Agreement, the Unit Agreement, the Indenture and the Warrant Agreement, the computation of ratio of earnings to fixed charges, and the computation of per share earnings) and (ii) each Preliminary Prospectus, the Prospectus (not later than 10:00 a.m. New York City time, of the day following the execution and delivery of this Agreement) and any amended or supplemented Prospectus (not later than 10:00 a.m. New York City time, of the day following the date of such amendment or supplement); and, if the delivery of a prospectus is required at any time prior to the expiration of nine months after the Effective Time of the Registration Statement in connection with the offering or sale of the Securities (or any other securities relating thereto) and if at such time any events shall have occurred as a result of which the Prospectus as then amended or supplemented would include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such Prospectus is delivered, not misleading, or, if for any other reason it shall be necessary during such same period to amend or supplement the Prospectus in order to comply with the Securities Act, to notify the Representatives and, upon their request, to prepare and furnish without charge to each Underwriter and to any dealer in securities as many copies as the Representatives may from time to time reasonably request of an amended Prospectus or a supplement to the Prospectus which will correct such statement or omission or effect such compliance, and in case any Underwriter is required to deliver a prospectus in connection with sales of any of the Securities at any time nine months or more after the Effective Time of the Registration Statement, upon the request of the Representatives but at the expense of such Underwriter, to prepare and deliver to such Underwriter as many copies as the Representatives may from time to time request of an amended or supplemented Prospectus complying with Section 10(a)(3) of the Securities Act; (d) To file promptly with the Commission any amendment to the Registration Statement or the Prospectus or any supplement to the Prospectus that may, in the judgment of the Company or the Representatives, be required by the Securities Act or requested by the Commission; (e) Prior to filing with the Commission any (i) Preliminary Prospectus, (ii) amendment to the Registration Statement or supplement to the Prospectus or (iii) Prospectus pursuant to Rule 424 of the Rules and Regulations, to furnish a copy thereof to the Representatives and counsel for the Underwriters and obtain the consent of the Representatives to the filing (which consent shall not be unreasonably withheld); (f) As soon as practicable after the Effective Date of the Registration Statement to make generally available to the Company's security holders and to deliver to the Representatives an earning statement of the Company and its subsidiaries (which need not be audited) complying with Section 11(a) of the Securities Act and the Rules and Regulations (including, at the option of the Company, Rule 158); (g) For a period of five years following the Effective Date of the Registration Statement to furnish to the Representatives copies of all materials furnished by the Company to its shareholders and all public reports and all reports and financial statements furnished by the Company to the principal national securities exchange upon which its Common Stock may be listed pursuant to requirements of or agreements with such exchange or to the Commission pursuant to the Exchange Act or any rule or regulation of the Commission thereunder; (h) Promptly from time to time to take such action as the Representatives may reasonably request to qualify the Securities and the Warrant Shares issuable upon exercise of the Warrants for offering and sale under the securities laws of such jurisdictions as the Representatives may request and to comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the distribution of the Securities; provided 9 9 that in connection therewith the Company shall not be required to qualify as a foreign corporation or to execute a general consent to service of process in any jurisdiction or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject; (i) For a period of 90 days from the date of the Prospectus, not to, directly or indirectly, offer for sale, sell or otherwise dispose of (or enter into any transaction or device which is designed to, or could be expected to, result in the disposition or purchase by any person at any time in the future of), any debt securities or shares of Common Stock (other than the Securities, the Warrant Shares and shares issued pursuant to employee benefit plans, qualified stock option plans or other employee compensation plans existing on the date hereof or pursuant to currently outstanding options, warrants or rights), or sell or grant options, rights or warrants with respect to any debt securities or shares of Common Stock (other than the grant of options pursuant to option plans existing on the date hereof), without the prior written consent of Lehman Brothers Inc.; (j) Prior to filing with the Commission any reports on Form SR pursuant to Rule 463 of the Rules and Regulations, to furnish a copy thereof to the counsel for the Underwriters and receive and consider its comments thereon, and to deliver promptly to the Representatives a signed copy of each report on Form SR filed by it with the Commission; (k) To apply the net proceeds from the sale of the Securities being sold by the Company as set forth in the Prospectus; and (l) To take such steps as shall be necessary to ensure that neither the Company nor any subsidiary thereof shall become an "investment company" within the meaning of such term under the Investment Company Act of 1940 and the rules and regulations of the Commission thereunder. 6. Expenses. The Company agrees to pay (a) the costs incident to the authorization, issuance, sale and delivery of the Securities and any taxes payable in that connection; (b) the costs incident to the preparation, printing and filing under the Securities Act of the Registration Statement and any amendments and exhibits thereto; (c) the costs of distributing the Registration Statement as originally filed and each amendment thereto and any post-effective amendments thereof (including, in each case, exhibits), any Preliminary Prospectus, the Prospectus and any amendment or supplement to the Prospectus, all as provided in this Agreement; (d) the costs of reproducing and printing this Agreement and any other underwriting and selling group documents; (e) the costs of distributing the terms of agreement relating to the organization of the underwriting syndicate and the selling group to the members thereof by mail, facsimile, telex or other means of communication; (f) the filing fees incident to securing any required review by the National Association of Securities Dealers, Inc. of the terms of sale of the Securities; (g) the fees and expenses of qualifying the Securities under the securities laws of the several jurisdictions as provided in Section 5(h) and of preparing, printing and distributing a Blue Sky Memorandum (including related reasonable fees and expenses of counsel to the Underwriters); (h) any fees charged by securities rating services selected or approved by the Company for rating the Securities; (i) all fees and expenses of an independent underwriter; (j) all fees and expenses of the Unit Agent, the Trustee and the Warrant Agent; and (k) all other costs and expenses incident to the performance of the obligations of the Company under this Agreement, the Unit Agreement, the Indenture and the Warrant Agreement; provided that, except as provided in this Section 6 and in Section 11, the Underwriters shall pay their own costs and expenses, including the costs and expenses of their counsel, any transfer taxes on the Securities which they may sell and the expenses of advertising any offering of the Securities made by the Underwriters. 7. Conditions of Underwriters' Obligations. The respective obligations of the Underwriters hereunder are subject to the accuracy, when made and on the Delivery Date, of the representations and warranties of the Company contained herein, to the performance by the Company of its respective obligations hereunder, and to each of the following additional terms and conditions: (a) The Registration Statement shall have become effective and the Indenture shall have been qualified under the Trust Indenture Act, and the Representatives shall have received notice thereof, not later than the first full business day next following the date of this Agreement or such 10 10 later date as shall be consented to in writing by the Representatives; no stop order suspending the effectiveness of the Registration Statement or any part thereof shall have been issued and no proceeding for that purpose shall have been initiated or threatened by the Commission; and any request of the Commission for inclusion of additional information in the Registration Statement or the Prospectus or otherwise shall have been complied with. (b) No Underwriter shall have discovered and disclosed to the Company on or prior to the Delivery Date that the Registration Statement or the Prospectus or any amendment or supplement thereto contains an untrue statement of a fact which, in the opinion of Simpson Thacher & Bartlett, counsel for the Underwriters, is material or omits to state a fact which, in the opinion of such counsel, is material and is required to be stated therein or is necessary to make the statements therein not misleading. (c) All corporate proceedings and other legal matters incident to the authorization, form and validity of this Agreement, the Unit Agreement, the Indenture, the Warrant Agreement, the Securities, the Registration Statement and the Prospectus, and all other legal matters relating to this Agreement and the transactions contemplated hereby, shall be satisfactory in all material respects to counsel for the Underwriters, and the Company shall have furnished to such counsel all documents and information that they may reasonably request to enable them to pass upon such matters. (d) Nelson Mullins Riley & Scarborough, L.L.P. shall have furnished to the Representatives its written opinion, as counsel to the Company, addressed to the Underwriters and dated the Delivery Date, in form and substance reasonably satisfactory to the Representatives subject to customary qualifications and assumptions, to the effect that: (i) The Company and each of its subsidiaries have been duly incorporated and are validly existing as corporations in good standing under the laws of their respective jurisdictions of incorporation, are duly qualified to do business and are in good standing as foreign corporations in each jurisdiction in which their respective ownership or lease of property or the conduct of their respective businesses requires such qualification (other than those jurisdictions in which the failure to so qualify would not have a material adverse effect on the Company or the Company and its subsidiaries taken as a whole), and have full corporate power and corporate authority to own, lease and operate their respective properties and to conduct their respective businesses as described in the Prospectus; (ii) The Company has an authorized capitalization as set forth in the Prospectus, and all of the issued shares of capital stock of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and conform to the description thereof contained in the Prospectus; all of the Warrant Shares have been duly and validly authorized and reserved for issuance upon exercise of the Warrants, and, when issued and delivered in accordance with the terms of the Warrant Agreement, will be duly and validly issued, fully paid and non-assessable; and all of the issued shares of capital stock of each subsidiary of the Company have been duly and validly authorized and issued and are fully paid, non-assessable and (except for directors' qualifying shares and liens disclosed in the Prospectus) are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims; (iii) Except as set forth in the Prospectus, there are no preemptive or other rights to subscribe for or to purchase, nor any restriction upon the voting or transfer of, any shares of the Common Stock (including the Warrant Shares) pursuant to the Company's charter or by-laws, or to any agreement or other instrument of the Company known to such counsel; 11 11 (iv) To the best of such counsel's knowledge and other than as set forth in the Prospectus, there are no legal or governmental proceedings pending against the Company or any of its subsidiaries, or to which any of their respective properties or assets is subject, which, if determined adversely to the Company or any of its subsidiaries, would reasonably be expected to have a material adverse effect on the consolidated financial position, stockholders' equity, results of operations or business of the Company and its subsidiaries, taken as a whole, and that are required to be described in the Prospectus and are not described as required; and, to the best of such counsel's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; (v) The Registration Statement was declared effective under the Securities Act and the Indenture was qualified under the Trust Indenture Act as of the date and time specified in such opinion and no stop order suspending the effectiveness of the Registration Statement has been issued and, to the best knowledge of such counsel, no proceeding for that purpose is pending or threatened by the Commission; (vi) The Registration Statement, as of the Effective Date, and the Prospectus, as of its date, and any further amendments or supplements thereto, as of their respective dates, made by the Company prior to the Delivery Date (other than the financial statements and related schedules and other financial data included therein or omitted therefrom, as to which such counsel need express no opinion) comply as to form in all material respects with the requirements of the Securities Act and the Rules and Regulations; and the Indenture conforms in all material respects to the requirements of the Trust Indenture Act and the applicable rules and regulations thereunder; (vii) The statements contained in the Prospectus under the caption "Certain Federal Income Tax Considerations," insofar as they describe federal statutes, rules and regulations, constitute a fair summary thereof; the statements made in the Prospectus under the captions "Description of Capital Stock", "Description of the Units", "Description of the Notes" and "Description of the Warrants", insofar as they purport to constitute summaries of the terms of the Company's securities, constitute accurate summaries in all material respects; (viii) To the best of such counsel's knowledge, there are no contracts or other documents which are required to be described in the Prospectus or filed as exhibits to the Registration Statement by the Securities Act or by the Rules and Regulations which have not been described or filed as exhibits to the Registration Statement; (ix) This Agreement has been duly authorized, executed and delivered by the Company; (x) The Company has full legal right, power and authority to execute and deliver this Agreement, the Unit Agreement, the Indenture, the Warrant Agreement, the Registration Rights Agreement and the Securities and to perform its obligations hereunder and thereunder; and all corporate action required to be taken on the part of the Company for the due and proper authorization, execution and delivery of this Agreement, the Unit Agreement, the Indenture, the Warrant Agreement, the Registration Rights Agreement and the Securities and the consummation of the transactions contemplated by this Agreement, the Unit Agreement, the Indenture, the Warrant Agreement and the Registration Rights Agreement have been duly and validly taken; (xi) The Indenture, the Unit Agreement, the Warrant Agreement and the Registration Rights Agreement have been duly authorized, executed and delivered by the Company and constitute valid and binding agreements of the Company enforceable against 12 12 the Company in accordance with their respective terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) or an implied covenant of good faith and fair dealing; the Securities are in the form contemplated by the Unit Agreement, the Indenture, the Registration Rights Agreement and the Warrant Agreement and have been duly authorized and executed by the Company and, upon the due authentication and delivery thereof by the Unit Agent pursuant to the Unit Agreement, the Trustee pursuant to the Indenture and the Warrant Agent pursuant to the Warrant Agreement, will be duly and validly issued and outstanding and will constitute valid and binding obligations of the Company entitled to the benefits of the Unit Agreement, the Indenture and the Warrant Agreement, respectively, and enforceable in accordance with their respective terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) or an implied covenant of good faith and fair dealing; and the Unit Agreement, the Indenture, the Warrant Agreement, the Registration Rights Agreement and the Securities conform to the descriptions thereof contained in the Prospectus; (xii) The issue and sale of the Securities by the Company and the compliance by the Company with all of the provisions of this Agreement, the Unit Agreement, the Indenture and Warrant Agreement and the consummation of the transactions contemplated hereby and thereby, and the issuance and delivery of the Warrant Shares issuable upon exercise of the Warrants, will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument known to such counsel to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject and which are material to the Company or its subsidiaries, taken as a whole, nor will such actions result in any violation of the provisions of the charter or by-laws of the Company or any of its subsidiaries or any material statute or any order, rule or regulation known to such counsel of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties or assets and which violation would have a material adverse effect on the Company or its subsidiaries, taken as a whole; and, except for the registration of the Securities and the Warrant Shares under the Securities Act and such consents, approvals, authorizations, registrations or qualifications as may be required under the Exchange Act and applicable state securities laws in connection with the purchase and distribution of the Securities by the Underwriters, no consent, approval, authorization or order of, or filing or registration with, any such court or governmental agency or body is required for the execution, delivery and performance of this Agreement, the Unit Agreement, the Indenture, the Warrant Agreement, the Registration Rights Agreement or the Securities by the Company, the consummation of the transactions contemplated hereby and thereby and the issuance of the Warrant Shares upon exercise of the Warrants; (xiii) To the best of such counsel's knowledge, except as set forth in the Prospectus, there are no contracts, agreements or understandings between the Company and any person granting such person the right (other than rights which have been waived or satisfied) to require the Company to file a registration statement under the Securities Act with respect to any securities of the Company owned or to be owned by such person or to require the Company to include such securities in the securities registered pursuant to the Registration Statement or in any securities being registered pursuant to any other registration statement filed by the Company under the Securities Act; and 13 13 (xiv) The Indenture complies as to form in all material respects with the requirements of the Trust Indenture Act and the rules and regulations of the Commission thereunder. In rendering such opinion, such counsel may (i) state that its opinion is limited to matters governed by the Federal laws of the United States of America, the laws of the states of North Carolina, South Carolina and Georgia and the General Corporation Law of the State of Delaware; and (ii) may exclude (to the extent such counsel deems proper and specifies in its opinion) matters involving the application of federal communications law. Such counsel shall also have furnished to the Representatives a written statement, addressed to the Underwriters and dated the Delivery Date, in form and substance satisfactory to the Representatives, to the effect that (x) such counsel has acted as counsel to the Company on a regular basis, has acted as counsel to the Company in connection with previous financing transactions and has acted as counsel to the Company in connection with the preparation of the Registration Statement, and (y) in such capacity, such counsel has participated in conferences with officers and other representatives of the Company, representatives of the independent public accountants for the Company, and representatives of the Underwriters and their counsel, at which the contents of the Registration Statement and the Prospectus and related matters were discussed and, although such counsel is not passing upon, and does not assume any responsibility for, the accuracy, completeness or fairness of the statements contained in the Registration Statement and the Prospectus (other than statements made in the Prospectus under the captions "Description of Capital Stock," "Description of the Units," "Description of the Notes," "Description of the Warrants" and "Certain Federal Income Tax Considerations," in each case insofar as such statements relate to the Securities and concern legal matters) and has not made any independent check or verification thereof, during the course of that participation, no facts came to such counsel's attention that caused such counsel to believe that the Registration Statement as of the Effective Date contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading or that the Prospectus contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; it being understood that such counsel need express no opinion as to the financial statements, schedules or other financial data included in the Registration Statement or the Prospectus. (e) Lukas, McGowan, Nance & Gutierrez shall have furnished to the Representatives its written opinion, as special communications counsel to the Company, addressed to the Underwriters and dated the Delivery Date, in form and substance reasonably satisfactory to the Representatives, to the effect that with respect to matters arising under the Communications Act: (i) No approval of the FCC is required in connection with the issuance and sale of the Securities to the Underwriters or for the issuance of the Warrant Shares upon exercise of the Warrants; (ii) The Company and its subsidiaries have all such licenses and authorizations as are necessary under the Communications Act to conduct the business described in the Prospectus, and such licenses and authorizations conform to the descriptions thereof in the Prospectus; (iii) The execution, delivery and performance of this Agreement, the Unit Agreement, the Indenture, the Warrant Agreement and the Securities by the Company and compliance by the Company with the provisions of this Agreement, the Unit Agreement, the Indenture, the Warrant Agreement and the Securities do not and will not violate the Communications Act or any order or decision of the FCC, and to the best knowledge of such counsel, no order, judgement or decree of any court or government body of the United States relating to the Communications Act would be violated by the execution, 14 14 delivery and performance of such Agreements or instruments by the Company and compliance by the Company with the provisions of such Agreements or instruments; (iv) To the best knowledge of such counsel, no proceedings before the FCC against or involving the properties, systems, licenses or authorizations of the Company or its subsidiaries, or any provision of the Communications Act relevant to such properties, systems, licenses or authorizations, which is not described in the Registration Statement is required to be so described; (v) The Company is in compliance with all FCC rules and regulations qualifying it as a Designated Entity (as both a "Small Business" and as a "Business Owned by Members of Minority Groups and/or Women") under the Communications Act, and, to the best knowledge of such counsel, (x) no condition exists or event is likely to occur that might affect such Designated Entity status that is not adequately described in the Prospectus, and (y) the issuance of the Securities and the Warrant Shares upon exercise of the Warrants will not affect such Designated Entity status or any benefits accruing therefrom; (vi) The statements contained in the Prospectus under the captions "Business - Regulation," "Description of FCC Auction Benefits" and "Description of Other Indebtedness - FCC Obligation," and the related statements contained under the caption "Risk Factors" (insofar as they describe federal and state statues, rules and regulations and the application and consequences thereof to the Company), constitute a fair and accurate summary thereof; and (vii) With respect to the statements described in clause (vi) above only, such counsel has no reason to believe that the Registration Statement, as of the Effective Date, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make such statements therein not misleading, or that the Prospectus contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (f) With respect to the letter of Deloitte & Touche, LLP delivered to the Representatives concurrently with the execution of this Agreement (as used in this paragraph, the "initial letter"), the Company shall have furnished to the Representatives a letter (as used in this paragraph, the "bring-down letter") of such accountants, addressed to the Underwriters and dated the Delivery Date, (i) confirming that they are independent public accountants within the meaning of the Securities Act and are in compliance with the applicable requirements relating to the qualification of accountants under Rule 2-01 of Regulation S-X of the Commission, (ii) stating, as of the date of the bring-down letter (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the Prospectus, as of a date not more than five days prior to the date of the bring-down letter), the conclusions and findings of such firm with respect to the financial information and other matters covered by the initial letter delivered and (iii) confirming in all material respects the conclusions and findings set forth in the initial letter. (g) The Company shall have furnished to the Representatives a certificate, dated the Delivery Date, of its Chief Executive Officer or its President, and its chief financial officer, stating that: (i) The representations, warranties and agreements of the Company in Section 1 are true and correct as of the Delivery Date; the Company has complied with all its 15 15 agreements contained herein; and the conditions set forth in Sections 7(a) and 7(h) have been fulfilled; and (ii) They have carefully examined the Registration Statement and the Prospectus and, in their opinion, (A) as of the Effective Date, the Registration Statement and Prospectus did not include any untrue statement of a material fact and did not omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and (B) since the Effective Date no event has occurred which should have been set forth in a supplement or amendment to the Registration Statement or the Prospectus. (h) (i) Neither the Company nor any of its subsidiaries shall have sustained since the date of the latest audited financial statements included in the Prospectus any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus or (ii) since such date there shall not have been any change in the capital stock or material increase in the long-term debt of the Company or any of its subsidiaries or any change, or any development involving a prospective change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the effect of which, in any such case described in clause (i) or (ii), is, in the judgment of the Representatives, so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Securities on the terms and in the manner contemplated in the Prospectus. (i) Subsequent to the execution and delivery of this Agreement, (i) no downgrading shall have occurred in the rating accorded the Securities or any of the Company's other debt securities or preferred stock by any "nationally recognized statistical rating organization," as that term is defined by the Commission for purposes of Rule 436(g)(2) of the Rules and Regulations, and (ii) no such organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any of the Securities or any of the Company's other debt securities or preferred stock. (j) Subsequent to the execution and delivery of this Agreement there shall not have occurred any of the following: (i) trading in securities generally on the New York Stock Exchange or the American Stock Exchange or the over-the-counter market, or trading in any securities of the Company on any national securities exchange or in the over-the-counter market, shall have been suspended or minimum prices shall have been established on any such exchange or such market by the Commission, by such exchange or by any other regulatory body or governmental authority having jurisdiction, (ii) a banking moratorium shall have been declared by Federal or state authorities, (iii) the United States shall have become engaged in hostilities, there shall have been an escalation in hostilities involving the United States or there shall have been a declaration of a national emergency or war by the United States or (iv) there shall have occurred such a material adverse change in general economic, political or financial conditions (or the effect of international conditions on the financial markets in the United States shall be such) as to make it, in the judgment of a majority in interest of the several Underwriters, inadvisable or impractical to proceed with the public offering or delivery of the Securities on the terms and in the manner contemplated in the Prospectus. All opinions, letters, evidence and certificates mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance satisfactory to counsel for the Underwriters. 8. Indemnification and Contribution. 16 16 (a) The Company and its subsidiaries shall, jointly and severally, indemnify and hold harmless each Underwriter (including Lehman Brothers Inc. in its role as "qualified independent underwriter" pursuant to the rules of the National Association of Securities Dealers, Inc.), its officers and employees and each person, if any, who controls any Underwriter within the meaning of the Securities Act, from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof (including, but not limited to, any loss, claim, damage, liability or action relating to purchases and sales of Securities), to which that Underwriter, officer, employee or controlling person may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained (A) in any Preliminary Prospectus, the Registration Statement or the Prospectus or in any amendment or supplement thereto, or (B) in any blue sky application or other document prepared or executed by the Company (or based upon any written information furnished by the Company) specifically for the purpose of qualifying any or all of the Securities, and the Warrant Shares issuable upon exercise of the Warrants, under the securities laws of any state or other jurisdiction (any such application, document or information being hereinafter called a "Blue Sky Application"); (ii) the omission or alleged omission to state in any Preliminary Prospectus, the Registration Statement or the Prospectus, or in any amendment or supplement thereto, or in any Blue Sky Application a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) any act or failure to act, or any alleged act or failure to act, by any Underwriter in connection with, or relating in any manner to, the Securities, the Warrant Shares issuable upon exercise of the Warrants or the offering contemplated hereby, and which is included as part of or referred to in any loss, claim, damage, liability or action arising out of or based upon matters covered by clause (i) or (ii) above (provided that the Company and its subsidiaries shall not be liable in the case of any matter covered by this clause (iii) to the extent that it is determined in a final judgment by a court of competent jurisdiction that such loss, claim, damage, liability or action resulted directly from any such act or failure to act undertaken or omitted to be taken by such Underwriter through its gross negligence or wilful misconduct), and shall reimburse each Underwriter and each such officer, employee and controlling person promptly upon demand for any legal or other expenses reasonably incurred by that Underwriter, officer, employee or controlling person in connection with investigating or defending or preparing to defend against any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company and its subsidiaries shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, any untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Prospectus, the Registration Statement or the Prospectus or in any such amendment or supplement, or in any Blue Sky Application in reliance upon and in conformity with written information furnished to the Company through the Representatives by or on behalf of any Underwriter specifically for inclusion therein and described in Section 8(e); and provided further that as to any Preliminary Prospectus this indemnity agreement shall not inure to the benefit of any Underwriter, its officers or employees or any person controlling that Underwriter on account of any loss, claim, damage, liability or action arising from the sale of Securities to any person by that Underwriter if that Underwriter failed to send or give a copy of the Prospectus, as the same may be amended or supplemented, to that person within the time required by the Securities Act, and the untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact in such Preliminary Prospectus was corrected in the Prospectus, unless such failure resulted from non-compliance by the Company with Section 5(c). The foregoing indemnity agreement is in addition to any liability which the Company or its subsidiaries may otherwise have to any Underwriter or to any officer, employee or controlling person of that Underwriter. (b) Each Underwriter, severally and not jointly, shall indemnify and hold harmless the Company, its officers and its employees, each of its directors (including any person who, with his or her consent, is named in the Registration Statement as about to become a director of the Company), and each person, if any, who controls the Company within the meaning of the Securities Act, from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof, to which the Company or any such director, officer or controlling person may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained (A) in any Preliminary Prospectus, the Registration Statement or the Prospectus or in any amendment or supplement thereto, or (B) in any Blue Sky Application or (ii) the omission or alleged omission to state in any Preliminary Prospectus, the Registration Statement or the Prospectus, or in any amendment or supplement thereto, or in any Blue Sky Application any material fact required to be stated therein or necessary to make the statements therein not misleading, but in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company 17 17 through the Representatives by or on behalf of that Underwriter specifically for inclusion therein and described in Section 8(e), and shall reimburse the Company and any such director, officer or controlling person for any legal or other expenses reasonably incurred by the Company or any such director, officer or controlling person in connection with investigating or defending or preparing to defend against any such loss, claim, damage, liability or action as such expenses are incurred. The foregoing indemnity agreement is in addition to any liability which any Underwriter may otherwise have to the Company or any such director, officer or controlling person. (c) Promptly after receipt by an indemnified party under this Section 8 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under this Section 8, notify the indemnifying party in writing of the claim or the commencement of that action; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 8 except to the extent it has been materially prejudiced by such failure and, provided further, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 8. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 8 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that any indemnified party shall have the right to employ separate counsel in any such action and to participate in the defense thereof but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the employment thereof has been specifically authorized by the indemnifying party in writing, (ii) such indemnified party shall have been advised by such counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party and in the reasonable judgment of such counsel it is advisable for such indemnified party to employ separate counsel in order to avail the indemnified party of such defenses or (iii) the indemnifying party has failed to assume the defense of such action and employ counsel reasonably satisfactory to the indemnified party, in which case, if such indemnified party notifies the indemnifying party in writing that it elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such action on behalf of such indemnified party, it being understood, however, that the indemnifying party shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys at any time for all such indemnified parties, which firm shall be designated in writing by the Representatives, if the indemnified parties under this Section 8 consist of any Underwriter or any of their respective officers, employees or controlling persons, or by the Company, if the indemnified parties under this Section consist of the Company or any of the Company's directors, officers, employees or controlling persons. Each indemnified party, as a condition of the indemnity agreements contained in Sections 8(a) and 8(b), shall use its best efforts to cooperate with the indemnifying party in the defense of any such action or claim. No indemnifying party shall (i) without the prior written consent of the indemnified parties (which consent shall not be unreasonably withheld), settle or compromise or consent to the entry of any judgment with respect to pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding, or (ii) be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with its written consent or if there be a final judgment of the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss of liability by reason of such settlement or judgment. (d) If the indemnification provided for in this Section 8 shall for any reason be unavailable to or insufficient to hold harmless an indemnified party under Section 8(a), 8(b) or 8(c) in respect of any loss, claim, damage or liability, or any action in respect thereof, referred to therein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company and its subsidiaries on the one hand and the 18 18 Underwriters on the other from the offering of the Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and its subsidiaries on the one hand and the Underwriters on the other with respect to the statements or omissions which resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company and its subsidiaries on the one hand and the Underwriters on the other with respect to such offering shall be deemed to be in the same proportion as the total net proceeds from the offering of the Securities purchased under this Agreement (before deducting expenses) received by the Company and its subsidiaries on the one hand, and the total underwriting discounts and commissions received by the Underwriters with respect to the Securities purchased under this Agreement, on the other hand, bear to the total gross proceeds from the offering of the Securities under this Agreement, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company, its subsidiaries or the Underwriters, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. For purposes of the preceding two sentences, the net proceeds deemed to be received by the Company shall be deemed to be also for the benefit of its subsidiaries and information supplied by the Company shall also be deemed to have been supplied by its subsidiaries. The Company, its subsidiaries and the Underwriters agree that it would not be just and equitable if contributions pursuant to this Section 8(d) were to be determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 8(d) shall be deemed to include, for purposes of this Section 8(d), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 8(d), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to the public was offered to the public exceeds the amount of any damages which such Underwriter has otherwise paid or become liable to pay by reason of any untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute as provided in this Section 8(d) are several in proportion to their respective underwriting obligations and not joint. (e) The Underwriters severally confirm that the statements with respect to the public offering of the Securities set forth on the cover page of, and under the caption "Underwriting" in, the Prospectus are correct and constitute the only information furnished in writing to the Company by or on behalf of the Underwriters specifically for inclusion in the Registration Statement and the Prospectus. 9. Defaulting Underwriters. If, on the Delivery Date, any Underwriter defaults in the performance of its obligations under this Agreement, the remaining non-defaulting Underwriters shall be obligated to purchase the Securities which the defaulting Underwriter agreed but failed to purchase on the Delivery Date in the respective proportions which the number of Units set opposite the name of each remaining non-defaulting Underwriter in Schedule 1 hereto bears to the total number of Units set opposite the names of all the remaining non-defaulting Underwriters in Schedule 1 hereto; provided, however, that the remaining non-defaulting Underwriters shall not be obligated to purchase any of the Securities on the Delivery Date if the total number of Securities which the defaulting Underwriter or Underwriters agreed but failed to purchase on such date exceeds 9.09% of the total number of Securities to be purchased on the Delivery Date, and any remaining non-defaulting Underwriter shall not be obligated to purchase more than 110% of the number of Securities which it agreed to purchase on the Delivery Date pursuant to the terms of Section 2. If the foregoing maximums are exceeded, the remaining non-defaulting Underwriters, or those other underwriters satisfactory to the Representatives who so agree, shall have the right, but shall not be obligated, to purchase, in such proportion as may be agreed upon among them, all the Securities to be purchased on the Delivery Date. If the remaining Underwriters or other underwriters satisfactory to the Representatives do not elect to purchase the shares which the defaulting Underwriter or Underwriters agreed but failed to purchase, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter or the Company, except that the Company 19 19 will continue to be liable for the payment of expenses of any non-defaulting Underwriter to the extent set forth in Sections 6 and 11. As used in this Agreement, the term "Underwriter" includes, for all purposes of this Agreement unless the context requires otherwise, any party not listed in Schedule 1 hereto who, pursuant to this Section 9, purchases Securities which a defaulting Underwriter agreed but failed to purchase. Nothing contained herein shall relieve a defaulting Underwriter of any liability it may have to the Company for damages caused by its default. If other underwriters are obligated or agree to purchase the Securities of a defaulting or withdrawing Underwriter, either the Representatives or the Company may postpone the Delivery Date for up to seven full business days in order to effect any changes that in the opinion of counsel for the Company or counsel for the Underwriters may be necessary in the Registration Statement, the Prospectus or in any other document or arrangement. 10. Effective Date and Termination. (a) This Agreement shall become effective at 11:00 A.M., New York City time, on the first full business day following the Effective Date, or at such earlier time after the Registration Statement becomes effective as the Representatives shall release the Securities for initial public offering. The Representatives shall notify the Company immediately after they have taken any action which causes this Agreement to become effective. Until this Agreement is effective, it may be terminated by the Company by notice to the Representatives or by the Representatives by notice to the Company. For purposes of this Agreement, the release of the initial public offering of the Securities shall be deemed to have been made when the Representatives release, by telegram or otherwise, firm offers of the Securities to securities dealers or release for publication a newspaper advertisement relating to the Securities, whichever occurs first. (b) The obligations of the Underwriters hereunder may be terminated by the Representatives, by notice given to and received by the Company prior to delivery of and payment for the Securities if, prior to that time, any of the events described in Sections 7(h) , 7(i) or 7(j) shall have occurred or if the Underwriters shall decline to purchase the Securities for any reason permitted under this Agreement. 11. Reimbursement of Underwriters' Expenses. If (a) notice shall have been given pursuant to Section 10(a) preventing this Agreement from becoming effective, (b) the Company shall fail to tender the Securities for delivery to the Underwriters for any reason permitted under this Agreement or (c) the Underwriters shall decline to purchase the Securities for any reason permitted under this Agreement (including the termination of this Agreement pursuant to Section 10(b)), the Company shall reimburse the Underwriters for the reasonable fees and expenses of their counsel and for such other out-of-pocket expenses as shall have been incurred by them in connection with this Agreement and the proposed purchase of the Securities, and upon demand the Company shall pay the full amount thereof to the Representatives. If this Agreement is terminated pursuant to Section 9 by reason of the default of one or more Underwriters, the Company shall not be obligated to reimburse any defaulting Underwriter on account of those expenses. 12. Notices, etc. All statements, requests, notices and agreements hereunder shall be in writing, and: (a) if to the Underwriters, shall be delivered or sent by mail, telex or facsimile transmission to Lehman Brothers Inc., 3 World Financial Center New York, New York 10285, Attention: Syndicate Department; (Fax: 212-528-8822); (b) if to the Company, shall be delivered or sent by mail, telex or facsimile transmission to the address of the Company set forth in the Registration Statement, Attention: Mark Moore; (Fax: 803-235-0841); provided, however, that any notice to an Underwriter pursuant to Section 8(c) shall be delivered or sent by mail, telex or facsimile transmission to such Underwriter at its address set forth in its acceptance telex to the Representatives, which address will be supplied to any other party hereto by the Representatives upon request. Any such statements, requests, notices or agreements shall take effect at the time of receipt thereof. The Company shall be entitled to act 20 20 and rely upon any request, consent, notice or agreement given or made on behalf of the Underwriters by Lehman Brothers Inc. on behalf of the Representatives. 13. Persons Entitled to Benefit of Agreement. This Agreement shall inure to the benefit of and be binding upon the Underwriters, the Company and its subsidiaries and their respective successors. This Agreement and the terms and provisions hereof are for the sole benefit of only those persons, except that (A) the representations, warranties, indemnities and agreements of the Company and its subsidiaries contained in this Agreement shall also be deemed to be for the benefit of the officers and employees of each Underwriter and the person or persons, if any, who control any Underwriter within the meaning of Section 15 of the Securities Act and (B) the indemnity agreement of the Underwriters contained in Section 8(b) of this Agreement shall be deemed to be for the benefit of directors of the Company, officers of the Company who have signed the Registration Statement, employees and any person controlling the Company within the meaning of Section 15 of the Securities Act. Nothing in this Agreement is intended or shall be construed to give any person, other than the persons referred to in this Section 13, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. The term "successor" as used in this Agreement shall be deemed to include a purchaser from any Underwriter of any of the Securities in his status as a purchaser. 14. Survival. The respective indemnities, representations, warranties and agreements of the Company, its subsidiaries and the Underwriters contained in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall survive the delivery of and payment for the Securities and shall remain in full force and effect, regardless of any investigation made by or on behalf of any of them or any person controlling any of them. 15. Definition of the Terms "Business Day" and "Subsidiary". For purposes of this Agreement, (a) "business day" means any day on which the New York Stock Exchange, Inc. is open for trading and (b) "subsidiary" has the meaning set forth in Rule 405 of the Rules and Regulations. 16. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 17. Counterparts. This Agreement may be executed in one or more counterparts and, if executed in more than one or more counterparts, the executed counterparts shall each be deemed to be an original but all such counterparts shall together constitute one and the same instrument. 18. Headings. The headings herein are inserted for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement. 21 21 If the foregoing correctly sets forth the agreement between the Company and its subsidiaries and the Underwriters, please indicate your acceptance in the space provided for that purpose below. Very truly yours, PCS DEVELOPMENT CORPORATION By --------------------------------- Title: Accepted: LEHMAN BROTHERS INC. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION CHASE SECURITIES INC. TORONTO DOMINION SECURITIES (USA) INC. For themselves and as Representatives for each of the several Underwriters named in Schedule 1 hereto, By LEHMAN BROTHERS INC. By ------------------------------------- Authorized Representative 22 SCHEDULE 1
Number of Underwriters Units - ------------ ---------- Lehman Brothers Inc. . . . . . . . . . . . . . . . . . . . . . Donaldson, Lufkin & Jenrette Securities Corporation Chase Securities Inc. Toronto Dominion Securities (USA) Inc. __________ Total . . . . . . . . . . . . . . . . . . . . . . . . . . ==========
EX-4.1 3 INDENTURE 1 EXHIBIT 4.1 ================================================================================ PCS DEVELOPMENT CORPORATION, as Issuer and UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee __________________ Indenture Dated as of July __, 1996 __________________ ___% Senior Discount Notes due 2006 =============================================================================== 2 CROSS-REFERENCE TABLE
TIA Sections Indenture Sections - ------------ ------------------ Section 310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10 (b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3; 7.8 Section 311(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3 (b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3 Section 312(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 Section 313(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6 (c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5; 7.6; 10.2 Section 314(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.18; 10.2 (a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.17; 10.2 (c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3 (c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3 (e). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.4 Section 315(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2 (b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2; 7.5; 10.2 (c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2 (d). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2 Section 316(A)(1)(A). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5; 6.6 (a)(1)(B). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4; 6.6 (b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7 Section 317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.9 (b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 Section 318(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1 (c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1
Note: This Cross-Reference Table shall not for any purpose be deemed to be a part of this Indenture. 3 TABLE OF CONTENTS
Page RECITALS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE . . . . . . . . . . . . . . . . . 1 SECTION 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.2. Incorporation by Reference of Trust Indenture Act . . . . . . . . . . . . . . . . . . . 17 SECTION 1.3. Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 ARTICLE TWO THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . 17 SECTION 2.1. Form and Dating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 SECTION 2.2. Execution, Authentication and Denominations . . . . . . . . . . . . . . . . . . . . . . 18 SECTION 2.3. Registrar and Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 SECTION 2.4. Paying Agent to Hold Money in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . 19 SECTION 2.5. Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 SECTION 2.6. Book-Entry Provisions for the Global Note . . . . . . . . . . . . . . . . . . . . . . . 20 SECTION 2.7. Certificated Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 SECTION 2.8. Replacement Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 SECTION 2.9. Outstanding Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 SECTION 2.10. Temporary Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 2.11. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 2.12. CUSIP Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 2.13. Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 ARTICLE THREE REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 3.1. Optional Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 3.2. Notices to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 3.3. Selection of Notes to be Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 3.4. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 3.5. Effect of Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 SECTION 3.6. Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 SECTION 3.7. Payment of Notes Called for Redemption . . . . . . . . . . . . . . . . . . . . . . . . . 24 SECTION 3.8. Notes Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 ARTICLE FOUR COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . 25 SECTION 4.1. Payment of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 SECTION 4.2. Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 SECTION 4.3. Limitation on Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 SECTION 4.4. Limitation on Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 4.5. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 SECTION 4.6. Limitation on the Issuance and Sale of Capital Stock of Restricted Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 SECTION 4.7. Limitation on Issuances of Guarantees by Restricted Subsidiaries . . . . . . . . . . . . 30
4 SECTION 4.8. Limitation on Transactions with Shareholders and Affiliates . . . . . . . . . . . . . . 30 SECTION 4.9. Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 SECTION 4.10. Limitation on Sale and Leaseback Transactions . . . . . . . . . . . . . . . . . . . . . 32 SECTION 4.11. Limitation on Asset Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 4.12. Repurchase of Notes upon a Change of Control . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 4.13. Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 4.14. Payment of Taxes and Other Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 4.15. Maintenance of Properties and Insurance . . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 4.16. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 4.17. Compliance Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 4.18. Commission Reports and Reports to Trustee and to Holders . . . . . . . . . . . . . . . . 34 SECTION 4.19. Waiver of Stay, Extension or Usury Laws . . . . . . . . . . . . . . . . . . . . . . . . 34 ARTICLE FIVE CONSOLIDATION, MERGER AND SALE OF ASSETS . . . . . . . . . . . . . . . . . . 34 SECTION 5.1. When Company and Guarantor May Merge, Etc. . . . . . . . . . . . . . . . . . . . . . . . 34 SECTION 5.2. Successor Substituted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 ARTICLE SIX DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . 35 SECTION 6.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 SECTION 6.2. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 SECTION 6.3. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 SECTION 6.4. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 SECTION 6.5. Control by Majority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 SECTION 6.6. Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 SECTION 6.7. Rights of Holders to Receive Payment . . . . . . . . . . . . . . . . . . . . . . . . . . 38 SECTION 6.8. Collection Suit by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 SECTION 6.9. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 SECTION 6.10. Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 SECTION 6.11. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 SECTION 6.12. Restoration of Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 SECTION 6.13. Rights and Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 SECTION 6.14. Delay or Omission Not Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 ARTICLE SEVEN TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . 39 SECTION 7.1. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 SECTION 7.2. Certain Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 SECTION 7.3. Individual Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 SECTION 7.4. Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 SECTION 7.5. Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 SECTION 7.6. Reports by Trustee to Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 SECTION 7.7. Compensation and Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 SECTION 7.8. Replacement of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 SECTION 7.9. Successor Trustee by Merger, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 SECTION 7.10. Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 SECTION 7.11. Money Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 SECTION 7.12. Withholding Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 ARTICLE EIGHT DISCHARGE OF INDENTURE . . . . . . . . . . . . . . . . . . . . . . 42
5 SECTION 8.1. Termination of Company's Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 42 SECTION 8.2. Defeasance and Discharge of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . 43 SECTION 8.3. Defeasance of Certain Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 SECTION 8.4. Application of Trust Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 SECTION 8.5. Repayment to Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 SECTION 8.6. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS . . . . . . . . . . . . . . . . . . . 45 SECTION 9.1. Without Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 SECTION 9.2. With Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 SECTION 9.3. Revocation and Effect of Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 SECTION 9.4. Notation on or Exchange of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 SECTION 9.5. Trustee to Sign Amendments, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 SECTION 9.6. Conformity with Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . 47 ARTICLE TEN MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 47 SECTION 10.1. Trust Indenture Act of 1939 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 SECTION 10.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 SECTION 10.3. Certificate and Opinion as to Conditions Precedent . . . . . . . . . . . . . . . . . . . 48 SECTION 10.4. Statements Required in Certificate or Opinion . . . . . . . . . . . . . . . . . . . . . 48 SECTION 10.5. Rules by Trustee, Paying Agent or Registrar . . . . . . . . . . . . . . . . . . . . . . 49 SECTION 10.6. Payment Date Other Than a Business Day . . . . . . . . . . . . . . . . . . . . . . . . . 49 SECTION 10.7. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 SECTION 10.8. No Adverse Interpretation of Other Agreements . . . . . . . . . . . . . . . . . . . . . 49 SECTION 10.9. No Recourse Against Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 SECTION 10.10. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 SECTION 10.11. Duplicate Originals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 SECTION 10.12. Separability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 SECTION 10.13. Table of Contents, Headings, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 EXHIBIT A Form of Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
6 INDENTURE, dated as of July __, 1996, between PCS DEVELOPMENT CORPORATION, a Delaware corporation, as Issuer (the "Company"), and UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee (in such capacity, the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance of $________ aggregate principal amount at maturity of the Company's _____% Senior Discount Notes due 2006 (the "Notes") issuable as provided in this Indenture. Pursuant to the terms of an Underwriting Agreement dated ______ __, 1996 (the "Underwriting Agreement") among the Company and the underwriters named therein (the "Underwriters"), for which Lehman Brothers Inc. is acting as representative, the Company has agreed to issue and sell ________ units (the "Units") in accordance with the Unit Agreement dated as of May __, 1996 (the "Unit Agreement") between the Company and United States Trust Company of New York, as Unit Agent (in such capacity, the "Unit Agent"), each Unit consisting of $1,000 principal amount at maturity of the Notes and _____ warrants (the "Warrants") entitling the holder thereof to purchase ______ shares of Class B Common Stock of the Company (the "Class B Common Stock") from the Company at an exercise price of $0.01 per share, subject to adjustment as provided in the Warrant Agreement dated as of May __, 1996 (the "Warrant Agreement") between the Company and United States Trust Company of New York, as the Warrant Agent (in such capacity, the "Warrant Agent"). The Notes and the Warrants will become separately transferable upon the earliest to occur of (i) ________ __, 1996, (ii) such earlier date as may be determined by Lehman Brothers Inc. and specified to the Company, the Trustee, the Warrant Agent and the Unit Agent in writing, (iii) the occurrence of a Change of Control and (iv) in the event of an Asset Sale, the date the Company mails notice thereof to the holders of the Notes. All things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done, and the Company has done all things necessary to make the Notes, when executed by the Company and authenticated and delivered by the Trustee hereunder and duly issued by the Company, the valid obligations of the Company as hereinafter provided. This Indenture is subject to, and shall be governed by, the provisions of the Trust Indenture Act of 1939, as amended, that are required to be a part of, and to govern, indentures qualified under the Trust Indenture Act of 1939, as amended. AND THIS INDENTURE FURTHER WITNESSETH FOR AND IN consideration of the premises and the purchase of the Notes by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders, as follows. ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.1. Definitions. "Accreted Value" is defined to mean, for any Specified Date, the amount provided below with respect to each $1,000 principal amount at maturity of Notes: (i) if the Specified Date occurs on one of the following dates (each a "Semi-Annual Accrual Date"), the Accreted Value will equal the amount set forth below for such Semi-Annual Accrual Date: 7 2
ACCRETED SEMI-ANNUAL ACCRUAL DATE VALUE - ------------------------ ----- 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,000.00
(ii) if the Specified Date occurs before the first Semi-Annual Accrual Date, the Accreted Value will equal the sum of (a) the issue price (as determined for U.S. federal income tax purposes) and (b) an amount equal to the product of (1) the Accreted Value for the first Semi-Annual Accrual Date less the original issue price multiplied by (2) a fraction, the numerator of which is the number of days from the issue date of the Notes to the Specified Date, using a 360-day year of twelve 30-day months, and the denominator of which is the number of days from the issue date of the Notes to the first Semi-Annual Accrual Date, using a 360-day year of twelve 30-day months; (iii) if the Specified Date occurs between two Semi-Annual Accrual Dates, the Accreted Value will equal the sum of (a) the Accreted Value for the Semi-Annual Accrual Date immediately preceding such Specified Date and (b) an amount equal to the product of (1) the Accreted Value for the immediately following Semi-Annual Accrual Date less the Accreted Value for the immediately preceding Semi Annual Accrual Date multiplied by (2) a fraction, the numerator of which is the number of days from the immediately preceding Semi-Annual Accrual Date to the Specified Date, using a 360-day year of twelve 30-day months, and the denominator of which is 180; or (iv) if the Specified Date occurs after the last Semi-Annual Accrual Date, the Accreted Value will equal $1,000. The Company shall be responsible for calculating the Accreted Value pursuant to (ii) and (iii) above and shall send written notice to the Trustee of such calculation. "Acquired Indebtedness" means Indebtedness of a Person existing at the time such Person becomes a Restricted Subsidiary or assumed in connection with an Asset Acquisition by the Company or a Restricted Subsidiary and not incurred in connection with, or in anticipation of, such Person becoming a Restricted Subsidiary or such Asset Acquisition, as the case may be; provided that Indebtedness of such Person which is redeemed, defeased, retired or otherwise repaid at the time of or immediately upon consummation of the transactions by which such Person becomes a Restricted Subsidiary or such Asset Acquisition shall not be Acquired Indebtedness. "Adjusted Consolidated Net Income" means, for any period, the aggregate net income (or loss) of the Company and its Restricted Subsidiaries for such period determined in conformity with GAAP; provided that the following items shall be excluded in computing Adjusted Consolidated Net Income (without duplication): (i) the net income of any Person (other than net income attributable to a Restricted Subsidiary) in which any Person (other than the Company or any of its Restricted Subsidiaries) has a joint interest and the net income of any Unrestricted Subsidiary, except to the extent of the amount of dividends or other distributions actually paid to the Company or any of its Restricted Subsidiaries by such other Person or such Unrestricted Subsidiary during such period; (ii) solely for the purposes of calculating the amount of Restricted Payments that may be made 8 3 pursuant to clause (C) of the first paragraph of Section 4.4 (and in such case, except to the extent includible pursuant to clause (i) above), the net income (or loss) of any Person accrued prior to the date it becomes a Restricted Subsidiary or is merged into or consolidated with the Company or any of its Restricted Subsidiaries or all or substantially all of the property and assets of such Person are acquired by the Company or any of its Restricted Subsidiaries; (iii) the net income of any Restricted Subsidiary to the extent that the declaration or payment of dividends or similar distributions by such Restricted Subsidiary of such net income is not at the time permitted by the operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Restricted Subsidiary; (iv) any gains or losses (on an after-tax basis) attributable to Asset Sales; (v) any amount paid or accrued as dividends on Preferred Stock of the Company or any Restricted Subsidiary owned by Persons other than the Company and any of its Restricted Subsidiaries; and (vi) all extraordinary gains and extraordinary losses. "Affiliate" means, as applied to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "Agent" means any Registrar, Paying Agent, authenticating agent or co-Registrar. "Agent Members" has the meaning provided in Section 2.6(a). "Asset Acquisition" means (i) an investment by the Company or any of its Restricted Subsidiaries in any other Person pursuant to which such Person shall become a Restricted Subsidiary or shall be merged into or consolidated with the Company or any Restricted Subsidiary; provided that such Person's primary business is related, ancillary or complementary to the businesses of the Company and its Restricted Subsidiaries on the date of such investment, or (ii) an acquisition by the Company or any of its Restricted Subsidiaries of the property and assets of any Person other than the Company or any of its Restricted Subsidiaries that constitute substantially all of a division or line of business of such Person; provided that the property and assets acquired are related, ancillary or complementary to the businesses of the Company and its Restricted Subsidiaries on the date of such acquisition. "Asset Sale" means any sale, transfer or other disposition (including by way of merger, consolidation, or sale-leaseback transactions) in one transaction or a series of related transactions by the Company or any of its Restricted Subsidiaries to any Person other than the Company or any of its Restricted Subsidiaries of (i) all or any of the Capital Stock of any Restricted Subsidiary, (ii) all or substantially all of the property and assets of an operating unit or business of the Company or any of its Restricted Subsidiaries or (iii) any other property and assets of the Company or any of its Restricted Subsidiaries outside the ordinary course of business of the Company or such Restricted Subsidiary and, in each case, that is not governed by the provisions of Article Five; provided that "Asset Sale" shall not include (i) sales or other dispositions of inventory, receivables and other current assets in the ordinary course of business, (ii) substantially contemporaneous exchanges by the Company or any Restricted Subsidiary of property or equipment for other property or equipment; provided that the property or equipment received in any such exchange by the Company or such Restricted Subsidiary (A) constitutes Telecommunications Assets and (B) has at least substantially equal market value to the Company or such Restricted Subsidiary (as determined by the Board of Directors whose good faith determination shall be conclusive and evidenced by a board resolution) or (iii) sales or other dispositions of assets with a fair market value (as certified in an Officers' Certificate) not in excess of $500,000. "Attributable Value" means, as to any particular lease under which any Person is at the time liable other than a Capitalized Lease Obligation, and at any date as of which the amount thereof is to be determined, the total net amount of rent required to be paid by such Person under such lease during the initial term thereof as determined in accordance with GAAP, discounted from the last date of such initial term to the date of determination at a rate per annum equal to the discount rate which would be applicable to a Capitalized 9 4 Lease Obligation with a like term in accordance with GAAP. The net amount of rent required to be paid under any such lease for any such period shall be the aggregate amount of rent payable by the lessee with respect to such period after excluding amounts required to be paid on account of insurance, taxes, assessments, utility, operating and labor costs and similar charges. In the case of any lease which is terminable by the lessee upon the payment of a penalty, such net amount shall also include the amount of such penalty, but no rent shall be considered as required to be paid under such lease subsequent to the first date upon which it may be so terminated. "Attributable Value" means, as to a Capitalized Lease Obligation under which any Person is at the time liable and at any date as of which the amount thereof is to be determined, the capitalized amount thereof that would appear on the face of a balance sheet of such person in accordance with GAAP. "Average Life" means, at any date of determination with respect to any debt security, the quotient obtained by dividing (i) the sum of the products of (a) the number of years from such date of determination to the dates of each successive scheduled principal payment of such debt security and (b) the amount of such principal payment by (ii) the sum of all such principal payments. "Board of Directors" means the Board of Directors of the Company or any committee of such Board of Directors duly authorized to act under this Indenture. "Board Resolution" means a copy of a resolution, certified by the Secretary or Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification and delivered to the Trustee. "Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in The City of New York, or in the city of the Corporate Trust Office, are authorized by law to close. "Capital Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) in the equity of such Person, whether now outstanding or issued after the date of the Indenture. "Capitalized Lease" means, as applied to any Person, any lease of any property (whether real, personal or mixed) of which the discounted present value of the rental obligations of such Person as lessee, in conformity with GAAP, is required to be capitalized on the balance sheet of such Person; and "Capitalized Lease Obligations" means the discounted present value of the rental obligations under such lease. "Change of Control" means the occurrence of any of the following events: (i) a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of Voting Stock having more than 50% of the voting power of the total Voting Stock of the Company on a fully diluted basis; (ii) individuals who at the beginning of any period of two consecutive calendar years constituted the Board of Directors of the Company (together with any new directors whose election by the Board of Directors or whose nomination for election by the Company's shareholders was approved by a vote of at least two-thirds of the members of the Board of Directors then in office who either were members of the Board of Directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the members of the Board of Directors then in office; (iii) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole to any such "person" or "group" (other than to the Company or a Wholly Owned Restricted Subsidiary); (iv) the merger or consolidation of the Company with or into another corporation or the merger of another corporation with or into the Company with the effect that immediately after such transaction any such "person" or "group" of persons or entities shall have become the beneficial owner of securities of the surviving corporation of such merger or consolidation representing a majority of the combined voting power of the outstanding securities of the surviving corporation ordinarily having the right to vote in the election of directors; or (v) the adoption of a plan relating to the liquidation or dissolution of the Company; provided, that a Change of Control will be deemed not to occur pursuant to clauses (i), (ii), (iii) or (iv) above if either (x) the acquiring "person" is a corporation with 10 5 outstanding senior, unsecured corporate debt securities having a maturity at original issuance of at least one year and such debt securities are rated Investment Grade (without giving effect to any third-party credit support or enhancement) by S&P or Moody's for a period of at least 90 consecutive days, beginning on the date of such event (which period will be extended up to 90 additional days for as long as the rating of such debt securities is under publicly announced consideration for possible downgrading by the applicable rating agency), or (y) in the event that the acquiring "person" is a corporation that either (1) does not have any outstanding senior, unsecured corporate debt securities that are rated by S&P or Moody's at any time during a period of 90 consecutive days beginning on the date of such event (which period will be extended up to an additional 90 days for as long as any such rating agency has publicly announced that such debt securities will be rated), or (2) after the date of such event but during such 90 day period, has outstanding senior, unsecured corporate debt securities having a maturity at original issuance of at least one year that have been rated Investment Grade (without giving effect to any third-party credit support or enhancement) by S&P or Moody's which rating continues in effect for the remainder of the period specified in clause (x) above, the Notes shall be rated Investment Grade immediately upon such Change of Control. "Class B Common Stock" has the meaning provided in the recitals to this Indenture. "Closing Date" means the date on which the Units are originally issued under the Unit Agreement. "Closing Price" on any Trading Day with respect to the per share price of any shares of Capital Stock means the last reported sale price regular way or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case on the New York Stock Exchange or, if such shares of Capital Stock are not listed or admitted to trading on such exchange, on the principal national securities exchange on which such shares are listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the Nasdaq National Market or, if such shares are not listed or admitted to trading on any national securities exchange or quoted on such automated quotation system, the average of the closing bid and asked prices in the over-the-counter market as furnished by any New York Stock Exchange member firm that is selected from time to time by the Company for that purpose and is reasonably acceptable to the Trustee. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the TIA, then the body performing such duties at such time. "Common Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of such Person's common stock, whether now outstanding or issued after the date of this Indenture, including, without limitation, all series and classes of such common stock. "Company" means the party named as such in the first paragraph of this Indenture until a successor replaces it pursuant to Article Five and thereafter means the successor. "Company Order" means a written request or order signed in the name of the Company (i) by its Chairman, a Vice Chairman, its President or a Vice President and (ii) by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary and delivered to the Trustee; provided, however, that such written request or order may be signed by any two of the officers or directors listed in clause (i) above in lieu of being signed by one of such officers or directors listed in such clause (i) and one of the officers listed in clause (ii) above. "Consolidated EBITDA" means, for any period, the sum of the amounts for such period of (i) Adjusted Consolidated Net Income, (ii) Consolidated Interest Expense to the extent such amount was deducted in calculating Adjusted Consolidated Net Income, (iii) income taxes, to the extent such amount was deducted in calculating Adjusted Consolidated Net Income (other than income taxes (either positive or negative) attributable 11 6 to extraordinary and non-recurring gains or losses or sales of assets), (iv) depreciation expense, to the extent such amount was deducted in calculating Adjusted Consolidated Net Income, (v) amortization expense, to the extent such amount was deducted in calculating Adjusted Consolidated Net Income, and (vi) all other non-cash charges (excluding any such non-cash charge to the extent that it represents an accrual of or reserve for cash charges in any future period) of such Person and its Subsidiaries for such period to the extent that such other non cash charges were deducted in computing such Adjusted Consolidated Net Income, less (vii) all non-cash items increasing Adjusted Consolidated Net Income for such period (excluding any such non-cash income to the extent it represents an accrual of cash income to be received in any future period), in each case on a consolidated basis and determined in accordance with GAAP; provided that, if any Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary, Consolidated EBITDA shall be reduced (to the extent not otherwise reduced in accordance with GAAP) by an amount equal to (A) the amount of the Adjusted Consolidated Net Income attributable to such Restricted Subsidiary multiplied by (B) the quotient of (1) the number of outstanding common shares of such Restricted Subsidiary not owned on the last day of such period by the Company or any of its Restricted Subsidiaries divided by (2) the total number of outstanding common shares of such Restricted Subsidiary on the last day of such period. "Consolidated Fixed Charges" of any Person means for any period (i) Consolidated Interest Expense of such Person plus (ii) Preferred Stock dividends declared and payable in cash in such period by such Person or any of its Restricted Subsidiaries, other than any such dividends payable only in shares of Common Stock or options, warrants or other rights to purchase or acquire Common Stock, or payable by a Restricted Subsidiary of such Person to such Person or one of its Wholly Owned Restricted Subsidiaries. "Consolidated Indebtedness" means the aggregate amount of Indebtedness of the Company and its Restricted Subsidiaries on a consolidated basis. "Consolidated Interest Expense" means, for any period, the aggregate of the following amounts for such period determined on a consolidated basis (without taking into account Unrestricted Subsidiaries) in accordance with GAAP: the amount of interest in respect of Indebtedness (including amortization of original issue discount on any Indebtedness; the interest portion of any deferred payment obligation and any premiums, fees and expenses (and any amortization thereof) payable in connection with Indebtedness; all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing; the net costs associated with Interest Rate Agreements; interest on Indebtedness that is Guaranteed or secured by the Company or any of its Restricted Subsidiaries; and amounts paid to repurchase the Warrants to the extent such amounts have been expensed for purposes of determining Adjusted Consolidated Net Income) and all but the principal component of rentals in respect of Capitalized Lease Obligations paid, accrued or scheduled to be paid or to be accrued by the Company and its Restricted Subsidiaries during such period; excluding, however, any amount of such interest of any Restricted Subsidiary if the net income of such Restricted Subsidiary is excluded in the calculation of Adjusted Consolidated Net Income pursuant to clause (iii) of the definition thereof (but only in the same proportion as the net income of such Restricted Subsidiary is excluded from the calculation of Adjusted Consolidated Net Income pursuant to clause (iii) of the definition thereof). "Consolidated Net Worth" means, at any date of determination, shareholders' equity as set forth on the most recently available quarterly or annual consolidated balance sheet of the Company and its Restricted Subsidiaries (which shall be as of a date not more than 90 days prior to the date of such computation, and which shall not take into account Unrestricted Subsidiaries), less any amounts attributable to Redeemable Stock or any equity security convertible into or exchangeable for Indebtedness, the cost of treasury stock and the principal amount of any promissory notes receivable from the sale of Capital Stock of the Company or any of its Restricted Subsidiaries, each item to be determined in conformity with GAAP. "Corporate Trust Office" means the office of the Trustee at which the corporate trust business of the Trustee shall, at any particular time, be principally administered, which office is, at the date of this Indenture, located at 114 West 47th Street, New York, New York 10036, Attention: ________________. 12 7 "Credit Facility" means the credit agreement to be entered into prior to or simultaneously with the completion of the offering of the Units, as such credit agreement may be amended, modified, supplemented, restated or replaced from time to time. "Default" means any event that is, or after notice or passage of time or both would be, an Event of Default. "Depository" shall mean The Depository Trust Company, its nominees, and their respective successors. "Dollar" or "$" means, unless specified otherwise, United States dollars. "Event of Default" has the meaning provided in Section 6.1. "Excess Proceeds" has the meaning provided in Section 4.11. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Excluded Holder" has the meaning provided in Section 4.20. "FCC" means the Federal Communications Commission or any successor governmental authority. "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the date of the Indenture, including, without limitation, those 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 approved by a significant segment of the accounting profession. "Global Note" has the meaning provided in Section 2.1. "Global Note Holder" has the meaning provided in Section 2.2. "Guarantee" means, with respect to any Person, any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Indebtedness or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such other Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Holder" or "Noteholder" means the registered holder of any Note. "Incur" means, with respect to any Indebtedness, to incur, create, issue, assume, Guarantee or otherwise become liable for or with respect to, or become responsible for, the payment of, contingently or otherwise, such Indebtedness, including Acquired Indebtedness; provided that neither the accrual of interest nor the accretion of original issue discount shall be considered an Incurrence of Indebtedness. "Indebtedness" means, with respect to any Person at any date of determination (without duplication), (i) all indebtedness of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (other than the Company's Series A Preferred 13 8 Stock) (iii) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto), (iv) all obligations of such Person to pay the deferred and unpaid purchase price of property or services, which purchase price is due more than six months after the date of placing such property in service or taking delivery and title thereto or the completion of such services, except trade payables, (v) all obligations of such Person as lessee under Capitalized Leases, (vi) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; provided that the amount of such Indebtedness shall be the lesser of (A) the fair market value of such asset at such date of determination and (B) the amount of such Indebtedness, (vii) all Indebtedness of other Persons Guaranteed by such Person to the extent such Indebtedness is Guaranteed by such Person and (viii) to the extent not otherwise included in this definition, obligations under Interest Rate Agreements. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the obligation, provided (i) that the amount outstanding at any time of any Indebtedness issued with original issue discount is the accreted value of such Indebtedness, (ii) that Indebtedness shall not include any liability for federal, state, local or other taxes (iii) that Indebtedness shall not include any liability under health, life, accident or disability plans for employees of the Company or any Restricted Subsidiary generally, and (iv) Indebtedness shall not include any commitment for the purchase by the Company or any Restricted Subsidiary of equipment or telecommunications services requiring the Company or such Restricted Subsidiary to purchase minimum quantities to achieve discount pricing prior to the time the Company or such Restricted Subsidiary is required pursuant to GAAP to record a liability on its balance sheet under such commitment to pay increased prices. "Indebtedness to EBITDA Ratio" means, as at any date of determination (the "Determination Date"), the ratio of (i) Consolidated Indebtedness at the Determination Date to (ii) the product of four times the Consolidated EBITDA of the Company for the most recent full fiscal quarter for which reports have been filed pursuant to Section 4.18 (such full fiscal quarter being referred to herein as the "Most Recent Quarter"); provided that (x) pro forma effect shall be given to (A) any Indebtedness Incurred during the period commencing on the first day of the Most Recent Quarter through the Determination Date (the "Reference Period"), including any Indebtedness Incurred on the Determination Date, to the extent outstanding at the close of the Determination Date, and (B) the discharge of any other Indebtedness permanently retired, repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness, in each case as if the Incurrence or retirement of such Indebtedness had occurred on the first date of such Reference Period, (y) if during the Reference Period, the Company or any of its Restricted Subsidiaries shall have engaged in any Asset Sale, Consolidated EBITDA for such period shall be decreased by an amount equal to the portion thereof (if positive), or increased by an amount equal to the portion thereof (if negative), directly attributable to the assets which are the subject of such Asset Sale (including, as part of the amount directly attributable to such Asset Sale, any transfer, retirement or other satisfaction of Indebtedness of the Company or any of its Restricted Subsidiaries as part of the consideration for such Asset Sale) as if such Asset Sale and related retirement of Indebtedness had occurred on the first day of such Reference Period or (z) if during such Reference Period the Company or any of its Restricted Subsidiaries shall have made any Asset Acquisition, the Consolidated EBITDA of the Company shall be calculated on a pro forma basis as if such Asset Acquisition and any related financing had occurred on the first day of such Reference Period. "Indenture" means this Indenture as originally executed or as it may be amended or supplemented from time to time by one or more indentures supplemental to this Indenture entered into pursuant to the applicable provisions of this Indenture. "Interest Payment Date" means each semiannual interest payment date on ________ __ and ________ __ of each year, commencing ________ __, 2002. "Interest Rate Agreement" means any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement, option or future contract or other similar agreement or arrangement designed to protect the Company or any of its Subsidiaries against fluctuations in interest rates. 14 9 "Investment" in any Person means any direct or indirect advance, loan or other extension of credit (including, without limitation, by way of Guarantee or similar arrangement; but excluding advances to customers in the ordinary course of business that are, in conformity with GAAP, recorded as accounts receivable on the balance sheet of the Company or its Restricted Subsidiaries) to, capital contribution (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others) to, or any purchase or acquisition of Capital Stock, bonds, notes, debentures or other similar instruments issued by, such Person and shall include the designation of a newly formed or newly acquired Subsidiary as an Unrestricted Subsidiary. For purposes of the definition of "Unrestricted Subsidiary", Section 4.4 and Section 4.6, (i) "Investment" shall include (a) the fair market value of the assets (net of liabilities) of any newly formed or newly acquired Subsidiary of the Company at the time that such newly formed or newly acquired Subsidiary is designated an Unrestricted Subsidiary and (b) the fair market value, in the case of a sale of Capital Stock in accordance with Section 4.6 such that a Person no longer constitutes a Restricted Subsidiary, of the remaining assets (net of liabilities) of such Person after such sale, and shall exclude the fair market value of the assets (net of liabilities) of any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is designated a Restricted Subsidiary of the Company and (ii) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, in each case as determined by the Board of Directors in good faith. "Investment Grade" shall mean BBB- or higher by S&P or Baa3 or higher by Moody's. "L.A. Note" means the $500,000 aggregate principal amount promissory note or notes of the Company issued to the seller in connection with the acquisition of radio frequency licenses in Los Angeles, California. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including, without limitation, any conditional sale or other title retention agreement or lease in the nature thereof, any sale with recourse against the seller or any Affiliate of the seller, or any agreement to give any security interest). "Moody's" means Moody's Investors Service, Inc. and its successors. "Net Cash Proceeds" means, (a) with respect to any Asset Sale, the proceeds of such Asset Sale in the form of cash or cash equivalents, including payments in respect of deferred payment obligations (to the extent corresponding to the principal, but not interest, component thereof) when received in the form of cash or cash equivalents (except to the extent such obligations are financed or sold with recourse to the Company or any Restricted Subsidiary of the Company) and proceeds from the conversion of other property received when converted to cash or cash equivalents, net of (i) brokerage commissions and other fees and expenses (including fees and expenses of counsel and investment bankers) related to such Asset Sale, (ii) provisions for all taxes (whether or not such taxes will actually be paid or are payable) as a result of such Asset Sale without regard to the consolidated results of operations of the Company and its Restricted Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness or any other obligation outstanding at the time of such Asset Sale that either (A) is secured by a Lien on the property or assets sold or (B) is required to be paid as a result of such sale and (iv) appropriate amounts to be provided by the Company or any Restricted Subsidiary of the Company as a reserve against any liabilities associated with such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as determined in conformity with GAAP and (b) with respect to any issuance or sale of Capital Stock, the proceeds of such issuance or sale in the form of cash or cash equivalents, including payments in respect of deferred payment obligations (to the extent corresponding to the principal, but not interest, component thereof) when received in the form of cash or cash equivalents (except to the extent such obligations are financed or sold with recourse to the Company or any Restricted Subsidiary of the Company) and proceeds from the conversion of other property received when converted to cash or cash equivalents, net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. 15 10 "Notes" means any of the notes, as defined in the first paragraph of the recitals hereof, that are authenticated and delivered under this Indenture. "Offer to Purchase" means an offer to purchase Notes by the Company from the Holders commenced by mailing a notice to the Trustee and each Holder stating: (i) the covenant pursuant to which the offer is being made and that all Notes validly tendered will be accepted for payment on a pro rata basis; (ii) the purchase price and the date of purchase (which shall be a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the "Payment Date"); (iii) that any Note not tendered will continue to accrue interest (or accrete original issue discount) pursuant to its terms; (iv) that, unless the Company defaults in the payment of the purchase price, any Note accepted for payment pursuant to the Offer to Purchase shall cease to accrue interest (or accrete original issue discount) on and after the Payment Date; (v) that Holders electing to have a Note purchased pursuant to the Offer to Purchase will be required to surrender the Note, together with the form entitled "Option of the Holder to Elect Purchase" on the reverse side of the Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day immediately preceding the Payment Date; (vi) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the third Business Day immediately preceding the Payment Date, a telegram, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Notes delivered for purchase and a statement that such Holder is withdrawing his election to have such Notes purchased; and (vii) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered; provided that each Note purchased and each new Note issued shall be in a principal amount of $1,000 or integral multiples thereof. On the Payment Date, the Company shall (i) accept for payment on a pro rata basis Notes or portions thereof tendered pursuant to an Offer to Purchase; (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Notes or portions thereof so accepted; and (iii) cause the Paying Agent to deliver to the Trustee all Notes or portions thereof so accepted together with an Officers' Certificate specifying the Notes or portions thereof accepted for payment by the Company. The Paying Agent shall promptly mail to the Holders of Notes so accepted payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate and mail to such Holders a new Note equal in principal amount to any unpurchased portion of the Note surrendered; provided that each Note purchased and each new Note issued shall be in a principal amount of $1,000 or integral multiples thereof. The Company will publicly announce the results of an Offer to Purchase as soon as practicable after the Payment Date. The Trustee shall act as the Paying Agent for an Offer to Purchase. The Company will comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable, in the event that the Company is required to repurchase Notes pursuant to an Offer to Purchase. "Officer" means, with respect to the Company, (i) the Chairman, a Vice Chairman, the President, any Vice President and (ii) the Treasurer or any Assistant Treasurer, or the Secretary or any Assistant Secretary. "Officers' Certificate" means a certificate signed by one Officer listed in clause (i) of the definition thereof and one Officer listed in clause (ii) of the definition thereof, provided, however, that any such certificate may be signed by any two of the Officers listed in clause (i) of the definition thereof in lieu of being signed by one Officer listed in clause (i) of the definition thereof and one Officer listed in clause (ii) of the definition thereof. Each Officers' Certificate (other than certificates provided pursuant to TIA Section 314(a)(4)) shall include the statements provided for in TIA Section 314(e). "Opinion of Counsel" means a written opinion signed by legal counsel who may be an employee of or counsel to the Company. Each such Opinion of Counsel shall include the statements provided for in TIA Section 314(e). "Paying Agent" has the meaning provided in Section 2.3, except that, for the purposes of Article Eight, the Paying Agent shall not be the Company or a Subsidiary of the Company or an Affiliate of any of them. The term "Paying Agent" includes any additional Paying Agent. 16 11 "Payment Date" means the date of purchase of Notes pursuant to an Offer to Purchase, which shall be a Business Day no earlier than 30 days nor later than 60 days from the date a notice is mailed pursuant to such Offer to Purchase. "Permitted Investment" means (i) an Investment in a Restricted Subsidiary or a Person which will, upon the making of such Investment, become a Restricted Subsidiary or be merged or consolidated with or into or transfer or convey all or substantially all its assets to, the Company or a Restricted Subsidiary; provided that, such Person's primary business is related, ancillary or complementary to the businesses of the Company and its Restricted Subsidiaries on the date of such Investment; (ii) a Temporary Cash Investment; (iii) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses in accordance with GAAP; and (iv) loans or advances to employees made in the ordinary course of business in accordance with past practice of the Company or its Restricted Subsidiaries and that do not in the aggregate exceed $500,000 at any time outstanding. "Permitted Liens" means (i) Liens for taxes, assessments, governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate legal proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; (ii) statutory Liens of landlords and carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other similar Liens arising in the ordinary course of business and with respect to amounts not yet delinquent or being contested in good faith by appropriate legal proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; (iii) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security; (iv) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory or regulatory obligations, bankers' acceptances, surety and appeal bonds, government contracts, performance and return-of-money bonds and other obligations of a similar nature incurred in the ordinary course of business (exclusive of obligations for the payment of borrowed money); (v) easements, rights-of-way, municipal and zoning ordinances and similar charges, encumbrances, title defects or other irregularities that do not materially interfere with the ordinary course of business of any Telecommunications Subsidiary individually or the Company and its Restricted Subsidiaries taken as a whole; (vi) Liens upon real or personal property acquired after the Closing Date; provided that (a) such Lien is created solely for the purpose of securing Indebtedness Incurred in accordance with Section 4.3, (1) to finance the cost (including the cost of improvement or construction) of the item of property or assets subject thereto and such Lien is created prior to, at the time of or within six months after the later of the acquisition, the completion of construction or the commencement of full operation of such property or (2) to refinance any Indebtedness previously so secured, (b) the principal amount of the Indebtedness secured by such Lien does not exceed 100% of such cost and (c) any such Lien shall not extend to or cover any property or assets other than such item of property or assets and any improvements on such item; (vii) leases, subleases, licenses or sublicenses granted to others that do not materially interfere with the ordinary course of business of the Company and its Restricted Subsidiaries, taken as a whole; (viii) Liens encumbering property or assets under construction arising from progress or partial payments by a customer of the Company or its Restricted Subsidiaries relating to such property or assets; (ix) any interest or title of a lessor in the property subject to any Capitalized Lease or operating lease; (x) Liens arising from filing Uniform Commercial Code financing statements (or substantially equivalent filings outside of the United States) regarding leases; (xi) Liens on property of, or on shares of stock or Indebtedness of, any corporation existing at the time such corporation becomes, or becomes a part of, any Restricted Subsidiary; provided that such Liens do not extend to or cover any property or assets of the Company or any Restricted Subsidiary other than the property or assets acquired or property or assets of the corporation that becomes a Restricted Subsidiary; (xii) Liens in favor of the Company or any Restricted Subsidiary; (xiii) Liens arising from the rendering of a final judgment or order against the Company or any Restricted Subsidiary of the Company that does not give rise to an Event of Default; (xiv) Liens securing reimbursement obligations with respect to letters of credit that encumber documents and other property relating to such letters of credit and the products and proceeds thereof; (xv) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (xvi) Liens encumbering customary initial deposits and margin deposits, and other Liens that are either within the general parameters customary in the industry and incurred in the ordinary course 17 12 of business, in each case, securing Indebtedness under Interest Rate Agreements; (xvii) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business of the Company and its Restricted Subsidiaries; (xviii) Liens on or sales of receivables; (xix) Liens securing Indebtedness permitted to be Incurred pursuant to clause (vi) of the second paragraph of Section 4.3 (including, without limitation, Indebtedness under the Credit Facility permitted to be Incurred pursuant to such clause (vi)); provided, however, that any such Indebtedness shall not be secured by any property or assets of the Company or any Restricted Subsidiary of the Company other than the Telecommunications Assets so constructed or acquired with the proceeds of such Indebtedness or by the stock of any Restricted Subsidiary, the assets of which consist solely of such Telecommunications Assets so constructed or acquired; (xx) Liens on licenses granted by the FCC to utilize narrowband radio frequency or on the interests in any entity, the material assets of which consist of such licenses to the extent they secure Indebtedness permitted to be Incurred under clauses (v) and (vii) of the second paragraph of Section 4.3, provided that the aggregate amount of Indebtedness secured by any such Lien shall not at any time exceed the amount of Indebtedness permitted to be Incurred pursuant to such clauses (v) and (vii); (xxi) Liens (including Liens on Capital Stock of any Restricted Subsidiary) to the extent they secure Indebtedness outstanding under the Credit Facility, provided that the aggregate amount of Indebtedness secured by any such Lien (without duplication of any Indebtedness secured by Liens pursuant to clause (xix) above) shall not at any time exceed the amount of Indebtedness permitted to be Incurred under any such facility pursuant to the terms of the Indenture; (xxii) Liens (including Liens on Capital Stock of any Restricted Subsidiary) to the extent they secure Indebtedness outstanding permitted to be Incurred under clause (i) or (viii) of the second paragraph of Section 4.3, provided that the fair market value, as determined by the Board of Directors of the Company in good faith, of the property and other assets subject to such Liens (determined at the time such Liens are granted) does not exceed an amount equal to 150% of the amount of such Indebtedness; and (xxiii) any extension, renewal or replacement, in whole or in part, of any Lien described in clauses (i) through (xxii); provided that any such extension, renewal or replacement shall not extend to any additional property or assets. "Person" means an individual, partnership, corporation, trust or unincorporated organization, and a government or agency or political subdivision thereof. "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 debt security, including the Notes, means the principal amount due on the Stated Maturity as shown on such debt security. "Redeemable Stock" means any class or series of Capital Stock of any Person that by its terms or otherwise is (i) required to be redeemed prior to the Stated Maturity of the Notes, (ii) redeemable at the option of the holder of such class or series of Capital Stock at any time prior to the Stated Maturity of the Notes or (iii) convertible into or exchangeable for Capital Stock referred to in clause (i) or (ii) above or Indebtedness having a scheduled maturity prior to the Stated Maturity of the Notes; provided that any Capital Stock that would not constitute Redeemable Stock but for provisions thereof giving holders thereof 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 Stated Maturity of the Notes shall not constitute Redeemable 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 contained in Section 4.11 and Section 4.12 and such Capital Stock specifically provides that such Person will not repurchase or redeem any such stock pursuant to such provision prior to the expiration of the Company's Offer to Purchase Notes as required pursuant to Section 4.11 and Section 4.12. "Redemption Date", when used with respect to any Note to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. 18 13 "Redemption Price", when used with respect to any Note to be redeemed, means the price at which such Note is to be redeemed pursuant to this Indenture. "Refinancing Indebtedness" means Indebtedness of the Company or any Restricted Subsidiary issued in exchange for, or the net proceeds of which are used to refinance or refund, then outstanding Indebtedness of such Person, other than Indebtedness Incurred under clause (i), (v) or (viii) of the second paragraph of Section 4.3, and any refinancings thereof in an amount not to exceed the amount so refinanced or refunded (plus premiums, accrued interest, fees and expenses); provided that Indebtedness the proceeds of which are used to refinance or refund the Notes or Indebtedness that is pari passu with, or subordinated in right of payment to, the Notes shall only be permitted if (A) in case the Notes are refinanced in part or the Indebtedness to be refinanced is pari passu with the Notes, such new Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such new Indebtedness is outstanding, is expressly made pari passu with, or subordinate in right of payment to, the remaining Notes, (B) in case the Indebtedness to be refinanced is subordinated in right of payment to the Notes, such new Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such new Indebtedness is issued or remains outstanding, is expressly made subordinate in right of payment to the Notes at least to the extent that the Indebtedness to be refinanced is subordinated to the Notes and (C) such new Indebtedness, determined as of the date of Incurrence of such new Indebtedness, does not mature prior to the Stated Maturity of the Indebtedness to be refinanced or refunded and the Average Life of such new Indebtedness is at least equal to the remaining Average Life of the Indebtedness to be refinanced or refunded; and provided further that in no event may Indebtedness of the Company (other than the L.A. Note) be refinanced by means of any Indebtedness of any Restricted Subsidiary pursuant to this definition. "Registrar" has the meaning provided in Section 2.3. "Regular Record Date" for the interest payable on any Interest Payment Date means the ________ 1 or ________ 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. "Responsible Officer", when used with respect to the Trustee, means the chairman or any vice chairman of the board of directors, the chairman or any vice chairman of the executive committee of the board of directors, the chairman of the trust committee, the president, any vice president, any assistant vice president, the secretary, any assistant secretary, the treasurer, any assistant treasurer, the cashier, any assistant cashier, any trust officer or assistant trust officer, the controller or any assistant controller or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his or her knowledge of and familiarity with the particular subject. "Restricted Payments" has the meaning provided in Section 4.4. "Restricted Subsidiary" means any Subsidiary of the Company other than an Unrestricted Subsidiary. "Sale and Leaseback Transaction" means any direct or indirect arrangement with any Person or to which any such Person is a party providing for the leasing to the Company or a Restricted Subsidiary of any property, whether owned by the Company or any Restricted Subsidiary at the Closing Date or later acquired, which has been or is to be sold or transferred by the Company or such Restricted Subsidiary to such Person or to any other Person from whom funds have been or are to be advanced by such Person on the security of such property. "Securities Act" means the Securities Act of 1933, as amended. "Security Register" has the meaning provided in Section 2.3. 19 14 "Separation Date" means the close of business on the earliest to occur of (i) ___________, 1996, (ii) such earlier date as may be determined by Lehman Brothers Inc. and specified to the Company, the Trustee, the Warrant Agent and the Unit Agent in writing, (iii) the occurrence of a Change of Control and (iv) in the event of an Asset Sale, the date the Company mails notice thereof to the holders of the Notes. "Series A Preferred Stock" means the Series A Preferred Stock of the Company outstanding on the date hereof and any Series B Preferred Stock of the Company issuable upon the exchange of such Series A Preferred Stock. "Sloan Loan" means the promissory notes in favor of the Company issued in connection with the original issuance of the Company's Capital Stock, of which $1.7 million was outstanding on the date hereof. "Specified Date" means any redemption date, any date of purchase for any purchase of Notes pursuant to the covenants described in Section 4.11 or Section 4.12 or any date on which the Notes first become due and payable after an Event of Default. "Spectrum Acquisition Debt" means Indebtedness Incurred solely for the purpose of financing the costs of licenses or other rights granted by the FCC to utilize radio frequency and which is either a direct obligation owing to the FCC or recourse solely to such licenses or to the Capital Stock of a Restricted Subsidiary which has no material assets other than such licenses. "S&P" means Standard & Poor's Corporation and its successors. "Stated Maturity" means, (i) with respect to any debt security, the date specified in such debt security as the fixed date on which the final installment of principal of such debt security is due and payable and (ii) with respect to any scheduled installment of principal of or interest on any debt security, the date specified in such debt security as the fixed date on which such installment is due and payable. "Strategic Equity Investor" means any Person the common stock of which is publicly traded that, both as of the Trading Day immediately before the day of a sale and the Trading Day immediately after the day of such sale, has Total Common Equity of at least $400 million and is engaged in the business of (a) providing emission, transmission or reception of signs, signals, writing, images, sound, data or video; (b) the sale, resale, lease or provision of cellular services, personal communications services, dispatch services, paging services, telephone services and other telecommunications or radiocommunications services; (c) the operation of personal communications services networks and other telecommunications or radiocommunications networks; (d) the provision of telecommunications or radiocommunications facilities or equipment; or (e) any business ancillary or directly related to the businesses referred to in clauses (a), (b), (c) or (d) above. "Subsidiary" means, with respect to any Person, any corporation, association or other business entity of which more than 50% of the outstanding Voting Stock is owned, directly or indirectly, by such Person and one or more other Subsidiaries of such Person. "Taxes" has the meaning provided in Section 4.20. "Telecommunications Assets" means (i) any entity or business which holds telecommunications or radiocommunications licenses, or a substantial portion of the revenues of which are derived from (a) providing emission, transmission or reception of signs, signals, writing, images, sound, data or video; (b) the sale, resale, lease or provision of cellular services, personal communications services, dispatch services, paging services, telephone services and other telecommunications or radiocommunications services; (c) the operation of personal communications services networks and other telecommunications or radiocommunications networks; (d) the provision of telecommunications or radiocommunications facilities or equipment; or (e) any business ancillary or directly related to the businesses referred in clauses (a), (b), (c) or (d) above and (ii) any assets used primarily to 20 15 provide such products or services or to conduct such businesses, including licenses or other rights to use radio frequency. "Telecommunications Subsidiary" means (i) PCSD Financial Corp., SGI Communications, Inc., PCSD Spectrum, Inc., PCSD Network, Inc., and their respective successors and (ii) any other Subsidiary of the Company that holds more than a de minimis amount of Telecommunications Assets. "Temporary Cash Investment" means any of the following: (i) direct obligations of the United States or any agency thereof or obligations fully and unconditionally guaranteed by the United States or any agency thereof with maturities of twelve months or less from the date of acquisition, (ii) time deposit accounts, certificates of deposit and money market deposits maturing within 365 days of the date of acquisition thereof, bankers' acceptances with maturities not exceeding 365 days, and overnight bank deposits, in each case issued by or with a bank or trust company that is organized under the laws of the United States or any state thereof and which bank or trust company has capital, surplus and undivided profits aggregating in excess of $500 million and has outstanding debt which is rated "A" (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act), or any money market fund sponsored by a registered broker dealer or mutual fund distributor, (iii) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (i) above entered into with a bank meeting the qualifications described in clause (ii) above, (iv) commercial paper, maturing not more than 365 days after the date of acquisition, issued by a corporation (other than an Affiliate of the Company) organized and in existence under the laws of the United States of America, any state thereof or any foreign country recognized by the United States with a rating at the time as of which any investment therein is made of "P-l" (or higher) according to Moody's Investors Service, Inc. or "A-l" (or higher) according to Standard & Poor's and (v) securities with maturities of twelve months or less from the date of acquisition issued or fully and unconditionally guaranteed by any state, commonwealth or territory of the United States, or by any political subdivision or taxing authority thereof, and rated at least "A" by Standard & Poor's or Moody's Investors Service, Inc. "TIA" or "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended (15 U.S. Code Section Section 77aaa-77bbb), as in effect on the date this Indenture was executed, except as provided in Section 9.6. "Total Common Equity" of any Person means, as of any day of determination, the product of (i) the aggregate number of outstanding 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) and (ii) the average Closing Price of such Common Stock over the 20 consecutive Trading Days immediately preceding such day. For purposes of calculating Total Common Equity on the Trading Day immediately following an event described under the definition of "Change of Control," the average closing price shall be equal to the Closing Price on such Trading Day. If no Closing Price exists with respect to shares of any such class, the value of such shares for purposes of clause (ii) of the preceding sentence shall be determined by a nationally recognized independent investment banking firm. "Trading Day" with respect to a securities exchange or automated quotation system, means a day on which such exchange or system is open for a full day of trading. "Transaction Date" means, with respect to the Incurrence of any Indebtedness by the Company or any of its Restricted Subsidiaries, the date such Indebtedness is to be Incurred and, with respect to any Restricted Payment, the date such Restricted Payment is to be made. "Trustee" means the party named as such in the first paragraph of this Indenture until a successor replaces it in accordance with the provisions of Article Seven of this Indenture and thereafter means such successor. "United States Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as amended and as codified in Title 11 of the United States Code, as amended from time to time hereafter, or any successor federal bankruptcy law of the United States of America. 21 16 "U.S. Government Obligations" means securities that are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof at any time prior to the Stated Maturity of the Notes, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such U.S. Government Obligation or a specified payment of interest on or principal of any such U.S. Government Obligation held by such custodian for the account of the holder of a depository receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of interest on or principal of the U.S. Government Obligation evidenced by such depository receipt. "Unit Agent" has the meaning provided in the recitals to this Indenture. "Unit Agreement" has the meaning provided in the recitals to this Indenture. "Units" has the meaning provided in the recitals to this Indenture. "Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below and (ii) any Subsidiary of such an Unrestricted Subsidiary. The Board of Directors may, at the time of acquisition or formation, designate any Subsidiary of the Company which has been either newly acquired or newly formed after the date hereof to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, the Company or any Restricted Subsidiary; provided that (i) either (A) the Subsidiary to be so designated has total assets of $1,000 or less or (B) if such Subsidiary has assets greater than $1,000, that such designation would be permitted under Section 4.4 and (ii) the holders of any permitted Indebtedness of such Subsidiary do not have direct or indirect recourse against the Company or any Restricted Subsidiary of the Company and neither the Company nor any Restricted Subsidiary of the Company otherwise has any liability for any payment obligations in respect of such Indebtedness. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary of the Company; provided that immediately after giving effect to such designation (x) the Company could Incur $1.00 of additional Indebtedness under the first paragraph of Section 4.3 and (y) no Default or Event of Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "Voting Stock" means, with respect to any Person, Capital Stock of any class or kind ordinarily having the power to vote for the election of directors, managers or other voting members of the governing body of such Person. "Warrant Agent" has the meaning provided in the recitals to this Indenture. "Warrant Agreement" has the meaning provided in the recitals to this Indenture. "Warrants" has the meaning provided in the recitals to this Indenture. "Wholly Owned" means, with respect to any Subsidiary of any Person, such Subsidiary if all of the outstanding Capital Stock in such Subsidiary (other than any director's qualifying shares or Investments by foreign nationals mandated by applicable law) is owned by such Person or one or more Wholly Owned Subsidiaries of such Person. 22 17 SECTION 1.2. Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes; "indenture security holder" means a Holder or a Noteholder; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; and "obligor" on the indenture securities means the Company or any other obligor on the Notes. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by a rule of the Commission and not otherwise defined herein have the meanings assigned to them therein. SECTION 1.3. Rules of Construction. Unless the context otherwise requires: (i) a term has the meaning assigned to it; (ii) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (iii) "or" is not exclusive; (iv) words in the singular include the plural, and words in the plural include the singular; (v) provisions apply to successive events and transactions; (vi) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; (vii) "including" shall be deemed to be followed by "without limitation"; (viii) all ratios and computations based on GAAP contained in this Indenture shall be computed in conformity with GAAP applied on a consistent basis; and (ix) all references to Sections or Articles refer to Sections or Articles of this Indenture unless otherwise indicated. ARTICLE TWO THE NOTES SECTION 2.1. Form and Dating. The Notes and the Trustee's certificate of authentication shall be substantially in the form annexed hereto as Exhibit A. The Notes may have such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture and may have letters, notations, legends or endorsements required by law, stock exchange agreements to which the Company is subject or usage. Any portion of the text of any Note may be set forth on the reverse thereof, with an appropriate reference thereof on the face of the Note. The Company shall approve the form of the Notes and any notation, legend or endorsement on the Notes. Each Note shall be dated the date of its authentication. 23 18 The terms and provisions contained in the form of the Notes annexed hereto as Exhibit A shall constitute, and are hereby expressly made, a part of this Indenture. Each of the Company and the Trustee, by its execution and delivery of this Indenture, expressly agrees to the terms and provisions of the Notes applicable to it and to be bound thereby. The Notes shall be issued initially in the form of one or more Global Notes (the "Global Note") held in book-entry form, substantially in the form set forth in Exhibit A, deposited on the Closing Date with, or on behalf of, the Depository, duly executed by the Company and authenticated by the Trustee as hereinafter provided. Each Global Note shall bear such legends as may be required or reasonably requested by the Depository. Definitive Notes shall be typed, printed, lithographed or engraved or produced by any combination of these methods or may be produced in any other manner permitted by the rules of any securities exchange on which the Notes may be listed, all as determined by the Officers executing such Notes, as evidenced by their execution of such Notes. SECTION 2.2. Execution, Authentication and Denominations. Two Officers shall execute the Notes for the Company by facsimile or manual signature in the name and on behalf of the Company. If an Officer whose signature is on a Note no longer holds that office at the time the Trustee or authenticating agent authenticates the Note, the Note shall be valid nevertheless. A Note shall not be valid until the Trustee or authenticating agent manually signs the certificate of authentication on the Note. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee or an authenticating agent shall upon receipt of a Company Order authenticate for original issue the Global Note in the aggregate principal amount at maturity of $________ registered in the name of the Depository or the nominee of the Depository (the "Global Note Holder") and shall deliver the Global Note to the Depository or pursuant to the Depository's instructions; provided that the Trustee shall be entitled to receive an Officers' Certificate and an Opinion of Counsel of the Company in connection with such authentication and delivery of the Global Note. The Opinion of Counsel shall, if requested by the Trustee, be to the effect that: (a) the form and terms of such Notes have been established by or pursuant to a Board Resolution or an indenture supplemental hereto in conformity with the provisions of this Indenture; (b) such supplemental indenture, if any, when executed and delivered by the Company and the Trustee, will constitute a valid and binding obligation of the Company; and (c) such Notes, when authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and binding obligations of the Company in accordance with their terms and will be entitled to the benefits of this Indenture, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. Such Company Order shall specify the amount of the Global Note to be authenticated and the date on which the original issue of Notes is to be authenticated. The aggregate principal amount at maturity of Notes outstanding at any time may not exceed the amount set forth above except for Notes authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Notes pursuant to Section 2.5, 2.8, 2.9 or 2.10. The Trustee may appoint an authenticating agent to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by 24 19 the Trustee includes authentication by such authenticating agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate of the Company. The Notes shall be issuable only in registered form without coupons and only in denominations of $1,000 in principal amount at maturity and any integral multiple of $1,000 in excess thereof. SECTION 2.3. Registrar and Paying Agent. The Company shall maintain an office or agency where Notes may be presented for registration of transfer or for exchange (the "Registrar"), an office or agency where Notes may be presented for payment (the "Paying Agent") and an office or agency where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served, which shall be in the Borough of Manhattan, The City of New York. The company shall cause the Registrar to keep a register of the Notes and of their transfer and exchange (the "Security Register"). The Company may have one or more co-Registrars and one or more additional Paying Agents. The Company and any such Registrar, Paying Agent, co-Registrar and additional Paying Agent shall at all times be subject to and in compliance with TIA Section 312(a). The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall give prompt written notice to the Trustee of the name and address of any such Agent and any change in the address of such Agent. If the Company fails to maintain a Registrar, Paying Agent and/or agent for service of notices and demands, the Trustee shall act as such Registrar, Paying Agent and/or agent for service of notices and demands for so long as such failure shall continue. The Company may remove any Agent upon written notice to such Agent and the Trustee; provided that no such removal shall become effective until (i) the acceptance of an appointment by a successor Agent to such Agent as evidenced by an appropriate agency agreement entered into by the Company and such successor Agent and delivered to the Trustee or (ii) notification to the Trustee that the Trustee shall serve as such Agent until the appointment of a successor Agent in accordance with clause (i) of this proviso. The Company, any Subsidiary of the Company, or any Affiliate of any of them may act as Paying Agent, Registrar or co-Registrar, and/or agent for service of notice and demands; provided, however, that neither the Company, a Subsidiary of the Company nor an Affiliate of any of them shall act as Paying Agent in connection with the defeasance of the Notes or the discharge of this Indenture under Article Eight. The Company initially appoints the Trustee as Registrar, Paying Agent, authenticating agent and agent for service of notice and demands. If, at any time, the Trustee is not the Registrar, the Registrar shall make available to the Trustee before each Interest Payment Date and at such other time as the Trustee may reasonably request, the names and addresses of the Holders as they appear in the Security Registrar. SECTION 2.4. Paying Agent to Hold Money in Trust. Not later than 10:00 a.m. (New York City time) on each due date of the principal, premium, if any, and interest on any Notes, the Company shall deposit with the Paying Agent money in immediately available funds sufficient to pay such principal, premium, if any, and interest so becoming due. The Company shall require each Paying Agent, if any, other than the Trustee to agree in writing that such Paying Agent shall hold in trust for the benefit of the Holders or the Trustee all money held by the Paying Agent for the payment of principal of, premium, if any, and interest on the Notes (whether such money has been paid to it by the Company or any other obligor on the Notes), and that such Paying Agent shall promptly notify the Trustee in writing of any default by the Company (or any other obligor on the Notes) in making any such payment. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and account for any funds disbursed, and the Trustee may at any time during the continuance of any payment default, upon written request to a Paying Agent, require such Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed. Upon doing so, the Paying Agent shall have no further liability for the money so paid over to the Trustee. If the Company or any Subsidiary of the Company or any Affiliate of any of them acts as Paying Agent, it will, on or before each due date of any principal of, premium, if any, or interest on the Notes, segregate and hold in a separate trust fund for the benefit of the Holders a sum of money sufficient to pay such principal, premium, if any, or interest so becoming due until such sum of money shall be paid to such Holders or otherwise disposed of as provided in 25 20 this Indenture, and will promptly notify the Trustee in writing of its action or failure to act as required by this Section 2.4. SECTION 2.5. Transfer and Exchange. The Notes are issuable only in registered form. A Holder may transfer a Note by written application to the Registrar stating the name of the proposed transferee and otherwise, complying with the terms of this Indenture. No such transfer shall be effected until, and such transferee shall succeed to the rights of a Holder only upon registration of, the transfer by the Registrar in the Security Register. Prior to the registration of any transfer by a Holder as provided herein, the Company, the Trustee and any agent of the Company shall treat the person in whose name the Note is registered as the owner thereof for all purposes whether or not the Note shall be overdue, and neither the Company, the Trustee, nor any such agent shall be affected by notice to the contrary. Furthermore, the Global Note Holder shall, by acceptance of the Global Note, agree that transfers of beneficial interests in such Global Note may be effected only through a book-entry system maintained by the Depository (or its agent), and that ownership of a beneficial interest in the Global Note shall be required to be reflected in a book entry. When Notes are presented to the Registrar or a co-Registrar with a request to register the transfer or to exchange them for an equal principal amount at maturity of Notes of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if its requirements for such transactions are met. To permit registrations of transfers and exchanges in accordance with the terms, conditions and restrictions hereof, the Company shall execute and the Trustee shall authenticate Notes at the Registrar's request. No service charge shall be made to any Holder for any registration of transfer or exchange or redemption of the Notes, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or other similar governmental charge payable upon transfers, exchanges or redemptions pursuant to Section 2.10, 3.8, 4.11, 4.12 or 9.4). The Notes shall initially be issued as part of the issuance of the Units. Prior to the Separation Date, the Notes may not be transferred or exchanged separately from, but may be transferred or exchanged only together with, the Warrants issued as part of such Units. The Registrar shall not be required (i) to issue, register the transfer of or exchange any Note during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Notes selected for redemption under Section 3.3 or Section 3.8 and ending at the close of business an the day of such mailing, or (ii) to register the transfer of or exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. SECTION 2.6. Book-Entry Provisions for the Global Note. (a) The Global Note initially shall (i) be registered in the name of the Global Note Holder and (ii) be delivered to the Trustee as custodian for the Depository. Members of, or participants in, the Depository ("Agent Members") shall have no rights under this Indenture with respect to any Global Note held on their behalf by the Depository, or the Trustee as its custodian, or under any Global Note, and the Global Note Holder may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Note under the Indenture for all purposes whatsoever, so long as the Global Note Holder is the registered owner of any Notes. Beneficial owners of Notes evidenced by any Global Note will not be considered the owners or Holders thereof under the Indenture for any purpose, including with respect to the giving of any directions, instructions or approvals to the Trustee thereunder. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depository or impair, as between the Depository and its Agent Members, the operation of customary practices governing the exercise of the rights of a beneficial owner of any Note. (b) Transfers of the Global Note shall be limited to transfers of the Global Note in whole, but not in part, to the Depository, its successors or their respective nominees. Interests of beneficial owners in the Global Note may be transferred in accordance with the applicable rules and procedures of the Depository and the provisions of Section 2.5. 26 21 (c) The registered holder of the Global Note may grant proxies and otherwise authorize any person, including Agent Members and persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Notes. SECTION 2.7. Certificated Notes. Any beneficial owners of interests in the Global Note may, upon request to the Trustee, exchange such interests for certificated Notes in accordance with the procedures of the Depository. In connection with the execution and delivery of such certificated Notes, the Trustee shall reflect on its books and records a decrease in the principal amount of the Global Note equal to the number of such certificated Notes and the Company shall execute and the Trustee shall authenticate and deliver one or more certificated Notes in an equal aggregate number. In addition, if (i) the Company notifies the Trustee in writing that the Depository is no longer willing or able to act as a depository and the Company is unable to locate a qualified successor within 90 days or (ii) the Company, at its option, notifies the Trustee in writing that it elects to cause the issuance of Notes in the form of certificated Notes under the Indenture, then, upon surrender by the Global Note Holder of its Global Note, Notes in such form will be issued to each person that the Global Note Holder and the Depository identify as being the beneficial owner of the related Notes. SECTION 2.8. Replacement Notes. If a mutilated Note is surrendered to the Trustee or if the Holder claims that the Note has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Note of like tenor and principal amount and bearing a number not contemporaneously outstanding; provided that the requirements of the second paragraph of Section 2.9 are met. If required by the Trustee or the Company, an indemnity bond must be furnished that is sufficient in the judgment of both the Trustee and the Company to protect the Company, the Trustee or any Agent from any loss that any of them may suffer if a Note is replaced. The Company may charge such Holder for its expenses and the expenses of the Trustee in replacing a Note. In case any such mutilated, lost, destroyed or wrongfully taken Note has become or is about to become due and payable, the Company in its discretion may pay such Note instead of issuing a new Note in replacement thereof. Every replacement Note is an additional obligation of the Company and shall be entitled to the benefits of this Indenture. SECTION 2.9. Outstanding Notes. Notes outstanding at any time are all Notes that have been authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation and those described in this Section 2.9 as not outstanding. If a Note is replaced pursuant to Section 2.8, it ceases to be outstanding unless and until the Trustee and the Company receive proof satisfactory to them that the replaced Note is held by a bona fide purchaser. If the Paying Agent (other than the Company or an Affiliate of the Company) holds on the maturity date money sufficient to pay Notes payable on that date, then on and after that date such Notes shall cease to be outstanding and interest on them shall cease to accrue. Notes, or portions thereof, for the payment or redemption of which moneys or U.S. Government Obligations (as provided for in Article Eight) in the necessary amount shall have been deposited in trust with the Trustee or with any Paying Agent (other than the Company) or shall have been set aside, segregated and held in trust by the Company for the Holders of such Notes (if the Company shall act as its own Paying Agent), on and after that time shall cease to be outstanding and, in the case of redemption, interest on such Notes shall cease to accrue; provided that if such Notes, or portions thereof, are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as herein provided, or provision satisfactory to the Trustee shall have been made for giving such notice. A Note does not cease to be outstanding because the Company or one of its Affiliates holds such Note; provided, however, that, in determining whether the Holders of the requisite principal amount at maturity of the outstanding Notes have given any request, demand, authorization, direction, notice, consent or 27 22 waiver hereunder, Notes owned by the Company or any other obligor upon the Notes, or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Notes which the Trustee knows to be so owned shall be so disregarded. Notes so owned which have been pledged in good faith may be regarded as outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Notes and that the pledge is not the Company or any other obligor upon the Notes or any Affiliate of the Company or of such other obligor. SECTION 2.10. Temporary Notes. Until definitive Notes are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of definitive Notes but may have insertions, substitutions, omissions and other variations determined to be appropriate by the Officers executing the temporary Notes, as evidenced by their execution of such temporary Notes. If temporary Notes are issued, the Company will cause definitive Notes to be prepared without unreasonable delay. After the preparation of definitive Notes, the temporary Notes shall be exchangeable for definitive Notes upon surrender of the temporary Notes at the office or agency of the Company designated for such purpose pursuant to Section 4.2, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Notes the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount at maturity of definitive Notes of authorized denominations. Until so exchanged, the temporary Notes shall be entitled to the same benefits under this Indenture as definitive Notes. SECTION 2.11. Cancellation. The Company at any time may deliver to the Trustee for cancellation any Notes previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee for cancellation any Notes previously authenticated hereunder which the Company has not issued and sold. The Registrar and the Paying Agent shall forward to the Trustee any Notes surrendered to them for transfer, exchange or payment. The Trustee shall cancel all Notes surrendered for transfer, exchange, payment or cancellation and shall destroy them in accordance with its normal procedure. The Company shall not issue new Notes to replace Notes it has paid in full or delivered to the Trustee for cancellation. SECTION 2.12. CUSIP Numbers. The Company in issuing the Notes may use CUSIP numbers (if then generally in use), and, if so, the Trustee shall use CUSIP numbers in notices of redemption or exchange as a convenience to Holders; provided that any such notice shall state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of redemption or exchange and that reliance may be placed only on the other identification numbers printed on the Securities; and provided, further, that failure to use CUSIP numbers in any notice of redemption or exchange shall not affect the validity or sufficiency of such notice. SECTION 2.13. Defaulted Interest. If the Company defaults in a payment of interest on the Notes, it shall pay, or shall deposit with the Paying Agent money in immediately available funds sufficient to pay the defaulted interest, plus (to the extent lawful) any interest payable on the defaulted interest, to the Persons who are Holder on a subsequent special record date. A subsequent special record date, as used in this Section 2.13 with respect to the payment of any defaulted interest, shall mean the 15th day next preceding the date fixed by the Company for the payment of defaulted interest, whether or not such day is a Business Day. At least 15 days before the subsequent special record date, the Company shall mail to each Holder and to the Trustee a notice that states the subsequent special record date, the payment date and the amount of defaulted interest to be paid. ARTICLE THREE REDEMPTION SECTION 3.1. Optional Redemption. (a) The Notes may be redeemed at the election of the Company, in whole or in part, at any time and from time to time on or after ________, 2001 and prior to maturity, upon not less than 30 nor more than 60 days' prior notice mailed by first-class mail to each Holder's 28 23 last address as it appears in the Security Registrar, at the following Redemption Prices (expressed in percentages of their 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 Regular Record Date that is on or prior to the Redemption Date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date) if redeemed during the 12-month period commencing on __________ of the applicable year set forth below:
Year Redemption Price ---- ---------------- 2001. . . . . . . . . . . . . . . . . . . . . . % 2002. . . . . . . . . . . . . . . . . . . . . . % 2003. . . . . . . . . . . . . . . . . . . . . . % 2004 and thereafter . . . . . . . . . . . . . . 100.000%
(b) Notwithstanding the foregoing, prior to , 1999, the Company may on any one or more occasions redeem up to 33% of the aggregate principal amount of the Notes at a redemption price of % of the Accreted Value thereof with the net proceeds of either (A) one or more public offerings of Common Stock of the Company registered under the Securities Act or (B) a sale by the Company of at least $25.0 million of its Capital Stock (other than Redeemable Stock or Preferred Stock) to a Strategic Equity Investor in a single transaction; provided in each case that at least 67% of the aggregate principal amount at maturity of the Notes remains outstanding immediately after the occurrence of any such redemption; and provided, further, that any such redemption shall occur within 90 days of the date of the closing of any such public offering of Common Stock or sale to Strategic Equity Investor of Capital Stock (other than Redeemable Stock or Preferred Stock) of the Company, as the case may be. SECTION 3.2. Notices to Trustee. If the Company elects to redeem Notes pursuant to Section 3.1, it shall notify the Trustee in writing of the Redemption Date and the principal amount at maturity of Notes to be redeemed. The Company shall give each notice provided for in this Section 3.2 in an Officers' Certificate at least 60 days before the Redemption Date (unless a shorter period shall be satisfactory to the Trustee). SECTION 3.3. Selection of Notes to be Redeemed. If less than all of the Notes are to be redeemed at any time, the Trustee shall select the Notes to be redeemed in compliance with the requirements, as certified to it by the Company, of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not listed on a national securities exchange, on a pro rata basis or by lot; provided that no Notes of $1,000 in principal amount at maturity or less shall be redeemed in part. The Trustee shall make the selection from the Notes outstanding and not previously called for redemption. Notes in denominations of $1,000 in principal amount at maturity may only be redeemed in whole. The Trustee may elect for redemption portions (equal to $1,000 in principal amount at maturity or any integral multiple thereof) of Notes that have denominations larger than $1,000 in principal amount at maturity. Provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. The Trustee shall notify the Company and the Registrar promptly in writing of the Notes or portions of Notes to be called for redemption. SECTION 3.4. Notice of Redemption. With respect to any redemption of Notes pursuant to Section 3.1, at least 30 days but not more than 60 days before a Redemption Date, the Company shall mail a notice of redemption by first class mail to each Holder whose Notes are to be redeemed. The notice shall identify the Notes to be redeemed and shall state: (i) the Redemption Date; (ii) the Redemption Price; 29 24 (iii) the name and address of the Paying Agent; (iv) that Notes called for redemption must be surrendered to the Paying Agent in order to collect the Redemption Price; (v) that, unless the Company defaults in making the redemption payment, interest on Notes called for redemption ceases to accrue on and after the Redemption Date and the only remaining right of the Holders is to receive payment of the Redemption Price plus accrued interest to the Redemption Date upon surrender of the Notes to the Paying Agent; (vi) that, if any Note is being redeemed in part, the portion of the principal amount at maturity (equal to $1,000 in principal amount at maturity or any integral multiple thereof) of such Note to be redeemed and that, on and after the Redemption Date, upon surrender of such Note, a new Note or Notes in principal amount at maturity equal to the unredeemed portion thereof will be reissued; (vii) that, if any Note contains a CUSIP number as provided in Section 2.12, no representation is being made as to the correctness of the CUSIP number either as printed on the Notes or as contained in the notice of redemption and that reliance may be placed only on the other identification numbers printed on the Notes; and (viii) the aggregate principal amount of Notes being redeemed. At the Company's request (which request may be revoked by the Company at any time prior to the time at which the Trustee shall have given such notice to the Holders), made in writing to the Trustee at least 60 days (or such shorter period as shall be satisfactory to the Trustee) before a Redemption Date, the Trustee shall give the notice of redemption in the name and at the expense of the Company. If, however, the Company gives such notice to the Holders, the Company shall concurrently deliver to the Trustee an Officers' Certificate stating that such notice has been given. SECTION 3.5. Effect of Notice of Redemption. Once notice of redemption is mailed, Notes called for redemption become due and payable on the Redemption Date and at the Redemption Price. Upon surrender of any Notes to the Paying Agent, such Notes shall be paid at the Redemption Price, plus accrued interest, if any, to the Redemption Date. Notice of redemption shall be deemed to be given when mailed, whether or not the Holder receives the notice. In any event, failure to give such notice, or any defect therein, shall not affect the validity of the proceedings for the redemption of Notes held by Holders to whom such notice was properly given. SECTION 3.6. Deposit of Redemption Price. Prior to any Redemption Date, the Company shall deposit with the Paying Agent (or, if the Company is acting as its own Paying Agent, shall segregate and hold in trust as provided in Section 2.4) money sufficient to pay the Redemption Price of and accrued interest on all Notes to be redeemed on that date other than Notes or portions thereof called for redemption on that date that have been delivered by the Company to the Trustee for cancellation. SECTION 3.7. Payment of Notes Called for Redemption. If notice of redemption has been given in the manner provided above, the Notes or portion of Notes specified in such notice to be redeemed shall become due and payable on the Redemption Date at the Redemption Price stated therein, together with accrued interest to such Redemption Date, and on and after such date (unless the Company shall default in the payment of such Notes at the Redemption Price and accrued interest to the Redemption Date, in which case the principal, until paid, shall bear interest from the Redemption Date at the rate prescribed in the Notes), such Notes shall cease to accrue interest. Upon surrender of any Note for redemption in accordance with a notice of redemption, such Note shall be paid and redeemed by the Company at the Redemption Price, together with accrued interest, if any, to the Redemption Date; provided that installments of interest whose Stated Maturity is on or prior to the 30 25 Redemption Date shall be payable to the Holders registered as such at the close of business on the relevant Regular Record Date. SECTION 3.8. Notes Redeemed in Part. Upon surrender of any Note that is redeemed in part, the Company shall execute and the Trustee shall authenticate and deliver to the Holder a new Note equal in principal amount at maturity to the unredeemed portion of such surrendered Note. ARTICLE FOUR COVENANTS SECTION 4.1. Payment of Notes. The Company shall pay the principal of, premium, if any, and interest on the Notes on the dates and in the manner provided in the Notes and this Indenture. An installment of principal, premium, if any, or interest shall be considered paid on the date due if the Trustee or Paying Agent (other than the Company, a Subsidiary of the Company, or any Affiliate of any of them) holds on that date money designated for and sufficient to pay the installment. If the Company or any Subsidiary of the Company or any Affiliate of any of them, acts as Paying Agent, an installment of principal, premium, if any, or interest shall be considered paid on the due date if the entity acting as Paying Agent complies with the last Section of Section 2.4. As provided in Section 6.9, upon any bankruptcy or reorganization procedure relative to the Company, the Trustee shall serve as the Paying Agent and conversion agent, if any, for the Notes. The Company shall pay interest on overdue principal, premium, if any, and interest on overdue installments of interest, to the extent lawful, at the rate per annum specified in the Notes. SECTION 4.2. Maintenance of Office or Agency. The Company will maintain in the Borough of Manhattan, the City of New York an office or agency where Notes may be surrendered for registration of transfer or exchange or for presentation for payment and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 11.2. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company will give prompt written notice to the Trustee of any such decision or rescission and of any change in the location of any such other office or agency. The Company hereby initially designates the Corporate Trust Office of the Trustee, located in the Borough of Manhattan, the City of New York, as such office of the Company in accordance with Section 2.3. SECTION 4.3. Limitation on Indebtedness. (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, Incur any Indebtedness (other than the Notes and Indebtedness existing on the Closing Date); provided that the Company or any Restricted Subsidiary may Incur Indebtedness if, after giving effect to the Incurrence of such Indebtedness and the receipt and application of the net proceeds therefrom, the Indebtedness to EBITDA Ratio would be greater than zero and less than 5.5:1. Notwithstanding the foregoing, the Company, and (except as specified below) any Restricted Subsidiary, may Incur each and all of the following: 31 26 (i) Indebtedness of the Company or any Restricted Subsidiary under one or more commercial bank credit facilities in an aggregate principal amount not to exceed at any time $20.0 million, less up to an equal amount of Indebtedness permanently repaid as provided under Section 4.11; (ii) Indebtedness of the Company or any Restricted Subsidiary to the Company or any of its Wholly Owned Restricted Subsidiaries; provided that any subsequent issuance or transfer of any Capital Stock which results in any such Wholly Owned Restricted Subsidiary ceasing to be a Wholly Owned Restricted Subsidiary or any subsequent transfer of such Indebtedness (other than to the Company or another Wholly Owned Restricted Subsidiary) shall be deemed, in each case, to constitute an Incurrence of such Indebtedness not permitted by this clause (ii); (iii) Refinancing Indebtedness; (iv) Indebtedness of the Company or any Restricted Subsidiary (A) in respect of performance, surety or appeal bonds provided in the ordinary course of business, (B) under Interest Rate Agreements; provided that such Interest Rate Agreements do not increase the Indebtedness of the obligor outstanding at any time other than as a result of fluctuations in interest rates or by reason of fees, indemnities and compensation payable thereunder; and (C) arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or from Guarantees or letters of credit, surety bonds or performance bonds securing any obligations of the Company or any of its Restricted Subsidiaries pursuant to such agreements, in any case Incurred in connection with the disposition of any business, assets or Restricted Subsidiary of the Company (other than Guarantees of Indebtedness Incurred by any Person acquiring all or any portion of such business, assets or Restricted Subsidiary for the purpose of financing such acquisition), in a principal amount not to exceed the gross proceeds actually received by the Company or any Restricted Subsidiary in connection with such disposition; (v) Indebtedness of the Company (or of any Restricted Subsidiary to the extent and only to the extent that such Indebtedness is Spectrum Acquisition Debt and is a direct obligation owing to the FCC), not to exceed, at any one time outstanding, an amount equal to 2.0 times the amount of Net Cash Proceeds received by the Company after the Closing Date from the issuance and sale of its Capital Stock or rights to purchase its Capital Stock (in each case other than Redeemable Stock or Preferred Stock) to a Person that is not a Subsidiary of the Company, less the amount of any Investments made pursuant to clause (vi) of the second paragraph of Section 4.4; provided that such Indebtedness (other than such Spectrum Acquisition Debt) does not mature prior to the Stated Maturity of the Notes and has an Average Life longer than the remaining Average Life of the Notes; (vi) Indebtedness of the Company or any Restricted Subsidiary (including, without limitation, Indebtedness under the Credit Facility) Incurred solely for the purpose of financing the cost (including the cost of design, development, site acquisition, construction, installation or integration) of personal communications services systems or other wireless telecommunications networks for which the Company or any Restricted Subsidiary has obtained the applicable licenses or authorizations to utilize the radio frequencies necessary for the operation of such systems or networks; (vii) Spectrum Acquisition Debt of the Company or any Restricted Subsidiary outstanding at any time in an aggregate principal amount not to exceed $25.0 million; and 32 27 (viii) Indebtedness of the Company or any Restricted Subsidiary outstanding at any time in an aggregate amount not to exceed $20.0 million, less up to an equal amount of Indebtedness permanently repaid as provided under Section 4.11. (b) For purposes of determining any particular amount of Indebtedness under this Section 4.3, Guarantees, Liens or obligations with respect to letters of credit supporting Indebtedness otherwise included in the determination of such particular amount shall not be included. For purposes of determining compliance with this Section 4.3, in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described in the above clauses, the Company, in its sole discretion, shall classify such item of Indebtedness and only be required to include the amount and type of such Indebtedness in one of such clauses. (c) Notwithstanding any other provision of this Section 4.3, the Company shall not, and shall not permit any Restricted Subsidiary to, Incur any Guarantee of Indebtedness of any Unrestricted Subsidiary. SECTION 4.4. Limitation on Restricted Payments. So long as any of the Notes are outstanding, the Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, (i) declare or pay any dividend or make any distribution on its Capital Stock (other than dividends or distributions payable solely in shares of the Company's Capital Stock (other than Redeemable Stock) of the same class held by such holders or in options, warrants or other rights to acquire such shares of Capital Stock) held by Persons other than the Company or any of its Wholly Owned Restricted Subsidiaries (and other than pro rata dividends or distributions on common stock of Restricted Subsidiaries), (ii) purchase, redeem, retire or otherwise acquire for value any shares of Capital Stock of the Company or any Subsidiary (including options, warrants or other rights to acquire such shares of Capital Stock) held by Persons other than the Company or any of its Wholly Owned Restricted Subsidiaries, (iii) make any voluntary or optional principal payment, or voluntary or optional redemption, repurchase, defeasance or other acquisition or retirement for value, of Indebtedness of the Company that is subordinated in right of payment to the Notes, or (iv) make any Investment, other than a Permitted Investment, in any Person (such payments or any other actions described in clauses (i) through (iv) being collectively "Restricted Payments") if, at the time of, and after giving effect to, the proposed Restricted Payment: (A) a Default or Event of Default shall have occurred and be continuing, (B) the Company could not Incur at least $1.00 of Indebtedness under the first paragraph of Section 4.3 or (C) the aggregate amount expended for all Restricted Payments (the amount so expended, if other than in cash, to be determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution) after the date of the Indenture shall exceed the sum of (1) the excess of (x) 100% of Consolidated EBITDA from the first day of the fiscal quarter beginning after the Closing Date through the last day of the last full fiscal quarter immediately preceding the Transaction Date for which reports have been filed pursuant to Section 4.18 over (y) the product of 2.0 times cumulative Consolidated Fixed Charges from the first day of the fiscal quarter beginning after the Closing Date through the last day of the last full fiscal quarter immediately preceding such Transaction Date for which such reports have been filed, plus (2) the aggregate Net Cash Proceeds received by the Company after the Closing Date from the issuance and sale permitted by the Indenture of its Capital Stock (other than Redeemable Stock) to a Person who is not a Subsidiary of the Company, or from the issuance to a Person who is not a Subsidiary of the Company of any options, warrants or other rights to acquire Capital Stock of the Company (in each case, exclusive of any Redeemable Stock or any options, warrants or other rights that are redeemable at the option of the holder, or are required to be redeemed, prior to the Stated Maturity of the Notes) plus (3) an amount equal to the net reduction in Investments (other than reductions in Permitted Investments) in any Person resulting from payments of interest on Indebtedness, dividends, repayments of loans or advances, or other transfers of assets, in each case to the Company or any Restricted Subsidiary from such Person (except to the extent any such payment is included in the calculation of Adjusted Consolidated Net Income), or from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the definition of "Investments"), not to exceed the amount of Investments previously made by the Company and its Restricted Subsidiaries in such Person. 33 28 The foregoing provision shall not be violated by reason of: (i) the payment of any dividend within 60 days after the date of declaration thereof if, at said date of declaration, such payment would comply with the foregoing paragraph; (ii) the redemption, repurchase, defeasance or other acquisition or retirement for value of Indebtedness that is subordinated in right of payment to the Notes, including premium, if any, and accrued and unpaid interest, with the proceeds of, or in exchange for, permitted Refinancing Indebtedness; (iii) the repurchase, redemption or other acquisition of Capital Stock of the Company in exchange for, or out of the proceeds of a substantially concurrent issuance or sale of, shares of Capital Stock (other than Redeemable Stock) of the Company; (iv) the acquisition of Indebtedness of the Company which is subordinated in right of payment to the Notes, in exchange for, or out of the proceeds of, a substantially concurrent issuance or sale of, shares of Capital Stock (other than Redeemable Stock) of the Company; (v) Investments in an aggregate amount not to exceed $15 million, in any Person the primary business of which is related, ancillary or complementary to the businesses of the Company and its Restricted Subsidiaries on the date of such Investments; (vi) Investments in an aggregate amount not to exceed the Net Cash Proceeds received by the Company after the Closing Date from the issuance and sale of its Capital Stock or rights to purchase its Capital Stock (other than Redeemable Stock and Preferred Stock) to a Person that is not a Subsidiary of the Company, provided that the Investment is made within 12 months after the sale of such Capital Stock; (vii) the purchase, redemption, acquisition, cancellation or other retirement for value of shares of Capital Stock of the Company to the extent necessary, in the judgment of the Board of Directors of the Company, to prevent the loss or secure the renewal or reinstatement of any license or franchise held by the Company or any Restricted Subsidiary from any governmental agency or to retain the financial benefits of the Company's "Designated Entity" status as a "Small Business" or as a "Business Owned by Members of Minority Groups and/or Women" as such terms are defined by the FCC; (viii) the purchase, redemption, acquisition, cancellation or other retirement for value of shares of Capital Stock of the Company, or options to acquire shares of such Capital Stock, held by any employee or former employee of the Company or any of their respective heirs or administrators or executors of their respective estates, or by any Person substantially all the beneficial ownership of which is held by members of such employee's or former employee's family, in each case in connection with such employee's or former employee's termination of employment with the Company, the aggregate payments of which shall (A) have been approved by a majority of the Board of Directors of the Company, including the approval of a majority of the independent, disinterested directors, as fair to the Company from a financial point of view and is evidenced by a resolution of the Board of Directors of the Company and (B) not exceed $1 million in any single calendar year; (ix) the cancellation and retirement after November 10, 2004, through conversion at the option of the holders thereof into subordinated Indebtedness of the Company, of the Company's Series A Preferred Stock in accordance with the terms thereof; and (x) the purchase for value of the Warrants pursuant to an offer to purchase the Warrants in accordance with the terms of the Warrant Agreement; provided, that, except in the case of clause (i) above, no Default or Event of Default shall have occurred and be continuing or occur as a consequence of the actions or payments set forth therein. 34 29 Each Restricted Payment permitted pursuant to the preceding paragraph (other than the Restricted Payments referred to in clauses (ii) and (ix) thereof), and the Net Cash Proceeds from any issuance of Capital Stock referred to in clause (iii), (iv) and (vi) shall be included in calculating whether the conditions of clause (C) of the first paragraph of this Section 4.4 have been met with respect to any subsequent Restricted Payments. SECTION 4.5. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries. So long as any of the Notes are outstanding, the Company will not, and will not permit any Restricted Subsidiary to, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Restricted Subsidiary to (i) pay dividends or make any other distributions permitted by applicable law on any Capital Stock of such Restricted Subsidiary owned by the Company or any other Restricted Subsidiary, (ii) pay any Indebtedness owed to the Company or any other Restricted Subsidiary, (iii) make loans or advances to the Company or any other Restricted Subsidiary, (iv) transfer any of its property or assets to the Company or any other Restricted Subsidiary or (v) make any payments to the Company for the purpose of satisfying any tax liabilities or obligations of the Company. The foregoing provisions shall not apply to any encumbrances or restrictions: (i) existing on the Closing Date in any agreement in effect on the Closing Date, including, without limitation, in the Credit Facility, and any extensions, refinancings, renewals or replacements of such agreements; provided that the encumbrances and restrictions in any such extensions, refinancings, renewals or replacements are no less favorable in any material respect to the Holders than those encumbrances or restrictions that are then in effect and that are being extended, refinanced, renewed or replaced; (ii) existing under or by reason of applicable law; (iii) existing with respect to any Person or the property or assets of such Person acquired by the Company or any Restricted Subsidiary, existing at the time of such acquisition and not incurred in contemplation thereof, which encumbrances or restrictions are not applicable to any Person or the property or assets of any Person other than such Person or the property or assets of such Person so acquired; (iv) in the case of clause (iv) of the first paragraph of this Section 4.5, (A) that restrict in a customary manner the subletting, assignment or transfer of any property or asset that is a lease, license, conveyance or contract or similar property or asset, (B) existing by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the Company or any Restricted Subsidiary not otherwise prohibited by the Indenture or (C) arising or agreed to in the ordinary course of business, not relating to any Indebtedness, and that do not, individually or in the aggregate, detract from the value of property or assets of the Company or any Restricted Subsidiary in any manner material to the Company or any Restricted Subsidiary; or (v) with respect to a Restricted Subsidiary and imposed pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock of, or property and assets of, such Restricted Subsidiary. Nothing contained in this Section 4.5 shall prevent the Company or any Restricted Subsidiary from (1) creating, incurring, assuming or suffering to exist any Liens otherwise permitted in Section 4.9 or (2) restricting the sale or other disposition of property or assets of the Company or any of its Restricted Subsidiaries that secure Indebtedness of the Company or any of its Restricted Subsidiaries. SECTION 4.6. Limitation on the Issuance and Sale of Capital Stock of Restricted Subsidiaries. The Company will not, and will not permit any Restricted Subsidiary, directly or indirectly, to issue, transfer, convey, sell, lease or otherwise dispose of any shares of Capital Stock (including options, warrants or other rights 35 30 to purchase shares of such Capital Stock) of such or any other Restricted Subsidiary to any Person (other than to the Company or a Wholly Owned Restricted Subsidiary) unless (A) the Net Cash Proceeds from such issuance, transfer, conveyance, sale, lease or other disposition are applied in accordance with the provisions of Section 4.11 and (B) if, immediately after giving effect to such issuance or sale, such Restricted Subsidiary would no longer constitute a Restricted Subsidiary, any Investment in such Person remaining after giving effect to such issuance or sale would have been permitted to be made under Section 4.4 if made on the date of such sale (valued as provided in the definition of "Investments"). Notwithstanding the foregoing, for as long as any of the Notes are outstanding the Company will own 100% of the Common Stock of PCSD Financial Corp. SECTION 4.7. Limitation on Issuances of Guarantees by Restricted Subsidiaries. The Company will not permit any Restricted Subsidiary, directly or indirectly, to Guarantee any Indebtedness of the Company, unless (i) such Restricted Subsidiary simultaneously executes and delivers a supplemental indenture to the Indenture providing for a Guarantee of payment of the Notes by such Restricted Subsidiary (a "Subsidiary Guarantee") and (ii) such Restricted Subsidiary waives and will not in any manner whatsoever claim or take the benefit or advantage of, any rights of reimbursement, indemnity or subrogation or any other rights against the Company or any other Restricted Subsidiary as a result of any payment by such Restricted Subsidiary under its Subsidiary Guarantee; provided that this paragraph shall not be applicable to any Guarantee of any Restricted Subsidiary that existed at the time such Person became a Restricted Subsidiary and was not Incurred in connection with, or in contemplation of, such Person becoming a Restricted Subsidiary. If the Guaranteed Indebtedness is (A) pari passu with the Notes, then the Guarantee of such Guaranteed Indebtedness shall be pari passu with, or subordinated to, the Subsidiary Guarantee or (B) subordinated to the Notes, then the Guarantee of such Guaranteed Indebtedness shall be subordinated to the Subsidiary Guarantee at least to the extent that the Guaranteed Indebtedness is subordinated to the Notes. Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted Subsidiary shall provide by its terms that it shall be automatically and unconditionally released and discharged upon any sale, exchange or transfer, to any Person that is not an Affiliate of the Company of all of the Company's and each Restricted Subsidiary's Capital Stock in, or all or substantially all the assets of, such Restricted Subsidiary (which sale, exchange or transfer is not prohibited by this Indenture). The release or discharge of the Indebtedness or the Guarantee which resulted in the creation of such Subsidiary Guarantee will not release or discharge such Subsidiary Guarantee. SECTION 4.8. Limitation on Transactions with Shareholders and Affiliates. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, enter into, renew or extend any transaction or series of related transactions (including, without limitation, the purchase, sale, lease or exchange of property or assets, or the rendering of any service) with any holder of 5% or more of any class of Capital Stock of the Company (or any Affiliate of such holder) or with any Affiliate of the Company or any Restricted Subsidiary, unless (i) such transaction or series of transactions is on terms no less favorable to the Company or such Restricted Subsidiary than those that could be obtained, at the time of such transaction or at the time of the execution of the agreement providing therefor, in a comparable arm's-length transaction with a Person that is not such a holder or an Affiliate and (ii) if such transaction or series of transactions involves aggregate payments and other consideration having a fair market value at the time of the transaction or series of transactions in excess of $1 million, (A) such transaction or series of transactions is approved by a majority of the Board of Directors of the Company, including the approval of a majority of the independent, disinterested directors, as fair to the Company from a financial point of view and is evidenced by a resolution of the Board of Directors of the Company or (B) the Company shall have obtained and delivered to the Trustee a written opinion of a nationally recognized investment banking firm stating that such transaction or series of transactions is fair to the Company or such Restricted Subsidiary from a financial point of view. The foregoing limitation does not limit, and shall not apply to: (i) any transaction between the Company and any of its Wholly Owned Restricted Subsidiaries or between Wholly Owned Restricted Subsidiaries; 36 31 (ii) the payment of reasonable and customary regular fees to directors of the Company who are not employees of the Company; (iii) any payments or other transactions pursuant to any tax-sharing agreement between the Company and any other Person with which the Company files a consolidated tax return or with which the Company is part of a consolidated group for tax purposes; (iv) any Restricted Payment not prohibited by Section 4.4; (v) any extension, renewal or modification of the terms and provisions of the Sloan Loan, which extension, renewal or modification shall have been previously approved by a majority of the Board of Directors of the Company, including the approval of a majority of the independent, disinterested directors, as fair to the Company from a financial point of view and evidenced by a resolution of the Board of Directors; and (vi) the execution of any reseller agreement, operating agreement, network build-out agreement, management agreement or joint venture relating to the telecommunications business with any Person who was a stockholder on the date of this Indenture, which execution shall have been previously approved by a majority of the Board of Directors of the Company, including the approval of a majority of the independent, disinterested directors, as fair to the Company from a financial point of view and evidenced by a resolution of the Board of Directors. SECTION 4.9. Limitation on Liens. The Company will not, and will not permit any Restricted Subsidiary to, create, incur, assume or suffer to exist any Lien on any of its assets or properties of any character, or any shares of Capital Stock or Indebtedness of any Restricted Subsidiary, without making effective provision for all of the Notes and all other amounts due under this Indenture to be directly secured at least equally and ratably with the obligation or liability secured by such Lien. The foregoing limitation does not apply to: (i) Liens created pursuant to agreements existing on the Closing Date; (ii) Liens granted after the Closing Date on any assets or Capital Stock of the Company or its Restricted Subsidiaries created in favor of the Holders; (iii) Liens with respect to the assets of a Restricted Subsidiary granted by such Restricted Subsidiary to the Company or a Wholly Owned Restricted Subsidiary to secure Indebtedness owing to the Company or such other Wholly Owned Restricted Subsidiary; (iv) Liens securing permitted Refinancing Indebtedness which is Incurred to refinance secured Indebtedness; provided that such Liens do not extend to or cover any property or assets of the Company or any Restricted Subsidiary other than the property or assets securing the Indebtedness being refinanced; (v) Liens with respect to assets or properties of any Person that becomes a Restricted Subsidiary after the Closing Date; provided that such Liens do not extend to or cover any assets or properties of the Company or any of its Restricted Subsidiaries other than the assets or properties of such Person subject to such Liens on the date such Person becomes a Restricted Subsidiary; and provided further that such Liens are not incurred in contemplation of, or in connection with, such Person becoming a Restricted Subsidiary; or (vi) Permitted Liens. 37 32 SECTION 4.10. Limitation on Sale and Leaseback Transactions. Neither the Company nor any Restricted Subsidiary will, directly or indirectly, enter into any Sale and Leaseback Transaction, except that the Company or any Restricted Subsidiary may enter into a Sale and Leaseback Transaction if (i) immediately prior thereto, and after giving effect to such Sale and Leaseback Transaction (the Indebtedness thereunder being equivalent to the Attributable Value thereof), the Company could Incur at least $1.00 of additional Indebtedness under the first paragraph of Section 4.3 and (ii) the Sale and Leaseback Transaction constitutes an Asset Sale effected in accordance with the requirements of Section 4.11. SECTION 4.11. Limitation on Asset Sales. The Company will not, and will not permit any Restricted Subsidiary to, consummate any Asset Sale, unless (I) the consideration received by the Company or such Restricted Subsidiary is at least equal to the fair market value of the assets sold or disposed of and (II) at least 80% of the consideration received consists of cash or Temporary Cash Investments or the assumption of unsubordinated Indebtedness of the Company to the extent that the Company or such Restricted Subsidiary is released from all liability on such unsubordinated Indebtedness. In the event of an Asset Sale, the Company shall or shall cause the relevant Restricted Subsidiary to (i) within nine months after the date the Net Cash Proceeds are received either (A) apply an amount equal to such Net Cash Proceeds to permanently repay unsubordinated Indebtedness of the Company (other than the Notes), or Indebtedness of any Restricted Subsidiary, in each case owing to a Person other than the Company or any of its Restricted Subsidiaries or (B) invest an equal amount, or the amount not so applied pursuant to clause (A) (or enter into a definitive agreement committing to invest, and actually invest, such Net Cash Proceeds within one year of the receipt of such Net Cash Proceeds), in property or assets (other than current assets) of a nature or type or that are used in a business (or in a company having property and assets of a nature or type, or engaged in a business) similar or related to the nature or type of the property and assets of, or the business of, the Company and its Restricted Subsidiaries existing on the date of such investment (as determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution) and (ii) apply (no later than the end of the nine-month or one-year period, as the case may be, referred to in clause (i)) such Net Cash Proceeds (to the extent not applied pursuant to clause (i)) as provided in the following paragraph of this Section 4.11. The amount of such Net Cash Proceeds required to be applied (or to be committed to be applied) during such nine-month or one-year period, as the case may be, as set forth in clause (i) of the preceding sentence and not applied as so required by the end of such period, as the case may be, shall constitute "Excess Proceeds." If, as of the first day of any calendar month, the aggregate amount of Excess Proceeds totals at least $10.0 million, the Company must commence, not later than the fifteenth Business Day of such month, and consummate an Offer to Purchase from the Holders on a pro rata basis an aggregate Accreted Value of Notes equal to the Excess Proceeds on such date, at a purchase price equal to the Accreted Value of the Notes, plus, in each case, accrued interest (if any) to the date of purchase. To the extent that the Accreted Value of Notes tendered pursuant to such Offer to Purchase is less than the Excess Proceeds, the Company may use such deficiency for general corporate purposes. If the Accreted Value of Notes validly tendered and not withdrawn by Holders thereof exceeds the Excess Proceeds, Notes to be purchased will be selected on a pro rata basis. Upon completion of such Offer to Purchase, the amount of Excess Proceeds will be reset to zero. SECTION 4.12. Repurchase of Notes upon a Change of Control. The Company must commence, within 30 days of the occurrence of a Change of Control, and consummate an Offer to Purchase in respect of all Notes then outstanding, at a purchase price equal to 101% of the Accreted Value thereof, plus accrued interest (if any) to the date of purchase. Prior to the mailing of the notice to Holders commencing such Offer to Purchase, but in any event within 30 days following any Change of Control, the Company shall (i) repay in full all indebtedness of the Company that would prohibit the repurchase of the Notes pursuant to such Offer to Purchase or (ii) obtain any requisite consents under instruments governing any such indebtedness of the Company to permit the repurchase of the Notes. The Company shall first comply with the provisions of the immediately preceding sentence before it shall be required to repurchase Notes pursuant to this Section 4.12. 38 33 SECTION 4.13. Existence Subject to Articles Four and Five of this Indenture, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its existence and the existence of each of its Restricted Subsidiaries in accordance with the respective organizational documents of the Company and each such Restricted Subsidiary and the rights (whether pursuant to charter, partnership certificate, agreement, statute or otherwise), material licenses and franchises of the Company and each such Restricted Subsidiary; provided that the Company shall not be required to preserve any such right, license or franchise, or the existence of any Restricted Subsidiary, if the maintenance or preservation thereof is no longer desirable in the conduct of the business of the Company and its Restricted Subsidiaries taken as a whole; and provided, further, that the Company will not permit any Restricted Subsidiary to engage in any business other than the telecommunications business and related activities and services. In addition, the Company agrees to take such actions, within a reasonable time after the Closing Date (and in any event prior to any proceeding initiated regarding the dissolution of the Company), as may be necessary to ensure that it shall be in good standing under the laws of the jurisdiction of its incorporation. SECTION 4.14. Payment of Taxes and Other Claims. The Company will pay or discharge and shall cause each of its Subsidiaries to pay or discharge, or cause to be paid or discharged, before the same shall become delinquent (i) all material taxes, assessments and governmental charges levied or imposed upon (a) the Company or any such Subsidiary, (b) the income or profits of any Subsidiary which is a corporation or (c) the property of the Company or any such Subsidiary and (ii) all material lawful claims for labor, materials and supplies that, if unpaid, might by law become a Lien upon the property of the Company or any such Subsidiary; provided that the Company shall not be required to pay or discharge, or cause to be paid or discharged, any such tax, assessment, charge or claim the amount, applicability or validity of which is being contested in good faith by appropriate proceedings and for which adequate reserves have been established. SECTION 4.15. Maintenance of Properties and Insurance. The Company will cause all properties used or useful in the conduct of its business or the business of any of its Restricted Subsidiaries, to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterment and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided that nothing in this Section 4.15 shall prevent the Company or any such Subsidiary from discontinuing the use, operation or maintenance of any of such properties or disposing of any of them, if such discontinuance or disposal is, in the judgment of the Company, desirable in the conduct of the business of the Company or such Subsidiary. The Company will provide or cause to be provided, for itself and its Restricted Subsidiaries, insurance (including appropriate self-insurance) against loss or damage of the kinds customarily insured against by corporations similarly situated and owning like properties, including, but not limited to, products liability insurance and public liability insurance, with reputable insurers, in such amounts, with such deductibles and by such methods as shall be customary for corporations similarly situated in the industry in which the Company or such Restricted Subsidiary, as the case may be, is then conducting business. SECTION 4.16. Notice of Defaults. In the event that the Company becomes aware of any Default or Event of Default, the Company, promptly after it becomes aware thereof, will give written notice thereof to the Trustee. SECTION 4.17. Compliance Certificates. (a) The Company shall deliver to the Trustee, within 90 days after the end of each fiscal year and within 45 days after the end of the first, second and third quarters of each fiscal year of the Company, an Officers' Certificate stating whether or not the signers know of any Default or Event of Default that occurred during such fiscal year. Such certificates shall contain a certification from the principal executive officer, principal financial officer or principal accounting officer of the Company that a review has been conducted of the activities of the Company and the Restricted Subsidiaries and the Company's and the Restricted Subsidiaries' performance under this Indenture and that the Company has complied with all conditions and covenants and fulfilled all obligations under this Indenture. For purposes of this Section 4.17, such compliance shall be determined without regard to any period of grace or requirement of 39 34 notice provided under this Indenture. If any such officer knows of such a Default or Event of Default, the certificate shall describe any such Default or Event of Default and its status. (b) The Company shall deliver to the Trustee, within 90 days after the end of its fiscal year, a certificate signed by the Company's independent certified public accountants stating (i) that their audit examination has included a review of the terms of this Indenture and the Notes as they relate to accounting matters, (ii) that they have read the most recent Officers' Certificate delivered to the Trustee pursuant to paragraph (a) of this Section 4.17 and (iii) whether, in connection with their audit examination, anything came to their attention that caused them to believe that the Company was not in compliance with any of the terms, covenants, provisions or conditions of Article Four and Section 5.1 of this Indenture as they pertain to accounting matters and, if any Default or Event of Default has come to their attention, specifying the nature and period of existence thereof; provided that such independent certified public accountants shall not be liable in respect of such statement by reason of any failure to obtain knowledge of any such Default or Event of Default that would not be disclosed in the course of an audit examination conducted in accordance with generally accepted auditing standards in effect at the date of such examination. (c) Within 90 days of the end of each of the Company's fiscal year, the Company shall deliver to the Trustee a list of all Subsidiaries. The Trustee shall have no duty with respect to any such list except to keep it on file and available for inspection by the Holders. SECTION 4.18. Commission Reports and Reports to Trustee and to Holders. So long as any of the Notes are outstanding, whether or not the Company is subject to Section 13(a) or 15(d) of the Exchange Act, the Company shall file with the Commission the annual reports, quarterly reports and other documents which the Company would have been required to file with the Commission pursuant to such Sections 13(a) and 15(d) if the Company were so subject, such documents to be filed with the Commission on or prior to the respective dates (the "Required Filing Dates") by which the Company would have been required so to file such documents if the Company were so subject. The Company shall also in any event (x) within 15 days of each Required Filing Date (i) transmit by mail to all Holders, as their names and addresses appear in the Security Register, without cost to such Holders; and (ii) file with the Trustee copies of the annual reports, quarterly reports and other documents which the Company would have been required to file with the Commission pursuant to Sections 13(a) and 15(d) of the Exchange Act if the Company were subject to such Sections and (y) if filing such documents by the Company with the Commission is not permitted under the Exchange Act, promptly upon written request supply copies of such documents to any prospective Holder. SECTION 4.19. Waiver of Stay, Extension or Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company from paying all or any portion of the principal of, premium, if any, or interest on the Notes as contemplated herein, wherever enacted, now or at any time hereafter in force, or that may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 4.20. Activities of the Company and Restricted Subsidiaries. The Company shall not, and shall not permit any Restricted Subsidiary to, engage in any business other than the telecommunications business and related activities and services. ARTICLE FIVE CONSOLIDATION, MERGER AND SALE OF ASSETS SECTION 5.1. When Company and Guarantor May Merge, Etc. The Company shall not consolidate with, merge with or into, or sell, convey, transfer, lease or otherwise dispose of all or substantially 40 35 all of its property and assets (as an entirety or substantially an entirety in one transaction or a series of related transactions) to, any Person or permit any Person to merge with or into the Company unless: (i) the Company shall be the continuing Person, or the Person (if only than the Company) formed by such consolidation or into which the Company is merged or that acquired or leased such property and assets of the Company shall be a corporation organized and validly existing under the laws of the United States or any jurisdiction thereof and shall expressly assume, by a supplemental indenture, executed and delivered to the Trustee, in form reasonably satisfactory to the Trustee, all of the obligations of the Company in respect of all of the Notes and under this Indenture. (ii) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; (iii) immediately after giving effect to such transaction on a pro forma basis, the Company, or any Person becoming the successor obligor of the Notes, as the case may be, could Incur at least $1.00 of Indebtedness under the first paragraph of Section 4.3(a); and (iv) the Company delivers to the Trustee an Officers' Certificate (attaching the arithmetic computations to demonstrate compliance with clause (iii) of this Section 5.1) and an Opinion of Counsel, in each case stating that such consolidation, merger or transfer and such supplemental indenture complies with this provision and that all conditions precedent provided for herein relating to such transaction have been complied with; provided that the provisions of clause (iii) of this Section 5.1 shall not apply to transactions described above which are between or among two or more Wholly Owned Subsidiaries of the Company. Notwithstanding the immediately preceding paragraph, the provisions of this Section 5.1 shall not prohibit a transaction the sole purpose of which (as determined in good faith by the Board of Directors of the Company) is to change the state of incorporation of the Company. SECTION 5.2. Successor Substituted. Upon any consolidation or merger, or any sale, conveyance, transfer or other disposition of all or substantially all of the property and assets of the Company in accordance with Section 5.1, the successor Person formed by such consolidation or into which the Company is merged or consolidated or to which such sale, conveyance, transfer or other disposition is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein. ARTICLE SIX DEFAULT AND REMEDIES SECTION 6.1. Events of Default. An "Event of Default" shall occur with respect to the Notes if: (a) the Company defaults in the payment of the principal of (or premium, if any, on) any Note when the same becomes due and payable at maturity, upon acceleration, redemption or otherwise; (b) the Company defaults in the payment of interest on any Note when the same becomes due and payable, and such default continues for a period of 30 days; (c) the Company defaults in the payment of principal (or premium, if any) and interest on Notes required to be purchased pursuant to an Offer to Purchase as described in Section 4.11 or Section 4.12 when due and payable; (d) the Company fails to perform or comply with the provisions described in Article Five; 41 36 (e) the Company defaults in the performance of or breaches any other covenant or agreement of the Company in this Indenture or under the Notes and such default or breach continues for a period of 60 consecutive days after written notice to the Company by the Trustee or the Holders of 25% or more in aggregate principal amount of the Notes; (f) there occurs with respect to any issue or issues of Indebtedness of the Company or any Restricted Subsidiary having an outstanding principal amount at maturity of $5.0 million or more in the aggregate for all such issues of all such Persons, whether such Indebtedness now exists or shall hereafter be created, (I) an event of default that has caused the holder thereof to declare such Indebtedness to be due and payable prior to its Stated Maturity and/or (II) the failure to make a payment when due of principal, premium, if any, or interest and such defaulted payment shall not have been made, waived or extended by the earliest of (x) the expiration of any applicable grace period and (y) the 30th day after such payment default; (g) any final judgment or order (not covered by insurance) for the payment of money in excess of $5.0 million in the aggregate for all such final judgments or orders against all such Persons (treating any deductibles, self-insurance or retention as not so covered) shall be rendered against the Company or any Restricted Subsidiary and shall not be paid or discharged, and there shall be any period of 60 consecutive days following entry of the final judgment or order that causes the aggregate amount for all such final judgments or orders outstanding and not paid or discharged against all such Persons to exceed $5.0 million during which a stay of enforcement of such final judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; (h) a court having jurisdiction in the premises enters a decree or order for (A) relief in respect of the Company or any Restricted Subsidiary in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, (B) appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or any Restricted Subsidiary or for all or substantially all of the property and assets of the Company or any Restricted Subsidiary or (C) the winding up or liquidation of the affairs of the Company or any Restricted Subsidiary and, in each case, such decree or order shall remain unstayed and in effect for a period of 30 consecutive days; or (i) the Company or any Restricted Subsidiary (A) commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case under any such law, (B) consents to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or any Restricted Subsidiary or for all or substantially all of the property and assets of the Company or any Restricted Subsidiary or (C) effects any general assignment for the benefit of creditors. SECTION 6.2. Acceleration. If an Event of Default (other than an Event of Default specified in clause (h) or (i) above) occurs and is continuing under this Indenture, the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes, then outstanding, by written notice to the Company (and to the Trustee if such notice is given by the Holders), may, and the Trustee at the request of such Holders shall, declare that the Accreted Value of, premium, if any, and accrued interest, if any, to be immediately due and payable. Upon a declaration of acceleration, such Accreted Value of, premium if any, and accrued interest shall be immediately due and payable. In the event of a declaration of acceleration because an Event of Default set forth in clause (f) of Section 6.1 has occurred and is continuing, such declaration of acceleration shall be automatically rescinded and annulled if the event of default triggering such Event of Default pursuant to clause (f) shall be remedied or cured by the Company or the relevant Subsidiary or waived by the holders of the relevant Indebtedness within 30 days after the declaration of acceleration with respect thereto. If an Event of Default specified in clause (h) or (i) of Section 6.1 occurs with respect to the Company, the Accreted Value of, premium, if any, and accrued interest, if any, on the Notes then outstanding shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. 42 37 The Holders of at least a majority in principal amount at maturity of the outstanding Notes by written notice to the Company and to the Trustee may waive all past Defaults and rescind and annul such declaration of acceleration and its consequences if (i) all existing Events of Default, other than the nonpayment of the principal of, premium, if any, and interest on the Notes that have become due solely by such declaration of acceleration, have been cured or waived, and (ii) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction. SECTION 6.3. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of, premium, if any, or interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. SECTION 6.4. Waiver of Past Defaults. Subject to Sections 6.2, 6.7 and 9.2, the Holders of at least a majority in principal amount of the outstanding Notes, by notice to the Trustee, may waive an existing Default or Event of Default and its consequences, except a Default in the payment of principal of, premium, if any, or interest on any Note as specified in clause (a), (b) or (c) of Section 6.1 or in respect of a covenant or provision of this Indenture which cannot be modified or amended without the consent of the Holder of each outstanding Note affected. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereto. SECTION 6.5. Control by Majority. The Holders of at least a majority in aggregate principal amount of the outstanding Notes may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee; provided that the Trustee may refuse to follow any direction that conflicts with law or this Indenture, that may involve the Trustee in personal liability, or that the Trustee determines in good faith may be unduly prejudicial to the rights of Holders of Notes not joining in the giving of such direction; and provided, further, that the Trustee may take any other action it deems proper that is not inconsistent with any directions received from Holders of Notes pursuant to this Section 6.5. SECTION 6.6. Limitation on Suits. A Holder may not institute any proceeding, judicial or otherwise, with respect to this Indenture or the Notes, or for the appointment of a receiver or trustee, or for any other remedy hereunder or with respect to the Notes; unless; (i) such Holder has previously given to the Trustee written notice of a continuing Event of Default; (ii) the Holders of at least 25% in aggregate principal amount of outstanding Notes shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (iii) such Holder or Holders have offered to the Trustee indemnity satisfactory to the Trustee against any costs, liabilities or expenses to be incurred in compliance with such request; (iv) the Trustee does not comply with the request within 60 days after the receipt of the request and the offer of indemnity; and (v) during such 60-day period, the Holders of a majority in aggregate principal amount of the outstanding Notes have not given the Trustee a direction that is inconsistent with such written request. 43 38 For purposes of Section 6.5 of this Indenture and this Section 6.6, the Trustee shall comply with TIA Section 316(a) in making any determination of whether the Holders of the required aggregate principal amount at maturity of outstanding Notes have concurred in any request or direction of the Trustee to pursue any remedy available to the Trustee or the Holders with respect to this Indenture or the Notes or otherwise under the law. A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over such other Holder. SECTION 6.7. Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal of, premium, if any, or interest on such Holder's Note or to bring suit for the enforcement of any such payment, on or after the due date expressed in the Notes, shall not be impaired or affected without the consent of such Holder. SECTION 6.8. Collection Suit by Trustee. If an Event of Default in payment of principal, premium or interest specified in clause (a), (b), (c), (d) or (e) of Section 6.1 occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company or any other obligor of the Notes for the whole amount of principal, premium, if any, and accrued interest remaining unpaid, together with interest on overdue principal, premium, if any, and, to the extent that payment of such interest is lawful, interest on overdue installments of interest, in each case at the rate specified in the Notes, and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 6.9. Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7) and the Holders allowed in any judicial proceedings relative to the Company (or any other obligor of the Notes), its creditors or its property and shall be entitled and empowered to collect and receive any monies, securities or other property payable or deliverable upon conversion or exchange of the Notes or upon any such claims and to distribute the same, and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel, and any other amounts due the Trustee under Section 7.7. Nothing herein contained shall be deemed to empower the Trustee to authorize or consent to, or accept or adopt on behalf of any Holder, any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 6.10. Priorities. If the Trustee collects any money pursuant to this Article Six, it shall pay out the money in the following order: First: to the Trustee for all amounts due under Section 7.7; Second: to Holders for amounts then due and unpaid for principal of, premium, if any, and interest on the Notes in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Notes for principal, premium, if any, and interest, respectively; and Third: to the Company or any other obligors of the Notes, as their interests may appear, or as a court of competent jurisdiction may direct. The Trustee, upon prior written notice to the Company, may fix a record date and payment date for any payment to Holders pursuant to this Section 6.10. 44 39 SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court may require any party litigant in such suit to file an undertaking to pay the costs of the suit, and the court may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.7 of this Indenture, or a suit by Holders of more than 10% in principal amount at maturity of the outstanding Notes. SECTION 6.12. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then, and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Company, Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 6.13. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or wrongfully taken Notes in Section 2.8, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 6.14. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article Six or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. ARTICLE SEVEN TRUSTEE SECTION 7.1. General. The duties and responsibilities of the Trustee shall be as provided by the TIA and as set forth herein. Notwithstanding the foregoing, no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Article Seven. SECTION 7.2. Certain Rights of Trustee. Subject to TIA Sections 315(a) through (d): (i) in the absence of bad faith on its part, the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document and may in good faith conclusively rely as to the truth of the statements and the correctness of the opinions therein; (ii) before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel, which shall conform to Section 10.4. The Trustee shall not be liable for any 45 40 action it takes or omits to take in good faith in reliance on such certificate, opinion and/or an accountants' certificate if required under the TIA; (iii) in case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs; (iv) the Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care; (v) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders, unless such Holders shall have offered to the Trustee security or indemnity reasonably satisfactory to it against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction; (vi) the Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within its rights or powers or for any action it takes or omits to take in accordance with the direction of the Holders of a majority in principal amount at maturity of the outstanding Notes relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture; provided that the Trustee's conduct does not constitute gross negligence or bad faith; (vii) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; and (viii) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company personally or by agent or attorney. SECTION 7.3. Individual Rights of Trustee. The Trustee, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not the Trustee. Any Agent may do the same with like rights. However, the Trustee is subject to TIA Sections 310(b) and 311. SECTION 7.4. Trustee's Disclaimer. The Trustee (i) makes no representation as to the validity or adequacy of this Indenture or the Notes, (ii) shall not be accountable for the Company's use or application of the proceeds from the Notes and (iii) shall not be responsible for any statement in the Notes other than its certificate of authentication. SECTION 7.5. Notice of Default. If any Default or any Event of Default occurs and is continuing and if such Default or Event of Default is known to a trust officer of the Trustee, the Trustee shall mail to each Holder in the manner and to the extent provided in TIA Section 313(c) notice of the Default or Event of Default within 90 days after it occurs, unless such Default or Event of Default has been cured; provided, however, that, except in the case of a default in the payment of the principal of, premium, if any, or interest on any Note, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interest of the Holders. 46 41 SECTION 7.6. Reports by Trustee to Holders. Within 60 days after each May 15, beginning 1997, the Trustee shall mail to each Holder as provided in TIA Section 313(c) a brief report that complies with TIA Section 313(a) dated as of such May 15, if required by TIA Section 313(a). SECTION 7.7. Compensation and Indemnity. The Company shall pay to the Trustee such compensation as shall be agreed upon in writing for its services. The compensation of the Trustee shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable out-of-pocket expenses, including costs of collection, and advances incurred or made by the Trustee. Such expenses shall include the reasonable compensation and expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee for, and hold it harmless against, any loss or liability or expense incurred by it without negligence or bad faith on its part in connection with the acceptance or administration of this Indenture and its duties under this Indenture and the Notes, including the costs and expenses of defending itself against any claim or liability and of complying with any process served upon it or any of its officers in connection with the exercise or performance of any of its powers or duties under this Indenture and the Notes. To secure the Company's payment obligations in this Section 7.7, the Trustee shall have a lien prior to the Notes on all money or property held or collected by the Trustee, in its capacity as Trustee, except money or property held in trust to pay principal of, premium, if any, and interest on particular Notes. If the Trustee incurs expenses or renders services after the occurrence of an Event of Default specified in clause (h) or (i) of Section 6.1, the expenses and the compensation for the services will be intended to constitute expenses of administration under Title 11 of the United States Bankruptcy Code or any other applicable law for the relief of debtors. SECTION 7.8. Replacement of Trustee. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section 7.8. The Trustee may resign at any time by so notifying the Company in writing at least 30 days prior to the date of the proposed resignation. The Holders of a majority in principal amount of the outstanding Notes may remove the Trustee by so notifying the Trustee in writing and may appoint a successor Trustee with the consent of the Company. The Company may at any time remove the Trustee, by Company Order given at least 30 days prior to the date of the proposed removal. If the Trustee resigns or its removed, or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If the successor Trustee does not deliver its written acceptance required by the next succeeding paragraph of this Section 7.8 within 30 days after the retiring Trustee resigns or its removed, the retiring Trustee, the Company or the Holders of a majority in principal amount of the outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of this appointment to the retiring Trustee and to the Company. Immediately after the delivery of such written acceptance, subject to the lien provided in Section 7.7, (i) the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee, (ii) the resignation or removal of the retiring Trustee shall become effective and (iii) the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Holder. 47 42 If the Trustee is no longer eligible under Section 7.10, any Holder who satisfies the requirements of TIA Section 310(b) may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. The Company shall give notice of any resignation and any removal of the Trustee and each appointment of a successor Trustee to all Holders. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. Notwithstanding replacement of the Trustee pursuant to this Section 7.8, the Company's obligation under Section 7.7 shall continue for the benefit of the retiring Trustee. SECTION 7.9. Successor Trustee by Merger, Etc. If the Trustee consolidates with, mergers or converts into, or transfers all or substantially all of its corporate trust business to, another corporation or national banking association, the resulting, surviving or transferee corporation or national banking association without any further act shall be the successor Trustee with the same effect as if the successor Trustee had been named as the Trustee herein. SECTION 7.10. Eligibility. This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1). The Trustee shall have a combined capital and surplus of at least $25,000,000 as set forth in its most recent published annual report of condition. SECTION 7.11. Money Held in Trust. The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law and except for money held in trust under Article Eight. SECTION 7.12. Withholding Taxes. The Trustee, as agent for the Company, shall exclude and withhold from each payment of principal and interest and other amounts due hereunder or under the Notes any and all withholding taxes applicable thereto as required by law. The Trustee agrees to act as such withholding agent and, in connection therewith, whenever any present or future taxes or similar charges are required to be withheld with respect to any amounts payable in respect of the Notes, to withhold such amounts and timely pay the same to the appropriate authority in the name of and on behalf of the Holders of the Notes, that it will file any necessary withholding tax returns or statements when due, and that, as promptly as possible after the payment thereof, it will deliver to each holder of a Note appropriate documentation showing the payment thereof, together with such additional documentary evidence as such holders may reasonably request from time to time. ARTICLE EIGHT DISCHARGE OF INDENTURE SECTION 8.1. Termination of Company's Obligations. Except as otherwise provided in this Section 8.1, the Company may terminate its obligations under the Notes and the Indenture if: (i) all Notes previously authenticated and delivered (other than destroyed, lost or stolen Notes that have been replaced or Notes that are paid pursuant to Section 4.1 or Notes for whose payment money or securities have theretofore been held in trust and thereafter repaid to the Company, as provided in Section 8.5) have been delivered to the Trustee for cancellation and the Company has paid all sums payable by it hereunder; or (ii) (A) the Notes mature within one year or all of them are to be called for redemption within one year under arrangements satisfactory to the Trustee for giving the notice of redemption, (B) the Company irrevocably deposits in trust with the Trustee during such one-year period, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee, as trust funds solely for the benefit of the Holders for that purpose, money or U.S. Government Obligations sufficient (in the 48 43 opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee), without consideration of any reinvestment of any interest thereon, to pay principal, premium, if any, and interest on the Notes to maturity or redemption, as the case may be, and to pay all other sums payable by it hereunder, (C) no Default or Event of Default with respect to the Notes shall have occurred and be continuing on the date of such deposit, (D) such deposit will not result in a breach or violation of, or constitute a default under, this Indenture or any other agreement or instrument to which the Company is a party or by which it is bound and (E) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, in each case stating that all conditions precedent provided for herein relating to the satisfaction and discharge of this Indenture have been complied with. With respect to the foregoing clause (i), the Company's obligations under Section 7.7 shall survive. With respect to the foregoing clause (ii), the Company's obligations in Sections 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.8, 2.13, 4.1, 4.2, 7.7, 7.8, 8.4, 8.5 and 8.6 shall survive until the Notes are no longer outstanding. Thereafter, only the Company's obligations in Sections 7.7, 8.5 and 8.6 shall survive. After any such irrevocable deposit, the Trustee upon request shall acknowledge in writing the discharge of the Company's obligations, as the case may be, under the Notes and this Indenture except for those surviving obligations specified above. SECTION 8.2. Defeasance and Discharge of Indenture. The Company will be deemed to have paid and will be discharged from any and all obligations in respect of the Notes on the 123rd day after the date of the deposit referred to in clause (A) of this Section 8.2 if: (A) Company has deposited with the Trustee, in trust, money and/or U.S. Government Obligations that through the payment of interest and principal in respect thereof in accordance with their terms will provide money in an amount sufficient to pay the principal of, premium, if any, and accrued interest on the Notes on the Stated Maturity of such payments in accordance with the terms of the Indenture and the Notes; (B) the Company has delivered to the Trustee (i) either (x) an Opinion of Counsel to the effect that Holders will not recognize income, gain or loss for federal income tax purposes as a result of the Company's exercise of its option under this Section 8.2 and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred, which Opinion of Counsel must be based upon (and accompanied by a copy of) a ruling of the Internal Revenue Service to the same effect unless there has been a change in applicable federal income tax law after the date of the Indenture such that a ruling is no longer required or (y) a ruling directed to the Trustee received from the Internal Revenue Service to the same effect as the aforementioned Opinion of Counsel and (ii) and Opinion of Counsel to the effect that the creation of the defeasance trust does not violate the Investment Company Act of 1940, as amended, and after the passage of 123 days following the deposit, the trust fund will not be subject to the effect of Section 547 of the United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law; (C) immediately after giving effect to such deposit on a pro forma basis, no Event of Default, or event that after the giving of notice or lapse of time or both would become an Event of Default, shall have occurred and be continuing on the date of such deposit or during the period ending on the 123rd day after the date of such deposit; (D) such deposit shall not result in a breach or violation of, or constitute a default under, any other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (E) if at such time the Notes are listed on a national securities exchange, the Company has delivered to the Trustee an Opinion of Counsel to the effect that the Notes will not be delisted as a result of such deposit, defeasance and discharge; and 49 44 (F) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, in each case stating that all conditions precedent provided for herein relating to the defeasance contemplated by this Section 8.2 have been complied with. Notwithstanding the foregoing prior to the end of the 123-day period referred to in clause (B)(ii) of this Section 8.2, none of the Company's obligations under this Indenture shall be discharged. Subsequent to the end of such 123-day period with respect to this Section 8.2, the Company's obligations in Sections 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.8, 2.13, 4.1, 4.2, 7.7, 7.8, 8.5 and 8.6 shall survive until the Notes are no longer outstanding. Thereafter, only the Company's obligations in Sections 7.7, 8.5 and 8.6 shall survive. If and when a ruling from the Internal Revenue Service or an Opinion of Counsel referred to in clause (B)(x) of this Section 8.2 may be provided specifically without regard to, and not in reliance upon, the continuance of the Company's obligations under Section 4.1, then the Company's obligations under such Section 4.1 shall cease upon delivery to the Trustee of such ruling or Opinion of Counsel and compliance with the other conditions precedent provided for herein relating to the defeasance contemplated by this Section 8.2. After any such deposit, the Trustee upon request shall acknowledge in writing the discharge of the Company's obligations under the Notes and this Indenture except for those surviving obligations in the immediately preceding paragraph. SECTION 8.3. Defeasance of Certain Obligations. The Company may omit to comply with any term, provision or condition set forth in clause (iii) of Section 5.1 and Sections 4.3 through 4.18, and clause (e) of Section 6.1 with respect to clause (iii) of Section 5.1 and Sections 4.3 through 4.18, and clauses (f) and (g) of Section 6.1 shall be deemed not to be Events of Default, in each case with respect to the outstanding Notes if: (i) the Company has deposited with the Trustee, in trust, money and/or U.S. Government Obligations that through the payment of interest and principal in respect thereof in accordance with their terms will provide money in an amount sufficient to pay the principal of, premium, if any, and accrued interest on the Notes at the Stated Maturity of such payments in accordance with the terms of this Indenture and the Notes; (ii) the Company has delivered to the Trustee (x) either (a) an Opinion of Counsel to the effect that Holders will not recognize income, gain or loss for federal income tax purposes as a result of the Company's exercise of its option under this Section 8.2 and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred, which Opinion of Counsel must be based upon (and accompanied by a copy of) a ruling of the Internal Revenue Service to the same effect unless there has been a change in applicable federal income tax law after the date of the Indenture such that a ruling is no longer required or (b) a ruling directed to the Trustee received from the Internal Revenue Service to the same effect as the aforementioned Opinion of Counsel and (y) an Opinion of Counsel to the effect that the creation of the defeasance trust does not violate the Investment Company Act of 1940, as amended, and after the passage of 123 days following the deposit, the trust fund will not be subject to the effect of Section 547 of the United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law; (iii) immediately after giving effect to such deposit on a pro forma basis, no Event of Default, or event that after the giving of notice or lapse of time or both would become an Event of Default, shall have occurred and be continuing on the date of such deposit or during the period ending on the 123rd day after the date of such deposit; (iv) such deposit shall not result in a breach or violation of, or constitute a default under, any other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; 50 45 (v) if at such time the Notes are listed on a national securities exchange, the Company has delivered to the Trustee an Opinion of Counsel to the effect that the Notes will not be delisted as a result of such deposit, defeasance and discharge; and (vi) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, in each case stating that all conditions precedent provided for herein relating to the defeasance contemplated by this Section 8.3 have been complied with. SECTION 8.4. Application of Trust Money. Subject to Section 8.6, the Trustee or Paying Agent shall hold in trust money or U.S. Government Obligations deposited with it pursuant to Section 8.1, 8.2 or 8.3, as the case may be, and shall apply the deposited money and the money from U.S. Government Obligations in accordance with the Notes and this Indenture to the payment of principal of, premium, if any, and interest on the Notes; but such money need not be segregated from other funds except to the extent required by law. SECTION 8.5. Repayment to Company. Subject to Sections 7.7, 8.1, 8.2 and 8.3, the Trustee and the Paying Agent shall promptly pay to the Company upon request set forth in an Officers' Certificate any excess money held by them at any time and thereupon shall be relieved from all liability with request to such money. The Trustee and the Paying Agent shall pay to the Company upon request any money held by them for the payment of principal, premium, if any, or interest that remains unclaimed for two years; provided that the Trustee of such Paying Agent before being required to make any payment may cause to be published at the expense of the Company once in a newspaper of general circulation in the City of New York or mail to each Holder entitled to such money at such Holder's address (as set forth in the Security Register) notice that such money remains unclaimed and that after a date specified therein (which shall be at least 30 days from the date of such publication or mailing) any unclaimed balance of such money then remaining will be repaid to the Company. After payment to the Company, Holders entitled to such money must look to the Company for payment as general creditors unless an applicable law designates another Person, and all liability of the Trustee and such Paying Agent with respect to such money shall cease. SECTION 8.6. Reinstatement. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with Section 8.1, 8.2 or 8.3, as the case may be, by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.1, 8.2 or 8.3, as the case may be, until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with Section 8.1, 8.2 or 8.3, as the case may be; provided that, if the Company has made any payment of principal of, premium, if any, or interest on any Notes because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 9.1. Without Consent of Holders. The Company, when authorized by resolutions of its Board of Directors, and the Trustee may amend or supplement this Indenture or the Notes without notice to or the consent of any Holder: (1) to cure any ambiguity, defect or inconsistency in this Indenture; provided that such amendments or supplements shall not adversely affect the interests of the Holders in any material respect; (2) to comply with Article Five; 51 46 (3) to comply with any requirements of the Commission in connection with the qualification of this Indenture under the TIA; (4) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee; or (5) to make any change that, in the opinion of the Board of Directors of the Company evidenced by a Board Resolution, does not materially and adversely affect the rights of any Holder. SECTION 9.2. With Consent of Holders. Subject to Sections 6.4 and 6.7 and without prior notice to the Holders, the Company, when authorized by its Boards of Directors (as evidenced by a Board Resolution), and the Trustee may amend this Indenture and the Notes with the written consent of the Holders of a majority in principal amount of the Notes then outstanding, and the Holders of a majority in principal amount at maturity of the Notes then outstanding by written notice to the Trustee may waive future compliance by the Company with any provision of this Indenture or the Notes. Notwithstanding the provisions of this Section 9.2, without the consent of each Holder affected, an amendment or waiver, including a waiver pursuant to Section 6.4, may not: (i) change the Stated Maturity of the principal of, or any installment of interest on, any Note, or reduce the principal amount at maturity thereof or the rate of interest thereon or any premium payable upon the redemption thereof, or adversely affect any right of repayment at the option of any Holder of any Note, or the place or currency in which, any Note or any premium or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date); (ii) reduce the percentage in principal amount at maturity of outstanding Notes the consent of whose Holders is required for any such supplemental indenture, for any waiver of compliance with certain provisions of this Indenture or certain Defaults and their consequences provided for in this Indenture; (iii) waive a Default in the payment of principal of, premium, if any, or interest on, any Note; (iv) following the mailing of an offer with respect to an Offer to Purchase the Notes as described in Sections 4.11 and 4.12, modify the Indenture with respect to such Offer to Purchase in a manner adverse to such Holders; or (v) modify any of the provisions of this Section 9.2, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each outstanding Note affected thereby. It shall not be necessary for the consent of the Holders under this Section 9.2 to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section 9.2 becomes effective, the Company shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. The Company will mail supplemental indentures to Holders upon request. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture or waiver. SECTION 9.3. Revocation and Effect of Consent. Until an amendment or waiver becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a 52 47 Note or portion of a Note that evidences the same debt as the Note of the consenting Holder, even if notation of the consent is not made on any Note. However, any such Holder or subsequent Holder may revoke the consent as to its Note or portion of its Note. Such revocation shall be effective only if the Trustee receives the notice of revocation before the date the amendment, supplement or waiver becomes effective. An amendment, supplement or waiver shall become effective on receipt by the Trustee of written consents from the Holders of the requisite percentage in principal amount at maturity of the outstanding Notes. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement or waiver. If a record date is fixed, then, notwithstanding the last two sentences of the immediately preceding paragraph, those persons who were Holders at such record date (or their duly designated proxies) and only those persons shall be entitled to consent to such amendment, supplement or waiver or to revoke any consent previously given, whether or not such persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date. After an amendment, supplement or waiver becomes effective, it shall bind every Holder unless it is of the type described in any of clauses (i) through (v) of Section 9.2. In case of an amendment or waiver of the type described in clause (i) through (v) of Section 9.2, the amendment or waiver shall bind each Holder who has consented to it and every subsequent Holder of a Note that evidences the same indebtedness as the Note of the consenting Holder. SECTION 9.4. Notation on or Exchange of Notes. If an amendment, supplement or waiver changes the terms of a Note, the Trustee may require the Holder to deliver it to the Trustee. At the Company's expense, the Trustee may place an appropriate notation on the Note concerning the changed terms and return it to the Holder and the Trustee may place an appropriate notation on any Note thereafter authenticated. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Note shall issue and the Trustee shall authenticate a new Note that reflects the changed terms. SECTION 9.5. Trustee to Sign Amendments, Etc. The Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of any amendment, supplement or waiver authorized pursuant to this Article Nine is authorized or permitted by this Indenture. Subject to the preceding sentence, the Trustee shall sign such amendment, supplement or waiver if the same does not adversely affect the rights of the Trustee. The Trustee may, but shall not be obligated to, execute any such amendment, supplement or waiver that affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 9.6. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article Nine shall conform to the requirements of the TIA as then in effect. ARTICLE TEN MISCELLANEOUS SECTION 10.1. Trust Indenture Act of 1939. This Indenture shall be subject to the provisions of the TIA that are required to be a part of this Indenture and shall, to the extent applicable, be governed by such provisions. SECTION 10.2. Notices. Any notice or communication shall be sufficiently given if in writing and delivered in person or mailed by first class mail addressed as follows: if to the Company: PCS Development Corporation 15 South Main Street 53 48 Suite 810 Greenville, South Carolina 29601 Attention: Chief Executive Officer if to the Trustee: United States Trust Company of New York 114 West 47th Street New York, New York 10036 Attention: Corporate Trust Department The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Holder shall be mailed to such Holder at the address as it appears on the Security Register by first class mail and shall be sufficiently given to such Holder if so mailed within the time prescribed. Copies of any such communication or notice to a Holder shall also be mailed to the Trustee and each Agent at the same time. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. Except for a notice to the Trustee, which is deemed given only when received, and except as otherwise provided in this Indenture, if a notice or communication is mailed in the manner provided in this Section 10.2, it is duly given, whether or not the addressee receives it. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall he filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of regular mail service or by of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. SECTION 10.3. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (i) an Officers' Certificate stating that, in the opinion of the signatories thereto, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (ii) an Opinion of Counsel stating that, in the opinion of such Counsel, all such conditions precedent have been complied with. SECTION 10.4. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (i) a statement that each person signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (ii) a brief statement as to the nature and scope of the examination or investigation upon which the statement or opinion contained in such certificate or opinion is based; 54 49 (iii) a statement that, in the opinion of each such person, such person has made such examination or investigation as is necessary to enable such person to express an informed opinion as to whether or not such covenant or condition has been complied with; and (iv) a statement as to whether or not, in the opinion of each such person, such condition or covenant has been complied with; provided, however, that, with respect to matters of fact, an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials. SECTION 10.5. Rules by Trustee, Paying Agent or Registrar. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Paying Agent or Registrar may make reasonable rules for its functions. SECTION 10.6. Payment Date Other Than a Business Day. If an Interest Payment Date, Redemption Date, Change of Control Payment Date, Excess Proceeds Payment Date, Stated Maturity or date of maturity of any Note shall not be a Business Day, then payment of principal of, premium, if any, or interest on such Note, as the case may be, need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date, Change of Control Payment Date, Excess Proceeds Payment Date, or Redemption Date, or at the Stated Maturity or date of maturity of such Note; provided that no interest shall accrue for the period from and after such Interest Payment Date, Change of Control Payment Date, Excess Proceeds Payment Date, Redemption Date, Stated Maturity or date of maturity, as the case may be. SECTION 10.7. Governing Law. THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS TO BE PERFORMED ENTIRELY IN THAT STATE SHALL GOVERN THIS INDENTURE AND THE NOTES. SECTION 10.8. No Adverse Interpretation of Other Agreements. This Indenture may not bc used to interpret another indenture, loan or debt agreement of the Company or any Subsidiary of the Company. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 10.9. No Recourse Against Others. No recourse for the payment of the principal of, premium, if any, or interest on any of the Notes, or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Company contained in this indenture, or in any of the Notes, or because of the creation of any Indebtedness represented thereby, shall be had against any incorporator or against any past, present or future partner, shareholder, other equity holder, officer, director, employee or controlling person, as such, of the Company or of any successor Person, either directly or through the Company or any successor Person, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that all such liability is hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of the Notes. SECTION 10.10. Successors. All agreements of the Company in this Indenture and the Notes shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 10.11. Duplicate Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. SECTION 10.12. Separability. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 55 50 SECTION 10.13. Table of Contents, Headings, Etc. The Table of Contents, Cross-Reference Table and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms and provisions hereof. 56 51 SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, all as of the date first written above. PCS DEVELOPMENT CORPORATION By: ------------------------------------- Name: Title: UNITED STATES TRUST COMPANY OF NEW YORK By: ------------------------------------- Name: Title: 57 EXHIBIT A [FACE OF NOTE] [Any Global Note authenticated and delivered hereunder shall bear a legend (which would be in addition to any other legends required under the Indenture) in substantially the following form: THIS SECURITY IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.] Prior to the Separation Date, each Note shall bear a legend (which would be in addition to any other legends required under the Indenture) in substantially the following form: THIS NOTE IS INITIALLY ISSUED AS PART OF AN ISSUANCE OF UNITS, EACH OF WHICH CONSISTS OF $1,000 PRINCIPAL AMOUNT AT MATURITY OF __% SENIOR DISCOUNT NOTES DUE 2006 OF PCS DEVELOPMENT CORPORATION (THE "NOTES") AND WARRANTS ENTITLING THE HOLDER THEREOF TO PURCHASE ___ SHARES OF CLASS B COMMON STOCK OF PCS DEVELOPMENT CORPORATION (THE "WARRANTS"). PRIOR TO THE CLOSE OF BUSINESS ON THE EARLIEST OF (i) ________, 1996, (ii) SUCH EARLIER DATE AS MAY BE DETERMINED BY LEHMAN BROTHERS INC. AND SPECIFIED TO THE COMPANY, THE TRUSTEE, THE WARRANT AGENT AND THE UNIT AGENT IN WRITING, (iii) THE OCCURRENCE OF A CHANGE OF CONTROL AND (iv) IN THE EVENT OF AN ASSET SALE, THE DATE THE COMPANY MAILS NOTICE THEREOF TO THE HOLDERS OF THE NOTES, THIS NOTE MAY NOT BE TRANSFERRED OR EXCHANGED SEPARATELY FROM, BUT MAY BE TRANSFERRED OR EXCHANGED ONLY TOGETHER WITH, THE WARRANTS. PCS DEVELOPMENT CORPORATION ___% Senior Discount Note Due 2006 CUSIP ___________ No.________________ $________________ A-1 58 The following information is supplied for purposes of Sections 1273 and 1275 of the Internal Revenue Code: Issue Date: ____________, 1996 Original issue discount under Section 1273 of the Internal Revenue Code (for each $1,000 principal Yield to maturity for period from Issue Date to amount at maturity): $_______ ________, 2006: ______%, compounded semi-annually on _______ and _______ commencing _______, 1996 Issue Price (for each $1,000 principal amount at maturity): $_______ (based on the allocation of the issue price for the Units of $_______ per Unit)
PCS DEVELOPMENT CORPORATION, a Delaware corporation (the "Company," which term includes any successor under the Indenture hereinafter referred to), for value received, promises to pay to _________, or its registered assigns, the principal sum of $_______ on ___________, 2006. Interest Payment Dates: ____ and ____, commencing ____, 2001. Regular Record Dates: ____ and ____. Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. A-2 59 IN WITNESS WHEREOF, the Company has caused this Note to be signed manually or by facsimile by its duly authorized officers. Date: PCS DEVELOPMENT CORPORATION --------------------- By: --------------------------------- Name: Title: By: --------------------------------- Name: Title: (Form of Trustee's Certificate of Authentication) This is one of the __% Senior Discount Notes due 2006 described in the within-mentioned Indenture. UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee By: --------------------------------- Authorized Signatory A-3 60 [REVERSE SIDE OF NOTE] PCS DEVELOPMENT CORPORATION __% Senior Discount Note due 2006 1. Principal and Interest. The Company will pay the principal of this Note on ________, 2006. The Company promises to pay interest on the principal amount of this Note on each Interest Payment Date, as set forth below, at the rate per annum shown above (subject to adjustment as provided below). Interest will be payable semiannually (to the holders of record of the Notes at the close of business on the _______ or _______ immediately preceding the Interest Payment Date) on each Interest Payment Date, commencing _______, 2001; provided that no interest shall accrue on the principal amount of this Note prior to _______, 2001 and no interest shall be paid on this Note prior to _______, 2001. From and after _______, 2001, interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from _______, 2001; provided that, if there is no existing default in the payment of interest and this Note is authenticated between a Regular Record Date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such Interest Payment Date. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal and premium, if any, and interest on overdue installments of interest, to the extent lawful, at a rate per annum that is ___% in excess of the rate otherwise payable. 2. Method of Payment. The Company will pay principal provided above and interest (except defaulted interest) on the principal amount of the Notes as provided above on each _______ and _______ to the persons who are Holders (as reflected in the Security Register at the close of business on _______ and _______ immediately preceding the Interest Payment Date), in each case, even if the Note is canceled on registration of transfer or registration of exchange after such record date; provided that, with respect to the payment of principal, the Company will not make payment to the Holder unless this Note is surrendered to a Paying Agent. The Company will pay principal, premium, if any, and, as provided above, interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay principal, premium, if any, and interest by its check payable in such money. It may mail an interest check to a Holder's registered address (as reflected in the Security Register). If a payment date is a date other than a Business Day at a place of payment, payment may be made at that place on the next succeeding day that is a Business Day and no interest shall accrue for the intervening period. 3. Paying Agent and Registrar. Initially, the Trustee will act as authenticating agent, Paying Agent and Registrar. The Company may change any authenticating agent, Paying Agent or Registrar without notice. The Company, any Subsidiary or any Affiliate of any of them may act as Paying Agent, Registrar or co-Registrar. 4. Indenture; Limitations. The Company issued the Notes under an Indenture dated as of July __, 1996 (the "Indenture"), between the Company and United States Trust Company of New York, as trustee (the "Trustee"). Capitalized 1 61 terms herein are used as defined in the Indenture unless otherwise indicated. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the TIA. The Notes are subject to all such terms, and Holders are referred to the Indenture and the TIA for a statement of all such terms. To the extent permitted by applicable law, in the event of any inconsistency between the terms of this Note and the terms of the Indenture, the terms of the Indenture shall control. The Notes are senior, unsecured obligations of the Company ranking pari passu in right of payment with all existing and future unsubordinated unsecured Indebtedness of the Company and senior in right of payment to all existing and future subordinated Indebtedness of the Company. The Indenture limits the original aggregate principal amount at maturity of the Notes to $_______. 5. Optional Redemption. The Notes will be redeemable, at the Company's option, in whole or in part, at any time or from time to time, on or after , 2001 and prior to maturity, upon not less than 30 nor more than 60 days' prior notice mailed by first class mail to each Holders' last address as it appears in the Security Register, at the following Redemption Prices (expressed in 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 Regular Record Date that is on or prior to the Redemption Date to receive interest due on an Interest Payment Date), if redeemed during the 12-month period commencing on _______ __ of the applicable years set forth below:
Redemption YEAR Price ---- ---------- 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . % 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . % 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . % 2004 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.000%
Notwithstanding the foregoing, prior to , 1999, the Company may on any one or more occasions redeem up to 33% of the aggregate principal amount of the Notes at a redemption price of % of the Accreted Value thereof with the net proceeds of either (A) one or more public offerings of common stock of the Company registered under the Securities Act or (B) a sale by the Company of at least $25.0 million of its Capital Stock (other than Redeemable Stock or Preferred Stock) to a Strategic Equity Investor in a single transaction; provided in each case that at least 67% of the aggregate principal amount at maturity of the Notes remains outstanding immediately after the occurrence of any such redemption; and provided, further, that any such redemption shall occur within 90 days of the date of the closing of any such public offering of common stock or sale to Strategic Equity Investor of Capital Stock (other than Redeemable Stock or Preferred Stock) of the Company, as the case may be. 6. Notice of Redemption. Notice of any optional redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed at his last address as it appears in the Security Register. Notes in original denominations larger than $1,000 may be redeemed in part. On and after the Redemption Date, interest ceases to accrue on Notes or portions of Notes called for redemption, unless the Company defaults in the payment of the Redemption Price. 7. Repurchase upon Change in Control. Within 30 days of the occurrence of any Change of Control, each Holder shall have the right to require the repurchase of its Notes by the Company in cash pursuant to the offer described in the Indenture at a purchase price equal to 101% of the Accreted Value thereof plus accrued and unpaid interest, if any, to the date of purchase (the "Change of Control Payment"). 2 62 A notice of such Change of Control will be mailed within 30 days after any Change of Control occurs to each Holder at his last address as it appears in the Security Register. Notes in original denominations larger than $1,000 may be sold to the Company in part. On and after the Change of Control Payment Date, interest ceases to accrue on Notes or portions of Notes surrendered for purchase by the Company, unless the Company defaults in the payment of the Change of Control Payment. 8. Denominations; Transfer; Exchange. The Notes are in registered form without coupons in denominations of $1,000 of principal amount at maturity and multiples of $1,000 in excess thereof. A Holder may register the transfer or exchange of Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer or exchange of any Notes selected for redemption. Also, it need not register the transfer or exchange of any Notes for a period of 15 days before a selection of Notes to be redeemed is made. 9. Persons Deemed Owners. A registered Holder shall be treated as the owner of a Note for all purposes. 10. Unclaimed Money. If money for the payment of principal, premium, if any, or interest remains unclaimed for two years, the Trustee and the Paying Agent will pay the money back to the Company at its request. After that, Holders entitled to the money must look to the Company for payment, unless an abandoned property law designates another Person, and all liability of the Trustee and such Paying Agent with respect to such money shall cease. 11. Discharge Prior to Redemption or Maturity. If the Company deposits with the Trustee money or U.S. Government Obligations sufficient to pay the then outstanding principal of, premium, if any, and accrued interest on the Notes (a) to redemption or maturity, the Company will be discharged from the Indenture and the Notes, except in certain circumstances for certain sections thereof, and (b) to the Stated Maturity, the Company will be discharged from certain covenants set forth in the Indenture. 12. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding, and any existing default or compliance with any provision may be waived with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding. Without notice to or the consent of any Holder, the parties thereto may amend or supplement the Indenture or the Notes to, among other things, cure any ambiguity, defect or inconsistency and make any change that does not materially and adversely affect the rights of any Holder. 13. Restrictive Covenants. The Indenture imposes certain limitations on the ability of the Company and its Restricted Subsidiaries, among other things, to Incur Indebtedness, make Restricted Payments, use the proceeds from Asset Sales, engage in transactions with Affiliates or, with respect to the Company, merge, consolidate or transfer substantially all of its assets. Within 90 days after the end of the last fiscal quarter of each year, the Company must report to the Trustee on compliance with such limitations. 3 63 14. Successor Persons. When a successor person or other entity assumes all the obligations of its predecessor under the Notes and the Indenture, the predecessor person will be released from those obligations. 15. Defaults and Remedies. The following events constitute "Events of Default" in the Indenture: (a) default in the payment of principal of (or premium, if any, on) any Note when the same becomes due and payable, whether at maturity, upon acceleration, redemption or otherwise; (b) default in the payment of interest on any Note when the same becomes due and payable, and such default continues for a period of 30 days; (c) default in the payment of principal (or premium, if any) and interest on Notes required to be purchased pursuant to an Offer to Purchase as described under the "Limitation on Asset Sales" covenant and under "Repurchase of Notes upon a Change of Control" when due and payable; (d) failure to perform or comply with the provisions described under the "Consolidation, Merger and Sale of Assets" covenant; (e) default in the performance of or breach of any other covenant or agreement of the Company in the Indenture or under the Notes and such default or breach continues for a period of 60 consecutive days after written notice by the Trustee or the Holders of 25% or more in aggregate principal amount of the Notes; (f) there occurs with respect to any issue or issues of Indebtedness of the Company or any Restricted Subsidiary having an outstanding principal amount of $5 million or more in the aggregate for all such issues of all such Persons, whether such Indebtedness now exists or shall hereafter be created, (I) an event of default that has caused the holder thereof to declare such Indebtedness to be due and payable prior to its Stated Maturity and/or (II) the failure to make a payment when due of principal, premium, if any, or interest and such defaulted payment shall not have been made, waived or extended by the earliest of (x) the expiration of any applicable grace period and (y) the 30th day after such payment default; (g) any final judgment or order (not covered by insurance) for the payment of money in excess of $5 million in the aggregate for all such final judgments or orders against all such Persons (treating any deductibles, self-insurance or retention as not so covered) shall be rendered against the Company or any Restricted Subsidiary and shall not be paid or discharged, and there shall be any period of 60 consecutive days following entry of the final judgment or order that causes the aggregate amount for all such final judgments or orders outstanding and not paid or discharged against all such Persons to exceed $5 million during which a stay of enforcement of such final judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; (h) a court having jurisdiction in the premises enters a decree or order for (A) relief in respect of the Company or any Restricted Subsidiary in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, (B) appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or any Restricted Subsidiary or for all or substantially all of the property and assets of the Company or any Restricted Subsidiary or (C) the winding up or liquidation of the affairs of the Company or any Restricted Subsidiary and, in each case, such decree or order shall remain unstayed and in effect for a period of 30 consecutive days; or (i) the Company or any Restricted Subsidiary (A) commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case under any such law, (B) consents to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or any Restricted Subsidiary or for all or substantially all of the property and assets of the Company or any Restricted Subsidiary or (C) effects any general assignment for the benefit of creditors. If a bankruptcy or insolvency default with respect to the Company or any Restricted Subsidiary occurs and is continuing, Accreted Value of, premium, if any, and accrued interest, if any, on the Notes automatically become due and payable. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Notes. Subject to certain limitations, Holders of at least a majority in principal amount of the Notes then outstanding may direct the Trustee in its exercise of any trust or power. 4 64 16. Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from and perform services for the Company or its Affiliates and may otherwise deal with the Company or its Affiliates as if it were not the Trustee. 17. No Recourse Against Others. No incorporator or any past, present or future partner, shareholder, other equity holder, officer, director, employee or controlling person as such, of the Company or of any successor Person shall have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 18. Authentication. This Note shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on the other side of this Note. 19. Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors Act). The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to PCS Development Corporation, 15 South Main Street, Suite 810, Greenville, South Carolina 29601, Attention: Chief Financial Officer. 5 65 [FORM OF TRANSFER NOTICE] FOR VALUE RECEIVED the undersigned registered holder hereby sell(s), assign(s) and transfer(s) unto Insert Taxpayer Identification No. ________________________________________________________________________________ Please print or typewrite name and address including zip code of assignee ________________________________________________________________________________ the within Note and all rights thereunder, hereby irrevocably constituting and appointing ____________________________ attorney to transfer said Note on the books of the Company with full power of substitution in the premises. Date:___________ ___________________________________ NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within-mentioned instrument in every particular, without alteration or any change whatsoever. 6 66 OPTION OF HOLDER TO ELECT PURCHASE If you wish to have this Note purchased by the Company pursuant to Section 4.11 or Section 4.12 of the Indenture, check the Box: [ ] If you wish to have a portion of this Note purchased by the Company pursuant to Section 4.11 or Section 4.12 of the Indenture, state the amount (in principal amount at maturity): $____________. Date: ___________ Your Signature:_________________________________________________________________ (Sign exactly as your name appears on the other side of this Note) Signature Guarantee: ______________________ 7 EX-4.10 4 UNIT AGREEMENT 1 7 will notify the Unit Agent of any additional requirements in connection with a particular transfer or exchange. Following the Separability Date, no Unit Certificates shall be issued upon transfer or exchange of Unit Certificates, or otherwise. SECTION 7. Rights of Unit Holders. The registered owner of a Unit Certificate shall have all the rights and privileges of a registered owner of the principal amount of Notes represented thereby and the number of Warrants represented thereby and shall be treated as the registered owner thereof for all purposes. The Company agrees that it shall be bound by all provisions of the Indenture, the Notes, the Warrant Agreement and the Warrants and that the Notes and Warrants represented by each Unit Certificate shall be deemed legal, valid and binding obligations of the Company and that upon exercise of the Warrants, the Warrant Shares will be validly issued, fully paid and nonassessable. SECTION 8. Unit Agent. The Unit Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by which the Company and the holders of Units, by their acceptance thereof, shall be bound: (a) The statements contained herein and in the Unit Certificates shall be taken as statements of the Company, and the Unit Agent assumes no responsibility for the correctness of any of the same, other than with respect to the certificate of authentication, except such as describe the Unit Agent or action taken or to be taken by it. The Unit Agent assumes no responsibility with respect to the distribution of the Unit Certificates except as herein otherwise specifically provided. (b) The Unit Agent shall not be responsible for any failure of the Company to comply with any of the covenants in this Agreement, Unit Certificates, the Indenture or the Warrant Agreement to be complied with by the Company. (c) The Unit Agent may consult at any time with counsel satisfactory to it (who may be counsel for the Company) and the Unit Agent shall incur no liability or responsibility to the Company or to any holder of any Unit Certificate in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with the written opinion or the written advice of such counsel. (d) The Unit Agent shall incur no liability or responsibility to the Company or to any holder of any Unit Certificate for any action taken in reliance on any Unit Certificate, certificate of shares, notice, resolution, waiver, consent, order, certificate, or other paper, document or instrument reasonably believed by the Unit Agent 2 8 to be genuine and to have been signed, sent or presented by the proper party or parties. (e) The Company agrees to pay to the Unit Agent reasonable compensation for all services rendered by the Unit Agent in connection with this Agreement, to reimburse the Unit Agent for all expenses, taxes and governmental charges and other charges of any kind and nature incurred by the Unit Agent in connection with this Agreement and to indemnify the Unit Agent and save it harmless against any and all losses and liabilities, including judgments, costs and counsel fees and actual expenses, for any action taken or omitted by the Unit Agent or arising in connection with this Agreement and the exercise by the Unit Agent of its rights hereunder and the performance by the Unit Agent of any of its obligations hereunder except as a result of the Unit Agent's gross negligence or bad faith or willful misconduct. (f) The Unit Agent, and any stockholder, director, officer, affiliate or employee ("Related Parties") of it, may buy, sell or deal in any of the Units, Notes, Warrants, Class B Common Stock or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Unit Agent under this Agreement. Nothing herein shall preclude the Unit Agent or such Related Parties from acting in any other capacity for the Company or for any other legal entity. (g) The Unit Agent shall act hereunder solely as agent for the Company, the Trustee and the Warrant Agent, and its duties shall be determined solely by the provisions hereof. The Unit Agent shall not be liable for anything which it may do or refrain from doing in connection with this Agreement except for its own gross negligence or bad faith or willful misconduct. (h) No provision of this Agreement shall require the Unit Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (i) The Unit Agent shall be under no obligation to institute any action, suit or legal proceeding or to take any other action unless the Company or one or more registered holders of Unit Certificates shall furnish the Unit Agent with security and indemnity for any costs and expenses which may be incurred acceptable to the Unit Agent. This provision shall not affect the power of the Unit Agent to 3 9 take such action as it may consider proper, whether with or without any such security or indemnity. All rights of action under this Agreement or under any of the Units may be enforced by the Unit Agent without the possession of any of the Unit Certificates or the production thereof at any trial or other proceeding relative thereto, and any such action, suit or proceeding instituted by the Unit Agent shall be brought in its name as Unit Agent and any recovery of judgment shall be for the ratable benefit of the registered holders of the Units, as their respective rights or interests may appear. (j) Before the Unit Agent acts or refrains from acting with respect to any matter contemplated by this Unit Agreement, it may require: (1) an Officers' Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Unit Agreement relating to the proposed action have been complied with; and (2) an opinion of counsel for the Company stating that, in the opinion of such counsel, all such conditions precedent have been complied with. Each Officers' Certificate or opinion of counsel with respect to compliance with a condition or covenant provided for in this Unit Agreement shall include: (1) a statement that the person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such person, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with. The Unit Agent shall not be liable for any action it takes or omits to take in good faith in reliance on any such certificate or opinion. 4 10 (k) In the absence of bad faith on its part, the Unit Agent may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Unit Agent and conforming to the requirements of this Unit Agreement. However, the Unit Agent shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Unit Agreement. (l) The Unit Agent may rely and shall be fully protected in relying upon any document believed by it to be genuine and to have been signed or presented by the proper person. The Unit Agent need not investigate any fact or matter stated in the document. (m) The Unit Agent may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. SECTION 9. Resignation and Appointment of Successor. (a) The Company agrees, for the benefit of the holders from time to time of the Unit Certificates, that there shall at all times be a Unit Agent hereunder. (b) The Unit Agent may at any time resign as Unit Agent by giving written notice to the Company of such intention on its part, specifying the date on which its desired resignation shall become effective, provided that such date shall be at least 90 days after the date on which such notice is given unless the Company agrees to accept less notice. Upon receiving such notice of resignation, the Company shall promptly appoint a successor Unit Agent, qualified as provided in Section 9(d) hereof, by written instrument in duplicate signed on behalf of the Company, one copy of which shall be delivered to the resigning Unit Agent and one copy to the successor Unit Agent. As provided in Section 9(d) hereof, such resignation shall become effective upon the earlier of (x) the acceptance of the appointment by the successor Unit Agent or (y) 90 days after receipt by the Company of notice of such resignation. The Company may, at any time and for any reason, and shall, upon any event set forth in the next succeeding sentence, remove the Unit Agent and appoint a successor Unit Agent by written instrument in duplicate, specifying such removal and the date on which it is intended to become effective, signed on behalf of the Company, one copy of which shall be delivered to the Unit Agent being removed and one copy to the successor Unit Agent. The Unit Agent shall be removed as aforesaid if it shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Unit Agent or of its property shall be appointed, or any public officer shall take charge or control of it or of its property or affairs for the purpose of rehabilitation, conservation or liquidation. Any removal of the Unit Agent and any appointment of a successor Unit Agent shall become effective upon acceptance of appointment by the successor Unit Agent as provided in Section 5 11 9(d). As soon as practicable after appointment of the successor Unit Agent, the Company shall cause written notice of the change in the Unit Agent to be given to each of the registered holders of the Units in the manner provided for in Section 10 hereof. (c) Upon resignation or removal of the Unit Agent, if the Company shall fail to appoint a successor Unit Agent within a period of 90 days after receipt of such notice of resignation or removal, then the holder of any Unit Certificate or the Unit Agent may apply to a court of competent jurisdiction for the appointment of a successor to the Unit Agent. Pending appointment of a successor to the Unit Agent, either by the Company or by such a court, the duties of the Unit Agent shall be carried out by the Company. (d) Any successor Unit Agent, whether appointed by the Company or by a court, shall be a bank or trust company in good standing, incorporated under the laws of the United States of America or any State thereof and having, at the time of its appointment, a combined capital surplus of at least $50 million. Such successor Unit Agent shall execute and deliver to its predecessor and to the Company an instrument accepting such appointment hereunder and all the provisions of this Agreement, and thereupon such successor Unit Agent, without any further act, deed or conveyance, shall become vested with all the rights, powers, duties and obligations of its predecessor hereunder, with like effect as if originally named as Unit Agent hereunder, and such predecessor shall thereupon become obligated to (i) transfer and deliver, and such successor Unit Agent shall be entitled to receive, all securities, records or other property on deposit with or held by such predecessor as Unit Agent hereunder and (ii) upon payment of the amounts then due it pursuant to Section 8(e) hereof, pay over, and such successor Unit Agent shall be entitled to receive, all monies deposited with or held by any predecessor Unit Agent hereunder. (e) Any corporation or bank into which the Unit Agent hereunder may be merged or converted, or any corporation or bank with which the Unit Agent may be consolidated, or any corporation or bank resulting from any merger, conversion or consolidation to which the Unit Agent shall be a party, or any corporation or bank to which the Unit Agent shall sell or otherwise transfer all or substantially all of its corporate trust business, shall be the successor to the Unit Agent under this Agreement (provided that such corporation or bank shall be qualified as aforesaid) without the execution or filing of any document or any further act on the part of any of the parties hereto. (f) No Unit Agent under this Unit Agreement shall be personally liable for any action or omission of any successor Unit Agent. SECTION 10. Notices to the Company and Unit Agent, Trustee and Warrant Agent. Any notice or demand authorized by 6 12 this Agreement to be given or made to or on the Company shall be sufficiently given or made when and if deposited in the mail, first class or registered, postage paid, addressed If to the Company: PCS Development Corporation 15 South Main Street Suite 810 Greenville, South Carolina 29601 Attention: Chief Executive Officer If to the Unit Agent, Warrant Agent or the Trustee: United States Trust Company of New York 114 West 47th Street New York, New York 10036 Attention: _____________________ The parties hereto by notice to the other parties may designate additional or different addresses for subsequent communications or notice. Any notice to be mailed to a holder of Units shall be mailed to him or her at the address that appears on the register of Units maintained by the Unit Agent. Copies of any such communication shall also be mailed to the Unit Agent, Trustee and Warrant Agent. The Unit Agent shall furnish the Company, the Trustee or the Warrant Agent promptly when requested with a list of registered holders of Units for the purpose of mailing any notice or communication to the holders of the Notes or Warrants and at such other times as may be reasonably requested. SECTION 11. Supplements and Amendments. The Company and the Unit Agent may from time to time supplement or amend this Agreement without the approval of any holders of Unit Certificates in order to cure any ambiguity or to correct or supplement any provision contained herein which may be defective or inconsistent with any other provision herein, or to make any other provisions in regard to matters or questions arising hereunder which the Company, the Trustee, the Warrant Agent and the Unit Agent may deem necessary or desirable and which shall not in any way materially and adversely affects the interests of the holders of Unit Certificates. Any amendment or supplement to this Agreement that has a material adverse effect on the interests of Unit holders shall require the written consent of registered holders of the then outstanding Units representing not less than a majority in principal amount of the then outstanding Units. SECTION 12. Successors. All the covenants and provisions of this Agreement by or for the benefit of the Company, the Trustee, the Warrant Agent or the Unit Agent shall 7 13 bind and inure to the benefit of their respective successors and assigns hereunder. SECTION 13. Governing Law. THIS AGREEMENT AND EACH UNIT CERTIFICATE ISSUED HEREUNDER SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW YORK AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE, WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF. SECTION 14. Benefits of This Agreement. Nothing in this Agreement shall be construed to give to any person or corporation other than the Company, the Trustee, the Warrant Agent, the Unit Agent and the registered holders of the Unit Certificates any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Trustee, the Warrant Agent, the Unit Agent and the registered holders of the Unit Certificates. SECTION 15. Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. 8 14 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. PCS DEVELOPMENT CORPORATION By: ------------------------------------- Name: Title: UNITED STATES TRUST COMPANY OF NEW YORK, as Unit Agent By: ------------------------------------- Name: Title: UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee By: ------------------------------------- Name: Title: UNITED STATES TRUST COMPANY OF NEW YORK, as Warrant Agent By: ------------------------------------- Name: Title: 9 EXHIBIT A [FORM OF UNIT CERTIFICATE] THE NOTE COMPRISING A PART OF THIS SECURITY WAS ISSUED WITH ORIGINAL ISSUE DISCOUNT WITHIN THE MEANING OF SECTION 1273(a) OF THE INTERNAL REVENUE CODE OF 1986. THE ISSUE PRICE IS $___ FOR EACH $1,000 OF STATED PRINCIPAL AMOUNT. THE ORIGINAL ISSUE DISCOUNT IS $__ FOR EACH $1,000 OF STATED PRINCIPAL AMOUNT. THE ISSUE DATE IS ________, 1996. THE YIELD TO MATURITY IS _____% COMPOUNDED SEMIANNUALLY. ORIGINAL ISSUE DISCOUNT WILL BE ALLOCATED BASED ON ACCRUAL PERIODS ENDING ON EACH DATE ON WHICH AN INTEREST PAYMENT IS DUE AND THE 360 DAYS PER YEAR CONVENTION. THE EXERCISE OF THE WARRANTS COMPRISING A PART OF THIS SECURITY (AND THE OWNERSHIP OF CLASS B COMMON STOCK ISSUABLE UPON THE EXERCISE THEREOF) MAY BE LIMITED BY THE COMPANY IN ORDER TO ENSURE COMPLIANCE WITH THE RULES AND REGULATIONS OF THE FEDERAL COMMUNICATIONS COMMISSION (THE "FCC"), AND THE WARRANTS WILL NOT BE EXERCISABLE BY ANY HOLDER IF SUCH EXERCISE WOULD CAUSE THE COMPANY TO BE IN VIOLATION OF THE COMMUNICATIONS ACT OR THE FCC'S RULES, REGULATIONS OR POLICIES. PCS DEVELOPMENT CORPORATION Units Consisting of $___________ Aggregate Principal Amount ____% Senior Discount Notes due 2006 and Warrants to Purchase ______ Warrant Shares of Class B Common Stock No. _____ CUSIP No. ____ PCS Development Corporation, a Delaware corporation (the "Company," which term includes any successor corporation), hereby certifies that ___________________ is the owner of ______ Units as described above, transferable only on the books of the Company by the holder thereof in person or by his or her duly authorized attorney, on surrender of the Certificate properly endorsed. Each Unit consists of one $1,000 principal amount _____% Senior Discount Note due 2006 of the Company (collectively, the "Notes") and ___ warrants (collectively, the "Warrants") to purchase ___ shares of Class B Common Stock of the Company, par value $1.00 per share (the "Class B Common Stock"). This Unit is issued pursuant to the Unit Agreement (the "Unit Agreement") dated as of ________, 1996 between the Company and United States Trust Company of New York, (the "Unit Agent") and is subject to the terms and provisions contained therein, to all of which terms and provisions the holder of this Unit Certificate consents by acceptance hereof. The terms of the Notes are governed by an Indenture (the "Indenture") dated as of ________, 1996 between the Company and United States Trust Company of New York, as Trustee (the "Trustee"), and are subject to the terms and provisions contained therein, to all of which terms and provisions the holder of this Unit Certificate consents by acceptance hereof. A-1 10 The terms of the Warrants are governed by a Warrant Agreement dated __________, 1996 (the "Warrant Agreement") between the Company and United States Trust Company of New York, as Warrant Agent (the "Warrant Agent") and are subject to the terms and provisions contained therein, to all of which terms and provisions the holder of this Unit Certificate consents by acceptance hereof. The Company will furnish to any Holder of a Security upon written request and without charge a copy of the Unit Agreement, the Indenture and the Warrant Agreement. Requests may be made to: PCS Development Corporation, 15 South Main Street, Suite 810, Greenville, South Carolina 29601, Attn: Chief Financial Officer. The Notes and Warrants represented by this Unit Certificate shall be non-detachable and not separately transferable until the earliest to occur of: (i) _______, 1996, (ii) such earlier date as may be determined by Lehman Brothers Inc. and specified to the Company, the Trustee, the Warrant Agent and the Unit Agent in writing, (iii) the occurrence of a Change of Control, and (iv) in the event of an Offer to Purchase in connection with any Asset Sale (each as defined in the Indenture) the date the Company mails notice thereof to the holders of the Notes. Dated: PCS DEVELOPMENT CORPORATION By: ------------------------------------- Name: Title: By: ------------------------------------- Name: Title: Certificate of Authentication: This is one of the Units referred to in the above mentioned Unit Agreement. UNITED STATES TRUST COMPANY OF NEW YORK, as Unit Agent By: -------------------------------------- Authorized Signatory A-2 11 PCS DEVELOPMENT CORPORATION Units Consisting of $___________ Aggregate Principal Amount of _____% Senior Discount Notes due 2006 and Warrants to Purchase ______ Shares of Class B Common Stock I. PROVISIONS RELATING TO THE NOTES 1. Principal and Interest. The Company will pay the principal of this Note on ________, 2006. The Company promises to pay interest on the principal amount of this Note on each Interest Payment Date, as set forth below, at the rate per annum shown above (subject to adjustment as provided below). Interest will be payable semiannually (to the holders of record of the Notes at the close of business on the _______ or _______ immediately preceding the Interest Payment Date) on each Interest Payment Date, commencing _______, 2001; provided that no interest shall accrue on the principal amount of this Note prior to _______, 2001 and no interest shall be paid on this Note prior to _______, 2001. From and after _______, 2001, interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from _______, 2001; provided that, if there is no existing default in the payment of interest and this Note is authenticated between a Regular Record Date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such Interest Payment Date. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal and premium, if any, and interest on overdue installments of interest, to the extent lawful, at a rate per annum that is ___% in excess of the rate otherwise payable. 2. Method of Payment. The Company will pay principal provided above and interest (except defaulted interest) on the principal amount of the Notes as provided above on each _______ and _______ to the persons who are Holders (as reflected in the Security Register at the close of business on _______ and _______ immediately 12 preceding the Interest Payment Date), in each case, even if the Note is canceled on registration of transfer or registration of exchange after such record date; provided that, with respect to the payment of principal, the Company will not make payment to the Holder unless this Note is surrendered to a Paying Agent. The Company will pay principal, premium, if any, and, as provided above, interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay principal, premium, if any, and interest by its check payable in such money. It may mail an interest check to a Holder's registered address (as reflected in the Security Register). If a payment date is a date other than a Business Day at a place of payment, payment may be made at that place on the next succeeding day that is a Business Day and no interest shall accrue for the intervening period. 3. Paying Agent and Registrar. Initially, the Trustee will act as authenticating agent, Paying Agent and Registrar. The Company may change any authenticating agent, Paying Agent or Registrar without notice. The Company, any Subsidiary or any Affiliate of any of them may act as Paying Agent, Registrar or co-Registrar. 4. Indenture; Limitations. The Company issued the Notes under an Indenture dated as of July __, 1996 (the "Indenture"), between the Company and United States Trust Company of New York, as trustee (the "Trustee"). Capitalized terms herein are used as defined in the Indenture unless otherwise indicated. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the TIA. The Notes are subject to all such terms, and Holders are referred to the Indenture and the TIA for a statement of all such terms. To the extent permitted by applicable law, in the event of any inconsistency between the terms of this Note and the terms of the Indenture, the terms of the Indenture shall control. The Notes are senior, unsecured obligations of the Company ranking pari passu in right of payment with all existing and future unsubordinated unsecured Indebtedness of the Company and senior in right of payment to all existing and future subordinated Indebtedness of the Company. The Indenture limits the original aggregate principal amount at maturity of the Notes to $_______. 5. Optional Redemption. The Notes will be redeemable, at the Company's option, in whole or in part, at any time or from time to time, on or after , 2001 and prior to maturity, upon not less than 30 nor more than 60 days' prior notice mailed by first class -2- 13 mail to each Holders' last address as it appears in the Security Register, at the following Redemption Prices (expressed in 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 Regular Record Date that is on or prior to the Redemption Date to receive interest due on an Interest Payment Date), if redeemed during the 12-month period commencing on _______ __ of the applicable years set forth below:
Redemption YEAR Price ---- ----- 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . % 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . % 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . % 2004 and thereafter . . . . . . . . . . . . . . . . . . . . . . . 100.000%
Notwithstanding the foregoing, prior to , 1999, the Company may on any one or more occasions redeem up to 33% of the aggregate principal amount of the Notes at a redemption price of % of the Accreted Value thereof with the net proceeds of either (A) one or more public offerings of common stock of the Company registered under the Securities Act or (B) a sale by the Company of at least $25.0 million of its Capital Stock (other than Redeemable Stock or Preferred Stock) to a Strategic Equity Investor in a single transaction; provided in each case that at least 67% of the aggregate principal amount at maturity of the Notes remains outstanding immediately after the occurrence of any such redemption; and provided, further, that any such redemption shall occur within 90 days of the date of the closing of any such public offering of common stock or sale to Strategic Equity Investor of Capital Stock (other than Redeemable Stock or Preferred Stock) of the Company, as the case may be. 6. Notice of Redemption. Notice of any optional redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed at his last address as it appears in the Security Register. Notes in original denominations larger than $1,000 may be redeemed in part. On and after the Redemption Date, interest ceases to accrue on Notes or portions of Notes called for redemption, unless the Company defaults in the payment of the Redemption Price. 7. Repurchase upon Change in Control. Within 30 days of the occurrence of any Change of Control, each Holder shall have the right to require the repurchase of its Notes by the Company in cash pursuant to the offer described in the Indenture at a purchase price equal to 101% of the Accreted Value thereof plus accrued and unpaid -3- 14 interest, if any, to the date of purchase (the "Change of Control Payment"). A notice of such Change of Control will be mailed within 30 days after any Change of Control occurs to each Holder at his last address as it appears in the Security Register. Notes in original denominations larger than $1,000 may be sold to the Company in part. On and after the Change of Control Payment Date, interest ceases to accrue on Notes or portions of Notes surrendered for purchase by the Company, unless the Company defaults in the payment of the Change of Control Payment. 8. Denominations; Transfer; Exchange. The Notes are in registered form without coupons in denominations of $1,000 of principal amount at maturity and multiples of $1,000 in excess thereof. A Holder may register the transfer or exchange of Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer or exchange of any Notes selected for redemption. Also, it need not register the transfer or exchange of any Notes for a period of 15 days before a selection of Notes to be redeemed is made. 9. Persons Deemed Owners. A registered Holder shall be treated as the owner of a Note for all purposes. 10. Unclaimed Money. If money for the payment of principal, premium, if any, or interest remains unclaimed for two years, the Trustee and the Paying Agent will pay the money back to the Company at its request. After that, Holders entitled to the money must look to the Company for payment, unless an abandoned property law designates another Person, and all liability of the Trustee and such Paying Agent with respect to such money shall cease. 11. Discharge Prior to Redemption or Maturity. If the Company deposits with the Trustee money or U.S. Government Obligations sufficient to pay the then outstanding principal of, premium, if any, and accrued interest on the Notes (a) to redemption or maturity, the Company will be discharged from the Indenture and the Notes, except in certain circumstances for certain sections thereof, and (b) to the Stated Maturity, the Company will be discharged from certain covenants set forth in the Indenture. -4- 15 12. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding, and any existing default or compliance with any provision may be waived with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding. Without notice to or the consent of any Holder, the parties thereto may amend or supplement the Indenture or the Notes to, among other things, cure any ambiguity, defect or inconsistency and make any change that does not materially and adversely affect the rights of any Holder. 13. Restrictive Covenants. The Indenture imposes certain limitations on the ability of the Company and its Restricted Subsidiaries, among other things, to Incur Indebtedness, make Restricted Payments, use the proceeds from Asset Sales, engage in transactions with Affiliates or, with respect to the Company, merge, consolidate or transfer substantially all of its assets. Within 90 days after the end of the last fiscal quarter of each year, the Company must report to the Trustee on compliance with such limitations. 14. Successor Persons. When a successor person or other entity assumes all the obligations of its predecessor under the Notes and the Indenture, the predecessor person will be released from those obligations. 15. Defaults and Remedies. The following events constitute "Events of Default" in the Indenture: (a) default in the payment of principal of (or premium, if any, on) any Note when the same becomes due and payable, whether at maturity, upon acceleration, redemption or otherwise; (b) default in the payment of interest on any Note when the same becomes due and payable, and such default continues for a period of 30 days; (c) default in the payment of principal (or premium, if any) and interest on Notes required to be purchased pursuant to an Offer to Purchase as described under the "Limitation on Asset Sales" covenant and under "Repurchase of Notes upon a Change of Control" when due and payable; (d) failure to perform or comply with the provisions described under the "Consolidation, Merger and Sale of Assets" covenant; (e) default in the performance of or breach of any other covenant or agreement of the Company in the Indenture or under the Notes and such default or breach continues for a period of 60 consecutive days after written notice by the Trustee or the Holders of 25% or more in aggregate principal amount of the Notes; (f) there occurs with respect to any issue or issues of Indebtedness of the Company or any Restricted Subsidiary having an outstanding principal amount of $5 million or more in the aggregate for all -5- 16 such issues of all such Persons, whether such Indebtedness now exists or shall hereafter be created, (I) an event of default that has caused the holder thereof to declare such Indebtedness to be due and payable prior to its Stated Maturity and/or (II) the failure to make a payment when due of principal, premium, if any, or interest and such defaulted payment shall not have been made, waived or extended by the earliest of (x) the expiration of any applicable grace period and (y) the 30th day after such payment default; (g) any final judgment or order (not covered by insurance) for the payment of money in excess of $5 million in the aggregate for all such final judgments or orders against all such Persons (treating any deductibles, self-insurance or retention as not so covered) shall be rendered against the Company or any Restricted Subsidiary and shall not be paid or discharged, and there shall be any period of 60 consecutive days following entry of the final judgment or order that causes the aggregate amount for all such final judgments or orders outstanding and not paid or discharged against all such Persons to exceed $5 million during which a stay of enforcement of such final judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; (h) a court having jurisdiction in the premises enters a decree or order for (A) relief in respect of the Company or any Restricted Subsidiary in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, (B) appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or any Restricted Subsidiary or for all or substantially all of the property and assets of the Company or any Restricted Subsidiary or (C) the winding up or liquidation of the affairs of the Company or any Restricted Subsidiary and, in each case, such decree or order shall remain unstayed and in effect for a period of 30 consecutive days; or (i) the Company or any Restricted Subsidiary (A) commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case under any such law, (B) consents to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or any Restricted Subsidiary or for all or substantially all of the property and assets of the Company or any Restricted Subsidiary or (C) effects any general assignment for the benefit of creditors. If a bankruptcy or insolvency default with respect to the Company or any Restricted Subsidiary occurs and is continuing, Accreted Value of, premium, if any, and accrued interest, if any, on the Notes automatically become due and payable. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Notes. Subject to certain limitations, Holders of at least a majority in principal amount of the Notes then outstanding may direct the Trustee in its exercise of any trust or power. -6- 17 16. Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from and perform services for the Company or its Affiliates and may otherwise deal with the Company or its Affiliates as if it were not the Trustee. 17. No Recourse Against Others. No incorporator or any past, present or future partner, shareholder, other equity holder, officer, director, employee or controlling person as such, of the Company or of any successor Person shall have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 18. Authentication. This Note shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on the other side of this Note. 19. Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors Act). The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to PCS Development Corporation, 15 South Main Street, Suite 810, Greenville, South Carolina 29601, Attention: Chief Financial Officer. II. PROVISIONS RELATING TO THE WARRANTS The Warrants are part of a duly authorized issue of Warrants expiring at 5:00 p.m., New York City time, on the earlier to occur of (a) 180 days after an Exercise Event which causes such Warrants to become exercisable or (b) __________, 2006 (the "Expiration Date"), each of which represents the right to purchase from the Company at any time on or after the Exercisability Date (as defined in the Warrant Agreement) one share of Class B Common Stock, par value $1.00 per share, of the Company, subject to adjustment as set forth in the Warrant Agreement. The Warrants are issued pursuant to a Warrant Agreement dated as of ______, 1996 (the "Warrant Agreement"), -7- 18 duly executed and delivered by the Company and UNITED STATES TRUST COMPANY OF NEW YORK, a New York corporation, not in its individual capacity but solely as Warrant Agent (the "Warrant Agent"), which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Warrant Agent, the Company and the holders (the words "holders" or "holder" meaning the registered holders or registered holder) of the Warrants. "Exercise Event" means, with respect to each Warrant as to which such event is applicable, the date of the earliest of: (1) the occurrence of a Change of Control (as defined in the Warrant Agreement), (2) the consummation of a Public Equity Offering after which there shall exist a Public Market (each as defined in the Warrant Agreement), and (3) _______, 2006. Warrants may be exercised at any time from 9:00 a.m. on or after the date of occurrence of an Exercise Event, or if the Exercise Event occurs prior to the Separability Date (as defined in the Warrant Agreement), the Separability Date, until 5:00 p.m., New York City time on the date of expiration as described above. If all of the items required for exercise of Warrants evidenced by Warrant Certificates are received by the Warrant Agent at or prior to 2:00 p.m., New York City time, on a Business Day, the exercise of the Warrant to which such items relate will be effective on such Business Day. If any such items are received after 2:00 p.m., New York City time, on a Business Day, the exercise of the Warrants to which such item relates will be deemed to be effective on the next succeeding Business Day. Notwithstanding the foregoing, in the case of an exercise of Warrants on ______, 2006, if all of the items required for exercise of this Warrant are received by the Warrant Agent at or prior to 5:00 p.m., New York City time, on such Expiration Date, the exercise of the Warrants to which such items relate will be effective on the Expiration Date. As soon as practicable after the exercise of any Warrant or Warrants, the Company shall issue or cause to be issued to or upon the written order of the registered holder of a Warrant Certificate, a certificate or certificates evidencing the Warrant Shares to which such holder is entitled, in fully registered form. Such certificate or certificates evidencing the Warrant Shares shall be deemed to have been issued and any persons who are designated to be named therein shall be deemed to have become the holder of record of such Warrant Shares as of the close of business on the date upon which the exercise of this Warrant was deemed to be effective as provided in the preceding paragraph. The Warrant Agreement provides that the Company will not be required to issue fractional shares of Class B Common Stock upon exercise of the Warrants or distribute certificates -8- 19 that evidence fractional shares of Class B Common Stock. In lieu of fractional shares of Class B Common Stock, there shall be paid to the registered holder of this Warrant Certificate at the time such Warrant Certificate is exercised an amount in cash equal to the same fraction of the Current Market Value (as defined in the Warrant Agreement) per share on the Business Day preceding the date this Warrant Certificate is surrendered for exercise. The Company is party to a Registration Rights Agreement pursuant to which it has certain registration obligations with respect to the Class B Common Stock issuable upon exercise of the Warrants. Warrant Certificates, when surrendered at any office or agency maintained by the Company for that purpose by the registered holder thereof in person or by legal representative or attorney duly authorized in writing, may be exchanged for a new Warrant Certificate or new Warrant Certificates evidencing in the aggregate a like number of Warrants, in the manner and subject to the limitations provided in the Warrant Agreement, without charge except for any tax or other governmental charge imposed in connection therewith. Upon due presentment for registration of transfer of this Warrant Certificate at any office or agency maintained by the Company for that purpose, a new Warrant Certificate evidencing in the aggregate a like number of Warrants shall be issued to the transferee in exchange for this Warrant Certificate, subject to the limitations provided in the Warrant Agreement, without charge except for any tax or other governmental charge imposed in connection therewith. The Company and the Warrant Agent may deem and treat the registered holder hereof as the absolute owner of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone) for the purpose of any exercise hereof and for all other purposes, and neither the Company nor the Warrant Agent shall be affected by any notice to the contrary. Upon the occurrence of an Exercise Event, the Company shall have the right to make an offer to purchase all outstanding Warrants and Warrant Shares in cash, within 120 days after such Exercise Event, at a price equal to the Current Market Value thereof. The offers to purchase set forth in this and the preceding paragraph will be made in the manner and upon the terms set forth in the Warrant Agreement. The Warrant Agreement provides that (i) subject to certain exceptions upon the issuance of any dividend or distribution pro rata to all holders of Common Stock, the holders will be entitled to such dividend or distribution on the terms set forth in the Warrant Agreement and (ii) upon the occurrence of certain events the number of Warrant Shares of Class B Common -9- 20 Stock issuable upon the exercise of each Warrant shall be adjusted. The term "Business Day" shall mean any day on which (i) banks in New York City, (ii) the principal national securities exchange or market, if any, on which the Common Stock is listed or admitted to trading and (iii) the principal national securities exchange or market, if any, on which the Warrants are listed or admitted to trading are open for business. -10- 21 ASSIGNMENT FORM I or we assign and transfer this Unit to ________________________________________________________________________________ ________________________________________________________________________________ (Print or type name, address and zip code of assignee) ________________________________________________________________________________ (Insert Social Security or other identifying number of assignee) and irrevocably appoint_________________________________________________________ agent to transfer this Unit on the books of the Company. The agent may substitute another to act for him. Dated:__________________ Signed:_______________________________________________ (Sign exactly as name appears on the other side of this Unit) Signature Guarantee:____________________________________________________________ Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor program reasonably acceptable to the Trustee) 22 SCHEDULE OF EXCHANGES OF CERTIFICATED UNITS(1) The following exchanges of a part of this Global Unit for certificated Units have been made:
Number of Units of Decrease in Increase in this Global Signature of Number of Number of Unit following authorized Units of this Units of this such decrease officer of Date of Exchange Global Unit Global Unit (or increase) Unit Agent - ----------------------------------------------------------------------------------------
- ---------------------------------- (1) This is to be included only if the Unit is in global form. 23 EXHIBIT B FORM OF LEGEND FOR GLOBAL UNIT Any Global Unit authenticated and delivered hereunder shall bear a legend (which would be in addition to any other legends required in the case of a Restricted Security) in substantially the following form: THIS SECURITY IS A GLOBAL UNIT WITHIN THE MEANING OF THE UNIT AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE UNIT AGREEMENT, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE UNIT AGREEMENT. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. EX-4.11 5 WARRANT AGREEMENT 1 EXHIBIT 4.11 WARRANT AGREEMENT Dated as of ________, 1996 Between PCS DEVELOPMENT CORPORATION, and UNITED STATES TRUST COMPANY OF NEW YORK, as Warrant Agent ---------------- [______] Warrants to Purchase Class B Common Stock Par Value $1.00 Per Share of PCS Development Corporation 2 TABLE OF CONTENTS
Page ---- ARTICLE I CERTAIN DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE II ISSUANCE, FORM, EXECUTION, DELIVERY AND REGISTRATION OF WARRANT CERTIFICATES . . . . . . . . . . . . . . . . . . 5 SECTION 2.1. Issuance of Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 2.2. Form of Warrant Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 2.3. Execution of Warrant Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 SECTION 2.4. Authentication and Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 SECTION 2.5. Temporary Warrant Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 SECTION 2.6. Separation of Warrants and Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 SECTION 2.7. Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 SECTION 2.8. Registration of Transfers and Exchanges . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 SECTION 2.9. Lost, Stolen, Destroyed, Defaced or Mutilated Warrant Certificates . . . . . . . . . . . . . . 11 SECTION 2.10. Offices for Exercise, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 ARTICLE III DURATION, EXERCISE OF WARRANTS AND EXERCISE PRICE . . . . . . . . . . . . . . . 13 SECTION 3.1. Duration of Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 SECTION 3.2. Exercise, Exercise Price, Settlement and Delivery . . . . . . . . . . . . . . . . . . . . . . 13 SECTION 3.3. Cancellation of Warrant Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 SECTION 3.4. Notice of an Exercise Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 ARTICLE IV OTHER PROVISIONS RELATING TO RIGHTS OF HOLDERS OF WARRANTS . . . . . . . . . . . . . . . . . . . . 16 SECTION 4.1. Enforcement of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 ARTICLE V CERTAIN COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . 16 SECTION 5.1. Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 SECTION 5.2. Obtaining Stock Exchange Listings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 SECTION 5.3. Filings with the Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 ARTICLE VI ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 17 SECTION 6.1. Adjustment of Exercise Rate; Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
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page ---- SECTION 6.2. Fractional Warrant Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 6.3. Distribution Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 ARTICLE VII OFFERS TO REPURCHASE . . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 7.1. Offers to Repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 7.2. Procedures for Repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 7.3. Registration and Qualification Under the Securities Laws . . . . . . . . . . . . . . . . . . . 24 ARTICLE VIII CONCERNING THE WARRANT AGENT . . . . . . . . . . . . . . . . . . . . . 26 SECTION 8.1. Warrant Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 SECTION 8.2. Conditions of Warrant Agent's Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . 26 SECTION 8.3. Resignation and Appointment of Successor . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 ARTICLE IX MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 9.1. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 9.2. Notices and Demands to the Company and Warrant Agent . . . . . . . . . . . . . . . . . . . . . 32 SECTION 9.3. Addresses for Notices to Parties and for Transmission of Documents . . . . . . . . . . . . . . 32 SECTION 9.4. Notices to Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 9.5. APPLICABLE LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 9.6. Obtaining of Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 9.7. Persons Having Rights Under Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 9.8. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 SECTION 9.9. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 SECTION 9.10. Inspection of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 EXHIBIT A - Form of Warrant Certificate
-ii- 4 INDEX OF DEFINED TERMS
Defined Terms Pages - ------------- ----- Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Communications Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Current Market Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Definitive Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Distribution Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Election to Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Eligible Guarantor Institution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Exercisability Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Exercise Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Exercise Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Exercise Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Exercise Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Expiration Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 FCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Global Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Independent Financial Expert . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 MSP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Officers' Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Public Equity Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Public Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Registrar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Related Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 SEMP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Separability Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Separated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Separation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 STAMP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Time of Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Unit Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Unit Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Unit Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Warrant Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Warrant Agent Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
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Defined Term Pages - ------------ ----- Warrant Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Warrant Exercise Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Warrant Register . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Warrant Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
-iv- 6 WARRANT AGREEMENT WARRANT AGREEMENT (the "Agreement"), dated as of ________, 1996 by PCS DEVELOPMENT CORPORATION, a Delaware corporation (together with any successor thereto, the "Company") and UNITED STATES TRUST COMPANY OF NEW YORK, a New York corporation, not in its individual capacity but solely as warrant agent (with any successor warrant agent, the "Warrant Agent"). WHEREAS, the Company has entered into an Underwriting Agreement dated ________, 1996 with Lehman Brothers Inc., Donaldson, Lufkin & Jenrette Securities Corporation, Chase Securities Inc. and Toronto Dominion Securities (USA) Inc. (the "Underwriters") in which the Company has agreed to sell to the Underwriters _______ Units (the "Units") consisting in the aggregate of (i) $___________ aggregate principal amount at maturity of ___% Senior Discount Notes due 2006 (the "Notes") to be issued under an indenture dated as of ___, 1996 (the "Indenture"), between the Company and United States Trust Company of New York, as trustee (in such capacity, the "Trustee"), and (ii) _______ Warrants (the "Warrants" and the certificates evidencing the Warrants being hereinafter referred to as "Warrant Certificates"), each representing the right to purchase one share of Class B Common Stock, par value $1.00 per share, of the Company (the "Class B Common Stock"), subject to adjustment in accordance with the terms hereof; WHEREAS, each Unit will consist of one Note in the principal amount of $1,000 and ___ Warrants, and, prior to the separation of the Notes from the Warrants issued as part of the Units as described herein, the Units shall be represented by a global unit certificate (the "Unit Certificate") issued pursuant to the Unit Agreement dated ________, 1996 (the "Unit Agreement") between the Company, the Warrant Agent, the Trustee and United States Trust Company of New York, as unit agent (in such capacity, the "Unit Agent"); WHEREAS, the Warrants and the Notes each comprising part of the Units shall not be separately transferable until such time on or after the Separability Date (as defined below) as the registered holder of a Unit or Units shall have surrendered the Unit Certificate to the Unit Agent, for the exchange of such Unit or Units, in whole or in part, for a Warrant Certificate or Certificates evidencing the underlying Warrants and for a Note or Notes of a like aggregate principal amount of authorized denominations; and WHEREAS, the Company desires the Warrant Agent to assist the Company in connection with the issuance, exchange, cancellation, replacement and exercise of the Warrants, and in this Agreement wishes to set forth, among other things, the terms and conditions on which the Warrants may be issued, exchanged, cancelled, replaced and exercised; 7 2 NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I CERTAIN DEFINITIONS As used in this Agreement, the following terms shall have the following respective meanings: "Affiliate" means, when used with reference to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, the referent Person or such other Person, as the case may be. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct or cause the direction of management or 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 corrective of the foregoing. "Business Day" means any day on which (i) banks in New York City, (ii) the principal national securities exchange or market, if any, on which the Common Stock is listed or admitted to trading and (iii) the principal national securities exchange or market, if any, on which the Warrants are listed or admitted to trading are open for business. "Capital Stock" means (i) with respect to any person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether or not voting) or corporate stock, including each class of common stock and preferred stock of such person and (ii) with respect to any person that is not a corporation, any and all partnership or other equity interests of such person. "Change of Control" means the occurrence of any of the following events: (i) a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of voting stock having more than 50% of the voting power of the total voting stock of the Company on a fully diluted basis; (ii) individuals who at the beginning of any period of two consecutive calendar years constituted the Board of Directors of the Company (together with any new directors whose election by the Board of Directors or whose nomination for election by the Company's shareholders was approved by a vote of at least two-thirds of the members of the Board of Directors then in office who either were members of the Board of Directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to 8 3 constitute a majority of the members of the Board of Directors then in office; (iii) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries (as defined in the Indenture) taken as a whole to any such "person" (other than to the Company or a Wholly Owned Restricted Subsidiary (as defined in the Indenture)); (iv) the merger or consolidation of the Company with or into another corporation or the merger of another corporation with or into the Company with the effect that immediately after such transaction any "person" or "group" of persons or entities shall have become the beneficial owner of securities of the surviving corporation of such merger or consolidation representing a majority of the combined voting power of the outstanding securities of the surviving corporation ordinarily having the right to vote in the election of directors; or (v) the adoption of a plan relating to the liquidation or dissolution of the Company. "Commission" means the Securities and Exchange Commission. "Common Stock" means both the Class A Common Stock, par value $1.00 per share, and the Class B Common Stock of the Company, par value $1.00 per share, and any other Capital Stock of the Company into which such Common Stock may be converted or reclassified or that may be issued in respect of, in exchange for, or in substitution for, such Common Stock by reason of any stock splits, stock dividends, distributions, mergers, consolidations or other like events. "Communications Act" means the Communications Act of 1934, as amended, and the rules and regulations of the FCC thereunder. "Current Market Value" per share of Class B Common Stock or any other security at any date means (1) if the security is not registered under the Exchange Act, the value of the security determined as of such date by the Independent Financial Expert (selected in accordance with Section 7.1. hereof) and approved by the Board of Directors of the Company, or (2) if the security is registered under the Exchange Act, the average of the daily closing bid prices for each Business Day during the period commencing 15 Business Days before such date and ending on the date one day prior to such date or, if the security has been registered under the Exchange Act for less than 15 consecutive Business Days before such date, then the average of the daily closing bid prices for all of the Business Days before such date for which daily closing bids prices are available. If the closing bid price is not determinable for at least 10 Business Days in such period, the Current Market Value of the security shall be determined as if the security was not registered under the Exchange Act. Current Market Value with respect to a Warrant means the Current Market 9 4 Value of a Warrant Share and all other property acquirable upon exercise in full of such Warrant. Current Market Value shall be determined without any discount for lack of liquidity, the amount of Class B Common Stock proposed to be sold or the fact that the Warrant Shares or Class B Common Stock held may represent a minority interest in a private company. "Exchange Act" means the Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder. "Exercisability Date" means the date of occurrences of any Exercise Event, provided that if an Exercise Event occurs prior to the Separability Date, the Separability Date shall instead be the Exercisability Date. "Exercise Event" means, with respect to each Warrant as to which such event is applicable, the date of the earliest of: (1) the occurrence of a Change of Control, (2) the consummation of a Public Equity Offering after which there shall exist a Public Market and (3) , 2006. "FCC" means the Federal Communications Commission. "Independent Financial Expert" means a nationally recognized investment banking firm which is not an affiliate of the Company. "Public Equity Offering" means a primary public offering (whether or not underwritten, but excluding any offering pursuant to Form S-4 or S-8 under the Securities Act) of Common Stock of the Company pursuant to an effective registration statement under the Securities Act. "Public Market" means any time after (x) a Public Equity Offering has been consummated and (y) at least 20% of the total issued and outstanding Common Stock of the Company has been distributed by means of an effective registration statement under the Securities Act. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder. "Separability Date" shall mean the earliest to occur of: (i) _______, 1996, (ii) such earlier date as may be determined by Lehman Brothers Inc. and specified to the Company, the Trustee, the Warrant Agent and the Unit Agent in writing, (iii) the occurrence of a Change of Control and (iv) in the event of an Offer to Purchase in connection with 10 5 any Asset Sale (each as defined in the Indenture), the date the Company mails notice thereof to the holders of the Notes, at which time the Notes and the Warrants will become separately transferable. "Time of Determination" means the time and date of the determination of stockholders entitled to receive rights, warrants or options, in each case, to which Section 6.1(b) hereof applies. ARTICLE II ISSUANCE, FORM, EXECUTION, DELIVERY AND REGISTRATION OF WARRANT CERTIFICATES SECTION 2.1. Issuance of Warrants. Warrants comprising part of the Units shall be originally issued in connection with the issuance of the Units and such Warrants shall not be separately transferable from the Notes until on or after the Separability Date as provided in Section 2.6. hereof. Each Warrant Certificate shall evidence the number of Warrants specified therein, and each Warrant evidenced thereby shall represent the right, subject to the provisions contained herein and therein, to purchase from the Company (and the Company shall issue and sell to such holder of the Warrant) one fully paid and non-assessable share of Class B Common Stock (the shares of Class B Common Stock purchasable upon exercise of a Warrant being hereinafter referred to as the "Warrant Shares" and, where appropriate, such term shall also mean the other securities or property purchasable and deliverable upon exercise of a Warrant as provided in Article VI) at the price specified herein and therein, in each case subject to adjustment as provided herein and therein. SECTION 2.2. Form of Warrant Certificates. The Warrant Certificates will initially be issued in registered, global form (the "Global Warrants"), substantially in the form of Exhibit A attached hereto (including footnote 1 thereto) and may also be issued in registered form as definitive Warrant Certificates (the "Definitive Warrants"). The Warrant Certificates evidencing the Global Warrants or the Definitive Warrants to be delivered pursuant to this Agreement shall be substantially in the form set forth in Exhibit A attached hereto. Any certificates evidencing Global Warrants shall bear the legend set forth in Exhibit B attached hereto. Such Global Warrants shall represent such of the outstanding Warrants as shall be specified therein and each shall provide that it shall represent the aggregate number of outstanding Warrants from time to time endorsed thereon and that the aggregate number of outstanding Warrants represented thereby may from time to time be reduced or increased, as appropriate. Any endorsement of a Global Warrant to reflect the amount of any increase or decrease in the number 11 6 of outstanding Warrants represented thereby shall be made by the Warrant Agent and the Depositary (as defined below) in accordance with instructions given by the holder thereof. The Depository Trust Company shall act as the Depositary with respect to the Global Warrants until a successor shall be appointed by the Company and the Warrant Agent. Upon written request, a Warrant holder may receive from the Warrant Agent Definitive Warrants as set forth in Section 2.8. hereof. SECTION 2.3. Execution of Warrant Certificates. The Warrant Certificates shall be executed on behalf of the Company by the chairman of its Board of Directors, its president or any vice president and attested by its secretary or assistant secretary, under its corporate seal. Such signatures may be the manual or facsimile signatures of any person who is an officer or assistant secretary as of or subsequent to the date hereof. The seal of the Company may be in the form of a facsimile thereof and may be impressed, affixed, imprinted or otherwise reproduced on the Warrant Certificates. Typographical and other minor errors or defects in any such reproduction of the seal or any such signature shall not affect the validity or enforceability of any Warrant Certificate that has been duly countersigned and delivered by the Warrant Agent. In case any officer of the Company who shall have signed any of the Warrant Certificates shall cease to be such officer before the Warrant Certificate so signed shall be countersigned and delivered by the Warrant Agent or disposed of by the Company, such Warrant Certificate nevertheless may be countersigned and delivered or disposed of as though the person who signed such Warrant Certificate had not ceased to be such officer of the Company; and any Warrant Certificate may be signed on behalf of the Company by such persons as, at the actual date of the execution of such Warrant Certificate, shall be the proper officers of the Company, although at the date of the execution and delivery of this Agreement any such person was not such an officer. SECTION 2.4. Authentication and Delivery. Subject to the immediately following paragraph, Warrant Certificates shall be authenticated by manual signature and dated the date of authentication by the Warrant Agent and shall not be valid for any purpose unless so authenticated and dated. The Warrant Certificates shall be numbered and shall be registered in the Warrant Register. Upon the receipt by the Warrant Agent of a written order of the Company, which order shall be signed by the chairman of its Board of Directors, its president or any vice president and attested by its secretary or assistant secretary, and shall specify the amount of Warrants to be authenticated, whether the Warrants are to be Global Warrants or Definitive Warrants, the date of such Warrants and such other information as the Warrant Agent may reasonably request, without any further action by the 12 7 Company, the Warrant Agent is authorized, upon receipt from the Company at any time and from time to time of the Warrant Certificates, duly executed as provided in Section 2.3. hereof, to authenticate the Warrant Certificates and deliver them; provided that subsequent to the original issuance of a Warrant Certificate evidencing Warrants, the Warrant Agent shall authenticate a new Warrant Certificate evidencing such Warrants only if such Warrant Certificate is issued in exchange or substitution for one or more previously authenticated Warrant Certificates evidencing such Warrants or in connection with their transfer as hereinafter provided. Such authentication shall be by a duly authorized signatory of the Warrant Agent (although it shall not be necessary for the same signatory to sign all Warrant Certificates). In case any authorized signatory of the Warrant Agent who shall have authenticated any of the Warrant Certificates shall cease to be such authorized signatory before the Warrant Certificate shall be disposed of by the Company, such Warrant Certificate nevertheless may be delivered or disposed of as though the person who authenticated such Warrant Certificate had not ceased to be such authorized signatory of the Warrant Agent; and any Warrant Certificate may be authenticated on behalf of the Warrant Agent by such persons as, at the actual time of authentication of such Warrant Certificates, shall be the duly authorized signatories of the Warrant Agent, although at the time of the execution and delivery of this Agreement any such person is not such an authorized signatory. The Warrant Agent's authentication on all Warrant Certificates shall be in substantially the form set forth in Exhibit A hereto. SECTION 2.5. Temporary Warrant Certificates. Pending the preparation of definitive Warrant Certificates, the Company may execute, and the Warrant Agent shall authenticate and deliver, temporary Warrant Certificates, which are printed, lithographed, typewritten or otherwise produced, substantially of the tenor of the definitive Warrant Certificates in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Warrant Certificates may determine, as evidenced by their execution of such Warrant Certificates. If temporary Warrant Certificates are issued, the Company will cause definitive Warrant Certificates to be prepared without unreasonable delay. After the preparation of definitive Warrant Certificates, the temporary Warrant Certificates shall be exchangeable for definitive Warrant Certificates upon surrender of the temporary Warrant Certificates at any office or agency maintained by the Company for that purpose pursuant to Section 2.10. hereof. Subject to the provisions of Section 5.1. hereof, such exchange shall be without charge to the holder. Upon surrender for cancellation of any one or more temporary Warrant 13 8 Certificates, the Company shall execute, and the Warrant Agent shall authenticate and deliver in exchange therefor, one or more definitive Warrant Certificates representing in the aggregate a like number of Warrants. Until so exchanged, the holder of a temporary Warrant Certificate shall in all respects be entitled to the same benefits under this Agreement as a holder of a definitive Warrant Certificate. SECTION 2.6. Separation of Warrants and Notes. The Notes and Warrants will not be separately transferable until the Separability Date. The surrender of a Unit Certificate for separate Warrant and Note certificates is herein referred to as a "Separation", the related Warrants being referred to as "Separated". SECTION 2.7. Registration. The Company will keep, at the office or agency maintained by the Company for such purpose, a register or registers in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of, and registration of transfer and exchange of, Warrants as provided in this Article. Each person designated by the Company from time to time as a person authorized to register the transfer and exchange of the Warrants is hereinafter called, individually and collectively, the "Registrar". The Company hereby initially appoints the Warrant Agent as Registrar. Upon written notice to the Warrant Agent and any acting Registrar, the Company may appoint a successor Registrar for such purposes. The Company will at all times designate one person (who may be the Company and who need not be a Registrar) to act as repository of a master list of names and addresses of the holders of Warrants (the "Warrant Register"). The Warrant Agent will act as such repository unless and until some other person is, by written notice from the Company to the Warrant Agent and the Registrar, designated by the Company to act as such. The Company shall cause each Registrar to furnish to such repository, on a current basis, such information as to all registrations of transfer and exchanges effected by such Registrar, as may be necessary to enable such repository to maintain the Warrant Register on as current a basis as is practicable. SECTION 2.8. Registration of Transfers and Exchanges. (a) Transfer and Exchange of Definitive Warrants. When Definitive Warrants are presented to the Warrant Agent with a request (i) to register the transfer of Definitive Warrants or (ii) to exchange such Definitive Warrants for an equal number of Definitive Warrants, the Warrant Agent shall register the transfer or make the exchange as requested so long as the Definitive Warrants presented or surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the 14 9 Company and the Warrant Agent, duly executed by the holder thereof or by his attorney, duly authorized in writing. (b) Transfer of a Definitive Warrant for a Beneficial Interest in the Global Warrant. A Definitive Warrant may not be exchanged for a beneficial interest in a Global Warrant except upon receipt by the Warrant Agent of a Definitive Warrant, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Warrant Agent, together with written instructions directing the Warrant Agent to make, or to direct the Depositary to make, an endorsement on the Global Warrant to reflect an increase in the aggregate number of the Warrants represented by the Global Warrant, after which the Warrant Agent shall cancel such Definitive Warrant and cause, or direct the Depositary to cause, in accordance with the standing instructions and procedures existing between the Depositary and the Warrant Agent, the number of Warrants represented by the Global Warrant to be increased accordingly. If no Global Warrant is then outstanding, the Company shall issue and the Warrant Agent shall authenticate a new Global Warrant in the appropriate amount. (c) Transfer and Exchange of the Global Warrant. The transfer and exchange of the Global Warrant or beneficial interests therein shall be effected through the Depositary, in accordance with this Warrant Agreement and the procedures of the Depositary therefor. Notwithstanding any other provisions of this Warrant Agreement (other than the provisions set forth in subsection (f) of this Section 2.8.), the Global Warrant may not be transferred as a whole except by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary, provided that if at any time: (i) the Depositary for the Warrants notifies the Company that the Depositary is unwilling or unable to continue as Depositary for the Global Warrant and a successor Depositary for the Global Warrant is not appointed by the Company within 90 days after delivery of such notice; or (ii) the Company, at its sole discretion, notifies the Warrant Agent in writing that it elects to cause the issuance of Definitive Warrants under this Warrant Agreement, then the Company will execute, and the Warrant Agent, upon receipt of an officers' certificate signed by two officers of the Company (one of whom must be the principal executive officer, principal financial officer or principal accounting officer) (an "Officers' Certificate") requesting the authentication and delivery of Definitive Warrants, will authenticate and deliver Definitive Warrants, in an aggregate number equal to the 15 10 aggregate number of warrants represented by the Global Warrant, in exchange for such Global Warrant. (d) Transfer of a Beneficial Interest in the Global Warrant for a Definitive Warrant. (i) Any person having a beneficial interest in the Global Warrant may upon request exchange such beneficial interest for a Definitive Warrant (as described below). Upon receipt by the Warrant Agent of written instructions or such other form of instructions as is customary for the Depositary from the Depositary or its nominee on behalf of any person having a beneficial interest in the Global Warrant and upon receipt by the Warrant Agent of a written order or such other form of instructions as is customary for the Depositary or the person designated by the Depositary as having such a beneficial interest containing registration instructions, then the Warrant Agent will cause, in accordance with the standing instructions and procedures existing between the Depositary and the Warrant Agent, the aggregate number of Warrants represented by the Global Warrant to be reduced and, following such reduction, the Company will execute and, upon receipt of an authentication order in the form of an Officers' Certificate, the Warrant Agent will authenticate and deliver to the transferee a Definitive Warrant. (ii) Definitive Warrants issued in exchange for a beneficial interest in the Global Warrant pursuant to this Section 2.8(d) shall be registered in such names and for such number of Warrants as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Warrant Agent in writing. The Warrant Agent shall deliver such Definitive Warrants to the persons in whose names such Warrants are so registered. (e) Legends. Each Warrant Certificate evidencing the Global Warrants and the Definitive Warrants (and all Warrants issued in exchange therefor or substitution thereof) shall bear the legends substantially in the form set forth on the face of the Form of the Warrant Certificate attached hereto as Exhibit A, and, in the case of the Global Warrant, shall also bear the legend substantially in the form attached hereto as Exhibit B. (f) Cancellation and/or Adjustment of the Global Warrant. At such time as all beneficial interests in the Global Warrant have either been exchanged for Definitive Warrants, redeemed, repurchased or cancelled, such Global Warrant shall be returned to or retained and cancelled by the Warrant Agent. At any time prior to such cancellation, if any beneficial interest in the Global Warrant is exchanged for Definitive Warrants, redeemed, repurchased or cancelled, the number of Warrants represented by such Global Warrant shall be reduced and an 16 11 endorsement shall be made on such Global Warrant, by the Warrant Agent to reflect such reduction. (g) Obligations with Respect to Transfers and Exchanges of Definitive Warrants. To permit registrations of transfers and exchanges, the Company shall execute, at the Warrant Agent's request, and the Warrant Agent shall authenticate Definitive Warrants and Global Warrants. All Definitive Warrants and Global Warrants issued upon any registration, transfer or exchange of Definitive Warrants or Global Warrants shall be the valid obligations of the Company, entitled to the same benefits under this Warrant Agreement as the Definitive Warrants or Global Warrants surrendered upon such registration, transfer or exchange. Prior to due presentment for registration or transfer of any Warrant, the Warrant Agent and the Company may deem and treat the person in whose name any Warrant is registered as the absolute owner of such Warrant, and neither the Warrant Agent nor the Company shall be affected by notice to the contrary. SECTION 2.9. Lost, Stolen, Destroyed, Defaced or Mutilated Warrant Certificates. Upon receipt by the Company and the Warrant Agent (or any agent of the Company or the Warrant Agent, if requested by the Company) of evidence satisfactory to them of the loss, theft, destruction, defacement, or mutilation of any Warrant Certificate and of indemnity satisfactory to them and, in the case of mutilation or defacement, upon surrender thereof to the Warrant Agent for cancellation, then, in the absence of notice to the Company or the Warrant Agent that such Warrant Certificate has been acquired by a bona fide purchaser or holder in due course, the Company shall execute, and an authorized signatory of the Warrant Agent shall manually authenticate and deliver, in exchange for or in lieu of the lost, stolen, destroyed, defaced or mutilated Warrant Certificate, a new Warrant Certificate representing a like number of Warrants, bearing a number or other distinguishing symbol not contemporaneously outstanding. Upon the issuance of any new Warrant Certificate under this Section 2.9., the Company may require the payment from the holder of such Warrant Certificate of a sum sufficient to cover any tax, stamp tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Warrant Agent and the Registrar) in connection therewith. Every substitute Warrant Certificate executed and delivered pursuant to this Section 2.9. in lieu of any lost, stolen or destroyed Warrant Certificate shall constitute an additional contractual obligation of the Company, whether or not the lost, stolen or destroyed Warrant Certificate shall be at any time enforceable by anyone, and shall be entitled to the benefits of (but shall be subject to all the limitations of rights set forth in) this Agreement equally and proportionately with any and all other Warrant Certificates duly executed and delivered hereunder. The provisions of this Section 2.9. are exclusive with respect to the replacement of lost, stolen, destroyed, defaced or mutilated Warrant Certificates and shall preclude (to the extent lawful) 17 12 any and all other rights or remedies notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement of lost, stolen, destroyed, defaced or mutilated Warrant Certificates. The Warrant Agent is hereby authorized to authenticate in accordance with the provisions of this Agreement, and deliver the new Warrant Certificates required pursuant to the provisions of this Section. SECTION 2.10. Offices for Exercise, etc. So long as any of the Warrants remain outstanding, the Company will designate and maintain in the Borough of Manhattan, The City of New York: (a) an office or agency where the Warrant Certificates may be presented for exercise, (b) an office or agency where the Warrant Certificates may be presented for registration of transfer and for exchange (including the exchange of temporary Warrant Certificates for definitive Warrant Certificates pursuant to Section 2.5. hereof), and (c) an office or agency where notices and demands to or upon the Company in respect of the Warrants or of this Agreement may be served. The Company may from time to time change or rescind such designation, as it may deem desirable or expedient; provided, however, that an office or agency shall at all times be maintained in the Borough of Manhattan, The City of New York, as provided in the first sentence of this Section. In addition to such office or offices or agency or agencies, the Company may from time to time designate and maintain one or more additional offices or agencies within or outside The City of New York, where Warrant Certificates may be presented for exercise or for registration of transfer or for exchange, and the Company may from time to time change or rescind such designation, as it may deem desirable or expedient. The Company will give to the Warrant Agent written notice of the location of any such office or agency and of any change of location thereof. The Company hereby designates the Warrant Agent at its corporate trust office in the Borough of Manhattan, The City of New York (the "Warrant Agent Office"), as the initial agency maintained for each such purpose. In case the Company shall fail to maintain any such office or agency or shall fail to give such notice of the location or of any change in the location thereof, presentations and demands may be made and notice may be served at the Warrant Agent Office and the Company appoints the Warrant Agent as its agent to receive all such presentations, surrenders, notices and demands. ARTICLE III DURATION, EXERCISE OF WARRANTS AND EXERCISE PRICE SECTION 3.1. Duration of Warrants. Subject to the terms and conditions established herein, unless exercised, the Warrants shall expire at 5:00 p.m., New York City time, on the earlier to occur of (i) 180 days after an Exercise Event and (ii) 18 13 ________, 2006 (the "Expiration Date"). Each Warrant may be exercised on any Business Day on or after the Exercisability Date and on or prior to the Expiration Date. Any Warrant not exercised before the close of business on the Expiration Date shall become void, and all rights of the holder under the Warrant Certificate evidencing such Warrant and under this Agreement shall cease. SECTION 3.2. Exercise, Exercise Price, Settlement and Delivery. (a) Subject to the provisions of this Agreement, each holder of a Warrant shall have the right to purchase from the Company on or after the Exercisability Date, and on or prior to the Expiration Date, one fully paid, registered and non-assessable Warrant Share, subject to adjustment in accordance with Article VI hereof, at a purchase price of $0.01 for each Warrant exercised (the "Exercise Price"). The number and kind of Warrant Shares for which a Warrant may be exercised (the "Exercise Rate") shall be subject to adjustment from time to time as set forth in Article VI hereof. (b) Warrants may be exercised on or after the Exercisability Date by (i) surrendering at any office or agency maintained for that purpose by the Company pursuant to Section 2.10. (each a "Warrant Exercise Office") the Warrant Certificate or Warrant Certificates evidencing such Warrants with the form of election to purchase Warrant Shares set forth on the reverse side of each Warrant Certificate (the "Election to Exercise") duly completed and signed by the registered holder or holders thereof or by the duly appointed legal representative thereof or by a duly authorized attorney, and in the case of a transfer, such signature shall be guaranteed by an Eligible Guarantor Institution (as defined below), and (ii) paying in full the Exercise Price for each such Warrant exercised and any other amounts required to be paid pursuant to Section 2.8(h) hereof. Each Warrant may be exercised only in whole. "Eligible Guarantor Institution" shall mean a member of the Securities Transfer Agents Medallion Program ("STAMP"), the New York Stock Exchange Medallion Signature Program ("MSP") or the Stock Exchange Medallion Program ("SEMP"). The registered holder of the Global Warrant shall not be able to exercise the Global Warrant for Warrant Shares. In order to exercise the Warrants represented by the Global Warrant, the beneficial owner thereof must either (x) first obtain a Definitive Warrant pursuant to the provision of the Agreement and comply with the procedures set forth in this paragraph (b) or (y) instruct the Warrant Agent to arrange for a book-entry delivery of the Warrants to be exercised to an account maintained by the Depositary for the Warrant Agent if such arrangement is then available. (c) Simultaneously with the exercise of each Warrant, payment in full of the Exercise Price shall be made either (i) in cash or by certified or official bank check or (ii) in accordance with the next succeeding sentence, in each case to be delivered 19 14 to the office or agency where the Warrant Certificate is being surrendered. Each holder may also exercise its right to receive Warrant Shares on a net basis, such that, without the exchange of any funds, the holder receives that number of Warrant Shares otherwise issuable upon exercise of the Warrants less that number of Warrant Shares having a value equal to the aggregate Exercise Price that would otherwise have been paid by the holder of the Warrant Shares. The Company reserves the right at any time and from time to time to waive the amount of the Exercise Price upon the exercise of the Warrants. (d) Upon such surrender of a Warrant Certificate and payment and collection of the Exercise Price at any Warrant Exercise Office (other than any Warrant Exercise Office that also is an office of the Warrant Agent), such Warrant Certificate and payment shall be promptly delivered to the Warrant Agent. The "Exercise Date" for a Warrant shall be the date when all of the items referred to in the first sentence of paragraphs (b) and (c) of this Section 3.2. are received by the Warrant Agent at or prior to 2:00 p.m., New York City time, on a Business Day and the exercise of the Warrants will be effective as of such Exercise Date. If any items referred to in the first sentence of paragraphs (b) and (c) are received after 2:00 p.m., New York City time, on a Business Day, the exercise of the Warrants to which such item relates will be effective on the next succeeding Business Day. Notwithstanding the foregoing, in the case of an exercise of Warrants on the Expiration Date, if all of the items referred to in the first sentence of paragraphs (b) and (c) are received by the Warrant Agent at or prior to 5:00 p.m., New York City time, on such Expiration Date, the exercise of the Warrants to which such items relate will be effective on the Expiration Date. (e) Upon the exercise of a Warrant in accordance with the terms hereof, the receipt of a Warrant Certificate and payment of the Exercise Price, the Warrant Agent shall: (i) cause an amount equal to any cash Exercise Price to be paid to the Company by crediting the same to the account designated by the Company in writing to the Warrant Agent for that purpose; (ii) advise the Company immediately by telephone of any amount so deposited to the Company's account and promptly confirm such telephonic advice in writing; and (iii) as soon as practicable, advise the Company in writing of the number of Warrants exercised in accordance with the terms and conditions of this Agreement and the Warrant Certificates, the instructions of each exercising holder of the Warrant Certificates with respect to delivery of the Warrant Shares to which such holder is entitled upon such exercise, and such other information as the Company shall reasonably request. (f) Subject to Section 6.2. hereof, as soon as practicable after the exercise of any Warrant or Warrants in accordance with the terms hereof, the Company shall issue or cause to be issued to or upon the written order of the registered 20 15 holder of the Warrant Certificate evidencing such exercised Warrant or Warrants, a certificate or certificates evidencing the Warrant Shares to which such holder is entitled, in fully registered form, registered in such name or names as may be directed by such holder pursuant to the Election to Exercise, as set forth on the reverse of the Warrant Certificate. Such certificate or certificates evidencing the Warrant Shares shall be deemed to have been issued and any persons who are designated to be named therein shall be deemed to have become the holder of record of such shares as of the close of business on the Exercise Date. After such exercise of any Warrant or Warrants, the Company shall also issue or cause to be issued to or upon the written order of the registered holder of such Warrant Certificate, a new Warrant Certificate, countersigned by the Warrant Agent pursuant to written instruction, evidencing the number of Warrants, if any, remaining unexercised unless such Warrants shall have expired. (g) NOTWITHSTANDING THE FOREGOING, THE EXERCISE OF THE WARRANTS (AND THE OWNERSHIP OF CLASS B COMMON STOCK ISSUABLE UPON THE EXERCISE THEREOF) MAY BE LIMITED BY THE COMPANY IN ORDER TO ENSURE COMPLIANCE WITH THE RULES AND REGULATIONS OF THE FCC, AND THE WARRANTS WILL NOT BE EXERCISABLE BY ANY HOLDER IF SUCH EXERCISE WOULD CAUSE THE COMPANY TO BE IN VIOLATION OF THE COMMUNICATIONS ACT OR THE FCC'S RULES, REGULATIONS OR POLICIES. In the event the Company is restricted by the Communications Act or the FCC's rules, regulations or policies from issuing Warrant Shares upon exercise of any Warrants, the Company shall be required to pay to each holder of each Warrant seeking to exercise such Warrant an amount per Warrant in cash equal to the Current Market Value thereof as of the date of such proposed exercise. SECTION 3.3. Cancellation of Warrant Certificates. In the event the Company shall purchase or otherwise acquire Warrants, the Warrant Certificates evidencing such Warrants may thereupon be delivered to the Warrant Agent, and if so delivered, shall be canceled by it and retired. The Warrant Agent shall cancel all Warrant Certificates properly surrendered for exchange, substitution, transfer or exercise. The Warrant Agent shall destroy canceled Warrant Certificates held by it and deliver a certificate of destruction to the Company. SECTION 3.4. Notice of an Exercise Event. Upon the occurrence of an Exercise Event, the Company shall (i) send promptly to each holder of Warrants, by first-class mail, at the addresses appearing on the Warrant Register a notice of such Exercise Event, which notice shall describe the type of Exercise Event and the date of the occurrence thereof and the date of expiration of the right to exercise the Warrants prominently set forth in the face of such notice and (ii) cause a notice of such Exercise Event to be published in the Wall Street Journal, National Edition, for two consecutive Business Days; such notice 21 16 shall identify the Warrants and describe the type of Exercise Event and give the date of the occurrence thereof and the Expiration Date. ARTICLE IV OTHER PROVISIONS RELATING TO RIGHTS OF HOLDERS OF WARRANTS SECTION 4.1. Enforcement of Rights. (a) Notwithstanding any of the provisions of this Agreement, any holder of any Warrant Certificate, without the consent of the Warrant Agent, the holder of any shares or the holder of any other Warrant Certificate, may, in and for his own behalf, enforce, and may institute and maintain any suit, action or proceeding against the Company suitable to enforce, his right to exercise the Warrant or Warrants evidenced by his Warrant Certificate in the manner provided in such Warrant Certificate and in this Agreement. (b) Subject to Section 6.3. hereof, neither the Warrants nor any Warrant Certificate shall entitle the holders thereof, by virtue of being such holders, to any of the rights of a holder of shares of Common Stock, including, without limitation, the right to vote or to consent or to receive notice as stockholders in respect of the meetings of stockholders or for the election of directors of the Company or any other matter. ARTICLE V CERTAIN COVENANTS OF THE COMPANY SECTION 5.1. Payment of Taxes. The Company will pay all documentary stamp taxes attributable to the initial issuance of the Warrants and of the Warrant Shares upon the exercise of the Warrants or to any Separation; provided, however, that the Company shall not be required to pay any tax or other governmental charge which may be payable in respect of any transfer or exchange of any Warrant Certificate or any certificate for Warrant Shares in a name other than the registered holder of a Warrant Certificate surrendered upon the exercise of a Warrant. In any such case, no transfer or exchange shall be made unless or until the person or persons requesting issuance thereof shall have paid to the Company the amount of such tax or other governmental charge or shall have established to the satisfaction of the Company that such tax or other governmental charge has been paid or an exemption is available therefrom. SECTION 5.2. Obtaining Stock Exchange Listings. The Company will from time to time take all action which may be 22 17 necessary so that the Warrant Shares, immediately upon their issuance upon the exercise of the Warrants, will be listed on the principal securities exchanges and markets (including, without limitation, the NASDAQ/NMS) within the United States of America, if any, on which other shares of Common Stock are then listed. Upon the listing of such Warrant Shares,the Company shall notify the Warrant Agent in writing. The Company will obtain and keep all required permits and records in connection with such listing. SECTION 5.3. Filings with the Commission. So long as any of the Warrants or Warrant Shares are outstanding, the Company will file with the Commission the annual reports, quarterly reports and other documents which the Company would have been required to file with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act if the Company were subject to such Sections and will also provide to all holders of the Warrants or Warrant Shares and file with the Warrant Agent copies of such reports. ARTICLE VI ADJUSTMENTS SECTION 6.1. Adjustment of Exercise Rate; Notices. The Exercise Rate is subject to adjustment from time to time as provided in this Section. (a) Adjustment for Change in Capital Stock. If, after the date hereof, the Company: (i) subdivides its outstanding shares of Common Stock into a greater number of shares; (ii) combines its outstanding shares of Common Stock into a smaller number of shares; or (iii) issues by reclassification of its Common Stock any shares of its Common Stock (other than rights, warrants or options for its Common Stock); then the Exercise Rate in effect immediately prior to such action shall be adjusted so that the holder of a Warrant thereafter exercised may receive the number of shares of Capital Stock of the Company which such holder would have owned immediately following the action(s) specified in clause (i), (ii) or (iii) above if such holder had exercised the Warrant immediately prior to such action or immediately prior to the record date applicable thereto, if any. The adjustment shall become effective immediately after the effective date. In the event that such subdivision, combination or reclassification is not effected, the Exercise 23 18 Rate shall again be adjusted to be the Exercise Rate which would then be in effect if such effective date had not been so fixed. If after an adjustment a holder of a Warrant upon exercise of such Warrant may receive shares of two or more classes of Capital Stock of the Company, the Exercise Rate shall thereafter be subject to adjustment upon the occurrence of an action taken with respect to any such class of Capital Stock as is contemplated by this Article VI with respect to the Common Stock, on terms comparable to those applicable to Common Stock in this Article VI. (b) Adjustment for Sale of Common Stock Below Current Market Value. If, after the date hereof, the Company sells any Common Stock or any securities convertible into or exchangeable or exercisable for the Common Stock (other than (1) pursuant to the exercise of the Warrants, (2) any security convertible into, or exchangeable or exercisable for, the Common Stock as to which the issuance thereof has previously been the subject of any required adjustment pursuant to this Article VI and (3) grants to employees of options to purchase shares of Common Stock in the ordinary course of business in accordance with past practice) at a price per share less than the Current Market Value, the Exercise Rate shall be adjusted in accordance with the formula: (O + N) E' = E x --------------- (O + (N x P/M)) where: E' = the adjusted Exercise Rate; E = the current Exercise Rate; O = the number of shares of Common Stock outstanding on the date of sale of Common Stock (or securities convertible into or exchangeable or exercisable for such Common Stock) at a price per share less than the Current Market Value to which this paragraph (b) applies; N = the number of shares of Common Stock so sold or the maximum stated number of shares of Common Stock issuable upon the conversion, exchange, or exercise of any such convertible, exchangeable or exercisable securities, as the case may be; p = the offering price per share pursuant to any such convertible, exchangeable or exercisable securities so sold or the sale price of the shares so sold, as the case may be; and 24 19 M = the Current Market Value as of the Time of Determination or at the time of sale, as the case may be. The adjustment shall become effective immediately after the record date for the determination of stockholders entitled to receive the rights, warrants or options to which this paragraph (b) applies or upon consummation of the sale of Common Stock, or securities convertible into or exchangeable or exercisable for such Common Stock, as the case may be. To the extent that shares of Common Stock are not delivered after the expiration of such rights or warrants, the Exercise Rate shall be readjusted to the Exercise Rate which would otherwise be in effect had the adjustment made upon the issuance of such rights or warrants been made on the basis of delivery of only the number of shares of Common Stock actually delivered. In the event that such rights or warrants are not so issued, the Exercise Rate shall again be adjusted to be the Exercise Rate which would then be in effect if such date fixed for determination of stockholders entitled to receive such rights or warrants had not been so fixed. (c) Notice of Adjustment, Whenever the Exercise Rate is adjusted, the Company shall promptly mail to holders of Warrants at their addresses appearing on the Warrant Register a notice of the adjustment. The Company shall file with the Warrant Agent and any other Registrar such notice and a certificate from the Company's independent public accountants briefly stating the facts requiring the adjustment and the manner of computing it. The certificate shall be conclusive evidence that the adjustment is correct. Neither the Warrant Agent nor any such Registrar shall be under any duty or responsibility with respect to any such certificate except to exhibit the same during normal business hours to any holder desiring inspection thereof. (d) When Adjustment May Be Deferred. No adjustment in the Exercise Rate need be made unless the adjustment would require an increase or decrease of at least 1% in the Exercise Rate. Any adjustments that are not made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article VI shall be made to the nearest 1/1,000th of a share. (e) When No Adjustment Required. No adjustment need be made for a change in the par value or no par value of the Common Stock. (f) Reorganization of Company; Special Distributions. If the Company, in a single transaction or through a series of related transactions, consolidates with or merges with or into any other person or transfers (by lease, assignment, sale or otherwise) all or substantially all of its properties and assets to another person or group of affiliated persons or is a party to a merger or binding share exchange which reclassifies or changes 25 20 its outstanding Common Stock, the person obligated to deliver securities, cash or other assets upon exercise of Warrants shall enter into a supplemental warrant agreement. If the issuer of securities deliverable upon exercise of Warrants is an affiliate of the successor Company, that issuer shall join in the supplemental warrant agreement. The supplemental warrant agreement shall provide that the holder of a Warrant may exercise it for the kind and amount of securities, cash or other assets which such holder would have received immediately after the consolidation, merger, binding share exchange or transfer if such holder had exercised the Warrant immediately before the effective date of the transaction (whether or not the Warrants were then exercisable hereunder), assuming (to the extent applicable) that such holder (i) was not a constituent person or an Affiliate of a constituent person to such transaction; (ii) made no election with respect thereto; and (iii) was treated alike with the plurality of non-electing holders. The supplemental warrant agreement shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article VI. The successor Company shall mail to holders of Warrants at their addresses appearing on the Warrant Register a notice briefly describing the supplemental warrant agreement. If this paragraph (f) applies then neither paragraph (a) nor (b) shall apply. (g) Warrant Agent's Adjustment Disclaimer. The Warrant Agent has no duty to determine when an adjustment under this Article VI should be made, how it should be made or what it should be. The Warrant Agent has no duty to determine whether a supplemental warrant agreement under paragraph (f) need be entered into or whether any provisions of any supplemental warrant agreement are correct. The Warrant Agent shall not be accountable for and makes no representation as to the validity or value of any securities or assets issued upon exercise of Warrants. The Warrant Agent shall not be responsible for the Company's failure to comply with this Article VI. (h) Adjustment for Tax Purposes. The Company may make such increases in the Exercise Rate, in addition to those otherwise required by this Section, as it considers to be advisable in order that any event treated for Federal income tax purposes as a dividend of stock or stock rights shall not be taxable to the recipients. (i) Underlying Warrant Shares. The Company shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued Class B Common Stock or Class B Common Stock held in the treasury of the Company, for the purpose of effecting the exercise of Warrants, the full number of Warrant Shares then deliverable upon the exercise of all Warrants then outstanding. 26 21 The transfer agent for the Class B Common Stock (the "Transfer Agent") and every subsequent transfer agent for any shares of the Company's Capital Stock issuable upon the exercise of any of the rights of purchase aforesaid will be irrevocably authorized and directed at all times to reserve such number of authorized shares as shall be required for such purpose. The Company will keep a copy of this Agreement on file with the Transfer Agent and with every subsequent transfer agent for any shares of the Company's Capital Stock issuable upon the exercise of the Warrants. The Warrant Agent is hereby irrevocably authorized to requisition from time to time from such Transfer Agent the stock certificates required to honor outstanding Warrants upon exercise thereof in accordance with the terms of this Agreement. The Company will supply such Transfer Agent with duly executed certificates for such purposes and will provide or otherwise make available any cash which may be payable as provided in Section 6.2. The Company will furnish such Transfer Agent a copy of all notices of adjustments and certificates related thereto, transmitted to each holder of the Warrants pursuant to Section 6.1(c) hereof. The Company covenants that all Warrant Shares which may be issued upon exercise of Warrants will, upon issue, be duly and validly issued, fully paid, nonassessable, free of preemptive rights and free from all taxes, liens, charges and security interests with respect to the issue thereof. (j) Specificity of Adjustment. Irrespective of any adjustments in the number or kind of shares purchasable upon the exercise of the Warrants, Warrant Certificates theretofore or thereafter issued may continue to express the same number and kind of Warrant Shares per Warrant as are stated on the Warrant Certificates initially issuable pursuant to this Agreement. (k) Adjustments to Par Value. The Company shall make such adjustments to the par value of the Class B Common Stock in order that, upon exercise of the Warrants, the Warrant Shares will be fully paid and non-assessable. (l) Voluntary Adjustment. The Company from time to time may increase the Exercise Rate by any number and for any period of time, provided that such period is not less than 20 Business Days. Whenever the Exercise Rate is so increased, the Company shall mail to holders at the addresses appearing on the Warrant Register and file with the Warrant Agent a notice of the increase. The Company shall give the notice at least 15 days before the date the increased Exercise Rate takes effect. The notice shall state the increased Exercise Rate and the period it will be in effect. A voluntary increase in the Exercise Rate does not change or adjust the Exercise Rate otherwise in effect as determined by this Section 6.1. 27 22 (m) No Other Adjustment for Dividends. Except as provided in this Article VI, no payment or adjustment will be made for dividends on any Common Stock. (n) Multiple Adjustments. After an adjustment to the Exercise Rate under this Article VI, any subsequent event requiring an adjustment under this Article VI shall cause an adjustment to the Exercise Rate as so adjusted. (o) Other Adjustments. In the event that at any time, as a result of an adjustment made pursuant to this Section 6.1., the Holders shall become entitled to receive any securities of the Company other than shares of Class B Common Stock, thereafter the number of such other securities so receivable upon exercise of the Warrants and the Exercise Price applicable to such exercise shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the shares of Common Stock contained in this Section 6.1. SECTION 6.2. Fractional Warrant Shares. The Company will not be required to issue fractional Warrant Shares upon exercise of the Warrants or distribute Warrant Share certificates that evidence fractional Warrant Shares. In lieu of fractional Warrant Shares, there shall be paid to the registered holders of Warrant Certificates at the time Warrants evidenced thereby are exercised as herein provided an amount in cash equal to the same fraction of the Current Market Value per Share on the Business Day preceding the date the Warrant Certificates evidencing such Warrants are surrendered for exercise. Such payments will be made by check or by transfer to an account maintained by such registered holder with a bank in The City of New York. If any holder surrenders for exercise more than one Warrant Certificate, the number of Warrant Shares deliverable to such holder may, at the option of the Company, be computed on the basis of the aggregate amount of all the Warrants exercised by such holder. SECTION 6.3. Distribution Rights. If at any time the Company (i) grants, issues or sells options, convertible securities, or rights to purchase Capital Stock, warrants or other securities pro rata to the record holders of the Common Stock (the "Distribution Rights"), or (ii) without duplication, makes any dividend or otherwise makes any distribution on shares of Common Stock (a "Distribution"), then the Company shall grant, issue, sell or make to each registered holder of Warrants the aggregate Distribution Rights or Distribution, as the case may be, which such holder would have acquired if such holder had held the maximum number of Warrant Shares acquirable upon complete exercise of such holder's Warrants immediately before the record date for the grant, issuance or sale of such Distribution Rights or such Distribution, as the case may be, or, if there is no such record date, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Distribution Rights or Distribution, as the case may be. 28 23 ARTICLE VII OFFERS TO REPURCHASE SECTION 7.1. Offers to Repurchase. Upon the occurrence of an Exercise Event, the Company shall have the right to make an offer to purchase all outstanding Warrants and Warrant Shares in cash, within 120 days after such Exercise Event, at a price equal to the Current Market Value thereof. In the event the Company makes such an offer the Company shall have selected an Independent Financial Expert reasonably satisfactory to a majority of the holders of Warrants and Warrant Shares prior to 90 days before the Expiration Date. If the Company has not selected an Independent Financial Expert prior to 90 days before the Expiration Date, then a majority of the holders of Warrants and Warrant Shares shall have the right to select one at the expense of the Company. In the event that the Company elects to make an offer to purchase all outstanding Warrants and Warrant Shares, then the holders' right to receive payment shall survive any termination of the Warrants in the event of a delay in selecting an Independent Financial Expert. SECTION 7.2. Procedures for Repurchase. (a) Upon the occurrence of an Exercise Event followed by the election by the Company to make an offer to purchase as set forth in Section 7.1. hereof, the Company shall mail a notice to all holders of Warrants and Warrant Shares, by first class mail, not less than 30 or more than 60 days before the proposed date upon which payment shall be made (which shall be within 120 days after such Exercise Event) (the "Purchase Date"), at their addresses appearing on the Warrant Register. The notice will contain all instructions and materials necessary to enable such holders of Warrants and Warrant Shares to tender such Warrants and Warrant Shares, including: (i) the identity of the Independent Financial Expert; (ii) the Current Market Value of a Warrant and a Warrant Share, if each is outstanding; (iii) the Purchase Date (which shall be at least 20 Business Days from the date of mailing such notice or such longer period as may be required by law); (iv) that holders electing to have Warrants purchased will be required to surrender (x) their Warrant Certificates, with the form entitled "Election of Holder to Elect Purchase" on the reverse thereof, duly completed, to the Company and (y) their certificates for Warrant Shares to the Company, in each case at the address set forth in the notice, no later than the close of business on the Business Day prior to the Purchase Date; 29 24 (v) that holders will be entitled to withdraw their election if the Company receives, prior to the Purchase Date, a telegram, telex or facsimile transmission not later than five Business Days prior to the Purchase Date setting forth the name of the holder, the number of Warrants and/or Warrant Shares delivered for purchase and a statement that such holder is withdrawing his election to have his Warrants and/or Warrant Shares purchased; and (vi) that holders whose Warrants and/or Warrant Shares are purchased in part will be issued new Warrants and/or Warrant Shares in number equal to the unpurchased portion of the Warrants or Warrant Shares, respectively, surrendered. On the Purchase Date, the Company will accept all Warrants and/or Warrant Shares surrendered, pay to the holders thereof the Current Market Value of the Warrants and/or Warrant Shares surrendered by them for purchase, issue and authenticate certificates for the Warrants and/or Warrant Shares not so purchased, and deliver to the Warrant Agent the Warrant Certificates representing the Warrants so purchased for cancellation. The Company shall comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the purchase set forth in this Section 7.2. (b) In the event the Company shall not have selected an Independent Financial Expert at the time they are required to send the notice set forth in paragraph (a) above, then the notice delivered pursuant to such paragraph (a) will set forth the facts of the event that give rise to the option to purchase. The Majority Holders shall then select the Independent Financial Expert and so notify the Company. Within 10 days of the receipt of such notice, the Company shall send the notice required under paragraph (a) of this Section 7.2. with the Purchase Date reset accordingly. SECTION 7.3. Registration and Qualification Under the Securities Laws. (a) Notwithstanding any offer by the Company to purchase all outstanding Warrants and Warrant Shares pursuant to Section 7.1. hereof, the Company agrees to file and use its best efforts to make effective by the Exercisability Date a shelf registration statement on an appropriate form covering the issuance of the Warrant Shares, unless, in the opinion of counsel to the Company as further described in, and subject to the provisions of, Section 7.3(b), an exemption from the registration requirements under the Securities Act is then available for the issuance and subsequent resale by any person who is not an Affiliate of the Company of the Warrant Shares. The parties agree that the intent of the first sentence of this paragraph is to provide that holders of Warrants who exercise their Warrants receive Warrant Shares that are freely tradeable under the Securities Act. Accordingly, for the purpose of the first sentence of this paragraph, reliance upon Rule 144 or Section 30 25 4(2) of the Securities Act shall not constitute an exemption from the registration requirements under the Securities Act. The Company will keep such registration statement effective until the Expiration Date of the Warrants. The Company will file such amendments and/or supplements to such registration statement under the Securities Act and under any state securities laws covering the issuance of such Warrant Shares and supplement and keep current any prospectus forming a part of such registration statement as may be necessary to permit the Company to deliver to each person exercising a Warrant a prospectus meeting the requirements of Section 10(a)(3) of the Securities Act (a "Prospectus") and the regulations of the Commission and otherwise complying with the Securities Act and regulations thereunder, and as may be necessary to comply with any applicable state securities laws. The Company shall, upon the request of any holder of Warrants that may be required pursuant to the Securities Act to deliver a prospectus in connection with any sale or other disposition of Warrant Shares, include within the plan of distribution section of the Prospectus and in such other places in the Prospectus as may be necessary, all information necessary under the Securities Act to enable such holder to deliver such Prospectus in connection with sales or other dispositions of such Warrant Shares, and the Company shall also take such action as may be necessary under the Securities Act with respect to the related registration statement to enable such holder to effect such delivery in connection with such sale or other disposition. The Company further agrees to provide any holder who may be required to deliver a prospectus upon the sale or other disposition of such Warrant Shares such number of copies of the Prospectus as such holder reasonably requests. The Warrant Agent shall have no duty to monitor when such registration or qualification is necessary nor shall the Warrant Agent be responsible for the Company's failure to comply with this Section 7.3. (b) The Company shall not be required by this Agreement to effect a shelf registration statement pursuant to Section 7.3(a) hereof if (i) in the written opinion of counsel to the Company, addressed to the holders and delivered to them, (x) the Company, upon exercise of the Warrants, would be able to issue Warrant Shares to the holders thereof without registration under the Securities Act (without reliance on Section 4(2) of the Securities Act) and (y) the holders of such Warrant Shares would be free to sell, and the transferees of such holders, in each case other than Affiliates of the Company, would be free to resell all such Warrant Shares, without registration under the Securities Act (without reliance on Rule 144 under the Securities Act) and (ii) all requirements under the Securities Act for effecting such issuance, sales and resales are satisfied at such time. In the event the Company breaches its obligations under this Section 7.3, the Expiration Date shall be extended by a number of days equal to the number of days during which no shelf registration statement shall have been effective or no opinion of 31 26 counsel shall have been delivered to the holders, in each case as described in this Section 7.3. (c) All expenses incident to the Company's performance of or compliance with this Section 7.3 will be borne by the Company, including without limitation: (i) all registration and filing fees and expenses; (ii) all fees and expenses of compliance with federal securities and state Blue Sky or securities laws; (iii) all expenses of printing (including printing certificates for the Warrant Shares and printing of Prospectuses), messenger and delivery services and telephone calls; (iv) all fees and disbursements of counsel for the Company; (v) all fees and disbursements of independent certified public accountants of the Company (including the expenses of any special audit and comfort letters required by or incident to such performance); and (vi) the Company's internal expenses (including, without limitation, all salaries and expenses of their officers and employees performing legal or accounting duties), the expenses of any annual audit and the fees and expenses of any person, including special experts, retained by the Company. ARTICLE VIII CONCERNING THE WARRANT AGENT SECTION 8.1. Warrant Agent. The Company hereby appoints United States Trust Company of New York as Warrant Agent of the Company in respect of the Warrants and the Warrant Certificates upon the terms and subject to the conditions herein and in the Warrant Certificates set forth; and United States Trust Company of New York hereby accepts such appointment. The Warrant Agent shall have the powers and authority specifically granted to and conferred upon it in the Warrant Certificates and hereby and such further powers and authority to act on behalf of the Company as the Company may hereafter grant to or confer upon it and it shall accept in writing. All of the terms and provisions with respect to such powers and authority contained in the Warrant Certificates are subject to and governed by the terms and provisions hereof. SECTION 8.2. Conditions of Warrant Agent's Obligations. The Warrant Agent accepts its obligations herein set forth upon the terms and conditions hereof and in the Warrant Certificates, including the following, to all of which the Company agrees and to all of which the rights hereunder of the holders from time to time of the Warrant Certificates shall be subject: (a) The Warrant Agent shall be entitled to compensation to be agreed upon with the Company in writing for all services rendered by it and the Company agrees promptly to pay such compensation and to reimburse the 32 27 Warrant Agent for its reasonable out-of-pocket expenses (including reasonable fees and expenses of counsel) incurred without negligence or willful misconduct on its part in connection with the services rendered by it hereunder. The Company also agrees to indemnify the Warrant Agent, its directors, officers, affiliates, agents and employees for, and to hold it and its directors, officers, affiliates, agents and employees harmless against, any loss, liability or expense of any nature whatsoever (including, without limitation, reasonable fees and expenses of counsel) incurred without negligence or willful misconduct on the part of the Warrant Agent, arising out of or in connection with its acting as such Warrant Agent hereunder and its exercise of its rights and performance of its obligations hereunder. The obligations of the Company under this Section 8.2. shall survive the exercise and the expiration of the Warrant Certificates and the resignation and removal of the Warrant Agent. (b) In acting under this Agreement and in connection with the Warrant Certificates, the Warrant Agent is acting solely as agent of the Company and does not assume any obligation or relationship of agency or trust for or with any of the owners or holders of the Warrant Certificates. (c) The Warrant Agent may consult with counsel and any advice or written opinion of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with such advice or opinion. (d) The Warrant Agent shall be fully protected and shall incur no liability for or in respect of any action taken or omitted to be taken or thing suffered by it in reliance upon any Warrant Certificate, notice, direction, consent, certificate, affidavit, opinion of counsel, instruction, statement or other paper or document reasonably believed by it to be genuine and to have been presented or signed by the proper parties. (e) The Warrant Agent, and its officers, directors, affiliates and employees ("Related Parties"), may become the owners of, or acquire any interest in, Warrant Certificates, shares or other obligations of the Company with the same rights that it or they would have it if were not the Warrant Agent hereunder and, to the extent permitted by applicable law, it or they may engage or be interested in any financial or other transaction with the Company and may act on, or as depositary, trustee or agent for, any committee or body of holders of shares or other obligations of the Company as freely as if it were not the Warrant Agent hereunder. Nothing in this Agreement shall be deemed to prevent the Warrant Agent or such Related Parties from acting in any other capacity for the Company. 33 28 (f) The Warrant Agent shall not be under any liability for interest on, and shall not be required to invest, any monies at any time received by it pursuant to any of the provisions of this Agreement or of the Warrant Certificates. (g) The Warrant Agent shall not be under any responsibility in respect of the validity of this Agreement (or any term or provision hereof) or the execution and delivery hereof (except the due execution and delivery hereof by the Warrant Agent) or in respect of the validity or execution of any Warrant Certificate (except its authentication thereof). (h) The recitals and other statements contained herein and in the Warrant Certificates (except as to the Warrant Agent's authentication thereon) shall be taken as the statements of the Company and the Warrant Agent assumes no responsibility for the correctness of the same, except such as describe the Warrant Agent or action taken or to be taken by it. The Warrant Agent does not make any representation as to the validity or sufficiency of this Agreement or the Warrant Certificates, except for its due execution and delivery of this Agreement; provided, however, that the Warrant Agent shall not be relieved of its duty to authenticate the Warrant Certificates as authorized by this Agreement. The Warrant Agent shall not be accountable for the use or application by the Company of the proceeds of the exercise of any Warrant. (i) Before the Warrant Agent acts or refrains from acting with respect to any matter contemplated by this Warrant Agreement, it may require: (1) an Officers' Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Warrant Agreement relating to the proposed action have been complied with; and (2) if required in the reasonable judgment of the Warrant Agent, an opinion of counsel for the Company stating that, in the opinion of such counsel, all such conditions precedent have been complied with. (j) The Warrant Agent shall be obligated to perform such duties as are herein and in the Warrant Certificates specifically set forth and no implied duties or obligations shall be read into this Agreement or the Warrant Certificates against the Warrant Agent. The Warrant Agent shall not be accountable or under any duty or responsibility for the use by the Company of any of the Warrant Certificates authenticated by the Warrant Agent and delivered by it to the Company pursuant to this Agreement. The Warrant Agent shall have no duty or responsibility in case of any default by the Company in the performance of its 34 29 covenants or agreements contained in the Warrant Certificates or in the case of the receipt of any written demand from a holder of a Warrant Certificate with respect to such default, including, without limiting the generality of the foregoing, any duty or responsibility to initiate or attempt to initiate any proceedings at law or otherwise or, except as provided in Section 8.2. hereof, to make any demand upon the Company. (k) Unless otherwise specifically provided herein, any order, certificate, notice, request, direction or other communication from the Company made or given under any provision of this Agreement shall be sufficient if signed by its chairman of the Board of Directors, its president, its treasurer, its controller or any vice president or its secretary or any assistant secretary. (l) The Warrant Agent shall have no responsibility in respect of any adjustment pursuant to Article V hereof. (m) The Company agrees that it will perform, execute, acknowledge and deliver, or cause to be performed, executed, acknowledged and delivered, all such further and other acts, instruments and assurances as may reasonably be required by the Warrant Agent for the carrying out or performing by the Warrant Agent of the provisions of this Agreement. (n) The Warrant Agent is hereby authorized and directed to accept written instructions with respect to the performance of its duties hereunder from any one of the chairman of the Board of Directors, the president, the treasurer, the controller, any vice president or the secretary of the Company or any other officer or official of the Company reasonably believed to be authorized to give such instructions and to apply to such officers or officials for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with instructions with respect to any matter arising in connection with the Warrant Agent's duties and obligations arising under this Agreement. Such application by the Warrant Agent for written instructions from the Company may, at the option of the Warrant Agent, set forth in writing any action proposed to be taken or omitted by the Warrant Agent with respect to its duties or obligations under this Agreement and the date on or after which such action shall be taken and the Warrant Agent shall not be liable for any action taken or omitted in accordance with a proposal included in any such application on or after the date specified therein (which date shall be not less than 10 Business Days after the Company receives such application unless the Company consents to a shorter period), provided that (i) such application includes a statement to the effect that it is being made pursuant to this paragraph (n) and 35 30 that unless objected to prior to such date specified in the application, the Warrant Agent will not be liable for any such action or omission to the extent set forth in such paragraph (n) and (ii) prior to taking or omitting any such action, the Warrant Agent has not received written instructions objecting to such proposed action or omission. (o) Whenever in the performance of its duties under this Agreement the Warrant Agent shall deem it necessary or desirable that any fact or matter be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by any one of the chairman of the Board of Directors, the president, the treasurer, the controller, any vice president or the secretary of the Company or any other officer or official of the Company reasonably believed to be authorized to give such instructions and delivered to the Warrant Agent; and such certificate shall be full authorization to the Warrant Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate. (p) The Warrant Agent shall not be required to risk or expend its own funds in the performance of its obligations and duties hereunder. SECTION 8.3. Resignation and Appointment of Successor. (a) The Company agrees, for the benefit of the holders from time to time of the Warrant Certificates, that there shall at all times be a Warrant Agent hereunder. (b) The Warrant Agent may at any time resign as Warrant Agent by giving written notice to the Company of such intention on its part, specifying the date on which its desired resignation shall become effective, provided that such date shall be at least 90 days after the date on which such notice is given unless the Company agrees to accept less notice. Upon receiving such notice of resignation, the Company shall promptly appoint a successor Warrant Agent, qualified as provided in Section 8.3(d) hereof, by written instrument in duplicate signed on behalf of the Company, one copy of which shall be delivered to the resigning Warrant Agent and one copy to the successor Warrant Agent. As provided in Section 8.3(d) hereof, such resignation shall become effective upon the earlier of (x) the acceptance of the appointment by the successor Warrant Agent or (y) 90 days after receipt by the Company of notice of such resignation. The Company may, at any time and for any reason, and shall, upon any event set forth in the next succeeding sentence, remove the Warrant Agent and appoint a successor Warrant Agent by written instrument in duplicate, specifying such removal and the date on which it is intended to become effective, signed on behalf of the Company, one copy of which shall be delivered to the Warrant 36 31 Agent being removed and one copy to the successor Warrant Agent. The Warrant Agent shall be removed as aforesaid if it shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Warrant Agent or of its property shall be appointed, or any public officer shall take charge or control of it or of its property or affairs for the purpose of rehabilitation, conservation or liquidation. Any removal of the Warrant Agent and any appointment of a successor Warrant Agent shall become effective upon acceptance of appointment by the successor Warrant Agent as provided in Section 8.3(d). As soon as practicable after appointment of the successor Warrant Agent, the Company shall cause written notice of the change in the Warrant Agent to be given to each of the registered holders of the Warrants in the manner provided for in Section 9.3. hereof. (c) Upon resignation or removal of the Warrant Agent, if the Company shall fail to appoint a successor Warrant Agent within a period of 90 days after receipt of such notice of resignation or removal, then the holder of any Warrant Certificate or the Warrant Agent may apply to a court of competent jurisdiction for the appointment of a successor to the Warrant Agent. Pending appointment of a successor to the Warrant Agent, either by the Company or by such a court, the duties of the Warrant Agent shall be carried out by the Company. (d) Any successor Warrant Agent, whether appointed by the Company or by a court, shall be a bank or trust company in good standing, incorporated under the laws of the United States of America or any State thereof and having, at the time of its appointment, a combined capital surplus of at least $50 million. Such successor Warrant Agent shall execute and deliver to its predecessor and to the Company an instrument accepting such appointment hereunder and all the provisions of this Agreement, and thereupon such successor Warrant Agent, without any further act, deed or conveyance, shall become vested with all the rights, powers, duties and obligations of its predecessor hereunder, with like effect as if originally named as Warrant Agent hereunder, and such predecessor shall thereupon become obligated to (i) transfer and deliver, and such successor Warrant Agent shall be entitled to receive, all securities, records or other property on deposit with or held by such predecessor as Warrant Agent hereunder and (ii) upon payment of the amounts then due it pursuant to Section 8.2(a) hereof, pay over, and such successor Warrant Agent shall be entitled to receive, all monies deposited with or held by any predecessor Warrant Agent hereunder. (e) Any corporation or bank into which the Warrant Agent hereunder may be merged or converted, or any corporation or bank with which the Warrant Agent may be consolidated, or any corporation or bank resulting from any merger, conversion or consolidation to which the Warrant Agent shall be a party, or any corporation or bank to which the Warrant Agent shall sell or otherwise transfer all or substantially all of its corporate trust business, shall be the successor to the Warrant Agent under 37 32 this Agreement (provided that such corporation or bank shall be qualified as aforesaid) without the execution or filing of any document or any further act on the part of any of the parties hereto. (f) No Warrant Agent under this Warrant Agreement shall be personally liable for any action or omission of any successor Warrant Agent. ARTICLE IX MISCELLANEOUS SECTION 9.1. Amendment. This Agreement and the terms of the Warrants may be amended by the Company and the Warrant Agent, without the consent of the holder of any Warrant Certificate, for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective or inconsistent provision contained herein or therein, or to effect any assumptions of the Company's obligations hereunder and thereunder by a successor corporation under the circumstances described in Section 6.1(f) hereof or in any other manner which the Company may deem necessary or desirable and which shall not adversely affect in any material respect the interests of the holders of the Warrant Certificates. The Company and the Warrant Agent may modify this Agreement and the terms of the Warrants with the consent of not less than a majority in number of the then outstanding Warrants for the purpose of adding any provision to or changing in any manner or eliminating any of the provisions of this Agreement or modifying in any manner the rights of the holders of the outstanding Warrants; provided, however, that no such modification that decreases the Exercise Rate, reduces the period of time during which the Warrants are exercisable hereunder, otherwise materially and adversely affects the exercise rights of the holders of the Warrants, reduces the percentage required for modification, or effects any change to this Section 9.1. may be made with respect to an outstanding Warrant without the consent of the holder of such Warrant. Any modification or amendment made in accordance with this Agreement will be conclusive and binding on all present and future holders of Warrant Certificates whether or not they have consented to such modification or amendment or waiver and whether or not notation of such modification or amendment is made upon such Warrant Certificates. Any instrument given by or on behalf of any holder of a Warrant Certificate in connection with any consent to any modification or amendment will be conclusive and binding on all subsequent holders of such Warrant Certificate. SECTION 9.2. Notices and Demands to the Company and Warrant Agent. If the Warrant Agent shall receive any notice or 38 33 demand addressed to the Company by the holder of a Warrant Certificate pursuant to the provisions hereof or of the Warrant Certificates, the Warrant Agent shall promptly forward such notice or demand to the Company. SECTION 9.3. Addresses for Notices to Parties and for Transmission of Documents. All notices hereunder to the parties hereto shall be deemed to have been given when sent by certified or registered mail, postage prepaid, or by telex or telecopy, confirmed by first class mail, postage prepaid, addressed to any party hereto as follows: To the Company: PCS Development Corporation 15 South Main Street Suite 810 Greenville, South Carolina 29601 Attention: Chief Financial Officer To the Warrant Agent: United States Trust Company of New York 114 West 47th Street New York, New York 10036 Attention: or at any other address of which either of the foregoing shall have notified the other in writing. SECTION 9.4. Notices to Holders. Notices to holders of Warrants shall be mailed to such holders at the addresses of such holders as they appear in the Warrant Register. Any such notice shall be sufficiently given if sent by first-class mail, postage prepaid. SECTION 9.5. APPLICABLE LAW. THE VALIDITY, INTERPRETATION AND PERFORMANCE OF THIS AGREEMENT AND EACH WARRANT CERTIFICATE ISSUED HEREUNDER AND OF THE RESPECTIVE TERMS AND PROVISIONS THEREOF SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PROVISIONS THEREOF. SECTION 9.6. Obtaining of Governmental Approvals. The Company will from time to time take all action required to be taken by it which may be necessary to obtain and keep effective any and all permits, consents and approvals of governmental agencies and authorities and securities acts filings under United States Federal and State laws, and the rules and regulations of all stock exchanges on which the Warrants are listed which may be or become requisite in connection with the issuance, sale, transfer, and delivery of the Warrant Certificates, the exercise of the Warrants or the issuance, sale, transfer and delivery of the Warrant Shares issued upon exercise of the Warrants. 39 34 SECTION 9.7. Persons Having Rights Under Agreement. (a) Other than as specified in paragraph (b) hereof, nothing in this Agreement expressed or implied and nothing that may be inferred from any of the provisions hereof is intended, or shall be construed, to confer upon, or give to, any person or corporation other than the Company, the Warrant Agent and the holders of the Warrant Certificates any right, remedy or claim under or by reason of this Agreement or of any covenant, condition, stipulation, promise or agreement hereof; and all covenants, conditions, stipulations, promises and agreements in this Agreement contained shall be for the sole and exclusive benefit of the Company and the Warrant Agent and their successors and of the holders of the Warrant Certificates. (b) The holders of Warrant Shares shall be third party beneficiaries to the agreements made hereunder between the Company and the Warrant Agent solely with respect to Article VI hereof, and such holders shall have the right to enforce such agreements directly to the extent they deem such enforcement necessary or advisable to protect their rights or the rights of holders of Warrants hereunder. SECTION 9.8. Headings. The descriptive headings of the several Articles and Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. SECTION 9.9. Counterparts. This Agreement may be executed in any number of counterparts, each of which so executed shall be deemed to be an original; but such counterparts shall together constitute but one and the same instrument. SECTION 9.10. Inspection of Agreement. A copy of this Agreement shall be available at all reasonable times at the principal corporate trust office of the Warrant Agent, for inspection by the holder of any Warrant Certificate. The Warrant Agent may require such holder to submit his Warrant Certificate for inspection by it. 40 35 IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto as of the day and year first above written. PCS DEVELOPMENT CORPORATION By: ----------------------------------- Name: Title: UNITED STATES TRUST COMPANY OF NEW YORK, as Warrant Agent By: ----------------------------------- Name: Title: 41 EXHIBIT A [FORM OF WARRANT CERTIFICATE] [FACE] THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A CLASS B COMMON STOCK AND WARRANT REGISTRATION RIGHTS AGREEMENT DATED AS OF __________, 1996 AMONG PCS DEVELOPMENT CORPORATION (THE "COMPANY") AND LEHMAN BROTHERS INC., ON BEHALF OF ITSELF AND DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION, CHASE SECURITIES INC. AND TORONTO DOMINION SECURITIES (USA) INC. (THE "UNDERWRITERS"), A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. THE EXERCISE OF THE WARRANTS (AND THE OWNERSHIP OF CLASS B COMMON STOCK ISSUABLE UPON THE EXERCISE THEREOF) MAY BE LIMITED BY THE COMPANY IN ORDER TO ENSURE COMPLIANCE WITH THE RULES AND REGULATIONS OF THE FEDERAL COMMUNICATIONS COMMISSION (THE "FCC"), AND THE WARRANTS WILL NOT BE EXERCISABLE BY ANY HOLDER IF SUCH EXERCISE WOULD CAUSE THE COMPANY TO BE IN VIOLATION OF THE COMMUNICATIONS ACT OR THE FCC'S RULES, REGULATIONS OR POLICIES. A-1 42 CUSIP #_____________ No.____________ __________ Warrants WARRANT CERTIFICATE PCS DEVELOPMENT CORPORATION This Warrant Certificate certifies that [CEDE & CO.] or registered assigns, is the registered holder of Warrants (the "Warrants") to purchase shares of Class B Common Stock, par value $1.00 per share (the "the Class B Common Stock"), of PCS DEVELOPMENT CORPORATION, a Delaware corporation (the "Company"). Each Warrant entitles the holder to purchase from the Company at any time from 9:00 a.m. on or after the date of occurrence of an Exercise Event, or if the Exercise Event occurs prior to the Separability Date, the Separability Date, until 5:00 p.m., New York City time, on the earlier to occur of (a) 180 days after an Exercise Event or (b) , 2006 (the "Expiration Date"), ____ fully paid and non-assessable shares of Class B Common Stock (as adjusted, the "Warrant Shares", which may also include any other securities or property purchasable upon exercise of a Warrant, such adjustment and inclusion each as provided in the Warrant Agreement) at the exercise price (the "Exercise Price") of $0.01 per Warrant upon surrender of this Warrant Certificate and payment of the Exercise Price at any office or agency maintained for that purpose by the Company (the "Warrant Agent Office"), subject to the conditions set forth herein and in the Warrant Agreement. "Exercise Event" means, with respect to each Warrant as to which such event is applicable, the date of the earliest of: (1) the occurrence of a Change of Control, (2) the consummation of a Public Equity Offering after which there shall exist a Public Market, and (3) , 2006. "Separability Date" shall mean the earliest to occur of: (i) , 1996, (ii) such earlier date as may be determined by Lehman Brothers Inc. and specified to the Company, the Trustee, the Warrant Agent and the Unit Agent in writing, (iii) the occurrence of a Change of Control and (iv) in the event of an Offer to Purchase in connection with any Asset Sale (each as defined in the Indenture), the date the Company mails notice thereof to holders of the Notes, at which time the Notes and Warrants will become separately transferrable. The Exercise Price shall be payable either (i) in cash or by certified check or official bank check or by such other means as is acceptable to the Company in the lawful currency of the United States of America which as of the time of payment is legal tender for payment of public or private debts or (ii) in accordance with the next succeeding sentence, in each case to be delivered to the office or agency where the Warrant Certificate is being surrendered. Each holder may also exercise its right to receive Warrant Shares on a net basis, such that, without the A-2 43 exchange of any funds, the holder receives that number of Warrant Shares otherwise issuable upon exercise of the Warrants less that number of Warrant Shares having a value equal to the aggregate Exercise Price that would otherwise have been paid by the Holder of the Warrant Shares. The Company reserves the right at any time and from time to time to waive the payment of the Exercise Price upon the exercise of the Warrants. The Company has initially designated the corporate trust office of the Warrant Agent in the Borough of Manhattan, The City of New York, as the initial Warrant Agent Office. The number and kind of Warrant Shares issuable upon exercise of the Warrants ("Exercise Rate") is subject to adjustment upon the occurrence of certain events set forth in the Warrant Agreement. Any Warrants not exercised on or prior to 5:00 p.m., New York City time, on ____________, 2006 shall thereafter be void. Reference is hereby made to the further provisions on the reverse hereof which provisions shall for all purposes have the same effect as though fully set forth at this place. This Warrant Certificate shall not be valid unless authenticated by the Warrant Agent, as such term is used in the Warrant Agreement. THIS WARRANT CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PROVISIONS THEREOF. WITNESS the facsimile seal of the Company and facsimile signatures of its duly authorized officers. Dated: PCS DEVELOPMENT CORPORATION By: ---------------------------------- Name: Title: Attest: By: ------------------------------------ Name: Title: Certificate of Authentication: This is one of the Warrants referred to in the within mentioned Warrant Agreement: UNITED STATES TRUST COMPANY OF NEW YORK, as Warrant Agent By: ------------------------------------ Authorized Signatory A-3 44 [FORM OF WARRANT CERTIFICATE] [REVERSE] PCS DEVELOPMENT CORPORATION The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Warrants expiring at 5:00 p.m., New York City time, on the earlier to occur of (a) 180 days after an Exercise Event which causes such Warrants to become exercisable or (b) the Expiration Date, each of which represents the right to purchase from the Company at any time on or after the Exercisability Date (as defined in the Warrant Agreement) one share of Class B Common Stock of the Company, subject to adjustment as set forth in the Warrant Agreement. The Warrants are issued pursuant to a Warrant Agreement dated as of _______, 1996 (the "Warrant Agreement"), duly executed and delivered by the Company and UNITED STATES TRUST COMPANY OF NEW YORK, a New York corporation not in its individual capacity but solely as Warrant Agent (the "Warrant Agent"), which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Warrant Agent, the Company and the holders (the words "holders" or "holder" meaning the registered holders or registered holder) of the Warrants. If all of the items required for exercise of this Warrant are received by the Warrant Agent at or prior to 2:00 p.m., New York City time, on a Business Day, the exercise of the Warrant to which such items relate will be effective on such Business Day. If any such items are received after 2:00 p.m., New York City time, on a Business Day, the exercise of the Warrants to which such item relates will be deemed to be effective on the next succeeding Business Day. Notwithstanding the foregoing, in the case of an exercise of Warrants on ______, 2006, if all of the items required for exercise of this Warrant are received by the Warrant Agent at or prior to 5:00 p.m., New York City time, on such Expiration Date, the exercise of the Warrants to which such items relate will be effective on the Expiration Date. As soon as practicable after the exercise of any Warrant or Warrants, the Company shall issue or cause to be issued to or upon the written order of the registered holder of this Warrant Certificate, a certificate or certificates evidencing the Warrant Shares to which such holder is entitled, in fully registered form, registered in such name or names as may be directed by such holder pursuant to the Election to Exercise, as set forth on the reverse of this Warrant Certificate. Such certificate or certificates evidencing the Warrant Shares shall be deemed to have been issued and any persons who are designated to be named therein shall be deemed to have become the holder of record of such Warrant Shares as of the close of business on the A-1 45 date upon which the exercise of this Warrant was deemed to be effective as provided in the preceding paragraph. The Company will not be required to issue fractional shares of Class B Common Stock upon exercise of the Warrants or distribute certificates that evidence fractional shares of Class B Common Stock. In lieu of fractional shares of Class B Common Stock, there shall be paid to the registered holder of this Warrant Certificate at the time such Warrant Certificate is exercised an amount in cash equal to the same fraction of the Current Market Value (as defined in the Warrant Agreement) per share on the Business Day preceding the date this Warrant Certificate is surrendered for exercise. Warrant Certificates, when surrendered at any office or agency maintained by the Company for that purpose by the registered holder thereof in person or by legal representative or attorney duly authorized in writing, may be exchanged for a new Warrant Certificate or new Warrant Certificates evidencing in the aggregate a like number of Warrants, in the manner and subject to the limitations provided in the Warrant Agreement, without charge except for any tax or other governmental charge imposed in connection therewith. Upon due presentment for registration of transfer of this Warrant Certificate at any office or agency maintained by the Company for that purpose, a new Warrant Certificate evidencing in the aggregate a like number of Warrants shall be issued to the transferee in exchange for this Warrant Certificate, subject to the limitations provided in the Warrant Agreement, without charge except for any tax or other governmental charge imposed in connection therewith. The Company and the Warrant Agent may deem and treat the registered holder hereof as the absolute owner of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone) for the purpose of any exercise hereof and for all other purposes, and neither the Company nor the Warrant Agent shall be affected by any notice to the contrary. Upon the occurrence of an Exercise Event, the Company shall have the right to make an offer to purchase all outstanding Warrants and Warrant Shares in cash, within 120 days after such Exercise Event, at a price equal to the Current Market Value thereof. The offers to purchase set forth in this and the preceding paragraph will be made in the manner and upon the terms set forth in the Warrant Agreement. The Warrant Agreement provides that (i) subject to certain exceptions upon the issuance of any dividend or distribution pro rata to all holders of Common Stock, the holders will be entitled to such dividend or distribution on the terms set forth in the Warrant Agreement and (ii) upon the occurrence of certain events the number of Warrant Shares of Class B Common A-2 46 Stock issuable upon the exercise of each Warrant shall be adjusted. The term "Business Day" shall mean any day on which (i) banks in New York City, (ii) the principal national securities exchange or market, if any, on which the Common Stock is listed or admitted to trading and (iii) the principal national securities exchange or market, if any, on which the Warrants are listed or admitted to trading are open for business. A-3 47 (FORM OF ELECTION TO EXERCISE) (To be executed upon exercise of Warrants on the Exercise Date) The undersigned hereby irrevocably elects to exercise _______ of the Warrants represented by this Warrant Certificate and purchase the whole number of Warrant Shares issuable upon the exercise of such Warrants and (unless the payment of the Exercise Price has been waived by the Company) herewith tenders payment for such Warrant Shares either (x) in the amount of $________ in cash or by certified or official bank check or (y) in the case of payment by surrendering unexercised Warrants, by surrendering Warrant Shares having a value equal to $_________, in each case in accordance with the terms hereof. The undersigned requests that (1) a certificate representing such Warrant Shares be registered in the name of ________________ whose address is ___________________ and that such certificate be delivered to __________________ whose address is _________________ and (2) a Warrant Certificate representing any remaining Warrants not exercised be registered in the name of _______________ whose address is and that such certificate be delivered to ________ whose address is ____________ Any cash payments to be paid in lieu of a fractional Share should be made to ____________ whose address is ___________________ and the check representing payment thereof should be delivered to _________________ whose address is _______________________. Dated _____________, ____ Name of holder of Warrant Certificate: ___________________________________________________________ (Please Print) Tax Identification or Social Security Number: ________________________________________________________ Address:________________________________________________________________________ ________________________________________________________________________ Signature: _____________________________________________________________________ Note: The above signature must correspond with the name as written upon the face of this Warrant Certificate in every particular, without alteration or enlargement or any change whatever and if the certificate representing the Warrant Shares or any Warrant Certificate representing Warrants not exercised is to be registered in a name other than that in which this Warrant Certificate is registered, or if any cash payment to be paid in lieu of a A-1 48 fractional share is to be made to a person other than the registered holder of this Warrant Certificate, the signature of the holder hereof must be guaranteed as provided in the Warrant Agreement. Dated ____________, ____ Signature Guaranteed: _________________________________________ A-2 49 (FORM OF ASSIGNMENT) For value received ___________________ hereby sells, assigns and transfers unto _______________________ the within Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint _________________________ attorney, to transfer said Warrant Certificate on the books of the within-named Company, with full power of substitution in the premises. Dated ______________, ____ Signature: ____________________________________________________ Note: The above signature must correspond with the name as written upon the face of this Warrant Certificate in every particular, without alteration or enlargement or any change whatever or the signature of the holder thereof must be guaranteed as provided in the Warrant Agreement. Signature Guaranteed: _________________________________________ A-1 50 [FORM OF OPTION OF HOLDER TO ELECT PURCHASE] If you want to elect to have this Warrant purchased by the Company pursuant to Section 7.1. of the Warrant Agreement, check the box below: [ ] If you want to elect to have only part of this Warrant purchased by the Company pursuant to Section 7.1. of the Warrant Agreement, state the amount: Number of Warrants: __________________________________ Date: _______________________ Signature: ___________________________________________ The above signature must correspond with the name as written upon the face of this Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever or the signature of the holder thereof must be guaranteed as provided in the Warrant Agreement Signature Guarantee: ___________________________________________________________ A-1 51 SCHEDULE OF EXCHANGES OF CERTIFICATED WARRANTS(2) The following exchanges of a part of this Global Warrant for certificated Warrants have been made:
Number of Warrants Decrease in Number Increase in Number of this Global of Warrants of of Warrants of Warrant following Signature of this Global this Global such decrease (or authorized officer Date of Exchange Warrant Warrant increase) of Warrant Agent - ----------------------------------------------------------------------------------------------------------
- ---------------------------------- 2 This is to be included only if the Warrant is in global form. A-1 52 EXHIBIT B FORM OF LEGEND FOR GLOBAL WARRANT Any Global Warrant authenticated and delivered hereunder shall bear a legend (which would be in addition to any other legends required in the case of a Warrant Certificate) in substantially the following form: THIS SECURITY IS A GLOBAL WARRANT WITHIN THE MEANING OF THE WARRANT AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE WARRANT AGREEMENT, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE WARRANT AGREEMENT. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR WARRANTS IN CERTIFICATED FORM, UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. EX-4.12 6 CLASS B COMMON STOCK AND WARRANT RIGHTS AGREEMENT 1 EXHIBIT 4.12 ================================================================================ CLASS B COMMON STOCK AND WARRANT REGISTRATION RIGHTS AGREEMENT Dated as of ________ __, 1996 Among PCS DEVELOPMENT CORPORATION as Issuer, and LEHMAN BROTHERS INC. on behalf of itself and DONALDSON LUFKIN & JENRETTE SECURITIES CORPORATION CHASE SECURITIES INC. and TORONTO DOMINION SECURITIES (USA) INC. as Underwriters ================================================================================ 2 TABLE OF CONTENTS
Page ---- 1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3. Piggy-Back Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 4. Limitations, Conditions and Qualifications to Obligations Under Registration Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 5. Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 6. Registration Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 7. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 8. Restrictions on Sale by the Company and Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 9. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 (a) No Inconsistent Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 (b) Adjustments Affecting Registrable Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 (c) Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 (d) Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 (e) Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 (f) Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 (g) Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 (h) Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 (i) Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 (j) Securities Held by the Company or its Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 (k) Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 (l) Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
- i - 3 CLASS B COMMON STOCK AND WARRANT REGISTRATION RIGHTS AGREEMENT This Class B Common Stock and Warrant Registration Rights Agreement (the "Agreement") is dated as of ________ __, 1996, among PCS Development Corporation, a Delaware corporation (the "Company"), and Lehman Brothers Inc., on behalf of itself and Donaldson, Lufkin & Jenrette Securities Corporation, Chase Securities Inc. and Toronto Dominion Securities (USA) Inc. (the "Underwriters"). This Agreement is entered into in connection with the Underwriting Agreement, dated ________ __, 1996, among the Company and Lehman Brothers Inc. on behalf of the Underwriters (the "Underwriting Agreement"), which provides for the sale by the Company to the Underwriters of ________ units (the "Units") consisting of $___________ aggregate principal amount of the Company's ____% Senior Discount Notes due 2006 and an aggregate of ________ Warrants each to purchase one share of the Company's Class B common stock, par value $1.00 per share (the "Class B Common Stock"). In order to induce the Underwriters to enter into the Underwriting Agreement, the Company has agreed to provide the registration rights set forth in this Agreement for the benefit of the Underwriters and their direct and indirect transferees and assigns. The execution and delivery of this Agreement is a condition to the Underwriters' obligation to purchase the Units pursuant to the Underwriting Agreement. The parties hereby agree as follows: 1. Definitions As used in this Agreement, the following terms shall have the following meanings: Advice: See Section 5 hereof. Affiliate: When used with reference to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, the referent Person or such other Person, as the case may be. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct or cause the direction of management or 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 of the foregoing. Agreement: See the introductory paragraphs hereto. Class B Common Stock: See the introductory paragraphs hereto. 4 2 Company: See the introductory paragraphs hereto. Current Market Value: Current Market Value as defined in the Warrant Agreement. Demand Registration: See Section 2(a) hereof. Exchange Act: The Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. Exercise Event: Exercise Event as defined in the Warrant Agreement. Holder: Each of the Underwriters, for so long as it owns any Warrants and/or Warrant Shares, and each of its successors, assigns and direct or indirect transferees who become registered owners of such Warrants or Warrant Shares. Included Securities: See Section 2(a) hereof. Indemnified Person: See Section 7(c) hereof. Indemnifying Person: See Section 7(c) hereof. Independent Financial Expert: Independent Financial Expert as defined in the Warrant Agreement. Inspectors: See Section 5(n) hereof. NASD: The National Association of Securities Dealers, Inc. Participant: See Section 7(a) hereof. Person: An individual, trustee, corporation, partnership, joint stock company, trust, unincorporated association, union, business association, firm or other legal entity. Piggy-Back Registration: See Section 3(a) hereof. Prospectus: The prospectus included in any Registration Statement (including, without limitation, any prospectus subject to completion and a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. 5 3 Purchase Date: See Section 2(b) hereof. Records: See Section 5(n) hereof. Registrable Securities: Each Warrant Share and any other securities issued or issuable with respect to any Registrable Securities by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise until the earliest to occur of (i) a Registration Statement covering such Warrant Share (and other securities, if any) has been declared effective by the SEC and such Warrant Share (and other securities, if any) has been sold, transferred or disposed of in accordance with such Registration Statement, (ii) such Warrant Shares shall have ceased to be outstanding or (iii) such Warrant Shares shall have been distributed to the public under Rule 144. Registration Statement: Any registration statement or an appropriate form of the Company filed with the SEC pursuant to the Securities Act which covers any of the Registrable Securities pursuant to the provisions of this Agreement and all amendments and supplements to any such Registration Statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. Requisite Securities: A number of Registrable Securities equal to not less than 25% of the then-outstanding Registrable Securities held in the aggregate by all Holders. Rule 144: Rule 144 promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144A) or regulation hereafter adopted by the SEC providing for offers and sales of securities made in compliance therewith resulting in offers and sales by subsequent holders that are not affiliates of an issuer of such securities being free of the registration and prospectus delivery requirements of the Securities Act. Rule 415: Rule 415 promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. SEC: The Securities and Exchange Commission. Securities Act: The Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. 6 4 Selling Holder: A Holder who is selling Registrable Securities in accordance with the provisions of Section 2 or 3 hereof. Underwritten Registration or Underwritten Offering: A registration in which securities of the Company are sold to an underwriter for resale to the public. Underwriters: See the introductory paragraphs hereto. Underwriting Agreement: See the introductory paragraphs hereto. Units: See the introductory paragraphs hereto. Warrant Agreement: The Warrant Agreement, dated as of ________ __, 1996, between the Company and United States Trust Company of New York as warrant agent, as amended or supplemented from time to time in accordance with the terms thereof, pursuant to which the Warrants are being issued. Warrant Shares: The shares of Class B Common Stock deliverable upon exercise of the Warrants. Warrants: See the introductory paragraphs hereto. Withdrawal Election: See Section 3 hereof. 2. Registration Rights (a) At any time from and after the occurrence of an Exercise Event, Holders owning, individually or in the aggregate, not less than the Requisite Securities may make a written request for registration under the Securities Act of their Registrable Securities (a "Demand Registration"). Within 120 days of the receipt of such written request for a Demand Registration, the Company shall file with the SEC and use its best efforts to cause to become effective under the Securities Act one Registration Statement with respect to such Registrable Securities, unless, in the opinion of counsel to the Company as further described in, and subject to the provisions of, Section 4(b) below, an exemption from the registration requirements of the Securities Act is then available for the sale and subsequent resale by any Person who is not an Affiliate of the Company of the Warrant Shares. Any such request will specify the number of Registrable Securities proposed to be sold and will also specify the intended method of disposition thereof. The Company shall give written notice of such registration request to all other Holders of Registrable Securities within 15 days after the receipt thereof. Within 20 days after receipt by any Holder of Registrable Securities of such notice from the Company, such Holder may request in writing that such Holder's Registrable Securities be included in such Registration Statement and the Company shall include in such Registration Statement the Registrable Securities 7 5 of any such Holder requested to be so included (the "Included Securities"). Each such request by such other Holders shall specify the number of Included Securities proposed to be sold and the intended method of disposition thereof. Subject to paragraphs (b) and (c) hereof, the Company shall be required to register Registrable Securities pursuant to this paragraph (a) on only one occasion. Subject to paragraph (e) hereof, no other securities of the Company except securities held by any Holder or any of their respective Permitted Transferees and any Person entitled to exercise "piggy-back" registration rights pursuant to contractual commitments of the Company shall be included in a Demand Registration. (b) Notwithstanding the foregoing provisions of paragraph 2(a) hereof, the Company shall not be obligated to effect a Demand Registration if the Company offers to purchase all of the Registrable Securities on a date (the "Purchase Date") not more than 90 days after the receipt of the written request for a Demand Registration at a price equal to the Current Market Value of such Registrable Securities. If the Company elects to make an offer to purchase under this paragraph 2(b), it shall mail a notice to all Holders, by first class mail, not less than 30 nor more than 60 days before the Purchase Date, at their addresses set forth on the records of the registrar. The notice will contain all instructions and materials necessary to enable such Holders to tender their Registrable Securities including: (i) that the offer is being made pursuant to this paragraph 2(b); (ii) the identity of the Independent Financial Expert; (iii) the Current Market Value of a Registrable Security; (iv) the Purchase Date (which shall be at least 20 Business Days from the date of mailing such notice or such longer period as may be required by law); (v) that Holders electing to have Registrable Securities purchased will be required to surrender their certificates representing such Registrable Securities, together with a letter of transmittal duly completed, to the Company at the address set forth in the notice, no later than the close of business on the Business Day prior to the Purchase Date; (vi) that Holders will be entitled to withdraw their election if the Company receives, prior to the purchase date, a telegram, telex or facsimile transmission not later 8 6 than 5 Business Days prior to the Purchase Date setting forth the name of the Holder, the number of Registrable Securities delivered for purchase and a statement that such Holder is withdrawing its election to have his Registrable Securities purchased; and (vii) that Holders whose Registrable Securities are purchased in part will be issued new Registrable Securities in number equal to the unpurchased portion of the Registrable Securities surrendered. On the Purchase Date, the Company will accept all Registrable Securities surrendered, pay to the Holders thereof the Current Market Value of such Registrable Securities surrendered by them for purchase and issue and authenticate certificates for the Registrable Securities not so purchased. The Company shall comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the purchase set forth in this paragraph 2(b). Upon payment for all Registrable Securities tendered pursuant to this paragraph 2(b), the Company shall be deemed to have effected the one Demand Registration for purposes of Section 2(a). (c) A Registration Statement will not be deemed to have been effected as a Demand Registration unless it has been declared effective by the SEC and the Company has complied in a timely manner and in all material respects with all of its obligations under this Agreement with respect thereto; provided, however, that if, after such Registration Statement has become effective, the offering of Registrable Securities pursuant to such Registration Statement is or becomes the subject of any stop order, injunction or other order or requirement of the SEC or any other governmental or administrative agency or court that prevents, restrains or otherwise limits the sale of Registrable Securities pursuant to such Registration Statement for any reason not attributable to any Holder participating in such registration and such Registration Statement has not become effective within a reasonable time period thereafter (not to exceed 30 days), such Registration Statement will be deemed not to have been effected for purposes of Section 2(a). The Company shall use its best efforts to keep such Demand Registration effective under the Securities Act until at least the earlier of (A) an aggregate of 150 days after the effective date thereof or (B) the consummation of the distribution by the Holders of all of the Registrable Securities covered thereby. For purposes of calculating the 150-day period referred to in the preceding sentence, any period of time during which such Registration Statement was not effective shall be excluded. The Holders of Registrable Securities shall be permitted to withdraw all or any part of the Registrable Securities from a Demand Registration at any time prior to the effective date of such Demand Registration. 9 7 (d) Each Holder of Registrable Securities whose Registrable Securities are covered by a Registration Statement filed pursuant to this Section 2 and are to be sold thereunder agrees, if and to the extent requested by the managing underwriter or underwriters in an underwritten offering, not to effect any public sale or distribution of Registrable Securities or of securities of the Company of the same class as any securities included in such Registration Statement (except as part of such underwritten offering), during the 30-day period prior to, and during the 180-day period (or such shorter period as may be required by such managing underwriter or underwriter(s)) beginning on, the commencement of each underwritten offering made pursuant to such Registration Statement, to the extent timely notified in writing by the Company or such managing underwriter or underwriters. The foregoing provisions of this paragraph (d) shall not apply to any Holder of Registrable Securities if such Holder is prevented by applicable statute or regulation from entering into any such agreement; provided, however, that any such Holder shall undertake, in its request to participate in any such underwritten offering, not to effect any public sale or distribution of any Registrable Securities commencing on the date of sale of such Registrable Securities unless it has provided 45 days' prior written notice of such sale or distribution to the underwriter or underwriters. (e) If any of the Registrable Securities covered by a Demand Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will manage the offering will be selected by the Company and will be reasonably acceptable to the Holders of the Requisite Securities to be sold thereunder. No Holder of Registrable Securities may participate in any underwritten registration pursuant to a Registration Statement filed under this Agreement unless such Holder (i) agrees to (A) sell such Holder's Registrable Securities on the basis provided in and in compliance with any underwriting arrangements approved by the Company and the Holders of not less than a majority of the Registrable Securities to be sold thereunder and (B) comply with Rules 10b-6 and 10b-7 under the Exchange Act and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. (f) In a registration pursuant to this Section 2 involving an underwritten offering, if the managing underwriter or underwriters of such underwritten offering have informed, in writing, the Company and the Selling Holders who have requested such Demand Registration or who have sought inclusion therein that in such underwriter's or underwriters' opinion the total number of securities which the Selling Holders and any other 10 8 Person desiring to participate in such registration intend to include in such offering is such as to adversely affect the success of such offering, including the price at which such securities can be sold, then the Company will be required to include in such registration only the number of securities which it is so advised should be included in such registration. In such event, securities shall be registered in such registration in the following order of priority: (i) first, the securities which have been requested to be included in such registration by the Holders of Registrable Securities pursuant to this Agreement (pro rata based on the amount of securities sought to be registered by such Persons) and (ii) second, provided that no securities sought to be included by the Holders have been excluded from such registration, the securities of other Persons entitled to exercise "piggy-back" registration rights pursuant to contractual commitments of the Company (pro rata based on the amount of securities sought to be registered by such Persons). 3. Piggy-Back Registration (a) If at any time the Company proposes to file a Registration Statement under the Securities Act with respect to an offering by the Company for its own account or for the account of any of its securityholders of any class of its common equity securities (other than a Registration Statement on Form S-4 or S-8 (or any substitute form that may be adopted by the SEC)), then the Company shall give written notice of such proposed filing to the Holders of Registrable Securities as soon as practicable (but in no event fewer than 20 days before the anticipated filing date), and such notice shall offer such Holders the opportunity to register such number of Registrable Securities as each such Holder may request in writing within 20 days after receipt of such written notice from the Company (which request shall specify the Registrable Securities intended to be disposed of by such Selling Holder and the intended method of distribution thereof) (a "Piggy-Back Registration"), unless, in the opinion of counsel to the Company as further described in, and subject to the provisions of, Section 4(b) below, an exemption from the registration requirements of the Securities Act is then available for the sale and subsequent resale by any Person who is not an Affiliate of the Company of the Warrant Shares. The Company shall use its best efforts to keep such Piggy-Back Registration continuously effective under the Securities Act until at least the earlier of (i) 150 days after the effective date thereof or (ii) the consummation of the distribution by the Holders of all of the Registrable Securities covered thereby. The Company shall use its best efforts to cause the managing underwriter or underwriters, if any, of such proposed offering to permit the Registrable Securities requested to be included in a Piggy-Back Registration to be included on the same terms and conditions as any similar securities of the Company or any other securityholder included therein and to permit the sale or other disposition of such Registrable Securities in accordance with the intended method of distribution thereof. Any Selling Holder shall have 11 9 the right to withdraw its request for inclusion of its Registrable Securities in any Registration Statement pursuant to this Section 3 by giving written notice to the Company of its request to withdraw. The Company may withdraw a Piggy- Back Registration at any time prior to the time it becomes effective or the Company may elect to delay the registration; provided, however, that the Company shall give prompt written notice thereof to participating Selling Holders. No registration effected under this Section 3, and no failure to effect a registration under this Section 3, shall relieve the Company of its obligation to effect a registration upon the request of Holders of Registrable Securities pursuant to Section 2 hereof, and no failure to effect a registration under this Section 3 and to complete the sale of securities registered thereunder in connection therewith shall relieve the Company of any other obligation under this Agreement. (b) In a registration pursuant to this Section 3 involving an underwritten offering, if the managing underwriter or underwriters of such underwritten offering have informed, in writing, the Company and the Selling Holders requesting inclusion in such offering that in such underwriter's or underwriters' opinion the total number of securities which the Company, the Selling Holders and any other Persons desiring to participate in such registration intend to include in such offering is such as to adversely affect the success of such offering, including the price at which such securities can be sold, then the Company will be required to include in such registration only the amount of securities which it is so advised should be included in such registration. In such event: (i) in cases initially involving the registration for sale of securities for the Company's own account, securities shall be registered in such offering in the following order of priority: (A) first, the securities which the Company proposes to register, and (B) second, the securities which have been requested to be included in such registration by the Holders of Registrable Securities pursuant to this Agreement, plus the securities of other Persons entitled to exercise "piggy-back" registration rights pursuant to contractual commitments of the Company (pro rata based on the amount of securities sought to be registered by such Persons) and (ii) in cases not initially involving the registration for sale of securities for the Company's own account, securities shall be registered in such offering in the following order of priority: (A) first, the securities of any Person whose exercise of a "demand" registration right pursuant to a contractual commitment of the Company is the basis for the registration (provided that if such Person is a Holder of Registrable Securities, as among Holders of Registrable Securities the priority shall be determined under paragraph 2(f) hereof), and (B) second, the securities which have been requested to be included in such registration by the Holders of Registrable Securities pursuant to this Agreement, plus the securities of other Persons entitled to exercise "piggy-back" registration rights pursuant to contractual commitments of the 12 10 Company (pro rata based on the amount of securities sought to be registered by such Persons) and (C) third, the securities which the Company proposes to register. If, as a result of the provisions of this paragraph (b), any Selling Holder shall not be entitled to include all Registrable Securities in a Piggy-Back Registration that such Selling Holder has requested to be included, such Selling Holder may elect to withdraw its request to include Registrable Securities in such registration (a "Withdrawal Election"); provided, however, that a Withdrawal Election shall be irrevocable. 4. Limitations, Conditions and Qualifications to Obligations Under Registration Covenants The obligations of the Company set forth in Sections 2 and 3 hereof are subject to each of the following limitations, conditions and qualifications: (a) Subject to the next sentence of this paragraph, the Company shall be entitled to postpone, for a reasonable period of time, the filing or effectiveness of, or suspend the rights of any Holders to make sales pursuant to, any Registration Statement otherwise required to be prepared, filed and made and kept effective by it hereunder; provided, however, that the duration of such postponement or suspension may not exceed the earlier to occur of (i) 15 days after the cessation of the circumstances described in the next sentence of this paragraph on which such postponement or suspension is based or (ii) 120 days after the date of the determination of the board of directors referred to in the next sentence, and the duration of such postponement or suspension shall be excluded from the calculation of the 150-day period described in Section 2(b) hereof. Such postponement or suspension may only be effected if the board of directors of the Company determines in good faith that the filing or effectiveness of, or sales pursuant to, such Registration Statement would materially impede, delay or interfere with any financing, offer or sale of securities, acquisition, corporate reorganization or other significant transaction involving the Company or any of its Affiliates or require disclosure of material non-public information which the Company has a bona fide business purpose for preserving as confidential or such postponement or suspension is as a result of the Selling Holders failure to comply with paragraph (c) hereof. If the Company shall so postpone the filing of a Registration Statement it shall, as promptly as possible, notify any Selling Holders of such determination, and the Selling Holders shall (i) have the right, in the case of a postponement of the filing or effectiveness of a Registration Statement, upon the affirmative vote of the Holders of not less than a majority of the Registrable 13 11 Securities to be included in such Registration Statement, to withdraw the request for registration by giving written notice to the Company within 10 days after receipt of such notice or (ii) in the case of a suspension of the right to make sales, receive an extension of the registration period equal to the number of days of the suspension. Any Demand Registration as to which the withdrawal election referred to in the preceding sentence has been effected shall not be counted as the one Demand Registration the Company is required to effect pursuant to Section 2(a) hereof. (b) The Company shall not be required by this Agreement to register securities in a Registration Statement pursuant to Section 2 or 3 hereof if (i) in the written opinion of counsel to the Company, addressed to the Holders and delivered to them, the Holders of such securities seeking registration (other than Holders who are Affiliates of the Company) would be free to sell, and the transferees of such Holders would be free to resell all such securities without registration under the Securities Act (without reliance on Rule 144 under the Securities Act) and (ii) all requirements, under the Securities Act for effecting such sales and resales are satisfied at such time; provided that, notwithstanding the above, the Company shall be required to register such securities in a Registration Statement pursuant to Section 2 or 3 hereof if (x) the Company has breached its obligation under Section 7.3 of the Warrant Agreement or (y) a Person who is an Affiliate of the Company solely by reason of holding Warrant Shares desires to sell not less than the Requisite Securities, in the case of a registration pursuant to Section 2, or any number of Warrant Shares, in the case of a registration pursuant to Section 3. (c) The Company's obligations shall be subject to the obligations of the Selling Holders, which the Selling Holders acknowledge, to furnish all information and materials and to take any and all actions as may be required under applicable federal and state securities laws and regulations to permit the Company to comply with all applicable requirements of the SEC and to obtain any acceleration of the effective date of such Registration Statement. (d) The Company shall not be obligated to cause any special audit to be undertaken in connection with any registration pursuant to this Agreement unless such audit is requested by the underwriters with respect to such registration. 5. Registration Procedures In connection with the filing of any Registration Statement pursuant to Section 2 or 3 hereof, the Company shall effect such registrations to permit the sale of the securities 14 12 covered thereby in accordance with the intended method or methods of disposition thereof, and pursuant thereto and in connection with any Registration Statement filed by the Company hereunder the Company shall: (a) Prepare and file with the SEC as soon as practicable but in no event after the dates required hereunder, a Registration Statement or Registration Statements as prescribed by Section 2 or 3 hereof, and use its best efforts to cause each such Registration Statement to become effective and remain effective as provided herein; provided, however, that, before filing any Registration Statement or Prospectus or any amendments or supplements thereto, the Company shall furnish to and afford the Holders of the Registrable Securities covered by such Registration Statement, their counsel and the managing underwriters, if any, a reasonable opportunity to review copies of all such documents (including copies of any documents to be incorporated by reference therein and all exhibits thereto) proposed to be filed (in each case at least five business days prior to such filing). The Company shall not file any Registration Statement or Prospectus or any amendments or supplements thereto if the Holders of a majority of the Registrable Securities covered by such Registration Statement, their counsel or the managing underwriters, if any, shall reasonably object. (b) Prepare and file with the SEC such amendments and post-effective amendments to each Registration Statement as may be necessary to keep such Registration Statement continuously effective for the time periods prescribed hereby; cause the related Prospectus to be supplemented by any prospectus supplement required by applicable law, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) promulgated under the Securities Act; and comply with the provisions of the Securities Act and the Exchange Act applicable to it with respect to the disposition of all securities covered by such Registration Statement as so amended or in such Prospectus as so supplemented. The Company shall be deemed not to have used its best efforts to keep a Registration Statement effective during the time periods prescribed hereby if it voluntarily takes any action that would result in selling Holders of the Registrable Securities covered thereby not being able to sell such Registrable Securities during such periods unless such action is required by applicable law or unless the Company complies with this Agreement, including, without limitation, the provisions of Section 5(k) hereof and the last paragraph of this Section 5. (c) Notify the Selling Holders, their counsel and the managing underwriters, if any, promptly (but in any event within two business days), and confirm such notice in writing, (i) when a Prospectus or any prospectus supplement 15 13 or post-effective amendment has been filed, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective under the Securities Act (including in such notice a written statement that any Holder may, upon request, obtain, at the sole expense of the Company, one conformed copy of such Registration Statement or post-effective amendment including financial statements and schedules, documents incorporated or deemed to be incorporated by reference and exhibits), (ii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of any preliminary prospectus or the initiation of any proceedings for that purpose, (iii) if at any time when a prospectus is required by the Securities Act to be delivered in connection with sales of the Registrable Securities the representations and warranties of the Company contained in any agreement (including any underwriting agreement) contemplated by Section 5(m) hereof cease to be true and correct, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of a Registration Statement or any of the Registrable Securities for offer or sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose, (v) of the happening of any event, the existence of any condition or any information becoming known that makes any statement made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in or amendments or supplements to such Registration Statement, Prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (vi) of the Company's determination that a post-effective amendment to a Registration Statement would be appropriate. (d) Use its reasonable efforts to prevent the issuance of any order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of a Prospectus or suspending the qualification (or exemption from qualification) of any of the Registrable Securities, for sale in any jurisdiction, and, if any such order is issued, to use its reasonable efforts to obtain the withdrawal of any such order at the earliest possible moment. 16 14 (e) If requested by the managing underwriter or underwriters (if any), or the Holders of a majority of the Registrable Securities being sold in connection with an underwritten offering, (i) promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or underwriters (if any), such Holders or counsel for any of them determine is reasonably necessary to be included therein, (ii) make all required filings of such prospectus supplement or such post-effective amendment as soon as practicable after the Company has received notification of the matters to be incorporated in such prospectus supplement or post-effective amendment, and (iii) supplement or make amendments to such Registration Statement. (f) Furnish to each Selling Holder and to counsel and each managing underwriter, if any, at the sole expense of the Company, one conformed copy of the Registration Statement or Registration Statements and each post-effective amendment thereto, including financial statements and schedules, and, if requested, all documents incorporated or deemed to be incorporated therein by reference and all exhibits. (g) Deliver to each Selling Holder, their respective counsel and the underwriters, if any, at the sole expense of the Company, as many copies of the Prospectus or Prospectuses (including each form of preliminary prospectus) and each amendment or supplement thereto and any documents incorporated by reference therein as such Persons may reasonably request; and, subject to the last paragraph of this Section 5, the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the Selling Holders and the underwriters or agents, if any, and dealers (if any) in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto. (h) Prior to any public offering of Registrable Securities, use its best efforts to register or qualify and cooperate with the Selling Holders, the managing underwriter or underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any Selling Holder or the managing underwriter or underwriters reasonably request; provided, however, that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it is not then so qualified, (ii) take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject or (iii) subject itself to taxation in excess of a nominal dollar 17 15 amount in any such jurisdiction where it is not then so subject. (i) Cooperate with the Selling Holders and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with The Depository Trust Company; and enable such Registrable Securities to be in such numbers and registered in such names as the managing underwriter or underwriters, if any, or Holders may reasonably request. (j) Use its reasonable efforts to cause the Registrable Securities covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof or the underwriter or underwriters, if any, to consummate the disposition of such Registrable Securities, except as may be required solely as a consequence of the nature of such Selling Holder's business, in which case the Company will cooperate in all reasonable respects with the filing of such Registration Statement and the granting of such approvals. (k) Upon the occurrence of any event contemplated by paragraph 5(c)(v) or 5(c)(vi) hereof, as promptly as practicable prepare and (subject to Section 5(a) hereof) file with the SEC, at the sole expense of the Company, a supplement or post-effective amendment to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Notes being sold thereunder, any such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (l) Prior to the effective date of the Registration Statement, (i) provide the registrar for the Registrable Securities with certificates for such securities in a form eligible for deposit with The Depository Trust Company and (ii) provide a CUSIP number for such securities. (m) Enter into an underwriting agreement as is customary in underwritten offerings of equity securities similar to the Class B Common Stock and take all such other actions as are reasonably requested by the managing underwriter or underwriters in order to expedite or facilitate the registration or the disposition of such Registrable Securities and, in such connection, (i) make 18 16 such representations and warranties to, and covenants with, the underwriters with respect to the business of the Company and its subsidiaries (including any acquired business, properties or entity, if applicable) and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, as are customarily made by issuers to underwriters in underwritten offerings of equity securities similar to the Class B Common Stock, and confirm the same in writing if and when requested; (ii) obtain the written opinion of counsel to the Company and written updates thereof in form, scope and substance reasonably satisfactory to the managing underwriter or underwriters, addressed to the underwriters covering the matters customarily covered in opinions requested in underwritten offerings of equity securities similar to the Class B Common Stock and such other matters as may be reasonably requested by the managing underwriter or underwriters; (iii) obtain "cold comfort" letters and updates thereof in form, scope and substance reasonably satisfactory to the managing underwriter or underwriters from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included or incorporated by reference in the Registration Statement), addressed to each of the underwriters, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings of equity securities similar to the Class B Common Stock and such other matters as reasonably requested by the managing underwriter or underwriters; and (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable than those set forth in Section 7 hereof (or such other provisions and procedures acceptable to Holders of at least the Requisite Securities covered by such Registration Statement and the managing underwriter or underwriters or agents) with respect to all parties to be indemnified pursuant to said Section. The above shall be done at each closing under such underwriting agreement, or as and to the extent required thereunder. (n) Make available for inspection by any Selling Holder, any underwriter participating in the disposition of Registrable Securities, if any, and any attorney, accountant or other agent retained by any such Selling Holder or underwriter (collectively, the "Inspectors"), at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent corporate documents and instruments of the Company and its subsidiaries (collectively, the "Records") as shall be reasonably necessary to enable them to exercise any applicable due 19 17 diligence responsibilities, and cause the officers, directors and employees of the Company and its subsidiaries to supply all information reasonably requested by any such Inspector in connection with such Registration Statement. Records which the Company determines, in good faith, to be confidential and any Records which it notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in such Registration Statement, (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction, (iii) disclosure of such information is, in the opinion of counsel for any Inspector, necessary or advisable in connection with any action, claim, suit or proceeding, directly or indirectly, involving or potentially involving such Inspector and arising out of, based upon, relating to, or involving this Agreement, or any transactions contemplated hereby or arising hereunder, (iv) the information is received by any Inspector outside of his, her or its dealings with the Company from a party not under an obligation of confidentiality to the Company, directly or indirectly, or (v) the information in such Records has been made generally available to the public, unless such information is made public by any Inspector in breach of this Agreement or by any other party directly or indirectly under an obligation of confidentiality to the Company. Each Selling Holder will be required to agree in writing pursuant to a confidentiality agreement that information obtained by it as a result of such inspections shall be deemed confidential and shall not be used by it as the basis for any market transactions in the securities of the Company unless and until such information is generally available to the public. Each Selling Holder will be required to further agree that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company and allow the Company to undertake appropriate action to prevent disclosure of the Records deemed confidential at the Company's sole expense. (o) Comply with all applicable rules and regulations of the SEC and make generally available to its securityholders earnings statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Securities are sold to underwriters in a firm commitment or best efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Company after the 20 18 effective date of a Registration Statement, which statements shall cover said 12-month periods. (p) Use its best efforts to cause all Registrable Securities relating to such Registration Statement to be listed on each securities exchange, if any, on which the Class A or Class B Common Stock of the Company is then listed. (q) Cooperate with the Selling Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends and registered in such names as the Selling Holders may reasonably request at least two business days prior to the closing of any sale of Registrable Securities. The Company may require each seller of Registrable Securities as to which any registration is being effected to furnish to the Company such information regarding such seller and the distribution of such Registrable Securities as the Company may, from time to time, reasonably request. The Company may exclude from such registration the Registrable Securities of any seller who unreasonably fails to furnish such information within a reasonable time after receiving such request. Each seller who is required to furnish information hereunder agrees to furnish promptly to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such seller not materially misleading. Each Holder of Registrable Securities agrees by acquisition of such Registrable Securities that, upon actual receipt of any notice from the Company of the happening of any event of the kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v) or 5(c)(vi) hereof, such Holder will forthwith discontinue disposition of such Registrable Securities covered by such Registration Statement or Prospectus until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 5(k) hereof, or until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and has received copies of any amendments or supplements thereto. In the event the Company shall give any such notice, the period of time for which a Registration Statement is required hereunder to be effective shall be extended by the number of days during such periods from and including the date of the giving of such notice to and including the date when each seller of Registrable Securities covered by such Registration Statement shall have received (x) the copies of the supplemented or amended Prospectus contemplated by Section 5(k) hereof or (y) the Advice. 21 19 6. Registration Expenses (a) All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company whether or not a Registration Statement is filed or becomes effective, including, without limitation, (i) all registration and filing fees (including, without limitation, (A) fees with respect to filings required to be made with the NASD in connection with an underwritten offering, (B) fees and expenses of compliance with state securities or Blue Sky laws (including, without limitation, reasonable fees and disbursements of counsel in connection with Blue Sky qualifications of the Registrable Securities and determination of the eligibility of the Registrable Securities for investment under the laws of such jurisdictions where the holders of Registrable Securities are located or as provided in Section 5(h) hereof)) and (C) all fees and expenses of a qualified independent underwriter, if any, (ii) printing expenses, including, without limitation, expenses of printing certificates for Registrable Securities in a form eligible for deposit with The Depository Trust Company and of printing prospectuses if the printing of prospectuses is requested by the managing underwriter or underwriters, if any, by the Holders of a majority of the Registrable Securities included in any Registration Statement, (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) fees and disbursements of all independent certified public accountants referred to in Section 5(m)(iii) hereof (including, without limitation, the expenses of any special audit and "cold comfort" letters required by or incident to such performance), (vi) Securities Act liability insurance, if the Company desires such insurance, (vii) fees and expenses of all other Persons retained by the Company, (viii) internal expenses of the Company (including, without limitation, all salaries and expenses of officers and employees of the Company performing legal or accounting duties), (ix) the expense of any annual audit, (x) the fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange, if applicable, and (xi) the expenses relating to printing, word processing and distributing all Registration Statements, underwriting agreements, securities sales agreements, indentures and any other documents necessary in order to comply with this Agreement. (b) Each Holder of Registrable Securities shall pay all underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of such Holder's Registrable Securities pursuant to a Registration Statement requested pursuant to Section 2 or 3 hereof. Each Holder of Registrable Securities shall be responsible for paying all of its out-of-pocket expenses. 7. Indemnification 22 20 (a) The Company agrees to indemnify and hold harmless each Holder of Registrable Securities, the officers and directors of each such Holder, and each Person, if any, who controls any such Holder within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act (each, a "Participant"), from and against any and all losses, claims, damages and liabilities (including, without limitation, the reasonable legal fees and other expenses actually incurred in connection with any suit, action or proceeding or any claim asserted) caused by, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment thereto) or Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or any preliminary prospectus, or caused by, arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except insofar as such losses, claims, damages or liabilities are caused by any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information relating to any Participant furnished to the Company in writing by such Participant expressly for use therein; provided, however, that the Company will not be liable if such untrue statement or omission or alleged untrue statement or omission was contained or made in any preliminary prospectus and corrected in the Prospectus or any amendment or supplement thereto and the Prospectus does not contain any other untrue statement or omission or alleged untrue statement or omission of a material fact that was the subject matter of the related proceeding and any such loss, liability, claim, damage or expense suffered or incurred by the Participants resulted from any action, claim or suit by any Person who purchased Registrable Securities which are the subject thereof from such Participant and it is established in the related proceeding that such Participant failed to deliver or provide a copy of the Prospectus (as amended or supplemented) to such Person with or prior to the confirmation of the sale of such Registrable Securities sold to such Person if required by applicable law, unless such failure to deliver or provide a copy of the Prospectus (as amended or supplemented) was a result of noncompliance by the Company with Section 5 of this Agreement. (b) Each Participant agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors and officers who sign the Registration Statement and each Person who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to each Participant, but only (i) with reference to information relating to such Participant furnished to the Company in writing by such Participant expressly for use in any Registration Statement or Prospectus, any amendment or supplement thereto, or any preliminary prospectus or (ii) with respect to 23 21 any untrue statement or representation made by such Participant in writing to the Company. The liability of any Participant under this paragraph shall in no event exceed the proceeds received by such Participant from sales of Registrable Securities giving rise to such obligations. (c) If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any Person in respect of which indemnity may be sought pursuant to either of the two preceding paragraphs, such Person (the "Indemnified Person") shall promptly notify the Person against whom such indemnity may be sought (the "Indemnifying Person") in writing, and the Indemnifying Person, upon request of the Indemnified Person, shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others the Indemnifying Person may reasonably designate in such proceeding and shall pay the reasonable fees and expenses actually incurred by such counsel related to such proceeding; provided, however, that the failure to so notify the Indemnifying Person shall not relieve it of any obligation or liability which it may have hereunder or otherwise (unless and only to the extent that such failure directly results in the loss or compromise of any material rights or defenses by the Company and the Company was not otherwise aware of such action or claim). In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed in writing to the contrary, (ii) the Indemnifying Person shall have failed within a reasonable period of time to retain counsel reasonably satisfactory to the Indemnified Person or (iii) the named parties in any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that, unless there exists a conflict among Indemnified Persons, the Indemnifying Person shall not, in connection with any one such proceeding or separate but substantially similar related proceeding in the same jurisdiction arising out of the same general allegations, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be reimbursed promptly as they are incurred. Any such separate firm for the Participants and such control Persons of Participants shall be designated in writing by Participants who sold a majority in interest of Registrable Securities sold by all such Participants and any such separate firm for the Company, its directors, its officers and such control Persons of the Company shall be designated in writing by the Company. The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its prior written consent, but if settled with such consent or if there be a final non-appealable judgment for the plaintiff for which the 24 22 Indemnified Person is entitled to indemnification pursuant to this Agreement, the Indemnifying Person agrees to indemnify and hold harmless each Indemnified Person from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified Person shall have requested an Indemnifying Person to reimburse the Indemnified Person for reasonable fees and expenses actually incurred by counsel as contemplated by the third sentence of this paragraph, the Indemnifying Person agrees that it shall be liable for any settlement of any proceeding effected without its consent if (i) such settlement is entered into more than 30 days after receipt by such Indemnifying Person of the aforesaid request and (ii) such Indemnifying Person shall not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement; provided, however, that the Indemnifying Person shall not be liable for any settlement effected without its consent pursuant to this sentence if the Indemnifying Person is contesting, in good faith, the request for reimbursement. No Indemnifying Person shall, without the prior written consent of the Indemnified Person effect any settlement or compromise of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party, or indemnity could have been sought hereunder by such Indemnified Person, unless such settlement (A) includes an unconditional written release of such Indemnified Person, in form and substance reasonably satisfactory to such Indemnified Person, from all liability on claims that are the subject matter of such proceeding and (B) does not include any statement as to an admission of fault, culpability or failure to act by or on behalf of any Indemnified Person. (d) If the indemnification provided for in the first and second paragraphs of this Section 7 is for any reason unavailable to, or insufficient to hold harmless, an Indemnified Person in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraphs, in lieu of indemnifying such Indemnified Person thereunder and in order to provide for just and equitable contribution, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect (i) the relative benefits received by the Indemnifying Person or Persons on the one hand and the Indemnified Person or Persons on the other from the offering of the Registrable Securities or (ii) if the allocation provided by the foregoing clause (i) is not permitted by applicable law, not only such relative benefits but also the relative fault of the Indemnifying Person or Persons on the one hand and the Indemnified Person or Persons on the other in connection with the statements or omissions or alleged statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof) as well as any other relevant equitable considerations. The relative fault of the parties shall be determined by reference to, among other things, whether the 25 23 untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or such Participant or such other Indemnified Person, as the case may be, on the other, the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission, and any other equitable considerations appropriate in the circumstances. (e) The parties agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Participants were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any reasonable legal or other expenses actually incurred by such Indemnified Person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7, in no event shall a Participant be required to contribute any amount in excess of the amount by which proceeds received by such Participant from sales of Registrable Securities exceeds the amount of any damages that such Participant has otherwise been required to pay or has paid by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. (f) The indemnity and contribution agreements contained in this Section 7 will be in addition to any liability which the Indemnifying Persons may otherwise have to the Indemnified Persons referred to above. 8. Restrictions on Sale by the Company and Others (a) The Company covenants and agrees that (i) it shall not, and that it shall not cause or permit any of its subsidiaries to, effect any public sale or distribution of any securities of the same class as any of the Registrable Securities or any securities convertible into or exchangeable or exercisable for such securities (or any option or other right for such securities) during the 30-day period prior to, and during the 180-day period (or such shorter period as may be required by such managing underwriter or underwriter(s)) beginning on, the commencement of any underwritten offering of Registrable Securities pursuant to a Demand Registration which has been requested pursuant to this Agreement, or a Piggy-Back Registration which has been scheduled, prior to the Company's or any of its subsidiaries' publicly announcing its intention to 26 24 effect any such public sale or distribution; (ii) any agreement entered into after the date of this Agreement pursuant to which the Company (or, if applicable, any subsidiary of the Company) grants registration rights with respect to any securities of the Company shall contain (x) a provision under which the holders of such securities agree, in the event of an underwritten offering of Registrable Securities, not to effect any public sale or distribution of any securities of the same class as any of the Registrable Securities (or any securities convertible into or exchangeable or exercisable for any such securities), or any option or other right for such securities, during the periods described in clause (i) of this Section 8(a), in each case including a sale pursuant to Rule 144 (or any similar provisions then in effect), and (y) a provision that effects, upon notice given pursuant to Section 2 hereof to the Company that a Demand Registration of Registrable Securities is to be undertaken, the lapse of any demand registration rights with respect to any equity securities of the Company until the expiration of 60 days after the date of the completion of any such underwritten offering; (iii) the Company will not, and the Company will not cause or permit any subsidiary of the Company to, after the date hereof, enter into any agreement or contract that conflicts with or limits or prohibits the full and timely exercise by the Holders of Registrable Securities of the rights herein to request a Demand Registration or to join in any Piggy-Back Registration; and (iv) it shall use its reasonable efforts to secure the written agreement of each of its officers, directors and stockholders to not effect any public sale or distribution of any securities of the same class as the Registrable Securities (or any securities convertible into or exchangeable or exercisable for any such securities) or any option or right for such securities during the period described in clause (i) of this Section 8(a). (b) Each Holder of Registrable Securities whose Registrable Securities are covered by a Registration Statement filed pursuant to Section 2 hereof and are to be sold thereunder agrees, to the extent permitted by applicable law or regulation, that, if and to the extent requested by the managing underwriter or underwriters in an underwritten offering, it shall not effect any public sale or distribution of Registrable Securities or of securities of the Company of the same class as any securities included in such Registration Statement (except as part of such underwritten offering), during the 30-day period prior to, and during the 180-day period (or such shorter period as may be required by such managing underwriter or underwriter(s)) beginning on, the commencement of each underwritten offering made pursuant to such Registration Statement, to the extent timely notified in writing by the Company or such managing underwriter or underwriters. 27 25 9. Miscellaneous (a) No Inconsistent Agreements. The Company has not entered and will not enter into any agreement with respect to any of its securities which (i) will grant to any Person piggy-back registration rights with respect to a Registration Statement that are inconsistent with Section 2 or 3 hereof or (ii) is inconsistent with the rights granted to the Holders of Registrable Securities in the Agreement or otherwise conflicts with the provisions hereof. (b) Adjustments Affecting Registrable Securities. The Company shall not, directly or indirectly, take any action with respect to the Registrable Securities as a class that would adversely affect the ability of the Holders of Registrable Securities to include such Registrable Securities in a registration undertaken pursuant to this Agreement. (c) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, otherwise than with the prior written consent of the Holders of not less than a majority of the then outstanding Registrable Securities; provided, however, that Section 7 and this Section 9(c) may not be amended, modified or supplemented without the prior written consent of each Holder (including any person who was a Holder of Registrable Securities disposed of pursuant to any Registration Statement). Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Registrable Securities whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect, impair, limit or compromise the rights of other Holders of Registrable Securities may be given by Holders of at least a majority of the Registrable Securities being sold by such Holders pursuant to such Registration Statement; provided, however, that the provisions of this sentence may not be amended, modified or supplemented except in accordance with the provisions of the immediately preceding sentence. (d) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, next-day air courier or facsimile: 1. if to a Holder of Registrable Securities, at the most current address of such Holder set forth on the records of the registrar, with a copy in like manner to the Underwriters as follows: 28 26 c/o Lehman Brothers Inc. 3 World Financial Center New York, New York 10285 Facsimile No: (212) 526-3738 Attention: Capital Markets Department with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Facsimile No: (212) 455-2502 Attention: Vincent Pagano, Jr., Esq. 2. if to the Underwriters, at the addresses specified in Section 10(d)(1); 3. if to the Company, at the addresses as follows: PCS Development Corporation 15 South Main Street Suite 810 Greenville, South Carolina 29601 Facsimile No: (864) 235-0841 Attention: Cecil L. Duffie, Jr. with copies to: Nelson Mullins Riley & Scarborough, L.L.P. NationsBank Corporate Center 33rd Floor, Suite 3350 100 North Tryon Street Charlotte, North Carolina 28202 Facsimile No: (704) 377-4814 Attention: H. Bryan Ives III, Esq. All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; one business day after being timely delivered to a next-day air courier; and when receipt is acknowledged by the addressee, if sent by facsimile. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee at the address and in the manner specified in such Indenture. (e) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto and the Holders; provided, however, that this Agreement shall not inure to the benefit of or be binding upon a successor or assign of a Holder unless and to the extent such successor or assign holds Registrable Securities. 29 27 (f) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (g) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. (i) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (j) Securities Held by the Company or its Affiliates. Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company or its Affiliates shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. (k) Third Party Beneficiaries. Holders of Registrable Securities are intended third party beneficiaries of this Agreement and this Agreement may be enforced by such Persons. (l) Entire Agreement. This Agreement, together with the Underwriting Agreement and the Warrant Agreement, is intended by the parties as a final and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein and any and all prior oral or written agreements, representations, or warranties, contracts, understandings, correspondence, conversations and memoranda between the Underwriters on the one hand and the Company on the other, or between or among any agents, representatives, parents, subsidiaries, affiliates, predecessors 30 28 in interest or successors in interest with respect to the subject matter hereof and thereof are merged herein and replaced hereby. 31 29 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. PCS DEVELOPMENT CORPORATION By: ----------------------------------- Name: Title: LEHMAN BROTHERS INC. on behalf of itself and DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION CHASE SECURITIES, INC. TORONTO DOMINION SECURITIES (USA) INC. By LEHMAN BROTHERS INC. By: ------------------------------ Authorized Representative EX-5.2 7 OPINION OF LUKAS MCGOWAN NACE & GUTIERREZ 1 EXHIBIT 5.2 [LETTERHEAD OF LUKAS, MCGOWAN, NACE & GUTIERREZ, CHARTERED] November 10, 1995 To the Purchasers party to the Convertible Preferred Stock Purchase Agreement referred to below Re: PCS DEVELOPMENT CORPORATION Ladies and Gentlemen: This opinion is furnished to you pursuant to Section 3.5 of the Convertible Preferred Stock Purchase Agreement dated as of November 10, 1995 (the "Agreement") by and among PCS Development Corporation, a Delaware corporation (the "Company") and each of the Purchasers listed on Schedule I thereto (the "Purchasers"). Unless otherwise indicated, capitalized terms used in this opinion have the meanings ascribed to them in the Agreement. This firm has acted as communications counsel for the Company. In connection with the delivery of this opinion, we have examined a copy of the Agreement and other Related Documents. We have also examined those records maintained by the Federal Communications Commission ("FCC") that are available for public inspection, and such other documents and matters of law as we have deemed necessary or appropriate for purposes of this opinion. We have also interviewed appropriate representatives of the Company as we have deemed reasonably necessary to render this opinion. Further, we obtained a ruling from the FCC's Commercial Wireless Division staff as to whether the FCC would apply the unjust enrichment provision of Section 24.309(f) should the total equity interest held by the Control Group in the Company be reduced to less than twenty-five percent (25%) and describe the nature of that ruling on Exhibit B (the "Ruling") (collectively, "Our Inquiry"). Based upon this Ruling, and in reliance on our opinion in this letter, we have been informed that the Company does not intend to accept the Conditional Subscription Agreements of Sloan Communications, Inc., Dobson Family Corp. and Sullivan Revocable Trust to purchase Convertible Preferred Stock or Class B Common Stock of the Company at or prior 2 to the sale of the Convertible Preferred Stock under the Agreement. In making Our Inquiry, we have assumed, without independent verification, the genuineness of all signatures (whether original or photostatic) and the authenticity of all documents submitted to us as originals and the conformity to authentic original documents of all documents submitted to us as certified or photostatic copies. We have also assumed the accuracy and completeness of the FCC's files. We have also assumed the due authorization, execution and delivery of the Agreement by the parties thereto as well as the legal rights and powers of the parties, under all applicable laws and regulations, to enter into, execute, deliver and perform their obligations pursuant to the Agreement. As to all questions of fact material to this opinion, we have relied solely upon the representations and warranties of the Company contained in the Agreement and made by its representatives as part of Our Inquiry. We have assumed, without independent verification, the accuracy of the relevant facts stated therein. When used in this opinion, the term "our knowledge" refers to the actual knowledge of the attorneys currently in this firm who have been actively involved in the Company's representation. Whenever our opinion with respect to the existence or nonexistence of facts is qualified by the phrase "to the best of our knowledge," or some similar phrase, it is intended to indicate that no information has come to the attention of those attorneys in the course of our representation that would give them actual knowledge that our opinion with respect to the existence or nonexistence of such facts is inaccurate. We have not undertaken any independent investigation of the Company or their facilities to determine the existence or nonexistence of such facts, other than Our Inquiry identified above. Our opinion, therefore, does not encompass any matter which would be apparent, inter alia, only as a result of such an investigation. Whenever our opinion is qualified by the phrase "after Our Inquiry" or some similar phrase, it is intended to indicate that we undertook Our Inquiry as described herein, but did not undertake any independent investigation or evaluation to confirm the accuracy or completeness of the responses to Our Inquiry. No inference as to our knowledge of the existence or nonexistence of facts, other than facts of which we have obtained actual knowledge as a result of our representation, should be drawn from the fact of our representation of the Company. This opinion is governed by, and shall be interpreted in accordance with, the Legal Opinion Accord of the ABA Section of Business Law (1991). As a consequence, it is subject to a number of qualifications, exceptions, definitions, limitations on coverage and other limitations, all as more particularly described in the Accord, and this opinion should be read in conjunction therewith. For the purpose of giving this opinion, we are not admitted in and do not practice in any jurisdiction other than the District of 2 3 Columbia. This opinion should not be construed to render any opinion on any matter of state law with respect to the Company. Moreover, this opinion is limited solely to matters arising under the Communications Act of 1934, as amended ("Act"), the FCC's rules, regulations, and published policies ("Rules"), and this firm's representation of the Company before the FCC. Based upon and subject to the foregoing, and subject to the limitations, qualifications and exceptions set forth herein, we are of the opinion, to our knowledge, after the Inquiry, that: 1. Exhibit A to this letter is a list of the operating licenses issued by the FCC to the Company ("FCC Licenses"). The FCC Licenses are in full force and effect and have not been reversed, stayed, set aside, annulled or suspended. The FCC Licenses are valid until the expiration date shown on the face of the FCC Licenses, subject to the construction requirements of 47 C.F.R. Section 24.103(b). The FCC Licenses are the only licenses, permits, authorizations, consents or approvals required under the Act and the Rules for the construction and operation of the national narrowband PCS system discussed in the Private Placement Memorandum. 2. No exemption, consent, approval, order or authorization of, or registration, declaration or filing with, the FCC is required by the Company in connection with the issuance and sale of the Convertible Preferred Stock. 3. The issuance and sale of the Convertible Preferred Stock by the Company will not result in the application to the Company of the FCC's unjust enrichment sanctions with respect to the Company's classification as a small business or a business owned by members of minority groups and/or women. 4. There is not now pending or threatened any litigation, proceeding, inquiry or investigation before the FCC that might result in a termination, revocation or other material impairment of the FCC Licenses. To the best of our knowledge, after Our Inquiry, the Company is not now subject to any effective or proposed Notice of Apparent Liability. 5. Neither the issuance and sale of the Convertible Preferred Stock of the Company, nor the execution of the Agreement or any other Related Document, nor compliance with the terms and provisions thereof, nor the Company's non-acceptance of the Conditional Subscription Agreements of Sloan Communications, Inc., Dobson Family Corp. and Sullivan Revocable Trust, nor the consummation of any of the transactions contemplated therein, will contravene any provision of the Act or the Rules with respect to the FCC Licenses. 3 4 This opinion is being provided to you only for your use. This opinion may not be quoted to, copied, delivered to, or relied upon by anyone other than you in connection with the transaction and for no other purpose without our prior written consent. This opinion is effective only as of the date hereof and we undertake no professional responsibility to advise you as to any subsequent event either in the nature of a change of fact or law, as to which we may become aware. This opinion should not be assumed to state general principles of law applicable to transactions of this kind. Where opinions are expressed concerning the financial effect or possible effect of any event upon the Company or its business, you should be advised that we have no particular expertise in such matters, and you rely on such opinion at your risk. Very truly yours, LUKAS, MCGOWAN, NACE & GUTIERREZ, CHARTERED By: ------------------------------------------- Gerald S. McGowan 4 5 EXHIBIT A PCS DEVELOPMENT CORPORATION Personal Communications Service - Narrowband
Call Sign Market Channel Block File No. - --------- ------ ------------- -------- KNKV213 R-01, Region 1 13 00013-CN-L-95 KNKV219 R-02, Region 2 13 00019-CN-L-95 KNKV225 R-03, Region 3 13 00025-CN-L-95 KNKV231 R-04, Region 4 13 00031-CN-L-95 KNKV237 R-05, Region 5 13 00037-CN-L-95
5 6 EXHIBIT B FCC COMPLIANCE ISSUES The Company is considered a Designated Entity under the Rules governing the licensing of narrowband PCS as both a small business and a minority/woman-owned business. As such, the Control Group of the Company must hold 50.1% of the Company's voting interest and at least 25% of the Company's total equity on a fully diluted basis. Upon consummation of the transactions contemplated by the Agreement, the Control Group will continue to hold 50.1% of the Company's voting interest, but less than 25% of the Company's total equity on a fully diluted basis. On October 3, 1995, the Company disclosed to the FCC the details of the transactions contemplated by the Agreement and its effect on the Control Group (a copy attached hereto). On October 10, 1995, the law firm of Lukas, McGowan, Nace & Gutierrez, Chartered ("LMN&G") requested a ruling from the FCC's Commercial Wireless Division Staff ("FCC Staff") that dilution of a control group's interest premised on the facts of the transactions contemplated by the Agreement would not result in the FCC's application of the Unjust Enrichment Provisions (a copy attached hereto). On October 25, 1995, LMN&G received a response to its request in which the FCC Staff stated that the Unjust Enrichment Provisions would not be applied so long as the Control Group continued to hold at least 50.1% of the voting interest of the narrowband PCS licensee (a copy attached hereto). [ATTACHMENTS FILED AS EXHIBIT 99.1] 6 EX-5.3 8 OPINION REGARDING ADARAND AGREEMENT 1 EXHIBIT 5.3 [LETTERHEAD OF LUKAS, MCGOWAN, NACE & GUTIERREZ, CHARTERED] June 13, 1996 (202) 828-9475 Lehman Brothers Inc. Donaldson, Lufkin & Jenrette Securities Corporation Chase Securities, Inc. Toronto Dominion Securities (USA) Inc. c/o Lehman Brothers Inc. 3 World Financial Center New York, New York 10285 Re: PCS Development Corporation Ladies and Gentlemen: This letter will discuss the impact of the Adarand decision on the FCC's "Designated Entities" program and update the letter from this firm to Patrick Daugherty on this subject dated June 21, 1995. The FCC is resigned to the fact that no race-based auction preferences can withstand "strict scrutiny" under Adarand unless the agency is able to establish a record of discrimination against minority groups. Since the Adarand decision, the FCC has eliminated from its competitive bidding rules any preferences, or proposed preferences, for minorities or women owned businesses. Recently, however, pursuant to a requirement under the Telecommunications Act of 1996, the FCC has commenced a proceeding in which it seeks data to identify whether small businesses owned by minorities or women have experienced barriers to entry into the telecommunications industry. The pleading cycle for this proceeding terminates on August 23, 1996. 2 June 13, 1996 Page 2 Neither Adarand nor the FCC's action since the Adarand decision has altered our view that PCSD's licenses are not subject to a direct or collateral constitutional attack. Our view is based on the following considerations: 1. The FCC's action granting PCSD's applications is now final and immune from administrative reconsideration or judicial review. Consequently, the grants are insulated from any direct attack based on the unconstitutionality of the preferences accorded to PCSD. (The licenses, however, are subject to revocation under 47 U.S.C. Section 312(a) for reasons unrelated to the constitutionality of the FCC's auction process.) 2. I can foresee no scenario under which the PCSD licenses could be subjected to a sustainable Adarand- based collateral attack. PCSD would be vulnerable to such an attack only if there is ongoing litigation that could result in a judgment requiring the FCC to vacate the grant of PCSD's applications. See Alianza Federal de Mercedes v. FCC, 539 F.2d 732, 735-36 (D.C. Cir. 1976). There is no such case pending, and no party can now bring a constitutional challenge to the FCC's rules that could retroactively endanger PCSD's licenses. 3. The FCC's designated entities program could be declared unconstitutional only in the unlikely event that the agency decides to go forward with its existing rules. In that event, those rules could be struck down on due process/equal protection grounds either in (a) a direct appeal from a final order issued by the FCC in the rulemaking proceeding itself; (b) an appeal of an adjudicatory order by which the FCC applied its rules in a future narrowband PCS auction, see Functional Music, Inc. v. FCC, 274 F.2d 543, 546-47 (D.C. Cir. 1959); or (c) in a federal court action for a declaratory judgment. However, any decision invalidating the FCC's rules for designated entities would be applied retroactively to all pending cases. See Harper v. Virginia Dept. of Taxation, 113 S.Ct. 2510, 2516-18 (1993). But again, the grant of PCSD's licenses cannot be at issue in any future case. Those licenses are clearly beyond the reach of any retroactive application of a constitutional ruling under Adarand. 4. Certainly, no ruling striking down the FCC's auction rules -- even one issued by the FCC -- could provide grounds to revoke PCSD's licenses. Revocation on such grounds would be warranted only if the constitutional ruling could be considered a "condition[] coming to the attention" of the FCC which would have warranted the denial of PCSD's original application. See 47 U.S.C. Section 312(a)(2). However, the FCC was aware that its auction rules were suspect under the Fifth Amendment when it granted PCSD's applications. Consequently, the FCC cannot later assert the unconstitutionality of its rules as grounds to revoke those licenses. 3 June 13, 1996 Page 3 Finally, with respect to the offering documents, the language suggested in our previous letter with respect to Designated Entity matters remains accurate. It reads as follows: In particular, FCC counsel has advised the Partnership that PCSD's licenses cannot be adversely affected by the Supreme Court's recent decision subjecting all federal race-based classifications, such as the FCC's "designated entity" classification, to "strict scrutiny" by the courts. If we can be of further assistance with regard to this matter, please let us know. Sincerely, David A. LaFuria cc: William deKay (via facsimile) EX-5.4 9 OPINION AS TO CERTAIN COMMUNICATIONS LEGAL MATTERS 1 EXHIBIT 5.4 FORM OF OPINION OF LUKAS, MCGOWAN, NACE & GUTIERREZ, CHARTERED June ___, 1996 (202) 828-9475 Lehman Brothers Inc. Donaldson, Lufkin & Jenrette Securities Corporation Chase Securities, Inc. Toronto Dominion Securities (USA) Inc. c/o Lehman Brothers Inc. 3 World Financial Center New York, New York 10285 Re: PCS Development Corporation ("PCSD" or the "Company") -- Issuance of $150,000,000 (Initial Accreted Value) of ______% Senior Discount Notes (the "Notes") with Warrants (the "Warrants") to purchase ____ shares of Class B Common Stock (the Notes and Warrants collectively are referred to herein as the "Units") Ladies and Gentlemen: This opinion is furnished to you in connection with the issuance of the Units ("Offering") pursuant to the Form S-1 Registration Statement of PCSD, Registration No. 333-2162, as amended, (the "Form S-1"), as representative of the several Underwriters named in Schedule 1 to the Underwriting Agreement entered into with respect to the Units. Unless otherwise indicated, capitalized terms used in this opinion have the meanings ascribed to them in the Form S-1. This firm has acted as communications counsel for the Company. In connection with the delivery of this opinion, we have examined a copy of the Form S-1, including all amendments and exhibits filed through the date of this letter. We have also examined those 2 June 13, 1996 Page 2 records maintained by the Federal Communications Commission ("FCC") that are available for public inspection, and such other documents and matters of law as we have deemed necessary or appropriate for purposes of this opinion. We have also interviewed appropriate representatives of the Company as we have deemed reasonably necessary to render this opinion (collectively, "Our Inquiry"). In making Our Inquiry, we have assumed, without independent verification, the genuineness of all signatures (whether original or photostatic) and the authenticity of all documents submitted to us as originals and the conformity to authentic original documents of all documents submitted to us as certified or photostatic copies. We have also assumed the accuracy and completeness of the FCC's files. As to all questions of fact material to this opinion, we have relied solely upon the representations and warranties of the Company contained in the Underwriting Agreement and made by its representatives as part of Our Inquiry. We have assumed, without independent verification, the accuracy of the relevant facts stated therein. When used in this opinion, the term "our knowledge" refers to the actual knowledge of the attorneys currently in this firm who have been actively involved in the Company's representation. Whenever our opinion with respect to the existence or nonexistence of facts is qualified by the phrase "to our knowledge," or some similar phrase, it is intended to indicate that no information has come to the attention of those attorneys in the course of our representation that would give them actual knowledge that our opinion with respect to the existence or nonexistence of such facts is inaccurate. We have not undertaken any independent investigation of the Company or its facilities to determine the existence or nonexistence of such facts, other than Our Inquiry identified above. Our opinion, therefore, does not encompass any matter which would be apparent, inter alia, only as a result of such an investigation. Whenever our opinion is qualified by the phrase "after Our Inquiry" or some similar phrase, it is intended to indicate that we undertook Our Inquiry as described herein, but did not undertake any independent investigation or evaluation to confirm the accuracy or completeness of the responses to Our Inquiry. No inference as to our knowledge of the existence or nonexistence of facts, other than facts of which we have obtained actual knowledge as a result of our representation, should be drawn from the fact of our representation of the Company. This opinion is governed by, and shall be interpreted in accordance with, the Legal Opinion Accord of the ABA Section of Business Law (1991). As a consequence, it is subject to a number of qualifications, exceptions, definitions, limitations on coverage and other limitations, all as more particularly described in the Accord, and this opinion should be read in conjunction therewith. 3 June 13, 1996 Page 3 For the purpose of giving this opinion, we are not admitted in and/or do not practice in any jurisdiction other than the District of Columbia. This opinion should not be construed to render an opinion on any matter of state law with respect to the Company. This opinion is limited solely to matters arising under the Communications Act of 1934, as amended ("Act"), the FCC's rules, regulations, and published policies ("Rules"), and we express no opinion concerning any other law, federal, state or local or of the regulation of any other federal, state or local agency or administrative body. Based upon and subject to the foregoing, and subject to the limitations, qualifications and exceptions set forth herein, we are of the opinion, to our knowledge, after our Inquiry, that: 1. Exhibit A to this letter is a list of the operating licenses issued by the FCC to the Company or to the indicated Restricted Subsidiary of the Company ("FCC Licenses"). The FCC Licenses are in full force and effect and have not been reversed, stayed, set aside, annulled or suspended. The FCC Licenses are valid until the expiration date shown on the face of the FCC Licenses, subject to the construction requirements of 47 C.F.R. Section 24.103(b). The FCC Licenses are the only licenses, permits, authorizations, consents or approvals required under the Act and the Rules for the construction and operation of the national narrowband PCS system discussed in the Form S-1 licensed to the Company. 2. No exemption, consent, approval, order or authorization of, or registration, declaration or filing with, the FCC is required by the Company in connection with the issuance and sale of the Units, the detaching or exercise of the Warrants or the Issuance of the Warrant Shares upon the exercise of the Warrants. 3. Neither the issuance and sale of the Units by the Company, the detaching or exercise of the Warrants nor the issuance of the Warrant Shares upon the exercise of the Warrants will result in the application to the Company of the FCC's unjust enrichment sanctions with respect to the Company's classification as a small business or a business owned by members of minority groups and/or women in the FCC's narrowband PCS regional auction, or the Company's classification as a small business in the FCC's 900 MHz SMR auction, and after the issuance of the Units the Company will continue to be eligible for the benefits that accrued to it in those auctions. In arriving at this opinion, we have relied upon a ruling we obtained from the FCC's Commercial Wireless Division staff as to whether the FCC would apply the unjust enrichment provision of Section 24.309(f) should the total equity interest held by the Control Group in the Company be reduced to less than twenty-five percent (25%) in connection with the issuance by the Company of its Series A Preferred Stock (the "Ruling"). We note that private letter rulings concerning the interpretation of the 4 June 13, 1996 Page 4 FCC rules made by the FCC's staff are not binding upon the FCC. We nevertheless have relied on such interpretations as the best available source. 4. There is not now pending or threatened any litigation, proceeding, inquiry or investigation before the FCC that might result in a termination, revocation or other material impairment of the FCC Licenses. The FCC has not issued, or threatened to issue, Notice of Apparent Liability against the Company. 5. Neither the issuance and sale of the Units, the detaching or exercise of the Warrants, or the issuance of the Warrant Shares upon the exercise of the Warrants, nor the consummation of any of the transactions contemplated by the Form S-1, will contravene any provision of the Act or the Rules with respect to the FCC Licenses. 6. The statements contained in the Form S-1 under the captions "Risk Factors - Potential Loss of FCC Financing and Bidding Credits," "Business-Spectrum," "Business-Regulation," and "Description of FCC Auction Benefits" constitute a fair and accurate summary thereof, and we have no reason to believe that such statements contain any untrue statement of material fact or omit to state a material fact necessary to make such statement therein not misleading. This opinion is being provided to you solely for your use. This opinion may not be quoted to, copied, delivered to, or relied upon by anyone other than you in connection with the transaction and for no other purpose without our prior written consent. It may not be relied upon by any purchaser of the Units, Warrants or Warrant Shares in the Offering, or any subsequent purchaser. This opinion is effective only as of the date hereof and we undertake no professional responsibility to advise you as to any subsequent event either in the nature of a change of fact or law, as to which we may become aware. This opinion should not be assumed to state general principles of law applicable to transactions of this kind. Where opinions may be expressed or implied concerning the financial effect or possible effect of any event upon the Company or its business, you should be advised that we have no particular expertise in such matters, and you rely on such opinion at your risk. Very truly yours, LUKAS, MCGOWAN, NACE & GUTIERREZ, CHARTERED By: ----------------------------------------- David A. LaFuria EX-8.1 10 OPINION OF NELSON MULLINS RILEY & SCARBOROUGH LLP 1 EXHIBIT 8.1 FORM OF OPINION OF NELSON MULLINS RILEY & SCARBOROUGH, L.L.P. June _____, 1996 To the Board of Directors PCS Development Corporation 15 South Main Street Suite 810 Greenville, South Carolina 29601 Ladies and Gentlemen: We are acting as counsel to PCS Development Corporation, a Delaware corporation, (the "Company") in connection with its registration statement on Form S-1, as amended (the "Registration Statement") filed with the Securities and Exchange Commission relating to the proposed public offering of Units, consisting of Senior Discount Notes due 2006 (the "Notes") and Warrants to purchase shares of Class B Common Stock of the Company, all of which Units are to be sold by the Underwriters (the "Warrants"). This opinion letter is furnished to you at your request to enable you to fulfill the requirements of Item 601(b)(8) of Regulation S-K, 17 C.F.R. Section 229.601(b)(8), in connection with the Registration Statement. For purposes of this opinion letter, we have examined an executed copy of the Registration Statement. In such examination, we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity, accuracy and completeness of all documents submitted to us, and the conformity with the original documents of all documents submitted to us as certified, telecopied, photostatic, or reproduced copies. This opinion letter is given, and all statements herein are made, in the context of the foregoing. This opinion letter is based as to matters of law solely on the Internal Revenue Code of 1986, as amended, its legislative history, judicial authority, current administrative rulings and practice, and existing and proposed Treasury Regulations, including regulations concerning the treatment of debt instruments issued with original issue discount, all as in effect and existing on the date hereof (collectively, "federal tax laws"). We express no opinion herein as to any other laws, statutes, regulations, or ordinances. 2 To the Board of Directors PCS Development Corporation June _____, 1996 Page Two Based upon, subject to and limited by the foregoing, we are of the opinion that the information in the prospectus constituting a part of the Registration Statement under the caption "Certain Federal Income Tax Considerations", to the extent that such information constitutes matters of law or legal conclusions or purports to describe certain provisions of the federal tax laws, has been reviewed by us and is a correct summary in all material respects of the matters discussed therein. We assume no obligation to advise you of any changes in the foregoing subsequent to the delivery of this opinion letter. This opinion letter has been prepared solely for your use in connection with the filing of the Registration Statement on the date of this opinion letter and should not be quoted in whole or in part or otherwise be referred to, nor filed with or furnished to any governmental agency or other person or entity, without the prior written consent of this firm. We hereby consent to the filing of this opinion letter as Exhibit 8.1 to the Registration Statement. In giving this consent, we do not thereby admit that we are an "expert" within the meaning of the Securities Act of 1933, as amended. NELSON MULLINS RILEY & SCARBOROUGH, L.L.P. By:____________________________________ EX-10.37 11 COMMITMENT LETTER 1 EXHIBIT 10.37 THE CHASE MANHATTAN BANK N.A. One Chase Manhattan Plaza New York, New York 10005 CHASE SECURITIES, INC. One Chase Manhattan Plaza New York, New York 10005 GLENAYRE ELECTRONICS INC. 5935 Carnegie Boulevard Charlotte, North Carolina 28209 June 25, 1996 PCSD Financial Corp. $225 Million Equipment Financing Credit Facilities Commitment Letter PCSD Financial Corp. 15 South Main Street Suite 810 Greenville, South Carolina 29601 Attention: Mr. Mark Moore Chief Financial Officer Ladies and Gentlemen: You have advised The Chase Manhattan Bank N.A. ("Chase"), Chase Securities, Inc. ("CSI") and Glenayre Electronics Inc. ("Glenayre") that PCSD Financial Corp. (the "Borrower") and its subsidiaries intend to construct and operate a nationwide paging system (the "Project") and that, in connection therewith, you have need for $225,000,000 of senior credit facilities (the "Facilities") to provide a portion of the financing necessary in connection therewith. CSI is pleased to advise you that it is willing to act as exclusive advisor and arranger for the Facilities, Chase is pleased to advise you that it is willing to provide the entire $150,000,000 of the "Tranche A Facility" and the "Tranche B Facility" referred to in the Term Sheet and to act as administrative agent in respect of the Facilities, and Glenayre is pleased to advise you that it is willing to provide the entire $75,000,000 of the "Glenayre 2 2 Facility" referred to in the Term Sheet. Attached hereto as Exhibit A is a Summary of Terms and Conditions (the "Term Sheet") setting forth the principal terms and conditions on and subject to which Chase and Glenayre are willing to make available their respective portions of the Facilities. It is a condition to Chase's commitments hereunder that the portion of the Facilities being provided by Glenayre shall be provided and it is a condition to Glenayre's commitments hereunder that the portion of the Facilities not being provided by Gleanayre shall be provided by Chase or the Syndicated Lenders referred to below. You agree that no other agents, co-agents or arrangers will be appointed, no other titles will be awarded and no compensation (other than that expressly contemplated by the Term Sheet and the Fee Letter referred to below) will be paid in connection with the Facilities unless you and we shall so agree. Chase intends to syndicate the Tranche A Facility and the Tranche B Facility (including, in our discretion, all or part of Chase's commitment hereunder) to a group of financial institutions (the "Syndicated Lenders" and together with Chase and Glenayre, the "Lenders") identified by Chase and CSI in consultation with you. CSI intends to commence syndication efforts promptly upon the execution of this Commitment Letter, and you agree actively to assist CSI in completing a syndication satisfactory to it. Such assistance shall include (a) your direct contact between senior management and advisors of the Borrower and the proposed Lenders, (b) assistance in the preparation of a Confidential Information Memorandum and other marketing materials to be used in connection with the syndication and (c) the hosting, with CSI, of one or more meetings of prospective Lenders. CSI will manage all aspects of the syndication, including decisions as to the selection of institutions to be approached and when they will be approached, when their commitments will be accepted, which institutions will participate, the allocations of the commitments among the Syndicated Lenders and the amount and distribution of fees among the Syndicated Lenders. To assist CSI in its syndication efforts, you agree promptly to prepare and provide to CSI, Chase and Glenayre all information with respect to the Borrower, the Project and the other transactions contemplated hereby, including all financial information and projections (the "Projections"), as we may reasonably request in connection with the arrangement and syndication of the Facilities. You hereby represent and covenant that (a) all information other than the Projections (the "Information") that has been or will be made available to Chase, Glenayre or CSI by you or any of your representatives is or will be, when furnished, complete and correct in all material respects and does not or will not, when furnished, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein not materially misleading in light of the circumstances under which such statements are made and (b) the Projections that have been or will be made available to Chase, Glenayre or CSI by you or any of your representatives have been or will be prepared in good faith based upon reasonable assumptions. In arranging and syndicating the Facilities, we will use and rely on the Information and Projections without independent verification thereof. 3 3 As consideration for Chase's commitment hereunder and CSI's agreement to perform the services described herein, you agree to pay to Chase the nonrefundable fees set forth in the Fee Letter dated the date hereof and delivered herewith (the "Fee Letter"). Chase's and Glenayre's commitments hereunder and CSI's agreement to perform the services described herein are subject to (a) there not occurring or becoming known to us any material adverse condition or material adverse change in or affecting the business, operations, property, condition (financial or otherwise) or prospects of the Borrower and its subsidiaries, taken as a whole, (b) our completion of and satisfaction in all respects with a due diligence investigation of the Borrower and the Project, (c) our not becoming aware after the date hereof of any information or other matter which is inconsistent in a material and adverse manner with any information or other matter disclosed to us prior to the date hereof, (d) there not having occurred a material disruption of or material adverse change in financial, banking or capital market conditions that, in our judgment, could materially impair the syndication of the Facilities, (e) our satisfaction that prior to and during the syndication of the Facilities there shall have been no competing offering, placement or arrangement of any debt securities or bank financing by or on behalf of the Borrower or any affiliate thereof (other than the Senior Notes referred to in the Term Sheet), (f) the negotiation, execution and delivery on or before August 31, 1996 of definitive documentation with respect to the Facilities satisfactory to Chase and Glenayre and their respective counsel and (g) the other conditions set forth in the Term Sheet. The terms and conditions of Chase's and Glenayre's commitments hereunder and of the Facilities are not limited to those set forth herein and in the Term Sheet. Those matters that are not covered by the provisions hereof and of the Term Sheet are subject to the approval and agreement of Chase, CSI, Glenayre and the Borrower. You agree (a) to indemnify and hold harmless Chase, CSI, Glenayre and their respective officers, directors, employees, affiliates, advisors, agents and controlling persons (each, an "indemnified person") from and against any and all losses, claims damages and liabilities to which any such indemnified person may become subject arising out of or in connection with this Commitment Letter, the Facilities, the use of the proceeds thereof, the Project or any related transaction or any claim, litigation, investigation or proceeding relating to any of the foregoing, regardless of whether any indemnified person is a party thereto, and to reimburse each indemnified person upon demand for any legal or other expenses incurred in connection with investigating or defending any of the foregoing, provided that the foregoing indemnity will not, as to any indemnified person, apply to losses, claims, damages, liabilities or related expenses to the extent they arise from the willful misconduct or gross negligence of such indemnified person, and (b) to reimburse Chase, CSI, Glenayre and their affiliates on demand for all reasonable out-of-pocket expenses (including due diligence expenses, syndication expenses, travel expenses, and reasonable fees, charges and disbursements of counsel) incurred in connection with the Facilities and any related documentation (including this Commitment Letter, the Term Sheet, the Fee Letter and the definitive financing documentation). No indemnified person shall be liable for any indirect or consequential damages in connection with its activities related to the Facilities. 4 4 This Commitment Letter shall not be assignable by you without the prior written consent of Chase, CSI and Glenayre (and any purported assignment without such consent shall be null and void), is intended to be solely for the benefit of the parties hereto and is not intended to confer any benefits upon, or create any rights in favor of, any person other than the parties hereto. This Commitment Letter may not be amended or waived except by an instrument in writing signed by you, Chase, CSI and Glenayre. This Commitment Letter may be executed in any number of counterparts, each of which shall be an original, and all of which, when taken together, shall constitute one agreement. Delivery of an executed signature page of this Commitment Letter by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. This Commitment Letter and the Fee Letter are the only agreements which have been entered into among us with respect to the Facilities and set forth the entire understanding of the parties with respect thereto. This Commitment Letter shall be governed by, and construed in accordance with, the laws of the State of New York. This Commitment Letter is delivered to you on the understanding that neither this Commitment Letter, the Term Sheet or the Fee Letter nor any of their terms or substance shall be disclosed, directly or indirectly, to any other person except (a) to your officers, agents and advisors who are directly involved in the consideration of this matter or (b) as may be compelled in a judicial or administrative proceeding or as otherwise required by law (in which case you agree to inform us promptly thereof). The compensation, reimbursement, indemnification and confidentiality provisions contained herein and in the Fee Letter shall remain in full force and effect regardless of whether definitive financing documentation shall be executed and delivered and notwithstanding the termination of this Commitment Letter or Chase's and Glenayre's commitments hereunder. If the foregoing correctly sets forth our agreement, please indicate your acceptance of the terms hereof and of the Term Sheet and the Fee Letter by returning to us executed counterparts hereof and of the Fee Letter not later than 5:00 p.m., New York City time, on July 1, 1996. Chase's and Glenayre's commitments and CSI's agreements herein will expire at such time in the event Chase and Glenayre have not received such executed counterparts of this letter and, if the case of Chase only, the Fee Letter, in accordance with the immediately preceding sentence. 5 5 Chase, CSI and Glenayre are pleased to have been given the opportunity to assist you in connection with this important financing. Very truly yours, THE CHASE MANHATTAN BANK, N.A. By:____________________________ Title: CHASE SECURITIES, INC. By:____________________________ Title: GLENAYRE ELECTRONICS INC. By:____________________________ Title: Accepted and agreed to as of the date first written above by: PCSD FINANCIAL CORP. By:____________________________ Title: 6 $225 MILLION EQUIPMENT FINANCING CREDIT FACILITIES Summary of Terms and Conditions June 25, 1996 I. Parties Borrower: PCSD Financial Corp. (the "Borrower"). Guarantors: Each of the Borrower's direct and indirect subsidiaries (the "Guarantors"; the Borrower and the Guarantors, collectively, the "Credit Parties"). Lenders: In the case of the Tranche A and Tranche B Loans, the banks, financial institutions and other entities, including The Chase Manhattan Bank N.A. ("Chase"), selected in the syndication effort and, in the case of the Glenayre Credit Extensions, Glenayre Electronics Inc. ("Glenayre") (all of the foregoing, collectively, the "Lenders"). Advisor and Arranger: Chase and/or Chase Securities, Inc. (in such capacity, the "Arranger"). Administrative Agent: Chase (in such capacity, the "Administrative Agent"). II. Types and Amounts of Credit Facilities 1. Glenayre Facility Type and Amount of Facility: 4-year multiple drawdown term loan facility in the amount of $75,000,000 (the extensions of credit thereunder, the "Glenayre Credit Extensions"). Availability: The Glenayre Facility shall be available for extensions of credit against the Borrower's purchases of Glenayre equipment, related software and technical services during the period commencing on the Closing Date and ending on the date which is three and one half 7 2 years thereafter (the "Glenayre Conversion Date"), after which the Glenayre Credit Extensions will amortize as described below. Amortization: The Glenayre Credit Extensions outstanding on the Glenayre Conversion Date shall be repayable in two consecutive quarterly installments, commencing on March 31, 2000, and ending on June 30, 2000, in an equal amount for each quarter based on the amount of the Glenayre Credit Extensions outstanding on the Glenayre Conversion Date. Purpose: The Glenayre Credit Extensions shall be available to finance the acquisition by the Borrower from Glenayre of Glenayre equipment, related software and technical services associated with the installation and servicing of Glenayre equipment. 2. Tranche A Facility Type and Amount of Facility: 4-year revolving credit facility (the "Tranche A Facility" in the amount of $35,000,000 (the loans thereunder, the "Tranche A Loans"). Availability: The Tranche A Facility shall be available on a revolving basis during the period commencing on the Closing Date (as defined below) and ending on the date which is three and one half years thereafter (the "Tranche A Conversion Date"), after which the Tranche A Loans will amortize as described below. Amortization: The Tranche A Loans outstanding on the Tranche A Conversion Date shall be repayable in two consecutive quarterly installments, commencing on March 31, 2000, and ending on June 30, 2000, in an equal amount for each quarter based on the amount of the Tranche A Loans outstanding on the Tranche A Conversion Date. Purpose: The proceeds of the Tranche A Loans shall be used to finance the working capital and capital expenditure 8 3 needs of the Borrower and its subsidiaries in the ordinary course of business. 3. Tranche B Facility Type and Amount of Facility: 8-year reducing revolving credit facility (the "Tranche B Facility; together with the Glenayre Facility and Tranche A Facility, the "Credit Facilities") in the amount of $115,000,000 (the loans thereunder, the "Tranche B Loans"). Availability: The Tranche B Facility shall be available on a revolving basis during the period commencing on the Closing Date and ending on June 30, 2004 (the "Tranche B Termination Date"), provided that the Tranche B Facility shall automatically terminate on June 30, 2000 unless the initial borrowing thereunder is made on or before such date. Stepdowns: The Tranche B Facility shall be reduced in fourteen consecutive quarterly installments, commencing on March 31, 2001 and ending on June 30, 2004, in an aggregate amount for each calendar year set forth below equal to the percentage set forth opposite such year multiplied by the amount of the Tranche B Facility (with the installments during each such year being equal in amount):
Year Percentage ---- ---------- 2001 10.0% 2002 22.5 2003 37.5 2004 30.0
Maturity: The Tranche B Termination Date. Purpose: The proceeds of the Tranche B Loans shall be used to finance the working capital and capital expenditure needs of the Borrower and its subsidiaries in the ordinary course of business and to repay maturing Glenayre Credit Extensions and Tranche A Loans. 9 4 III. General Payment Provisions Fees and Interest Rates: As set forth on Annex I. Optional Prepayments and Loans may be prepaid and commitments may be Commitment Reductions: reduced by the Borrower in minimum amounts to be agreed upon, provided that Eurodollar Loans (as defined in Annex I) may only be prepaid on the last day of an interest period applicable thereto. Optional prepayments of the Loans and reductions of the commitments to lend under the Credit Facilities shall be applied ratably among the Credit Facilities and, with respect to each Credit Facility, to the installments and mandatory stepdowns thereof ratably in accordance with the then outstanding amounts thereof. In the case of any such reduction of a revolving credit commitment to lend under the Tranche B Facility, the Loans thereunder shall be prepaid to the extent they exceed the Tranche B Facility as so reduced. Mandatory Prepayments and The following amounts shall be applied to Commitment Reductions: prepay the Loans and reduce the Credit Facilities: (a) subject to certain exceptions to be agreed upon, 50% of the net proceeds of any sale or issuance of equity or incurrence of indebtedness after the Closing Date by the corporation which is the owner of all of the capital stock of the Borrower (the "Parent") or by the Borrower or any of its subsidiaries; (b) 100% of the net proceeds of any sale or other disposition by the Borrower or any of its subsidiaries of any material assets (except for the sale of inventory or obsolete or worn-out property in the ordinary course of business and certain other sales to be agreed on); (c) 100% of the net proceeds of any insurance or condemnation recoveries not reasonably promptly applied toward repair or replacement of the affected property; and 10 5 (d) a percentage of Excess Cash Flow for each fiscal year of the Borrower based on the Borrower's Leverage Ratio as set forth on Annex II (commencing with the fiscal year ending December 31, 1998). All such prepayments of the Loans and reductions of the commitments to lend under the Credit Facilities shall be applied ratably between the Credit Facilities (except that any such prepayment made with the proceeds of the sale of any equipment, related software and technical services supplied by Glenayre shall be applied, so long as any Glenayre Credit Extensions are outstanding, first to the Glenayre Credit Extensions) and, with respect to each Credit Facility, to the installments and mandatory stepdowns thereof ratably in accordance with the then outstanding amounts thereof. In the case of any such reduction of a revolving credit commitment to lend under the Tranche B Facility, the Loans thereunder shall be prepaid to the extent they exceed the Tranche B Facility as so reduced. IV. Guarantees and Collateral (See Annex III) Guarantees: All obligations of the Borrower under the Credit Documentation shall be unconditionally guaranteed by the Guarantors. Collateral: All the assets used in the business of the Borrower will be lodged in one of three separate subsidiaries of the Borrower into which will be placed, respectively: (a) all FCC and other governmental licenses and permits ("the License Subsidiary"), (b) all real estates leasehold interests (the "Leasehold Subsidiary"), and (c) all other assets (the "Operating Subsidiary"). The obligations of the Borrower under the Credit Facilities will be secured by a pledge of all the capital stock of such Subsidiaries. In addition, the Operating Subsidiary will create perfected liens on receivables, general intangibles and all equipment owned by it that shall be supplied by Glenayre and other vendors. 11 6 All collateral will be held by Chase as collateral agent for the Lenders and will be shared by them equally and ratably, except that the Glenayre Credit Extensions will have a first priority security interest in the equipment and related software supplied by Glenayre. V. Certain Conditions Initial Conditions: The availability of the Credit Facilities shall be conditioned upon satisfaction of, among other things, the following conditions precedent (the date upon which all such conditions precedent shall be satisfied, the "Closing Date") on or before June 30, 1996: (a) Each Credit Party shall have executed and delivered satisfactory definitive financing documentation with respect to the Credit Facilities (the "Credit Documentation"). (b) The Parent shall have received at least $145,000,000 in cash in gross proceeds from the issuance of its Senior Discount Notes due 2006 (the "Senior Notes") on satisfactory terms and conditions, and the Borrower shall have received at least $200,000,000 from the issuance of its common stock to the Parent (constituting the proceeds of the Senior Notes and the preferred stock referred to in paragraph (c) below). All the proceeds from the Senior Discount Notes offering and preferred stock offering must be invested in the Borrower. The capital structure of each Credit Party after the completion of the foregoing shall be satisfactory in all respects. (c) The Administrative Agent and Glenayre shall be satisfied with all the terms and conditions of the Parent's currently outstanding preferred stock. (d) The Borrower shall have entered into equipment supply contracts with all vendors containing satisfactory terms and conditions to allow the Borrower to fulfill its business plan and such contracts shall be satisfactory to the Administrative Agent. 12 7 (e) The Lenders, the Administrative Agent and the Arranger shall have received all fees and expenses required to be paid on or before the Closing Date. (f) All governmental and third party approvals (including landlords' and other consents) necessary or advisable in connection with the financing contemplated hereby and the continuing operations of the Borrower and its subsidiaries shall have been obtained and be in full force and effect. (g) The Lenders shall have received (i) satisfactory audited consolidated financial statements of the Borrower for the two most recent fiscal years ended prior to the Closing Date as to which such financial statements are available and (ii) satisfactory unaudited interim consolidated financial statements of the Borrower for each quarterly period ended subsequent to the date of the latest financial statements delivered pursuant to clause (i) of this paragraph as to which such financial statements are available. (h) The Lenders shall have received a satisfactory pro forma consolidated balance sheet of the Borrower as at the date of the most recent consolidated balance sheet delivered pursuant to paragraph (g) above, adjusted to give effect to the consummation on the Closing Date of the issuance by the Parent of the Senior Notes and the financings contemplated hereby. (i) The Lenders shall have received a satisfactory business plan for fiscal years 1996 through 2000 and a satisfactory written analysis of the business and prospects of the Borrower and its subsidiaries for the period from the Closing Date through the final maturity of the Loans (the "Business Plan"). (j) The Lenders shall have received the results of a recent lien search in each of the jurisdictions and offices where assets of the Borrower and its subsidiaries are located or recorded, and such search shall reveal no liens on any of the assets of the 13 8 Borrower or its subsidiaries except for liens approved by the Administrative Agent. (k) The Administrative Agent and Glenayre shall have received satisfactory evidence that the Borrower constitutes a "Designated Entity" within the meaning of the FCC rules and regulations entitled to all the benefits of such status, and the Administrative Agent shall be satisfied with all of the terms and conditions of the payment obligations of the Borrower with respect to all licenses acquired by the Borrower from the FCC. Conditions to The making of each Glenayre Loan shall be Glenayre Credit Extensions: subject to the satisfaction of certain conditions to be agreed upon among Chase, Glenayre and the Borrower, including, but not limited to, the condition that the borrower shall be operating in accordance with the Business Plan. Conditions to The making of each Tranche A Loan shall be Tranche A Loans: subject to (a) the Borrower having expended $185,000,000 of the $200,000,000 referred to in paragraph (b) under "Initial Conditions" above, (b) the Borrower having drawn down the full amount of the Glenayre Facility and (c) the Borrower having (both before and after giving effect to such Loan) (i) a minimum number of "Qualified Pagers in Service" (to be defined as paging units in service for a minimum of 60 days) and (ii) a minimum level of Average Monthly Revenue Per Unit ("ARPU"), all as set forth on Annex IV. Conditions to The making of each Tranche B Loan shall be Tranche B Loans: subject to (a) the Borrower having expended $185,000,000 of the $200,000,000 referred to in paragraph (b) under "Initial Conditions" above and (b) the Borrower having (both before and after giving effect to such Loan) (i) a maximum ratio of Total Debt to "Qualified Pagers in Service" (to be defined as paging units in service for a minimum of 60 days) and (ii) a maximum ratio of Total Debt to Operating Cash Flow, all as set forth on Annex V. 14 9 On-Going Conditions: The making of each extension of credit shall be conditioned upon (a) all representations and warranties in the Credit Documentation (including, without limitation, the material adverse change and litigation representations) being true and correct in all material respects and (b) there being no default or event of default in existence at the time of, or after giving effect to the making of, such extension of credit. As used herein and in the Credit Documentation a "material adverse change" shall mean any event, development or circumstance that has had or could reasonably be expected to have a material adverse effect on (a) the business, assets, property, condition (financial or otherwise) or prospects of the Borrower and its subsidiaries taken as a whole, or (b) the validity or enforceability of any of the Credit Documentation or the rights and remedies of the Administrative Agent and the Lenders thereunder. VI. Representations, Warranties, Covenants and Events of Default The Credit Documentation shall contain representations, warranties, covenants and events of default customary for financings of this type and other terms deemed appropriate by the Lenders, including, without limitation: Representations and Accuracy of financial statements (including Warranties: pro forma financial statements); absence of undisclosed liabilities; no material adverse change; corporate existence; compliance with law; corporate power and authority; enforceability of Credit Documentation; no conflict with law or contractual obligations; no material litigation; no default; ownership of property; liens; intellectual property; no burdensome restrictions; taxes; Federal Reserve regulations; FCC compliance; ERISA; Investment Company Act; subsidiaries; environmental matters; solvency; accuracy of disclosure; and creation and perfection of security interests. 15 10 Affirmative Covenants: Delivery of annual audited (within 90 days of year-end) and unaudited quarterly (within 45 days of quarter-end) and monthly financial statements, reports, accountants' letters, budgets, officers' compliance certificates, reasonably detailed reports (on a regular basis) of the Borrower's Beta testing in Atlanta and Boston and other information requested by the Lenders; payment of other obligations; continuation of business and maintenance of existence and material rights and privileges (including FCC licenses); compliance with the Communications Act and other laws and material contractual obligations; maintenance of property and insurance; maintenance of books and records; right of the Lenders to inspect property and books and records; notices of defaults, litigation and other material events; and compliance with environmental laws; agreement to grant security interests in after-acquired property. Financial Covenants: Financial covenants (including, without limitation, a maximum Total Debt to Operating Cash Flow Ratio, minimum Interest and Fixed Charge Coverage Ratios and a maximum ratio of Total Debt to Qualified Pagers in Service, all as set forth on Annex VI). Negative Covenants: Limitations on: indebtedness (including preferred stock); liens; guarantee obligations; mergers, consolidations, liquidations and dissolutions; sales of assets; leases; dividends and other payments in respect of capital stock (except as described under "Permitted Restricted Payments" below); capital expenditures; investments, loans and advances; optional payments and modifications of subordinated and other debt instruments; amendments to charter and by-laws; transactions with affiliates; sale and leasebacks; changes in fiscal year; negative pledge clauses; changes in lines of business; and changes in passive holding company status of the Parent. Permitted Restricted Distributions may be made on the capital Payments: stock of the Borrower commencing in 2001 to the extent necessary to pay cash interest on the Senior Notes provided that (before and after giving effect thereto) no Default or 16 11 Event of Default shall have occurred and be continuing. Events of Default: Nonpayment of principal when due; nonpayment of interest, fees or other amounts after a grace period to be agreed upon; material inaccuracy of representations and warranties; violation of covenants (subject, in the case of certain affirmative covenants, to a grace period to be agreed upon); cross-default; bankruptcy; certain ERISA events; material judgments; actual or asserted invalidity of any guarantee or security document or security interest or of any credit support document; loss of material FCC licenses; and a change of control. Certain of the foregoing events of default shall be applicable to the provider of credit support as well as to the Borrower and its subsidiaries and to the Parent. VII. Certain Other Terms Voting: Amendments and waivers with respect to the Credit Documentation shall require the approval of Lenders holding Loans and commitments representing a majority of the aggregate amount of the Loans and commitments under the Credit Facilities with certain issues also requiring a vote of a majority of each class of Lender, except that (a) the consent of each Lender directly affected thereby shall be required with respect to (i) reductions in the amount or extensions of the scheduled date of maturity of any Loan, (ii) reductions in the rate of interest or any fee or extensions of any due date thereof, (iii) increases in the amount or extensions of the expiry date of any Lender's commitment or any scheduled stepdown thereof and (b) the consent of 100% of the Lenders shall be required with respect to (i) modifications to any of the voting percentages, and (ii) releases of all or substantially all of the collateral. Class voting provisions shall be included with respect to changes in the application of prepayments and certain other matters. 17 12 Assignments and The Lenders shall be permitted to assign and Participations: sell participations in their Loans and commitments, subject, in the case of assignments (other than to another Lender or to an affiliate of the assigning Lender), to the consent of the Administrative Agent and the Borrower (which consent in each case shall not be unreasonably withheld). Non-pro rata assignments shall be permitted. In the case of partial assignments, the minimum assignment amount shall be $5,000,000. Participants shall have the same benefits as the Lenders with respect to yield protection and increased cost provisions. Voting rights of participants shall be limited to those matters with respect to which the affirmative vote of the Lender from which it purchased its participation would be required as described under "Voting" above. Pledges of Loans in accordance with applicable law shall be permitted without restriction. Promissory notes shall be issued under the Credit Facilities only upon request. Yield Protection: The Credit Documentation shall contain customary provisions (a) protecting the Lenders against loss of yield resulting from changes in reserve, tax, capital adequacy and other requirements of law and from the imposition of withholding or other taxes and (b) indemnifying the Lenders for "breakage costs" incurred in connection with, among other things, prepayment of a Eurodollar Loan (as defined in Annex I) on a day other than the last day of an interest period with respect thereto. Expenses and The Borrower shall pay (a) all reasonable Indemnification: out-of-pocket expenses of the Administrative Agent and the Arranger associated with the syndication of the Credit Facilities and the preparation, execution, delivery and administration of the Credit Documentation and any amendment or waiver with respect thereto (including the reasonable fees and disbursements and other charges of counsel) and (b) all out-of-pocket expenses of the Administrative Agent and the Lenders in connection with the enforcement of the Credit 18 13 Documentation (including the fees and disbursements and other charges of counsel). The Borrower shall indemnify, pay and hold harmless the Administrative Agent, the Arranger and the Lenders (and their respective directors, officers, employees and agents) against any loss, liability, cost or expense incurred in respect of the financing contemplated hereby or the use or the proposed use of proceeds thereof (except to the extent resulting from the gross negligence or willful misconduct of the indemnified party). Governing Law and Forum: State of New York. Counsel to the Simpson Thacher & Bartlett Administrative Agent and the Arranger: Commitment Termination The Credit Documentation must have been Date: entered into on or before June 30, 1996. VIII. Certain Defined Terms Capital Expenditures: Shall mean, for any period, expenditures (including, without limitation, the aggregate amount of capital lease obligations incurred during such period) made by the Borrower or any of its Subsidiaries to acquire or construct fixed or other capital assets (including renewals, improvements and replacements, but excluding repairs) during such period computed in accordance with GAAP. Debt Service: Shall mean, for any period, the sum of Interest Expense for such period and scheduled principal payments and required commitment reductions under the Credit Facilities during such period, as well as any capital lease payments due during such period. Designated Corporate [to be determined]. Overhead: Excess Cash Flow: Shall mean, for any fiscal year, the amount (if any) 19 14 by which (a) Net Operating Cash Flow for such fiscal year exceeds (b) the sum of (i) Debt Service for such fiscal year plus (ii) the aggregate amount of Capital Expenditures made by the Borrower and its subsidiaries during such fiscal year plus (iii) the aggregate amount of income taxes paid during such fiscal year plus (iv) $3,000,000. Fixed Charge Coverage Shall mean, as at any date of determination Ratio: thereof, the ratio of (a) Net Operating Cash Flow of the Borrower for the then most recently ended fiscal quarter for which financial statements shall have been delivered to the Lenders, plus cash then on hand (for the periods from The Closing Date to 12/31/2000), plus (after the Tranche B Incurrence Date (as defined on Annex V) but before December 31, 2000) the then unused amount of the Tranche B Facility to (b) Fixed Charges for such period. Fixed Charges: Shall mean, for any period, for the Borrower and its subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP): the sum of (i) Debt Service for such period plus (ii) taxes paid during such period; plus (iii) the aggregate amount of Capital Expenditures made during such period. Interest Coverage Ratio: Shall mean, as at any date of determination thereof, the ratio of (a) Net Operating Cash Flow for the two then most recently ended consecutive fiscal quarters for which financial statements shall have been delivered to the Lenders, plus cash then on hand (for the periods from the Closing Date to 12/31/2000) to (b) Interest Expense for such fiscal quarters. Interest Expense: Shall mean, for any period, the sum, for the Borrower and its subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of all interest in respect of Indebtedness (including, without limitation, the interest component of any payments in respect of capital lease obligations and net amounts received or paid under interest rate swaps). 20 15 Leverage Ratio: Shall mean, as at any date of determination thereof, the ratio of (a) Total Debt at such time to (b) Operating Cash Flow for the two then most recently ended consecutive fiscal quarters for which financial statements shall have been delivered to the Lenders multiplied by two. Net Operating Cash Flow: Shall mean, for any period, Operating Cash Flow for such period less Designated Corporate Overhead for such period. Operating Cash Flow: Shall mean, for any period, the sum (determined on a consolidated basis in accordance with GAAP and without duplication) of (a) gross operating revenue (whether recurring or non-recurring) of the Borrower and its subsidiaries derived in the ordinary course of business during such period (including, without limitation, all service charges and all revenues realized from the sale or lease of mobile radio or paging equipment but excluding interest income and unusual, non-recurring or extraordinary items) minus (b) gross operating expenses (whether recurring or non-recurring) of the Borrower and its subsidiaries during such period (including, without limitation, all site rental charges, maintenance expenses, general administration expenses and general corporate overhead expenditures but excluding Interest Expense and excluding also depreciation, amortization of intangibles, certain Designated Corporate Overhead, other non-cash charges and any unusual, non-recurring or extraordinary items). Total Debt: Shall mean all indebtedness of the Borrower (including, without limitation, capital lease obligations). 21 Annex I Interest and Certain Fees Interest Rate Options: The Borrower may elect that all or a portion of the Loans bear interest at a rate per annum equal to: (a) the Base Rate plus the Applicable Margin; or (b) the Eurodollar Rate plus the Applicable Margin. As used herein: "Base Rate" means the higher of (i) the rate of interest publicly announced by Chase as its prime rate in effect at its principal office in New York City (the "Prime Rate") and (ii) the federal funds effective rate from time to time plus 0.5%. "Applicable Margin" means: (a) in the case of Glenayre Credit Extensions, (i) which are Base Rate Loans (as defined below), 3% or (ii) which are Eurodollar Loans (as defined below), 4%, or (b) in the case of Tranche A, (i) which are Base Rate Loans (as defined below), 3% or (ii) which are Eurodollar Loans (as defined below), 4% or (c) in the case of Tranche B Loans, (i) which are Base Rate Loans (x) 2% (when the Debt to Operating Cash Flow Ratio is equal to or greater than 5 to 1) or (y) 1 1/2% (when such Ratio is less than 5 to 1) or (ii) which are Eurodollar Loans (x) 3% (when such Ratio is equal to or greater than 5 to 1) or (y) 2 1/2% (when such Ratio is less than 5 to 1). "Eurodollar Rate" means the rate (grossed-up for maximum statutory reserve requirements for eurocurrency liabilities) at which eurodollar deposits for one, two, three or six months (as selected by the Borrower) are offered to Chase in the interbank eurodollar market in the approximate amount of Chase's share of the relevant Loan. 22 2 Interest Payment Dates: In the case of Loans bearing interest based upon the Base Rate ("Base Rate Loans"), quarterly in arrears. In the case of Loans bearing interest based upon the Eurodollar Rate ("Eurodollar Loans"), on the last day of each relevant interest period and, in the case of any interest period longer than three months, on each successive date three months after the first day of such interest period. Commitment Fees: The Borrower shall pay to the Lenders (including Glenayre) a commitment fee calculated at the rate of 1/2 of 1% per annum on the average daily unused portion of the Credit Facilities, payable quarterly in arrears. Default Rate: At any time when the Borrower is in default in the payment of any amount due under the Credit Facilities, the principal of all Loans shall bear interest at 3% above the rate otherwise applicable thereto. Overdue interest, fees and other amounts shall bear interest at 3% above the rate applicable to Base Rate Loans. Rate and Fee Basis: All per annum rates shall be calculated on the basis of a year of 360 days (or 365/366 days, in the case of Base Rate Loans the interest rate payable on which is then based on the Prime Rate) for actual days elapsed. 23 Annex II Excess Cash Flow Mandatory Prepayments
Leverage Ratio Percentage of Excess Cashflow applied to prepay Loans - -------------- ------------------------------ greater than 3 to 1 75% less than 3 to 1 50% but more than 2 to 1 less than 2 to 1 0%
24 Annex IV Incurrence Tests For Tranche A Pagers in Service 750,000 Minimum Average Revenue $ 8.25 per Unit Debt/Qualified Pagers in $250 to 1 Service
The "Tranche A Incurrence Date" is defined as the first day upon which the Borrower meets the incurrence tests above and Tranche A is available to be borrowed by the Borrower. 25 Annex V Incurrence Tests For Tranche B Debt/Qualified Pagers in $250 to 1 Service Leverage Ratio 7 to 1
The "Tranche B Incurrence Date" is defined as the first day upon which the Borrower meets the incurrence tests above and Tranche B is available to be borrowed by the Borrower. 26 Annex VI Quarterly Maintenance Tests For Glenayre Facility, Tranche A and B
Tranche B 12/31/99 6/30/2000 12/31/2000 12/30/2001 Incurrence Date to to to to and 12/30/99 6/29/2000 12/30/2000 12/30/2001 Thereafter -------- --------- ---------- ---------- ---------- Total Debt/ $200 to 1 $200 to 1 $200 to 1 $150 to 1 $150 to 1 Qualified Pagers in Service Leverage Ratio 8.0 to 1 8.0 to 1 4.5 to 1 3.25 to 1 3.00 to 1 Interest Coverage 1.5 to 1 1.50 to 1 2 to 1 2 to 1 2 to 1 Ratio Fixed Charge N/A N/A N/A 1.10 to 1 1.35 to 1 Coverage Ratio
EX-23.1 12 CONSENT OF DELOITTE & TOUCHE LLP 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Amendment No. 3 to the Registration Statement No. 333-2162 of PCS Development Corporation on Form S-1 of our report dated February 16, 1996 (except with respect to Note 12, as to which the date is April 25, 1996), appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. Deloitte & Touche LLP /s/ Deloitte & Touche LLP Greenville, South Carolina July 16, 1996 EX-23.3 13 CONSENT OF LUKAS MCGOWAN 1 EXHIBIT 23.3 LUKAS MCGOWAN NACE & GUTIERREZ, CHARTERED CONSENT We consent to the use in this Amendment No. 3 to the Registration Statement of PCS Development Corporation on Form S-1 of our legal opinions filed as Exhibits 5.2, 5.3 and 5.4 as part of this Registration Statement. In giving this consent, we do not admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules or regulations of the Securities and Exchange Commission promulgated thereunder. Lukas McGowan Nace & Gutierrez, Chartered /s/ Lukas McGowan Nace & Gutierrez, Chartered Washington, D.C. July 16, 1996 -----END PRIVACY-ENHANCED MESSAGE-----