Filed pursuant to Rule 424(b)(3)
File No. 333-57715 (02-06)
PROSPECTUS SUPPLEMENT
DATED NOVEMBER 15, 1999
TO PROSPECTUS
DATED JULY 30, 1999
TRITON PCS, INC.
11% SENIOR SUBORDINATED DISCOUNT NOTES
DUE 2008
This prospectus supplement, dated November 15, 1999,
supercedes and replaces any previously filed prospectus
supplement and any information contained in the accompanying
market-making prospectus, dated July 30, 1999, that is
inconsistent with the information in this prospectus supplement.
This prospectus supplement includes the following information:
- - Consolidated financial statements of Triton PCS, Inc. as of
and for the nine months ended September 30, 1999;
- - Managements Discussion and Analysis of Financial Condition
and Results of Operations for the nine months ended September 30,
1999;
- - Combined financial statements of Triton PCS, Inc. and its
predecessor company as of and for the period ended December 31,
1998; and
- - Managements Discussion and Analysis of Financial Condition
and Results of Operations for the period ended December 31, 1998.
TRITON PCS, INC.
CONSOLIDATED BALANCE SHEETS
($000s)
December 31, September 30,
1998 1999
(unaudited)
ASSETS:
Current assets:
Cash and cash equivalents $146,172 $50,931
Marketable securities 23,612 -
Due from related party 951 751
Accounts receivable net of allowance
for doubtful accounts of $1,071 and
$451, respectively 3,102 16,032
Inventory 1,433 6,822
Prepaid expenses and other current assets 4,369 7,004
--------- ---------
Total current assets 179,639 81,540
Property, plant, and equipment:
Land 313 313
Network infrastructure and equipment 34,147 201,226
Office furniture and equipment 17,642 26,953
Capital lease asset 2,263 4,567
Construction in progress 145,667 113,852
--------- ---------
200,032 346,911
Less accumulated depreciation (1,079) (17,486)
--------- ---------
Net property and equipment 198,953 329,425
Intangible assets, net 307,361 318,370
Deferred transaction costs 906 430
Other long-term assets - 2,944
--------- ---------
Total assets $686,859 $732,709
========= =========
LIABILITIES AND SHAREHOLDERS EQUITY:
Current liabilities:
Accounts payable $25,256 $28,071
Accrued payroll & related expenses 3,719 9,072
Accrued expenses 3,646 10,842
Accrued interest 545 638
Capital lease obligations 281 838
Deferred gain on tower sale - 1,190
-------- --------
Total current liabilities 33,447 50,651
-------- --------
Long-term debt 463,648 500,975
Capital lease obligations 2,041 3,417
Deferred gain on tower sale - 30,940
Deferred income taxes 11,744 11,744
Shareholders Equity:
Common stock, $.01 par value, 1,000
shares authorized, 100 shares issued
and outstanding - -
Additional paid-in capital 217,050 280,786
Deferred compensation (4,370) (17,836)
Accumulated deficit (36,701) (127,968)
Total shareholders equity 175,979 134,982
-------- ---------
Total liabilities & shareholders equity $686,859 $732,709
======== =========
See accompanying notes to consolidated financial statements.
TRITON PCS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
($000s)
Three Months Nine Months
Ended Ended
September 30, September 30,
1998 1999 1998 1999
(unaudited) (unaudited) (unaudited) (unaudited)
Revenues:
Service revenues $ 5,656 $19,887 $5,656 $37,516
Roaming revenues 2,718 14,226 2,718 27,210
Equipment revenues 431 9,000 431 16,629
------- ------- ------ -------
Total revenue 8,805 43,113 8,805 81,355
Expenses:
Cost of service 2,487 19,749 3,167 38,202
Cost of equipment 770 14,677 770 27,494
Selling and marketing 665 16,461 793 38,376
General and administrative 5,011 11,895 9,385 28,558
Non-cash compensation 33 1,390 339 2,325
Depreciation and amortization 2,977 11,278 4,326 27,247
------- ------- ------- -------
Loss from operations 3,138 32,337 9,975 80,847
Interest and other expense, net
of capitalized interest 11,723 7,388 21,594 26,242
Interest and other income 4,147 1,488 6,886 4,140
Gain on tower - 11,682 - 11,682
------- ------- ------- -------
Loss before taxes 10,714 26,555 24,683 91,267
Income tax benefit 4,059 - 10,861 -
------- ------- ------- -------
Net loss and comprehensive loss $6,655 $26,555 $13,822 $91,267
======= ======= ======= =======
See accompanying notes to consolidated financial statements.
TRITON PCS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000s)
Nine Months Ended
September 30,
1998 1999
(unaudited) (unaudited)
Cash flows from operating activities:
Net loss and comprehensive loss $(13,822) $(91,267)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization 4,326 27,248
Deferred income taxes (10,861) -
Accretion of interest 14,603 27,808
Gain on sale of marketable securities - (1,004)
Gain on tower sale - (11,682)
Non-cash compensation 339 2,325
Change in operating assets and liabilities:
Accounts receivable (1,716) (12,930)
Inventory (54) (5,389)
Prepaid expenses and other current assets (531) (2,291)
Other long term assets - (3,158)
Accounts payable 2,659 (12,245)
Accrued payroll and liabilities 2,337 11,983
Accrued interest 2,543 93
------- --------
Net cash used in operating activities (177) (70,509)
Cash flows from investing activities:
Capital expenditures (33,245) (162,661)
Proceeds from sale of property and
equipment, net - 69,712
Proceeds from sale of marketable securities - 47,855
Purchase of marketable securities - (23,239)
Myrtle Beach acquisition, net of cash acquired (163,853) -
------- --------
Net cash used in investing activities (197,098) (68,333)
Cash flows from financing activities:
Borrowings under credit facility 150,000 10,000
Borrowings on subordinated debt 291,000 -
Capital contributions from parent 68,347 37,513
Payment of deferred transaction costs (11,822) (3,826)
Advances to related party, net (123) 200
Principal payments under capital
lease obligations (18) (286)
------- -------
Net cash provided by financing activities 497,384 43,601
------- -------
Net increase (decrease) in cash 300,109 (95,241)
Cash and cash equivalents, beginning
of period 11,362 146,172
------- -------
Cash and cash equivalents, end of period $311,471 $50,931
======= =======
See accompanying notes to consolidated financial statements.
ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
When used in this Form 10-Q and in future filings by the Company
with the SEC, in the Companys press releases and in oral
statements made with the approval of an authorized executive
officer of the Company, the words or phrases will likely result,
management expects or the Company expects, will continue, is
anticipated, estimated or similar expressions (including
confirmations by an authorized executive officer of the Company
or any such expressions made by a third party with respect to the
Company) are intended to identify forward-looking statements
within the meaning of the Private Securities Litigation Reform
Act of 1995. Readers are cautioned not to place undue reliance on
any such forward-looking statements, each of which speaks only as
of the date made. Such statements are subject to certain risks
and uncertainties that could cause actual results to differ
materially from historical earnings and those presently
anticipated or projected. The Company has no obligation to
release publicly the result of any revisions, which may be made
to any forward-looking statements to reflect anticipated or
unanticipated events or circumstances occurring after the date of
such statements.
GENERAL
As used herein, the terms Company, we, our (and similar terms)
refer collectively to Triton PCS Holdings, Inc., Triton PCS,
Inc., and their consolidated subsidiaries. The following
discussion and analysis is based upon the consolidated financial
statements of the Company for the periods presented herein, and
should be read in conjunction with the combined financial
statements of the Company as of December 31, 1998 and for the
year then ended.
OVERVIEW
The Company was incorporated in October 1997. In February 1998,
Holdings entered into a joint venture with AT&T whereby AT&T
contributed personal communications services licenses covering 20
MHz of authorized frequencies in a contiguous geographic area
encompassing portions of Virginia, North Carolina, South
Carolina, Tennessee, Georgia and Kentucky. As part of this
agreement, AT&T became Holdings largest equity holder, and the
Company was granted the right to be the exclusive provider of
wireless mobility services using equal emphasis co-branding with
AT&T in the licensed markets.
On June 30, 1998, the Company acquired an existing cellular
system serving Myrtle Beach, South Carolina and the surrounding area from
Vanguard Cellular Systems of South Carolina, Inc. This
transaction was accounted for as a purchase. In connection with
this acquisition, the Company began commercial operations and
earning recurring revenue in July 1998. The Company integrated
the Myrtle Beach system into our personal communications services
network as part of the Phase I network deployment. Substantially
all of the Companys revenues prior to 1999 were generated by
cellular services provided in Myrtle Beach. The results of
operations do not include the Myrtle Beach system prior to our
acquisition of that system.
The Company began generating revenues from the sale of personal
communications services in the first quarter of 1999 as part of
Phase I of our personal communications services network build-
out. The personal communications services network build-out is
scheduled for three phases. The Company completed the first phase
of our build-out in the first half of 1999.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE THREE
MONTHS ENDED SEPTEMBER 30, 1998
Customer Analysis
The Companys number of customers increased to 129,616 at
September 30, 1999. For the three months ended September 30,
1999, the Company added 51,252 customers, which was primarily
related to 15 markets launched as part of Phase I network build-
out.
Revenues
Service revenues were $19.9 million and $5.7 million for the
three months ended September 30, 1999 and 1998, respectively.
Equipment revenues were $9.0 million and $0.4 million, for the
three months ended September 30, 1999 and 1998, respectively.
The $14.2 million increase in service revenues and $8.6 million
in equipment revenues over the same period in 1998 were primarily
related to launching 15 markets as part of Phase I network build-
out. Roaming revenues were $14.2 million and $2.7 million for
the three months ended September 30, 1999 and 1998, respectively.
The $11.5 million increase over the same period in 1998 was
primarily from our launched markets.
Cost of Service and Equipment
Cost of service and equipment was $34.4 million and $3.3 million
for the three months ended September 30, 1999 and 1998,
respectively. The increase of $31.1 over the same period in 1998
was primarily related to launching 15 markets as part of the
Phase I network build-out.
Selling and Marketing Expenses
Selling and marketing costs were $16.5 million and $0.7 million
for the three months ended September 30, 1999 and 1998,
respectively. The increase of $15.8 million over the same period
in 1998 was due to higher salary and benefits expenses for new
sales and marketing staff and advertising and promotion
associated with launching 15 markets as part of completing our
Phase I network build-out.
General & Administrative Expenses
General and administrative expenses were $11.9 million and $5.0
million for the three months ended September 30, 1999 and 1998,
respectively. The increase of $6.9 million over the same period
in 1998 was primarily due to the development and growth of
infrastructure and staffing related to information technology,
customer care and other administrative functions incurred in
conjunction with launching 15 markets.
Non-cash Compensation
Non-cash compensation was $1.4 million and $0.1 million for the
three months ended September 30, 1999 and 1998, respectively.
This increase of $1.3 million over the same period in 1998 was
attributable to an increase in the vesting of restricted shares
as compared to the same period in 1998 and the issuance of
additional shares to certain management employees and directors.
Depreciation & Amortization Expenses
Depreciation and amortization expenses were $11.3 million and
$3.0 million for three months ended September 30, 1999 and 1998,
respectively. The increase of $8.3 million over the same period
in 1998 relates primarily to depreciation of our fixed assets, as
well as the amortization on personal communications services
licenses and the AT&T agreements upon the commercial launch of
our Phase I markets.
Interest Expense & Income
Interest expense was $7.4 million, net of capitalized interest of
$5.7 million, for the three months ended September 30, 1999.
Interest expense was $11.7 million, net of capitalized interest
of $0.5 million, for the three months ended September 30, 1998.
The decrease of $4.3 million over the same period in 1998 is
attributable to an increase in capitalized interest of $5.2
million due to higher capital expenditures, offset by an increase
in interest expense of $0.8 million. The Company had borrowings
of $501.0 million as of September 30, 1999, with a weighted
average interest rate of 10.12%.
Interest income was $0.5 million and $4.1 million for the three
months ended September 30, 1999 and 1998 respectively. The
decrease of $3.6 million over the same period in 1998 was due
primarily to lower cash balances.
Net Income
Net loss was $26.6 million and $6.7 million for the three months
ended September 30, 1999 and 1998, respectively. The increase of
$19.9 million over the same period in 1998 resulted primarily
from the items discussed offset by the gain on the tower sale of
$11.7 million and the gain on the sale of marketable securities
of $1.0 million.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1998
Customer Analysis
The Companys number of customers increased to 129,616 at
September 30, 1999. For the nine months ended September 30,
1999, the Company added 95,772 customers, primarily related to
the launch of 15 markets included in the completion of the
Companys initial build-out.
Revenues
Service revenues were $37.5 million and $5.7 million for the nine
months ended September 30, 1999 and 1998, respectively. For nine
months ended September 30, 1999 and 1998, equipment revenues were
$16.6 million and $0.4 million, respectively. The $31.8 million
increase in service revenues and $16.2 million increase for
equipment revenues over the same period in 1998 were primarily
the result of launching 15 markets as part of completing the
Phase I network build-out. In addition, the Company generated no
revenue for the six months ended June 30, 1998. Roaming revenues
were $27.2 million and $2.7 million for the nine months ended
September 30, 1999 and 1998, respectively. The increase of $24.5
million over the same period in 1998 was due primarily from our
launched markets.
Cost of Service and Equipment
Cost of service and equipment was $65.7 million and $3.9 million
for the nine months ended September 30, 1999 and 1998,
respectively. The increase of $61.8 million over the same period
in 1998 was primarily related to launching 15 markets as part of
the Phase I network build-out. In addition, there was no cost of
service and equipment for the six months ended June 30, 1998.
Selling and Marketing Expenses
Selling and marketing costs were $38.4 million and $0.8 million
for the nine months ended September 30, 1999 and 1998,
respectively. The increase of $37.6 million over the same period
in 1998 was due to higher salary and benefits expenses for new
sales and marketing staff and advertising and promotion
associated with launching 15 markets as part of completing our
Phase I network build-out
General & Administrative Expenses
General and administrative expenses were $28.6 million and $9.4
million for the nine months ended September 30, 1999 and 1998,
respectively. The increase of $19.2 million over the same
period in 1998 was due to the development and growth of
infrastructure and staffing related to information technology,
customer care and other administrative functions incurred in
conjunction with the commercial launch of our first 15 markets
during 1999.
Non-cash Compensation
Non-cash compensation was $2.3 million and $0.3 million for the
nine months ended September 30, 1999 and 1998, respectively. This
increase of $1.3 million over the same period in 1998 was
attributable to an increase in the vesting of restricted shares
as compared to the same period in 1998 and the issuance of
additional shares to certain management employees and directors.
Depreciation & Amortization Expense
Depreciation and amortization expense was $27.2 million and $4.3
million for the nine months ended September 30, 1999 and 1998,
respectively. The increase of $22.9 million over the same period
in 1998 relates primarily to depreciation on equipment launched
in our 15 markets and the amortization of licenses put into
service related to the Companys initial build-out and
amortization attributable to certain agreements acquired in the
AT&T transaction.
Interest Expense & Income
For the nine months ended September 30, 1999, interest expense
was $26.2 million, net of capitalized interest of $12.9 million.
For the nine months ended September 30, 1998, interest expense
was $21.6 million, net of capitalized interest of $0.8 million.
The increase of $4.6 million over the same period in 1998 is
primarily due to increased borrowings for the network build-out.
The Company had borrowings of $501.0 million as of September 30,
1999, with a weighted average interest rate of 10.07%.
For the nine months ended September 30, 1999 and 1998 interest
income was $3.1 million and $6.9, respectively. The decrease of
$3.8 million over the same period in 1998 was the result of the
lower average available cash balance for the nine months ended
September 30, 1999 of $78.5 million, as compared to the $136.4
million for the same period in 1998. The reduction in available
cash was due primarily to capital expenditures related to the
network build-out.
Net Income
For the nine months ended September 30, 1999, the net loss was
$91.3 million as compared to $13.8 million for the same period in
1998. The net loss increased $77.5 million, resulting primarily
from the items discussed above offset by the gain on the tower
sale of $11.7 million and the gain on the sale of marketable
securities of $1.0 million.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, the Company had $50.9 million in cash
and cash equivalents, as compared to $146.2 million in cash and
cash equivalents at December 31, 1998. Net working capital was
$30.1 million at September 30, 1999 and $146.2 million at
December 31, 1998.
Net Cash Used in Operating Activities
The $70.5 million in cash used by operating activities arose
primarily from an increase in sales, marketing and operating
activities related to launching 14 new markets and the ongoing
establishment of the regional organization structures.
Net Cash Used in Investing Activities
The $68.3 million in cash used by investing activities arose from
the purchase of marketable securities of $23.2 million and
capital expenditures related to the network build-out of $162.7
million offset by the net proceeds from the sale of towers of
$69.7 million and the proceeds from the sale of short term
investments of $47.9 million.
Net Cash Provided by Financing Activities
The $43.6 million provided by financing activities arose from
$37.5 million in capital contributions from Holdings and $10.0
million draw down of the revolving credit line offset by $3.8
million of deferred transaction costs.
LIQUIDITY
Since inception, the Companys activities have consisted
principally of hiring a management team, raising capital,
negotiating strategic business relationships, participating in
personal communications services auctions,
initiating research and development, conducting market research,
developing our wireless services offering and network, and
launching our wireless services in our Phase I markets. The
Companys primary source of financing during this time has been
from borrowings under our credit facility and the net proceeds
from issuances of capital stock and senior subordinated discount
notes.
The construction of the network and the marketing and
distribution of wireless communications products and services has
required, and will continue to require, substantial capital.
These capital requirements include license
acquisition costs, capital expenditures for network construction,
operating cash flow losses and other working capital costs, debt
service and closing fees and expenses. The Company has incurred
significant amounts of debt to implement the business plan, and
therefore the Company is highly leveraged. The Company estimates
that our total capital requirements, assuming substantial
completion of our network build-out, which will allow us to
provide services to 100% of the potential customers in the
licensed area, from the Companys inception until December 31,
2001 will be approximately $1.3 billion.
Costs associated with the network build-out include switches,
base stations, towers and antennae, radio frequency engineering,
cell site acquisition and construction and microwave relocation,
and include $95.6 million of capital expenditures related to
purchase commitments as part of an agreement with Ericsson. The
actual funds required to build out our personal communications
services network may vary materially from these estimates, and
additional funds could be required in the event of significant
departures from the current business plan, in the event of
unforeseen delays, cost overruns, unanticipated expenses,
regulatory expenses, engineering design changes and
other technological risks.
The Company has funded, and expects to continue to fund, our
capital requirements with:
. the proceeds from equity investments by Holdings
shareholders and from additional irrevocable equity
commitments by Holdings shareholders;
. borrowings under our credit facility;
. the proceeds from an offering of senior subordinated discount
notes in 1998;
. the proceeds from the sale of our towers; and
. the proceeds from Holdings initial public offering.
The Company believes that with the available credit facility
borrowings, the proceeds from the Holdings offering, the equity
investments that have been committed to us and proceeds from the
tower sale will be sufficient to meet our projected capital
requirements through the end of 2001. Although the Company
estimates that these funds will be sufficient to build-out our
network and to enable us to provide services to 100% of the
customers in our licensed area, it is possible that additional
funding will be necessary.
Equity Contributions
As part of the joint venture agreement with AT&T, AT&T
transferred personal communications services licenses covering 20
MHz of authorized frequencies in exchange for 732,371 shares for
Holdings Series A preferred stock and 366,131 shares of Holdings
Series D preferred stock. The Series A preferred stock provides
for cumulative dividends at an annual 10% rate on the $100
liquidation value per share plus unpaid dividends. These
dividends accrue and are payable quarterly; however, Holdings may
defer all cash payments due to the holders until June 30, 2008
and quarterly dividends are payable in cash thereafter. The
Series A preferred stock is redeemable at the option of its
holders beginning in 2018 and at our option, at its accreted
value, on or after February 4, 2008. Holdings may not pay
dividends on, or, subject to specified exceptions, repurchase
shares of, common stock without the consent of the holders of the
Series A preferred stock. The Series D preferred stock provides
for dividends when, as and if declared by our board of directors
and contains limitations on the payment of dividends on the
common stock.
In connection with the consummation of the joint venture with
AT&T, Holdings received unconditional and irrevocable equity
commitments from institutional equity investors, as well as
Michael Kalogris and Steven Skinner, in the aggregate amount of
$140.0 million in return for the issuance of 1.4 million shares
of Series C preferred stock. As of September 30, 1999, $80.0
million of these equity commitments had been funded.
We expect that the remaining equity commitments will be
funded by November 30, 1999. The Series C preferred stock
provides for dividends when, as and if declared by our board of
directors and contains limitation on the payment of dividends on
common stock.
Holdings also received equity contributions from our stockholders
in the aggregate amount of $35.0 million in return for the
issuance of 350,000 shares of Series C preferred stock in order
to fund a portion of our acquisition of an existing cellular
system in Myrtle Beach, South Carolina. In addition, Holdings
received equity contributions from stockholders in the aggregate
amount of approximately $30.1 million in return for the issuance
of 165,187 shares of Series C preferred stock and 134,813 shares
of Series D preferred stock in order to fund a portion of our
Norfolk license acquisition.
On June 8, 1999, the Company completed an exchange of licenses
with AT&T. We transferred licenses covering the Hagerstown and
Cumberland, Maryland areas and received licenses covering the
Savannah and Athens, Georgia areas. Holdings issued to AT&T
53,882 shares of Holdings Series A preferred stock and 42,739
shares of its Series D preferred stock in connection with this
exchange. No gain was recognized in connection with this
exchange.
Credit Facility
On February 3, 1998, the Company entered into a loan agreement
that provided for a senior secured bank facility with a group of
lenders for an aggregate amount of $425.0 million of borrowings.
On September 22, 1999, the Company entered into an amendment to
that loan agreement under which the amount of credit available to
us was increased to $600.0 million. The bank facility, as
amended, provides for:
. a $175.0 million senior secured Tranche A term loan maturing
on August 4, 2006;
. a $150.0 million senior secured Tranche B term loan maturing
on May 4, 2007;
. a $175.0 million senior secured Tranche C term loan maturing
on August 4, 2006; and
. a $100.0 million senior secured revolving credit facility
maturing on August 4, 2006.
The terms of the bank facility will permit the Company, subject
to various terms and conditions, including compliance with
specified leverage ratios and satisfaction of build-out and
subscriber milestones, to draw up to $600.0 million to finance
working capital requirements, capital expenditures, permitted
acquisitions and other corporate purposes. Borrowings under these
facilities are subject to customary conditions, including the
absence of material adverse changes.
The Company must begin to repay the term loans in quarterly
installments, beginning on February 4, 2002, and the commitments
to make loans under the revolving credit facility are
automatically and permanently reduced beginning on August 4,
2004. In addition, the credit facility requires the Company to
make mandatory prepayments of outstanding borrowings under the
credit facility, commencing with the fiscal year ending December
31, 2001, based on a percentage of excess cash flow and contains
financial and other covenants customary for facilities of this
type, including limitations on investments and on our ability to
incur debt and pay dividends. As of September 30, 1999, the
Company had drawn $150.0 million under the Tranche B term loan
and $10.0 million under the revolving credit facility.
After giving effect to the amendment, the Company had an
additional $440.0 million available under our credit facility as
of September 30, 1999.
Tower Sale
On September 22, 1999, the Company sold 187 towers to American
Tower. The net proceeds from the sale were $69.7 million at the
closing, and we expect to receive an additional $1.5 million upon
our construction and sale to American Tower of four additional
tower facilities.
At the closing of the transaction, the parties entered into
certain other agreements, including:
. a master license and sublease agreement providing for our
lease of the tower facilities from American Tower;
. an amendment to an existing build-to-suit agreement between
the Company and American Tower providing for American Towers
construction of 100 additional tower sites that we will then
lease from American Tower; and
. an amendment to an existing site acquisition agreement
expanding the agreement to provide for American Tower
to perform site acquisition services for 70% of the tower
sites we develop through December 31, 2000.
The Company estimates that capital expenditures will total
approximately $300.0 million for the year ended December 31,
1999, and we incurred $162.7 million of capital expenditures in
the nine months ended September 30, 1999.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE PERIOD FROM MARCH 6,
1997 TO DECEMBER 31, 1997
Revenues for year ended December 31, 1998 were $16.6 million
related primarily to services provided in the Myrtle Beach area.
Service revenues were $11.2 million for the year, roaming
revenues were $4.6 million and equipment revenues were $0.8
million.
Total operating expenses were $37.1 million for the year
ended December 31, 1998 as compared to $2.7 million for the
period from March 6, 1997 to December 31, 1997. Cost of service
revenues and equipment revenues were $8.8 million and $1.7
million, respectively, and relate primarily to services provided
in the Myrtle Beach area.
Sales and marketing expenses were $3.3 million for the year
ended December 31, 1998, and relate primarily to advertising,
marketing and promotional activities associated with the Myrtle
Beach area.
General and administrative expenses increased $12.9 million
to $15.6 million for the year ended December 31, 1998 as compared
to the period from March 6, 1997 to December 31, 1997. The
increase was due primarily to costs associated with Myrtle Beach
as well as the initial costs in the Companys remaining licensed
areas and the establishment of the Companys corporate and
regional operational infrastructure.
For the year ended December 31, 1998, non-cash compensation
was $1.1 million. This amount related to the issuance of common
and preferred stock to employees. The compensation is recognized
over five years as the stock vests.
For the year ended December 31, 1998, depreciation and
amortization expense was $6.7 million. This amount relates
primarily to the depreciation of the tangible and intangible
assets acquired in the Myrtle Beach transaction and amortization
attributable to certain agreements acquired in the AT&T
transaction.
For the year ended December 31, 1998, interest expense was
$30.4 million, net of capitalized interest of $3.5 million as
compared to $1.2 million during the period from March 6, 1997 to
December 31, 1997. The Company had borrowings of $463.6 million
as of December 31, 1998, with a weighted average interest rate of
10.33%.
For the year ended December 31, 1998, interest and other
income was $10.6 million. This amount relates primarily to
interest income on the Companys cash and cash equivalents.
Available cash increased significantly during 1998 due primarily
to net proceeds of $291 million from the issuance of subordinated
debt, borrowings of $150 million under the Companys bank credit
facility, and $82.7 million of capital contributions.
For the year ended December 31, 1998, the Company recorded a
tax benefit of $ 7.5 million related to temporary deductible
differences, primarily net operating losses, arising during the
current and prior year.
For the year ended December 31, 1998, the net loss was $32.7
million as compared to $4.0 million during the period from March
6, 1997 to December 31, 1997. The net loss increased $28.7
million, resulting primarily from the items discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Used In Operating Activities
For the year ended December 31, 1998, net cash used in
operating activities increased $3.0 million to $4.1 million as
compared to the period from March 6, 1997 to December 31, 1997.
The increase is due primarily to an increase in the Companys net
loss, as adjusted to cash used in operating activities before
changes in working capital, of $9.8 million, offset by a positive
change in working capital of $5.7 million due to increases in
accounts payable and accrued expenses related to the operations
in the Myrtle Beach area and the ongoing establishment of the
Companys corporate and regional operational infrastructures.
Net Cash Used in Investing Activities
For the year ended December 31, 1998, net cash used in
investing activities increased $371.9 million to $372.3 million
as compared to the period from March 6, 1997 to December 31,
1997. The increase is due primarily to capital expenditures
related to the initial network build-out and establishment of
administrative operations, payments of $164.5 million
attributable to the Myrtle Beach Acquisition completed on June
30, 1998, and payments of $96.6 million related to the Norfolk
Acquisition completed on December 31, 1998. The Company also
made investments in marketable securities of $23.6 million during
the year.
Net Cash Provided By Financing Activities
For the year ended December 31, 1998, net cash provided by
financing activities increased $498.4 million to $511.3 million
as compared to the period from March 6, 1997 to December 31,
1997. The increase was due primarily to proceeds from borrowings
under our bank credit facility of $150 million; proceeds from the
issuance of subordinated debt of $291 million, net of an initial
purchasers discount of $9.0 million; and capital contributions of
$82.7 million from Holdings related to funding of capital
commitments by the initial cash equity investors and receipt of
additional capital commitments related to the Myrtle Beach and
Norfolk acquisitions.
Liquidity
The build-out of the Companys PCS network and the marketing
of the Companys PCS services will require substantial capital. As
it completes its build-out, the Company will be highly leveraged.
The Company currently estimates that its capital requirements
(including capital expenditures, working capital, debt service
requirements and anticipated operating losses) for the period
from inception through year-end 2002 (assuming substantial
completion of the Companys network build-out to cover 80% of the
Pops in the Licensed Area by such time) will total approximately
$715.1 million. Actual amounts of the funds required may vary
materially from these estimates.
As part of the Companys network build-out, the Company
expects to spend $272.0 million in 1999 related to the completion
of the build-out of its initial coverage area and its continued
build out of the Companys Licensed Area toward coverage of 80%
which is expected in 2002. The build-out of the initial coverage
area included the installation of two switches and the lease or
acquisition of approximately 500 cell sites, as well as spectrum
clearing costs, retail store fitout, and administrative systems.
The continuation of the build out of the Company Licensed Area in
1999 includes completion of an additional 513 cell sites. Other
capital expenditures budgeted for 1999 include an aggregate of
$19 million to be spent on administrative systems, spectrum
clearing and switch software. The preceding capital forecasts
exclude internal engineering and capitalized interest costs.
The Cash Equity Investors have severally made irrevocable
commitments to contribute $140 million in cash to the Company
through January 2001 in exchange for 1.4 million shares of Series
C preferred stock. The Cash Equity Investors, have contributed
$80 million of these commitments and are obligated to contribute
the balance as follows: $35 million on February 4, 2000 and $25
million on February 4, 2001. In addition, the Company has
received additional equity contributions of $35.0 million and
$16.5 million from Holdings related to the Myrtle Beach and
Norfolk acquisitions, respectively.
On February 3, 1998, the Company entered into a bank credit
facility. This credit facility provides for (i) a $175 million,
eight and one-half year Tranche A term loan, (ii) a $150 million,
nine and one-quarter year Tranche B term loan and (iii) a $100
million, eight and one-half year revolving credit facility. The
commitment to make revolving credit loans is reduced
automatically beginning on August 3, 2004 and the term loans must
be repaid beginning on February 3, 2002. In addition, the credit
facility requires the Company to make mandatory prepayments of
outstanding borrowings under the credit facility commencing with
the fiscal year ending December 31, 2001 based on a percentage of
excess cash flow, and contains customary financial and other
covenants. To date, $150 million of the Tranche B term loans have
been drawn by the Company, which are expected to fund the
Companys future operations. Borrowings under the facilities are
secured by a first priority pledge of all assets of the Company,
including the capital stock of the Company and its subsidiaries
that hold the PCS licenses.
On May 7, 1998, the Company completed an offering of $512
million aggregate principal amount at maturity of 11% senior
subordinated discount notes due 2008, pursuant to Rule 144A of
the Securities Act of 1933, as amended. The proceeds of the
offering (after deducting an initial purchasers discount of $9
million) was $291 million. The Company has used or intends to use
the net proceeds from the offering, together with the capital
contributions and borrowings under the credit facility, to fund:
(i) capital expenditures, including the build-out of its PCS
network; (ii) the acquisition of the Myrtle Beach system; (iii)
the Norfolk acquisition; (iv) working capital as required; (v)
operating losses; (vi) general corporate purposes; and (vii)
potential acquisitions.
The Company believes that the proceeds from the notes,
together with the availability under the credit facility and the
Equity Investments, provide the Company with funds sufficient to
complete the build-out of the Companys planned network within the
Licensed Area.
Financial Statement Adjustment
The Companys combined financial statements as of and for the
year ended December 31, 1998 as originally presented have
been adjusted to reflect deferred compensation related to
the issuance of 75,077 shares of common stock of Holdings to
employees. In February 1998 Holdings granted 16,876 shares
of restricted stock to certain employees. Deferred
compensation for the stock granted to employees of $307,000,
net of $30,671 for forfeited shares was recorded in 1998
based on the estimated fair value at the time of issuance.
In June 1998 and December 1998 additional shares of 32,261
and 25,940, respectively, were issued to certain employees
as anti-dilutive protection related to capital contributions
received by Holdings for the Myrtle Beach and Norfolk
transactions. Deferred compensation of $2,849,000 and
$2,334,000, respectively, was recorded for stock granted to
employees, net of forfeitures. Deferred compensation will
amortize into income as it vests over five years, and
$1,120,000 was amortized into income for the period ended
December 31, 1998. The following is a reconciliation of the
adjusted amounts:
As originally
Presented Adjustment As Adjusted
($000s)
Balance Sheet at December 31, 1998:
Additional paid in capital $211,560 $5,490 $217,050
Accumulated deficit 35,581 1,120 36,701
Deferred compensation - 4,370 4,370
1998 Statement of Operations:
Non-cash compensation - $1,120 $1,120
Net loss $31,620 1,120 32,740
TRITON PCS INC. AND PREDECESSOR COMPANY
COMBINED BALANCE SHEETS
($000S)
DECEMBER 31, DECEMBER 31,
1997 1998
ASSETS:
Current assets:
Cash and cash equivalents $11,362 $146,172
Marketable securities - 23,612
Due from related party 148 951
Accounts receivable, net of
allowance for doubtful accounts
of $0 in 1997 $1,071 in 1998 - 3,102
Inventory - 1,433
Prepaid expenses and other current
Assets 21 4,288
Deferred income taxes - 81
------- -------
Total current assets 11,531 179,639
Property, plant, and equipment, net: 473 198,953
Intangible assets, net 1,249 308,267
------- -------
Total assets $13,253 $686,859
======= =======
LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT) AND MEMBERS CAPITAL:
Current liabilities:
Accounts payable $1,581 $25,256
Accrued payroll and related expenses 970 3,719
Accrued expenses 46 3,646
Accrued interest 1,228 545
Capital lease obligations - 281
Due to related party 45 -
Notes payable 13,344 -
------- --------
Total current liabilities 17,214 33,447
Long-term debt - 463,648
Capital lease obligations - 2,041
Deferred income taxes - 11,744
Commitments and contingencies - -
Shareholders equity (deficit) and members capital:
Common stock, $.01 par value, 1,000 shares
authorized, 100 shares issued and outstanding - -
Additional paid-in capital - 217,050
Deferred compensation - (4,370)
Accumulated deficit (3,961) (36,701)
------ -------
Total shareholders equity (deficit) and members capital
(3,961) 175,979
------ -------
Total liabilities and shareholders
equity (deficit) and members capital $13,253 $686,859
======= ========
See accompanying notes to combined financial statements.
TRITON PCS INC. AND PREDECESSOR COMPANY
COMBINED STATEMENTS OF OPERATIONS
($000S)
PERIOD FROM MARCH 6, 1997 FOR THE
(INCEPTION) to December 31, YEAR ENDED
1997 December 31,1998
Revenues:
Service revenues $ - $ 11,172
Roaming revenues - 4,651
Equipment revenues - 755
------- --------
Total revenues - 16,578
Expenses:
Cost of service - 8,767
Cost of equipment - 1,699
Sales and marketing - 3,260
General and administrative 2,736 15,589
Non-cash compensation - 1,120
Depreciation and amortization 5 6,663
------- --------
Loss from operations 2,741 20,520
Interest expense 1,228 30,391
Interest and other (income) (8) (10,635)
------- --------
Loss before income taxes 3,961 40,276
Income taxes (benefit) - (7,536)
------- --------
Net loss $3,961 $32,740
======= ========
See accompanying notes to combined financial statements.
TRITON PCS INC. AND PREDECESSOR COMPANY
COMBINED STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIT) AND MEMBERS
CAPITAL FOR THE PERIOD FROM MARCH 6, 1997 (INCEPTION) TO DECEMBER
31, 1997 AND THE YEAR
ENDED DECEMBER 31, 1998
($000S)
ADDITIONAL
COMMON STOCK PAID-IN ACCUMULATED DEFERRED
SHARES AMOUNT CAPITAL DEFICIT COMPENSATION TOTAL
Issuance of common stock
100 $- $- $- $- $-
Net loss - - - (3,961) - (3,961)
--- --- --- ------ --- -----
Balance at December
31, 1997 100 - - (3,961) - (3,961)
Capital contributions
from parent - - 211,560 - - 211,560
Deferred compensation - - 5,490 - (5,490) -
Non-cash compensation - - - - 1,120 1,120
Net loss - - - (32,740) - (32,740)
----- ----- -------- -------- ------ -------
Balance at December
31, 1998 100 $ - $217,050 $(36,701) $(4,370) $175,979
===== ===== ======== ======== ====== =======
See accompanying notes to combined financial statements.
Triton PCS, Inc. and Predecessor Company
COMBINED STATEMENTS OF CASH FLOWS
($000S)
PERIOD FROM FOR THE YEAR
MARCH 6, 1997 (INCEPTION) ENDED
TO DECEMBER 31, 1997 DECEMBER 31, 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,961) $(32,740)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization 5 6,663
Deferred income taxes - (7,536)
Accretion of interest on subordinated debt - 22,648
Non-cash compensation - 1,120
Change in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable - 37
Inventory - (1,046)
Prepaid expenses and other current assets (21) (468)
Accounts payable 656 2,647
Accrued payroll and related expenses 970 2,749
Accrued expenses 46 3,456
Accrued interest 1,228 (1,660)
------ ------
Net cash used in operating activities (1,077) (4,130)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (478) (87,715)
Myrtle Beach acquisition, net of cash acquired - (164,488)
Norfolk acquisition - (96,557)
Purchase of marketable securities - (23,612)
------ -------
Net cash used in investing activities (478) (372,372)
------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facility - 150,000
Borrowings on notes payable 13,344 -
Proceeds from issuance of subordinated
debt, net of discount - 291,000
Issuance of common stock - -
Capital contributions from Parent - 82,696
Payment of deferred transaction costs (324) (11,329)
Advances to related party, net (103) (848)
Principal payments under capital
lease obligations - (207)
------ ------
Net cash provided by financing activities 12,917 511,312
NET INCREASE IN CASH 11,362 134,810
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD - 11,362
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $11,362 146,172
======= =======
See accompanying notes to combined financial statements.
TRITON PCS, INC. AND PREDECESSOR COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE PERIOD FROM MARCH 6, 1997 (INCEPTION) TO DECEMBER 31, 1998
(1) DESCRIPTION OF BUSINESS
Triton PCS, Inc. (formerly Triton PCS License Company, Inc.
with its subsidiaries referred to as the Company) was formed
on October 2, 1997 as a wholly-owned subsidiary of Triton PCS
Holdings, Inc. (formerly Triton PCS, Inc. referred to as
Holdings or Parent). The Company is the exclusive provider of
wireless mobility services in the AT&T Corporation (together
with affiliates AT&T) mid-Atlantic and southeast regions.
The Company intends to become the leading provider of
broadband PCS in Virginia, South Carolina, North Carolina,
northern Georgia, and surrounding areas. The Company is
authorized to provide PCS Service in major population and
business centers such as Charleston, SC, Columbia, SC,
Greenville / Spartansburg, SC, Richmond, VA and Augusta, GA,
as well as major resort destinations such as Myrtle Beach,
SC, Hilton Head, SC, and Kiawah Island, SC. On June 30, 1998,
the Company acquired an existing cellular system in Myrtle
Beach, and on December 31, 1998, the Company extended its PCS
Service into the Norfolk, Virginia BTA through the
acquisition of licenses and assets from AT&T (see note 4).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
On March 6, 1997, Triton Communications L.L.C. (L.L.C.) was
formed to explore various business opportunities in the
wireless telecommunications industry, principally related to
personal communications services (PCS) and cellular
activities. During the period March 6, 1997 through October
1, 1997, L.L.C.s activities consisted principally of hiring a
management team, raising capital, and negotiating strategic
business relationships, primarily related to PCS business
opportunities. Subsequent to October 2, 1997, these
activities continued but were conducted primarily through the
Company. Consequently, for purposes of the accompanying
financial statements, L.L.C. has been treated as a
predecessor entity. As a result of certain financing
relationships and the similar nature of the business
activities conducted by each respective legal entity, L.L.C.
and the Company are considered companies under common
control.
The combined financial statements incorporate the PCS-related
business activities of L.L.C. and the activities of the
Company. The consolidated accounts of the Company include
Triton PCS Inc.; Triton PCS Holdings Company L.L.C.; Triton
Management Company, Inc.; Triton PCS Property Company L.L.C.;
Triton PCS Equipment Company L.L.C.; Triton PCS Operating
Company L.L.C.; and Triton PCS License Company L.L.C. All
significant intercompany accounts or balances have been
eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities, at the date of the
financial statements and the reported amount of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand, demand
deposits and short term investments with maturities of three
months or less.
MARKETABLE SECURITIES
Marketable securities at December 31, 1998, consist of debt
securities with maturities between three and ten months. The
Company has adopted the provisions of Statement of Financial
Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities (Statement No. 115)
in fiscal 1998. Under Statement No. 115, the Company
classifies all of its debt securities as available for sale
and records them at fair value with unrealized holding gains
and losses to be included as a separate component of other
comprehensive income until realized. Realized gains and
losses from the sale of available for sale securities are
determined on the specific identification basis.
INVENTORIES
Inventories, consisting primarily of wireless handsets and
accessories held for resale, are valued at lower of cost or
market. Cost is determined by the first-in, first-out
method.
PROPERTY AND EQUIPMENT
Property and equipment is stated at original cost and
includes primarily computer equipment, software, and office
equipment. Depreciation is calculated based on the straight-
line method over the estimated useful lives of the respective
assets. In connection with the construction of the PCS
network, the Company capitalizes expenditures related to the
design, construction, and microwave relocation. In addition,
the Company capitalizes interest on expenditures related to
the buildout of the network. Expenditures for repairs and
maintenance are charged to expense as incurred.
CONSTRUCTION IN PROGRESS
Construction in progress includes expenditures for the
design, construction and testing of the Companys PCS network
and also includes costs associated with developing
information systems. The Company capitalizes interest on
certain of its construction in progress activities. Interest
capitalized for the year ended December 31, 1998 totaled $3.5
million. When the assets are placed in service, the Company
transfers the assets to the appropriate property and
equipment category and depreciates these assets over their
respective estimated useful lives.
INVESTMENT IN PCS LICENSES
Investments in PCS Licenses are recorded at their estimated
fair value at the time of acquisition (See Notes 3 and 4).
Licenses are amortized on a straight line basis over 40
years.
DEFERRED TRANSACTION COSTS
Costs incurred in connection with the negotiation and
documentation of the AT&T transaction, are deferred and
included in the aggregate purchase price allocated to the net
assets acquired upon completion of the transaction.
Costs incurred in connection with the negotiation and
documentation of the bank financing and the Companys issuance
of senior subordinated discount notes are deferred and
amortized over the terms of the bank financing and notes
using the effective interest rate method.
LONG-LIVED ASSETS
In accordance with SFAS No. 121, Accounting for the
Impairment of Long- Lived Assets and for Long-Lived Assets to
be Disposed Of, the Company periodically evaluates the
carrying value of long-term assets when events and
circumstances warrant such review. The carrying value of a
long lived asset is considered impaired when the anticipated
undiscounted cash flow from such asset is separately
identifiable and is less than the carrying value. In that
event a loss is recognized based on the amount by which the
carrying value exceeds the fair market value of the long
lived asset. Fair market value is determined by using the
anticipated cash flows discounted at a rate commensurate with
the risk involved. Measurement of the impairment, if any,
will be based upon the difference between carrying value and
the fair value of the asset. The Company has identified no
such impairment losses.
REVENUE RECOGNITION
Revenues from operations primarily consist of charges to
customers for monthly access, airtime, roaming charges, long-
distance charges, and equipment sales. Revenues are
recognized as services are rendered net of sales allowance.
Unbilled revenues result from service provided from the
billing cycle date to the end of the month and from other
carriers customers using the Companys systems for the last
half of each month. Equipment sales are recognized upon
delivery to the customer and reflect charges to customers for
wireless handset equipment purchases.
INCOME TAXES
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes. Under the asset and liability
method of SFAS No. 109, deferred income tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred income tax assets and
liabilities are measured using statutory tax rates expected
to apply to taxable income in the years in which those
temporary differences are expected to be recovered or
settled.
FINANCIAL INSTRUMENTS
The Company utilized derivative financial instruments to
reduce its exposure resulting from fluctuations in interest
rates. Amounts to be paid or received under interest rate
swap agreements are accrued as interest rates change and are
recognized over the life of the swap agreements as an
adjustment to interest expense.
ADVERTISING COSTS
The Company expenses advertising costs when the advertisement
occurs. Total advertising expense amounted to $0 in 1997 and
$643,000 in 1998.
COMPREHENSIVE INCOME (LOSS)
The Company adopted Statement of Financial Accounting
Standard No. 130, Reporting Comprehensive Income (SFAS 130),
effective January 1, 1998. SFAS 130 establishes standards for
reporting and display of comprehensive income and its
components in a full set of general-purpose financial
statements. Comprehensive income is the change in equity of a
business enterprise during a period from certain transactions
and the events and circumstances from non-owner sources. For
the periods presented in the accompanying combined statements
of operations, comprehensive loss equals the amounts of net
loss reported on the accompanying combined statements of
operations.
NEW ACCOUNTING PRONOUNCEMENTS
In April 1998, the Accounting Standards Executive Committee
(AcSEC) of the AICPA issued Statement of Position (SOP) 98-5,
Reporting on the Costs of Start-up Activities (SOP 98-5).
This statement requires that the costs of start-up
activities, including organization costs, be expensed as
incurred and is effective for fiscal years beginning after
December 31, 1998. The Company has elected early adoption of
this statement as of January 1, 1998. The initial
application of the statement did not have a material effect
on the Companys combined financial statements.
In June 1997, the FASB issued Statement No. 131, Disclosure
About Segments of an Enterprise and Related Information (SFAS
131). This statement establishes additional standards for
segment reporting in the financial statements and is
effective for fiscal years beginning after December 15, 1997.
The Company adopted SFAS 131 and determined that there are no
separate reportable segments, as defined by the standards.
In June 1998, the FASB issued Statement No. 133, Accounting
for Derivative Instruments and Hedging Activities (SFAS 133)
which establishes accounting and reporting standards for
derivative instruments, including certain derivative
instruments imbedded in other contracts and for hedging
activities. SFAS 133 is effective for fiscal years beginning
after June 15, 1999. The initial application of this
statement is not expected to have a material effect on the
Companys financial statements.
(3) AT&T TRANSACTION
On October 8, 1997, Holdings entered into a Securities
Purchase Agreement with AT&T Wireless PCS, Inc, a subsidiary
of AT&T Corp.,and the other stockholders of Holdings, whereby
the Company became the exclusive provider of wireless
mobility services in the AT&T Southeast regions.
On February 4, 1998, Holdings executed the Closing Agreement
with AT&T and the other stockholders of Holdings, finalizing
the transactions contemplated in the Securities Purchase
Agreement. In accordance with the Closing Agreement, Holdings
and AT&T and the other stockholders of Holdings consented
that one or more of Holdings subsidiaries shall enter into
certain agreements or conduct certain operations on the
condition that such subsidiaries shall at all times be direct
or indirect wholly-owned subsidiaries of Holdings and
Holdings shall cause such subsidiaries to perform the
obligations and conduct such operations required to be
performed or conducted under those agreements.
Under the Closing Agreement, Holdings issued equity to AT&T
in exchange for 20 MHz A and B Block PCS licenses, which were
contributed to the Company and certain other agreements
covering certain areas in the southeastern United States. The
fair value of the FCC licenses, as determined by an
independent appraisal, was $92.8 million with an estimated
useful life of 40 years.
In connection with the closing of the AT&T transaction, the
Company executed or was a party to certain agreements,
including the following:
STOCKHOLDERS AGREEMENT
Resale Agreement
Pursuant to the Stockholders Agreement, the Company is
required to enter into a Resale Agreement at the request of
AT&T. Under this agreement, AT&T will be granted the right to
purchase and resell on a nonexclusive basis access to and
usage of the Companys services in the Companys Licensed Area.
The Company will retain the continuing right to market and
sell its services to customers and potential customers in
competition with AT&T.
The Resale Agreement will have a term of ten years and will
renew automatically for successive one-year periods unless,
after the eleventh anniversary thereof, either party elects
to terminate the Resale Agreement. Furthermore, AT&T may
terminate the Resale Agreement at any time for any reason on
180 days written notice.
The Company has agreed that the rates, terms, and conditions
of service, taken as a whole, provided by the Company to AT&T
pursuant to the Resale Agreement, shall be at least as
favorable as (or if permitted by applicable law, superior to)
the rates, terms, and conditions of service, taken as a
whole, provided by the Company to any other customer. Without
limiting the foregoing, the rate plans offered by the Company
pursuant to the Resale Agreement shall be designed to result
in a discounted average actual rate per minute paid by AT&T
for service below the weighted average actual rate per minute
billed by the Company to its subscribers generally for access
and air time.
Neither party may assign or transfer the Resale Agreement or
any of its rights thereunder without the other partys prior
written consent, which will not be unreasonably withheld,
except (a) to an affiliate of that party at the time of
execution of the Resale Agreement, (b) by the Company to any
of its operating subsidiaries, and (c) to the transferee of a
partys stock or substantially all of its assets, provided
that all FCC and other necessary approvals have been
received.
The Company expects to enter into the Resale Agreement upon
commencement of its operations in the initial configuration
or shortly thereafter.
Exclusivity
Under the Stockholders Agreement, none of the Stockholders
will provide or resell, or act as the agent for any person
offering, within the Territory mobile wireless
telecommunications services initiated or terminated using
Time Division Multiple Access and frequencies licensed by the
FCC (Company Communications Services), except AT&T and its
affiliates may (i) resell or act as agent for the Company in
connection with the provision of Company Communications
Services, (ii) provide or resell wireless telecommunications
services to or from certain specific locations, and (iii)
resell Company Communications Services for another person in
any area where the Company has not placed a system into
commercial service, provided that AT&T PCS has provided the
Company with prior written notice of AT&T PCS intention to do
so and only dual band/dual mode phones are used in connection
with such resale activities. Additionally, with respect to
the markets listed in the Roaming Agreement, each of the
Company and AT&T agreed to cause their respective affiliates
in their home carrier capacities to program and direct the
programming of customer equipment so that the other party in
its capacity as the serving carrier is the preferred provider
in such markets, and refrain from inducing any of its
customers to change such programming.
Build-out
The Company is required to conform to certain requirements
regarding the construction of the Companys PCS system. In the
event that the Company breaches these requirements, AT&T may
terminate its exclusivity provisions.
Disqualifying Transactions
In the event of a merger, asset sale, or consolidation, as
defined, involving AT&T and another person that derives
annual revenues in excess of $5.0 billion, derives less than
one third of its aggregate revenues from wireless
telecommunications, and owns FCC licenses to offer mobile
wireless telecommunication services to more than 25% of the
population within the Companys territory, AT&T and the
Company have certain rights. AT&T may terminate its
exclusivity in the territory in which the other party
overlaps that of the Company. In the event that AT&T proposes
to sell, transfer, or assign to a non-affiliate its PCS
system owned and operated in Charlotte, NC; Atlanta, GA;
Baltimore, MD; and Washington, DC, BTAs, then AT&T will
provide the Company with the opportunity for a 180 day period
to have AT&T jointly market the Companys licenses that are
included in the MTA that AT&T is requesting to sell.
The Stockholders Agreement expires on February 4, 2009.
Certain provisions expire upon an initial public offering.
LICENSE AGREEMENT
Pursuant to a Network Membership License Agreement, dated
February 4, 1998 (the License Agreement), between AT&T and
the Company, AT&T granted to the Company a royalty-free,
nontransferable, nonsublicensable, limited right, and license
to use certain Licensed Marks solely in connection with
certain licensed activities. The Licensed Marks include the
logo containing the AT&T and globe design and the expression
Member, AT&T Wireless Services Network. The Licensed
Activities include (i) the provision to end-users and
resellers, solely within the Territory, of Company
Communications Services on frequencies licensed to the
Company for Commercial Mobile Radio Services (CMRS) provided
in accordance with the AT&T Agreement (collectively, the
Licensed Services) and (ii) marketing and offering the
Licensed Services within the Territory. The License Agreement
also grants to the Company the right and license to use
Licensed Marks on certain permitted mobile phones.
The License Agreement contains numerous restrictions with
respect to the use and modification of any of the Licensed
Marks. Furthermore, the Company is obligated to use
commercially reasonable efforts to cause all Licensed
Services marketed and provided using the Licensed Marks to be
of comparable quality to the Licensed Services marketed and
provided by AT&T and its affiliates in areas that are
comparable to the Territory taking into account, among other
things, the relative stage of development of the areas. The
License Agreement also sets forth specific testing procedures
to determine compliance with these standards, and affords the
Company with a grace period to cure any instances of alleged
noncompliance therewith.
The Company may not assign or sublicense any of its rights
under the License Agreement; provided, however, that the
License Agreement may be assigned to the Companys lenders
under the Credit Facility (see note 9) and after the
expiration of any applicable grace and cure periods under the
Credit Facility, such lenders may enforce the Companys rights
under the License Agreement and assign the License Agreement
to any person with AT&Ts consent.
The term of the License Agreement is for five years (the
Initial Term) and renews for an additional five-year period
if neither party terminates the Agreement. The License
Agreement may be terminated by AT&T at any time in the event
of a significant breach by the Company, including the
Companys misuse of any Licensed Marks, the Company licensing
or assigning any of the rights in the License Agreement, the
Companys failure to maintain AT&Ts quality standards, or a
change in control of the Company occurs.
After the Initial Term, AT&T may also terminate the License
Agreement upon the occurrence of certain transactions
described in the Stockholders Agreement.
The License Agreement, along with the Exclusivity and Resale
Agreements, have a fair value of $20.3 million, as determined
by an independent appraisal, with an estimated useful life of
10 years. Amortization commenced upon the effective date of
the agreement.
ROAMING AGREEMENT
Pursuant to the Intercarrier Roamer Service Agreement, dated
as of February 4, 1998 (as amended the Roaming Agreement),
between AT&T Wireless Services, Inc. and the Company, each of
AT&T and the Company agrees to provide (each in its capacity
as serving provider, the Serving Provider) mobile wireless
radiotelephone service for registered customers of the
other partys (the Home Carrier) customers while such
customers are out of the Home Carriers geographic area and in
the geographic area where the Serving Carrier (itself or
through affiliates) holds a license or permit to
construct and operate a mobile wireless radio/telephone
system and station. Each Home Carrier whose customers receive
service from a Serving Carrier shall pay to such Serving
Carrier 100% of the Serving Carriers charges for wireless
service and 100% of pass-through charges (i.e., toll or other
charges). Except with respect to the Norfolk BTA, each
Service Carriers service charges per minute or partial minute
for the first 3 years will be fixed at a declining rate, and
thereafter will be equal to an adjusted average home rate or
such lower rate as the parties negotiate from time to time;
provided, however, that with respect to the Norfolk BTA, the
service rate is equal to the lesser of (a) $0.25 per minute
and (b) the applicable home rate of AT&T PCS, or such other
rate as agreed to by the parties. Each Service Carriers toll
charges per minute of use for the first 3 years will be fixed
at a declining rate and thereafter, such other rates as the
parties negotiate from time to time.
The Roaming Agreement has a term of 20 years, unless earlier
terminated by a party due to the other partys uncured breach
of any term of the Roaming Agreement, the other partys
license or permit to provide CMRS.
Neither party may assign or transfer the Roaming Agreement or
any of its rights thereunder except to an assignee of all or
part of its license or permit to provide CMRS, provided that
such assignee expressly assumes all or the applicable part of
the obligations of such party under the Roaming Agreement.
The fair value of the Roaming Agreement, as determined by an
independent appraisal, was $5.5 million, with an estimated
useful life of 20 years. Amortization commenced upon the
effective date of the agreement.
(4) ACQUISITIONS
Myrtle Beach Acquisition
On June 30, 1998, the Company acquired an existing cellular
system (the Myrtle Beach System) which serves the South
Carolina 5--Georgetown Rural Service Area (the SC-5) for a
purchase price of approximately $164.5 million from Vanguard
Cellular Systems. The Company has integrated the Myrtle Beach
System into its planned PCS Network. As a result of the
acquisition, the Company is no longer considered a
development stage enterprise under SFAS No. 7. The effects of
the acquisition have been presented using the purchase method
and, accordingly, the purchase price was allocated to the
assets acquired and liabilities assumed based upon
managements best estimate of their fair value.
The purchase price was allocated to the net assets acquired
with approximately $116 million allocated to Licenses with a
useful life of 40 years and approximately $20 million
allocated to Subscriber List with a useful of 5 years.
Results of operations after the acquisition date are included
in the Statement of Operations from July 1, 1998. The
following unaudited pro forma information has been prepared
assuming that this acquisition had taken place on January 1,
1997. The pro forma information includes adjustments to
interest expense that would have been incurred to finance the
purchase, additional depreciation based on the fair market
value of the property, plant and equipment acquired, and the
amortization of intangibles arising from the transaction.
1997 1998
unaudited
Net revenues $23,608 $31,116
Net loss $47,336 $40,065
Norfolk Acquisition
On December 31, 1998, the Company acquired from AT&T (the
Norfolk Acquisition) (i) an FCC license to use 20MHz of
authorized frequencies to provide broadband PCS services
throughout the entirety of the Norfolk, Virginia BTA and (ii)
certain assets of AT&T used in the operation of the PCS
system in such BTA for an aggregate purchase price of
approximately $111 million, including $14.6 million of Series
D Preferred Stock of Holdings, which was subsequently
contributed to the Company. The excess of the aggregate
purchase price over the fair market value of tangible net
assets acquired of approximately $46.3 million is attributed
to licenses and is being amortized over 40 years. The build-
out of the network relating to the Norfolk Acquisition,
including the installation of a switch, has been
substantially completed. The Company has commenced PCS
service in the Norfolk BTA in the first quarter 1999. The
purchase price allocation is preliminary at December 31, 1998
and is expected to be finalized in the first quarter of 1999.
(5) PROPERTY AND EQUIPMENT
December 31, Depreciable
1997 1998 Lives
($000s)
Land $- $313
Network infrastructure and equipment - 34,147 10-12 years
Office furniture and equipment 121 17,642 3-5 years
Capital lease assets - 2,263
Construction in progress 357 145,667
----- -------
478 200,032
Accumulated depreciation and amortization (5) (1,079)
----- -------
Property, plant, and equipment, net $473 $198,953
===== =======
The depreciable life of capital lease assets is based upon the
life of the underlying asset or the life of the lease, whichever
is shorter.
(6) INTANGIBLE ASSETS
December 31, Amortizable
1997 1998 Lives
($000s)
AT&T License $- $95,248 40 years
AT&T Agreements - 26,026 10 - 20 years
Myrtle Beach License - 116,252 40 years
Norfolk License - 46,299 40 years
Subscriber Lists - 20,000 5 Years
Bank Financing 1,249 10,994 8.5 - 10 years
------ -------
1,249 314,819
Accumulated amortization - (6,552)
------ -------
Other assets, net 1,249 308,267
====== =======
Amortization charged to operations for the year ended December
31, 1998 totaled $5,589.
(7) SHORT-TERM DEBT
Convertible Notes
At various dates in 1997, certain private equity investors
provided $1.6 million in financing to L.L.C. in the form of
convertible promissory notes. The notes originally bore
interest at 14% annually, payable at maturity. On January 15,
1998, L.L.C. assigned the notes to the Company. The Company,
in conjunction with Holdings and the noteholders,
subsequently negotiated a revised arrangement under which no
interest would be paid on the notes, which became convertible
into approximately $3.2 million worth of Holdings Series C
preferred stock. The conversion of L.L.C. notes into Holdings
equity occurred on February 4, 1998. The $1.6 million
preferred return to the investors was accounted for as a
financing cost during the period the notes were outstanding.
Noninterest bearing loans
During 1997, Holdings Cash Equity Investors provided short-
term financing in the form of $11.8 million noninterest-
bearing loans, which were advanced to the Company. Pursuant
to the Closing Agreement, such loans were converted to equity
of Holdings as a reduction of the requirements of the initial
cash contribution. Concurrently, Holdings contributed these
funds to the Company, which has recorded the transaction as
additional paid in capital on the date of the contribution.
(8) LONG TERM DEBT
December 31,
1997 1998
Bank credit facility $- $150,000
Senior subordinated debt - 313,648
---- --------
- 463,648
Current portion of long-term debt - -
---- --------
Long-term debt $- $463,648
==== ========
The weighted average interest rate for total debt outstanding
during December 31, 1998 was 10.33%. The average rate at
December 31, 1998 was 10.16%.
(9) BANK CREDIT FACILITY
On February 3, 1998, (the Credit Facility Effective Date),
the Company entered into a Credit Agreement (as amended from
time to time, the Credit Facility), with Holdings, The Chase
Manhattan Bank, as Administrative Agent, and certain banks
and other financial institutions party thereto. The Credit
Facility provides for (i) a $175.0 million senior secured
term loan (the Tranche A Term Loan) which may be drawn in
installments at any time through the third anniversary of the
Credit Facility Effective Date and matures on the date that
is eight and one-half years from the credit Facility
Effective Date, (ii) a $150.0 million senior secured term
loan (the Tranche B Term Loan and, together with the Tranche
A Term Loan, the Term Loans) which matures on the date that
is nine and one-quarter years from the Credit Facility
Effective Date, and (iii) a $100.0 million senior secured
revolving credit facility (the Revolving Credit Facility and,
together with the commitments to make the Term Loans, the
Facilities) which matures on the date that is eight and one-
half years from the Credit Facility Effective Date.
The commitment to make loans under the Revolving Credit
Facility (Revolving Credit Loans and, together with the Term
Loans, the Loans) automatically and permanently reduces,
beginning on the date that is six years and six months after
the Credit Facility Effective Date, in eight quarterly
reductions (the amount of each of the first two reductions,
$5.0 million, the next four reductions, $10.0 million, and
the last two reductions, $25.0 million). The Tranche A Term
Loans are required to be repaid, beginning on the date that
is four years after the Credit Facility Effective Date, in
eighteen consecutive quarterly installments (the amount of
each of the first four installments, $4,375,000, the next
four installments, $6,562,500, the next four installments
$8,750,000, the next four installments, $10,937,500, and the
last two installments, $26,250,000). The Tranche B Term Loans
are required to be repaid beginning on the date that is four
years after the Credit Facility Effective Date, in twenty-one
consecutive quarterly installments (the amount of the first
sixteen installments, $375,000, the next four installments
$7.5 million, and the last installment, $114.0 million).
Interest on all loans accrue, at the Companys option, either
at (i) (a) a LIBOR rate, a defined in the Credit Facility
plus (b) the Applicable Rate (as defined below) (Loans
bearing interest described in (i), Eurodollar Loans) or (ii)
(a) the higher of (1) the Administrative Agents prime rate
and (2) the Federal Funds Effective Rate (as defined in the
Credit Facility) plus 0.5%, plus (b) the Applicable Rate
(Loans bearing interest described in (ii), ABR Loans).
Interest on any overdue amounts will be at a rate per annum
equal to 2% plus the rate otherwise applicable to such
amounts. The Applicable Rate means, with respect to Tranche B
Term Loans, 1.75% per annum, in the case of an ABR Loan, and
3.00% per annum, in the case of a Eurodollar Loan, and, with
respect to Tranche A Term Loans and Revolving Credit Loans, a
rate between 0.0% to 1.25% per annum (depending on the level
of the Companys ratio of debt to earnings before income
taxes, depreciation, and amortization (EBITDA) in the case of
an ABR Loan, and a rate between 1.00% and 2.25% per annum
(depending on the level of the Companys ratio of debt to
EBITDA), in the case of a Eurodollar Loan.
The Credit Facility requires an annual commitment fee of
between 0.375% and 0.50% (depending on the level of the
Companys ratio of debt to EBITDA) of the unused portion of
the Facilities payable quarterly in arrears and a separate
agents fee payable to the Administrative Agent. The Credit
Facility also requires the Company to fix or limit the
interest cost with respect to at least 60% (as amended in
July 1998) of the total amount of the outstanding
indebtedness of the Company. The Company incurred commitment
fees of $2.0 million in 1998. At December 31, 1998,
approximately 84% of the Companys outstanding debt was fixed.
The Term Loans are required to be prepaid and commitments
under the Revolving Credit Facility reduced in an aggregate
amount equal to (i) 50% of excess cash flow of each fiscal
year commencing the fiscal year ending December 31, 2001,
(ii) 100% of the net proceeds of asset sales, in excess of a
yearly threshold, outside the ordinary course of business or
unused insurance proceeds, (iii) 100% of the net cash
proceeds in excess of the initial $150.0 million of issuances
of debt obligations and (iv) 50% of the net cash proceeds of
issuances of equity securities (other than in connection with
the Equity Commitments); provided, that the prepayments and
reductions set forth under clauses (iii) and (iv) will not be
required if, after giving effect to such issuance, (a) the
Companys ratio of senior debt to EBITDA would be less than 5
to 1 and (b) the Company would be in pro forma compliance
with certain covenants in the Credit Facility.
All obligations of the Company under the Facilities are
unconditionally and irrevocably guaranteed (the Bank Facility
Guarantees) by Holdings and each existing and subsequently
acquired or organized domestic subsidiary of the Company. The
Facilities and the Bank Facility Guarantees, and any related
hedging contracts provided by the lenders under the Credit
Facility, are secured by substantially all of the assets of
the Company and each existing and subsequently acquired or
organized domestic subsidiary of the Company, including a
first priority pledge of all of the capital stock held by the
Company or any of its subsidiaries; provided that the pledge
of shares of foreign subsidiaries may be limited to 65% of
the outstanding shares of such foreign subsidiaries. The PCS
Licenses will be held by one or more single purpose
subsidiaries of the Company and will not be pledged to secure
the obligations of the Company under the Credit Facility,
although the equity interests of such subsidiaries will be
pledged thereunder. Each single purpose subsidiary will not
be allowed by the Company to incur any liabilities or
obligations other than the Bank Facility Guarantee issued by
it, the security agreement entered into by it in connection
with the Credit Facility, and, in the case of any single
purpose subsidiary established to hold real estate,
liabilities incurred in the ordinary course of business of
such subsidiary which are incident to being the lessee of
real property of the purchaser, owner of lessee of equipment
and taxes and other liabilities incurred in the ordinary
course in order to maintain its existence.
The Credit Facility contains covenants customary for
facilities and transactions similar to the Credit Facility,
including covenants relating to the amounts of indebtedness
that the Company may incur, limitations on dividends and
distributions on, and redemptions and repurchases of, capital
stock and other similar payments and various financial
maintenance covenants. The Credit Facility also contains
covenants relating to the population covered by the Companys
network and number of customers and customary
representations, warranties, indemnities, conditions
precedent to borrowing, and events of default.
Loans under the Credit Facility are available to fund capital
expenditures related to the construction of the Companys PCS
network, the acquisition of related businesses, working
capital needs of the Company, and customer acquisition costs.
All indebtedness under the Credit Facility will constitute
Senior Debt under the Companys 11% Senior Subordinated
Discount Notes.
The terms of the Credit Facility originally allowed the
Company to incur only $150 million of indebtedness pursuant
to the issuance of Subordinated Debt (as defined in the
Credit Facility). In April 1998, the Company negotiated an
amendment to the Credit Facility, which included provisions
that (i) permit certain acquisitions (note 4); (ii) permit up
to a total of $450 million in high yield debt; and (iii)
exclude the equity issuances associated with certain
acquisitions from the mandatory prepayment requirement.
(10) SUBORDINATED DEBT
On May 7, 1998, the Company completed an offering (the
Offering) of $512 million of 11% Senior Subordinated Discount
Notes (the Notes), pursuant to Rule 144A of the Securities
Act of 1933, as amended. The net proceeds of the Offering
(after deducting an Initial Purchasers Discount of $9
million) were approximately $291 million. The Company has
used and intends to use the net proceeds from the Offering,
together with the Capital Contributions (note 15) and
borrowings under the Credit Facility, to fund: (i) capital
expenditures, including the build-out of its PCS network;
(ii) the Myrtle Beach acquisition and the Norfolk acquisition
(note 4); (iii) working capital as required; (iv) operating
losses; (v) general corporate purposes, and (vi) potential
acquisitions.
Cash interest will not accrue prior to May 1, 2003.
Commencing on November 1, 2003, cash interest will be payable
semiannually. Each Note was offered at an original issue
discount (Initial Purchasers Discount). Although cash
interest will not be paid prior to May 1, 2003, the original
issue discount will accrue from the issue date to May 1,
2003.
The Notes are not redeemable prior to May 1, 2003, except as
set forth below. The Notes will be redeemable at the option
of the Company, in whole or in part, at any time on or after
May 1, 2003 and prior to maturity at the following redemption
prices (expressed as percentages of principal amount), plus
accrued interest, if any, up to but excluding the redemption
date, if redeemed during the 12-month period beginning on May
1 of the years indicated:
YEAR PERCENTAGE
2003 105.50%
2004 103.67
2005 101.84
2006 and thereafter 100.00
In addition, on or prior to May 1, 2001, the Company may
redeem up to 35% of the principal amount at maturity of Notes
issued under the Indenture at a redemption price equal to
111% of the accreted value at the redemption date with the
net proceeds of one or more equity offerings of qualified
stock of (a) the Company, (b) Holdings, or (c) a special
purpose corporation formed to own qualified stock of the
Company or Holdings, provided that at least 65% of the
aggregate principal amount at maturity of Notes issued under
the Indenture would remain outstanding immediately after
giving effect to such redemption.
Upon a change in control, each holder of the Notes may
require the Company to repurchase such Holders Notes, in
whole or in part, at a purchase price equal to 101% of the
accreted value thereof or the principal amount at maturity,
as applicable plus accrued and unpaid interest to the
purchase date.
The debt principal begins to mature in 2003 and is fully
repaid in 2008.
(11) INCOME TAXES
Income tax expense (benefit) consists of the following:
Year ended December 31, 1998: Current Deferred Total
Federal $- $(7,054) $(7,054)
---- ------- ------
State $- $(482) $(482)
---- ------- ------
$- $(7,536) $(7,536)
==== ======= ======
The income tax expense (benefit) differs from those computed
using the statutory U.S. Federal income tax rate as set forth
below.
1997 1998
U.S. Federal statutory rate 35.00% 35.00%
State income taxes, net of federal benefit - 0.80%
Change in valuation allowance (35.00%) (16.56%)
Other, net - ( 0.53%)
------- -------
Effective Tax Rate 0.00% 18.71%
======= =======
The tax effects of significant temporary differences that give
rise to significant portions of the deferred tax assets and
deferred tax liabilities are as follows.
1997 1998
Deferred tax assets
Non-deductible accrued liabilities $491 $1,049
Capitalized start up costs 1,093 2,736
Net operating loss carryforward - 16,022
------ ------
1,584 19,807
Valuation allowance (1,584) (8,506)
------ ------
Net deferred tax assets - 11,301
------
Deferred tax liabilities
Intangible assets - 21,438
Capitalized interest - 1,150
Others - 376
------ ------
Deferred tax liabilities - 22,964
------ ------
Net deferred tax liabilities $- $11,663
====== ======
In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that
some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during
the periods in which those temporary differences become
deductible. Because the Company does not have an operating
history, management has only considered the scheduled
reversal of deferred tax liabilities and tax planning
strategies in making this assessment. Based upon the
assessment, management believes it is more likely than not
the Company will realize the benefits of the deferred tax
assets, net of the existing valuation allowance at December
31, 1998. The Company recorded a Deferred tax liability of
$17,771 in connection with the contribution of licenses
pursuant to the AT&T Transaction (note 3).
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates, assumptions, and methods used to
estimate the fair value of the Companys financial instruments
are made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107, Disclosures about
Fair Value of Financial Instruments. The Company has used
available market information to derive its estimates.
However, because these estimates are made as of a specific
point in time, they are not necessarily indicative of amounts
the Company could realize currently. The use of different
assumptions or estimating methods may have a material effect
on the estimated fair value amounts.
December 31,
1997 1998
($000s)
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
Cash and cash equivalents $11,362 $11,362 $146,172 $146,172
Marketable securities - - 23,612 23,612
Accounts and notes
receivable - - 3,102 3,102
Accounts payable 1,581 1,581 25,256 25,256
Accrued expenses 1,016 1,016 7,365 7,365
Capital leases - - 2,322 2,322
Interest rate risk
management agreements - - - 623
Long-term debt
Subodinated debt - - 313,648 239,355
Bank term loan - - 150,000 150,000
CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND
ACCRUED EXPENSES - The carrying amounts of these items are a
reasonable estimate of their fair value due to the short-term
nature of the instruments.
MARKETABLE SECURITIES - The fair value of these securities
are estimated based on quoted market prices. At December 31,
1998, marketable securities consist of the following:
Unrealized
Cost Fair Value Gain(Loss)
($000s) ($000s) ($000s)
Available for sale securities:
Debt securities due in one year or less $23,612 $23,612 $-
LONG-TERM DEBT - Long-term debt is comprised of subordinated
debt, bank term loan, and capital leases. The fair value of
subordinated debt is stated at quoted market value. The
carrying amount of the bank term loan is a reasonable
estimate of its fair value. Capital leases are recorded at
their net present value, which approximates fair value.
INTEREST RATE RISK MANAGEMENT AGREEMENTS - The Company enters
into interest rate protection agreements to lock in interest
rates on the variable portion of its debt. The Company does
not use these agreements for trading or other speculative
purposes, nor is it a party to any leveraged derivative
instrument. Although these agreements are subject to
fluctuations in value, they are generally offset by
fluctuations in the value of the underlying instrument or
anticipated transaction.
In an interest rate swap, the Company agrees to exchange, at
specified intervals, the difference between a variable
interest rate (based on 3 month Libor) and either a fixed or
another variable interest rate calculated by reference to an
agreed-upon notional principal amount. The resulting rate
differential is reflected as an adjustment to interest
expense over the life of the swap. The Company did not
exercise this swap during 1998; at December 31, 1998, the
Company would receive $23,000 to settle these agreements.
The following table summarizes the Companys off-balance sheet
interest rate swap agreements at December 31, 1998:
Notional Fair Pay Rate Receive
Amount Value Maturity (Fixed) Rate(Variable)
($000s) ($000s) ($000s) ($000s)
Pay fixed rate, receive
floating rate
$35,000 $254 12/03 4.805% 5.156%
Pay fixed rate, receive
floating rate
$40,000 $369 12/03 4.760% 5.156%
Payments under each agreement are quarterly, commencing March 1999 and
ending December 2003.
(13) RELATED-PARTY TRANSACTIONS
The Company is associated with Triton Cellular Partners L.P.
(Triton Cellular) by virtue of certain management overlap and
the sharing of leased facilities. As part of this
association certain costs are incurred on behalf of Triton
Cellular and subsequently reimbursed to the Company. Such
costs totaled $482,000 during 1998. In addition, under
agreement between the Company and Triton Cellular,
allocations for management services rendered are charged to
Triton Cellular. Such allocations totaled $469,000 during
1998. The outstanding balance at December 31, 1998 was
$951,000. The Company expects settlement of these outstanding
charges during 1999.
(14) COMMITMENTS & CONTINGENCIES
Leases
The Company has entered into various leases for its offices,
land for cell sites, cell sites, and furniture and equipment
under capital and operating leases expiring through 2010. The
Company has various capital lease commitments of
approximately $2.4 million as of December 31, 1998. As of
December 31, 1998, the future minimum rental payments under
these lease agreements having an initial or remaining term in
excess of one year were as follows:
Operating Capital
($000)
1999 6,484 474
2000 6,305 614
2001 5,962 600
2002 5,849 578
2003 4,397 434
Thereafter 1,724 -
------ -----
Total 30,721 2,700
Interest expense 378
------
Net present value of future payments 2,322
Current portion of capital lease obligation 281
------
2,041
======
Rent expense under operating leases was $3.0 million for the year
ended December 31, 1998 and $59,000 for the period from March 6,
1997 to December 31, 1997, respectively.
Employment Agreements
In 1998, the Company entered into five-year employment
agreements with three of its officers. The employment
agreements provide for minimum aggregate annual compensation
of $795,000 for the years 1999 through 2001, as well as
annual bonuses based upon performance. The employment
agreements also provide that in the event that the officers
are terminated, certain liabilities will be incurred by the
Company. Also, upon death or disability of the officers, the
Company will be required to make certain payments.
(15) CAPITAL CONTRIBUTIONS
On February 4, 1998, pursuant to the Securities Purchase
Agreement, Holdings issued $140.0 million of equity to
certain institutional investors and management stockholders.
The Securities Purchase Agreement requires the institutional
investors and management stockholders to fund their
unconditional and irrevocable obligations in installments in
accordance with the following schedule:
DATE DUE AMOUNT
($MILLIONS)
Initial closing (funded on February 4, 1998) $45.0
First anniversary of initial closing (funded February 4, 1999) 35.0
Second anniversary of initial closing 35.0
Third anniversary of initial closing 25.0
-------
$140.0
=======
Pursuant to the Securities Purchase Agreement, the initial
cash contribution and the unfunded commitments are required
to be made to Holdings. Pursuant to the Closing Agreement,
Holdings has directed that all cash contributions subsequent
to the initial cash contribution be made directly to the
Company.
As of December 31, 1998, Holdings received $49.3 million of
additional equity contributions, of which $35.0 million
related to the acquisition of the Myrtle Beach System (see
note 4), and $14.3 million related to the Norfolk Acquisition
(see note 4). These funds were concurrently contributed to
the Company. As of December 31, 1998, Holdings had
outstanding equity commitments of $2.2 million related to the
Norfolk Acquisition, which were received in January 1999.
Common Stock
On October 2, 1997, the Company issued 100 shares of its
common stock to Holdings. No additional shares were issued
during 1998.
L.L.C. Members Capital
Members capital contributions are recorded when received.
Total committed capital at December 31, 1998 was $1.00. Cash
available for distribution will be made in proportion to
their capital accounts. Allocation of income, gains, losses,
and deductions will be in proportion to their capital
accounts.
(16) 401(K) SAVINGS PLAN
The Company sponsors a 401(k) Savings Plan which permits
employees to make contributions to the Savings plan on a pre-
tax salary reduction basis in accordance with the Internal
Revenue Code. Substantially all full-time employees are
eligible to participate in the next quarterly open enrollment
after 90 days of service. The Company matches a portion of
the voluntary employee contributions. The cost of the Savings
Plan charged to expense was $65,000 and in 1998.
(17) SUPPLEMENTAL CASH FLOW INFORMATION
1997 1998
($000s)
Cash paid during the year for interest,
net of amounts capitalized $- $8,150
Cash paid during the year for income taxes - -
Noncash Investing and Financing Activities
Equipment acquired under capital lease obligations - 2,529
Interest capitalized - 3,538
Capital contribution from parent in connection
with conversion of short term debt to equity - 13,362
Capital contribution from parent related to
Norfolk Acquisition - 14,555
Capital contribution from parent related to
AT&T transaction net of deferred taxes - 100,947
Capital expenditures included in accounts payable - 21,027
(18) FINANCIAL STATEMENT ADJUSTMENT
The Companys combined financial statements as of and for the
year ended December 31, 1998 as originally presented have
been adjusted to reflect deferred compensation related to
the issuance of 75,077 shares of common stock of Holdings to
employees. In February 1998 Holdings granted 16,876 shares
of restricted stock to certain employees. Deferred
compensation for the stock granted to employees of $307,000,
net of $30,671 for forfeited shares was recorded in 1998
in connection with the adjustment based on the estimated
fair value at the time of issuance. In June 1998 and December
1998 additional shares of 32,261 and 25,940, respectively, were
issued to certain employees as anti-dilutive protection related
to capital contributions received by Holdings for the Myrtle
Beach and Norfolk transactions. Deferred compensation of
$2,849,000 and $2,334,000, respectively, was recorded for stock
granted to employees, net of forfeitures in connection with the
adjustment. Deferred compensation will amortize into income as
it vests over five years, and $1,120,000 was amortized into
income for the period ended December 31, 1998. The following
is a reconciliation of the adjusted amounts:
As originally
Presented Adjustment As Adjusted
($000s)
Balance Sheet at December 31, 1998:
Additional paid in capital $211,560 $5,490 $217,050
Accumulated deficit 35,581 1,120 36,701
Deferred compensation - 4,370 4,370
1998 Statement of Operations:
Non-cash compensation - $1,120 $1,120
Net loss $31,620 1,120 32,740
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
NONE
Part III
EXECUTIVE OFFICERS AND DIRECTORS
The table below sets forth certain information regarding the
directors of Holdings and the executive officers of Triton
License Company and certain executive officers of Tritons
subsidiaries. Triton is a wholly-owned subsidiary of Holdings.
NAME AGE POSITION
Michael Kalogris 50 Chairman of the Board of Directors and
Chief Executive Officer
Steven Skinner 57 President, Chief Operating Officer and
Director
Clyde Smith 60 Executive Vice President and Chief Technical
Officer
David Clark 34 Senior Vice President, Chief Financial
Officer and Secretary
Steven McNulty 46 President and General Manager of the Mid-
Atlantic Region
Michael Mears 44 President and General Manager of the
South Carolina Region
Scott Anderson 40 Director
John Beletic 47 Director
Arnold Chavkin 48 Director
Mary Hawkins Key 48 Director
John Watkins 36 Director
MICHAEL KALOGRIS has been Chairman and Chief Executive Officer of
the Company since its inception. Mr. Kalogris was previously
President and Chief Executive Officer of Horizon Cellular Group
which he joined October 1, 1991. Under Mr. Kalogris leadership,
Horizon became the fifth largest independent non-wireline company
in the United States, specializing in suburban markets and small
cities encompassing approximately 3.2 million Pops, and was sold
for approximately $575.0 million. Prior to joining Horizon, Mr.
Kalogris served as President and Chief Executive Officer of
Metrophone of Philadelphia, a non-wireline carrier in
Philadelphia. Metrophone was acquired by Comcast Corporation for
over $1.1 billion. Prior to joining Metrophone, Mr. Kalogris
worked at IBM. Mr. Kalogris is a member of the Board of Directors
of General Magic, Inc.
STEVEN SKINNER has served as President, Chief Operating Officer
and a Director of the Company since its inception. Mr. Skinner
previously served as the Vice President of Operations and Chief
Operating Officer of Horizon beginning in May of 1993. From March
1992 to May 1993, Mr. Skinner served as Vice President of
Acquisitions for Horizon. From January 1991 to March 1992 he
served as a consultant in the area of cellular acquisitions to
Norwest Venture Capital Management, Inc. and others. From August
1987 to January 1991 he served as President and General Manager
of Houston Cellular Telephone Company. Prior to 1987 he served as
a General Manager of Cybertel, Inc., a non-wireline carrier
serving St. Louis. Mr. Skinner has also been active in the
National CellularOne Group, most recently acting as Chairman of
the Advisory Committee.
CLYDE SMITH has served as the Executive Vice President and Chief
Technical Officer of the Company since January 1998. Mr. Smith
previously served as Vice President and Chief Technical officer
of ALLTEL Communications Inc. from January 1993 to January 1998,
where he oversaw the expansion and migration of its wireless
network to include digital and wireless data technologies. Prior
to joining ALLTEL, Mr. Smith served as Director of Wireless
Technologies for Bell Atlantic Mobile Systems, where he was
responsible for the evaluation of new technologies. Mr. Smith is
active in industry organizations, having served as the Chairman
of the Cellular Telecommunications Industry Association Chief
Technical Officers Forum. In addition, Mr. Smith served as
Secretary/Treasurer of the CDMA Development Group.
DAVID CLARK has served as Senior Vice President, Chief Financial
Officer and Secretary of the Company since its inception. Prior
to joining Triton, he was a Managing Director at Furman Selz
L.L.C. specializing in communications finance, which he joined in
March 1996. Prior thereto, Mr. Clark spent over ten years at
Citibank N.A. and Citicorp Securities Inc. as a lending officer
and a high yield finance specialist.
STEVEN MCNULTY has served as President and General Manager of the
Companys Mid Atlantic region since July 1998. Prior to joining
Triton, he was Vice President Central / West Operations with
United States Cellular in Chicago, Illinois. Mr. McNulty
previously served as Vice President of Marketing for ALLTEL
Communications from January 1994 to June 1998.
MICHAEL MEARS has served as President and General Manager of the
Companys South Carolina region since its inception. Mr. Mears
previously served as the Vice President and General Manager of
American Telecommunications Inc. from June 1995 until April 1997.
Prior to that Mr. Mears was the Regional and Area General Manager
of GTE Corp., serving in that capacity from 1992 October 1991 to
June 1995. From 1986 to 1992 Mr. Mears served as Regional and
Area General Manager for Providence Journal Co.
SCOTT ANDERSON has served as a member of the Board of Directors
of Holdings since February 1998. He is currently a member of the
Board of Directors of PriCellular Corporation, Wireless
Facilities, Inc., and Tegic Corp. and a principal of Cedar Grove
Partners, LLC. Mr. Anderson was previously Senior Vice President
for Acquisitions and Development at AT&T Wireless Services, Inc.
(formerly McCaw Cellular Communications, Inc.), which he joined
in 1986, and a director of Horizon.
JOHN BELETIC has served as a member of the Board of Directors of
Holdings since February 1998. Mr. Beletic currently serves as
Chairman and Chief Executive Officer of Pagemart Wireless Inc.,
which he joined in March 1992. He currently also serves as a
director of Pulsepoint Communications, Inc., PCIA and President
of the Paging Leadership Association.
ARNOLD CHAVKIN has served as a member of the Board of Directors
of Holdings since February 1998. Mr. Chavkin is also a member of
the advisory board of Triton Cellular Partners, L.P. and a
director of American Radio Systems Corp., American Tower Systems,
Bell Sports Corporation, Patina Oil & Gas Corporation, R&B Falcon
Corporation, Wireless One, Inc. and U.S. Silica Company. He also
serves on the Advisory Investment Boards of Richina Group, the
Indian Private Equity Fund and the Southeast Asian Investment
Fund. Mr. Chavkin has been a General Partner of Chase Capital
Partners since January 1992. Prior to joining Chase Capital
Partners, he was a member of Chemical Banks merchant banking
group and a generalist in its corporate finance group
specializing in mergers and acquisitions and private placements
for the energy industry.
MARY HAWKINS KEY has served as a member of the Board of
Directors of Holdings since January 1999. Ms. Hawkins Key is the
Senior Vice President of Partnership Operations for AT&T Wireless
Services. Partnership operations include AT&Ts proportionate
interests in active 850 MHz cellular markets (such as Bay Area
Cellular Telephone), strategic alliances such as Rogers Cantel,
and AT&Ts equity participation in affiliated new PCS businesses
which are members of the AT&T Wireless Network. Ms. Hawkins Key
leads the multi-disciplinary team which provides guidance,
consulting and assistance to partnership operations in virtually
every area of the business. Ms. Hawkins Key joined AT&T Wireless
Messaging Division in 1995, and subsequently became Chief
Operating Officer for the 1100 employee division. While in this
role, Ms. Hawkins Key served as business leader of the team
responsible for spinning off the Messaging business unit.
JOHN WATKINS has served as a member of the Board of
Directors of Holdings since February 1998. Mr. Watkins serves as
a member of the advisory board of
FrontierVision Partners L.P. and Triton Cellular Partners L.P.
Mr. Watkins is also a Managing Director and an officer of J.P.
Morgan Capital Corporation. Previously, Mr. Watkins was a
director of Horizon, Prism Radio Partners, L.P. and Inference
Corp.
EXECUTIVE COMPENSATION
The following table sets forth certain information
concerning the compensation paid by the Company for the years
ended December 31, 1997 and 1998 to the Chief Executive Officer
of the Company and to each of the Companys other four most highly
compensated executive officers (the Named Executive Officers).
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
RESTRICTED
STOCK ALL OTHER
NAME PRINCIPAL POSITION YEAR SALARY BONUS AWARD COMPENSATION(1)
Michael Chairman of the
Kalogris Board of Directors
and Chief Executive
Officer 1998 $350,000 $350,000 -
1997 228,619 350,000 -
Steven Skinner President and Chief 1998 225,000 225,000 -
Operating Officer 1997 148,712 225,000 1,996
David Clark Senior Vice
President, 1998 190,000 190,000 -
Chief Financial
Officer and
Secretary 1997 122,243 165,000 83,188
Clyde Smith Executive Vice
President 1998 205,051 220,000 -
And Chief
Technical Officer 1997 - - 25,842
David
Standig (2) Senior Vice President
of Marketing 1998 156,962 82,500 -
1997 - - -
(1) All Other Compensation includes relocation and related
expenses. (2) Mr. Standig resigned from the Company on March 1,
1999 (effective March 26, 1999).
EMPLOYMENT AGREEMENTS
On February 4, 1998, Triton Management Co. (Management Co.),
a wholly-owned subsidiary of Triton, entered into an employment
agreement with Michael Kalogris, Chairman of the Board of
Directors and Chief Executive Officer of the Company. The
Kalogris employment agreement has a term of five years unless
terminated earlier by either Mr. Kalogris or Holdings. Mr.
Kalogris may terminate his employment agreement (i) at any time
at his sole discretion upon 30 days prior written notice and (ii)
immediately, upon written notice, if (A) there is a Change of
Control (as defined in the Kalogris employment agreement) or (B)
Mr. Kalogris is demoted, removed or not re-elected as Chairman of
the Board of Directors of Holdings (as used in this paragraph,
Good Reason); provided, that following the IPO Date (as defined
herein), so long as Mr. Kalogris remains a member of the Board of
Directors and Chief Executive Officer of Holdings, it is not
considered Good Reason if Mr. Kalogris is no longer Chairman of
the Board of Directors. Holdings may terminate the Kalogris
employment agreement (i) at any time, upon written notice, at the
sole discretion of Holdings (as used in this paragraph, Without
Cause) and (ii) for cause or the death or disability of Mr.
Kalogris. Mr. Kalogris is entitled to receive from Holdings upon
termination of the Kalogris employment agreement by Mr. Kalogris
for Good Reason or by Holdings Without Cause the following
severance benefits: (A) $1.0 million, (B) up to an additional
$500,000 if Mr. Kalogris is unable to secure employment in a
senior executive capacity by the second anniversary date of the
termination of the agreement, (C) if the termination occurs prior
to February 4, 2001, 50% of all shares of common stock that are
unvested under such employment agreement as of such date will
vest and, if the termination occurs between February 4, 2001 and
February 3, 2002, 25% will vest and, if the termination occurs
after such period, none will vest and (D) Holdings will allow Mr.
Kalogris to participate in all health, dental, disability and
other benefit plans maintained by Holdings for a period of two
years following the date of termination of the agreement. In the
event Mr. Kalogris employment is terminated on or after the
initial five year term of the Kalogris employment agreement, or
due to Holdings failure to renew the Kalogris employment
agreement, Holdings will pay Mr. Kalogris a severance benefit in
the amount of his base salary at such time. The Kalogris
employment agreement provides for an initial annual base salary
of $350,000, subject to annual increases at the discretion of the
Compensation Committee of the Board of Directors, and an annual
bonus in an amount up to 100% of his base salary based on the
Companys performance. Mr. Kalogris is also entitled to acquire
shares of Holdings Series C preferred stock pursuant to a stock
purchase plan to be created by Holdings as promptly as
practicable pursuant to the terms of the Kalogris employment
agreement and is required to invest toward the purchase of such
shares 30% of any amounts he receives on account of an annual
bonus in excess of 50% of his base salary.
On February 4, 1998, Management Co. entered into an
employment agreement with Steven Skinner, President and Chief
Operating Officer of the Company. The Skinner employment
agreement has a term of five years unless terminated earlier by
either Mr. Skinner or Holdings. Mr. Skinner may terminate his
employment agreement (i) at any time at his sole discretion upon
30 days prior written notice and (ii) immediately, upon written
notice, if (A) there is a Change of Control (as defined in the
Skinner employment agreement) or (B) Mr. Skinner is demoted,
removed or, prior to the IPO Date, not re-elected to the Board of
Directors of Holdings (as used in this paragraph, Good Reason).
Holdings may terminate the Skinner employment agreement (i) at
any time, upon written notice, at the sole discretion of Holdings
(as used in this paragraph, Without Cause) and (ii) for cause or
the death or disability of Mr. Skinner. Mr. Skinner is entitled
to certain benefits from Holdings upon termination of the Skinner
employment agreement by Mr. Skinner for Good Reason or by
Holdings Without Cause. Mr. Skinner is entitled to receive from
Holdings upon termination of the Skinner employment agreement by
Mr. Skinner for Good Reason or by Holdings Without Cause the
following severance benefits: (A) $675,000, (B) up to an
additional $337,500 if Mr. Skinner is unable to secure employment
in a senior executive capacity by the second anniversary date of
the termination of the agreement, (C) if the termination occurs
prior to February 4, 2001, 50% of all shares of Common Stock that
are unvested under such employment agreement as of such date will
vest and, if the termination occurs between February 4, 2001 and
February 3, 2002, 25% will vest and, if the termination occurs
after such period, none will vest and (D) Holdings will allow Mr.
Skinner to participate in all health, dental, disability and
other benefit plans maintained by Holdings for a period of two
years following the date of termination of the agreement. In the
event Mr. Skinners employment is terminated on or after the
initial five year term of the Skinner employment agreement, or
due to Holdings failure to renew the Skinner Employment
agreement, Holdings will pay Mr. Skinner a severance benefit in
the amount of his base salary at such time. The Skinner
employment agreement provides for an initial annual base salary
of $225,000, subject to annual increases at the discretion of the
Compensation Committee of the Board of Directors, and an annual
bonus in an amount up to 100% of his base salary based on the
Companys performance. Mr. Skinner is also entitled to acquire
shares of Holdings Series C preferred stock pursuant to a stock
purchase plan and is required to invest toward the purchase of
such shares 30% of any amounts he receives on account of an
annual bonus in excess of 50% of his base salary.
On January 8, 1998, Management Co. entered into an
employment agreement with Clyde Smith, Executive Vice President
and Chief Technical Officer of the Company. The Smith employment
agreement has a term of five years unless terminated earlier by
either Mr. Smith or Management Co. Mr. Smith may terminate his
employment agreement (i) at any time at his sole discretion upon
60 days prior written notice and (ii) upon 60 days written
notice, in the event that the employment by the Company of each
of Michael Kalogris and Steve Skinner has been terminated during
the five year period (as used in this paragraph, Good Reason).
Management Co. may terminate the Smith employment agreement (i)
at any time, upon 60 days written notice, at the sole discretion
of Management Co. (as used in this paragraph, Without Cause) and
(ii) for cause (as defined in the Smith employment agreement) or
at the death, or due to a specified period of disability, of Mr.
Smith (as described in the Smith employment agreement). Mr. Smith
is entitled to certain benefits from Management Co. upon
termination of the Smith employment agreement prior to the
termination of five years by Mr. Smith for Good Reason or by
Management Co. Without Cause. Mr. Smith is entitled to received
from Management Co. upon termination of the Smith employment
agreement prior to the termination of five years by Mr. Smith for
Good Reason or by Management Co. Without Cause the following
severance benefits: (A) an amount equal to 150% of Mr. Smiths
then annual base salary and (B) vesting of certain of Mr. Smiths
unvested shares as follows: (1) the percentage of unvested shares
that would have vested in the year following the year of his
termination and (2) a pro rata amount (based on the number of
days worked that year) of the shares that would have vested in
the year of Mr. Smiths termination. The Smith employment
agreement provides for an initial annual base salary of $220,000,
subject to annual increases at the discretion of the Compensation
Committee of the Board of Directors, and an annual bonus in an
amount up to 100% of his base salary based on the Companys
performance. After the first calendar year of the Employment
Period, the Company has agreed to pay Mr. Smith a guaranteed
bonus of 100% of his base salary. Mr. Smith has also received
3,762.01 shares of common stock, such shares to vest according to
the schedule set forth in a letter agreement dated as of February
4, 1998, as amended, between Management Company and Mr. Smith.
Item 12. SECURITY OWNERSHIP
The following table sets forth, as of December 31, 1998,
certain information with respect to the beneficial holdings of
each director, each of the Named Executive Officers and all
executive officers and directors as a group, of Holdings, as well
as the holding of each stockholder of Holdings who was known to
the Company to be the beneficial owner, as defined in Rule 13d-3
under the Exchange Act, of more than 5% of the common stock and
the Series C preferred stock, based upon Company records. Shares
of Series C preferred stock are convertible immediately into
shares of common stock on a one-for-one basis, and accordingly,
holders of Series C preferred stock are deemed to own the same
number of shares of common stock. On all matters to be submitted
to the stockholders of Holdings, the holders of the Series C
preferred stock have the right to vote on an as-converted basis
as a single class with the holders of the common stock.
COMMON STOCK PREFERRED STOCK TOTAL
NAME(1) NUMBER PERCENTAGE NUMBER PERCENTAGE NUMBER PERCENTAGE
Michael Kalogris 165,515.56(9) 61.7% 5,000 a% 170,515.56 6.4%
Steven Skinner 80,537.70(10) 30.0 2,500 a 83,037.70 3.1
Clyde Smith 4,295.34(11) 1.6 -- -- 4,295.34 a
David Clark 8,053.77(12) 3.0 -- -- 8,053.77 a
David Standig 4,026.89(13) 1.5 -- -- 4,026.89 a
Scott Anderson 967.20 a -- -- 967.20 a
John Beletic 967.20 a -- -- 967.20 a
Arnold Chavkin(2) -- -- -- -- -- --
William Hague -- -- -- -- -- --
John Watkins(3) -- -- -- -- -- --
CB Capital Investors,
L.P.(4) -- -- 533,510.62 22.1 533,510.62 19.9
J.P. Morgan Investment
Corporation(5) -- -- 469,113.00 19.4 469,113.00 17.5
(15) (15)
Desai Capital Management
Incorporated(6) -- -- 517,510.62 21.4 517,510.62 19.3
(16) (16)
Toronto Dominion Capital
(USA), Inc.(7) -- -- 129,378.18 5.4 129,378.18 4.8
First Union Capital
Partners, Inc -- -- 177,385.94 7.3 177,385.94 6.6
DAG - Triton PCS, L.P. -- -- 80,788.15 3.3 80,788.15 3.0
AT&T Wireless PCS, Inc.(8) -- -- 500,944.49 17.3 500,944.49 18.7
(17) (17)
All directors and executive
officers 268,459.01(14) 100.0 7,500.00 a 275,959.01 10.3
a Represents less than 1%.
(1) Unless otherwise indicated, the address of each person
listed in this table is c/o Triton PCS, Inc., 375 Technology
Drive, Malvern, PA 19355.
(2) CB Capital Investment Inc. is the sole general partner of CB
Capital Investors, L.P. Mr. Chavkin is a vice president of CB
Capital Investments Inc. Mr. Chavkin disclaims beneficial
ownership of any such shares.
(3) Mr. Watkins is a managing director and an officer of J.P.
Morgan Investment Corporation. Mr. Watkins disclaims beneficial
ownership of any such shares.
(4) The address of this person is 380 Madison Avenue, New York,
NY 10017.
(5) The address of this person is 101 California Street, San
Francisco, CA 94111.
(6) The address of this person is 540 Madison Avenue, New York,
NY 10022.
(7) The address of this person is 31 West 52nd Street, New York,
NY 10019.
(8) The address of this person is 5000 Carillon Point, Kirkland,
WA 98033.
(9) Includes 58,131.96 shares held by Mr. Kalogris as trustee
under the Amended and Restated Common Stock Trust Agreement for
Management Employees and Independent Directors, dated June 26,
1998 (the Common Stock Trust Agreement), pursuant to which the
Company will distribute Common Stock to management employees and
independent directors. 96,645.24 of the 107,383.60 shares of
common stock directly held by Mr. Kalogris are subject to
forfeiture in accordance with the Kalogris employment agreement.
(10) 63,483.93 of the 80,537.70 shares of common stock are
subject to forfeiture in accordance with the Skinner employment
agreement.
(11) All 3,762.01 shares of common stock are subject to
forfeiture in accordance with the Smith employment agreement.
(12) All 8,053.77 shares of common stock are subject to
forfeiture in accordance with the letter agreement, dated as of
February 4, 1998, between the Company and Mr. Clark.
(13) All 4,026.89 shares of common stock are subject to
forfeiture in accordance with the letter agreement, dated as of
February 4, 1998, between the Company and Mr. Standig. Mr.
Standig resigned from the Company on March 1, 1999 (effective as
of March 26, 1999). In connection with the termination of his
employment, as of March 29, 1999, Mr. Standigs share ownership in
Holdings was reduced to 805.36 fully vested shares. The remaining
shares were sold back to the Company and will be eligible for
distribution to management members and independent directors of
Holdings pursuant to the Common Stock Trust Agreement.
(14) See footnotes (9)-(13). Also includes 2,684.59 shares of
common stock held by a certain management employee, all of which
are subject to forfeiture in accordance with the terms of a
letter agreement with such employee, and 1,410.76 shares of
Common Stock held by a certain former management employee, all of
which are subject to forfeiture in accordance with the terms of a
separation agreement with such former employee.
(15) Includes 23,907 shares of Series C Preferred Stock held by
Sixty Wall Street SBIC Fund, L.P., an affiliate of J.P. Morgan
Investment Corporation.
(16) Consists of 258,755.31 shares of Series C Preferred Stock
held by Private Equity Investors III, L.P., and 258,755.31 shares
of Series C preferred stock held by Equity Linked Investors II,
each an affiliate of Desai Capital Management Incorporated.
(17) Consists of 500,944.49 shares of Series D Preferred Stock.
Shares of Series D Preferred Stock are convertible into an
equivalent number of shares of Series C Preferred Stock at any
time. AT&T Wireless PCS, Inc. also owns 732,371 shares of Series
A Preferred Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The closing under the securities purchase agreement occurred
on February 4, 1998. Certain terms under the securities purchase
agreement and the AT&T agreements were modified pursuant to the
closing agreement, dated as of February 4, 1998, by and among the
parties to the securities purchase agreement. The securities
purchase agreement and the AT&T agreements are summarized below
as modified by the closing agreement. The following summary of
the material provisions of the securities purchase agreement and
the AT&T agreements does not purport to be complete and is
qualified in its entirety by reference to such agreements.
THE SECURITIES PURCHASE AGREEMENT
Pursuant to the securities purchase agreement, dated as of
October 8, 1997, by and among AT&T PCS, the Cash Equity
Investors, Michael Kalogris, Steven Skinner (Steven Skinner
together with Michael Kalogris, the Management Stockholders) and
Holdings, AT&T transferred to Triton certain PCS licenses, which
cover 20 MHz of authorized frequencies, and entered into certain
other agreements, in exchange for 732,371 shares of Series A
preferred stock and 366,131 shares of Series D preferred stock,
such shares having an aggregate value of approximately $79.0
million and $39.5 million, respectively.
AT&T has retained 10 MHz of spectrum within the Licensed Areas
for use as a non- mobility wireless provider.
Chase Capital Partners, J.P. Morgan Investment Corporation,
Desai Capital Management Incorporated, Toronto Dominion Capital
(USA), Inc., First Union Capital Partners, Inc. and DAG-Triton
PCS, L.P. have severally made irrevocable commitments to
contribute to Holdings approximately $39.8 million, $39.8
million, $39.8 million $9.9 million, $5.0 million and $5.0
million, respectively, in cash in exchange for approximately
398,000 shares, 398,000 shares, 398,000 shares, 99,000 shares,
50,000 shares and 50,000 shares, respectively, of Series C
preferred stock, and Michael Kalogris and Steven Skinner have
severally made irrevocable commitments to contribute to Holdings
$500,000 and $250,000, respectively, in cash in exchange for
5,000 shares and 2,500 shares, respectively, of Series C
preferred stock. The Cash Equity Investors, together with the
Management Stockholders, have contributed an aggregate of $80
million of their $140 million commitment as of December 31, 1998.
The Cash Equity Investors and the Management Stockholders are
required to contribute the unfunded portion of their respective
commitments under the securities purchase agreement (the Unfunded
Commitment Amount) to Holdings on the second, and third
anniversary dates of the securities purchase closing Date. Each
Cash Equity Investors obligation to make capital contributions to
Holdings after the securities purchase closing Date in respect of
its unfunded commitment amount is (i) an unconditional and
irrevocable obligation, and is not subject to counterclaim, set-
off, deduction or defense, or to abatement, suspension,
deferment, diminution or reduction for any reason whatsoever and
(ii) secured by a pledge of all shares of Series C preferred
stock issued to such party under the securities purchase
agreement pursuant to a pledge agreement between Holdings and
such party.
THE MYRTLE EQUITY CONTRIBUTION
Pursuant to a preferred stock purchase agreement, dated as
of June 29, 1998, Holdings received additional equity
contributions of approximately $10.2 million, $10.0 million, $9.8
million, $2.5 million, $1.2 million and $1.2 million,
respectively, from Chase Capital Partners, J.P. Morgan Investment
Corporation, Desai Capital Management Incorporated, Toronto
Dominion Capital (USA), Inc., First Union Capital Partners, Inc.
and Duff Ackerman Goodrich & Assoc. L.P. in exchange for
approximately 102,000 shares, 100,000 shares, 98,000 shares,
25,000 shares, 12,000 shares and 12,000 shares, respectively, of
Series C preferred stock on terms substantially similar to those
set forth in the 1997 securities purchase agreement. These
contributions were concurrently contributed to Triton.
THE NORFOLK CONTRIBUTION
Pursuant to the terms of a Norfolk Preferred Stock Purchase
agreement dated as of December 31, 1998, Holdings received an
additional contribution of $16.5 million from certain of the Cash
Equity Investors in order to fund a portion of the $111 million
purchase price for the Norfolk Acquisition. In consideration
therefor, at the closing of such acquisition, Holdings issued to
such Cash Equity Investors an additional $16.5 million of
Holdings Series C preferred stock which it contributed to the
Company. At closing, Holdings also issued to AT&T PCS an
additional $14.6 million of Holdings Series D preferred stock.
The balance of the purchase price was financed through use of
$96.6 million from the net proceeds of the Private Offering.
THE AT&T AGREEMENTS
The Stockholders Agreement
General. Pursuant to a stockholders agreement, dated as of
February 4, 1998, by and among AT&T PCS, the Cash Equity
Investors, the Management Stockholders, David Clark, Clyde Smith,
Patricia Gallagher, David Standig and Michael Mears (collectively
the Other Management Stockholders) and Holdings, the stockholders
and Holdings have agreed to certain matters in connection with
the management and operations of the Company and the sale,
transfer or other disposition of the capital stock of Holdings.
Board of Directors. Holdings is governed by a Board of
Directors consisting of seven persons, and, unless otherwise
required, actions of the Board of Directors require the
affirmative vote of a majority of the entire Board of Directors.
The stockholders have agreed to vote for the seven persons as
follows: (i) two directors selected by a majority in interest of
common stock and securities convertible into common stock held by
the Cash Equity Investors in their sole discretion, (ii) two
directors selected by a majority in interest of common stock and
securities convertible into common stock held by the Cash Equity
Investors, which directors shall be acceptable to Michael
Kalogris and Steven Skinner, on the one hand, and AT&T PCS, on
the other hand, each in their sole discretion, (iii) Michael
Kalogris so long as he is an officer of Holdings, (iv) Steven
Skinner so long as he is an officer of Holdings, and (v) one
director selected by AT&T PCS in its capacity as holder of the
Series A preferred stock so long as it has the right to elect one
director in accordance with the Restated Certificate of
Incorporation (as defined herein). Representatives of AT&T PCS
and certain Cash Equity Investors also have the right to attend
each meeting of the Board of Directors as observers, provided
that certain capital stock ownership thresholds are met. Any
transactions between the Company and the stockholders (other than
the AT&T Agreements and other arms-length agreements or
transactions entered into from time to time between the Company
and AT&T) must be approved by a majority of disinterested
directors. Under the stockholders agreement, the two directors
selected pursuant to clause (ii) above of this paragraph are
deemed not to have been designated by any of the stockholders. If
an executive committee of the Board of Directors is formed, it
must consist of at least the Series A Director, one of the
directors selected pursuant to clause (i) above of this paragraph
and Michael Kalogris (so long as he is an officer of Holdings).
The Cash Equity Investors also have agreed to contribute all or
part of the unfunded commitment amount at any time to Holdings
upon 20 business days notice from the Board of Directors.
Restrictions on Transfer. The stockholders agreement
imposes numerous restrictions with respect to the sale, transfer
or other disposition of the capital stock of Holdings. Generally,
prior to the date on which Holdings receives in excess of $20
million in gross proceeds from the sale of common stock pursuant
to a registration statement under the Securities Act (the IPO
Date), no Transfers are permitted except: (i) Series C preferred
stock, Series D preferred stock and common stock may be
transferred (at any time) (A) to an affiliate of a person that is
a transferee or a successor in interest to any or all of such
persons capital stock of Holdings and that is required to become
a party to the stockholders agreement in accordance with the
terms thereof (an Affiliated Successor) or (B) in the case of a
transfer by a Cash Equity Investor, to any partners, limited
partners or members of a Cash Equity Investor that are
transferees of Series C preferred stock or common stock pursuant
to distributions in accordance with the partnership agreement or
operating agreement of such Cash Equity Investor (an Equity
Investor Affiliate), (ii) after the third anniversary of the
securities purchase closing date, the Cash Equity Investors may
Transfer Series C preferred stock or common stock to another Cash
Equity Investor, and (iii) after the third anniversary of the
securities purchase closing date, Series C preferred stock and
common stock may be transferred to any person (except a
prohibited transferee), subject to certain rights of first
refusal of the non-transferring stockholders (the Rights of First
Refusal). Additionally, prior to the IPO Date, (x) no Cash Equity
Investor nor AT&T PCS may Transfer less than all of its Series C
preferred stock or common stock to any person except an
Affiliated Successor or a Equity Investor Affiliate unless after
giving effect to such Transfer, the transferor and the transferee
will each own at least the lesser of (A) 5% of common stock and
(B) one-half of the common stock beneficially owned by such
transferor on the date of Transfer, and (y) no Management
Stockholder or Other Management Stockholder (together, the
Employee Stockholders) may effect more that one Transfer of its
common stock during any 12-month period to any person other than
an Affiliated Successor.
On and after the IPO Date, no Transfers of Series D
preferred stock or common stock are generally permitted except:
(i) after the third anniversary of the securities purchase
closing date, the Cash Equity Investors may Transfer Series C
preferred stock or common stock to another Cash Equity Investor,
(ii) Series D preferred stock and common stock may be transferred
(at any time) to an Affiliated Successor or an Equity Investor
Affiliate and (iii) common stock may be transferred to any
person, subject to certain rights of first refusal.
AT&T PCS is subject to all of the foregoing restrictions
with respect to its Series C preferred stock and common stock.
AT&T PCS may not Transfer any of its Series D preferred stock at
any time other than to an Affiliated Successor. Finally, with
respect to AT&T PCS Series A preferred stock, (a) prior to the
IPO Date, no Transfers are permitted except (i) to an Affiliated
Successor or (ii) to any person after first complying with
certain provisions relating to the rights of first refusal, and
(b) on or after IPO Date, no Transfer restrictions exist.
In addition to the foregoing transfer restrictions, each
stockholder has agreed, subject to certain exceptions, not to
Transfer any Series A preferred stock, Series B preferred stock,
Series D preferred stock or common stock to a Prohibited
Transferee. A Prohibited Transferee is defined generally as one
of the three largest carriers (other than AT&T, or any person
that derives a material portion of its business from wireless
communications systems and utilizes TDMA technology in a
substantial majority of those systems) of telecommunications
services that currently constitute interexchange services.
Registration Rights. The stockholders agreement grants
certain demand and piggyback registration rights to the
Stockholders. On or after the 91st day after the IPO Date, the
following Stockholders may cause an underwritten demand
registration, subject to customary pro rata cutback and blackout
restrictions, so long as such registration is reasonably expected
to result in aggregate proceeds of at least $10 million: (a) AT&T
PCS, (b) a holder of shares of Series C preferred stock or common
stock (if such registration is reasonably expected to result in
aggregate gross proceeds of at least $25 million) or (c) Employee
Stockholders beneficially owning at least 50.1% of the shares of
common stock then beneficially owned by the Employee
Stockholders. In addition to such demand registration rights, any
Stockholder may piggyback on a registration by Holdings at any
time (other than registrations on Forms S-4 or S-8 of the
Securities Act), subject to customary pro rata cutback
restrictions. The demand and piggyback registration rights and
obligations survive 20 years.
Furthermore, if the IPO Date has not occurred by the fifth
anniversary of the securities purchase closing date, Holdings, at
the request of (i) any holders beneficially owning in the
aggregate greater than one-third of the Series C preferred stock
and common stock then outstanding or (ii) AT&T PCS for so long as
it beneficially owns greater than two-thirds of the initial
issuance to AT&T PCS of Series A preferred stock, shall undertake
a registration of common stock that results in the IPO Date.
Preemptive Rights. The stockholders agreement grants
preemptive rights in certain circumstances to the Stockholders.
If, on or prior to the IPO Date, Holdings proposes to issue any
equity security (including in an initial public offering, but
excluding pursuant to any stock option or stock appreciation
rights plan), for cash, each Stockholder shall have a preemptive
right to purchase its pro rata portion of such securities.
Exclusivity. Holdings and the stockholders have also
reached several agreements regarding operational matters
pertaining to the Company. The Stockholders have agreed that
during the term of the Stockholders Agreement, none of the
Stockholders nor their respective affiliates will provide or
resell, or act as the agent for any person offering, within the
Territory (as defined in the stockholders agreement) mobile
wireless telecommunications services initiated or terminated
using TDMA and frequencies licensed by the FCC (Company
Communications Services), except AT&T PCS and its affiliates may
(i) resell or act as agent for the Company in connection with the
provision of Company Communications Services, (ii) provide or
resell wireless telecommunications services to or from certain
specific locations, and (iii) resell Company Communications
Services for another person in any area where the Company has not
yet placed a system into commercial service; provided that AT&T
PCS has provided the Company with prior written notice of AT&T
PCS intention to do so and only dual band/dual mode phones are
used in connection with such resale activities. Additionally,
with respect to the markets listed in the roaming agreement, each
of the Company and AT&T PCS agrees to cause their respective
affiliates in their home carrier capacities to (a) program and
direct the programming of customer equipment so that the other
party in its capacity as the serving carrier is the preferred
provider in such markets, and (b) refrain from inducing any of
its customers to change such programming.
Build-Out. The Company is bound to certain operational
obligations, including meeting the construction requirements set
forth in an agreed-upon minimum build-out plan, ensuring
compatibility of the Companys PCS systems with the majority of
systems in the southeastern region of the United States,
satisfying the FCC construction requirements in the Territory,
offering certain core service features with respect to its
systems, causing the Companys systems to comply with AT&T PCS
TDMA quality standards, and refraining from providing or
reselling interexchange services other than interexchange
services that constitute Company Communications Services or that
are procured from AT&T. In the event that the Company materially
breaches any of the foregoing operational obligations or if, in
the event AT&T PCS decides to adopt in a majority of its markets
a new technology standard and the Company declines to adopt such
new technology, AT&T PCS may terminate its exclusivity
obligations.
Certain Transactions. In the event a merger, consolidation,
asset acquisition or disposition or other business combination
involving (i) AT&T and (ii) a person that (a) derives from
telecommunications businesses annual revenues in excess of $5
billion, (b) derives less than one-third of its aggregate
revenues from the provision of wireless telecommunications and
(c) owns FCC licenses to offer (and does offer) mobile wireless
telecommunications services serving more than 25% of the Pops
within the Territory (such person, the Other Party), the Company
and AT&T have certain rights, including the following: (i) AT&T
may, upon written notice, terminate certain of its obligations
described above under the caption --Exclusivity in the portion of
the Territory in which the Other Party owns an FCC license to
offer CMRS; provided, that, upon such termination, the Company
has the right to cause AT&T PCS to exchange (A) certain shares of
its Series A preferred stock into Series B preferred stock and
(B) certain shares of its Series D preferred stock (or Series C
preferred stock or common stock into which such Series D
preferred stock has been converted) into Series B preferred
stock; (ii) if AT&T PCS proposes to sell, transfer or assign to
any non-affiliate any PCS system owned and operated by AT&T PCS
and its affiliates in any of the Charlotte, NC, Atlanta, GA,
Baltimore/Washington, D.C. or Richmond, VA BTAs (the Subject
Markets), then AT&T PCS will provide the Company with the
opportunity for a 180-day period to have AT&T PCS joint market
with the applicable Subject Markets the portion of the Territory
included in the MTA that includes such Subject Markets.
Without the prior written consent of AT&T PCS, Holdings and
its subsidiaries may not effect any sale of substantially all of
the assets of Holdings or any of its subsidiaries or liquidation,
merger or consolidation of Holdings or any of its subsidiaries,
with certain limited exceptions.
Acquisition of Licenses. The Company may acquire cellular
licenses that the Board of Directors has determined are
demonstrably superior alternatives to constructing a PCS system
in the applicable area within the Territory, provided that: (i) a
majority of the cellular Pops are within the Territory, (ii) AT&T
PCS and its affiliates do not own Commercial Mobile Radio Service
licenses in such area, and (iii) the Companys ownership of such
cellular license will not cause AT&T PCS or any affiliate to be
in breach of any law or contract.
Equipment, Discounts and Roaming. If requested by the
Company, AT&T PCS has agreed to use all commercially reasonable
efforts (i) to assist the Company in obtaining discounts from any
vendor with whom the Company is negotiating for the purchase of
any infrastructure equipment or billing services and (ii) to
enable the Company to become a party to the roaming agreements
between AT&T PCS and its affiliates and operators of other
cellular and PCS systems.
Resale Agreements. The Company, upon the request of AT&T
PCS, will enter into resale agreements relating to the Territory.
The rates, terms and conditions of service provided by the
Company shall be at least as favorable to AT&T PCS, taken as a
whole, as the rates, terms and conditions provided by the Company
to other customers.
Subsidiaries. All of Holdings subsidiaries must be direct or
indirect wholly-owned subsidiaries of Holdings.
Amendments. Amendments to the stockholders agreement
require the consent of holders of (i) a majority of the shares of
each class of capital stock, including AT&T PCS, (ii) two-thirds
of the common stock beneficially owned by the Cash Equity
Investors, and (iii) 60.1% of the common stock beneficially owned
by the Employee Stockholders; provided however, that in the event
any party thereto ceases to own any shares of Equity Securities,
such party ceases to be a party to the stockholders agreement and
the rights and obligations of such party thereunder terminates.
Termination. The stockholders agreement terminates upon
the earliest to occur of (i) the written consent of each party
thereto, (ii) the eleventh anniversary of the securities purchase
closing date, and (iii) one Stockholder owning all the Common
Stock; provided, some provisions expire on the IPO Date and
certain consent rights of AT&T PCS expire when it fails to own
the requisite amount of capital stock of Holdings.
License Agreement
Pursuant to the Network Membership License Agreement, dated
as of February 4, 1998, between AT&T Corp. and Operating LLC,
AT&T Corp. has granted to the Company a royalty-free, non-
transferable, non-sublicensable, non-exclusive, limited right and
license to use the Licensed Marks solely in connection with
Licensed Activities. The Licensed Marks include the logo
containing the AT&T and globe design and the expression Member,
AT&T Wireless Services Network. The Licensed Activities include
(i) the provision to end-users and resellers, solely within the
Territory, of Company Communications Services on frequencies
licensed to the Company for Commercial Mobile Radio Service
provided in accordance with the AT&T Agreements (collectively,
the Licensed Services) and (ii) marketing and offering the
Licensed Services within the Territory. The License Agreement
also grants to the Company the right and license to use Licensed
Marks on certain permitted mobile phones.
Except in certain instances, AT&T has agreed not to grant to
any other person a right or license to provide or resell, or act
as agent for any person offering, Company Communications Services
within the Territory under the Licensed Marks. In all other
instances, AT&T reserves for itself the right to use the Licensed
Marks in the providing of its services (subject to its
exclusivity obligations described above), whether within or
without the Territory.
The license agreement contains numerous restrictions with
respect to the use and modification of any of the Licensed Marks.
Furthermore, the Company is obligated to use commercially
reasonable efforts to cause all Licensed Services marketed and
provided using the Licensed Marks to be of comparable quality to
the Licensed Services marketed and provided by AT&T in areas that
are comparable to the Territory taking into account, among other
things, the relative stage of development of the areas. The
license agreement also sets forth specific testing procedures to
determine compliance with these standards, and affords the
Company with a grace period to cure any instances of alleged
noncompliance therewith. Following the cure period, the Company
must cease using the Licensed Marks until the Company is back in
compliance.
The Company may not assign or sublicense any of its rights
under the license agreement; provided, however, that the License
Agreement may be, and has been, assigned to the Companys lenders
under our Credit Facility and after the expiration of any
applicable grace and cure periods under the Credit Facility, such
lenders may enforce the Companys rights under the license
agreement and assign the License Agreement to any person with
AT&Ts consent.
The term of the license agreement is for five years (the
Initial Term) and renews for an additional five-year period if
neither party terminates the Agreement. The license agreement may
be terminated by AT&T at any time in the event of a significant
breach by the Company, including the Companys misuse of any
Licensed Marks, the Company licensing or assigning any of the
rights in the license agreement, the Companys failure to maintain
AT&Ts quality standards or a change in control of the Company
occurs. After the Initial Term, in the event AT&T converts any
shares of Series A preferred stock into common stock in
connection with a transaction described above under the caption -
- - Stockholders Agreement-- the license agreement terminates on
the later of (i) two years from the date of such conversion and
(ii) the then existing expiration date of the license agreement.
After the Initial Term, AT&T may also terminate the license
agreement upon the occurrence of certain transactions described
above under the caption --Stockholders Agreement--.
Roaming Agreement
Pursuant to the Intercarrier Roamer Service Agreement, dated
as of February 4, 1998, between AT&T Wireless Service, Inc. (on
behalf of its affiliates) and Operating LLC (on behalf of the
Company), each of AT&T and the Company agrees to provide (each in
its capacity as serving provider, the Serving Provider) mobile
wireless radiotelephone service for registered customers of the
other partys (the Home Carrier) customers while such customers
are out of the Home Carriers geographic area and in the
geographic area where the Serving Carrier (itself or through
affiliates) holds a license or permit to construct and operate a
mobile wireless radiotelephone system and station. Each Home
Carrier whose customers receive service from a Serving Carrier
shall pay to such Serving Carrier 100% of the Serving Carriers
charges for wireless service and 100% of pass-through charges
(i.e., toll or other charges). Each Service Carriers service
charges per minute or partial minute for the use for the first 3
years will be fixed at a declining rate, and thereafter will be
equal to an adjusted average home rate or such lower rate as the
parties negotiate from time to time; provided, however, that with
respect to the Norfolk BTA, the service rate is equal to the
lesser of (a) $0.25 per minute and (b) the applicable home rate
of AT&T PCS, or such other rate as agreed to by the parties. Each
Serving Carriers toll charges per minute of use for the first 3
years will be fixed at a declining rate, and thereafter such
other rates as the parties negotiate from time to time.
The roaming agreement has a term of 20 years, unless earlier
terminated by a party due to the other partys uncured breach of
any term of the roaming agreement, the other partys voluntary
liquidation or dissolution or the FCC revoking or denying renewal
of the other partys license or permit to provide CMRS.
Neither party may assign or transfer the roaming agreement
or any of its rights thereunder except to an assignee of all or
part of its license or permit to provide Commercial Mobile Radio
Service, provided that such assignee expressly assumes all or the
applicable part of the obligations of such party under the
Roaming Agreement.
Resale Agreement
Pursuant to the terms of the stockholders agreement, the
Company is required to enter into a Resale Agreement,
substantially in the form of Exhibit C to the securities purchase
agreement (together with the stockholders agreement, the license
agreement and the roaming agreement, the AT&T Agreements), at the
request of AT&T. Pursuant to the resale agreement, AT&T PCS will
be granted the right to purchase and resell on a nonexclusive
basis access to and usage of the Companys services in the
Territory. AT&T PCS will pay to the Company the charges,
including usage and roaming charges, associated with services
requested by AT&T PCS under the Resale Agreement. The Company
will retain the continuing right to market and sell its services
to customers and potential customers.
The resale agreement will have a term of ten years and will
renew automatically for successive one-year periods unless either
party elects to terminate the resale agreement. Following the
eleventh anniversary of the Resale Agreement, either party may
terminate on 90 days prior written notice. Furthermore, AT&T PCS
may terminate the resale agreement at any time for any reason on
180 days written notice.
Pursuant to the stockholders agreement, Holdings has agreed
that the rates, terms and conditions of service, taken as a
whole, provided by the Company to AT&T PCS pursuant to the resale
agreement shall be at least as favorable as (or if permitted by
applicable law, superior to) the rates, terms and conditions of
service, taken as a whole, provided by the Company to any other
customer. Without limiting the foregoing, the rate plans offered
by the Company pursuant to the resale agreement will be designed
to result in a discounted average actual rate per minute paid by
AT&T PCS for service below the weighted average actual rate per
minute billed by the Company to its customers generally for
access and air time.
Neither party may assign or transfer the resale agreement or
any of its rights thereunder without the other partys prior
written consent, which will not be unreasonably withheld, except
(a) to an affiliate of that party at the time of execution of the
Resale Agreement, (b) by the Company to any of its operating
subsidiaries, and (c) to the transferee of a partys stock or
substantially all of its assets, provided that all FCC and other
necessary approvals have been received.
OTHER RELATED PARTY TRANSACTIONS
The Company is associated with Triton Cellular Partners L.P.
by virtue of certain management overlap and the sharing of leased
facilities. As part of this association, certain costs are
incurred on behalf of Triton Cellular and subsequently reimbursed
to the Company. Such costs totaled $482,000 during 1998. In
addition, under agreement between the Company and Triton
Cellular, allocations for management services rendered are
charged to Triton Cellular. Such allocations totaled $469,000
during 1998. The outstanding balance at December 31, 1998 was
$951,000. The Company expects settlement of these outstanding
charges during 1999.
Over the course of fiscal year 1997, Triton L.L.C., a
predecessor of Triton License Company, incurred certain costs on
behalf of Triton Cellular. Such costs totaled $148,100 and will
be reimbursed by Triton Cellular in 1998. In addition, the
Company purchased $22,800 of equipment from Horizon Cellular
Telephone Company, L.P. , an entity affiliated with the Company
by virtue of management overlap and the sharing of leased
facilities.
On February 3, 1998, the Company entered into the credit
facility. Certain affiliates of each of J.P. Morgan Investment
Corporation, a holder of approximately 17% of the issued and
outstanding capital stock of the Company, and CB Capital
Investors, a holder of approximately 20% of the issued and
outstanding capital stock of the Company, serve as agent and
lenders under the credit facility. Each of the agent and lenders
under the credit facility have received and will continue to
receive customary fees and expenses in connection with the
execution of the credit facility. To date, affiliates of J.P.
Morgan Investment Corporation and CB Capital Investors, have
received approximately $98 and $106, respectively, in their
capacity as agent and lender under such facility.
On February 4, 1998, Holdings entered into letter agreements
with Messrs. Clark, Standig and Mears, and Ms. Gallagher in
connection with their employment. Pursuant to such letter
agreements they were issued shares of common stock which vest at
20 percent per year over a five year period. Messrs. Clark,
Standig, and Mears received 7,053.77, 3,526.89, and 2,351.26,
respectively, and Ms. Gallagher received 3,526.89. See Security
Ownership.
On March 7, 1997, each of Chase Venture Capital Associates,
L.P., an affiliate of Chase Capital Partners, and J.P., Morgan
Investment Corporation provided $550,000 in financing, and on
July 3, 1997, each of Chase Venture Capital Associates, L.P. and
J.P. Morgan Investment Corporation provided an additional
$250,000 in financing, to Triton L.L.C. in the form of
convertible promissory notes in order to fund Triton L.L.C.s
start-up costs. The $1.6 million in notes originally bore
interest at 14% annually, payable at maturity. On January 15,
1998, Triton L.L.C. assigned the notes to the Company. Triton, in
conjunction with Holdings and the noteholders, subsequently
negotiated a revised arrangement under which no interest would be
paid on the notes and, in lieu of repaying the promissory notes
in cash, the amount owed under such notes would be convertible
into approximately $3.2 million worth of Holdings Series C
preferred stock. The conversion of the Triton L.L.C. notes into
16,000 shares each of Series C preferred stock occurred on
February 4, 1998. The $1.6 million preferred return to the
investors has been accounted for as a financing cost during the
period the notes were outstanding. Accordingly, the Company has
accrued $1.2 million in financing costs on the notes as of
December 31, 1997. The remaining $0.4 million financing costs
were recognized in the first quarter of calendar 1998.
On January 19, 1998, Operating LLC entered into the Master
Services Agreement with Wireless Facilities Inc. (WFI) pursuant
to which WFI will provide radio frequency design and system
optimization support services to the Company. The Master Services
Agreement could result in payments by the Company to WFI of up to
$6.0 million. Mr. Scott Anderson, a director of Holdings, is also
a director of WFI.
On May 4, 1998, the Company consummated the private offering
pursuant to which the Company raised net proceeds of
approximately $291 million. J.P. Morgan Securities Inc. and Chase
Securities Inc., each an affiliate of entities that own in the
aggregate approximately 52.4% of the outstanding Series C
preferred stock, acted as initial purchasers in connection with
the private offering and received a placement fee of $6.3 million
in connection therewith.
TRITON PCS, INC. AND PREDECESSOR COMPANY
VALUATION AND QUALIFYING ACCOUNTS
($000S)
Additions Deductions Add
Balance at charged to credited to Myrtle Balance
Beginning cost and costs and Beach at
of year expenses expenses acquisitions year
Year ended December 31, 1997
Allowance for
doubtful accounts - - - - -
Year ended December 31, 1998
Allowance for
doubtful accounts - $636 $480 $915 $1,071
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934,
as amended, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Malvern, State of
Pennsylvania on March 31, 1999.
Triton PCS, Inc
By: /s/ Michael Kalogris
Sole Director and Chief Executive Officer
Triton Management Company, Inc.
By: /s/ Michael Kalogris
Sole Director and Chief Executive Officer
Triton PCS Holdings Company L.L.C.
By:Triton Management Company, Inc., its manager
By: /s/ Michael Kalogris
Sole Director and Chief Executive Officer
Triton PCS Property Company L.L.C., Inc.
By:Triton Management Company, Inc., its manager
By: /s/ Michael Kalogris
Sole Director and Chief Executive Officer
Triton PCS Equipment Company L.L.C.
By:Triton Management Company, Inc., its manager
BY: /s/ Michael Kalogris
Sole Director and Chief Executive Officer
Triton PCS Operating Company L.L.C.
By:Triton Management Company, Inc., its manager
By: /s/ Michael Kalogris
Sole Director and Chief Executive Officer
Triton PCS License Company L.L.C
By:Triton Management Company, Inc., its manager
By: /s/ Michael Kalogris
Sole Director and Chief Executive Officer
By: /s/ David Clark
Senior Vice President, Chief Financial
Officer, and Secretary
