<PAGE>
Prospectus
Pursuant to Rule 424(b)(3)
Registration No. 333-57715
May 3, 2000
Triton PCS, Inc.
$511,989,000
11% Senior Subordinated Discount Notes due 2008
This prospectus has been prepared for and is to be used by J.P. Morgan
Securities Inc. and Chase Securities Inc. in connection with offers and sales
of the notes related to market-making transactions in the over-the-counter
market at negotiated prices related to prevailing market prices at the time of
sale. Triton PCS, Inc. will not receive any of the proceeds of these sales.
J.P. Morgan Securities Inc. and Chase Securities Inc. may act as principals or
agents in such transactions. The closing of the offering referred to in this
prospectus, which constituted the delivery of the notes by Triton, occurred on
October 30, 1998. See "Plan of Distribution."
The Company:
The Notes:
. We are in the wireless . Aggregate Principal Amount
broadband personal at Maturity: $511,989,000
communication services
industry.
. Maturity Date: May 1,
2008.
. Interest Payment: Semi-
. Triton PCS, Inc. 1100 annually on each May 1 and
Cassatt Road Berwyn, November 1. Triton will
Pennsylvania 19312 not make cash interest
(610) 651-5900 payments on the notes
until May 1, 2003.
Trading Format
. The notes are eligible for . Redemption: The notes will
trading in The Portal be redeemable on or after
Market, a subsidiary of May 1, 2003. Up to 35% of
The Nasdaq Market, Inc. the aggregate principal
The notes also may be sold amount at maturity of the
in the over-the-counter notes are redeemable prior
market, in negotiated to May 1, 2001 with net
transactions or through a proceeds from one or more
combination of such equity offerings.
methods.
. Ranking: The notes and
guarantees are general,
unsecured obligations of
ours and our subsidiaries
and rank subordinate in
right of payment to all
current and future senior
debt.
This investment involves risk. See Risk Factors beginning on page 4.
These securities have not been approved or disapproved by the Securities and
Exchange Commission or any state securities commission nor has the Securities
and Exchange Commission or any state securities commission passed upon the ac-
curacy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
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Table of Contents
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Prospectus Summary ................. 1
Risk Factors........................ 4
Use of Proceeds..................... 10
Selected Historical Consolidated
Financial Data..................... 11
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 13
Description of Triton............... 20
Management.......................... 36
Security Ownership.................. 41
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Certain Relationships and Related Transactions........................ 42
Description of Credit Facility........................................ 48
Description of Notes.................................................. 49
Book-Entry; Delivery and Form......................................... 73
Certain United States Federal Income Tax Consequences................. 75
Plan of Distribution.................................................. 81
Legal Matters......................................................... 81
Experts............................................................... 81
Available Information................................................. 81
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve substantial
risks and uncertainties. You can identify these statements by forward-looking
words such as anticipate, believe, could, estimate, expect, intend, may,
should, will and would or similar words. You should read statements that
contain these words carefully because they discuss our future expectations,
contain projections of our future results of operations or of our financial
position, or state other forward-looking information. We believe that it is
important to communicate our future expectations to our investors. However,
there may be events in the future that we are not able to accurately predict or
control. The factors listed in the Risk Factors section in this prospectus, as
well as any cautionary language in this prospectus, provide examples of risk,
uncertainties and events that may cause our actual results to differ materially
from the expectations we describe in our forward-looking statements. You should
be aware that the occurrence of the events described in this prospectus could
have a material adverse effect on our business, results of operations and
financial position.
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Prospectus Summary
This summary highlights selected information about Triton and the notes offered
by this prospectus. It does not contain all of the information that is
important to you. To understand the offer of notes fully and for a more
complete description of the legal terms of the notes, you should carefully read
this entire prospectus, including the financial statements and the related
notes to the financial statements.
Triton
We are a rapidly growing provider of wireless personal communications services
in the southeastern United States. Our personal communications services
licenses cover approximately 13 million potential customers in a contiguous
geographic area encompassing portions of Virginia, North Carolina, South
Carolina, Tennessee, Georgia and Kentucky. In February 1998, we entered into a
joint venture with AT&T, our largest equity sponsor. As part of the agreement,
AT&T contributed personal communications services licenses for 20 MHz of
authorized frequencies covering 11 million potential customers within defined
areas of our region in exchange for an equity position in Triton. Since that
time, we have expanded our coverage area to include an additional 2 million
potential customers through acquisitions and license exchanges with AT&T. As
part of the transactions with AT&T, we were granted the right to be the
exclusive provider of wireless mobility services using equal emphasis co-
branding with AT&T within our region. We believe our markets are strategically
attractive because of their proximity to AT&T's wireless systems in the
Washington, D.C., Charlotte, North Carolina and Atlanta, Georgia markets, which
collectively cover a population of more than 27 million individuals. Our market
location is attractive as we are the preferred provider of wireless mobility
services to AT&T's digital wireless customers who roam into our markets. Our
strategy is to provide extensive coverage to customers within our region, to
offer our customers coast-to-coast coverage and to benefit from roaming
revenues generated by AT&T's and other carriers' wireless customers who roam
into our covered area. Our management team is led by Michael Kalogris and
Steven Skinner, the former Chief Executive Officer and Chief Operating Officer
of Horizon Cellular Group, respectively.
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The Notes
Securities Outstanding.... $511,989,000 in aggregate principal amount at
maturity of 11% senior discount notes due 2008.
Maturity Date............. May 1, 2008
Yield and Interest........ 11% per year, computed on a semiannual bond
equivalent basis, calculated from May 4, 1998. Cash
interest will not accrue prior to May 1, 2003.
Commencing on November 1, 2003, cash interest will
be payable semiannually on May 1 and November 1,
the interest payment dates.
Original Issue Discount... Each note was offered at an original issue discount
for federal income tax purposes. Although cash
interest will not accrue on the notes prior to May
1, 2003, original issue discount accrues on the
notes up to May 1, 2003 and will be included as
interest income periodically in a holder's gross
income for federal income tax purposes in advance
of receipt of the cash payments to which the income
is attributable. Original issue discount is the
difference between the principal amount at maturity
and the issue price of the notes. See "Certain
United States Federal Tax Considerations."
Optional Redemption....... The notes are redeemable under the following
conditions:
. the notes will be redeemable at our option, in
whole or in part, at any time on or after May 1,
2003, at the redemption prices set forth in this
prospectus, together with accrued and unpaid
interest to the redemption date; and
. prior to May 1, 2001, we may redeem up to 35% of
the aggregate principal amount at maturity of
the notes with the net cash proceeds received
from one or more equity offerings of Triton,
Triton Holdings or a corporation set up
specifically for the purpose of such an equity
offering, at a redemption price of 111% of
accreted value, plus accrued and unpaid
interest, if any, to the redemption date.
Guarantee................. The notes are guaranteed on a joint and several
basis by all of our subsidiaries that are direct or
indirect obligors under, or in respect of, senior
credit facilities. As of the date of this
prospectus, all of our subsidiaries are guarantors
on a full, unconditional, and joint and several
basis and are wholly-owned by Triton. Triton
Holdings, our direct parent and sole stockholder,
is not a guarantor. The guarantees are unsecured
obligations of the guarantors, subordinated in
right of payment to all senior debt of the
guarantors, including all of the guarantors'
obligations under their guarantees of our credit
facility.
Ranking................... The notes are our general unsecured obligations,
subordinated in right of payment to all of our
senior debt, including all of our obligations under
our credit facility. The guarantees will be
unsecured obligations of the guarantors,
subordinated in right of payment to all senior debt
of the guarantors, including all of the guarantors'
obligations under their guarantees of the credit
facility. As of December 31, 1999, Triton and the
guarantors had $150.0 million of senior debt
outstanding.
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Change of Control......... Upon a change of control, each noteholder may
require us to repurchase its notes, in whole or in
part, at a purchase price equal to 101% of the
notes' accreted value or the principal amount at
maturity, as applicable, plus accrued and unpaid
interest to the purchase date. Our credit facility
will prohibit our purchase of outstanding notes
prior to repayment of the borrowings under the
credit facility. We cannot assure you that upon a
change of control we will have sufficient funds to
repurchase any of the notes.
Certain Covenants......... The indenture contains certain covenants that,
among other things, limit our ability or the
ability of any of our restricted subsidiaries to
incur additional indebtedness, make certain types
of restricted payments and investments, create
liens, permit dividends or other payment
restrictions to apply to subsidiaries, enter into
certain types of transactions with affiliates or
complete certain mergers, consolidations or similar
transactions. In addition, in specific
circumstances, we will be required to offer to
purchase the notes at 100% of their accreted value
or principal amount at maturity, as applicable,
with the net proceeds of certain asset sales. These
covenants are subject to a number of significant
exceptions and qualifications.
For additional information regarding the notes, see "Description of Notes."
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Risk Factors
This prospectus includes forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. Although
we believe that our plans, intentions and expectations reflected in such
forward-looking statements are reasonable, we cannot assure you that we will
achieve those plans, intentions or expectations. We set forth below and
elsewhere in this prospectus important factors that could cause actual results
to differ materially from any forward-looking statements. All forward-looking
statements attributable to us or persons acting on our behalf are expressly
qualified in their entirety by the cautionary statements set forth below. The
safe harbor provisions of Section 27A of the Securities Act and Section 21E of
the Exchange Act do not apply to the statements made in connection with this
offering.
We have had, and expect to continue to have, operating losses.
We expect to incur operating losses and to generate negative cash flow from
operating activities during the next several years while we develop and
construct our personal communications services network and build our customer
base. Now that we have completed our initial network configuration, our
operating profitability will depend on our ability to:
. market our services successfully;
. achieve our projected market penetration;
. manage customer turnover rates effectively; and
. price our services competitively.
We cannot assure you that we will achieve or sustain operating profitability or
positive cash flow from operating activities in the future. If we do not
achieve and maintain operating profitability and positive cash flow from
operating activities on a timely basis, we may not be able to meet our debt
service requirements, including our obligations with respect to the notes.
Our build-out plan will require significant capital, and our substantial
indebtedness could impair our ability to fund our capital requirements.
We will require substantial capital to complete the build-out of our network
and market our personal communications services. Actual amounts of the funds we
require may vary materially from these estimates. We would require additional
funds in the event of significant departures from our current business plan,
unforeseen delays, cost overruns, unanticipated expenses, regulatory changes,
engineering design changes and other technological risks or if we acquire
additional licenses. We engage, from time to time, in discussions with AT&T
regarding possible acquisitions of additional personal communications services
licenses from them. We may also engage in discussions regarding future
acquisitions of cellular licenses within our currently licensed area. Sources
of funding for our further financing requirements may include any or all of the
following:
. vendor financing;
. public offerings or private placements of equity and debt securities;
. commercial bank loans;
. additional capital contributions from equity investors; and
. equipment lease financing.
Due to our highly leveraged capital structure, we cannot assure you that any
other additional financing will be available to us, or, if it were available,
that we could obtain financing on a timely basis, on terms acceptable to us and
within the limitations contained in the indenture, the credit facility and any
new financing arrangements. Failure to obtain any appropriate financing, should
the need for it develop, could result in the delay or abandonment of our
development and expansion plans and our failure to meet regulatory
requirements. It could also impair our ability to meet our debt service
requirements, including our obligations with respect to the notes, and could
have a material adverse effect on our business.
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The degree to which we are leveraged could have other important consequences to
us and to noteholders, including increasing our vulnerability to:
. changes in general economic conditions;
. increases in prevailing interest rates; or
. competitive pressures on pricing.
In addition, the fact that we may be more leveraged than some of our
competitors may become a competitive disadvantage.
We cannot assure you that we will successfully implement our business plan.
In order for us to complete our personal communications services network and to
provide our wireless communications services to customers throughout our
licensed area, we must successfully:
. lease or otherwise obtain rights to a sufficient number of cell and
switch sites;
. develop and implement sophisticated information systems;
. complete the purchase and installation of equipment, build-out the phys-
ical infrastructure and test the network; and
. relocate microwave paths of existing users that may otherwise impair op-
erations.
We cannot assure you that these events will occur on a timely basis or on the
cost basis that we have assumed, or at all. Implementation of the network
involves various risks and contingencies, many of which are not within our
control and all of which could have a material adverse effect on the
implementation of our system should there be delays or other problems.
Site Acquisition. Successful implementation of our personal communications
services network will depend, to a significant degree, upon our ability to
lease or otherwise obtain rights to cell sites for the location of our base
station equipment. In many cases, we may need to obtain zoning variances or
other local governmental or third-party approvals or permits. In addition,
changes to our radio frequency design as a result of difficulties in the site
acquisition process could have a negative impact on our ability to complete the
build-out of our network in a timely fashion, which could cause delays or
limitations in the operation of our initial configuration. Our inability to
lease or otherwise obtain rights to the cell sites we require under our radio
frequency design or to obtain the requisite zoning and other local approvals in
a timely and cost effective manner could have a material adverse effect on our
business.
Commencement of Operations. Our schedule for the commencement of operations
beyond our initial configuration is aggressive. Before we commence operations
in a geographic area, we will need to, among other things, purchase and install
network equipment, build out the physical infrastructure and test the network.
We intend to continue installing a sophisticated, state-of-the-art network
requiring adherence to a strict build-out design; therefore, we may experience
system and construction delays prior to achieving full operation. Any delay in
full operation of our network could have a material adverse effect on our
financial condition and results of operations.
Relocation of Microwave Paths. For a period of up to five years after the grant
of a personal communications services license, subject to extension, a licensee
is required to share spectrum with existing microwave licensees that operate
certain microwave paths within its licensed area. Personal communication
services licensees are not permitted to interfere with such existing licensees,
so we may be required to relocate those users to different frequency bands. We
estimate that we must relocate a total of four microwave paths in our licensed
area. In places where relocation is necessary to permit operation of our
system, any delay in the relocation of these licensees may adversely affect our
ability to commence commercial operations, which could have a material adverse
effect on our business. We cannot assure you that we can achieve the relocation
of incumbent microwave operators for the amount currently estimated or at all.
In addition, the actual amounts of funds required may vary materially from
these estimates. See "--We are dependent on our FCC licenses, and our business
could be harmed by adverse regulatory changes" and "The Wireless Communications
Industry--Regulation."
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Our success is tied to the success of AT&T's wireless strategy, and AT&T's
interests may conflict with ours.
AT&T has entered into, and may enter into, similar joint venture agreements
with other companies in other major trading areas according to its nationwide
personal communications services build-out strategy. Our results of operations
are highly dependent on our relationship with AT&T and AT&T's other joint
ventures' success as wireless services providers. AT&T and its other joint
ventures are subject, to varying degrees, to the economic, administrative,
logistical and other risks set forth in this prospectus. We cannot assure you
that AT&T's other joint ventures' personal communications services operations
will be successful. In 1998, AT&T merged with TeleCommunications, Inc. We do
not believe that this merger will have any adverse impact on our affiliation
with AT&T. See "The Wireless Communications Industry--Competition."
Our interests may conflict with those of AT&T, and we cannot assure you that
any such conflict will be resolved in our favor. Under the terms of our
stockholders' agreement, AT&T has the right to nominate one of Triton Holdings'
seven directors. Under the terms of a securities purchase agreement with AT&T,
among others, AT&T does not owe us any duty, except to the extent expressly set
forth in the securities purchase agreement and the other agreements with AT&T.
Officers and directors generally do not have fiduciary duties to holders of
debt securities such as the notes.
Under the terms of our stockholders' agreement, we are required to enter into a
resale agreement at AT&T's request. The resale agreement will allow AT&T to
sell access to, and usage of, our services in our licensed area on a
nonexclusive basis. AT&T may be able to develop its own customer base in our
licensed area during the term of the resale agreement. In addition, AT&T's
termination rights under the stockholders' agreement, if it engages in
specified business combinations, could result in increased competition
detrimental to our business if AT&T exercises those rights. We cannot assure
you that AT&T will not enter into such a business combination, and the
termination of the non-compete and exclusivity provisions of the stockholders'
agreement could have a material adverse effect on our operations.
The wireless communications industry is relatively new and unproven.
Personal communications services systems have a limited operating history in
the United States, and we cannot assure you that our operation of these systems
in our markets will become profitable. In addition, we cannot estimate with any
degree of certainty the extent of potential demand for personal communications
services in our markets. Our inability to establish and successfully market
personal communications services could have a material adverse effect on our
financial condition and results of operations.
The wireless telecommunications industry is experiencing significant
technological change, as evidenced by the increasing pace of digital upgrades
in existing analog wireless systems, ongoing improvements in the capacity and
quality of digital technology, shorter development cycles for new products and
enhancements and changes in end-user requirements and preferences. The extent
of customer demand remains uncertain, as does the extent to which airtime and
monthly access rates may continue to decline. As a result, our future prospects
and those of the industry also remain uncertain.
We are dependent on our FCC licenses and our business could be harmed by
adverse regulatory changes.
The FCC regulates the licensing, construction, operation, sale and
interconnection arrangements of wireless telecommunications systems to varying
degrees, as do some state and local regulatory agencies. In addition, the FCC,
in conjunction with the FAA, regulates tower marking and lighting. We cannot
assure you that either the FCC, the FAA or the state and local agencies having
jurisdiction over our business will not adopt regulations or take other actions
that would adversely affect our business.
Our principal assets are our licenses from the FCC to provide cellular and
personal communications services. Our loss of any of those licenses would have
a material adverse effect on our business. Our FCC licenses are subject to
renewal and revocation. The FCC initially granted AT&T the personal
communications services licenses on June 23, 1995. As the licensee for those
licenses, we must construct facilities that offer coverage to one-third of the
population of our service areas within five years of the initial FCC grants to
AT&T and coverage to two-thirds of the population within ten years. Licensees
who fail to meet these coverage requirements are subject to forfeiture of the
license. We believe that our facilities currently cover at least one-third of
the population in our service area, and we expect to comply with the remaining
coverage requirements within the requisite time period. See "The Wireless
Communications Industry--Regulation."
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Our success depends on our ability to attract and retain qualified personnel.
A small number of key executive officers manage our business. Their loss could
have a material adverse effect on our operations. We believe that our future
success will also depend in large part on our continued ability to attract and
retain highly qualified technical and management personnel. We believe that
there is and will continue to be intense competition for qualified personnel in
the personal communications services equipment and service industry as the
emerging personal communications services market develops, and we cannot assure
you that we will be successful in retaining our key personnel or in attracting
and retaining other highly qualified technical and management personnel. We do
not presently maintain key man life insurance on any of our executives or other
employees.
We will likely incur operating costs due to fraud.
As do most companies in the wireless industry, we will likely incur costs
associated with the unauthorized use of our network, including administrative
and capital costs associated with detecting, monitoring and reducing the
incidence of fraud. Fraud impacts interconnection costs, capacity costs,
administrative costs, fraud prevention costs and payments to other carriers for
unbillable fraudulent roaming.
Our technological infrastructure could become obsolete, resulting in costly
upgrades or replacement.
We have employed digital wireless communications technology using the new time
division multiple access/IS-136 standards. Other digital technologies may
ultimately prove to be more advantageous than time division multiple access. If
another technology becomes the preferred industry standard, we may be at a
competitive disadvantage, and competitive pressures may require us to change
our digital technology at substantial cost. We cannot assure you that we could
respond to those pressures and implement new technology on a timely basis, or
at an acceptable cost. If time division multiple access technology becomes
obsolete at some time in the future, and we are unable to effect a cost-
effective migration path, it could materially and adversely affect our
financial condition, results of operations and liquidity. We cannot assure you
that time division multiple access/IS-136 standards will always meet or exceed
the capabilities and quality of other technologies. See "Description of
Triton--Time Division Multiple Access Digital Technology."
Radio frequency emissions could be harmful.
Media reports have suggested that certain radio frequency emissions from
wireless handsets may be linked to various health concerns, including cancer,
and may interfere with various electronic medical devices, including hearing
aids and pacemakers. Concerns over radio frequency emission may have the effect
of discouraging use of wireless handsets, which could have an adverse effect
upon our business. During the past two years, the FCC has updated the
guidelines and methods it uses for evaluating radio frequency emissions from
radio equipment, including wireless handsets. In addition, interest groups have
requested that the FCC investigate claims that time division multiple access
and other digital technologies pose health concerns and cause interference with
hearing aids and other medical devices. Although the updates impose new
restrictive standards on radio frequency emissions from lower power devices
such as wireless handsets, all wireless handsets we plan to offer our customers
will comply with the proposed standards. In September, 1999 the FCC adopted an
Order requiring telecommunications providers, including Triton, to offer
equipment and services that are accessible to persons with disabilities, if the
equipment can be made available without much difficulty or expense.
Our debt instruments restrict our business.
The documents governing our indebtedness, including our credit facility and the
indenture governing the notes, contain significant covenants that limit our and
our subsidiaries' ability to engage in various transactions and, in the case of
the credit facility, require satisfaction of specified financial performance
criteria. In addition, under each of these documents, the occurrence of
specific events, in some cases after notice and grace periods, would constitute
an event of default permitting acceleration of the respective indebtedness.
These events include:
. failure to comply with a document's covenants;
. material inaccuracies of representations and warranties;
. specified defaults under or acceleration of other indebtedness; and
. events of bankruptcy or insolvency.
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The limitations imposed by the documents governing our outstanding indebtedness
and that of our subsidiaries are substantial, and failure to comply with them
could have a material adverse effect on our business and the business of our
subsidiaries. See "Description of Notes" and "Description of Credit Facility."
Payment of principal and interest on the notes is subordinate to our senior
debt.
The notes and the guarantees are unsecured obligations of ours and of our
subsidiaries and are subordinated in right of payment to all current and future
senior debt, including indebtedness under our credit facility. As of December
31, 1999, Triton and the guarantors had $150.0 million of borrowings under the
credit facility. In the event of a liquidation, dissolution, reorganization,
bankruptcy or any similar proceeding, our assets and those of our subsidiaries
will be available to pay obligations on the notes and the guarantees only after
our senior debt has been paid in full. Accordingly, there may not be sufficient
funds remaining to pay amounts due on all or any of the notes.
We have granted to our lenders under the credit facility a security interest in
substantially all of our assets and those of each of our existing and
subsequently acquired or organized domestic subsidiaries, including a first
priority pledge of all of the capital stock of all of our domestic
subsidiaries. In the event of a default on secured indebtedness, the parties
granted security interests will have a prior secured claim on the capital stock
of our subsidiaries as well as our assets and the assets of our subsidiaries.
If the parties should attempt to foreclose on their collateral, our financial
condition and the value of the notes would be materially adversely affected.
See "Description of Notes" and "Description of Credit Facility."
We may not be able to repurchase the notes upon a change of control.
Our credit facility prohibits Triton from purchasing any of the notes and also
provides that specific change of control events constitute a default. Any
future credit agreements or other agreements relating to senior debt to which
we become a party may contain similar restrictions and provisions. In the event
a change of control occurs at a time when we are prohibited from purchasing the
notes, we could seek to obtain the consent of our lenders to purchase the notes
or attempt to refinance the borrowings that contain the prohibition. If we do
not obtain this consent or repay these borrowings, we will remain prohibited
from purchasing the notes by the relevant senior debt. In that case, our
failure to purchase the tendered notes would constitute an event of default
under the indenture which would, in turn, constitute a default under the credit
facility and/or other senior debt. We cannot assure you that we will have
sufficient resources to satisfy our repurchase obligation with respect to the
notes following a change of control. See "Description of Notes."
Fraudulent Conveyance.
Various fraudulent conveyance laws have been enacted for the protection of
creditors and may be used by a court to subordinate or avoid the notes or any
of the guarantees in favor of other existing or future creditors. If a court in
a lawsuit on behalf of any unpaid creditor of ours or any of our subsidiaries
or a representative of those creditors were to find that, at the time we and
our subsidiaries issued the notes and the guarantees, we or any of our
subsidiaries:
. intended to hinder, delay or defraud any existing or future creditor or
contemplated insolvency with a design to prefer one or more creditors to
the exclusion in whole or in part of others; or
. did not receive fair consideration or reasonably equivalent value for
issuing the notes or any of the guarantees; and
we or any of our subsidiaries:
. were insolvent;
. were rendered insolvent by reason of that issuance;
. were engaged or about to engage in a business or transaction for which
our remaining assets constituted unreasonably small capital to carry on
our business; or
. intended to incur, or believed that we or our subsidiary would incur,
debts beyond the respective entity's ability to pay as they matured,
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the court could void our or our subsidiary's obligations under the notes and/or
the guarantees and void the transactions. Alternatively, the noteholders'
claims could be subordinated to claims of the other creditors. Based upon
financial and other information currently available to us, we believe:
. the notes and the guarantees were incurred for proper purposes and in good
faith;
. we and our subsidiaries were solvent after issuing the notes; and
. we and our subsidiaries were able to pay our debts as they matured, af-
ter issuing the notes.
We also believe we had sufficient capital for carrying on our business
following issuance of the notes and the guarantees.
There are tax consequences to the original issue discount on the notes.
We issued the notes at a substantial discount from their principal amount at
maturity. As a result, noteholders generally will be required to include
amounts in gross income for federal income tax purposes in advance of receipt
of the cash payments to which such income is attributable. See "Certain United
States Federal Tax Considerations--United States Holders--Original Issue
Discount."
If a bankruptcy case is commenced by or against us under the U.S. Bankruptcy
Code, noteholders' claims with respect to the principal amount of the notes may
be limited to an amount equal to the sum of the initial issue price and that
portion of the original issue discount that is not deemed to constitute
unmatured interest for purposes of the U.S. Bankruptcy Code. Any original issue
discount that was not amortized as of a bankruptcy filing would constitute
unmatured interest of the notes.
Applicable high yield discount obligations.
The notes constitute applicable high yield discount obligations. Accordingly,
we will not be entitled to deduct original issue discount accruing with respect
to the notes until we actually pay those amounts. See "Certain United States
Federal Tax Considerations--United States Holders--The AHYDO Rule."
You may not be able to resell the notes.
As of the date of this prospectus, the only registered holder of notes is Cede
& Co., as The Depositary Trust Company's nominee. We believe that, as of the
date of this prospectus, Cede & Co. is not an affiliate, as such term is
defined in Rule 405 under the Securities Act, of ours. The notes are not listed
on any securities exchange, but are eligible for trading in the Portal market.
The notes may trade at a discount from their initial offering price, depending
upon prevailing interest rates, the market for similar securities, our
performance and other factors. We have been advised by the initial purchasers
of the notes, including J.P. Morgan & Co. and Chase Securities, Inc., that they
intend to make a market in the notes, as permitted by applicable laws and
regulations; however, the initial purchasers are not obligated to do so and may
discontinue any market-making activities at any time without notice. Therefore,
we cannot assure you as to the liquidity of any market for the notes.
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<PAGE>
Use of Proceeds
We will not receive any proceeds from offers and sales of notes by J.P. Morgan
& Co. and Chase Securities Inc. through their market-making activities.
Triton's net proceeds from the private offering of the notes were approximately
$291.0 million, after deducting the initial purchasers' discounts and estimated
transaction fees and expenses payable by Triton. We used $127.5 million of the
proceeds from the offering for the Myrtle Beach acquisition and $96.6 million
of the proceeds for the Norfolk acquisition. We used the remaining net proceeds
to fund capital expenditures, including the build-out of our network, and for
other general corporate purposes.
10
<PAGE>
Selected Historical Consolidated Financial Data
The following tables present selected financial data derived from audited
financial statements of Triton for the period from March 6, 1997 to December
31, 1997 and the years ended December 31, 1998 and 1999. In addition,
subscriber and customer data for the same periods are presented. The following
financial information is qualified by reference to and should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and related notes
appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
-----------------------------
Period from
March 6,
1997
(inception)
to
December 31, December 31,
1997 1998 1999
(in thousands) ------------ ------- --------
<S> <C> <C> <C>
Statement of Operations Data:
Revenues:
Service $ -- $11,172 $ 63,545
Roaming -- 4,651 44,281
Equipment -- 755 25,405
------ ------- --------
Total revenues -- 16,578 133,231
------ ------- --------
Expenses:
Costs of services and equipment -- 10,466 107,521
Selling and marketing -- 3,260 59,580
General and administrative 2,736 15,589 42,354
Non-cash compensation -- 1,120 3,309
Depreciation and amortization 5 6,663 45,546
------ ------- --------
Total operating expenses 2,741 37,098 258,310
Loss from operations 2,741 20,520 125,079
Interest and other expense 1,228 30,391 41,061
Interest and other income 8 10,635 4,852
Gain on sale of property, equipment and
marketable securities, net -- -- 11,928
------ ------- --------
Loss before taxes 3,961 40,276 149,360
Income tax benefit -- 7,536 --
------ ------- --------
Net loss $3,961 $32,740 $149,360
====== ======= ========
Other Data:
Deficiency of earnings to fixed charges(1) $3,961 $36,145 $166,660
====== ======= ========
</TABLE>
<TABLE>
<CAPTION>
-----------------
December 31,
1998 1999
(in thousands) -------- --------
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents $146,172 $186,251
Working capital 146,192 134,669
Property, plant and equipment, net 198,953 421,864
Total assets 686,859 979,797
Long-term debt and capital lease obligations 465,689 504,636
Shareholder's equity 175,979 328,113
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
----------------------
December 31,
(in thousands, except subscriber and 1998 1999
customer data) --------- -----------
<S> <C> <C>
Other Data:
Subscribers (end of period) 33,844 195,204
Launched potential customers (end of period) 248,000 11,450,000
EBITDA(2) $ (12,737) $ (76,224)
Cash flows from:
Operating activities $ (4,130) $ (72,549)
Investing activities (372,372) (170,511)
Financing activities 511,312 283,139
</TABLE>
- ---------------
(1) Earnings were inadequate to cover fixed charges in 1998 and 1999. For
purposes of determining the deficiency of earnings to fixed charges, loss
is defined as loss from continuing operations plus capitalized interest
costs.
(2) "EBITDA" is defined as operating loss plus depreciation and amortization
expense and non-cash compensation. EBITDA is a key financial measure but
should not be construed as an alternative to operating income, cash flows
from operating activities or net income (or loss), as determined in
accordance with generally accepted accounting principles. EBITDA is not a
measure determined in accordance with generally accepted accounting
principles and should not be considered a source of liquidity. We believe
that EBITDA is a standard measure commonly reported and widely used by
analysts and investors in the wireless communications industry. However,
our method of computation may or may not be comparable to other similarly
titled measures of other companies.
12
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Forward-Looking Statements
Triton uses and will use words or phrases such as will likely result,
management expects, we expect, will continue, is anticipated, is estimated or
similar expressions, including statements by an authorized executive officer or
similar expressions made by a third party with respect to Triton, to identify
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 in this Form S-4 and in our future filings with
the SEC, in our press releases and in oral statements made with the approval of
one of our authorized executive officers. We caution you not to place undue
reliance on any such forward-looking statements, each of which speak only as of
the date made. Forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those we presently anticipate or project. We have no
obligation to release publicly the result of any revisions made to any forward-
looking statements to reflect anticipated or unanticipated events or
circumstances occurring after the date of such statements.
Introduction
The following discussion and analysis is based upon our financial statements as
of the dates and for the periods presented in this section. You should read
this discussion and analysis in conjunction with our financial statements and
the related notes contained elsewhere in this report.
We were incorporated in October 1997. In February 1998, we entered into a joint
venture with AT&T whereby AT&T contributed to us 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 our largest equity holder, and we were granted the right to be the
exclusive provider of wireless mobility services using equal emphasis co-
branding with AT&T in our licensed markets.
On June 30, 1998, we acquired an existing cellular system serving Myrtle Beach
and the surrounding area from Vanguard Cellular Systems of South Carolina, Inc.
In connection with this acquisition, we began commercial operations and earning
recurring revenue in July 1998. We integrated the Myrtle Beach system into our
personal communications services network as part of our Phase I network
deployment. Substantially all of our revenues prior to 1999 were generated by
cellular services provided in Myrtle Beach. Our results of operations do not
include the Myrtle Beach system prior to our acquisition of that system.
We 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. Our personal communications services network build-
out is scheduled for three phases. We completed the first phase of our build-
out in the first half of 1999 with the launch of 15 markets and completed the
second phase during the first quarter of 2000 launching 21 additional markets.
We began the third phase of our network build-out which is expected to be
completed by 2001.
Revenue
We derive our revenue from the following sources:
Service. We sell wireless personal communications services. The various
types of service revenue associated with wireless communications services
for our subscribers include monthly recurring charges and monthly non-
recurring airtime charges for local, long distance and roaming airtime used
in excess of pre-subscribed usage. Our customers' roaming charges are rate
plan dependent and based on the number of pooled minutes included in their
plans. Service revenue also includes monthly non-recurring airtime usage
charges associated with our prepaid subscribers and non-recurring
activation and de-activation service charges.
Equipment. We sell wireless personal communications phones and accessories
that are used by our customers in connection with our wireless services.
Roaming. We charge per minute fees to other wireless telecommunications
companies for their customers' use of our network facilities to place and
receive wireless services.
13
<PAGE>
A particular focus of our strategy is to reduce subscriber churn. Industry data
suggest that those providers, including personal communications services
providers that have offered poor or spotty coverage, poor voice quality,
unresponsive customer care or confusing billing suffer higher than average
churn rates. Accordingly, we have launched, and will continue to launch,
service in our markets only after comprehensive and reliable coverage and
service can be maintained in that market. In addition, our billing systems have
been designed to provide customers with simple, understandable bills and
flexible billing cycles. We offer simplified rate plans in each of our markets
that are tailored to meet the needs of targeted customer segments. We offer
local, regional and national rate plans that include local, long distance and
roaming services, as well as bundled minutes with multiple options, designed to
suit customers' needs. Finally, proactive subscriber retention is an important
initiative for our customer care program.
We believe our roaming revenues will be subject to seasonality. We expect to
derive increased revenues from roaming during vacation periods, reflecting the
large number of tourists visiting resorts in our coverage area. We believe that
our equipment revenues will also be seasonal, as we expect sales of telephones
to peak in the fourth quarter, primarily as a result of increased sales during
the holiday season.
Costs and Expenses
Our costs of services and equipment include:
Equipment. We purchase personal communications services handsets and
accessories from third party vendors to resell to our customers for use in
connection with our services. Because we subsidize the sale of handsets to
encourage the use of our services, the cost of handsets is higher than the
resale price to the customer. We do not manufacture any of this equipment.
Roaming Fees. We incur fees to other wireless communications companies
based on airtime usage by our customers on other wireless communications
networks.
Transport and Variable Interconnect. We incur charges associated with
interconnection with other carriers' networks. These fees include monthly
connection costs and other fees based on minutes of use by our customers.
Variable Long Distance. We pay usage charges to other communications
companies for long distance service provided to our customers. These
variable charges are based on our subscribers' usage, applied at pre-
negotiated rates with the other carriers.
Cell Site Costs. We will incur expenses for the rent of towers, network
facilities, engineering operations, field technicians, and related utility
and maintenance charges.
Recent industry data indicate that transport, interconnect, roaming and long
distance charges that we currently incur will continue to decline, due
principally to competitive pressures and new technologies. Cell site costs are
expected to increase due to escalation factors included in the lease
agreements.
Other Expenses include:
Selling and Marketing. Our selling and marketing expense includes the cost
of brand management, external communications, retail distribution, sales
training, direct, indirect, third party and telemarketing support.
General and Administrative. Our general and administrative expense includes
customer care, billing, information technology, finance, accounting, legal
services, network implementation, product development, and engineering
management. Functions such as customer care, billing, finance, accounting
and legal services are likely to remain centralized in order to achieve
economies of scale.
Depreciation and Amortization. Depreciation of property and equipment is
computed using the straight-line method, generally over three to twelve
years, based upon estimated useful lives. Leasehold improvements are
amortized over the lesser of the useful lives of the assets or the term of
the lease. Network development costs incurred to ready our network for use
are capitalized. Amortization of network development costs begins when the
network equipment is ready for its intended use and is amortized over the
estimated useful life of the asset. Our personal communications services
licenses and our cellular license are being amortized over a period of 40
years.
Non-cash compensation. We have recorded $21.3 million of deferred
compensation associated with the issuances of common and preferred stock to
employees. The compensation is being recognized over five years as the
stock vests. In addition, we sold to certain directors and an officer,
subject to stock purchase agreements, an aggregate of 3,400 shares of
Holdings Series C preferred stock. Compensation expense was recognized for
the excess of the fair market value at the date of issuance over the
amounts paid.
14
<PAGE>
Interest Income (Expense) and other. Interest income is earned primarily on
our cash and cash equivalents. Interest expense through December 31, 1999
consists of interest on our credit facility and our senior subordinated
discount notes, net of capitalized interest. Other expenses include
amortization of certain financing charges.
Our ability to improve our margins will depend on our ability to manage our
variable costs, including selling general and administrative expense, costs per
gross added subscriber and costs of building out our network. We expect our
operating costs to grow as our operations expand and our customer base and call
volumes increase. Over time, these expenses should represent a reduced
percentage of revenues as our customer base grows. Management will focus on
application of systems and procedures to reduce billing expense and improve
subscriber communication. These systems and procedures will include debit
billing, credit card billing, over-the-air payment and Internet billing
systems.
Results of Operations
Year ended December 31, 1999 compared to the year ended December 31, 1998
Total revenue was $133.2 million and $16.6 million for the years ended December
31, 1999 and 1998, respectively. Service revenue was $63.5 million and $11.2
million for the years ended December 31, 1999 and 1998, respectively. Equipment
revenue was $25.4 million and $0.8 million for the years ended December 31,
1999 and 1998, respectively. Roaming revenue was $44.3 million and $4.7 million
for the years ended December 31, 1999 and 1998, respectively. This revenue was
primarily related to launching 27 markets as part of our Phase I and Phase II
network build-out.
Cost of service and equipment was $107.5 million and $10.5 million for the
years ended December 31, 1999 and 1998, respectively. These costs were
primarily related to launching 27 markets as part of our Phase I and Phase II
network build-out.
Selling and marketing expenses were $59.6 million and $3.3 million for the
years ended December 31, 1999 and 1998, respectively. The increase of $56.3
million was due to increased salary and benefit expenses for new sales and
marketing staff and advertising and promotion associated with launching 27
markets as part of our Phase I and Phase II network build-out.
General and administrative expenses were $42.4 million and $15.6 million for
the years ended December 31, 1999 and 1998, respectively. The increase of $26.8
million 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 27 markets
during 1999.
Non-cash compensation expense was $3.3 million and $1.1 million for the years
ended December 31, 1999 and 1998, respectively. This increase is attributable
to the issuance of additional shares in 1999 and to an increase in the vesting
of certain restricted shares as compared to the same period in 1998.
Depreciation and amortization expense was $45.5 million and $6.7 million for
the years ended December 31, 1999 and 1998, respectively. This increase of
$38.8 million was related to depreciation of our fixed assets, as well as the
initiation of amortization on personal communications services licenses and the
AT&T agreements upon the commercial launch of our Phase I and Phase II markets.
Interest expense was $41.1 million, net of capitalized interest of $12.3
million, and $30.4 million, net of capitalized interest of $3.5 million, for
the years ended December 31, 1999 and 1998, respectively. The increase is
attributable to increased borrowings as compared to the same period in 1998.
Interest income was $4.9 million and $10.6 million for the years ended December
31, 1999 and 1998, respectively. This reduction is due primarily to lower
average cash balances resulting from the continued Phase I and Phase II build-
out.
Gain on sale of property, equipment and marketable securities was $11.9 million
for the year ended December 31, 1999, relating primarily to the gain recorded
on the tower sale of $11.6 million, and the gain on the sale of marketable
securities of $1.0 million, partially off set by a $0.8 million loss on the
sale of furniture and fixtures. We recorded no gains on the sale of assets in
1998.
Income tax benefit for years ended December 31, 1999 and 1998 was $0 and $7.5
million, respectively. The decrease was due to the inability to recognize
additional tax benefits in 1999.
15
<PAGE>
Net loss was $149.4 million and $32.8 million for the years ended December 31,
1999 and 1998, respectively. The net loss increased $116.6 million primarily
due to the initial launch of commercial service as discussed in the items
above.
Year ended December 31, 1998 compared to the period from March 6, 1997
(Inception) to December 31, 1997
Total revenue for the year ended December 31, 1998 was $16.6 million, which was
comprised of services, roaming and equipment revenues related to our Myrtle
Beach operations, which we acquired in June 1998. We had no revenue for the
period from March 6, 1997 to December 31, 1997.
Costs of services and equipment were $10.5 million for the year ended December
31, 1998. These costs were associated with our Myrtle Beach operations. We had
no costs of services and equipment for the period from March 6, 1997 to
December 31, 1997.
Selling and marketing costs were $3.3 million for the year ended December 31,
1998, relating primarily to advertising, marketing and promotional activities
associated with our Myrtle Beach operations. We had no selling and marketing
expense for the period from March 6, 1997 to December 31, 1997.
General and administrative expenses increased by $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 administrative
costs associated with the Myrtle Beach network and our establishment of our
corporate and regional operational infrastructure.
Non-cash compensation expense was $1.1 million for the year ended December 31,
1998, relating to the vesting of shares issued as compensation. We had no non-
cash compensation for the period from March 6, 1997 to December 31, 1997.
Depreciation and amortization expense was $6.7 million and $5,000 for year
ended December 31, 1998 and for the period from March 6, 1997 to December 31,
1997, respectively. 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 executed in connection with the
AT&T joint venture.
Interest expense was $30.4 million, net of capitalized interest of $3.5
million, and $1.2 million for the year end December 31, 1998 and for the period
March 6, 1997 to December 31, 1997, respectively. No interest was capitalized
in 1997. This increase is attributable to increased borrowings in the year
ended December 31, 1998.
Interest and other income was $10.6 million and $8,000 for the year ended
December 31, 1998 and for the period from March 6, 1997 to December 31, 1997,
respectively. This amount relates primarily to interest income on our cash and
cash equivalents.
For the year ended December 31, 1998, we recorded a tax benefit of $7.5 million
related to temporary deductible differences, primarily net operating losses.
For the year ended December 31, 1998, our net loss was $32.7 million, as
compared to $4.0 million for 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
We have funded, and expect to continue to fund, our capital requirements with:
. the proceeds from Holding's initial public offering of common stock in
October 1999;
. the proceeds from equity investments by Holding's shareholders;
. borrowings under our credit facility;
. the proceeds from our offering of senior subordinated discount notes
completed in 1998; and,
. the proceeds from the sale of our communications towers.
The construction of our network and the marketing and distribution of wireless
communications products and services have required, and will continue to
require, substantial capital. These capital requirements include license
acquisition costs,
16
<PAGE>
capital expenditures for network construction, funding of operating cash flow
losses and other working capital costs, debt service and financing fees and
expenses. We estimate that our total capital requirements, assuming substantial
completion of our network build-out, which will allow us to offer services to
nearly 100% of the potential customers in our licensed area, from our inception
until December 31, 2001 will be approximately $1.4 billion.
We believe that cash on hand and available credit facility borrowings will be
sufficient to meet our projected capital requirements through the end of 2001.
Although we estimate that these funds will be sufficient to build- out our
network and to enable us to offer services to nearly 100% of the potential
customers in our licensed area, it is possible that additional funding will be
necessary.
Equity Contributions. In October 1999, Holdings completed an initial public
offering of shares of its Class A common stock and raised approximately $190.2
million, net of $16.8 million of costs. The Company expects to use the proceeds
for general corporate purposes, including capital expenditures in connection
with the expansion of its personal communications services network, sales and
marketing activities, and working capital.
As part of our 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 of Holdings' Series A preferred stock and
366,131 shares of Series D preferred stock. The Series A preferred stock
provides for cumulative dividends at a rate of 10% on the $100 liquidation
value per share plus unpaid dividends. These dividends accrue and are payable
quarterly; however, we 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.
We may not pay dividends on, or, subject to specified exceptions, repurchase
shares of, our 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 our common stock.
In connection with the consummation of the joint venture with AT&T, Holdings
received contributions 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.
We also received equity contributions from our shareholders in the aggregate
amount of $35.0 million in return for the issuance of 350,000 shares of
Holdings 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, we
received equity contributions from our shareholders 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, we 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 Series A preferred stock and 42,739 shares of Series D
preferred stock in connection with this exchange.
Credit Facility. On February 3, 1998, we 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, we
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
provides for:
. $175.0 million senior secured Tranche A term loan maturing on August 4,
2006;
. $150.0 million senior secured Tranche B term loan maturing on May 4,
2007;
. $175.0 million senior secured Tranche C term loan maturing on August 4,
2006; and
. $100.0 million senior secured revolving credit facility maturing on Au-
gust 4, 2006.
The terms of the bank facility will permit us, 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. Our borrowings under these
facilities are subject to customary terms and conditions.
17
<PAGE>
We 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 us 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 December 31, 1999, we had drawn $150.0 million under the
Tranche B term loan, which we expect to use to fund future operations.
New Accounting Pronouncements
On July 8, 1999, the Financial Accounting Standards Board issued SFAS No. 137,
"Deferral of the Effective Date of SFAS 133," which defers the effective date
of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
to all fiscal quarters of all fiscal years beginning after June 15, 2000. We
are currently evaluating the financial impact of adoption of SFAS No. 133. The
adoption is not expected to have a material effect on our consolidated results
of operations, financial position or cash flows.
On April 3, 2000 the Financial Accounting Standards Board issued FIN 44,
"Accounting for Certain Transactions Involving Stock Compensation--an
Interpretation of APB 25" which clarifies, among other issues, (a) the
definition of employee for purposes of applying Accounting Principles Board
Opinion 25, (b) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequence of various modifications
to the terms of a previously fixed stock option or award, and (d) the
accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 1, 2000, but certain conclusions in the
Interpretation cover specific events that occur after December 15, 1998. To the
extent that the Interpretation covers events occurring during the period after
December 15, 1998, but before the effective date of July 1, 2000, the effects
of applying the Interpretation are recognized on a prospective basis from
July 1, 2000. Management is currently evaluating the impact, if any, the
Interpretation will have on the Company's financial position or results of
operation.
On March 24, 2000 the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101A which amends the implementation date of SAB
101, "Revenue Recognition", to the three month period ending June 30, 2000. SAB
101 provides guidance on the recognition, presentation, and disclosure of
revenue in the financial statements. Management is currently assessing the
impact, if any, the SAB will have on the Company's financial position or
results of operations.
Inflation
We do not believe that inflation has had a material impact on operations.
Qualitative and Quantitative Disclosures about Market Risks
We are highly leveraged and, as a result, our cash flows and earnings are
exposed to fluctuations in interest rates. Our debt obligations are U.S. dollar
denominated. Our market risk therefore is the potential loss arising from
adverse changes in interest rates. At December 31, 1999 the debt can be
categorized as follows (dollars in thousands):
<TABLE>
<S> <C>
Fixed interest rates:
Senior subordinated debt.............................. $355,913
Subject to interest rate fluctuations:
Bank credit facility.................................. $150,000
</TABLE>
Our interest rate risk management program focuses on minimizing exposure to
interest rate movements, setting an optimal mixture of floating and fixed rate
debt and minimizing liquidity risk. To the extent possible, we manage interest
rate exposure and the floating to fixed ratio through our borrowings, but
sometimes we use interest rate swaps to adjust our risk profile. We selectively
enter into interest rate swaps to manage interest rate exposure only.
Interest Rate Risk Management Agreements
We utilize interest rate swaps to hedge against the effect of interest rate
fluctuations on our senior debt portfolio. We do not hold or issue financial
instruments for trading or speculative purposes. Through December 31, 1999, we
entered into two interest rate swap transactions having an aggregate non-
amortizing notional amount of $75 million. Both instruments
18
<PAGE>
terminate on December 4, 2003. As of December 31, 1998 and 1999, we were in a
net gain position. Net gain or loss positions are settled quarterly. We pay a
fixed rate (4.76% and 4.805%) and receive a floating rate, equivalent to the
three month London interbank offered rate, on respective $40 million and $35
million notional amounts. A 100 basis point fluctuation in market rates would
not have a material effect on our overall financial condition. Swap
counterparties are major commercial banks.
Our cash and cash equivalents consist of short-termed assets having initial
maturities of three months or less and are managed by high credit quality
financial institutions. While these investments are subject to a degree of
interest rate risk, it is not considered to be material relative to our overall
investment income position.
The following table summarizes our off-balance sheet interest rate swap
transactions outstanding at December 31, 1999:
---------------------------------------------------------------
<TABLE>
<CAPTION>
Term Notional Fixed Rate Variable Rate Net Receivable Fair Value
---- -------- ---------- ------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
12/8/98-12/4/03 $35,000,000 4.805% 6.12% $33,272 $1,154,014
12/8/98-12/4/03 $40,000,000 4.760% 6.12% $39,325 $1,393,070
</TABLE>
Payments under each agreement are quarterly, commencing March 1999 and ending
December 2003.
19
<PAGE>
Description of Triton
Introduction
Triton PCS, Inc. and its subsidiaries are direct and indirect wholly owned
subsidiaries of Triton PCS Holdings, Inc. In this report, we refer to Triton
PCS Holdings, Inc. as "Holdings" and references to "Triton," "we" "us" and
"our" are to Holdings and its direct and indirect subsidiaries collectively,
unless the context requires otherwise.
Our principal offices are located at 1100 Cassatt Road, Berwyn, Pennsylvania
19312, and our telephone number at that address is (610) 651-5900. Our World
Wide Web site address is http://www.tritonpcs.com. The information in our
website is not part of this prospectus.
Overview
We are a rapidly growing provider of wireless personal communications services
in the southeastern United States. Our personal communications services
licenses cover approximately 13 million potential customers in a contiguous
geographic area encompassing portions of Virginia, North Carolina, South
Carolina, Tennessee, Georgia and Kentucky. In February 1998, we entered into a
joint venture with AT&T, our largest equity sponsor. As part of the agreement,
AT&T contributed personal communications services licenses for 20 MHz of
authorized frequencies covering 11 million potential customers within defined
areas of our region in exchange for an equity position in Triton. Since that
time, we have expanded our coverage area to include an additional 2 million
potential customers through acquisitions and license exchanges with AT&T. As
part of the transactions with AT&T, we were granted the right to be the
exclusive provider of wireless mobility services using equal emphasis co-
branding with AT&T within our region. We believe our markets are strategically
attractive because of their proximity to AT&T's wireless systems in the
Washington, D.C., Charlotte, North Carolina and Atlanta, Georgia markets, which
collectively cover a population of more than 27 million individuals. Our market
location is attractive, as we are the preferred provider of wireless mobility
services to AT&T's digital wireless customers who roam into our markets. Our
strategy is to provide extensive coverage to customers within our region, to
offer our customers coast-to-coast coverage and to benefit from roaming
revenues generated by AT&T's and other carriers' wireless customers who roam
into our covered area. Our management team is led by Michael Kalogris and
Steven Skinner, the former Chief Executive Officer and Chief Operating Officer
of Horizon Cellular Group, respectively.
Our network build-out is scheduled for three phases. In 1999, we completed
Phase I and most of Phase II of this build-out and successfully launched
personal communications services in 27 markets. We are now able to provide
service to over 11.4 million individuals, or 87% of our potential customers.
Our network in these 27 markets includes 1,014 cell sites and six switches.
Since we began offering services in these 27 markets, our subscriber base and
the number of minutes generated by non-Triton subscribers roaming onto our
network have grown dramatically. During 1999, our subscriber base grew from
33,844 subscribers to 195,204 subscribers, and roaming minutes generated by
non-Triton subscribers increased from approximately 0.7 million minutes per
month to approximately 16.5 million minutes per month.
We expect to complete Phase II by the end of the first quarter of 2000, which
will cover six additional markets, 1.6 million potential customers and 226 new
cell sites. When Phase II is complete, we will be able to provide services to
98% of the potential customers in our licensed area.
Phase III of our network build-out will focus on covering major highways
linking the cities in our licensed area, as well as neighboring cities where
AT&T and other carriers use compatible wireless technology. We expect Phase III
to be completed by year-end 2001 and to add approximately 1,050 cell sites and
two switches to our network. Upon completion of Phase III, we will be able to
provide services to 13 million potential customers, and our network will
include approximately 2,300 cell sites and eight switches and span
approximately 18,000 highway miles.
Our markets have attractive demographic characteristics for wireless
communications services, including population growth rates that are higher than
the national average and population densities that are 87% greater than the
national average.
Our goal is to provide our customers with simple, easy-to-use wireless services
with coast-to-coast service, superior call quality, personalized customer care
and competitive pricing. We utilize a mix of sales and distribution channels,
including a network of 60 company-owned retail stores, over 180 agents with 406
indirect outlets, including nationally recognized retailers such as Circuit
City, Office Depot, Staples and Best Buy, and 82 direct sales representatives
covering corporate accounts. We currently plan to add approximately 30
additional company-owned retail stores in 2000.
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We believe that as a Member of the AT&T Wireless Network, we will attract
customers by capitalizing on AT&T's national brand and its extensive digital
wireless network. We have also entered into an agreement with two other
Members of the AT&T Wireless Network, TeleCorp PCS and Tritel PCS, to operate
with those affiliates under a common regional brand name, SunCom, throughout
an area covering approximately 43 million potential customers primarily in the
south-central and southeastern United States. We believe this arrangement will
allow us to establish a strong regional brand name within our markets.
Strategic Alliance with AT&T
One of our most important competitive advantages is our strategic alliance
with AT&T, the largest provider of wireless communications services in the
United States. As part of its strategy to rapidly expand its digital wireless
coverage in the United States, AT&T has focused on constructing its own
network and making strategic acquisitions in selected cities, as well as
entering into agreements with four independent wireless operators, including
Triton, to construct and operate personal communications services networks in
other markets.
Our strategic alliance with AT&T provides us with many business, operational
and marketing advantages, including the following:
. Recognized Brand Name. We market our wireless services to our potential
customers giving equal emphasis to the SunCom and AT&T brand names and
logos.
. Exclusivity. We are AT&T's exclusive provider of facilities-based wire-
less mobility communications services using equal emphasis co-branding
with AT&T in our covered markets, and, from time to time, we may partic-
ipate with AT&T in other programs.
. Preferred Roaming Partner. We are the preferred carrier for AT&T's digi-
tal wireless customers who roam into our coverage area.
. Coverage Across the Nation. With the use of advanced multi-mode handsets
which transition between personal communications services and cellular
frequencies, our customers have access to coast-to-coast coverage
through our agreements with AT&T, other Members of the AT&T Wireless
Network and with other third-party roaming partners.
. Volume Discounts. We receive preferred terms on certain products and
services, including handsets, infrastructure equipment and administra-
tive support from companies who provide these products and services to
AT&T.
. Marketing. We benefit from AT&T's nationwide marketing and advertising
campaigns, including the success of AT&T's national rate plans, in the
marketing of our own plans.
Competitive Strengths
In addition to the advantages provided by our strategic alliance with AT&T, we
have the following competitive strengths:
. Attractive Licensed Area. Our markets have favorable demographic charac-
teristics for wireless communications services, such as population
growth that is higher than the national average and population densities
that are 87% greater than the national average.
. Advanced Technology. We are building our personal communications serv-
ices network using time division multiple access digital technology.
This technology is also used by AT&T, and, therefore, our network is
compatible with AT&T's network and other time division multiple access
digital technology networks. This technology allows wireless communica-
tions service providers to offer enhanced features, higher network qual-
ity, improved in-building penetration and greater network capacity rela-
tive to analog cellular service. In addition, handsets operating on a
digital system are capable of sleep-mode while turned on but not in use,
thus increasing standby availability for incoming calls as users will be
able to leave these phones on for significantly longer periods than they
can with wireless phones using an earlier technology.
. Experienced Management. We have a management team with a high level of
experience in the wireless communications industry. Our senior manage-
ment team has an average of 11 years of experience with wireless leaders
such as AT&T, Bell Atlantic and Horizon Cellular. Our senior management
team also owns in excess of 10% of Holdings' outstanding Class A common
stock.
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<PAGE>
. Contiguous Service Area. We believe our contiguous service area allows
us to cost effectively offer large regional calling areas to our custom-
ers. Further, we believe that we generate operational cost savings, in-
cluding sales and marketing efficiencies, by operating in a contiguous
service area.
. Strong Capital Base. Our business plan from inception through year-end
2001 will be fully funded with capital of approximately $1.5 billion,
consisting of $191.5 million of irrevocable equity contributions,
$133.2 million of AT&T capital contributions, up to $600.0 million of
borrowings under our senior credit facilities, approximately $291.0 mil-
lion of net proceeds from a senior subordinated notes offering completed
in 1998, approximately $71.1 million of proceeds from the sale of commu-
nications towers and approximately $190.2 million of net proceeds from
the completion of Holdings' initial public offering.
Business Strategy
Our objective is to become the leading provider of wireless communications
services in the markets we serve. We intend to achieve this objective by
pursuing the following business strategies:
. Operate a Superior, High Quality Network. We are committed to making the
capital investment required to develop and operate a superior, high
quality network. Our network, when complete, will include approximately
2,300 cell sites and eight switches and span approximately 18,000 high-
way miles. We believe this network will enable us to provide extensive
coverage within our region and consistent quality performance, resulting
in a high level of customer satisfaction.
. Provide Superior Coast-to-Coast and In-Market Coverage. Our market re-
search indicates that scope and quality of coverage are extremely impor-
tant to customers in their choice of a wireless service provider. We
have designed extensive local calling areas, and we offer coast-to-coast
coverage through our arrangements with AT&T, its affiliates and other
third-party roaming partners. Our network covers those areas where peo-
ple are most likely to take advantage of wireless coverage, such as sub-
urbs, metropolitan areas and vacation locations.
. Provide Enhanced Value at Low Cost. We offer our customers advanced
services and features at competitive prices. Our affordable, simple
pricing plans are designed to promote the use of wireless services by
enhancing the value of our services to our customers. We include usage-
enhancing features such as call waiting, voice mail, three-way confer-
ence calling and short message service in our basic packages. We market
our services with a simple, all-in-one focus: digital phone, pager and
voice mail. We also allow customers to purchase large packages of min-
utes per month for a low fixed price. These minutes can generally be
used throughout the southeast region of the United States without paying
additional roaming fees or long distance charges.
. Deliver Quality Customer Service. We believe that superior customer
service is a critical element in attracting and retaining customers. Our
systems have been designed with open interfaces to other systems. This
design allows us to select and deploy the best software package for each
application in our administrative systems. Our point-of-sale activation
process is designed to ensure quick and easy service initiation, includ-
ing customer qualification. We also emphasize proactive and responsive
customer care, including rapid call-answer times, welcome packages and
anniversary calls. We currently operate state-of-the-art customer care
facilities in Richmond, Virginia and Charleston, South Carolina that
house our customer service and collections personnel.
License Acquisition Transactions
Our original personal communications services licenses were acquired as part of
our joint venture agreement with AT&T.
On June 30, 1998, we acquired an existing cellular system serving Myrtle Beach
and the surrounding area from Vanguard Cellular Systems for a purchase price of
approximately $164.5 million. We integrated the Myrtle Beach system, which used
time division multiple access digital technology, into our personal
communications services network as part of our Phase I network deployment.
Substantially all of our revenues prior to 1999 were generated by services
provided in Myrtle Beach. We have used our position in Myrtle Beach to secure
roaming arrangements with other carriers that enable us to offer regional
calling plans on a cost-effective basis.
On December 31, 1998, we acquired from AT&T a personal communications services
license covering the Norfolk, Virginia basic trading area, as well as a
recently deployed network plant and infrastructure, for an aggregate purchase
price of $111.0 million. The integration and launch of our Norfolk personal
communications services were completed as part of our Phase I network build-
out.
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<PAGE>
On June 8, 1999, we completed an exchange of personal communications services
licenses with AT&T. As part of this transaction, we transferred Hagerstown and
Cumberland, Maryland personal communications services licenses that cover
approximately 512,000 potential customers, with an estimated value of $5.1
million, for Savannah and Athens, Georgia personal communications services
licenses that cover approximately 517,000 potential customers, with an
estimated value of $15.5 million. We also issued to AT&T 53,882 shares of
Holdings Series A preferred stock and 42,739 shares of Holdings Series D
preferred stock, with estimated values of $5.8 million and $4.6 million,
respectively, in connection with the exchange. The build out of our Savannah
and Athens license will be included in the completion of Phase II of our
network deployment plan.
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Summary Market Data
The following table presents statistical information concerning the markets
covered by our licenses.
------------------------------------
<TABLE>
<CAPTION>
1998 Estimated
Potential % Growth Population Local Interstate
Licensed Areas(1) Customers(2) 1997-2002 Density(3) Traffic Density(4)
- ----------------- ------------ --------- ---------- ------------------
<S> <C> <C> <C> <C>
Charlotte Major Trading
Area
Anderson, SC............. 339.0 1.49% 114 29,830
Asheville/Hendersonville,
NC...................... 575.0 1.17% 93 28,806
Charleston, SC........... 612.0 -0.59% 118 36,887
Columbia, SC............. 637.2 1.52% 158 31,678
Fayetteville/Lumberton,
NC...................... 625.0 0.74% 133 27,781
Florence, SC............. 260.5 0.75% 113 24,924
Goldsboro/Kinston, NC.... 236.6 1.03% 114 9,068
Greenville/Washington,
NC...................... 237.8 0.40% 60 N/A
Greenville/Spartanburg,
SC...................... 885.9 1.58% 215 28,578
Greenwood, SC............ 73.6 1.26% 91 N/A
Hickory/Lenoir, NC....... 325.2 1.12% 196 31,709
Jacksonville, NC......... 146.7 0.78% 197 N/A
Myrtle Beach, SC......... 179.6 2.97% 137 N/A
New Bern, NC............. 171.7 1.31% 82 N/A
Orangeburg, SC........... 119.7 0.27% 63 27,530
Roanoke Rapids, NC....... 78.7 -0.20% 63 28,837
Rocky Mount/Wilson, NC... 214.3 0.73% 150 26,101
Sumter, SC............... 158.8 0.53% 92 19,303
Wilmington, NC........... 311.6 2.25% 106 14,139
Knoxville Major Trading
Area
Kingsport, TN............ 686.2 0.44% 116 23,560
Middlesboro/Harlan, KY... 121.2 -0.50% 77 N/A
Atlanta Major Trading
Area
Athens, GA............... 191.7 1.54% 136 37,150
Augusta, GA.............. 574.7 0.45% 88 24,425
Savannah, GA............. 724.3 1.23% 78 24,362
Washington Major Trading
Area
Charlottesville, VA...... 215.3 1.34% 73 15,981
Fredericksburg, VA....... 136.3 2.27% 98 67,775
Harrisonburg, VA......... 143.1 1.01% 57 29,618
Winchester, VA........... 158.1 1.45% 116 25,166
Richmond Major Trading
Area
Danville, VA............. 169.7 -0.14% 79 N/A
Lynchburg, VA............ 158.4 -0.06% 116 32,447
Martinsville, VA......... 89.0 -0.29% 102 N/A
Norfolk-Virginia Beach,
VA...................... 1,763.4 0.53% 299 61,252
Richmond/Petersburg, VA.. 1,253.5 0.88% 131 36,233
Roanoke, VA.............. 639.6 0.39% 90 27,649
Staunton/Waynesboro, VA.. 109.4 1.05% 75 27,180
Triton total/average..... 13,323(5) 0.86%(6) 144(7) 30,240(8)
U.S. average............. N/A 0.82% 77(9) 31,521
</TABLE>
- ---------------
1998 potential customers and estimated % Growth 1997--2002 figures are based on
1998 estimates published by Paul Kagan Associates, Inc. in 1999. Potential Den-
sity and Local Interstate Traffic Density figures are based on 1997 estimates
published by Paul Kagan Associates, Inc. in 1998.
(1) Licensed major trading areas are segmented into basic trading areas.
(2)The estimated average annual population growth rate for 1997-2002 was ap-
plied to estimates of 1999 potential customers to calculate the 1999 potential
customers in each market.
(3) Number of potential customers per square mile.
(4) Daily vehicle miles traveled (interstate only) divided by interstate high-
way miles in the relevant area.
(5) Total potential customers in the licensed area.
(6) Weighted by potential customers. Projected average annual population growth
in our licensed area.
(7) Weighted by population equivalents. Average number of potential customers
per square mile in our licensed area.
(8) Weighted by interstate miles. Average daily vehicle miles traveled (inter-
state only) divided by interstate highway miles in our licensed area.
(9) Average number of potential customers per square mile for the U.S.
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<PAGE>
Sales and Distribution
Our sales strategy is to utilize multiple distribution channels to minimize
customer acquisition costs and maximize penetration within our licensed service
area. Our distribution channels include a network of company-owned retail
stores, independent retailers and a direct sales force for corporate accounts,
as well as direct marketing channels such as telesales, neighborhood sales and
online sales. We also work with AT&T's national corporate account sales force
to cooperatively exchange leads and develop new business.
Company-Owned Retail Stores. We make extensive use of company-owned retail
stores for the distribution and sale of our handsets and services. We believe
that company-owned retail stores offer a considerable competitive advantage by
providing a strong local presence, which is required to achieve high
penetration in suburban and rural areas and the lowest customer acquisition
cost. We have opened 60 company-owned SunCom stores as of December 31, 1999.
Retail Outlets. We have negotiated distribution agreements with national and
regional mass merchandisers and consumer electronics retailers, including
Circuit City, Office Depot, Staples, Best Buy, Metro Call and Zap's. We
currently have over 180 agents with 406 retail outlet locations where customers
can purchase our services.
Direct Sales. We focus our direct sales force on high-revenue, high-profit
corporate users. Our direct corporate sales force consists of 82 dedicated
professionals targeting wireless decision-makers within large corporations. We
also benefit from AT&T's national corporate accounts sales force, which
supports the marketing of our services to AT&T's large national accounts
located in certain of our service areas.
Direct Marketing. We use direct marketing efforts such as direct mail and
telemarketing to generate customer leads. Telesales allow us to maintain low
selling costs and to sell additional features or customized services.
Website. Our web page provides current information about our markets our
product offerings and us. We have established an online store on our website,
www.suncom.com. The web page conveys our marketing message, and we expect it
will generate customers through online purchasing. We deliver all information
that a customer requires to make a purchasing decision at our website.
Customers are able to choose rate plans, features, handsets and accessories.
The online store will provide a secure environment for transactions, and
customers purchasing through the online store will encounter a transaction
experience similar to that of customers purchasing service through other
channels.
Marketing Strategy
Our marketing strategy has been developed on the basis of extensive market
research in each of our markets. This research indicates that the limited
coverage of existing wireless systems, relatively high cost, and inconsistent
performance has reduced the attractiveness of wireless service to existing
users and potential new users. We believe that our affiliation with the AT&T
brand name and the distinctive advantages of our time division multiple access
digital technology, combined with simplified, attractive pricing plans, will
allow us to capture significant market share from existing analog cellular
providers in our markets and to attract new wireless users. We are focusing our
marketing efforts on three primary market segments:
. current cellular users;
. individuals with the intent to purchase a wireless product within six
months; and
. corporate accounts.
For each segment, we are creating a specific marketing program including a
service package, pricing plan and promotional strategy. We believe that
targeted service offerings will increase customer loyalty and satisfaction,
thereby reducing customer turnover.
The following are key components of our marketing strategy:
. Regional Co-Branding. We have entered into agreements with TeleCorp PCS
and Tritel PCS, two other companies affiliated with AT&T, to adopt a
common regional brand, SunCom. We market our wireless services as
SunCom, Member of the AT&T Wireless Network and use the globally recog-
nized AT&T brand name and logo in equal emphasis with the SunCom brand
name and logo. We believe that use of the AT&T brand reinforces an asso-
ciation with reliability and quality. We and the other SunCom companies
are establishing the SunCom brand as a strong local presence with a
service area covering approximately 43 million potential customers. We
enjoy
25
<PAGE>
preferred pricing on equipment, handset packaging and distribution by
virtue of our affiliation with AT&T and the other SunCom companies.
. Pricing. Our pricing plans are competitive and straightforward, offering
large packages of minutes, large regional calling areas and usage en-
hancing features. One way we differentiate ourselves from existing wire-
less competitors is through our pricing policies. We offer pricing plans
designed to encourage customers to enter into long term service contract
plans.
We offer our customers regional, network only and national rate plans. Our
rate plans allow customers to make and receive calls anywhere within the
southeast region and the District of Columbia without paying additional
roaming or long distance charges. By contrast, competing flat rate plans
generally restrict flat rate usage to such competitors' owned networks. By
virtue of our roaming arrangements with AT&T, its affiliates and other third-
party roaming partners, we believe we can offer competitive regional, network
only and national rate plans. Our sizable licensed area allows us to offer
large regional calling areas at rates as low as $.08 per minute throughout the
Southeast.
Customer Care. We are committed to building strong customer relationships by
providing our customers with service that exceeds expectations. We currently
operate state-of-the-art customer care facilities in Richmond, Virginia and
Charleston, South Carolina that house our customer service and collections
personnel. We supplement these facilities with customer care services provided
by Convergys Corporation in Clarksville, Tennessee. Through the support of
approximately 225 customer care representatives and a sophisticated customer
care platform provided by Integrated Customer Systems, we have been able to
implement one ring customer care service using live operators and state-of-
the-art call routing, so that over 90% of incoming calls to our customer care
centers are answered on the first ring.
Future Product Offerings. We may bundle our wireless communications services
with other communications services through strategic alliances and resale
agreements with AT&T and others. We also may offer service options in
partnership with local business and affinity marketing groups. Examples of
these arrangements include offering wireless services with utility services,
banking services, cable television, Internet access or alarm monitoring
services in conjunction with local information services. Such offerings
provide the customer access to information, such as account status, weather
and traffic reports, stock quotes, sports scores and text messages from any
location.
Advertising. We believe our most successful marketing strategy is to establish
a strong local presence in each of our markets. We are directing our media and
promotional efforts at the community level with advertisements in local
publications and sponsorship of local and regional events. We combine our
local efforts with mass marketing strategies and tactics to build the SunCom
and AT&T brands locally. Our media effort includes television, radio,
newspaper, magazine, outdoor and Internet advertisements to promote our brand
name. In addition, we use newspaper and radio advertising and our web page to
promote specific product offerings and direct marketing programs for targeted
audiences.
Services and Features
We provide affordable, reliable, high-quality mobile telecommunications
service. Our advanced digital personal communications services network allows
us to offer customers the most advanced wireless features that are designed to
provide greater call management and increase usage for both incoming and
outgoing calls.
. Feature-Rich Handsets. As part of our service offering, we sell our cus-
tomers the most advanced, easy-to-use, interactive, menu-driven handsets
that can be activated over the air. These handsets have many advanced
features, including word prompts and easy-to-use menus, one-touch dial-
ing, multiple ring settings, call logs and hands-free adaptability.
These handsets also allow us to offer the most advanced digital servic-
es, such as voice mail, call waiting, call forwarding, three-way confer-
ence calling, e-mail messaging and paging.
. Multi-Mode Handsets. We exclusively offer multi-mode handsets, which are
compatible with personal communication services, digital cellular and
analog cellular frequencies and service modes. These multi-mode handsets
allow us to offer customers coast-to-coast nationwide roaming across a
variety of wireless networks. These handsets incorporate a roaming data-
base, which can be updated over the air that controls roaming prefer-
ences from both a quality and cost perspective.
26
<PAGE>
Network Build-Out
The principal objective for the build-out of our network is to maximize
population coverage levels within targeted demographic segments and geographic
areas, rather than building out wide-area cellular-like networks. We have
successfully launched service in 27 cities, 1,014 cell sites and six switches.
We expect to complete Phase II by the end of the first quarter 2000, which will
add six new cities, cover approximately 4,400 highway miles, and add 226 of
cell sites. The Phase III network design will complete our initial network
build-out plan. We expect Phase III to add four cities, approximately 13,000
highway miles, approximately 1,050 cell sites and two switches to our network
by year-end 2001.
The build-out of our network involves the following:
. Property Acquisition, Construction and Installation. Two experienced
vendors, Crown Castle International Corp. and American Tower, identify
and obtain the property rights we require to build out our network,
which includes securing all zoning, permitting and government approvals
and licenses. As of December 31, 1999, we had signed leases or options
for 1,032 sites, 9 of which were awaiting required zoning approvals.
Crown Castle and American Tower also act as our construction management
contractors and employ local construction firms to build the cell sites.
. Interconnection. Our digital wireless network connects to local exchange
carriers. We have negotiated and received state approval of interconnec-
tion agreements with telephone companies operating or providing service
in the areas where we are currently operating our digital personal com-
munications services network. We use AT&T as our inter-exchange or long-
distance carrier.
. Roaming. In areas where time division multiple access-based personal
communications services are not available, we offer a roaming option on
the traditional analog cellular and digital cellular systems via multi-
mode handsets capable of transmitting over either cellular or personal
communications services frequencies. Under the terms of our agreements
with AT&T, our customers who own multi-mode handsets are able to roam on
AT&T's network, and we benefit from roaming agreements with AT&T, other
Members of the AT&T Wireless Network and third-party operators of wire-
less systems.
Network Operations
The effective operation of our network requires public switched interconnection
and backhaul agreements with other communications providers, long distance
interconnection, the implementation of roaming arrangements, the development of
network monitoring systems and the implementation of information technology
systems.
Switched Interconnection/Backhaul. Our network is connected to the public
switched telephone network to facilitate the origination and termination of
traffic between our network and both the local exchange and long distance
carriers. We have signed agreements with numerous carriers.
Long Distance. We have executed a wholesale long distance agreement with AT&T
providing for preferred rates for long distance services.
Roaming. Through our arrangements with AT&T and via the use of multi-mode
handsets, our customers have roaming capabilities on AT&T's wireless network.
Further, we have established roaming agreements with third-party carriers at
preferred pricing, including in-region roaming agreements covering all of our
launched service areas.
Network Monitoring Systems. Our network monitoring systems provide around-the-
clock monitoring and maintenance of our entire network. Our network-monitoring
center is equipped with sophisticated systems that constantly monitor the
status of all-base stations and switches and record network traffic. The
network monitoring systems provide continuous monitoring of system quality for
blocked or dropped calls call clarity and evidence of tampering, cloning or
fraud. We designed our network-monitoring center to oversee the interface
between customer usage, data collected at switch facilities and our billing
systems. We manage usage reports, feature activation and related billing times
on a timely and accurate basis. Our network-monitoring center is located in the
Richmond, Virginia switching center, and we also have back-up network
monitoring center capabilities in our Greenville, South Carolina switching
center. We utilize Ericsson's network operations center in Richardson, Texas
for off-hour network monitoring and dispatch, thereby providing constant
network monitoring and support. In addition, we have contracted with Wireless
Facilities, Inc. to provide network monitoring and dispatching 24 hours a day,
seven days a week, to begin in the second quarter of 2000.
27
<PAGE>
Information Technology. We operate management information systems to handle
customer care, billing, network management and financial and administrative
services. These systems focus on three primary areas:
. network management, including service activation, pre-pay systems, traf-
fic and usage monitoring, trouble management and operational support
systems;
. customer care, including billing systems and customer service and sup-
port systems; and
. business systems, including financial, purchasing, human resources and
other administrative systems.
We have incorporated sophisticated network management and operations support
systems to facilitate network fault detection, correction and management,
performance and usage monitoring and security. We employ system capabilities
developed to allow over-the-air activation of handsets and to implement fraud
protection measures. We maintain stringent controls for both voluntary and
involuntary deactivations. We try to minimize subscriber disconnections by
preactivation screening to identify any prior fraudulent or bad debt activity;
credit review; and call pattern profiling to identify needed activation and
termination policy adjustments. These systems have been designed with open
interfaces. This design allows us to select and deploy the best software
package for each application included in our administrative system. We are
developing a state-of-the-art database and reporting system, which will also
allow us to cross-link billing, marketing and customer care systems to collect
customer profile and usage information. We believe this information provides us
with the tools necessary to increase revenue through channel and product
profitability analysis and to reduce customer acquisition costs through
implementation of more effective marketing strategies.
Time Division Multiple Access Digital Technology
We are building our network using time division multiple access digital
technology on the IS-136 platform. This technology allows for the use of
advanced multi-mode handsets, which allow roaming across personal
communications services and cellular frequencies, including both analog and
digital cellular. This technology allows for enhanced services and features
over other technologies, such as short-messaging, extended battery life, added
call security and improved voice quality, and its hierarchical cell structure
enables us to enhance network coverage with lower incremental investment
through the deployment of micro, as opposed to full-size, cell sites. This will
enable us to offer customized billing options and to track billing information
per individual cell site, which is practical for advanced wireless applications
such as wireless local loop and wireless office applications. Management
believes that time division multiple access digital technology provides
significant operating and customer benefits relative to analog systems. In
addition, management believes that time division multiple access digital
technology provides customer benefits, including available features and roaming
capabilities, and call quality that is similar to or superior to that of other
wireless technologies. Time division multiple access technology allows three
times the capacity of analog systems. Some manufacturers, however, believe that
code division multiple access technology will eventually provide system
capacity that is greater than that of time division multiple access technology
and global systems for mobile communications. Time division multiple access
digital technology is the digital technology choice of two of the largest
wireless communications companies in the United States, AT&T and SBC
Communications. This technology served an estimated 19 million subscribers
worldwide and nine million subscribers in North America as of December 31,
1998, according to the Universal Wireless Communications Consortium, an
association of time division multiple access service providers and
manufacturers. We believe that the increased volume of time division multiple
access users has increased the probability that this technology will remain an
industry standard. Time division multiple access equipment is available from
leading telecommunication vendors such as Lucent, Ericsson and Northern
Telecom, Inc.
Regulation
The FCC regulates aspects of the licensing, construction, operation,
acquisition and sale of personal communications services and cellular systems
in the United States pursuant to the Communications Act, as amended from time
to time, and the associated rules, regulations and policies it promulgates.
Licensing of Cellular and Personal Communications Services Systems. A broadband
personal communications services system operates under a protected geographic
service area license granted by the FCC for a particular market on one of
six frequency blocks allocated for broadband personal communications services.
Broadband personal communications services systems generally are used for two-
way voice applications. Narrowband personal communications services, in con-
trast, are used for non-voice applications such as paging and data service and
are separately licensed. The FCC has segmented the United States into personal
communications services markets, resulting in 51 large regions called major
trading areas, which are comprised of 493 smaller regions called basic trading
areas. The FCC awarded two broadband personal
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communications services licenses for each major trading area and four licenses
for each basic trading area. Thus, generally, six broadband personal communica-
tions services licensees will be authorized to compete in each area. The two
major trading area licenses authorize the use of 30 MHz of spectrum. One of the
basic trading area licenses is for 30 MHz of spectrum, and the other three are
for 10 MHz each. The FCC permits licensees to split their licenses and assign a
portion, on either a geographic or frequency basis or both, to a third party.
In this fashion, AT&T assigned us 20 MHz of its 30 MHz licenses covering our
licensed areas. Two cellular licenses are also available in each market. Cellu-
lar markets are defined as either metropolitan or rural service areas and do
not correspond to the broadband personal communications services markets.
Generally, the FCC awarded initial personal communications services licenses by
auction. Initial personal communications services auctions began with the 30
MHz major trading area licenses and concluded in 1998 with the last of the
basic trading area licenses. However, in March 1998, the FCC adopted an order
that allowed financially troubled entities that won personal communications
services 30 MHz C-Block licenses at auction to obtain some financial relief
from their payment obligations by returning some or all of their C-Block
licenses to the FCC for reauctioning. The FCC completed the reauction of the
returned licenses in April 1999, and some licenses were not sold. In January
2000, the FCC announced that certain personal communications services licenses
previously held by licensees that had declared bankruptcy had cancelled and
were available for reauction. The FCC announced that the unsold and reclaimed
personal communications services licenses will be reauctioned in July 2000.
These auctions place additional spectrum in the hands of our potential
competitors. Numerous petitions concerning the eligibility rules for the July,
2000 auction, as well as a petition for reconsideration of the decision to
auction many of the reclaimed licenses, are pending at the FCC.
Under the FCC's current rules specifying spectrum aggregation limits affecting
broadband personal communications services certain specialized mobile radio
services and cellular licensees, no entity may hold attributable interests,
generally 20% or more of the equity of, or an officer or director position
with, the licensee, in licenses for more than 45 MHz of personal communications
services, cellular and certain specialized mobile radio services where there is
significant overlap, except in rural areas. In rural areas, up to 55 MHz of
broadband spectrum may be held. Passive investors may hold up to a 40%
interest. Significant overlap will occur when at least 10% of the population of
the broadband personal communications services licensed service area is within
the cellular and/or specialized mobile radio service area(s). In a September
15, 1999 FCC order revising the spectrum cap rules, the FCC noted that new
broadband wireless services, such as third generation wireless, may be included
in the cap when spectrum is allocated for those services.
The FCC also may license other spectrum that may be used to provide services
that compete with our services. Most recently, the FCC announced that it will
auction licenses for fixed, mobile and broadcasting services in the 747-762 and
777-792 MHz bands in September 2000. Services offered over this spectrum will
not be included in the FCC's spectrum cap aggregation limitations.
All personal communications services licenses have a 10-year term, at the end
of which they must be renewed. The FCC will award a renewal expectancy to a
personal communications services licensee that has:
. provided substantial service during its past license term; and
. has substantially complied with applicable FCC rules and policies and
the Communications Act.
Cellular radio licenses also generally expire after a 10-year term in the
particular market and are renewable for periods of 10 years upon application to
the FCC. Licenses may be revoked for cause and license renewal applications
denied if the FCC determines that a renewal would not serve the public
interest. FCC rules provide that competing renewal applications for cellular
licenses will be considered in comparative hearings, and establish the
qualifications for competing applications and the standards to be applied in
hearings. Under current policies, the FCC will grant incumbent cellular
licensees the same renewal expectancy granted to personal communications
services licensees.
All personal communications services licensees must satisfy certain coverage
requirements. In our case, we must construct facilities that offer radio signal
coverage to one-third of the population of our service area within five years
of the original license grants to AT&T and to two-thirds of the population
within ten years. Licensees that fail to meet the coverage requirements may be
subject to forfeiture of their license. We anticipate the last phase of our
network build-out to be completed by year-end 2001. Our cellular license, which
covers the Myrtle Beach area, is not subject to coverage requirements.
For a period of up to five years, subject to extension, after the grant of a
personal communications services license, a licensee will be required to share
spectrum with existing licensees that operate certain fixed microwave systems
within its license area. To secure a sufficient amount of unencumbered spectrum
to operate our personal communications services
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systems efficiently and with adequate population coverage, we have relocated
two of these incumbent licensees and will need to relocate two more licensees.
In an effort to balance the competing interests of existing microwave users and
newly authorized personal communications services licensees, the FCC has
adopted:
. a transition plan to relocate such microwave operators to other spectrum
blocks; and
. a cost sharing plan so that if the relocation of an incumbent benefits
more than one personal communications services licensee, those licensees
will share the cost of the relocation.
Initially, this transition plan allowed most microwave users to operate in the
personal communications services spectrum for a two-year voluntary negotiation
period and an additional one-year mandatory negotiation period. For public
safety entities that dedicate a majority of their system communications to
police, fire or emergency medical services operations, the voluntary
negotiation period is three years, with an additional two-year mandatory
negotiation period. In 1998, the FCC shortened the voluntary negotiation period
by one year, without lengthening the mandatory negotiation period for non-
public safety personal communications services licensees in the C, D, E and F
Blocks. Parties unable to reach agreement within these time periods may refer
the matter to the FCC for resolution, but the incumbent microwave user is
permitted to continue its operations until final FCC resolution of the matter.
The transition and cost sharing plans expire on April 4, 2005, at which time
remaining microwave incumbents in the personal communications services spectrum
will be responsible for the costs of relocating to alternate spectrum
locations. Our cellular license is not encumbered by existing microwave
licenses.
Personal communications services and cellular systems are subject to certain
FAA regulations governing the location, lighting and construction of
transmitter towers and antennas and may be subject to regulation under Federal
environmental laws and the FCC's environmental regulations. State or local
zoning and land use regulations also apply to our activities. We expect to use
common carrier point to point microwave facilities to connect the transmitter,
receiver, and signaling equipment for each personal communications services or
cellular cell, the cell sites, and to link them to the main switching office.
The FCC licenses these facilities separately and they are subject to regulation
as to technical parameters and service.
The Communications Act preempts state and local regulation of the entry of, or
the rates charged by, any provider of private mobile radio service or of
commercial mobile radio service, which includes personal communications
services and cellular service. The FCC does not regulate commercial mobile
radio service or private mobile radio service rates. The Communications Act
permits states to regulate the "other terms and conditions of CMRS." The FCC
has not clearly defined what is meant by the "other terms and conditions" of
CMRS, however, and has upheld the legality of state universal service
requirements on CMRS carriers. The United States Court of Appeals for the 5th
and District of Columbia Circuits have affirmed the FCC's determination.
Transfers and Assignments of Cellular and Personal Communications Services
Licenses. The Communications Act and FCC rules require the FCC's prior approval
of the assignment or transfer of control of a license for a personal
communications services or cellular system. In addition, the FCC has
established transfer disclosure requirements that require any licensee that
assigns or transfers control of a personal communications services license
within the first three years of the license term to file associated sale
contracts, option agreements, management agreements or other documents
disclosing the total consideration that the licensee would receive in return
for the transfer or assignment of its license. Non-controlling interests in an
entity that holds an FCC license generally may be bought or sold without FCC
approval, subject to the FCC's spectrum aggregation limits. However, we may
require approval of the Federal Trade Commission and the Department of Justice,
as well as state or local regulatory authorities having competent jurisdiction,
if we sell or acquire personal communications services or cellular interests
over a certain size.
Foreign Ownership. Under existing law, no more than 20% of an FCC licensee's
capital stock may be owned, directly or indirectly, or voted by non-U.S.
citizens or their representatives, by a foreign government or its
representatives or by a foreign corporation. If an FCC licensee is controlled
by another entity, as is the case with our ownership structure, up to 25% of
that entity's capital stock may be owned or voted by non-US citizens or their
representatives, by a foreign government or its representatives or by a foreign
corporation. Foreign ownership above the 25% level may be allowed should the
FCC find such higher levels not inconsistent with the public interest. The FCC
has ruled that higher levels of foreign ownership, even up to 100%, are
presumptively consistent with the public interest with respect to investors
from certain nations. If our foreign ownership were to exceed the permitted
level, the FCC could revoke our FCC licenses, although we could seek a
declaratory ruling from the FCC allowing the foreign ownership or take other
actions to reduce our foreign ownership percentage in order to avoid the loss
of our licenses. We have no knowledge of any present foreign ownership in
violation of these restrictions.
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Recent Industry Developments. The FCC has announced rules for making emergency
911 services available by cellular, personal communications services and other
commercial mobile radio service providers, including enhanced 911 services that
provide the caller's telephone number, location and other useful information.
Commercial mobile radio service providers currently are required to be able to
process and transmit 911 calls without call validation, including those from
callers with speech or hearing disabilities and relay a caller's automatic
number identification and cell site.
On September 15, 1999, the FCC adopted an order modifying the deadlines for
identifying caller locations. Wireless carriers may now implement the
identification requirement through either network based or handset-based
technologies. Carriers that use handset-based technologies must:
. begin selling compliant handsets by March 1, 2001;
. ensure that 50% of all newly activated handsets are compliant by October
1, 2001 and that at least 95% of all newly activated digital handsets
are compliant by October 1, 2002;
. comply with additional requirements relating to passing location infor-
mation upon the request of 911 operators; and
. make reasonable efforts to achieve 100% penetration of compliant hand-
sets by no later than December 31, 2004.
Carriers that use network-based technologies must provide location information
for 50% of callers within six months and 100% of callers within 18 months of a
request from a 911 operator. The FCC will require network-based solutions to be
accurate for 67% of calls to within 100 meters and for 95% of calls to within
300 meters and handset-based solutions to be accurate for 67% of calls to
within 50 meters and for 95% of calls to within 150 meters.
On October 12, 1999, Congress adopted legislation that would establish national
rules governing emergency services, which was signed into law on October 26,
1999. The legislation:
. makes 911 the national emergency number for wireline and wireless
phones;
. extends limited liability protection to wireless users, wireless provid-
ers and public safety officials;
. allows carriers to use a customer's network information for emergency
purposes; and
. allows carriers to disclose the customer's network information, includ-
ing location information, to family members and guardians in emergency
situations.
On November 18, 1999, the FCC eliminated carrier cost recovery as a
precondition to enhanced 911 deployment. The FCC's new cost-recovery rules
require wireless carriers to implement enhanced 911 services without any
specific mechanism to recoup their costs.
Pending the development of adequate technology, the FCC has granted waivers of
the requirement to provide 911 service to users with speech or hearing
disabilities to various providers, and we have obtained a waiver. On June 9,
1999, the FCC also adopted rules designed to ensure that analog cellular calls
to 911 are completed. These rules, which do not apply to digital cellular
service or to personal communications services, give each cellular handset
manufacturer a choice of three ways to meet this requirement. These rules went
into effect on February 13, 2000, but several handset manufacturers have
obtained waivers of the deadline. State actions incompatible with the FCC rules
are subject to preemption.
In 1996, Congress passed legislation designed to open local telecommunications
markets to competition. On August 8, 1996, the FCC released its order
implementing cost-based carrier interconnection provisions of the
Telecommunications Act. Although many of the provisions of this order were
struck down by the United States Court of Appeals for the Eighth Circuit, the
United States Supreme Court reversed the Eighth Circuit and upheld the FCC in
all respects material to our operations. While appeals have been pending, the
rationale of the FCC's order has been adopted by many states' public utility
commissions, with the result that the charges that cellular and personal
communications services operators pay to interconnect their traffic to the
public switched telephone network have declined significantly from pre-1996
levels.
In its implementation of the Telecommunications Act, the FCC established
federal universal service requirements that affect commercial mobile radio
service operators. Under the FCC's rules, commercial mobile radio service
providers are potentially eligible to receive universal service subsidies for
the first time; however, they are also required to contribute to both federal
and state universal service funds. Many states are moving forward to develop
state universal service fund programs. A number of these state funds require
contributions, varying greatly from state to state, from commercial mobile
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radio service providers. On July 30, 1999, the United States Court of Appeals
for the Fifth Circuit affirmed most of the aspects of the FCC's universal
service programs that are relevant to Triton. On October 8, 1999, the FCC
implemented the Fifth Circuit's Order by revising its universal service rules
to, among other changes, remove intrastate revenues from the universal service
mandatory contribution base. Requests for the Supreme Court to review the Fifth
Circuit decision are pending.
On August 1, 1996, the FCC released a report and order expanding the
flexibility of cellular, personal communications services and other commercial
mobile radio service providers to provide fixed as well as mobile services.
Such fixed services include, but need not be limited to, wireless local loop
services, for example, to apartment and office buildings, and wireless backup
to private branch exchange or switchboards and local area networks, to be used
in the event of interruptions due to weather or other emergencies. The FCC has
not yet decided whether such fixed services should be subjected to universal
service obligations, or how they should be regulated, but it has proposed a
presumption that they be regulated as commercial mobile radio service services.
The FCC has adopted rules on telephone number portability that will enable
customers to migrate their landline and cellular telephone numbers to cellular
or personal communications services providers and from a cellular or personal
communications services provider to another service provider. On February 8,
1999, the FCC extended the deadline for compliance with this requirement to
November 24, 2002, subject to any later determination that an earlier
implementation of number portability is necessary to conserve telephone
numbers. The FCC has also adopted rules requiring providers of wireless
services that are interconnected to the public switched telephone network to
provide functions to facilitate electronic surveillance by law enforcement
officials. On August 29, 1999, the FCC adopted an order requiring wireless
providers to provide information that identifies the cell sites at the origin
and destination of a mobile call to law enforcement personnel in response to a
lawful court order or other legal requirement. Providers may petition the FCC
for a waiver of these law enforcement obligations if they can demonstrate under
a multi-factor test that these requirements are not reasonably achievable.
Wireless carriers have been given until September 30, 2001 to implement fully
the law enforcement assistance obligations.
In addition, state commissions have become increasingly aggressive in their
efforts to conserve numbering resources. These efforts may impact wireless
service providers disproportionately by imposing additional costs or limiting
access to numbering resources. Examples of state conservation methods include:
. number pooling;
. number rationing; and
. transparent overlays.
Number pooling is especially problematic for wireless providers because it is
dependent on number portability technology. In addition, the FCC has rejected
transparent overlays, although that decision is subject to petitions for
reconsideration before the FCC.
On March 31, 2000, the FCC released an order establishing rules intended to
promote the efficient use of numbering resources while ensuring that all
carriers have access to the numbering resources they need to compete
effectively and a further notice of proposed rulemaking seeking additional
comments and supporting data on certain issues. The order adopts a mandatory
number pooling requirement, which will require carriers to share blocks of
telephone numbers, which today are assigned in groups of 10,000. The order
defers this requirement for wireless providers until at least the time when
those providers will be required to implement number portability. The order
also adopts a requirement, which will go into effect in 2001, for carriers to
meet usage thresholds before requesting new telephone numbers and gives states
new authority to reclaim unused blocks of telephone numbers. The notice of
proposed rulemaking seeks comments on whether wireless providers should be
required to implement pooling at the same time as they implement number
portability, or should be afforded a transition; on whether carriers should be
charged for telephone numbers; and on the specific utilization thresholds that
carriers will be required to meet before they can obtain new blocks of numbers.
On October 21, 1999, the FCC released an order holding that neither interim or
long-term number portability obviates the need for 10-digit dialing in an area
code overlay. The FCC also eliminated the requirement that new entrants must be
guaranteed to receive a block of numbers from the existing area code where an
overlay is being implemented.
In the latter half of 1999, the FCC granted interim number conservation
authority to several state commissions, including Ohio, Wisconsin, Texas, New
Hampshire, Connecticut, California, Florida, Maine, Massachusetts and New York.
Any state actions under these waivers must be consistent with the FCC's March
31 numbering optimization order.
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The FCC has determined that the interstate, interexchange offerings, commonly
referred to as long distance, of commercial mobile radio service providers are
subject to the interstate, interexchange rate averaging and integration
provisions of the Communications Act. Rate averaging requires us to average our
interstate long distance commercial mobile radio service rates between high
cost and urban areas. The FCC has delayed implementation of the rate
integration requirements with respect to wide area rate plans we offer pending
further reconsideration of its rules. The FCC also delayed the requirement that
there be commercial mobile radio service long distance rate integration among
commercial mobile radio service affiliates. On December 31, 1998, the FCC
reaffirmed, on reconsideration, that its interexchange rate integration rules
apply to interexchange commercial mobile radio service services. The FCC
initiated a further proceeding to determine how integration requirements apply
to typical commercial mobile radio service offerings, including single-rate
plans. Until this further proceeding is concluded, the FCC will enforce long
distance rate integration on our services only where we separately state a long
distance toll charge and bill to our customers. To the extent that we offer
services subject to the FCC's rate integration and averaging requirements,
these requirements generally reduce our pricing flexibility. We cannot assure
you that the FCC will decline to impose rate integration or averaging
requirements on us or decline to require us to integrate our commercial mobile
radio service long distance rates across our commercial mobile radio service
affiliates.
The FCC recently adopted new rules limiting the use of customer proprietary
network information by telecommunications carriers, including Triton, in
marketing a broad range of telecommunications and other services to their
customers and the customers of affiliated companies. The new rules give
wireless carriers broader discretion to use customer proprietary network
information, without customer approval, to market all information services used
in the provision of wireless services. The FCC also allowed all telephone
companies to use customer proprietary network information to solicit lost
customers. While all customers must establish a customer's approval prior to
using customer proprietary network information for purposes not explicitly
permitted by the rules, the specific details of gathering and storing this
approval are now left to the carriers. The FCC's order was issued following a
decision by the U.S. Court of Appeals for the 10th Circuit, which overturned
the FCC's rules, but not the underlying statute, on First Amendment grounds.
Because the 10th Circuit did not invalidate the customer proprietary network
information provision in the Communications Act, carriers are still obligated
under the Communications Act not to misuse customer proprietary network
information.
The FCC has adopted rules governing customer billing by commercial mobile radio
services providers. The FCC adopted detailed billing rules for landline
telecommunications service providers and extended some of those rules to
commercial mobile radio services providers. Commercial mobile radio service
providers must comply with two fundamental rules: (i) clearly identify the name
of the service provider for each charge; and (ii) display a toll-free inquiry
number for customers on all "paper copy" bills.
The FCC has adopted an order that determines the obligations of
telecommunications carriers to make their services accessible to individuals
with disabilities. The order requires telecommunications services providers,
including Triton, to offer equipment and services that are accessible to and
useable by persons with disabilities, if that equipment can be made available
without much difficulty or expense. The rules require us to develop a process
to evaluate the accessibility, usability and compatibility of covered services
and equipment. While we expect our vendors to develop equipment compatible with
the rules, we cannot assure you that we will not be required to make material
changes to our network, product line, or services.
In June 1999, the FCC initiated an administrative rulemaking proceeding to help
facilitate the offering of calling party pays as an optional wireless service.
Under the calling party pays service, the party placing the call to a wireless
customer pays the wireless airtime charges. Most wireless customers in the U.S.
now pay both to place calls and to receive them. Adoption of rules that permit
calling party pays to be offered on a widespread basis by all commercial mobile
radio service providers could make commercial mobile radio service providers
more competitive with traditional landline telecommunications providers for the
provision of regular telephone service.
State Regulation and Local Approvals
The states in which we operate do not regulate wireless service at this time.
In the 1993 Budget Act, Congress gave the FCC the authority to preempt states
from regulating rates or entry into commercial mobile radio service, including
cellular and personal communications services. The FCC, to date, has denied all
state petitions to regulate the rates charged by commercial mobile radio
service providers. States may, however, regulate the other terms and conditions
of commercial mobile radio service. The siting of cells also remains subject to
state and local jurisdiction, although the FCC is considering issues relating
to siting in a pending rulemaking. States also may require wireless service
providers to charge and collect from their customers fees such as the fee to
defray the costs of state emergency 911 services programs.
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There are several state and local legislative initiatives that are underway to
ban the use of wireless phones in motor vehicles. New York State's motor
vehicle commissioner is calling for a study to determine if it is necessary to
ban the use of wireless phones while driving. San Francisco, Chicago and
Westchester County, New York are considering such action; a suburb near
Cleveland, Ohio has enacted a law that requires drivers to keep both hands on
the steering wheel while the vehicle is moving; and three municipalities in
Pennsylvania have enacted similar restrictions. Should this become a nationwide
initiative, commercial mobile radio service providers could experience a
decline in the number of minutes of use by subscribers.
Competition
We compete directly with two cellular providers and other personal
communications services providers in each of our markets except Myrtle Beach,
where we are one of two cellular providers, and against enhanced specialized
mobile radio providers in some of our markets. These cellular providers have an
infrastructure in place and have been operational for a number of years, and
some of these competitors have greater financial, technical resources and
spectrum than we do. These cellular operators may upgrade their networks to
provide services comparable to those we offer. The technologies primarily
employed by our digital competitors are code division multiple access and
global system for mobile communications, two competing digital wireless
standards.
We will also compete with personal communications services license holders in
each of our markets. We believe that the ownership of other personal
communications services licenses in our licensed area is fragmented. We believe
that most personal communications services license holders have not commenced
the rollout of their networks in our licensed area. However, we expect to
compete directly with one or more personal communications service providers in
each of our markets in the future. We also expect to face competition from
other existing communications technologies such as specialized mobile radio and
enhanced specialized mobile radio, which is currently employed by Nextel
Communications, Inc. in our licensed area. Although the FCC originally created
specialized mobile radio as a non-interconnected service principally for fleet
dispatch, in the last decade it has liberalized the rules to permit enhanced
specialized mobile radio, which, in addition to dispatch service, can offer
services that are functionally equivalent to cellular and personal
communications services and may be less expensive to build and operate than
personal communications services systems.
The FCC requires all cellular and personal communications services licensees to
provide service to resellers. A reseller provides wireless service to customers
but does not hold a FCC license or own facilities. Instead, the reseller buys
blocks of wireless telephone numbers and capacity from a licensed carrier and
resells service through its own distribution network to the public. Thus, a
reseller is both a customer of a wireless licensee's services and a competitor
of that licensee. Several small resellers currently compete with us in our
licensed area. Several years ago, the FCC initiated an administrative
proceeding seeking comments on whether resellers should be permitted to install
separate switching facilities in cellular systems. Although it tentatively
concluded it would not require interconnection, this issue is still pending at
the FCC. The FCC is also considering whether resellers should receive direct
assignments of telephone numbers from the North American Numbering Plan
Administrator. With respect to cellular and personal communications services
license, the resale obligations terminate five years after the last group of
initial licenses of currently allotted personal communications services
spectrum were awarded. Accordingly, our resale obligations end on November 24,
2002, although licensees will continue to be subject to the provisions of the
Communications Act requiring non-discrimination among customers. We have also
agreed to permit AT&T to resell our services.
The FCC is scheduled to offer additional spectrum for wireless mobile licenses
this year. In September 2000, the FCC has scheduled the 700 MHz auction that is
exempt from Spectrum Cap limitations, and in July 2000, the FCC has scheduled
the C-Block and F-Block reauction. Some applicants have received and others are
seeking FCC authorization to construct and operate global satellite networks to
provide domestic and international mobile communications services from
geostationary and low-earth-orbit satellites. One such system, Globalster,
began service in February 2000. We anticipate that market prices for two-way
wireless services generally will decline in the future based upon increased
competition.
Our ability to compete successfully will depend, in part, on our ability to
anticipate and respond to various competitive factors affecting the industry,
including new services that may be introduced, changes in consumer preferences,
demographic trends, economic conditions and competitors' discount pricing
strategies, all of which could adversely affect our operating margins. We plan
to use our digital feature offerings, coast-to-coast digital wireless network
through our AT&T joint venture, contiguous presence providing an expanded home-
rate billing area and local presence in secondary markets to combat potential
competition. We expect that our extensive digital network, once deployed, will
provide cost-effective means to react effectively to any price competition.
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Intellectual Property
The AT&T globe design logo is a service mark owned by AT&T and registered with
the United States Patent and Trademark Office. Under the terms of our license
agreement with AT&T, we use the AT&T globe design logo and certain other
service marks of AT&T royalty-free in connection with marketing, offering and
providing wireless mobility telecommunications services using time division
multiple access digital technology and frequencies licensed by the FCC to end-
users and resellers within our licensed area. The license agreement also grants
us the right to use the licensed marks on certain permitted mobile phones.
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, those licensed services
under the licensed marks in our licensed area except:
. to any person who resells, or acts as our agent for, licensed services
provided by us, or
. any person who provides or resells wireless communications services to
or from specific locations such as buildings or office complexes, even
if the applicable subscriber equipment being used is capable of routine
movement within a limited area and even if such subscriber equipment may
be capable of obtaining other telecommunications services beyond that
limited area and handing-off between the service to the specific loca-
tion and those other telecommunications services.
In all other instances, AT&T reserves for itself and its affiliates the right
to use the licensed marks in providing its services whether within or outside
of our licensed area.
The license agreement contains numerous restrictions with respect to the use
and modification of any of the license marks.
We have entered into agreements with TeleCorp PCS and Tritel PCS to adopt and
use a common regional brand name, SunCom. Under these agreements, we have
formed the Affiliate Licensing Company with TeleCorp PCS and Tritel PCS for the
purpose of sharing ownership of and maintaining the SunCom brand name. Each of
the companies shares equally in the ownership of the SunCom brand name and the
responsibility of securing protection for the SunCom brand name in the United
States Patent and Trademark Office, enforcing our rights in the SunCom brand
name against third parties and defending against potential claims against the
SunCom brand name. The agreements provide parameters for each company's use of
the SunCom brand name, including certain quality control measures and
provisions in the event that any one of these company's licensing arrangements
with AT&T is terminated.
An application for registration of the SunCom brand name was filed in the
United States Patent and Trademark Office on September 4, 1998, and the
application is pending. Affiliate Licensing Company owns the application for
the SunCom brand name. The application has undergone a preliminary examination
at the United States Patent and Trademark Office, and no pre-existing
registrations or applications were raised as a bar or potential bar to the
registration of the SunCom brand name.
We also filed an application for registration of the m-net Technology
trademark, relating to our multi-mode handsets, in the United States Patent and
Trademark Office on October 19, 1998, and the application is pending. We are
the sole owner of the application for the m-net Technology trademark. The
application has undergone a preliminary examination at the United States Patent
and Trademark Office, and no pre-existing registrations or applications were
raised as a bar or potential bar to the registration of the m-net Technology
trademark.
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Management
Executive Officers and Directors
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Michael E. Kalogris..... 50 Chairman of the Board of Directors and Chief Executive Officer
Steven R. Skinner....... 57 President, Chief Operating Officer and Director
David D. Clark.......... 36 Executive Vice President, Chief Financial Officer
Stephen J. McNulty...... 46 President and General Manager of Triton's Mid-Atlantic region
Michael C. Mears........ 44 President and General Manager of Triton's Southern region
Scott I. Anderson....... 41 Director
Arnold Chavkin.......... 48 Director
John D. Beletic......... 48 Director
John W. Watkins......... 38 Director
William W. Hague........ 44 Director
</TABLE>
Michael E. Kalogris has served as Chairman and Chief Executive Officer of
Triton 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 Cellular Group became the fifth-largest
independent cellular company in the United States, specializing in suburban
markets and small cities encompassing approximately 3.2 million potential
customers, and was sold for approximately $575.0 million. Prior to joining
Horizon Cellular Group, Mr. Kalogris served as President and Chief Executive
Officer of Metrophone, a cellular carrier in Philadelphia, the nation's fourth-
largest market. Mr. Kalogris is a member of the board of directors of the
Cellular Telecommunications Industry Association and serves on its Public
Policy Committee. He is also a member of the advisory board of Waller Capital
Media Partners.
Steven R. Skinner has served as President, Chief Operating Officer and a
Director of Triton since its inception. Mr. Skinner previously served as the
Vice President of Operations and Chief Operating Officer of Horizon Cellular
Group beginning in January of 1994. From March 1992 through December 1993, Mr.
Skinner served as Vice President of Acquisitions for Horizon Cellular Group.
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 joining Houston Cellular, 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.
David D. Clark has served as Executive Vice President, Chief Financial Officer
and Secretary of Triton since its inception. Before joining Triton, he was a
Managing Director at Furman Selz L.L.C. specializing in communications finance,
which he joined in February 1996. Prior to joining Furman Selz, Mr. Clark spent
over ten years at Citibank N.A. and Citicorp Securities Inc. as a lending
officer and a high yield finance specialist. Mr. Clark is also the Chief
Financial Officer of Triton Cellular Partners, L.P.
Stephen J. McNulty, has served as President and General Manager of Triton's
Mid-Atlantic region since July 1998. Before 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 February 1994 to May 1997.
Michael C. Mears, has served as President and General Manager of Triton's
Southern 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. Before that, Mr. Mears was the Regional and Area General
Manager of GTE Corp., serving in that capacity from October 1992 to June 1995.
From 1986 to 1992, Mr. Mears served as Regional and Area General Manager for
the Providence Journal Company's Cellular One properties.
Scott I. Anderson has served as a Director of Triton since February 1998. He is
currently a member of the board of directors of TeleCorp PCS, Tritel
Communications, Wireless Facilities, Inc., Telephia, Inc. and Xypoint and a
principal of Cedar Grove Partners, LLC and Cedar Grove Investments. 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 Cellular Group.
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<PAGE>
Arnold Chavkin has served as a Director of Triton since February 1998. Mr.
Chavkin is also a member of the advisory board of Triton Cellular Partners,
L.P. and is a director of American Tower Corporation, Encore Acquisition
Partners, Inc., Hallmark Entertainment Network, R&B Falcon Corporation, SMG,
Inc. and U.S. Silica Company. He also serves on the Advisory Investment Boards
of Richina Group, the Indian Private Equity Fund and the Asia Development
Partners 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 Bank's merchant banking group and a generalist in its corporate
finance group specializing in mergers and acquisitions and private placements
for the energy industry.
John D. Beletic has served as a Director of Triton since February 1998. Mr.
Beletic currently serves as Chairman and Chief Executive Officer of WebLink
Wireless, Inc. which he joined in March 1992. He also serves as a director of
Tessco Technologies Inc., iPass Inc. and the Personal Communication Industry
Association.
John W. Watkins has served as a Director of Triton since February 1998. Mr.
Watkins serves as a member of the advisory boards of FrontierVision Partners,
L.P. and Triton Cellular Partners, L.P. and as a director of eBiz.net, Advanced
TelCom Group, Kelmscott Communications and Western Integrated Networks. Mr.
Watkins manages J.P. Morgan's private equity investment activities in the
communications industries. He is a Managing Director and an officer of J.P.
Morgan Capital Corporation. Previously, Mr. Watkins was a director of Horizon
Cellular Group, Prism Radio Partners, L.P., Columbia River Cellular Partners,
L.P. and Savvis Communications Corporation.
William W. Hague was appointed as a Director of Triton on April 28, 2000 by
AT&T and previously served as a Director of Triton from February 1998 through
January 1999. Mr. Hague serves as the Senior Vice President, Corporate
Development, Mergers and Acquisitions at AT&T Wireless Services, Inc., which he
joined in 1995. Prior thereto and beginning in 1992, he acted as Director of
Legal Affairs and Human Resources at Western Wireless, Inc. Mr. Hague was
appointed to fill the vacancy created when Mary Hawkins-Key resigned as a
Director of Triton effective April 28, 2000.
Compensation Committee
The Compensation Committee met twice in 1999. The current members of the
Compensation Committee are Mr. Beletic, as chairman, Mr. Chavkin and Mr.
Watkins.
The functions of the Compensation Committee include overseeing the
administration of Triton's compensation policies and practices; establishing
and administering the compensation plans of members of senior management and
authorizing any adjustments thereto; administering Triton's Stock and Incentive
Plan and authorizing all awards granted thereunder; administering Triton's
Employee Stock Purchase Plan; and reporting annually to the stockholders of
Triton on matters concerning the compensation of executives of Triton.
Compensation of Directors
The non-independent members and the AT&T-nominated member of the Board of
Directors do not receive cash compensation for service on the board, although
they are reimbursed for certain out-of-pocket expenses in connection with
attendance at board meetings. The independent directors receive compensation of
$10,000 per year, plus $1,000 for each meeting they attend in person and $500
for each meeting they attend via conference call, as well as shares of Class A
common stock that may, from time to time, be awarded to them under Triton's
Amended and Restated Common Stock Trust Agreement for Management Employees and
Independent Directors, dated June 26, 1998.
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<PAGE>
Executive Compensation
Summary Compensation Table
------------------------------------------
<TABLE>
<CAPTION>
Annual Compensation Restricted
---------------------- Stock All Other
Name Principal Position Year Salary Bonus Awards(1) Compensation
- ---- -------------------- ---- -------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Michael E. Kalogris Chairman of the Board 1999 $373,967 $350,000 $ 792,942
of Directors and Chief 1998 $350,000 $350,000 $11,959,963 --
Executive Officer
Steven R. Skinner President and Chief 1999 $267,236 $250,000 $ 594,707
Operating Officer 1998 $225,000 $225,000 $ 8,969,973 --
Clyde Smith(2) Executive Vice President 1999 $238,313 $114,000 $ 1,480,716 $166,119(3)
and Chief Technical Officer 1998 $205,051 $220,000 $ 1,778,271 $ 16,941
David D. Clark Executive Vice President, 1999 $208,231 $200,000 $ 2,957,471
Chief Financial Officer 1998 $190,000 $190,000 $ 3,334,260 --
and Secretary
Stephen McNulty President and General 1999 $168,554 $176,000 $ 2,166,243
Manager of the Mid-Atlantic 1998 $ 79,800 $100,000 -- $ 10,237
Region
</TABLE>
- ---------------
(1)Consists of 1,508,549 and 444,004 restricted shares of Triton's Class A
common stock awarded during 1998 and 1999, respectively, that vest over a five-
year period commencing February 4, 1998 with an aggregate value of $68,367,440
and $20,122,261, respectively, based upon the closing price of the Class A
common stock on December 31, 1999. A significant portion of these shares remain
subject to forfeiture at December 31, 1999. See "Security Ownership of
Management and Certain Beneficial Owners." Mr. Kalogris' and Mr. Skinner's
awards vest as follows: 10% vested as of February 4, 1998, 5% vested during
1999 in connection with the completion of Phase I of Triton's build-out and 17%
vest per year for five years beginning February 4, 1999. Mr. Smith's awards
vest as follows: 17% vest per year for five years beginning February 4, 1999
and 15% vest based upon performance measures to be determined. Mr. Clark's and
Mr. McNulty's awards vest as follows: 20% per year for five years beginning
February 4, 1999. Notwithstanding the vesting schedules set forth above, all
restricted shares vest in specified circumstances constituting a change of
control.
(2)Mr. Smith resigned from Triton on February 25, 2000. See "Employment
Agreements."
(3)Relocation payment.
Several executive officers were issued shares of restricted stock in connection
with the consummation of Triton's joint venture with AT&T, the Norfolk
acquisition, the Myrtle Beach acquisition and the license exchange with AT&T.
In addition, several executive officers were issued restricted stock under the
amended and restated common stock trust agreement for management employees and
independent directors dated June 26, 1998. 518,798 shares, or .97% of Triton's
total outstanding Class A common stock, is currently held in trust under this
common stock trust agreement of which Michael E. Kalogris is the trustee. The
trustee is required to distribute stock from the trust to management employees
and independent directors as directed in writing by executive management with
the authorization of the Compensation Committee of the Board of Directors.
Triton's Compensation Committee of the Board of Directors determines at its
discretion which persons shall receive awards and the amount of such stock
awards. Triton's stock and incentive plan governs the shares and letter
agreements previously issued and to be issued from the trust established
pursuant to the common stock trust agreement.
Employment Agreements
Michael E. Kalogris. On February 4, 1998, Triton entered into an employment
agreement with Michael E. Kalogris, Chairman of Triton's Board of Directors and
Chief Executive Officer. Mr. Kalogris' employment agreement has a term of five
years unless the agreement is terminated earlier by either Mr. Kalogris or
Triton. Mr. Kalogris may terminate his employment agreement:
. at any time at his sole discretion upon 30 days' prior written notice;
and
. immediately, upon written notice for good reason, which includes:
(a) if there is a change of control, as defined in the employment
agreement;
(b) if Mr. Kalogris is demoted, removed or not re-elected as Chairman of
Triton's Board of Directors. However, so long as Mr. Kalogris remains a
member of Triton's Board of Directors and Triton's Chief Executive
Officer, it is not considered good reason if Mr. Kalogris is no longer
Chairman of Triton's Board of Directors;
38
<PAGE>
(c) there is a material diminishment of Mr. Kalogris' responsibilities,
duties or status and that diminishment is not rescinded within 30
days after receiving written notice of the diminishment;
(d) Triton fails to pay or provide benefits to Mr. Kalogris when due and
does not cure that failure within 10 days of receiving written
notice of that failure;
(e) Triton relocates its principal offices more than 30 miles from
Malvern, Pennsylvania without the consent of Mr. Kalogris; or
(f) Triton purports to terminate Mr. Kalogris for cause for any reason
other than those permitted as for cause reasons under the employment
agreement.
Triton may terminate Mr. Kalogris' employment agreement:
. at any time, upon written notice, without cause at Triton's sole
discretion;
. for cause; or
. upon the death or disability of Mr. Kalogris.
If Mr. Kalogris terminates the employment agreement for good reason other than
due to a change of control, or Triton terminates the employment agreement
without cause, Mr. Kalogris is entitled to receive the following severance
benefits:
. $1.0 million;
. up to an additional $0.5 million if he is unable to secure employment in
a senior executive capacity by the second anniversary of the date of
termination;
. the vesting of some of his unvested shares as follows:
(a) if the termination occurs before February 4, 2001, 50% of all shares
of Class A common stock that are unvested under the employment
agreement as of such date will vest;
(b) if the termination occurs between February 4, 2001 and February 3,
2002, 25% of the unvested shares will vest; and
(c) if the termination occurs after such period, none of the unvested
shares will vest.
Triton will also allow Mr. Kalogris to participate in all health, dental,
disability and other benefit plans maintained by Triton for a period of two
years following the date of termination of the employment agreement.
If Mr. Kalogris' employment is terminated on or after the initial five-year
term of the employment agreement or due to Triton's failure to renew the
agreement, Triton will pay him a severance benefit in the amount of his base
salary at that time. Mr. 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 Triton's performance. Mr.
Kalogris is also entitled to acquire shares of Triton's Series A common stock
under a stock purchase plan that may be created under the terms of the
employment agreement and is required to invest 30% of any amounts he receives
on account of an annual bonus in excess of 50% of his base salary toward the
purchase of such shares.
In the event of any change of control, regardless of whether Mr. Kalogris
terminates the employment agreement, all of his previously unvested shares will
vest immediately.
Steven R. Skinner. On February 4, 1998, Triton entered into an employment
agreement with Steven R. Skinner, Triton's President and Chief Operating
Officer. The employment agreement has a term of five years unless terminated
earlier by either Mr. Skinner or Triton. Mr. Skinner may terminate his
employment agreement:
. at any time at his sole discretion upon 30 days' prior written notice;
and
. immediately, upon written notice for good reason, which includes:
(a) if there is a change of control, as defined in the employment
agreement;
(b) if Mr. Skinner is demoted;
(c) there is a material diminishment of Mr. Skinner's responsibilities,
duties or status and that diminishment is not rescinded within 30
days after receiving written notice of the diminishment;
(d) Triton fails to pay or provide benefits to Mr. Skinner when due and
does not cure that failure within 10 days of receiving written
notice of that failure;
39
<PAGE>
(e) Triton relocate its principal offices more than 30 miles from
Malvern, Pennsylvania without the consent of Mr. Skinner; or
(f) Triton purports to terminate Mr. Skinner for cause for any reason
other than those permitted as for cause reasons under the employment
agreement.
Triton may terminate the employment agreement:
. at any time, upon written notice, at Triton's sole discretion;
. for cause; or
. upon the death or disability of Mr. Skinner.
If Mr. Skinner terminates the employment agreement for good reason other than
due to a change of control, or Triton terminates the employment agreement
without cause, Mr. Skinner is entitled to receive the following severance
benefits:
. $675,000;
. up to an additional $337,500 if he is unable to secure employment in a
senior executive capacity by the second anniversary date of the
termination of the agreement;
. the vesting of some of his unvested shares as follows:
(a) if the termination occurs before February 4, 2001, 50% of all shares
of Class A common stock that are unvested under the employment
agreement as of that date will vest;
(b) if the termination occurs between February 4, 2001 and February 3,
2002, 25% of the unvested shares will vest; and
(c) if the termination occurs after such period, none of the unvested
shares will vest; and
. Triton will allow Mr. Skinner to participate in all health, dental,
disability and other benefit plans maintained by Triton for a period of
two years following the date of termination of the agreement.
If Mr. Skinner's employment is terminated on or after the initial five-year
term of the employment agreement, or due to Triton's failure to renew the
employment agreement, Triton will pay Mr. Skinner a severance benefit in the
amount of his base salary at that time. Mr. Skinner's 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 Triton's performance. Mr. Skinner is also entitled to acquire shares of
Triton's Series A common stock under a stock purchase plan and is required to
invest 30% of any amounts he receives on account of an annual bonus in excess
of 50% of his base salary toward the purchase of such shares.
In the event of any change of control, regardless of whether Mr. Skinner
terminates the employment agreement, all of his previously unvested shares will
vest immediately.
Clyde Smith. Effective February 25, 2000, Mr. Smith resigned from his position
as Executive Vice President of Triton. Pursuant to his employment agreement,
and subsequent separation agreement, Mr. Smith will receive total severance
compensation of $409,000 and 51,896 of his unvested shares.
40
<PAGE>
Security Ownership
The following table sets forth, as of March 15, 2000, the number of shares of
Class A common stock beneficially owned by (i) each director, (ii) each
executive officer, (iii) all executives officers and directors as a group and
(iv) each of Triton's stockholders who, based on Triton's records, was known to
Triton to be the beneficial owner, as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, of more than 5% of the Class A common stock.
<TABLE>
<CAPTION>
---------------------------------
Number of Voting Shares Percentage of Voting
Name and Address of Beneficial Owner(1) Beneficially Owned Shares Beneficially Owned
- --------------------------------------- ----------------------- -------------------------
<S> <C> <C>
Michael E. Kalogris 3,147,673(8) 5.9%
Steven R. Skinner 1,942,906(9) 3.6
David D. Clark 349,541(10) *
Stephen McNulty 127,347(11) *
Michael C. Mears 122,347(12) *
Daniel E. Hopkins 70,366(13) *
Scott I. Anderson 22,643(14) *
John D. Beletic 56,343 *
Arnold Chavkin(2) -- --
John W. Watkins(3) -- --
CB Capital Investors, LLC(2) 12,270,744 22.9
J.P. Morgan Investment Corporation(3) 2,578,772 4.8
Desai Capital Management Incorporated(4) 11,902,744(15) 22.2
Toronto Dominion Capital (U.S.A.), Inc.(5) 2,975,698(16) 5.5
First Union Affordable Housing Community Development
Corporation(6) 4,079,877 7.6
AT&T Wireless PCS(7) 12,504,720 18.9
All directors and executive officers as a group (11
persons) 5,839,166(17) 10.9
</TABLE>
- ---------------
*Represents less than 1%.
(1)Unless otherwise indicated, the address of each person listed in this table
is c/o Triton Management Company, 1100 Cassatt Road, Berwyn, Pennsylvania
19312.
(2)Effective January 1, 2000, (i) CB Capital Investors, LLC became the
successor to CB Capital Investors, L.P., (ii) CB Capital Investors, Inc. became
the managing member of CB Capital Investors, LLC and (iii) Chase Capital
Partners became the manager, by delegation, of CB Capital Investors, LLC
pursuant to an advisory agreement with CB Capital Investors, Inc. Mr. Chavkin
is a vice president of CB Capital Investors, Inc. and a general partner of
Chase Capital Partners. Mr. Chavkin disclaims beneficial ownership of such
shares, except to the extent of his pecuniary interest therein. The address of
CB Capital Investors, LLC is c/o Chase Capital Partners, 380 Madison Avenue,
New York, New York 10017.
(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. The
address of J.P. Morgan is 101 California Street, 38th Floor, San Francisco,
California 94111.
(4)The address of Desai Capital Management Incorporated is 540 Madison Avenue,
New York, New York 10022.
(5)The address of Toronto Dominion Capital (U.S.A.), Inc. is 909 Fannin, Suite
1700, Houston, Texas 77010.
(6)The address of First Union Affordable Housing Community Development
Corporation is One First Union Center, 301 S. College Street, 5th Floor,
Charlotte, North Carolina 28288.
(7)The address of AT&T Wireless PCS is c/o AT&T Wireless Services, Inc., 7277
164th Avenue, N.E., Redmond, Washington 98052.
(8)Includes 518,798 shares of Class A common stock held by Mr. Kalogris as
trustee under an amended and restated common stock trust agreement for
management employees and independent directors, dated June 26, 1998, under
which Triton will distribute Class A common stock to management employees and
independent directors. 1,282,076 of the 2,628,875 shares of Class A common
stock directly held by Mr. Kalogris are subject to forfeiture in accordance
with Mr. Kalogris' employment agreement over a five-year period.
(9)961,557 of the 1,942,906 shares of Class A common stock are subject to
forfeiture according to the terms of Mr. Skinner's employment agreement.
(10)274,125 of the 349,541 shares of Class A common stock are subject to
forfeiture according to the terms of letter agreements, dated as of February 4,
1998 and August 9, 1999, between Triton and Mr. Clark.
(11)95,208 of the 127,347 shares of Class A common stock are subject to
forfeiture according to the terms of letter agreements, dated as of January 11,
1999 and August 9, 1999, between Triton and Mr. McNulty.
(12)95,208 of the 122,347 shares of Class A common stock are subject to
forfeiture according to the terms of letter agreements, dated as of February 4,
1998 and August 9, 1999, between Triton and Mr. Mears.
(13)42,366 of the 70,366 shares of Class A common stock are subject to
forfeiture according to the terms of a letter agreement, dated as of July 15,
1999, between Triton and Mr. Hopkins.
(14)Mr. Anderson is a principal of Cedar Grove Partners, LLC. He disclaims
beneficial interest of the 23,000 shares owned directly by Cedar Grove
Partners, LLC, except to the extent of his pecuniary interest therein.
(15)Includes 122,663 shares of Class A common stock held by Sixty Wall Street
SBIC Fund, L.P., an affiliate of J.P. Morgan Investment Corporation. The
address for Sixty Wall Street SBIC is 60 Wall Street, New York, New York 10260.
J.P. Morgan also owns 8,210,827 shares of Class B non-voting common stock.
(16)Consists of 5,951,372 shares of Class A common stock held by Private Equity
Investors III, L.P., and 5,951,372 shares of Class A common stock held by
Equity-Linked Investors-II, each an affiliate of Desai Capital Management. The
address for Private Equity Investors III and Equity-Linked Investors-II is 540
Madison Avenue, 38th Floor, New York, New York 10022.
(17)Consists of 543,683.47 shares of Series D preferred stock convertible into
12,504,720 shares of Class A common stock. Shares of Series D preferred stock
are convertible into an equivalent number of shares of Series C preferred stock
at any time, and shares of Series C preferred stock are convertible into shares
of Class A common stock or Class B non-voting common stock are at any time.
41
<PAGE>
Certain Relationships and Related Transactions
Triton is a party to the following agreements with management and principal
stockholders.
The Stockholders' Agreement
General. Triton has entered into an amended and restated stockholders'
agreement, dated as of October 27, 1999, with AT&T, the cash equity investors
and certain of Triton's current and former executive officers. Additional
management stockholders and the independent directors have also agreed to be
bound by the provisions of the stockholders' agreement in connection with the
issuance to them of capital stock. The agreement covers matters in connection
with Triton's management and operations and the sale, transfer or other
disposition of Triton's capital stock.
Board of Directors. A board of directors divided into three classes and
consisting of seven persons governs Triton. Actions of the board of directors
require the affirmative vote of a majority of the entire board, although some
transactions require a higher vote. The stockholders who are party to Triton's
stockholders' agreement, other than J. P. Morgan Investment Corporation, have
agreed that they will vote their shares together to elect as two of Triton's
seven directors the nominees selected by Triton's cash equity investors and, so
long as AT&T has the right to nominate a director under Triton's certificate of
incorporation, to elect AT&T's nominee.
Representatives of AT&T and several cash equity investors also have the right
to attend each meeting of the board of directors as observers, provided that
they continue to own a certain amount of Triton's capital stock. A majority of
disinterested directors must approve any transactions between Triton and its
stockholders, except for transactions under the shareholders', license, roaming
and resale agreements described in this section and arm's-length agreements
with AT&T.
Restrictions on Transfer; Rights of First Offer. The stockholders' agreement
imposes restrictions with respect to the sale, transfer or other disposition of
Triton's capital stock held under the terms of the agreement. Stockholders may
not transfer their shares of common stock prior to February 4, 2001 other than
to any affiliated successor; thereafter, stockholders holding shares of common
stock may transfer the shares to any person, subject to rights of first offer
and first negotiation granted to specified parties to the stockholders'
agreement. However, stockholders that are small business investment
corporations and that hold an aggregate of 23,060,343 shares of common stock
may transfer their shares prior to February 4, 2001 if they are required to do
so in order to comply with regulatory requirements, but these transfers are
still subject to the rights of first offer. Additionally, holders of common
stock and Series D preferred stock may transfer those shares at any time to an
affiliated successor or an equity investor affiliate, and, after February 4,
2001, the cash equity investors may transfer or otherwise dispose of any of
those shares held by them to any other cash equity investors.
AT&T may not transfer or dispose of any of its shares of Series D preferred
stock at any time other than to an affiliated successor. In addition, each
stockholder who is a party to the stockholders' agreement has agreed, subject
to some exceptions, not to transfer or otherwise dispose of any shares of
Triton's capital stock to any of the three largest carriers of
telecommunications services that as of February 4, 1998 constituted
interexchange services, other than AT&T and other specified wireless carriers.
Registration Rights. The stockholders' agreement grants certain demand and
piggyback registration rights to the stockholders. On or after February 4,
2001, the following stockholders may, subject to the restrictions on transfer
described above, cause an underwritten demand registration, subject to
customary proportionate cutback and blackout restrictions, so long as
registration is reasonably expected to result in aggregate gross proceeds of at
least $10.0 million to such stockholder:
. AT&T;
. any stockholder or group of stockholders beneficially owning shares of
Series C preferred stock or common stock, if the sale of the shares to
be registered is reasonably expected to result in aggregate gross pro-
ceeds of at least $25.0 million; or
. certain management stockholders beneficially owning at least 50.1% of
the shares of common stock then beneficially owned by all such manage-
ment stockholders together.
In addition to the demand registration rights, any stockholder may, subject to
the restrictions on transfer described above, piggyback on a registration by
Triton at any time, other than registrations on Forms S-4 or S-8 of the
Securities Act,
42
<PAGE>
subject to customary proportionate cutback restrictions. The demand and
piggyback registration rights and obligations survive until February 4, 2018.
Rights of Inclusion. In the event of a proposed sale by any stockholder to any
person other than an affiliated successor that would constitute 25% or more of
the aggregate outstanding Series C preferred stock and common stock on a fully-
diluted basis, excluding the Series A preferred stock, the other stockholders
have the right to participate in any such proposed sale by exercising such
right within 30 days after receipt of a notice informing them of such proposed
sale. The purchaser may either purchase all stock offered by all stockholders
electing to participate in such sale, or the purchaser may purchase stock from
stockholders electing to participate in such sale on a pro-rata basis up to the
aggregate dollar amount offered by the purchaser to the initial selling
stockholder.
In an investors' agreement, the cash equity investors have agreed that
specified cash equity investors who sell their shares of common stock may
require the other cash equity investors to also participate in any such sale.
As a result, cash equity investors holding less than a majority of the shares
of common stock may have the effective right to sell control of Triton.
Exclusivity. 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 defined in the stockholders' agreement, wireless mobility
telecommunications services initiated or terminated using time division
multiple access technology and frequencies licensed by the FCC. However, AT&T
and its affiliates may:
. resell or act as agent for Triton;
. provide or resell wireless telecommunications services to or from spe-
cific locations; and
. resell wireless telecommunications services for another person in any
area where Triton has not yet placed a system into commercial service.
AT&T must provide Triton with prior written notice of its intention to engage
in resales for another person, and only dual band/dual mode phones may be used
in connection with the resale activities. Additionally, with respect to the
markets listed on the roaming agreement, Triton and AT&T have agreed to cause
Triton's 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 roaming provider in such
markets. Each party also agrees to refrain from inducing any of its customers
to change programming.
Build-Out. Triton is required to:
. meet the construction requirements described in an agreed-upon minimum
build-out plan;
. ensure compatibility of its personal communications services systems
with the majority of systems in the southeastern region of the United
States;
. satisfy the FCC construction requirements in the territory defined in
the stockholders' agreement;
. offer various core service features with respect to its systems;
. cause its systems to comply with AT&T's time division multiple access
quality standards; and
. refrain from providing or reselling interexchange services, other than
interexchange services under its FCC licenses or that Triton procures
from AT&T.
If Triton materially breaches any of the foregoing operational obligations or
if AT&T decides to adopt a new technology standard in a majority of its markets
and Triton declines to adopt the new technology, AT&T may terminate its
exclusivity obligations.
Certain Transactions. In the event of a merger, consolidation, asset
acquisition or disposition or other business combination involving AT&T and an
entity that:
. derives from telecommunications businesses annual revenues in excess of
$5.0 billion;
. derives less than one-third of its aggregate revenues from the provision
of wireless telecommunications; and
. owns FCC licenses to offer and does offer wireless mobility telecommuni-
cations services serving more than 25% of the potential customers within
the territory defined in the stockholders' agreement,
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AT&T will have the right, upon written notice, to terminate substantially all
of its exclusivity obligations described above in a portion of the territory in
which the other party owns an FCC license to offer commercial mobile radio
service. However, upon such a termination, Triton has the right to cause AT&T
to exchange into shares of Series B preferred stock:
. all of the shares of its Series A preferred stock;
. all of the shares of its Series D preferred stock, its Series C pre-
ferred stock or any common stock it may have received upon conversion of
its Series D preferred stock into any one of them.
In the event that AT&T is required in any such transaction to dispose of any of
its personal communications services systems in the Charlotte, North Carolina,
Atlanta, Georgia, Baltimore, Maryland/Washington, D.C. or Richmond, Virginia
basic trading areas, Triton has certain marketing rights. AT&T has agreed, for
a period of 180 days, to jointly market with any of its applicable markets any
of Triton's personal communications services systems that are located within
the major trading areas that include the applicable AT&T basic trading areas.
Triton's right is exercisable at any time within the period commencing with the
date of the announcement by AT&T of any such transaction and terminating on the
later of six months after consummation of the transaction and the date by which
AT&T is required under applicable law to dispose of any such system.
Without the prior written consent of AT&T, Triton and its subsidiaries may not
effect any sale of substantially all the assets or liquidation, merger or
consolidation of Triton or any of its subsidiaries or engage in any business
other than permitted businesses. There are limited exceptions to this
provision.
Acquisition of Cellular Licenses. Triton may acquire cellular licenses that the
board of directors has determined are demonstrably superior alternatives to
construction of a personal communications services system in the applicable
area within the territory, provided that:
. a majority of the cellular potential customers are within the territory
defined in the stockholders' agreement;
. AT&T and its affiliates do not own commercial mobile radio service li-
censes in the area; and
. Triton's ownership of the cellular license will not cause AT&T or any
affiliate to be in breach of any law or contract.
Equipment, Discounts and Roaming. At Triton's request, AT&T will use all
commercially reasonable efforts to assist Triton in obtaining discounts from
any vendor with whom Triton is negotiating for the purchase of any
infrastructure equipment or billing services and to enable Triton to become a
party to the roaming agreements between AT&T and its affiliates which operate
other cellular and personal communications services systems so long as AT&T, in
its sole discretion, does not determine such activities to be adverse to its
interests.
Resale Agreements. At AT&T's request, Triton will enter into resale agreements
relating to the territory defined in the stockholders' agreement. The rates,
terms and conditions of service that Triton provides shall be at least as
favorable to AT&T, taken as a whole, as the rates, terms and conditions
provided by Triton to other customers.
Subsidiaries. All of Triton's subsidiaries must be direct or indirect wholly-
owned subsidiaries.
Amendments. Amendments to the stockholders' agreement require the consent of
the following stockholders:
. a majority of the shares of each class of capital stock held by the par-
ties to the stockholders' agreement, including AT&T;
. two-thirds of the common stock beneficially owned by the cash equity in-
vestors; and
. 60.1% of the common stock beneficially owned by the management stock-
holders.
However, in the event any party to the stockholders' agreement ceases to own
any shares of capital stock, the party ceases to be a party to the
stockholders' agreement and his or her corresponding rights and obligations
terminate.
Termination. The stockholders' agreement terminates upon the earliest to occur
of:
. the written consent of each party to the agreement;
. February 4, 2009; and
. one stockholder beneficially owning all of the shares of common stock.
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However, certain provisions of the agreement expire on February 4, 2008, and
some consent rights of AT&T expire if it fails to own a specified amount of
capital stock.
License Agreement
Under the terms of a network membership license agreement, dated as of February
4, 1998, between AT&T and Triton, AT&T has granted Triton a royalty-free, non-
exclusive, limited right and license to use various licensed marks solely in
connection with specified licensed activities, as described below. 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:
. the provision to end-users and resellers, solely within the territory
specified in the agreement, of communications services on frequencies
licensed to Triton for commercial mobile and radio service provided in
accordance with the AT&T agreements; and
. marketing and offering the licensed services within the territory.
The license agreement also grants Triton the right and license to use the
licensed marks on permitted mobile phones.
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, the communications services
Triton is offering within the territory under the licensed marks except to:
. any person who resells, or acts as Triton's agent for, licensed services
provided by Triton, or
. any person who provides or resells wireless communications services to
or from specific locations such as buildings or office complexes, even
if the applicable subscriber equipment being used is capable of routine
movement within a limited area and even if such subscriber equipment may
be capable of obtaining other telecommunications services beyond that
limited area and handing-off between the service to the specific loca-
tion and those other telecommunications services.
In all other instances, except as described above, AT&T reserves for itself the
right to use the licensed marks in connection with its provision of services,
whether within or without the territory.
The license agreement contains numerous restrictions with respect to Triton's
use and modification of any of the licensed marks. Triton is obligated to use
commercially reasonable efforts to cause all licensed services that use the
licensed marks to be of comparable quality to the licensed services AT&T
markets and provides in areas comparable to Triton's licensed territory, taking
into account the relative stage of development of the areas and other factors.
The license agreement also sets forth specific testing procedures to determine
compliance with these standards and affords Triton a grace period to cure any
instances of alleged noncompliance. Following the cure period, Triton must
cease using the licensed marks until Triton is in compliance.
Triton may not assign or sublicense any of its rights under the license
agreement. However, the license agreement may be, and has been, assigned to
Triton's lenders under Triton's credit facility. After the expiration of any
applicable grace and cure periods under the credit facility, Triton's lenders
may enforce Triton's rights under the license agreement and assign the license
agreement to any person with AT&T's consent.
The license agreement has a five-year term, which renews for an additional
five-year period if neither party terminates the agreement. The license
agreement may be terminated at any time in the event of Triton's significant
breach, including Triton's misuse of any licensed marks, Triton's license or
assignment of any of the rights in the license agreement, Triton's failure to
maintain AT&T's quality standards or if Triton experiences a change of control.
After the initial five-year term, in the event AT&T converts any shares of
Series A preferred stock into common stock in connection with the stockholders'
agreement, the license agreement terminates on the later of two years from the
date of such conversion and the then existing expiration date of the license
agreement. After the initial five-year term, AT&T may also terminate the
license agreement upon the occurrence of specified transactions. See "--The
Stockholders' Agreement--Certain Transactions."
Roaming Agreement
Under an intercarrier roamer service agreement, dated as of February 4, 1998,
between AT&T, on behalf of its affiliates, and Triton, AT&T and Triton agreed
to provide wireless mobility radiotelephone service for registered customers of
the other party's customers when they are out of their home carrier's
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
wireless mobility radio-telephone system and station. Each home carrier whose
customers receive service from a serving carrier shall pay the
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serving carrier 100% of the wireless service charges and 100% of the pass-
through charges, such as toll or other charges. Each serving carrier's service
charges per minute of use or partial minute of use for the first three years
will be fixed at a declining rate, and after the first three years will be
equal to an adjusted average home rate or any lower rate the parties negotiate
from time to time. Each serving carrier's toll charges per minute of use for
the first three years will be fixed at a declining rate. After the first three
years, the parties may renegotiate the rate from time to time.
The roaming agreement has a term of 20 years, unless a party terminates earlier
due to:
. the other party's uncured breach of any term of the roaming agreement;
. the other party's voluntary liquidation or dissolution; or
. the FCC's revocation or denial of the other party's license or permit to
provide commercial mobile radio service.
Neither party may assign or transfer the roaming agreement or any of its rights
under the agreement except to an assignee of all or part of its license or
permit to provide commercial mobile radio service, provided that the assignee
expressly assumes all or the applicable part of the assigning party's
obligations under the agreement.
Resale Agreement
Under the terms of the stockholders' agreement, Triton is required at AT&T's
request to enter into a resale agreement in an agreed-upon form. Under the
resale agreement, AT&T will be granted the right to purchase and resell on a
nonexclusive basis access to and usage of Triton's services in the territory.
AT&T will pay Triton the charges, including usage and roaming charges,
associated with services it requests under the agreement. Triton will retain
the continuing right to market and sell its services to customers and potential
customers.
The resale agreement will have a term of 10 years and will renew automatically
for successive one-year periods unless either party elects to terminate the
agreement. Following the eleventh anniversary of the agreement, either party
may terminate with 90 days' prior written notice. Furthermore, AT&T may
terminate the agreement at any time for any reason on 180-days' written notice.
Under the terms of the stockholders' agreement, Triton has agreed that the
rates, terms and conditions of service, taken as a whole, that Triton provides
to AT&T under 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, to any other customer. Triton will design the rate
plan Triton will offer under the resale agreement to result in a discounted
average actual rate per minute of use AT&T pays for service at least 25% below
the weighted average actual rate per minute that Triton bills 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 party's prior written consent, which will not be
unreasonably withheld, except:
. to an affiliate of that party at the time of the agreement's execution;
. by Triton to any of its operating subsidiaries; and
. to the transferee of a party's stock or substantially all of the party's
assets, provided that all FCC and other necessary approvals have been
received.
Other Related Party Transactions
Affiliates of First Union Affordable Housing Community Development Corporation
and J.P. Morgan Investment Corporation, each of which beneficially owns more
than 5% of Triton's capital stock, served as underwriters and received
underwriter fees in connection with Triton's initial public offering completed
in November, 1999.
Over the course of 1997, Triton Communications L.L.C., Triton's predecessor,
incurred certain costs on behalf of Triton Cellular, Inc. an entity affiliated
with Triton through management overlap and shared leased facilities. These
costs totaled $148,100 and Triton Cellular reimbursed Triton in 1999. In
addition, Triton purchased $22,800 of equipment from Horizon Cellular Telephone
Company, L.P., an entity formerly affiliated with Triton through management
overlap and shared leased facilities. In addition, under an agreement between
Triton Cellular, Inc. and Triton, allocations for management services rendered
by some of Triton's management employees on behalf of Triton Cellular and
allocations for shared lease facilities are charged to Triton Cellular. Those
allocations totaled $505,000 during 1999.
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<PAGE>
On February 3, 1998, Triton PCS entered into a credit facility. On September
22, 1999, Triton PCS entered into an amendment to that credit facility that
increased the credit facility to $600.0 million. Affiliates of each of J.P.
Morgan Investment Corporation, which beneficially owns approximately 17.4% of
Triton's common stock, CB Capital Investors, which beneficially owns
approximately 19.8% of Triton's common stock, First Union Affordable Housing
Community Development Corporation, which beneficially owns approximately 6.6%
of Triton's common stock, and Toronto Dominion Capital (U.S.A.), Inc., which
beneficially owns approximately 4.8% of Triton's common stock, serve as agent
and lenders under the credit facility. Each of the agent and lenders under the
credit facility has received and will continue to receive customary fees and
expenses in connection with the credit facility. For the year ended December
31, 1999, affiliates of J.P. Morgan Investment Corporation, First Union
Affordable Housing Development Housing Corporation and Toronto Dominion Capital
(U.S.A.), Inc. received approximately $299,932, $359,607 and $237,458,
respectively, in their capacity as lender under such facility, and CB Capital
Investors received approximately $1,205,180 in its capacity as agent and lender
under such facility.
Triton has entered into letter agreements with several of its management
employees and with Triton's independent directors. Under the letter agreements,
these individuals were issued shares of Triton's Class A common stock that vest
at 20% per year over a five-year period.
On August 12, 1999, Triton entered into stock purchase agreements with each of
Scott I. Anderson and John D. Beletic, Triton's two independent directors, and
one officer under which Triton agreed to sell to them an aggregate of 3,400
shares of Triton's Series C preferred stock (which were converted into 78,200
shares of Class A common stock in Triton's initial public offering) for a
purchase price of $100 per share. This transaction was closed in September
1999.
First Union Securities, Inc., an affiliate of First Union Affordable Housing
Community Development Corporation, acted as Triton's exclusive financial
advisor in connection with the sale of Triton's personal communications towers
to American Tower, L.P. pursuant to an asset purchase agreement dated July 13,
1999. Triton paid a fee to such entity of $1.07 million in connection with the
consummation of such sales which occurred on September 22, 1999.
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<PAGE>
Description of Credit Facility
On February 3, 1998, we 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, we 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 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 us, 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. Our borrowings under these
facilities are subject to customary terms and conditions.
We 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 us 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 December 31, 1999, we had drawn $150.0 million under the
Tranche B term loan, which we expect to use to fund future operations.
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Description of Notes
In this section only, we use the term Triton to refer Triton PCS, Inc. but not
any of its subsidiaries. The notes were issued under an indenture, dated as of
May 4, 1998, between Triton, the guarantors and PNC Bank, National Association,
as trustee.
We have attached the indenture as an exhibit to the registration statement of
which this prospectus is a part. The terms of the notes include those stated in
the indenture and those made part of the indenture by reference to the Trust
Indenture Act of 1939, as amended. The notes are subject to all such terms. The
statements under this caption relating to the notes and the indenture are
summaries. They are not complete descriptions. When we refer to particular
provisions of the indenture or the registration rights agreement, those
provisions, including the definitions of certain terms, are qualified in their
entirety by reference to the indenture and the registration rights agreement.
In addition, some of the defined terms used in the indenture are defined in
this prospectus in "--Certain Definitions."
The notes are general unsecured obligations of Triton, limited to $450.0
million of gross proceeds, of which $300.0 million of gross proceeds were
offered and sold in 1998. We may issue additional amounts of notes in one or
more series from time to time subject to the limitations set forth under
"Covenants--Limitations on Incurrence of Indebtedness." We will treat
additional notes as a single series for all purposes under the indenture. The
notes are senior subordinated obligations, subordinated in right of payment to
all Triton's seniordebt.
Principal, Maturity and Interest
The notes will mature on May 1, 2008. No cash interest will accrue or be
payable on the notes prior to May 1, 2003. Cash interest will accrue at 11% per
annum, except as noted under "--Registration Rights," from May 1, 2003 and will
be payable semi-annually on May 1 and November 1 of each year, commencing
November 1, 2003, to the holder in whose name a note is registered at the close
of business on the preceding April 15 or October 15, as the case may be. Cash
interest on the notes will accrue from the most recent date to which interest
has been paid or, if no interest has been paid, from May 1, 2003. We will
compute cash interest on the notes on the basis of a 360-day year of twelve 30-
day months. Noteholders must surrender the notes to the paying agent to collect
principal payments. At our option, we may pay principal and interest at the
trustee's corporate trust office or by check mailed to a holder's registered
address.
Optional Redemption
The notes will be subject to redemption, at our option, in whole or in part, at
any time on or after May 1, 2003 and prior to maturity, upon not less than 30
nor more than 60 days' notice mailed to each holder of notes to be redeemed at
his or her registered address, and in amounts of $1,000 or an integral multiple
of $1,000.
We will redeem the notes at the following redemption prices, expressed as
percentages of principal amount, plus accrued interest, if any, but excluding
the date fixed for redemption and subject to the right of noteholders on the
relevant record date to receive interest, if any, due on an interest payment
date that is on or prior to the date fixed for redemption, if redeemed during
the 12-month period beginning on May 1 of the years indicated:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2003 105.50%
2004 103.67%
2005 101.84%
2006 and thereafter 100.00%
</TABLE>
In addition, on or prior to May 1, 2001, Triton 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 to the redemption date,
with the net proceeds of one or more equity offerings of qualified stock of:
. Triton;
. Triton Holdings; or
. a special purpose corporation formed to hold Triton's or Triton Hold-
ings' qualified stock.
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However, at least 65% of the aggregate principal amount at maturity of notes
issued under the indenture must remain outstanding immediately after giving
effect to the redemption. Notice of redemption under this paragraph must be
mailed to noteholders not later than 60 days following the completion of the
relevant equity offering.
The trustee may select the notes for any partial redemption in accordance with
the rules of any national securities exchange on which the notes may be listed
or, if they are not so listed, ratably, by lot or in any other manner as the
trustee shall deem appropriate and fair. Notes in denominations larger than
$1,000 may be redeemed in part but only in integral multiples of $1,000. Notice
of redemption will be mailed to the registered address of each holder of notes
to be redeemed prior to the redemption date. On and after the redemption date,
the notes or portions of notes called for redemption will cease to accrue
interest.
The notes will not have the benefit of any sinking fund.
Ranking
Our obligations regarding payment of the principal of, premium, if any, and
interest, including additional interest, on, and all other obligations in
respect of each and all of the notes shall be subordinated in right of payment,
to the extent and in the manner provided in the indenture, to prior payment in
full and in cash of all our existing and future senior debt.
All amounts of our senior debt due or to become due, including any interest ac-
cruing subsequent to an event of bankruptcy, regardless of whether the interest
is an allowed claim enforceable against the debtor under the federal bankruptcy
laws, upon:
. any payment or distribution of any of our assets or securities of any
kind or character and whether in cash, property or securities; or
. any total or partial dissolution, winding up, total or partial liquida-
tion or reorganization, whether voluntary or involuntary, or in bank-
ruptcy, insolvency, receivership or other proceedings,
shall first be paid in full in cash, before the noteholders, or the trustee on
their behalf, are entitled to receive any note payment. Before we, or any
person making the payment or distribution, may make any note payment of the
principal of, premium, if any, or interest, including additional interest, on,
or any other obligation in respect of, the notes upon any of the events listed
above, we must satisfy all our senior debt. Before any payment or distribution
of any of our assets or securities of any kind or character, to which the
noteholders or the trustee, on their behalf, would be entitled but for the
subordination provisions of the indenture, we must make payment directly and
proportionately to the holders of our senior debt or their representatives, or
to the trustee or trustees under any other indenture under which we issued
senior debt, to the extent necessary to pay all our senior debt in full, in
cash, after giving effect to any concurrent payment, distribution or provision
to or for the holders of that senior debt.
We will not make any direct or indirect note payment, deposit or distribution
of any kind or character if at the time the payment is due a default exists in
the payment of any portion of our obligations with respect to any or all of our
designated senior debt. The default must not have been cured or waived, and the
senior debt holders must not have otherwise waived their right to payment in
favor of the noteholders. This benefit applies to all of our senior debt at all
times, including:
. at maturity of any or all of our senior debt;
. on account of mandatory redemption or prepayment of any or all of our
senior debt;
. on account of acceleration of our senior debt; or
. at any other point.
Thus, under these circumstances we will not make note payments:
. in cash, property or securities;
. under the terms of Indebtedness subordinated to the notes, except for
payment or distribution of permitted junior securities; or
. of principal of, premium, if any, or interest, including additional in-
terest, on, or any other obligation in respect of the notes, other than
payments to noteholders from funds held in trust for their benefit,
whether according to the terms of the notes, or upon acceleration, by
way of:
. repurchase,
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. redemption,
. defeasance, or otherwise.
Additionally, holders of designated senior debt may give the trustee notice of
any default or event of default resulting in our non-payment of that senior
debt and its maturity due to acceleration. Once the trustee has received a
payment blockage notice, unless and until the default or event of default has
been waived, cured or has ceased to exist, or the senior debt in question has
been discharged or repaid in full, we may not make any note payments other than
payments to noteholders from funds held in trust for their benefit for 179 days
after the trustee received the notice. However:
. in no event will a payment blockage period extend beyond 179 days from
the date the trustee received the payment blockage notice; and
. there must be 180 days in any 360-day period during which no payment
blockage period is in effect.
No more than one payment blockage period may be commenced with respect to the
notes during any period of 360 consecutive days. Thus, if any default or event
of default existed or was continuing with respect to the designated senior debt
which triggered a payment blockage period, that default or event of default may
not trigger any other payment blockage period, whether or not within 360
consecutive days, unless the default or event of default has first been cured
or waived for a period of not less than 90 consecutive days.
Our failure to make any payment or distribution for or on account of the notes
by reason of the provisions of the indenture described under this section will
not be construed as preventing the occurrence of an event of default described
in clauses (1) through (3) "--Events of Default."
By reason of the subordination provisions described above, in the event of our
insolvency, funds which otherwise would be payable to noteholders will be paid
to holders of our senior debt to the extent necessary to repay that senior debt
in full, and we may be unable to meet fully our obligations with respect to the
notes. Subject to the restrictions set forth in the indenture, in the future we
may incur additional senior debt.
The Guarantees
The indenture provides that the guarantors will, jointly and severally,
unconditionally guarantee on a senior subordinated basis all of our obligations
under the indenture, including our obligation to pay principal, premium, if
any, and interest, including additional interest, with respect to the notes. As
of the date of this registration statement, all of our direct and indirect
subsidiaries are guarantors on a full, unconditional, and joint and several
basis and are wholly-owed by us. Triton Holdings, our direct parent and sole
stockholder, is not a guarantor. Each guarantor is limited to the maximum
amount which, after the guarantor gives effect to all other contingent and
fixed liabilities, will result in its obligations under the guarantee not
constituting a fraudulent conveyance or fraudulent transfer under federal or
state law.
We will not permit any of our subsidiaries to become a direct or indirect
obligor under, or in respect of, any senior credit facilities without causing
the subsidiary to become a guarantor. Any subsidiary in that situation shall:
. execute and deliver a supplemental indenture in a form reasonably satis-
factory to the trustee. Under the terms of the supplemental indenture,
the subsidiary shall unconditionally guarantee all of our obligations
under the notes and the indenture on the terms set forth in the inden-
ture; and
. deliver to the trustee an opinion of counsel that the supplemental in-
denture has been duly authorized, executed and delivered by the subsidi-
ary and constitutes a valid and legally binding and enforceable obliga-
tion of the subsidiary.
Any guarantor that is no longer a direct or indirect obligor, including as a
guarantor, under or in respect of all senior credit facilities shall be
released from its guarantee upon delivery of an officers' certificate to the
trustee certifying to that effect.
In addition, the indenture provides that if we or any subsidiary sells all of a
guarantor's capital stock, including by issuance or otherwise, in a transaction
constituting an asset disposition or which would constitute an asset
disposition except that the aggregate consideration was not in excess of $5.0
million, and:
. the net available proceeds from the asset disposition are used in accor-
dance with the covenant limiting asset dispositions; or
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<PAGE>
. we deliver to the trustee an officers' certificate to the effect that
the net available proceeds from the asset disposition will be used in
accordance with the covenant limiting asset dispositions within speci-
fied time limits, then the guarantor shall be released and discharged
from its guarantee obligations upon use of the proceeds, in the case of
the first clause above, or upon delivery of the certificate, in the case
of the second clause above.
We may, at our option, cause any of our subsidiaries to be a guarantor. Each
guarantor's obligations under its guarantee are subordinated in right of
payment to the prior payment in full of the guarantor's senior debt on the same
basis as our obligations on the notes are subordinated to our senior debt. Each
guarantee will rank ratably in right of payment with any other senior
subordinated Indebtedness of the guarantor and senior in right of payment to
any future subordinated Indebtedness of each guarantor.
Certain Covenants
The indenture contains, among others, the following covenants.
Limitation on Incurrence of Indebtedness
The indenture provides that we will not, and will not cause or permit any
restricted subsidiary to, directly or indirectly, incur any Indebtedness,
including acquired Indebtedness, except:
(1) additional Indebtedness if the incurrence, receipt and application or
use of the net proceeds, including, without limitation, to repay In-
debtedness, complete an asset acquisition or make any restricted pay-
ment, results in:
(a) a ratio of total consolidated Indebtedness to annualized pro forma
consolidated operating cash flow which is less than:
. 7.0 to 1.0, if we incur the Indebtedness prior to July 1, 2004, or
. 6.0 to 1.0, if we incur the Indebtedness on or after July 1, 2004;
or
(b) total consolidated Indebtedness is equal to or less than 75% of to-
tal invested capital, but only regarding Indebtedness we incur prior
to July 1, 2004;
(2) Indebtedness which we and our restricted subsidiaries incur under one
or more senior credit facilities, in a principal amount at any one time
outstanding not to exceed $425.0 million in the aggregate for all such
senior credit facilities;
(3) Indebtedness which we and our restricted subsidiaries have outstanding
from time to time according to the terms of any Vendor Credit Arrange-
ment;
(4) Indebtedness we owe to any restricted subsidiary or Indebtedness a re-
stricted subsidiary owes to us or to another restricted subsidiary.
However, upon either:
(a) a restricted subsidiary's or our transfer or disposition of any In-
debtedness permitted under this clause to a person other than us or
another restricted subsidiary; or
(b) the issuance of shares other than directors' qualifying shares, or
the sale, transfer or other disposition of shares of such restricted
subsidiary's capital stock, or other ownership interests, including
by consolidation or merger, to a person other than us or restricted
subsidiary,
the exception provided by this paragraph shall no longer be applicable
to that Indebtedness and the Indebtedness shall be deemed to have been
incurred at the time of the issuance, sale, transfer or other
disposition, as the case may be;
(5) Indebtedness under any interest rate agreement to the extent entered
into to protect us or a restricted subsidiary from fluctuations in in-
terest rates on any other Indebtedness permitted by the indenture, in-
cluding the notes, and not for speculative purposes;
(6) Indebtedness incurred to refinance any Indebtedness incurred under the
notes, the guarantees, or paragraphs (1) and (3) above. However, such
Indebtedness may not exceed:
(a) the principal amount, or accreted value, if less, of the Indebted-
ness so refinanced
plus
(b) the amount of any premium which must be paid in connection with the
refinancing according to its terms, or the amount of any premium the
issuer of the Indebtedness reasonably determines is necessary to ac-
complish the refinancing by means of:
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. a tender offer;
. an exchange offer; or
. a privately negotiated repurchase,
plus
(c) the expenses which the issuer reasonably incurs in connection with
such refinancing.
Further, any Indebtedness refinancing that is ranked ratably with the
notes must be made equal with or subordinate to the notes in right of
payment. In the case of any Refinancing Indebtedness that is subordinate
to the notes in right of payment, it must be made subordinate to the
notes on terms no less favorable to the noteholders than those contained
in the Indebtedness being refinanced. Either way, the refinancing
Indebtedness may not have an average life less than the remaining
average life of the Indebtedness being refinanced, either by its terms
or by the terms of any agreement or instrument under whose terms the
Indebtedness is issued. Finally we, or the obligor on the Indebtedness
being refinanced, must be the party incuring the refinancing
Indebtedness;
(7) our Indebtedness under the notes and the guarantors' Indebtedness under
the guarantee incurred in accordance with the indenture;
(8) our or any restricted subsidiary's capital lease obligations regarding
that entity's leasing of tower sites and equipment. However, capital
lease obligations shall not exceed $25.0 million in aggregate principal
amount at any time outstanding;
(9) our or any restricted subsidiary's Indebtedness consisting of a guaran-
tee of the Indebtedness permitted to be incurred by another provision
of this covenant;
(10) our or any restricted subsidiary's Indebtedness in respect of statu-
tory obligations, performance, surety or appeal bonds or other obliga-
tions of a like nature incurred in the ordinary course of business;
and
(11) our Indebtedness not otherwise permitted to be incurred under clauses
(1) through (10) above which, together with any other outstanding In-
debtedness incurred under this clause, has an aggregate principal
amount not in excess of $75.0 million at any time outstanding.
Indebtedness of an entity which exists at the time that entity becomes a
restricted subsidiary, or which is secured by a lien on an asset we or a
restricted subsidiary acquired, whether or not the acquiring entity assumes the
Indebtedness, shall be deemed incurred at the time the person becomes a
restricted subsidiary or at the time of the asset acquisition, as the case may
be.
For purposes of determining compliance with this covenant, in the event that an
item of Indebtedness meets the criteria of more than one of the categories of
indebtedness permitted under clauses (1) through (11) above, we may, in our
sole discretion, classify the item of Indebtedness in any manner that complies
with this covenant and may from time to time reclassify the item of
Indebtedness in any manner that would comply with this covenant at the time of
the reclassification. Accrual of interest and the accretion of accreted value
will not be deemed to be an incurrence of Indebtedness for purposes of this
covenant.
Limitation on Layered Debt
The indenture provides that we will not:
(1) directly or indirectly, incur any Indebtedness that by its terms would
expressly rank senior to the notes and subordinate to any other of our
Indebtedness in right of payment; and
(2) cause or permit any guarantor to, and no guarantor will, directly or
indirectly, incur any Indebtedness that by its terms would expressly
rank senior to the guarantor's Indebtedness in right of payment. Howev-
er, no Indebtedness shall be deemed to be subordinated solely by virtue
of being unsecured.
Limitation on Restricted Payments
The indenture provides that we will not, and will not cause or permit any
restricted subsidiary to, directly or indirectly, on or prior to December 31,
2000:
(1) declare or pay any dividend, or make any distribution of any kind or
character, whether in cash, property or securities, in respect of any
class of our capital stock, excluding any dividends or distributions
payable solely in shares of our qualified stock or in options, warrants
or other rights to acquire our qualified stock;
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(2) purchase, redeem, or otherwise acquire or retire for value any shares
of our capital stock, any options, warrants or rights to purchase or
acquire shares or any securities convertible or exchangeable into
shares, other than any such shares of capital stock, options, warrants,
rights or securities that are owned by us or by a restricted subsidi-
ary;
(3) make any investment other than a permitted investment in any entity,
other than Triton or a restricted subsidiary; or
(4) redeem, defease, repurchase, retire or otherwise acquire or retire for
value, prior to its scheduled maturity, repayment or any sinking fund
payment of subordinated indebtedness.
Each of the transactions described in clauses (1) through (4), other than
exceptions listed in those clauses, is a restricted payment.
At any time after December 31, 2000, we will not, and will not cause or permit
any restricted subsidiary to, directly or indirectly, make a restricted
payment if, at that time:
(A) a default or an event of default has occurred and is continuing at the
time of or after giving effect to the restricted payment;
(B) immediately after giving effect to the restricted payment, we could not
incur at least $1.00 of additional Indebtedness under clause (1) of "--
Limitation on Incurrence of Indebtedness" above; and
(C) immediately upon giving effect to the restricted payment, the aggregate
amount of all restricted payments declared or made on or after May 4,
1998, including any designation amount, as defined below in "--Limita-
tions on Designations of Unrestricted Subsidiaries" exceeds the sum,
without duplication, of:
(a) the amount of:
. our consolidated cash flow after December 31, 2000 through the end
of the latest full fiscal quarter for which our consolidated fi-
nancial statements are available preceding the date of the re-
stricted payment, treated as a single accounting period;
less
. 150% of our cumulative consolidated interest expense after Decem-
ber 31, 2000 through the end of the latest full fiscal quarter for
which our consolidated financial statements are available,
plus
(b) the aggregate net cash proceeds, other than excluded cash proceeds,
which we received as a capital contribution in respect of, or from
the proceeds of a sale of, qualified stock made after May 4, 1998.
This excludes in each case:
. the proceeds from a sale of qualified stock to a restricted sub-
sidiary; and
. the proceeds from a sale, other than from a public sale, of quali-
fied stock, if the proceeds are applied to optionally redeem notes
on or prior to May 1, 2001;
plus
(c) if the aggregate net cash proceeds we or any restricted subsidiary
received from the sale, disposition or repayment, other than to a
restricted subsidiary, of any investment made after May 4, 1998 con-
stitutes a restricted payment in an amount equal to the lesser of:
. the return of capital with respect to the investment, and
. the initial amount of the investment, in either case, less the
cost of disposition of the investment,
plus
(d) an amount equal to the consolidated net investment on the date of
revocation made by us and/or any of our restricted subsidiaries in
any subsidiary that has been designated as an unrestricted subsidi-
ary after May 4, 1998, upon its redesignation as a restricted sub-
sidiary in accordance with the covenant described under "--Limita-
tion on Designations of Unrestricted Subsidiaries."
For purposes of the preceding clause (b), the value of the aggregate net cash
proceeds to us from, or as a capital contribution in connection with, the
issuance of qualified stock either upon the conversion of our convertible
Indebtedness or that of any of our restricted subsidiaries, in exchange for
our outstanding Indebtedness or that of any of our restricted
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subsidiaries or upon the exercise of options, warrants or rights, will be the
net cash proceeds received by us or any of our restricted subsidiaries upon the
entity's issuance of Indebtedness, options, warrants or rights plus the
incremental amount received upon their conversions, exchange or exercise.
For purposes of the preceding clause (d), the value of the consolidated net
investment on the date of revocation shall be equal to the fair market value of
the aggregate amount of our and/or any restricted subsidiary's investments in
the subsidiary on the applicable date of designation.
For purposes of determining the amount expended for restricted payments, cash
distributed shall be valued at its face amount and property other than cash
shall be valued at its fair market value on the date Triton or a restricted
subsidiary makes the restricted payment, as the case may be.
The provisions of this covenant do not prohibit:
(i) our payment of any dividend or distribution within 60 days after the
date we declare the dividend, if at the date of declaration, payment
would comply with the provisions of the indenture;
(ii) so long as no default or event of default has occurred and is continu-
ing, our purchase, redemption, retirement or other acquisition of any
of our capital stock out of the net cash proceeds of a substantially
concurrent capital contribution to us in connection with qualified
stock or out of the net cash proceeds we receive from the substan-
tially concurrent issuance or sale, other than to a restricted subsid-
iary, of our qualified stock. However, the net cash proceeds:
. shall be excluded from clause (C)(b) above,
. do not constitute Excluded Cash Proceeds, and
. if from a sale other than a public sale, shall not be applied to op-
tionally redeem the notes on or prior to May 1, 2001;
(iii) so long as no default or event of default has occurred and is contin-
uing, our purchase, redemption, retirement, defeasance or other ac-
quisition of our subordinated Indebtedness made by exchange for or
conversion into, or out of the net cash proceeds we receive, or out
of a capital contribution made to us in connection with a concurrent
issuance and sale, other than to a restricted subsidiary, of our
qualified stock. However, the net cash proceeds:
. shall be excluded from clause (C)(b) above,
. do not constitute Excluded Cash Proceeds, and
. if from a sale other than a public sale, shall not be applied to op-
tionally redeem the notes, on or prior to May 1, 2001 or our other
subordinated Indebtedness that has an average life equal to or
greater than the average life of the subordinated Indebtedness being
purchased, redeemed, retired, defeased or otherwise acquired;
(iv) so long as no default or event of default has occurred and is continu-
ing, the making of a direct or indirect investment constituting a re-
stricted payment in an amount not to exceed the amount of the proceeds
of a concurrent capital contribution in respect of qualified stock or
from our issuance or sale other than to a restricted subsidiary of
qualified stock. However, the net cash proceeds:
. shall be excluded from clause (C)(b) above,
. do not constitute Excluded Cash Proceeds, and
. if from a sale other than a public sale, shall not be applied to op-
tionally redeem the notes on or prior to May 1, 2001; or
(v) so long as no default or event of default has occurred and is continu-
ing, dividends or distributions we make to Triton Holdings for repur-
chase, redemption, acquisition or retirement for value of any capital
stock of Triton Holdings held by any member of management of Triton
Holdings, us or any of our subsidiaries pursuant to any management eq-
uity subscription agreement, stock option agreement or other similar
agreement. However:
. the aggregate amount of these dividends or distributions shall not
exceed $2.0 million in any twelve-month period, and
. any unused amount in any twelve-month period may be carried forward
to one or more future periods.
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Restricted payments made pursuant to clauses (i) and (v) above shall be
included in making the determination of available amounts under clause (C)
above, and restricted payments made pursuant to clauses (iii), (iv) and (v)
above shall not be included in making the determination of available amounts
under clause (C) above.
Limitation on Restrictions Affecting Restricted Subsidiaries
The indenture provides that we will not, and will not cause or permit any
restricted subsidiary to, directly or indirectly, create or otherwise cause or
suffer to exist any consensual encumbrance or restriction of any kind on the
ability of any restricted subsidiary to:
(1) pay, directly or indirectly, dividends, in cash or otherwise, or make
any other distributions in respect of its capital stock or pay any In-
debtedness or other obligation owed to us or any other restricted sub-
sidiary;
(2) make any investment in us or any other restricted subsidiary; or
(3) transfer any of its property or assets to us or to any other restricted
subsidiary, except for encumbrances or restrictions existing under or
by reason of:
(a) any agreement in effect on May 4, 1998 as the agreement remains in
effect;
(b) any senior credit facilities;
(c) any agreement relating to any Indebtedness incurred by restricted
subsidiary prior to the date on which we acquired it, and outstand-
ing and not incurred in anticipation or contemplation of becoming a
restricted subsidiary. However, the encumbrance or restriction shall
not apply to any of our property or assets or those of any re-
stricted subsidiary other than the restricted subsidiary;
(d) customary provisions contained in an agreement which has been en-
tered into for the sale or disposition of all or substantially all
of the capital stock or assets of a restricted subsidiary. However,
the encumbrance or restriction is applicable only to that restricted
subsidiary or its property and assets;
(e) any agreement effecting a refinancing or amendment of Indebtedness
incurred under any agreement referred to in sub-clause (a) above.
However, the provisions contained in the refinancing or amended
agreement relating to the encumbrance or restriction must be no more
restrictive in any material respect than the provisions contained in
the original agreement in the reasonable judgment of:
. the board of Triton Holdings if, at the time of the refinancing or
amendment, we are a subsidiary of Triton Holdings, or
. our board if, at the time of the refinancing or amendment, we are
not a subsidiary of Triton Holdings;
(f) the indenture;
(g) applicable law or any applicable rule, regulation or order;
(h) customary provisions restricting subletting or assignment of any
lease governing any leasehold interest of any restricted subsidiary;
(i) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the type referred to
in this clause (3);
(j) restrictions of the type referred to in this clause (3) contained in
security agreements securing Indebtedness of a restricted subsidiary
to the extent those liens were otherwise incurred in accordance with
"--Limitation on Liens" below and restrict the transfer of property
subject to the agreements; or
(k) customary provisions in joint venture agreements and other similar
agreements entered into in the ordinary course of business.
Limitation on Liens
The indenture provides that we will not, and will not cause or permit any
restricted subsidiary to, directly or indirectly, create, cause, incur or
suffer to exist any lien on or with respect to our capital stock, property or
assets, or those of the restricted subsidiary, owned on May 4, 1998 or
thereafter created or acquired to secure any Indebtedness, without making, or
causing the restricted subsidiary to make, effective provision for securing the
notes and all other amounts due under the indenture equally and ratably with
the Indebtedness or, in the event the Indebtedness is subordinated
Indebtedness, prior to the Indebtedness as to the property or assets for so
long as the Indebtedness shall be so secured.
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These foregoing restrictions do not apply to:
(1) liens existing on May 4, 1998 and securing Indebtedness existing on May
4, 1998;
(2) liens securing senior debt, including liens securing Indebtedness under
any senior credit facilities and any corresponding guarantees, to the
extent that the covenant described under "--Limitation on Incurrence of
Indebtedness" above permits Indebtedness thus secured to be incurred;
(3) liens securing only the notes and the guarantees, if any;
(4) liens in favor of us or any guarantor;
(5) liens to secure Indebtedness incurred in connection with Vendor Credit
Arrangements;
(6) liens on property existing immediately prior to our acquisition of that
property, and not created in connection with or in anticipation or
contemplation of the financing of the acquisition;
(7) liens on property of an entity existing at the time the entity is
acquired or merged with or into or consolidated with us or any
restricted subsidiary, and not created in connection with or in
anticipation or contemplation of the business combination;
(8) liens to secure the performance of statutory obligations, surety or
appeal bonds or bid or performance bonds, or landlords', carriers',
warehousemen's, mechanics', suppliers', materialmen's or other similar
liens, in any case incurred in the ordinary course of business and with
respect to amounts not yet delinquent or being contested in good faith
by appropriate process of law, if a reserve or other appropriate
provision, as is required by GAAP, if any, shall have been made;
(9) liens for taxes, assessments or governmental charges or claims that are
not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
as long as any reserve or other appropriate provision that shall be
required in conformity with GAAP shall have been made;
(10) liens to secure Indebtedness incurred to refinance in whole or in
part, any Indebtedness secured by liens referred to in clauses (1)
through (9) above, so long as the liens do not extend to any
additional category of property and the principal amount of
Indebtedness so secured is not increased, except for the amount of any
premium required to be paid in connection with refinancing under the
terms of the Indebtedness refinanced or the amount of any premium we
have reasonably determined is necessary to accomplish the refinancing
by means of:
. a tender offer,
. an exchange offer, or
. a privately negotiated repurchase,
plus
the expenses of the issuer of the Indebtedness reasonably incurred in
connection with the refinancing; and
(11) liens in favor of the trustee as provided for in the indenture on
money or property held or collected by the trustee in its capacity as
trustee.
Limitation on Certain Asset Dispositions
The indenture provides that we will not, and will not cause or permit any
restricted subsidiary to, directly or indirectly, make any asset dispositions
unless:
(1) we or the restricted subsidiary receive consideration for the asset
disposition at least equal to the fair market value of the assets sold
or disposed of, as determined by either:
(a) the board of Triton Holdings if, at the time of the asset disposi-
tion, we are a subsidiary of Triton Holdings, or
(b) our board if, at the time of the asset disposition, we are not a
subsidiary of Triton Holdings,
in good faith and evidenced by a resolution of the appropriate board
filed with the trustee;
(2) other than in the case of a permitted asset swap, not less than 75% of
the consideration received by us or our restricted subsidiary from the
disposition consists of:
(a) cash or Cash Equivalents,
(b) the assumption of Indebtedness other than non-recourse Indebtedness
or any subordinated Indebtedness of ours or our restricted subsidi-
ary or other obligations relating to the assets, accompanied by our
irrevocable
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unconditional release or that of the restricted subsidiary from all
liability on the Indebtedness or other obligations assumed, or
(c) notes or other obligations received by us or the restricted subsidi-
ary from the transferee that we or the restricted subsidiary convert
into cash concurrently with the receipt of the notes or other obli-
gations, to the extent of the cash we actually receive; and
(3) all Net Available Proceeds, less any amounts invested within 365 days
of such asset disposition:
(a) to acquire all or substantially all of the assets of, or a majority
of the voting stock of, an entity primarily engaged in a Permitted
Business,
(b) to make a capital expenditure, or
(c) to acquire other long-term assets that are used or useful in a Per-
mitted Business,
are applied, on or prior to the 365th day after the asset disposition, unless
and to the extent that we shall determine to make an Offer to Purchase, to the
permanent reduction and prepayment of any of our senior debt then outstanding,
including a permanent reduction of the commitments in that respect. Any Net
Available Proceeds, from any asset disposition subject to the immediately
preceding sentence, that are not applied as provided in the immediately
preceding sentence, shall be used promptly after the expiration of the 365th
day after the asset disposition, or earlier if we so elect, to make an Offer to
Purchase outstanding notes at a purchase price in cash equal to:
(i) 100% of the Accreted Value on the purchase date, if the purchase date
is on or before May 1, 2003; and
(ii) 100% of the principal amount at maturity plus accrued and unpaid
interest to the purchase date, if the purchase date is after May 1,
2003.
However, we may defer making any Offer to Purchase notes until there are
aggregate unutilized Net Available Proceeds from asset dispositions otherwise
subject to the two immediately preceding sentences, equal to or in excess of
$15.0 million, at which time the entire unutilized Net Available Proceeds from
asset dispositions otherwise subject to the two immediately preceding
sentences, and not just the amount in excess of $15.0 million, shall be applied
as this paragraph requires. We may use any remaining Net Available Proceeds
following the completion of the required Offer to Purchase for any other
purpose, subject to the other provisions of the indenture, and the amount of
Net Available Proceeds then required to be otherwise applied in accordance with
this covenant shall be reset to zero. These provisions will not apply to a
transaction completed in compliance with the provisions of the indenture
described under "--Mergers, Consolidations and Certain Sales of Assets" below.
Pending application as set forth above, the Net Available Proceeds of any asset
disposition may be invested in cash or Cash Equivalents or used to reduce
temporarily Indebtedness outstanding under any revolving credit agreement to
which we are a party and under which we will incur Indebtedness.
In the event that we make an Offer to Purchase the notes, we will comply with
any applicable securities laws and regulations, including any applicable
requirements of Section 14(e) of, and Rule 14e-1, under the Exchange Act.
Limitation on Transactions with Affiliates
The indenture provides that we will not, and will not cause or permit any
restricted subsidiary to, directly or indirectly, conduct any business or enter
into, renew or extend any transaction with any of our respective affiliates or
those of our subsidiaries, or any beneficial holder of 10% or more of any class
of Triton or Triton Holdings capital stock, including, without limitation, the
purchase, sale, lease or exchange of property, the rendering of any service, or
the making of any guarantee, loan, advance or investment, either directly or
indirectly, unless the terms of the transaction are at least as favorable as
the terms that we or the restricted subsidiary could obtain at that time in a
comparable transaction made on an arm's-length basis with a person who is not
an affiliate. However, in any transaction involving aggregate consideration in
excess of $10.0 million, we will deliver an officer's certificate to the
trustee stating that a majority of the disinterested directors of either:
. the board of Triton Holdings if, at the time of the transaction, we are
a subsidiary of Triton Holdings, or
. our board if, at the time of the transaction, we are not a subsidiary of
Triton Holdings,
has determined, in its good faith judgment, that the terms of the transaction
are at least as favorable as the terms that we or a restricted subsidiary could
obtain in a comparable transaction made on an arm's-length basis between
unaffiliated
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parties. If the aggregate consideration is in excess of $25.0 million, we will
also deliver to the trustee, prior to the transaction's closing, the favorable
written opinion of a nationally recognized accounting, appraisal or investment
banking firm as to the fairness of the transaction to the noteholders, from a
financial point of view.
Notwithstanding the foregoing, the restrictions set forth in this covenant do
not apply to:
(1) transactions between or among us and/or any restricted subsidiaries;
(2) any restricted payment or permitted investment permitted by the cove-
nant described under "--Limitation on Restricted Payments;"
(3) directors' fees, indemnification and similar arrangements, officers'
indemnification, employee stock option or employee benefit plans and
employee salaries and bonuses paid or created in the ordinary course of
business;
(4) any other agreement in effect on May 4, 1998, as it shall be amended
from time to time. However, any material amendment must comply with the
provisions of the preceding paragraph of this covenant;
(5) transactions with AT&T or any of its affiliates, relating to the mar-
keting or provision of telecommunication services or related hardware,
software or equipment on terms that are no less favorable, when taken
as a whole, to us or our restricted subsidiary, as applicable, than
those available from unaffiliated third parties;
(6) transactions involving the leasing, sharing or other use by us or any
restricted subsidiary of communications network facilities, including,
without limitation, cable, or fiber lines, equipment or transmission
capacity, of any affiliate of ours or any beneficial holder of 10% or
more of any class of capital stock of Triton or Triton Holdings, or any
related party, on terms that are no less favorable, when taken as a
whole, to us or our subsidiary, as applicable, than those available
from such related party to unaffiliated third parties;
(7) transactions involving the provision of telecommunication services by a
related party in the ordinary course of its business to us or any re-
stricted subsidiary, or by us or any restricted subsidiary to a related
party, on terms that are no less favorable, when taken as a whole, to
us or the restricted subsidiary, as applicable, than those available
from such related party to unaffiliated third parties;
(8) any sales agency agreements under which an affiliate has the right to
market any or all of our products or services of or any of those of our
restricted subsidiaries; and
(9) customary commercial banking, investment banking, underwriting, place-
ment agent or financial advisory fees paid in connection with services
rendered to us and our subsidiaries in the ordinary course.
Limitation on Activities of Triton and the Restricted Subsidiaries
The indenture provides that we will not, and will not permit any restricted
subsidiary to, engage in any business other than a Permitted Business, except
to the extent it is not material to us and our restricted subsidiaries, taken
as a whole.
Change of Control
Within 30 days following the closing date of a transaction resulting in a
Change of Control, we will commence an Offer to Purchase all outstanding notes
at a purchase price in cash equal to:
. 101% of the Accreted Value on the purchase date if the date is on or be-
fore May 1, 2003; and
. 101% of the principal amount at maturity, plus accrued and unpaid inter-
est, if any, to the purchase date, if the date is after May 1, 2003.
We will complete an Offer to Purchase not earlier than 30 days and not later
than 60 days after the offer's commencement. Each holder shall be entitled to
tender all or any portion of the notes he or she owns according to the terms of
our Offer to Purchase, subject to the requirement that any portion of a note
tendered must be in an integral multiple of $1,000 principal amount.
In the event that we make an Offer to Purchase the notes, we will comply with
any applicable securities laws and regulations, including any applicable
requirements of Section 14(e) of, and Rule 14e-1 under, the Exchange Act.
We will not be required to make an Offer to Purchase upon a Change of Control
if a third party makes the Offer to Purchase in the manner, at the times and
otherwise in compliance with the requirements set forth in the indenture
applicable to an Offer to Purchase made by us and purchases all notes validly
tendered and not withdrawn under the Offer to Purchase.
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With respect to the sale of assets referred to in the definition of Change of
Control, the phrase all or substantially all of our assets will likely be
interpreted under applicable law and will be dependent upon particular facts
and circumstances. As a result, there may be a degree of uncertainty in
ascertaining whether a sale or transfer of all or substantially all of our
assets has occurred. In addition, we cannot assure you that we will be able to
acquire notes tendered upon the occurrence of a Change of Control. Our ability
to pay cash to the noteholders upon a Change of Control may be limited to our
then existing financial resources. We and some of our domestic subsidiaries are
parties to a credit agreement, dated February 3, 1998, which contains covenants
prohibiting, or requiring waiver or consent of the lenders prior to, the
repurchase of the notes upon a Change of Control. Future debt agreements we
enter into may provide the same. If we do not obtain a waiver or consent or
repay the Indebtedness, we will remain prohibited from repurchasing the notes.
In that event, our failure to purchase tendered notes would constitute an event
of default under the indenture, which in turn would constitute a default under
the credit agreement and possibly other Indebtedness. Neither our board of
directors nor the trustee may waive any of the provisions relating to a
repurchase upon a Change of Control.
The provisions summarized above will not prevent us from entering into
transactions of the types described above with management or their affiliates.
In addition, those provisions may not necessarily afford the noteholders
protection in the event of a highly leveraged transaction, including a
reorganization, restructuring, merger or similar transaction involving us that
may adversely affect the noteholders, because the transaction may not involve a
shift in voting power or beneficial ownership, or even if it does, it may not
involve a shift of the magnitude required under the definition of Change of
Control to trigger the provisions.
Amendments to Securities Purchase Agreement
The indenture provides that neither we nor Triton Holdings will amend, modify,
waive or refrain from enforcing any provision of the securities purchase
agreement, dated as of October 8, 1997, as amended as of October 1, 1998, among
AT&T Wireless, Triton Holdings, the cash equity investors and the management
stockholders, in any manner that would materially alter the obligations of the
cash equity investors or the management stockholders to provide additional
equity capital to Triton Holdings and to further contribute such equity capital
to us in the form of Triton Holdings' qualified stock until a time when we have
received, subsequent to May 4, 1998, Net Cash Proceeds from capital
contributions or sales, in respect of Triton Holdings' qualified stock, equal
to at least $122.0 million.
Provision of Financial Information
The indenture provides that, whether or not required by the SEC's rules and
regulations, so long as any notes are outstanding, we will furnish to the
noteholders:
(1) all quarterly and annual financial information that we would be re-
quired to include on Forms 10-Q and 10-K if we were required to file
those forms with the SEC, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" section that
describes our consolidated financial condition and results of opera-
tions and, with respect to the annual information only, a report by our
certified independent accountants; and
(2) all current reports that we would be required to file on Form 8-K if we
were required to file those reports with the SEC,
in each case within the time period specified in the SEC's rules and
regulations. In addition, we will file a copy of all information and reports
with the SEC for public availability within the time periods specified in the
SEC's rules and regulations, unless the SEC will not accept the filing, and
make the information available to securities analysts and prospective investors
upon request. We will also, for as long as any notes remain outstanding,
furnish to the noteholders and to securities analysts and prospective
investors, upon their request, the information we are required to deliver under
to Rule 144A(d)(4) under the Securities Act.
Limitation on Designations of Unrestricted Subsidiaries
The indenture provides that we may designate any of our subsidiaries, other
than Triton PCS License Company, L.L.C., Triton PCS Property Company, L.L.C.
and Triton PCS Equipment Company, L.L.C., as an unrestricted subsidiary under
the indenture only if:
(1) no default or event of default has occurred and is continuing at the
time of or after giving effect to the designation;
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(2) we would be permitted under the indenture to make an investment at the
time of designation and, assuming the effectiveness of the designation,
in an amount, referred to as a designation amount, equal to the fair
market value of the aggregate amount of our investments in the
subsidiary on that date; and
(3) except in the case of a subsidiary in which we are investing under and
as permitted by the third paragraph of the covenant "Limitation on
Restricted Payments," we would be permitted to incur $1.00 of
additional Indebtedness under the first clause of "--Limitation on
Incurrence of Indebtedness" at the time of designation, assuming the
effectiveness of the designation.
In the event of any designation, we shall be deemed to have made an investment,
constituting a restricted payment as described under "--Limitation on
Restricted Payments" for all purposes of the indenture, in the designation
amount. The indenture further provides that we will not, and will not permit
any restricted subsidiary, at any time to:
(A) provide direct or indirect credit support for, or a guarantee of, any
Indebtedness of any unrestricted subsidiary, including any undertaking,
agreement or instrument evidencing the Indebtedness;
(B) be directly or indirectly liable for any Indebtedness of any
unrestricted subsidiary; or
(C) be directly or indirectly liable for any Indebtedness which provides
that the holder may, upon notice, lapse of time or both, declare a
default or cause payment to be accelerated or payable prior to its
final scheduled maturity upon the occurrence of a default with respect
to any Indebtedness of any unrestricted subsidiary, including any right
to take enforcement action against the unrestricted subsidiary, except,
in the case of clauses (A) and (B) above, to the extent permitted under
"--Limitation on Restricted Payments."
The indenture further provides that we may revoke any designation of a
subsidiary as an unrestricted subsidiary. The subsidiary shall then constitute
a restricted subsidiary if:
(i) no default has occurred and is continuing at the time of and after
giving effect to the revocation; and
(ii) all liens and Indebtedness of the unrestricted subsidiary outstanding
immediately following the revocation would, if incurred at that time,
have been permitted to be incurred for all purposes of the indenture.
All designations and revocations must be evidenced by resolutions of Triton
delivered to the trustee certifying compliance with the provisions.
Mergers, Consolidations and Certain Sales of Assets
We will not consolidate or merge with or into any person, or sell, assign,
lease, convey or otherwise dispose of, or cause or permit any restricted
subsidiary to consolidate or merge with or into any person or sell, assign,
lease, convey or otherwise dispose of, all or substantially all of our assets,
determined on a consolidated basis for Triton and our restricted subsidiaries,
whether as an entirety or substantially an entirety in one transaction or a
series of related transactions, including by way of liquidation or dissolution,
to any person unless, in each case:
(1) the entity formed by or surviving a consolidation or merger, if other
than Triton or our restricted subsidiary, as the case may be, or to
which the sale, assignment, lease, conveyance or other disposition
shall have been made is a corporation organized and existing under the
laws of the United States, any State or the District of Columbia;
(2) the surviving entity assumes by supplemental indenture all of our obli-
gations under the notes and the indenture;
(3) immediately after giving effect to the transaction and the use of any
resulting net proceeds, on a pro forma basis, we or the surviving enti-
ty, as the case may be, could incur at least $1.00 of Indebtedness un-
der the clause (1) of "--Limitation on Incurrence of Indebtedness"
above;
(4) immediately after giving effect to the transaction, and treating any
Indebtedness which becomes an obligation of ours or of our restricted
subsidiaries as a result of the transaction, as having been incurred by
us or our restricted subsidiary at the time of the transaction, no de-
fault or event of default has occurred and is continuing; and
(5) if, as a result of the transaction, property or assets of ours or our
restricted subsidiary would become subject to a lien not excepted from
the provisions of the indenture described under "--Limitation on Liens"
above, we, the restricted subsidiary or the surviving entity, as the
case may be, shall have secured the notes as required by that covenant.
The provisions of this paragraph shall not apply to any merger of a restricted
subsidiary with or into Triton or any of its wholly-owned subsidiaries or the
release of any guarantor in accordance with the terms of the guarantee and the
indenture
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in connection with any transaction complying with the provisions of the
indenture described under "--Limitation on Certain Asset Dispositions" above.
Events of Default
The following are events of default under the indenture:
(1) failure to pay the Accreted Value or principal of, or premium, if any,
on any note when due, whether or not prohibited by the provisions of
the indenture described under "--Ranking" above;
(2) failure to pay any interest on any note when due, continued for 30
days, whether or not prohibited by the provisions of the indenture de-
scribed under "--Ranking" above;
(3) default in the payment of the Accreted Value or principal of and inter-
est on notes required to be purchased through an Offer to Purchase, as
described under "--Covenants--Change of Control" and "--Covenants--
Limitation on Certain Asset Dispositions" above, when due and payable,
whether or not prohibited by the provisions of the indenture described
under "--Ranking" above;
(4) failure to perform or comply with any of the provisions described under
"--Covenants--Mergers, Consolidations and Certain Sales of Assets"
above;
(5) failure to perform any other covenant or agreement of ours under the
indenture or the notes, continued for 60 days after the trustee or
holders of at least 25% in aggregate principal amount of the notes
submit notice to us;
(6) default under the terms of one or more instruments evidencing or
securing Indebtedness of ours or any of our subsidiaries having an
outstanding principal amount of $15.0 million or more individually or
in the aggregate that has resulted in the acceleration of payment of
the such Indebtedness or failure to pay principal when due at the final
stated maturity of the Indebtedness;
(7) the rendering of a final judgment or judgments, not subject to appeal,
against us or any of our subsidiaries in an amount of $15.0 million or
more which remains undischarged or unstayed for a period of 60 days
after the date on which the right to appeal has expired;
(8) events of bankruptcy, insolvency or reorganization affecting us or any
material subsidiary; and
(9) any guarantee of a material subsidiary ceases to be in full force and
effect, is declared null and void and unenforceable, or is found to be
invalid or any guarantor denies its liability under the guarantee,
other than by reason of a release of that guarantor from the guarantee
in accordance with the terms of the indenture and the guarantee.
If an event of default, other than an event of default with respect to us
described in clause (8) above, shall occur and be continuing, either the trustee
or the holders of at least 25% in aggregate principal amount at maturity of the
outstanding notes may accelerate the maturity of all the notes. However, after
an acceleration, but before a judgment or decree based on acceleration, the
holders of a majority in aggregate principal amount at maturity of outstanding
notes may, under certain circumstances, rescind and annul the acceleration if
all defaults, other than the non-payment of accelerated principal, have been
cured or waived as provided in the indenture. If an event of default specified
in clause (8) above with respect to us occurs, the outstanding notes will become
immediately due and payable without any declaration or other act on the part of
the trustee or any noteholder. For information as to waiver of defaults, see "--
Modification and Waiver."
The indenture provides that the trustee shall, within 30 days after the
occurrence of any default or event of default with respect to the notes, give
the holders notice of all uncured defaults or events of default known to it.
However, except in the case of an event of default or a default in any payment
with respect to the notes or a default or event of default in complying with
"--Covenants--Mergers, Consolidations and Certain Sales of Assets," the trustee
shall be protected in withholding notice if and so long as the board or
directors or responsible officers of the trustee in good faith determine that
the withholding of such notice is in the interest of the noteholders.
No noteholder will have any right to institute any proceeding with respect to,
or for any remedy under the indenture, unless that holder has previously given
to the trustee written notice of a continuing event of default and unless:
. the holders of at least 25% in aggregate principal amount at maturity of
the outstanding notes shall have made written request, and offered
reasonable indemnity, to the trustee to institute a proceeding as
trustee; and
. the trustee has not received from the holders of a majority in aggregate
principal amount at maturity of the notes a direction inconsistent with
the request and has failed to institute the proceeding within 60 days.
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However, these limitations do not apply to a suit instituted by a noteholder
for enforcement of payment of the principal of and premium, if any, or interest
on a note on or after the respective due dates expressed in the note.
We are required to furnish to the trustee an annual statement as to our
performance of certain of our obligations under the indenture and as to any
default in such performance.
Satisfaction and Discharge of Indenture; Defeasance
We may terminate our substantive obligations and the substantive obligations of
the guarantors in respect of the notes and the guarantees by delivering all
outstanding notes to the trustee for cancellation and paying all sums payable
by us on account of principal of, premium, if any, and interest on all the
notes or otherwise. In addition, we may, provided that no default or event of
default has occurred and is continuing or would arise, or, with respect to a
default or event of default specified in clause (8) of "--Events of Default"
above, any time on or prior to the 91st calendar day after the date of the
deposit, it being understood that this condition shall not be deemed satisfied
until after the 91st day, and provided that it would not cause any default
under any senior debt, terminate our substantive obligations and the
substantive obligations of the guarantors in respect of the notes and the
guarantees, except for our obligation to pay the principal of, and premium, if
any, on, and the interest on the notes and the guarantors' guarantee thereof
by:
(1) depositing with the trustee, under the terms of an irrevocable trust
agreement, money or United States government obligations sufficient,
without reinvestment, to pay all remaining Indebtedness on the notes to
maturity or to redemption;
(2) delivering to the trustee either an opinion of counsel or a ruling di-
rected to the trustee from the Internal Revenue Service to the effect
that the noteholders will not recognize income, gain or loss for fed-
eral income tax purposes as a result of such deposit and termination of
obligations;
(3) delivering to the trustee an opinion of counsel to the effect that our
option exercise under this paragraph will not result in Triton, the
trustee or the trust created by our deposit of funds according to this
provision becoming or being deemed to be an investment company under
the Investment Company Act of 1940, as amended; and
(4) complying with other requirements set forth in the indenture.
In addition, we may, provided that no default or event of default has occurred
and is continuing or would arise or, with respect to a default or event of
default specified in clause (8) of "--Events of Default" above, any time on or
prior to the 91st calendar day after the date of the deposit, it being
understood that this condition shall not be deemed satisfied until after the
91st day, and provided that no default under any senior debt would result,
terminate all of its substantive obligations and all of the substantive
obligations of the guarantors in respect of the notes and the guarantees,
including our obligation to pay the principal of, and premium, if any, on, and
interest on the notes and the guarantors' guarantee by:
(A) depositing with the trustee, under the terms of an irrevocable trust
agreement, money or United States Government obligations sufficient,
without reinvestment, to pay all remaining Indebtedness on the notes to
maturity or to redemption;
(B) delivering to the trustee either a ruling directed to the trustee from
the Internal Revenue Service to the effect that the noteholders will
not recognize income gain or loss for federal income tax purposes as a
result of the deposit and termination of obligations or an opinion of
counsel based upon such a ruling addressed to the trustee or a change
in the applicable federal tax law since the date of the indenture, to
that effect;
(C) delivering to the trustee an opinion of counsel to the effect that our
exercise of our option under this paragraph will not result in Triton,
the trustee or the trust created by our deposit of funds pursuant to
this provision becoming or being deemed to be an investment company un-
der the Investment Company Act of 1940, as amended; and
(D) complying with other requirements set forth in the indenture.
We may make an irrevocable deposit pursuant to this provision only if at the
time of the proposed deposit we are not prohibited from doing so under the
subordination provisions of the indenture or covenants in the instruments
governing senior debt and we have delivered to the trustee and any paying agent
an officers' certificate to that effect.
Governing Law
The indenture, the notes and the guarantees are governed by the laws of the
State of New York without regard to principles of conflicts of laws.
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Modification and Waiver
Triton and the trustee may modify and amend the indenture with the consent of
the holders of a majority in aggregate principal amount at maturity of the
outstanding notes. However, no such modification or amendment may, without the
consent of the holder of each note affected by the change:
(1) change the stated maturity of the principal of any note;
(2) alter the optional redemption or repurchase provisions of any note or
of the indenture in a manner adverse to the noteholders;
(3) reduce the principal amount of any note;
(4) reduce the rate of, or change the time for payment of interest on, any
note;
(5) change the place or currency of payment of principal of or interest on
any note;
(6) modify any provisions of the indenture relating to the waiver of past
defaults, other than to add sections of the indenture subject to those
provisions, the right of the holders to institute suit for the en-
forcement of any payment on or with respect to any note or the guaran-
tee, or the modification and amendment of the indenture and the notes,
other than to add sections of the indenture or the notes which may not
be amended, supplemented or waived without the consent of each holder
affected;
(7) reduce the percentage of the principal amount of outstanding notes
necessary for amendment to or waiver of compliance with any provision
of the indenture or the notes or for waiver of any default;
(8) waive a default in the payment of principal of, interest on, or re-
demption payment with respect to, any note, except a rescission of ac-
celeration of the notes by the holders as provided in the indenture
and a waiver of the payment default that resulted from acceleration;
(9) modify the ranking or priority of the notes or the guarantees, modify
the definition of senior debt or designated senior debt or amend or
modify the subordination provisions of the indenture in any manner ad-
verse to the holders;
(10) release any guarantor from any of its obligations under its guarantee
or the indenture otherwise than in accordance with the indenture; or
(11) modify any of the provisions, including the related definitions, re-
lating to any Offer to Purchase required under the covenants described
under "--Covenants--Limitation on Certain Asset Dispositions" or "--
Covenants--Change of Control" in a manner materially adverse to the
noteholders with respect to any asset disposition that has been com-
pleted or Change of Control that has occurred.
The holders of a majority in aggregate principal amount at maturity of the
outstanding notes, on behalf of all noteholders, may waive our compliance with
certain restrictive provisions of the indenture. Subject to certain rights of
the trustee, as provided in the indenture, the holders of a majority in
aggregate principal amount at maturity of the outstanding notes, on behalf of
all noteholders, may waive any past default under the indenture, except a
default in the payment of principal, premium or interest or a default arising
from failure to purchase any note tendered pursuant to an Offer to Purchase, or
a default in respect of a provision that under the indenture cannot be modified
or amended without the consent of the holder of each outstanding note affected.
Notwithstanding the previous paragraph, without the consent of any noteholder,
we and the trustee may amend or supplement the indenture or the notes:
(A) to cure any ambiguity, defect or inconsistency;
(B) to provide for uncertificated notes in addition to or in place of cer-
tificated notes;
(C) to provide for the assumption of our obligations to noteholders in the
case of a merger, or consolidation or sale of all or substantially all
of our assets;
(D) to make any change that would provide additional rights or benefits to
the noteholders or that does not adversely affect their legal rights
under the indenture; or
(E) to comply with SEC requirements in order to effect or maintain the
qualification of the indenture under the Trust Indenture Act.
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No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee or stockholder of Triton or any of its
subsidiaries, acting in that capacity, will have any liability for any
obligations of Triton or any guarantor under the notes, the indenture, the
guarantees or any claim based on, in respect of, or by reason of, such
obligations or their creation. Each holder, by accepting a note, waives and
releases all liability to this effect. This waiver and release are part of the
consideration for issuance of the notes. The waiver may not be effective to
waive liabilities under the federal securities laws, and the SEC believes that
the type of a waiver is against public policy.
The Trustee
The indenture provides that, except during the continuance of a default, the
trustee will perform only the duties specifically set forth in the indenture.
During the existence of a default, the trustee will exercise the rights and
powers vested in it under the indenture and use the same degree of care and
skill in its exercise as a prudent person would exercise under the
circumstances in the conduct of his or her own affairs. The indenture and
provisions of the Trust Indenture Act it incorporates by reference contain
limitations on the rights of the trustee, should it become a creditor of ours,
the guarantors, or any other obligor upon the notes, to obtain payment of
claims in certain cases or to realize on property it receives in respect of any
claim as security or otherwise. The trustee is permitted to engage in other
transactions with us or our affiliates. However, if it acquires any conflicting
interest, as defined in the indenture or in the Trust Indenture Act, it must
eliminate the conflict or resign.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
indenture. Please refer to the indenture for the full definition of all terms
listed below, as well as any other terms we use in this section without
providing a definition here.
Accreted Value shall mean, as of any date of determination prior to May 1,
2003, the sum of:
. the initial offering price of each note; and
. the portion of the excess of the principal amount of each note over the
initial offering price which we shall have amortized in accordance with
GAAP through the date, the amount to be amortized on a daily basis and
compounded semi-annually on each interest payment date at a rate of 11%
per annum from May 4, 1998 through the date of determination computed on
the basis of a 360-day year of twelve 30-day months.
Annualized Pro Forma Consolidated Operating Cash Flow means consolidated cash
flow for the latest two full fiscal quarters for which our consolidated
financial statements are available, multiplied by two. For purposes of
calculating consolidated cash flow for any period, for purposes of this
definition only:
. any of our subsidiaries that is a restricted subsidiary on the date of
the transaction giving rise to the need to calculate annualized pro
forma consolidated operating cash flow shall be deemed to have been a
restricted subsidiary at all times during that period; and
. any of our subsidiaries that is not a restricted subsidiary on the
transaction date shall be deemed not to have been a restricted subsidi-
ary at any time during such period.
In addition to, and without limitation by, the previous paragraph, for purposes
of this definition only, consolidated cash flow shall be calculated after
giving effect on a pro forma basis for the applicable period to, without
duplication, any asset dispositions or asset acquisitions, including any asset
acquisition giving rise to the need to make this calculation as a result of our
or one of our restricted subsidiaries, including any person who becomes a
restricted subsidiary as a result of the asset acquisition, incurring, assuming
or otherwise being liable for acquired Indebtedness occurring during the period
commencing on the first day of the two fiscal quarter periods to and including
the transaction date, as if that asset sale or asset acquisition occurred on
the first day of the reference period.
Average Life means, as of the date of determination, with respect to any
Indebtedness for borrowed money or preferred stock, the quotient obtained by
dividing:
. the sum of the products of the number of years from the date of determi-
nation to the dates of each successive scheduled principal or liquida-
tion value payments of the Indebtedness or preferred stock, respective-
ly, and the amount of the principal or liquidation value payments, by,
. the sum of all principal or liquidation value payments.
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Cash Equivalents means:
(1) direct obligations of, or obligations whose principal and interest are
unconditionally guaranteed by, the United States of America, or by any
of its agencies to the extent the obligations are backed by the full
faith and credit of the United States of America, in each case maturing
within one year from the date of acquisition;
(2) investments in commercial paper maturing within 365 days from the date
of acquisition and having, at the date of acquisition, the highest
credit rating obtainable from Standard & Poor's Corporation or from
Moody's Investors Service;
(3) investments in certificates of deposit, banker's acceptance and time
deposits maturing within 365 days from the date of acquisition issued
or guaranteed by or placed with, and money market deposit accounts is-
sued or offered by, any domestic office of any commercial bank orga-
nized under the laws of the United States of America or any State which
has a combined capital and surplus and undivided profits of not less
than $500.0 million;
(4) fully collateralized repurchase agreements with a term of not more than
30 days for securities described in clause (1) above and entered into
with a financial institution satisfying the criteria described in
clause (3) above; and
(5) money market funds substantially all of whose assets comprise securi-
ties of the type described in clauses (1) through (3) above.
Change of Control means the occurrence of one or more of the following events:
(1) Any person or group, as such terms are used in Section 13(d) and 14(d)
of the Exchange Act, other than a permitted holder or permitted
holders, or a person or group controlled by a permitted holder or
permitted holders, becomes the beneficial owner, as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a person shall be
deemed to have beneficial ownership of all securities that person has
the right to acquire within one year, upon the happening of an event or
otherwise, is or becomes the beneficial owner, directly or indirectly,
of:
. securities of Triton Holdings representing 50% or more of the
combined voting power of Triton Holdings' then outstanding voting
stock, or
. securities of Triton representing 50% or more of the combined voting
power of Triton's then outstanding voting stock;
(2) the following individuals cease for any reason to constitute more than
a majority of the number of directors then serving on the board of
Triton Holdings or Triton:
. individuals who, on October 1, 1998, constitute the board, and
. any new director, other than a director whose initial assumption of
office is in connection with an actual or threatened election con-
test, including a consent solicitation relating to the election of
directors of Triton Holdings or Triton, whose appointment or election
by the board or nomination for election by Triton's stockholders was
approved by the vote of at least two-thirds of the directors then
still in office or whose appointment, election or nomination was
previously so approved or recommended; or
(3) the stockholders of Triton Holdings or of Triton shall approve any plan
of liquidation, whether or not otherwise in compliance with the
provisions of the indenture.
For purposes of the foregoing, the transfer, by lease, assignment, sale or
otherwise, in a single transaction or series of transactions, of all or
substantially all of the properties or assets of one or more of our
subsidiaries, the capital stock of which constitutes all or substantially all
of our properties and assets, shall be deemed to be the transfer of all or
substantially all of our properties and assets.
Consolidated Cash Flow of any entity means, for any period, that entity's
consolidated net income for the period:
(1) increased, to the extent consolidated net income for the period has
been reduced, by the sum of, without duplication:
(a) the entity's consolidated expense for the period,
plus
(b) the entity's consolidated income tax expense for the period,
plus
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(c) the consolidated depreciation and amortization expense of the entity
and its restricted subsidiaries for the period,
plus
(d) any other non-cash charges of the entity and its restricted
subsidiaries for the period except for any non-cash charges that
represent accruals of, or reserves for, cash disbursements to be
made in any future accounting period; and
(2) decreased, to the extent consolidated net income for the period has
been increased, by any non-cash gains from asset dispositions.
Consolidated Income Tax Expense of any entity means, for any period, the
consolidated provision for the income taxes of that entity and its restricted
subsidiaries for the period, calculated on a consolidated basis in accordance
with GAAP.
Consolidated Interest Expense for any entity means, for any period, without
duplication:
(1) the consolidated interest expense included in a consolidated income
statement, without deduction of interest or finance charge income, of
that entity and its restricted subsidiaries for that period calculated
on a consolidated basis in accordance with GAAP, including:
(a) any amortization of debt discount,
(b) the net costs under interest rate agreements,
(c) all capitalized interest,
(d) the interest portion of any deferred payment obligation, and
(e) all amortization of any premiums, fees and expenses payable in con-
nection with the incurrence of any Indebtedness;
plus
(2) the interest component of capital lease obligations paid, accrued
and/or scheduled to be paid or accrued by the entity and its restricted
subsidiaries during the period as determined on a consolidated basis in
accordance with GAAP.
Consolidated Net Income of any entity means, for any period the consolidated
net income, or loss, of the entity and its restricted subsidiaries for the
period determined on a consolidated basis in accordance with GAAP. However,
the following items are excluded from the determination of consolidated net
income:
(1) the net income, or loss, of any entity acquired by the entity or its
restricted subsidiary in a pooling-of-interests transaction for any pe-
riod prior to the date of the transaction;
(2) the net income, but not loss, of any of the other entity's restricted
subsidiary which is subject to restrictions preventing or limit payment
of dividends or making of distributions to that entity to the extent of
those restrictions, regardless of any waiver;
(3) the net income of any other entity, other than a restricted subsidiary
of the first entity, except to the extent of the amount of dividends or
other distributions representing the first entity's proportionate share
of the second entity's net income, for the period actually paid in cash
to the first entity by the second entity during the period;
(4) gains or losses, other than for purposes of calculating consolidated
net income under clause (3) of the second paragraph under "Limitation
on Restricted Payments", on asset dispositions by the entity or its re-
stricted subsidiaries;
(5) all extraordinary gains but not, other than for purposes of calculating
consolidated net income under clause (3) under "Limitation on Re-
stricted Payments," losses, determined in accordance with GAAP; and
(6) in the case of a successor to the referent entity by consolidation or
merger or as a transferee of the referent entity's assets, any earnings
or losses of the successor corporation prior to the consolidation,
merger or transfer of assets.
Disqualified Stock of any entity means any capital stock of the entity which,
by its terms, or by the terms of any security into which it is convertible or
for which it is exchangeable, or upon the happening of any event, matures or
is mandatorily redeemable, under a sinking fund obligation or otherwise, or is
redeemable at the option of the holder thereof, in whole or in part, on or
prior to the final maturity of the notes.
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Excluded Cash Proceeds means the first $122.0 million of net cash proceeds we
received subsequent to May 4, 1998 from capital contributions in respect of
our qualified stock or from the issuance or sale, other than to a restricted
subsidiary, of qualified stock.
Indebtedness means, without duplication, with respect to any entity, whether
recourse is to all or a portion of the assets of the entity and whether or not
contingent:
(1) every obligation of the entity for money borrowed;
(2) every obligation of the entity evidenced by bonds, debentures, notes or
other similar instruments, including obligations incurred in connection
with the acquisition of property, assets or businesses;
(3) every reimbursement obligation of the entity with respect to letters of
credit, bankers' acceptances or similar facilities issued for the ac-
count of that entity;
(4) every obligation of the entity issued or assumed as the deferred pur-
chase price of property or services, but excluding trade accounts pay-
able or accrued liabilities arising in the ordinary course of business
which are not overdue or which are being contested in good faith;
(5) every capital lease obligation of the entity;
(6) every net obligation under interest rate swap or similar agreements of
the entity; and
(7) every obligation of the type referred to in clauses (1) through (6)
above of a second entity and all dividends of the second entity the
payment of which, in either case, the first entity has guaranteed or is
responsible or liable for, directly or indirectly, as obligor, guaran-
tor or otherwise.
Indebtedness shall include the liquidation preference and any mandatory
redemption payment obligations in respect of any Disqualified Stock of Triton
and any restricted subsidiary, and any preferred stock of a subsidiary of
Triton.
Indebtedness shall never be calculated taking into account any cash and cash
equivalents held by the first entity. Indebtedness shall not include
obligations arising from agreements of Triton or a restricted subsidiary to
provide for indemnification, adjustment of purchase price, earn-out, or other
similar obligations, in each case, incurred or assumed in connection with the
disposition of any business or assets of a restricted subsidiary. The amount
of any Indebtedness outstanding as of any date shall be:
(A) its accreted value, in the case of any Indebtedness issued with origi-
nal issue discount;
(B) principal amount thereof, in the case of any Indebtedness other than
Indebtedness issued with original issue discount; and
(C) the greater of the maximum repurchase or redemption price or liquida-
tion preference, in the case of any Disqualified Stock or preferred
stock.
Net Available Proceeds from any asset disposition by any entity means cash or
readily marketable Cash Equivalents received, including by way of sale or
discounting of a note, installment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquirer of Indebtedness or other obligations relating to the properties or
assets or received in any other non-cash form, by the entity, including any
cash received by way of deferred payment or upon the monetization or other
disposition of any non-cash consideration, including notes or other securities
received in connection with the asset disposition, net of:
. all legal, title and recording tax expenses, commissions and other fees
and expenses incurred and all federal, state, foreign and local taxes
required to be accrued as a liability as a consequence of such asset
disposition;
. all payments made by the entity or any of its restricted subsidiaries on
any Indebtedness which is secured by the assets in accordance with the
terms of any lien upon or with respect to the assets or which must by
the terms of the lien, or in order to obtain a necessary consent to the
asset disposition or by applicable law, be repaid out of the proceeds
from the asset disposition;
. all payments made with respect to liabilities associated with the assets
which are the subject of the asset disposition, including, without
limitation, trade payables and other accrued liabilities;
. appropriate amounts to be provided by the entity or any of its
restricted subsidiaries, as the case may be, as a reserve in accordance
with GAAP against any liabilities associated with the assets and
retained by the entity or any restricted subsidiary, after the asset
disposition, including, without limitation, liabilities under any
indemnification obligations and severance and other employee termination
costs associated with the asset
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disposition, until such time as the amounts are no longer reserved or
the reserve is no longer necessary, at which time any remaining amounts
will become Net Available Proceeds to be allocated in accordance with
the provisions of clause (3) of the covenant described under "--
Covenants--Limitation on Certain Asset Dispositions;" and
. all distributions and other payments made to minority interest holders
in restricted subsidiaries of the entity or joint ventures as a result
of the asset disposition.
Net Investment means the excess of:
(1) the aggregate amount of all investments made in any unrestricted
subsidiary or joint venture by Triton or any restricted subsidiary on
or after May 4, 1998. In the case of an investment made other than in
cash, the amount shall be the fair market value of the investment as
determined in good faith by the board of Triton or the restricted
subsidiary;
over
(2) the aggregate amount returned in cash on or with respect to those
investments whether through interest payments, principal payments,
dividends or other distributions or payments. However, these payments
or distributions shall not be, and have not been, included in clause
(3) of "--Covenants--Limitation on Restricted Payments."
Furthermore, with respect to all investments made in any unrestricted
subsidiary or joint venture, the amounts referred to in clause (2) above with
respect to those investments shall not exceed the aggregate amount of all
investments made in the unrestricted subsidiary or joint venture.
Offer to Purchase means a written offer sent by Triton by first class mail,
postage prepaid, to each noteholder at his or her address appearing in the
register for the notes on the date of the offer, offering to purchase up to:
. the Accreted Value of the notes if the offer is made on or prior to May
1, 2003; or
. the principal amount at maturity of the notes, if the offer is made af-
ter May 1, 2003,
at the purchase price specified in the offer, as determined under the terms of
the indenture.
Unless otherwise required by applicable law, the offer shall specify an
expiration date, which shall be not less than 30 days nor more than 60 days
after the date of the offer, and a settlement date, referred to herein as the
purchase date for purchase of the notes within five business days after the
expiration date. We will notify the trustee at least 15 business days, or any
shorter period acceptable to the trustee, prior to mailing the offer, of our
obligation to make an Offer to Purchase. We will mail the offer, or, at our
request, the trustee will mail the offer in our name and at our expense. The
offer will contain all the information required by applicable law. The offer
will contain all instructions and materials necessary to enable holders to
tender notes under the terms of the Offer to Purchase. The offer will also
state:
. the section of the indenture under which we are making the Offer to Pur-
chase;
. the expiration date and the purchase date;
. the aggregate principal amount at maturity of the outstanding notes we
are offering to purchase, if less than 100%, and the manner by which we
determined that amount;
. the purchase price to be paid by us for each $1,000 aggregate principal
amount at maturity of notes accepted for payment, as specified under the
terms of the indenture;
. that the holder may tender all or any portion of the notes registered in
his or her name and that any portion of a note tendered must be tendered
in an integral multiple of $1,000 principal amount at maturity;
. the place or places where holders may surrender notes for tender;
. that interest on any note not tendered, or tendered but not purchased,
will continue to accrue;
. that on the purchase date the purchase price will become due and payable
upon each note being accepted for payment, and that interest shall cease
to accrue on and after the purchase date;
. that each holder electing to tender all or any portion of a note will be
required to surrender the note at the place or places specified in the
offer prior to the close of business on the expiration date. If we or
the trustee so
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requires, the holder must duly endorse the note, or accompany it with a
written instrument of transfer in form satisfactory to us and the
trustee and duly executed by the holder or the holder's attorney duly
authorized in writing;
. that holders will be entitled to withdraw all or any portion of notes
tendered if we or our paying agent receive, not later than the close of
business on the fifth business day next preceding the expiration date, a
telegram, telex, facsimile transmission or letter setting forth the
holder's name, the principal amount of the note, the certificate number
of the note and a statement that the holder is withdrawing all or a por-
tion of his tender;
. that:
(a) we will purchase all notes in an aggregate principal amount at matu-
rity less than or equal to the purchase amount that are duly ten-
dered and not withdrawn, and
(b) if notes in an aggregate principal amount at maturity in excess of
the purchase amount are tendered and not withdrawn, we will purchase
notes having an aggregate principal amount at maturity equal to the
purchase amount on a proportionate basis, with adjustments as we may
deem appropriate so that we will purchase only notes in denomina-
tions of $1,000 or integral multiples of $1,000; and
. that in the case of any holder whose note is purchased only in part, we
will execute and the trustee will authenticate and deliver to the holder
without service charge, a new note or notes of any authorized denomina-
tion as the holder requests, in an aggregate principal amount at matu-
rity equal to and in exchange for the unpurchased portion of the note so
tendered.
An Offer to Purchase shall be governed by and effected in accordance with the
provisions above pertaining to any offer.
Permitted Business means:
. the delivery or distribution of telecommunications, voice, data or video
services;
. any business or activity reasonably related or ancillary to those listed
above, including, any business we or a restricted subsidiary conducts on
May 4, 1998, and the acquisition, holding or exploitation of any license
relating to the delivery of those services; or
. any other business or activity in which we and the restricted subsidiar-
ies expressly contemplate engaging in under the provisions of our cer-
tificate of incorporation and bylaws as in effect on May 4, 1998.
Permitted Holder means:
. each of AT&T Corporation, Chase Capital Partners, J.P. Morgan Investment
Corporation, Desai Capital Management Incorporated, and any of their re-
spective affiliates and the respective successors, by merger, consolida-
tion, transfer or otherwise, to all or substantially all of the respec-
tive businesses and assets of any of them; and
. any entity or group, as such terms are used in Section 13(d) and 14(d)
of the Exchange Act, controlled by one or more entities identified
above.
Permitted Investments means:
. investments in Cash Equivalents;
. the first investments representing capital stock or obligations issued
to us or any restricted subsidiary in the course of good faith settle-
ment of claims against any other entity or by reason of a composition or
readjustment of debt or a reorganization of any debtor of ours or of any
restricted subsidiary;
. deposits, including interest-bearing deposits, we maintain in the ordi-
nary course of business in banks;
. any investment in any entity. However, after giving effect to any in-
vestment, the entity must be a restricted subsidiary or must merge, con-
solidate or amalgamate with or into, or transfer or convey substantially
all of its assets to, or liquidate into, us or one of our restricted
subsidiaries;
. trade receivables and prepaid expenses, in each case arising in the or-
dinary course of business. However, such receivables and prepaid ex-
penses must be recorded as assets of that entity in accordance with
GAAP;
. endorsements for collection or deposit in the ordinary course of busi-
ness by that entity of bank drafts and similar negotiable instruments of
a second entity, received as payment for ordinary course of business
trade receivables;
. any interest rate agreements with an unaffiliated entity otherwise per-
mitted by clause (5) or (6) under "--Covenants--Limitation on Incurrence
of Indebtedness";
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. investments received as consideration for an asset disposition in com-
pliance with the provisions of the indenture described under "--Cove-
nants--Limitation on Certain Asset Dispositions";
. loans or advances to our employees or those of any restricted subsidiary
in the ordinary course of business in an aggregate amount not to exceed
$5.0 million at any one time outstanding;
. any investment acquired by us or any of our restricted subsidiaries as a
result of a foreclosure by us or any of our restricted subsidiaries or
in connection with the settlement of any outstanding Indebtedness or
trade payable;
. loans and advances to officers, directors and employees for business-re-
lated travel expenses, moving expenses and other similar expenses, each
incurred in the ordinary course of business; and
. other investments, with such investment being valued as of the date made
and without giving effect to subsequent changes in value, in an aggre-
gate amount not to exceed $7.5 million at any one time outstanding.
Permitted Junior Securities means:
. qualified stock;
. securities of Triton or any other corporation authorized by an order or
decree giving effect, and stating in such order or decree that effect is
given, to the subordination of such securities to Triton's senior debt
and made by a court of competent jurisdiction in a reorganization pro-
ceeding under any applicable bankruptcy, insolvency or other similar
law; or
. any securities of Triton provided for by a plan of reorganization or re-
adjustment that are subordinated in right of payment to all senior debt
that may at the time be outstanding to substantially the same extent as,
or to a greater extent than, the notes are subordinated as provided in
the indenture.
Strategic Equity Investor means any of the initial cash equity investors, as
defined in the securities purchase agreement, any of their affiliates or any
other entity engaged in a Permitted Business whose Total Equity Market
Capitalization exceeds $500.0 million.
Total Consolidated Indebtedness means, at any date of determination, an amount
equal to:
. the accreted value of all Indebtedness, in the case of any Indebtedness
issued with original issue discount;
plus
. the principal amount of all Indebtedness, in the case of any other In-
debtedness, of Triton and our restricted subsidiaries outstanding as of
the date of determination.
Total Equity Market Capitalization of any person means, as of any day of
determination, the sum of:
. the product of:
(a) the aggregate number of the entity's outstanding primary shares of
common stock on that day, which shall not include any options or
warrants on, or securities convertible or exchangeable into, shares
of that entity's common stock,
multiplied by
(b) the average closing price of the common stock listed on a national
securities exchange or the Nasdaq National Market System over the 20
consecutive business days immediately preceding the day of
determination,
plus
. the liquidation value of any outstanding shares of that entity's pre-
ferred stock on that day.
Total Invested Capital means, at any time of determination, the sum of, without
duplication:
. the total amount of equity contributed to us as of May 4, 1998, as set
forth on our March 31, 1998 combined balance sheet;
plus
. irrevocable binding commitments to purchase capital stock, other than
Disqualified Stock, existing as of May 4, 1998;
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plus
. the aggregate net cash proceeds we received from capital contributions,
the issuance or sale of capital stock, other than Disqualified Stock but
including capital stock issued upon the conversion of convertible In-
debtedness or from the exercise of options, warrants or rights to pur-
chase capital stock, other than Disqualified Stock, subsequent to May 4,
1998, other than to a restricted subsidiary. However, the aggregate net
cash proceeds we received under the terms of this clause shall exclude
any amounts included as commitments to purchase capital stock in the
preceding clause;
plus
. the aggregate net cash proceeds we or any restricted subsidiary received
from the sale, disposition or repayment of any investment made after May
4, 1998 and constituting a restricted payment in an amount equal to the
lesser of:
(a) the return of capital with respect to the investment, and
(b) the initial amount of the investment, in either case, less the cost
of the disposition of the investment;
plus
. an amount equal to the consolidated net investment on the date we and/or
any of our restricted subsidiaries make in any subsidiary that has been
designated as an unrestricted subsidiary after May 4, 1998, upon its re-
designation as a restricted subsidiary in accordance with the covenant
described under "--Certain Covenants--Limitation on Designations of Un-
restricted Subsidiaries;"
plus
. Total Consolidated Indebtedness;
minus
. the aggregate amount of all restricted payments including any designa-
tion amount, but not a restricted payment of the type referred to in
clause (3)(b) of "--Certain Covenants--Limitation on Restricted Pay-
ments," declared or made on or after May 4, 1998.
Vendor Credit Arrangement means any Indebtedness, including Indebtedness under
any credit facility, entered into with any vendor or supplier or any financial
institution acting on behalf of vendor or supplier. However, the net proceeds
of the Indebtedness must be utilized for the purpose of financing the cost of
design, development, site acquisition, construction, integration, handset
manufacture or acquisition or microwave relocation of assets used or usable in
a Permitted Business, including, among other things, through the acquisition of
capital stock of an entity engaged in a Permitted Business.
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Book-Entry; Delivery and Form
The notes were initially issued in the form of a global note. The global note
has been deposited date with, or on behalf of, the Depository and registered in
the name of Cede & Co., as the Depository's nominee.
The Depository has advised us that it is:
. a limited-purpose trust company organized under the laws of the State of
New York;
. is a member of the Federal Reserve System;
. a clearing operation within the meaning of the Uniform Commercial Code,
as amended; and
. a clearing agency registered pursuant to Section 17A of the Exchange
Act.
The Depository was created to hold securities for its participating
organizations and to facilitate the clearance and settlement of transactions in
such securities between participants through electronic bookentry changes in
accounts of its participants, thereby eliminating the need for physical
movement of certificates. The Depository's participants include securities
brokers and dealers, banks and trust companies, clearing corporations and
certain other organizations. Access to the Depository's system is also
available to other entities such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
either directly or indirectly. We refer to those persons as indirect
participants. Qualified institutional buyers may elect to hold notes purchased
by them through the Depository. Qualified institutional buyers who are not
participants may beneficially own securities held by or on behalf of the
Depository only through participants or indirect participants. Persons that are
not qualified institutional buyers may not hold notes through the Depository.
Ownership of the notes is shown on, and the transfer of ownership will be
effected only through, records maintained by the Depository's participants and
Depository's indirect participants. The laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own and that security interests in negotiable instruments can only be
perfected by delivery of certificates representing the instruments.
Consequently, the ability to transfer notes or to pledge the notes as
collateral will be limited to such extent.
So long as the Depository or its nominee is the registered owner or holder of
the global note, the Depository or its nominee will be considered the sole
owner or holder of the notes represented by the global note for all purposes
under the indenture. Except as provided below, owners of beneficial interests
in the global note will not be entitled to have notes represented by the global
note registered in their names, will not receive or be entitled to receive
physical delivery of certificated notes, and will not be considered the owners
or holders under the indenture for any purpose, including with respect to the
giving of any directions, instructions or approvals to the indenture trustee.
As a result, the ability of a person having a beneficial interest in notes
represented by the global note to pledge that interest to persons or entities
that do not participate in the Depository's system, or to otherwise take
actions with respect to that interest, may be affected by the lack of a
physical certificate evidencing such interest.
Accordingly, each qualified institutional buyer owing a beneficial interest in
the global note must rely on the procedures of the Depository and, if the
qualified institutional buyer is not a participant or an indirect participant,
on the procedures of the participant through which the qualified institutional
buyer owns its interest, to exercise any rights of a holder under the indenture
or the global note. We understand that under existing industry practice, in the
event we request any action of holders of notes, or a qualified institutional
buyer that is an owner of a beneficial interest in the global note desires to
take any action that the Depository, as the holder of the global note, is
entitled to take, the Depository would authorize the participants to take the
action and the participants would authorize the qualified institutional buyers
owning through those participants to take the action or would otherwise act
upon the instructions of the qualified institutional buyers. Neither we nor the
trustee will have any responsibility or liability for any aspect of the records
of the Depository or for maintaining, supervising or reviewing any records of
the Depository relating to the notes.
Payments with respect to the principal of, premium, if any, interest and
additional interest, if any, on any notes represented by the global note
registered in the name of the Depository or its nominee on the applicable
record date will be payable by the trustee to or at the direction of or its
nominee in its capacity as the registered holder of the global note
representing the notes under the indenture. Under the terms of the indenture,
Triton and the trustee may treat the persons in whose names the notes,
including the global note, are registered as the owners for the purpose of
receiving payments and for any and all purposes whatsoever. Consequently,
neither Triton nor the trustee has or will have any responsibility or liability
for the
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payment of such amounts to beneficial owners of notes. We believe, however,
that it is currently the Depository's policy to immediately credit the accounts
of the relevant participants with such payments, in amounts proportionate to
their respective holdings of beneficial interests in the global note as shown
on the Depository's records. Payments by the Depository's participants and the
Depository's indirect participants to the beneficial owners of notes will be
governed by standing instructions and customary practice and will be the
responsibility of the Depository's participants or indirect participants.
Neither Triton nor the trustee will be liable for any delay by the Depository
or any participant or indirect participant in identifying the beneficial owners
of the related notes and Triton and the trustee may conclusively rely on, and
will be protected in relying on, instructions from the Depository for all
purposes, including with respect to the registration, delivery, and respective
principal amounts of the notes to be issued.
The notes represented by the global note are expected to be eligible to trade
in the Portal market and to trade in the Depository's Same-Day Funds Settlement
System, and the Depository therefore will require settlement in immediately
available fund of any permitted secondary market trading activity in the notes.
Certificated Notes
Subject to specific conditions, any person having a beneficial interest in the
global note may, upon request to the trustee, exchange the beneficial interest
for certificated notes. Upon their issuance, the trustee is required to
register any certificated notes in the name of, and cause the same to be
delivered to, that person or persons, or any nominee. All such certificated
notes evidencing outstanding notes will be subject to the legend requirements
applicable to the outstanding notes. In addition, if:
. we notify the trustee in writing that the Depository is no longer
willing or able to act as a depository and we are unable to locate a
qualified successor within 90 days; or,
. at our option, we notify the trustee in writing that we elect to cause
the issuance of notes in definitive form under the indenture,
then, upon surrender by the Depository of the global note, certificated notes
will be issued to each beneficial owner of the notes represented by the global
note.
The information in this section concerning the Depository and the Depository
book-entry system has been obtained from sources we believe to be reliable. We
will have no responsibility for the Depository's or its participants'
performance of their respective obligations as described above or under the
rules and procedures governing their respective operations.
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Certain United States Federal Income Tax Consequences
General
The following is a summary of the material United States federal income, estate
and gift tax consequences of the purchase, ownership and disposition of the
notes, but is not purported to be a complete analysis of all potential tax
effects. This summary is based upon the Internal Revenue Code of 1986, as
amended, existing and proposed regulations promulgated thereunder, published
rulings and court decisions, all as in effect and existing on the date hereof
and all of which are subject to change at any time, which change may be
retroactive or prospective. Unless otherwise specifically noted, this summary
applies only to those persons that purchased the notes for cash and hold the
notes as capital assets within the meaning of Section 1221 of the Internal
Revenue Code. We will treat the notes as indebtedness for United States federal
income tax purposes, and the following discussion assumes that such treatment
will be respected.
This summary is for general information only and does not address the tax
consequences to taxpayers who are subject to special rules, such as financial
institutions, tax-exempt organizations, insurance companies, S corporations,
regulated investment companies, real estate investment trusts, broker-dealers,
taxpayers subject to the alternative minimum tax, United States holders, as
defined below, whose functional currency is not the U.S. dollar and persons
that will hold the notes as part of a position in a straddle or as part of a
constructive sale or a hedging, conversion or other integrated transaction, or
address aspects of federal taxation that might be relevant to a prospective
investor based upon such investor's particular tax situation. This summary does
not address any tax consequences arising under any state, municipality, foreign
country or other taxing jurisdiction. Prospective investors are urged to
consult their tax advisors regarding the United States federal tax consequences
of owning and disposing of the notes, including the investor's status as a
United States holder or a Non-United States holder, as well as any tax
consequences that may arise under the laws of any state, municipality, foreign
country or other taxing jurisdiction.
A United States holder means a beneficial owner of a note that, for United
States federal income tax purposes, is a citizen or individual resident, as
defined in Section 7701(b) of the Internal Revenue Code, of the United States;
a corporation or partnership, including any entity treated as a corporation or
partnership for United States federal income tax purposes, created or organized
under the laws of the United States, any State thereof or the District of
Columbia unless, in the case of a partnership, otherwise provided by
regulation; an estate the income of which is subject to United States federal
income tax without regard to its source; or a trust if a court within the
United States is able to exercise primary supervision over the administration
of the trust and one or more United States persons have the authority to
control all substantial decisions of the trust. Notwithstanding the preceding
sentence, certain trusts in existence on August 20, 1996, and treated as United
States holders prior to such date, that elect to continue to be so treated,
shall also be considered to be United States holders. A Non-United States
holder means a holder of a note that is not a United States holder.
United States Holders
Original Issue Discount. Because the notes were issued at a discount from their
stated redemption price at maturity, they have original issue discount for
United States federal income tax purposes. The amount of original issue
discount generally equals the excess of the note's stated redemption price at
maturity over its issue price. The note's issue price is the first price at
which a substantial amount of the notes is sold, excluding sales to bond
houses, brokers or similar persons or organizations acting in the capacity of
underwriters or wholesalers. The note's stated redemption price at maturity is
the sum of all cash payments to be made on such note, whether denominated as
principal or interest, other than payments of qualified stated interest.
Qualified stated interest is stated interest that is unconditionally payable at
least annually at a single fixed rate that appropriately takes into account the
length of the interval between payments. Because there will be no required
payment of inter est on the notes prior to May 1, 2003, none of the interest
payments on the notes constitute qualified stated interest; and, accordingly,
each note bears original issue discount in an amount equal to the excess of the
sum of its principal amount and all stated interest payments, over its issue
price.
A United States holder is required to include original issue discount in gross
income as ordinary interest income, periodically over the term of the note
before receipt of the cash or other payment attributable to such income,
regardless of such holder's method of tax accounting. The amount to be included
for any taxable year is the sum of the daily portions of original issue
discount with respect to the note for each day during the taxable year or
portion of a taxable year during which such holder holds the note. The daily
portion is determined by allocating to each day of any accrual period within a
taxable year a pro rata portion of an amount equal to the note's adjusted issue
price at the beginning of the accrual period multiplied by the note's yield to
maturity. For purposes of computing original issue discount, we will use six-
month accrual
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periods that end on the days in the calendar year corresponding to the maturity
date of the notes and the date six months prior to such maturity date, with the
exception of an initial short accrual period. A United States holder is
permitted to use different accrual periods; provided that each accrual period
is no longer than one year, and each scheduled payment of interest or principal
occurs on either the first or last day of an accrual period. The adjusted issue
price of a note at the beginning of any accrual period is its issue price
increased by the aggregate amount of original issue discount previously
includible in the gross income of the holder and decreased by any payments
previously made on the note. The note's yield to maturity is the discount rate
that, when used in computing the present value of all payments of principal and
interest to be made on the note, produces an amount equal to the issue price of
the note.
Under these rules, United States holders are required to include in gross
income increasingly greater amounts of original issue discount in each
successive accrual period. Payments of stated interest on a note will not be
separately included in income, but rather will be treated first as payments of
previously accrued and unpaid original issue discount and then as payments of
principal. Consequently, such payments will reduce a United States holder's
basis in the note, as described below under "--United States Holders--Sale,
Exchange or Redemption of the Notes."
We do not intend to treat the possibility of an optional redemption, as
described under "Description of Notes--Optional Redemption" or a repurchase
pursuant to a change in control, as described under "Description of Notes--
Change of Control" as affecting the determination of the yield to maturity of
the notes, or as giving rise to any additional accrual of original issue
discount or recognition of ordinary income upon the redemption, sale or
exchange of the notes. In the unlikely event that the interest rate on the
notes is increased, then such increased interest may be treated as increasing
the amount of original issue discount on the notes includible by a United
States holder in income as such original issue discount accrues, in advance of
the receipt of any cash payment therefor.
Acquisition Premium. A United States holder that purchases a note for an amount
that is greater than its adjusted issue price as of the purchase date will be
considered to have purchased such note at an acquisition premium. The amount of
original issue discount that such holder must include in its gross income with
respect to such note for any taxable year is generally reduced by the portion
of such acquisition premium properly allocable to such year. The information
that we will report to the record holders of the notes on an annual basis will
not account for an offset against original issue discount for any portion of
any acquisition premium. Accordingly, each United States holder should consult
its own tax advisor as to the determination of the acquisition premium amount
and the resulting adjustments to the amount of reportable original issue
discount.
Acquisition Bond Premium. A United States holder that purchases a note for an
amount in excess of its principal amount will be considered to have purchased
the note at a premium and may elect to amortize such premium, using a constant
yield method, over the remaining term of the note, or, if a smaller
amortization allowance would result, by computing such allowance with reference
to the amount payable on an earlier call date and amortizing such allowance
over the shorter period to such call date. The amount amortized in any year
will be treated as a reduction of the United States holder's interest income
from the note. Bond premium on a note held by a United States holder that does
not make such an election will decrease the gain or increase the loss otherwise
recognized on disposition of the note. The election to amortize bond premium on
a constant yield method, once made, applies to all debt obligations held or
subsequently acquired by the electing United States holder on or after the
first day of the first taxable year to which the election applies and may not
be revoked without the consent of the Internal Revenue Service.
Market Discount. If a United States holder purchases a note, subsequent to its
original issuance, for an amount that is less than its revised issue price as
of the purchase date, the amount of the difference generally will be treated as
market discount, unless such difference is less than a specified de minimis
amount. The Internal Revenue Code provides that the revised issue price of a
note equals its issue price plus the amount of original issue discount
includible in the income of all holders for periods prior to the purchase date,
disregarding any deduction for acquisition premium, reduced by the amount of
all prior cash payments on the note. Subject to a de minimis exception, a
United States holder will be required to treat any prior payment on, or any
gain recognized on the sale, exchange, redemption, retirement or other
disposition of, the note as ordinary income to the extent of any accrued market
discount that has not previously been included in income and treated as having
accrued on such note at the time of such payment or disposition. If a United
States holder disposes of such a note in a nontaxable transaction other than as
provided in Sections 1276(c) and (d) of the Internal Revenue Code, such holder
must include as ordinary income the accrued market discount as if such holder
had disposed of the note in a taxable transaction at the note's fair market
value. In addition, the United States holder may be required to defer, until
the maturity date of the note or its earlier disposition, including a
nontaxable transaction other than as provided in Sections
76
<PAGE>
1276(c) and (d), the deduction of all or a portion of the interest expense on
any indebtedness incurred or continued to purchase or carry such note.
Any market discount will be considered to accrue ratably during the period from
the date of acquisition to the maturity date of the note, unless the United
States holder elects to accrue market discount on a constant interest method. A
United States holder may elect to include market discount in income currently
as it accrues, under either the ratable or constant interest method. This
election to include currently, once made, applies to all market discount
obligations acquired in or after the first taxable year to which the election
applies and may not be revoked without the consent of the Internal Revenue
Service. If the United States holder makes such an election, the foregoing
rules with respect to the recognition of ordinary income on sales and other
dispositions of such instruments, and with respect to the deferral of interest
deductions on debt incurred or maintained to purchase or carry such debt
instruments, would not apply.
Election to Treat All Interest as Original Issue Discount. A United States
holder may elect, subject to certain limitations, to include all interest that
accrues on a note in gross income on a constant yield basis. For purposes of
this election, interest includes stated interest, original issue discount,
market discount, de minimis original issue discount, de minimis market discount
and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium. Special rules and limitations apply to taxpayers who make
this election; therefore, United States holders should consult their tax
advisors as to whether they should make this election.
The AHYDO Rule. The notes constitute applicable high yield discount
obligations, or AHYDOs. Accordingly, we are not entitled to deduct original
issue discount that accrues with respect to the notes until amounts
attributable to such original issue discount are paid in cash. Treatment of the
notes as AHYDOs will not disqualify interest or original issue discount
accruing with respect thereto from the portfolio interest exception described
below under "Certain United States Federal Tax Considerations--Non-United
States Holders--Interest;" provided that all applicable requirements for the
exception are otherwise satisfied.
Sale, Exchange or Redemption of the Notes. Generally, a sale, exchange or
redemption of the notes will result in taxable gain or loss equal to the
difference between the amount of cash plus the fair market value of other
property received and the United States holder's adjusted tax basis in the
notes. A United States holder's adjusted tax basis for determining gain or loss
on the sale or other disposition of a note will initially equal the cost of the
note to such holder and will be increased by:
. any amounts included in income as original issue discount; and
. any market discount previously included in income by such holder;
and decreased by:
. any principal and stated interest payments received by such holder; and
. any amortized premium previously deducted from income by such holder.
Except as described above with respect to market discount, such gain or loss
will be capital gain or loss. Capital gain or loss will be long-term gain or
loss if the note is held by the United States holder for more than one year,
otherwise such gain or loss will be short-term.
United States holders that are corporations generally will be taxed on net
capital gains at a maximum rate of 35%. In contrast, United States holders that
are individuals generally will be taxed on net capital gains at a maximum rate
of 39.6% for property held for 12 months or less, and 20% for property held
more than 12 months. Special rules, and generally lower maximum rates, apply to
individuals in lower tax brackets. Any capital losses realized by a United
States holder that is a corporation generally may be used only to offset
capital gains. Any capital losses realized by a United States holder that is an
individual generally may be used only to offset capital gains plus $3,000 of
other income per year.
77
<PAGE>
Non-United States Holders
Interest. Under current United States federal income tax law, and subject to
the discussion of backup withholding below, interest, including original issue
discount, paid on the notes to a Non-United States holder will not be subject
to the normal 30% United States federal withholding tax if:
(1) the interest is effectively connected with the conduct of a trade or
business in the United States by the Non-United States holder and the Non-
United States holder timely furnishes to us or our paying agent two duly
executed copies of Internal Revenue Service Form W-8ECI, or any successor
form, executed under penalties of perjury; or
(2) all of the following conditions of the portfolio interest exception are
met:
(a) the Non-United States holder does not, actually or constructively,
own 10% or more of the total combined voting power of all classes of our
stock entitled to vote;
(b) the Non-United States holder is not a controlled foreign corporation
that is related, directly or indirectly, to us through stock ownership;
(c) the Non-United States holder is not a bank receiving interest,
including original issue discount pursuant to a loan agreement entered
into in the ordinary course of its trade or business; and
(d) either (1) the Non-United States holder certifies to us or our
paying agent, under penalties of perjury, that it is a Non-United States
holder and provides its name and address, or (2) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business, and holds
the notes in such capacity, certifies to us or our paying agent, under
penalties of perjury, that such statement has been received from the
beneficial owner of the notes by it or by any other financial
institution between it and the beneficial owner and furnishes us or our
agent with a copy thereof.
The foregoing certification may be provided by the Non-United States holder on
Internal Revenue Service Form W-8BEN, or any successor form, executed under
penalties of perjury. Such certificate is effective with respect to payments of
interest, including original issue discount, made after the issuance of the
certificate in the calendar year of its issuance and the two immediately
succeeding calendar years.
In the event that the interest, including original issue discount, paid on the
notes is effectively connected with the conduct of a trade or business within
the United States of the Non-United States holder, the Non-United States holder
will generally be taxed on a net income basis, that is, after allowance for
applicable deductions at the graduated rates that are applicable to United
States holders in essentially the same manner as if the notes were held by a
United States holder, as discussed above. In the case of a Non-United States
holder that is a corporation, such income may also be subject to the United
States federal branch profits tax, which is generally imposed on a foreign
corporation upon the deemed repatriation from the United States of effectively
connected earnings and profits, at a 30% rate, unless the rate is reduced or
eliminated by an applicable income tax treaty and the Non-United States holder
is a qualified resident of the treaty country.
If the interest on the notes is not effectively connected and does not qualify
for the portfolio interest exception described above, then the interest will be
subject to United States federal withholding tax at a flat rate of 30% or a
lower applicable income tax treaty rate upon delivery of Internal Revenue
Service Form W-8BEN, or any successor form, executed under penalties of
perjury, to us or our paying agent certifying eligibility for treaty benefits.
On October 14, 1997, final regulations were published that govern information
reporting and certification procedures regarding withholding and backup
withholding on certain amounts paid to Non-United States holders. The 1997
regulations are effective for payments made after December 31, 2000, regardless
of the issue date of the instrument with respect to which such payments are
made, subject to certain transition rules. The 1997 regulations provide
documentation procedures designed to simplify compliance by withholding agents.
They generally do not alter the treatment of Non-United States holders,
described above, but change certification procedures and forms and clarify and
modify payor reliance standards. For purposes of the certification
requirements, the 1997 regulations generally treat as the beneficial owners of
payments on the notes those persons that, under United States federal income
tax principles, are the taxpayers with respect to such payments, rather than
persons such as nominees or agents legally entitled to such payments. In the
case of payments to an entity classified as a foreign partnership under United
States federal income tax principles, the partners, rather than the
partnership, generally must provide the required certifications to qualify for
the withholding tax exemption described above, unless the partnership has
entered into a special agreement with the Internal Revenue Service. In
contrast, a payment to a United States partnership is treated for these
purposes as payment to a United States holder, even if the partnership has one
or more foreign partners. The discussion under this heading and under "--Backup
Withholding Tax
78
<PAGE>
and Information Reporting," below, is not intended to be a complete discussion
of the provisions of the 1997 regulations. Prospective holders of the notes are
urged to consult their tax advisors concerning the tax consequences of their
investment in light of the 1997 regulations.
Gain on Sale or Other Disposition. A Non-United States holder generally will
not be subject to regular United States federal income or withholding tax on
gain recognized on a sale or other disposition of the notes, unless:
(1) the gain is effectively connected with the conduct of a trade or
business within the United States of the Non-United States holder or of a
partnership, trust or estate in which such Non-United States holder is a
partner or beneficiary; or
(2) the Non-United States holder is an individual that:
(a) is present in the United States for 183 days or more in the taxable
year of the sale or other disposition, and
(b) either has a tax home in the United States, as specially defined for
purposes of the United States federal income tax, or maintains an office
or other fixed place of business in the United States and the gain from
the sale or other disposition of the notes is attributable to such
office or other fixed place of business.
Non-United States holders who are individuals may also be subject to tax
pursuant to provisions of United States federal income tax law applicable to
certain United States expatriates, including certain former longterm residents
of the United States.
Gains realized by a Non-United States holder that are effectively connected
with the conduct of a trade or business within the United States of the Non-
United States holder generally will be taxed on a net income basis at the
graduated rates that are applicable to United States holders, as described
above, unless exempt by an applicable income tax treaty. In the case of a Non-
United States holder that is a corporation, such income may also be subject to
the United States federal branch profits tax, which is generally imposed on a
foreign corporation upon the deemed repatriation from the United States of
effectively connected earnings and profits, at a 30% rate, unless the rate is
reduced or eliminated by an applicable income tax treaty and the Non-United
States holder is a qualified resident of the treaty country.
Under the 1997 regulations, described above in "--Non-United States Holders--
Interest," withholding of United States federal income tax may apply to
payments on a taxable sale or other disposition of the notes by a Non-United
States holder who does not provide appropriate certification to the withholding
agent with respect to such transaction.
Federal Estate and Gift Taxes. Notes beneficially owned by an individual who is
neither a United States citizen nor a domiciliary of the United States at the
time of death will not be subject to United States federal estate tax as a
result of such individual's death; provided that any interest thereon would
have been eligible for the portfolio interest exception described above in "--
Non-United States Holders--Interest," if such interest had been received by the
individual at the time of death.
An individual who is not a United States citizen will not be subject to United
States federal gift tax on a transfer of the notes, unless such person is a
domiciliary of the United States or such person is subject to provisions of
United States federal gift tax law applicable to certain United States
expatriates, including certain former long-term residents of the United States.
Backup Withholding Tax and Information Reporting
Under current United States federal income tax law, information reporting
requirements apply to interest, including original issue discount, paid to, and
to the proceeds of sales or other dispositions of the notes before maturity by,
certain United States holders. In addition, a 31% backup withholding tax
applies to a non-corporate United States holder if such person:
. fails to furnish such person's taxpayer identification number, which,
for an individual, is his or her Social Security Number, to the payor in
the manner required;
. furnishes an incorrect taxpayer identification number, and the payor is
so notified by the Internal Revenue Service;
. is notified by the Internal Revenue Service that such person has failed
properly to report payments of interest or dividends; or
79
<PAGE>
. in certain circumstances, fails to certify, under penalties of perjury,
that such person has furnished a correct taxpayer identification number
and has not been notified by the Internal Revenue Service that such
person is subject to backup withholding for failure properly to report
interest or dividend payments.
Backup withholding does not apply to payments made to certain exempt United
States holders, such as corporations and tax-exempt organizations.
In the case of a Non-United States holder, under current United States federal
income tax law, backup withholding does not apply to payments of interest,
including original issue discount, with respect to the notes, or to payments of
proceeds on the sale or other disposition of the notes, if such holder has
provided to us or our paying agent the certification described in clause (2)(d)
of "--Non-United States Holders--Interest" or has otherwise established an
exemption.
We must report annually to the Internal Revenue Service and to each Non-United
States holder any interest, including original issue discount, that is subject
to withholding or that is exempt from withholding. Copies of these information
returns may also be made available to the tax authorities of the country in
which the Non-United States holder resides.
Under current United States federal income tax law, neither backup withholding
nor information reporting generally applies to payments of proceeds on the sale
or other disposition of the notes to or through a foreign office of a foreign
broker that is not a United States related person. For this purpose, a United
States related person means a controlled foreign corporation for United States
federal income tax purposes or a foreign person 50% or more of whose gross
income is effectively connected with the conduct of a trade or business within
the United States for a specified three-year period.
If payments of proceeds on the sale or other disposition of the notes were made
through the foreign office of a broker that is a United States person, as
defined in Section 7701(a)(30) of the Internal Revenue Code or a United States
related person, such broker may be subject to certain information reporting,
but not backup withholding, requirements with respect to such payments, unless
such broker has in its records documentary evidence that the beneficial owner
is not a United States person and certain conditions are met, or the beneficial
owner otherwise establishes an exemption. Backup withholding may apply to any
payment that such broker is required to report if such person has actual
knowledge that the payee is a United States person.
Payments of proceeds on the sale or other disposition of the notes to or
through the United States office of any United States or foreign broker will be
subject to backup withholding and information reporting, unless the holder
certifies, under penalties of perjury, that it is not a United States person or
otherwise establishes an exemption, provided that the broker does not have
actual knowledge that the payee is a United States person or that the
conditions of the exemption are, in fact, not satisfied.
The 1997 regulations, described above in "--Non-United States Holders--
Interest," modify certain of the certification requirements for backup
withholding and expand the group of United States related persons. It is
possible that we or our paying agent may request new withholding exemption
forms from holders of the notes in order to qualify for continued exemption
from backup withholding when the 1997 regulations become effective.
Backup withholding tax is not an additional tax. Rather, any amounts withheld
from a payment to a holder of the notes under the backup withholding rules are
allowed as a refund or a credit against such holder's United States federal
income tax; provided that the required information is furnished to the Internal
Revenue Service.
80
<PAGE>
Plan of Distribution
J.P. Morgan & Co. and Chase Securities Inc. may use this prospectus in
connection with offers and sales of the notes in market-making transactions.
J.P. Morgan and Chase Securities may act as principals or agents in these
transactions. They have no obligation to make a market in the notes and may
discontinue their market-making activities at any time without notice, at their
sole discretion.
We have agreed to indemnify jointly and severally J.P. Morgan and Chase
Securities against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that they may be required to make
in that respect. See "Certain Relationships and Related Transactions" for a
summary of our relationships with J.P. Morgan and Chase Securities.
Legal Matters
Latham & Watkins passed upon the validity of the notes.
Experts
The consolidated financial statements of Triton PCS, Inc. and its subsidiaries
as of December 31, 1998 and 1999 and for the period from March 6, 1997
(inception) to December 31, 1997 and the years ended December 31, 1998 and 1999
included in this prospectus and the financial statement schedule included in
the registration statement of which this prospectus is a part have been so
included in reliance on the reports of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
Available Information
Triton filed a registration statement on Form S-4 with the SEC covering the
notes. This prospectus is part of a post-effective amendment to our
registration statement. For further information on Triton, you should refer to
our registration statement and the exhibits filed with our registration
statement. This prospectus summarizes material provisions of contracts and
other documents that we refer you to. Since this prospectus may not contain all
the information that you may find important, you should review the full text of
these documents. We have included copies of these documents as exhibits to our
registration statement.
In addition, Triton files annual, quarterly and special reports with the SEC.
Triton's SEC filings are available over the Internet at the SEC's web site at
http://www.sec.gov. You may also read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, and Chicago. Please
call the SEC at 1-800-SEC-0330 for more information on the public reference
rooms and their copy charges.
Under the indenture governing the notes, Triton agreed to furnish to the
trustee and to registered holders of the notes, without cost to the trustee or
the registered holders, copies of all reports and other information that we are
required to file with the SEC under the Exchange Act. In the event that we
cease to be subject to the informational requirements of the Exchange Act, we
have agreed that we will file with the SEC and distribute to the noteholders,
copies of the financial information that would have been contained in our
annual reports and quarterly reports, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" section, as the
Exchange Act otherwise would have required us to file.
81
<PAGE>
Index to Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Financial Statements:
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 31, 1998 and 1999 F-3
Consolidated Statements of Operations for the period March 6, 1997
(inception) to December 31, 1997, and the years ended December 31, 1998
and 1999 F-4
Consolidated Statements of Shareholder's Equity (Deficit) for the period
March 6, 1997 (inception) to December 31, 1997, and the years ended
December 31, 1998 and 1999 F-5
Consolidated Statements of Cash Flows for the period March 6, 1997
(inception) to December 31, 1997, and the years ended December 31, 1998
and 1999 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholder of Triton PCS, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, shareholder's equity (deficit), and cash
flows present fairly, in all material respects, the financial position of
Triton PCS, Inc., as defined in Note 1 to the financial statements, and its
subsidiaries (the "Company") at December 31, 1998 and 1999, and the results of
their operations and their cash flows for the period from March 6, 1997
(inception) to December 31, 1997 and the years ended December 31, 1998 and
1999, in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 25, 2000
F-2
<PAGE>
TRITON PCS, INC.
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
--------------------------
December 31, December 31,
1998 1999
------------ ------------
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $146,172 $ 186,251
Marketable securities 23,612 --
Due from related party 951 1,099
Accounts receivable net of $1,071 and $1,765 3,102 29,064
Inventory, net 1,433 15,270
Prepaid expenses and other current assets 4,288 7,619
Deferred income tax 81 55
-------- ---------
Total current assets 179,639 239,358
Property and equipment:
Land 313 313
Network infrastructure and equipment 34,147 304,656
Office furniture and equipment 17,642 38,382
Capital lease assets 2,263 5,985
Construction in progress 145,667 105,593
-------- ---------
200,032 454,929
Less accumulated depreciation (1,079) (33,065)
-------- ---------
Net property and equipment 198,953 421,864
Intangible assets, net 308,267 315,538
Other long term assets -- 3,037
-------- ---------
Total assets $686,859 $ 979,797
======== =========
Liabilities And Shareholder's Equity:
Current liabilities:
Accounts payable $ 25,256 $ 72,580
Bank overdraft liability -- 9,549
Accrued payroll & related expenses 3,719 9,051
Accrued expenses 3,646 4,890
Accrued interest 545 626
Current portion of long-term debt 281 1,277
Deferred revenue -- 5,526
Deferred gain on sale of property and equipment -- 1,190
-------- ---------
Total current liabilities 33,447 104,689
Long-term debt 465,689 504,636
Deferred income taxes 11,744 11,718
Deferred gain on sale of property and equipment -- 30,641
-------- ---------
Total liabilities 510,880 651,684
Common stock, $.01 par value, 1,000 shares
authorized, 100 shares issued and outstanding -- --
Additional paid-in capital 217,050 531,026
Accumulated deficit (36,701) (186,061)
Deferred compensation (4,370) (16,852)
-------- ---------
Total shareholder's equity 175,979 328,113
-------- ---------
Total liabilities & shareholder's equity $686,859 $ 979,797
======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
TRITON PCS, INC.
Consolidated Statements of Operations
(Dollars in thousands)
<TABLE>
<CAPTION>
-----------------------------------------
Period from
March 6, 1997 For the For the
(Inception) Year Ended Year Ended
to December 31, December 31, December 31,
1997 1998 1999
--------------- ------------ ------------
<S> <C> <C> <C>
Revenues:
Service $ -- $11,172 $ 63,545
Roaming -- 4,651 44,281
Equipment -- 755 25,405
------ ------- --------
Total revenue -- 16,578 133,231
Expenses:
Cost of service -- 8,767 63,200
Cost of equipment -- 1,699 44,321
Selling and marketing -- 3,260 59,580
General and administrative 2,736 15,589 42,354
Non-cash compensation -- 1,120 3,309
Depreciation and amortization 5 6,663 45,546
------ ------- --------
Loss from operations 2,741 20,520 125,079
Interest and other expense 1,228 30,391 41,061
Interest and other income 8 10,635 4,852
Gain on sale of property, equipment
and marketable securities, net -- -- 11,928
------ ------- --------
Loss before taxes 3,961 40,276 149,360
Income tax benefit -- 7,536 --
------ ------- --------
Net loss $3,961 $32,740 $149,360
====== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
Triton PCS, Inc.
Consolidated Statements of Shareholder's Equity (Deficit)
(Dollars in thousands)
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Additional
Common Stock Paid-in Accumulated Deferred
Shares Amount Capital Deficit Compensation Total
------------ ------ ---------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
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
Capital Contributions
from parent -- -- 298,185 -- -- 298,185
Deferred compensation -- -- 15,791 -- (15,791) --
Non-cash compensation -- -- -- -- 3,309 3,309
Net loss -- -- -- (149,360) -- (149,360)
--- ---- -------- --------- -------- ---------
Balance at December 31,
1999 100 $ -- $531,026 $(186,061) $(16,852) $ 328,113
=== ==== ======== ========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
TRITON PCS, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
-------------------------------------------------------
Period from
March 6, 1997 For the Year For the Year
(Inception) to Ended Ended
December 31, 1997 December 31, 1998 December 31, 1999
----------------- ----------------- -----------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss $(3,961) $(32,740) $(149,360)
Adjustments to reconcile
net loss to cash used
in operating
activities:
Depreciation and
amortization 5 6,663 45,546
Deferred income taxes -- (7,536) --
Accretion of interest -- 22,648 38,213
Bad debt expense -- 636 2,758
Gain on sale of
property, equipment
and marketable
securities, net -- -- (11,928)
Non-cash compensation -- 1,120 3,309
Change in operating
assets and
liabilities, net of
effects of
acquisitions:
Accounts receivable -- (599) (28,587)
Inventory -- (1,046) (13,837)
Prepaid expenses and
other current assets (21) (468) (1,035)
Other assets -- -- (3,408)
Accounts payable 658 2,647 24,664
Bank overdraft
liability -- -- 9,549
Accrued payroll and
liabilities 1,014 6,205 6,272
Accrued interest 1,228 (1,660) 81
Deferred revenue -- -- 5,214
------- -------- ---------
Net cash used in
operating activities (1,077) (4,130) (72,549)
------- -------- ---------
Cash flows from investing
activities:
Capital expenditures (478) (87,715) (264,839)
Myrtle Beach
acquisition, net of
cash acquired -- (164,488) --
Norfolk acquisition -- (96,557) --
Proceeds from sale of
property and equipment,
net -- -- 69,712
Proceeds from maturity
of marketable
securities -- -- 47,855
Purchase of marketable
securities -- (23,612) (23,239)
------- -------- ---------
Net cash used in
investing activities (478) (372,372) (170,511)
------- -------- ---------
Cash flows from financing
activities:
Borrowings under notes
payable 13,344 -- --
Proceeds from issuance
of subordinated debt,
net of discount -- 291,000 --
Borrowings under credit
facility -- 150,000 10,000
Payments under credit
facility -- -- (10,000)
Capital contributions
from parent -- 82,696 287,754
Payments of deferred
transaction costs (324) (11,329) (3,592)
Advances to related-
party, net (103) (848) (148)
Principal payments under
capital lease
obligations -- (207) (875)
------- -------- ---------
Net cash provided by
financing activities 12,917 511,312 283,139
------- -------- ---------
Net increase in cash and
cash equivalents 11,362 134,810 40,079
Cash and cash
equivalents, beginning
of period -- 11,362 146,172
------- -------- ---------
Cash and cash
equivalents, end of
period $11,362 $146,172 $ 186,251
======= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE>
TRITON PCS, INC.
Notes To Consolidated Financial Statements
Period from March 6, 1997 (inception) to December 31, 1997,
and years ended December 31, 1998 and 1999
(1) Organization and Nature of Business
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. On October 1, 1997, Triton PCS Holdings, Inc.
("Holdings" or "Parent") was organized to pursue PCS-related activities.
Holdings subsequently formed a wholly owned subsidiary, Triton PCS, Inc.
("Triton") which directly or indirectly owns several related wholly owned
subsidiaries (collectively the "Company"). Subsequent to October 2, 1997, these
PCS-related activities continued but were conducted primarily through Triton
and its subsidiaries. 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 Triton are
considered companies under common control and were combined for financial
reporting purposes for periods prior to October 2, 1997. All significant
intercompany accounts or balances have been eliminated in consolidation.
The consolidated financial statements incorporate the PCS-related business
activities of L.L.C. and the activities of Triton. The consolidated accounts of
Triton 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.
(2) Summary of Significant Accounting Policies
(a) Use Of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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.
(b) Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, demand deposits and short term
investments with initial maturities of three months or less. Triton maintains
cash balances at financial institutions, which at times exceed the $100,000
FDIC limit. Bank overdraft balances are classified as a current liability.
(c) Marketable Securities
Marketable securities consist of debt securities with initial maturities
greater than three months. Triton classifies all such 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.
(d) Inventory
Inventory, consisting primarily of wireless handsets and accessories held for
resale, is valued at lower of cost or market. Cost is determined by the first-
in, first-out method.
(e) Property and Equipment
Property and equipment is carried at original cost. Depreciation is calculated
based on the straight-line method over the estimated useful lives of the assets
which are ten to twelve years for network infrastructure and equipment and
three to five years for office furniture and equipment. In addition, Triton
capitalizes interest on expenditures related to the buildout of
F-7
<PAGE>
TRITON PCS, INC.
Notes to Consolidated Financial Statements--(Continued)
Period from March 6, 1997 (inception) to December 31, 1997,
and years ended December 31, 1998 and 1999
the network. Expenditures for repairs and maintenance are charged to expense as
incurred. When property is retired or otherwise disposed, the cost of the
property and the related accumulated depreciation are removed from the
accounts, and any resulting gains or losses are reflected in the statement of
operations.
Capital leases are included under property and equipment with the corresponding
amortization included in depreciation. The related financial obligations under
the capital leases are included in current and long-term obligations. Capital
leases are amortized over the useful lives of the respective assets.
(f) Construction in Progress
Construction in progress includes expenditures for the design, construction and
testing of Triton's PCS network and also includes costs associated with
developing information systems. Triton capitalizes interest on certain of its
construction in progress activities. Interest capitalized for the year ended
December 31, 1998 and 1999 totaled $3.5 million and $12.3 million,
respectively. When the assets are placed in service, Triton transfers the
assets to the appropriate property and equipment category and depreciates these
assets over their respective estimated useful lives.
(g) Investment in PCS Licenses
Investments in PCS Licenses are recorded at their estimated fair value at the
time of acquisition. Licenses are amortized on a straight-line basis over 40
years.
(h) Deferred Transaction Costs
Costs incurred in connection with the negotiation and documentation of the AT&T
transaction (see Note 3), were 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 Triton's issuance of senior subordinated discount notes were
deferred and amortized over the terms of the bank financing and notes using the
effective interest rate method.
(i) Long-Lived Assets
Triton periodically evaluates the carrying value of long-lived assets when
events and circumstances warrant such review. The carrying value of a long-
lived asset is considered impaired when the anticipated undiscounted cash flows
from such assets are separately identifiable and are 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.
(j) Revenue Recognition
Revenues from operations consist of charges to customers for monthly access,
airtime, roaming charges, long-distance charges, and equipment sales. Revenues
are recognized as services are rendered. Unbilled revenues result from service
provided from the billing cycle date to the end of the month and from other
carrier's customers using Triton's systems. Equipment sales are recognized upon
delivery to the customer and reflect charges to customers for wireless handset
equipment purchases.
(k) Income Taxes
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.
F-8
<PAGE>
TRITON PCS, INC.
Notes to Consolidated Financial Statements--(Continued)
Period from March 6, 1997 (inception) to December 31, 1997,
and years ended December 31, 1998 and 1999
(l) Financial Instruments
Triton utilizes derivative financial instruments to reduce interest rate risk.
Triton does not hold or issue financial instruments for trading or speculative
purposes. Management believes losses related to credit risk are remote. The
instruments are accounted for on an accrual basis. The net cash amounts paid or
received are accrued and recognized as an adjustment to interest expense
(m) Advertising Costs
Triton expenses advertising costs when the advertisement occurs. Total
advertising expense amounted to $643,000 in 1998 and $25.8 million in 1999.
(n) Concentrations of Credit Risk
Financial instruments, which potentially subject Triton to concentration of
credit risk, consist principally of cash and equivalents, marketable
securities, and accounts receivable. Triton's credit risk is managed through
diversification and by investing its cash and cash equivalents and marketable
securities in high-quality money market instruments and corporate issuers.
Concentrations of credit risk with respect to accounts receivable are limited
due to a large customer base. Initial credit evaluations of customers'
financial condition are performed and security deposits are obtained for
customers with a higher credit risk profile. Triton maintains reserves for
potential credit losses and such losses have not exceeded management
expectations.
(o) Reclassifications
Certain reclassifications have been made to prior period financial statements
to conform to the current period presentation
(p) New Accounting Pronouncements
On July 8, 1999, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 137, "Deferral of the Effective Date of SFAS 133", which defers the
effective date of SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" to all fiscal quarters of all fiscal years beginning after
June 15, 2000. Management is currently evaluating the financial impact of
adoption of SFAS No. 133. The adoption is not expected to have a material
effect on consolidated results of operations, financial position, or cash
flows.
On April 3, 2000 the Financial Accounting Standards Board issued FIN 44,
"Accounting for Certain Transactions Involving Stock Compensation--an
Interpretation of APB 25" which clarifies, among other issues, (a) the
definition of employee for purposes of applying Opinion 25, (b) the criteria
for determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 is effective July 1,
2000, but certain conclusions in the Interpretation cover specific events that
occur after December 15, 1998. To the extent that the Interpretation covers
events occurring during the period after December 15, 1998, but before the
effective date of July 1, 2000, the effects of applying the Interpretation are
recognized on a prospective basis from July 1, 2000. Management is currently
evaluating the impact, if any, the Interpretation will have on the Company's
financial position or results of operation.
On March 24, 2000 the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101A which amends the implementation date of SAB
101, "Revenue Recognition" to the three month period ending June 30, 2000. SAB
101 provides guidance on the recognition, presentation, and disclosure of
revenue in the financial statements. Management is currently assessing the
impact, if any, the SAB will have on the Company's financial position or
results of operations.
F-9
<PAGE>
TRITON PCS, INC.
Notes to Consolidated Financial Statements--(Continued)
Period from March 6, 1997 (inception) to December 31, 1997,
and years ended December 31, 1998 and 1999
(3) AT&T Transaction
On October 8, 1997, Holdings entered into a Securities Purchase Agreement with
AT&T Wireless PCS, Inc. ("AT&T"), a subsidiary of AT&T Corp., and the
shareholders of Holdings, whereby Triton was to become 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 shareholders of Holdings finalizing the transactions contemplated in the
Security Purchase Agreement. Under the Closing Agreement, the Company issued
732,371 shares of Holdings' Series A convertible preferred stock and 366,131
shares of Holdings' Series D convertible preferred stock to AT&T in exchange
for 20 MHz A and B block PCS licenses covering certain areas in the
southeastern United States and the execution of certain related agreements, as
further described below. The fair value of the FCC licenses was $92.8 million
with an estimated useful life of 40 years. This amount is substantially in
excess of the tax basis of such licenses, and accordingly, the Company recorded
a deferred tax liability, upon the closing of the transaction.
In accordance with the Closing Agreement, Triton and AT&T and the other
shareholders of Holdings consented to executing the following agreements:
(a) Shareholder's Agreement
The Shareholder's Agreement expires on February 4, 2009. The agreement was
amended and restated on October 27, 1999 in connection with Holdings initial
public offering and includes the following sub-agreements:
Resale Agreement--Triton is required to enter into a Resale Agreement at the
request of AT&T, which provides AT&T with the right to purchase and resell on a
nonexclusive basis access to and usage of Triton's services in Triton's
Licensed Area. Triton will retain the continuing right to market and sell its
services to customers and potential customers in competition with AT&T.
Exclusivity--None of Holdings Shareholders will provide or resell, or act as
the agent for any person offering, within the Territory wireless mobility
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
Triton 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 Triton has not placed a system into commercial
service, provided that AT&T has provided Triton with prior written notice of
AT&T's 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,
Triton 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--Triton is required to conform to certain requirements regarding the
construction of Triton's PCS system. In the event that Triton 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 wireless mobility telecommunication services to more than 25% of the
population within Triton's territory, AT&T and Triton have certain rights. AT&T
may terminate its exclusivity in the territory in which the other party
overlaps that of Triton. 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
Triton with the opportunity for a 180 day period to have AT&T jointly market
Triton's licenses that are included in the MTA that AT&T is requesting to sell.
F-10
<PAGE>
TRITON PCS, INC.
Notes to Consolidated Financial Statements--(Continued)
Period from March 6, 1997 (inception) to December 31, 1997,
and years ended December 31, 1998 and 1999
(b) License Agreement
Pursuant to a Network Membership License Agreement, dated February 4, 1998 as
amended, (the "License Agreement"), between AT&T and Triton, AT&T granted to
Triton 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 Triton 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 Triton the right and license to use Licensed
Marks on certain permitted mobile phones.
The License Agreement, along with the Exclusivity and Resale Agreements, have a
fair value of $20.3 million with an estimated useful life of 10 years.
Amortization commenced upon the effective date of the agreement.
(c) Roaming Agreement
Pursuant to the Intercarrier Roamer Service Agreement, dated as of February 4,
1998 (as amended, the "Roaming Agreement"), between AT&T and Triton, each of
AT&T and Triton agrees to provide (each in its capacity as serving provider,
the "Serving Provider") wireless mobility radiotelephone service for registered
customers of the other party's (the "Home Carrier") customers while such
customers are out of the Home Carrier's 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 wireless mobility 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 Carrier's charges
for wireless service and 100% of pass-through charges (i.e., toll or other
charges).
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
(a) Savannah/Athens Exchange
On June 8, 1999, Triton completed an exchange of certain licenses with AT&T,
transferring licenses to the Hagertown, MD and Cumberland, MD Basic Trading
Areas ("BTAs") covering 512,000 potential customers in exchange for licenses to
certain countries in the Savannah, GA and Athens, GA BTAs, which cover 517,000
potential customers. All acquired licenses are contiguous to Triton's existing
service area. In addition, consideration of approximately $10.4 million in
Holdings Series A and Series D preferred stock was issued to AT&T.
(b) Norfolk Acquisition
On December 31, 1998, Triton 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. The excess of the
aggregate purchase price over the fair market value of tangible net assets
acquired of approximately $46.3 million was assigned to FCC 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
completed.
The Norfolk Acquisition was funded through the use of proceeds from the
Subordinated Debt offering (see note 11); the issuance of 134,813 shares of
Holdings Series D preferred stock, valued at $14.6 million, and the issuance of
165,187 shares of Holdings Series C preferred stock valued at $16.5 million. In
addition, 766,667 shares of Holdings Class A Common Stock were issued as anti-
dilutive protection in accordance with a prior agreement among the Holdings
shareholders.
F-11
<PAGE>
TRITON PCS, INC.
Notes to Consolidated Financial Statements--(Continued)
Period from March 6, 1997 (inception) to December 31, 1997,
and years ended December 31, 1998 and 1999
(c) Myrtle Beach Acquisition
On June 30, 1998, Triton 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. The acquisition has
been accounted for using the purchase method and, accordingly, the purchase
price was allocated to the assets acquired and liabilities assumed based upon
management's best estimate of their fair value. The purchase price was
allocated to FCC licenses of approximately $123.4 million; subscriber lists of
approximately $20 million; fixed assets of approximately $24.7 million and
other net assets of $3.8 million.
The Myrtle Beach Acquisition was funded through the use of proceeds from the
Subordinated Debt offering and the issuance of 350,000 shares of Holdings
Series C preferred stock valued at $35.0 million, to certain cash equity
shareholders. In addition, 894,440 shares of Holdings common stock were issued
as anti-dilutive protection in accordance with a prior agreement among the
shareholders.
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.
<TABLE>
<CAPTION>
-----------------------
1997 1998
----------- -----------
Unaudited
(Dollars in thousands)
<S> <C> <C>
Net revenues $ 23,608 $ 31,116
Net loss $ 47,336 $ 38,945
</TABLE>
(5) Tower Sale
On September 22, 1999, Triton sold and transferred to American Tower
Corporation ("ATC"), 187 of its towers, related assets and certain liabilities.
The purchase price was $71.1 million, reflecting a price of $380,000 per site.
Triton also contracted with ATC for an additional 100 build-to-suit towers in
addition to its current contracted 125 build-to-suit towers, and the parties
extended their current agreement for turnkey services for co-location sites
through 2001. An affiliate of an investor has acted as Tritons financial
advisor in connection with the sale of the personal communications towers.
Triton also entered into a master lease agreement with ATC, in which Triton has
agreed to pay ATC monthly rent for the continued use of the space that Triton
occupied on the towers prior to the sale. The initial term of the lease is for
12 years and the monthly rental amount is subject to certain escalation clauses
over the life of the lease and related option. Annual payments under the
operating lease are $2.7 million.
The carrying value of towers sold was $25.7 million. After deducting $1.6
million of selling costs, the gain on the sale of the towers was approximately
$43.8 million, of which $11.7 million was recognized immediately, and $32.1
million was deferred and will be recognized over the operating leases term. As
of December 31, 1999, $0.3 million have been amortized.
(6) Stock Compensation
In October 1997 Holdings granted 3,159,416 shares of restricted common stock to
certain management employees. The shares are subject to five-year vesting
provisions. At the issuance date, the estimated value of the shares was
insignificant, and, accordingly, no deferred compensation was recognized.
In February 1998 Holdings granted 1,354,035 shares of restricted common stock
to certain employees through a common stock trust intended for future grants to
management employees and independent directors. Deferred compensation for
F-12
<PAGE>
TRITON PCS, INC.
Notes to Consolidated Financial Statements--(Continued)
Period from March 6, 1997 (inception) to December 31, 1997,
and years ended December 31, 1998 and 1999
stock granted to employees of $0.3 million net of amounts forfeited for shares
returned to the trust, was recorded in 1998 based on the estimated fair value
at the date of issuance.
In June 1998 and December 1998 additional shares of 894,440 and 766,667,
respectively were issued as anti-dilutive protection related to capital
contributions received by Holdings for the Myrtle Beach and Norfolk
transactions. Deferred compensation of $2.8 million and $2.3 million
respectively, was recorded for stock granted to employees, including stock
granted out of the trust, net of forfeitures. Deferred compensation was
recorded based on the estimated value of the shares at the date of issuances.
In January 1999, Holdings granted, through the trust, 61,746 shares of
restricted common stock to an employee and deferred compensation of $0.2
million was recorded. The shares are subject to five-year vesting provisions.
In March 1999, an employee terminated employment with Triton and forfeited $0.1
million of deferred compensation and returned 74,095 shares to the trust.
On June 8, 1999, 109,222 additional shares were issued as anti-dilutive
protection related to capital contributions received by Holdings in connection
with the license exchange and acquisition transaction. The shares are subject
to five-year vesting provisions. Deferred compensation of $1.2 million was
recorded based on the estimated value of the shares at the date of issuance.
On June 30, 1999, Holdings granted, through the trust, 593,124 shares of
restricted common stock to certain management employees. The shares are subject
to five-year vesting provisions. Deferred compensation of $8.5 million was
recorded based on the estimated fair value at the date of issuance.
On August 9, 1999, Holdings granted, through the trust, 356,500 shares of
restricted common stock to certain management employees. These shares are
subject to five-year vesting provisions. Deferred compensation of approximately
$5.1 million was recorded based on the estimated fair value at the date of
issuance.
In September 1999, Holdings sold to certain directors and an officer, subject
to stock purchase agreements, an aggregate of 3,400 shares of Series C
preferred stock for a purchase price of $100.00 per share. Compensation expense
of $0.8 million was recorded based on the excess of the estimated fair value at
the date of issuance over amounts paid
(7) Intangible Assets
<TABLE>
<CAPTION>
--------------------------------
December 31, Amortizable
1998 1999 Lives
-------- -------- ------------
(Dollars in
thousands)
<S> <C> <C> <C>
PCS Licenses $257,799 $277,969 40 years
AT&T agreements 26,026 26,026 10-20 years
Subscriber lists 20,000 20,000 5 years
Bank financing 10,994 12,504 8.5-10 years
Trademark -- 64 40 years
-------- -------- ------------
314,819 336,563
Less: accumulated amortization (6,552) (21,025)
-------- --------
Intangible assets, net $308,267 $315,538
======== ========
</TABLE>
Amortization for the year ended December 31, 1998 and 1999 totaled $5.6 and
$14.5 million, respectively.
F-13
<PAGE>
TRITON PCS, INC.
Notes to Consolidated Financial Statements--(Continued)
Period from March 6, 1997 (inception) to December 31, 1997,
and years ended December 31, 1998 and 1999
(8) Short-Term Debt
(a) 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 Triton. Triton 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 Holding's 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.
(b) Noninterest-Bearing Loans
During 1997, Holdings Cash Equity Investors provided short-term financing in
the form of $11.8 million noninterest-bearing loans. Pursuant to the Closing
Agreement, such loans were converted to equity of Holdings as a reduction of
the requirements of the initial cash contributions of the investors. No gain or
loss was recognized on the conversion of the shares.
(9) Long-Term Debt
<TABLE>
<CAPTION>
-----------------
December 31,
1998 1999
-------- --------
(Dollars in
thousands)
<S> <C> <C>
Bank credit facility $150,000 $150,000
Senior subordinated debt 313,648 350,639
Capital lease obligation 2,322 5,274
-------- --------
465,970 505,913
Less current portion of long-term debt 281 1,277
-------- --------
Long-term debt $465,689 $504,636
======== ========
</TABLE>
The weighted average interest rate for total debt outstanding during 1998 and
1999 was 10.33% and 11.04%, respectively. The average rate at December 31, 1998
and 1999 was 10.16% and 12.38%, respectively.
(10) Bank Credit Facility
On February 3, 1998, Triton and Holdings (collectively referred to as the
"Obligors") entered into a Credit Agreement with certain banks and other
financial institutions, to establish a $425.0 million senior collateralized
Bank Credit Facility (the "Facility"). On September 22, 1999, the Obligors
entered into an amended agreement whereby the Facility was increased to $600.0
million. The Facility provides for (i) a $175 million Tranche A term loan,
maturing August 2006, (ii) a $150 million Tranche B term loan, maturing May
2007, (iii) a $175 million Tranche C term loan, maturing August 2006, and (iv)
a $100 million Revolving Facility, maturing August 2006.
The lenders' commitment to make loans under the Revolving Facility
automatically and permanently reduce, beginning in August 2004, 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 and Tranche C Term Loans are required to be
repaid, beginning in February 2002, 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 Loan is required to be repaid beginning in
February 2002, 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).
F-14
<PAGE>
TRITON PCS, INC.
Notes to Consolidated Financial Statements--(Continued)
Period from March 6, 1997 (inception) to December 31, 1997,
and years ended December 31, 1998 and 1999
Loans accrue interest, at the Obligor's option, at (i) (a) the LIBOR rate (as
defined per the credit agreement) plus (b) the Applicable Rate (Loans bearing
interest described in (i), "Eurodollar Loans") or (ii) (a) the higher of (1)
the Administrative Agent's prime rate or (2) the Federal Funds Effective Rate
(as defined per the Credit Agreement) plus 0.5%, plus (b) the Applicable Rate
(Loans bearing interest described in (ii), "ABR Loans"). The Applicable Rate
means, with respect to the Tranche B Term Loan, 2.00% 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 and C Term Loans and the Revolving Facility, a rate
between 0.0% and 1.25% per annum (dependent upon the Obligor's leverage ratio,
or ratio of end-of-period debt to earnings before interest, taxes,
depreciation, and amortization ("EBITDA")) in the case of an ABR Loan, and a
rate between 1.00% and 2.25% per annum (dependent upon the Obligor's leverage
ratio), in the case of a Eurodollar Loan. A per annum rate equal to 2% plus the
rate otherwise applicable to such Loan will be assessed on past due principal
amounts, and accrued interest payable in arrears.
The Facility provides for an annual commitment fee between .375% and .75% to be
paid on undrawn commitments under the Tranche A and C Term Loans and the
Revolver Facility (dependent upon the level of drawn commitments). The Obligor
incurred commitment fees of approximately $2 million in both 1998 and 1999.
Under the Facility, the Obligor must also fix or limit the interest cost with
respect to at least 50% of its total outstanding indebtedness. At December 31,
1999, approximately 85% of the outstanding debt was fixed. At December 31, 1999
committed availability under the Facility was $450 million.
All obligations of the Obligor under the Facilities are unconditionally and
irrevocably guaranteed by each existing and subsequently acquired or organized
domestic subsidiary of the Company. Borrowings under the Facility, and any
related hedging contracts provided by the lenders thereunder, are
collateralized by a first priority lien on 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 the capital
stock held by Holdings, 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 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 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 or lessee
of equipment, and taxes and other liabilities incurred in the ordinary course
in order to maintain its existence.
The Facility contains financial and other covenants, customary for a facility
of this type, including covenants relating to the population covered by
Triton's network, number of subscribers and level of service revenue generated,
the amount of indebtedness that Triton may incur including customary
representations, warranties, indemnities and conditions precedent to borrowing,
limitations on dividends, distributions, redemptions and repurchases of capital
stock, and events of default.
The Term Loans are required to be prepaid, and commitments under the Revolving
Facility reduced, in an aggregate amount equal to (i) 50% of excess cash flow
of each fiscal year commencing with the fiscal year ending December 31, 2001,
(ii) 100% of the net proceeds of asset sales, outside the ordinary course of
business, or otherwise precluded, (iii) unused insurance proceeds, as defined
per the Credit Agreement, (iv) 100% of net cash proceeds received from
additional debt issuance, over and above the first $150.0 million (senior
and/or subordinated) which Triton may subsequently incur pursuant to the build-
out of its PCS network, and (v) 50% of the net cash proceeds received from
additional equity issuances other than (1) in connection with certain Equity
Commitments, and (2) in the case of (iv) and (v), if, after giving effect to
such issuance(s), (a) Triton's ratio of senior debt to EBITDA is less than 5 to
1 and (b) Triton is in pro forma compliance with required Credit Facility
covenants.
Loans under the Facility are available to fund capital expenditures related to
the construction of Triton's PCS network, the acquisition of related
businesses, working capital needs of Triton, subscriber acquisition costs, and
other permitted
F-15
<PAGE>
TRITON PCS, INC.
Notes to Consolidated Financial Statements--(Continued)
Period from March 6, 1997 (inception) to December 31, 1997,
and years ended December 31, 1998 and 1999
business activities, as defined per the Credit Agreement. All indebtedness
under the Facility constitutes debt which is senior to Triton's 11% Senior
Subordinated Discount Notes.
(11) Subordinated Debt
On May 7, 1998, Triton 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 Purchaser's Discount of $9 million) were
approximately $291 million.
Commencing on November 1, 2003, cash interest will be payable semiannually.
Each Note was offered at an original issue 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.
Triton's publicly held notes may be redeemed at the option of Triton, in whole
or in part, at various points in time after May 1, 2003 at redemption prices
specified in the indenture governing the notes plus accrued and unpaid
interest, if any.
The Notes are guaranteed on a joint and several basis by all of the
subsidiaries of Triton but are not guaranteed by Holdings. The Guarantees are
unsecured obligations of the guarantors, and are subordinated in right to the
full payment to all senior debt of the guarantors, including all of their
obligations under their guarantees of the Credit Facility.
Upon a change in control, each holder of the Notes may require Triton to
repurchase such Holder's 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.
(12) Income Taxes
There was no income tax benefit recorded in 1999. The income tax benefit for
the year ended December 31, 1998 consists of the following:
<TABLE>
<CAPTION>
-----------------------
Current Deferred Total
------- -------- ------
<S> <C> <C> <C>
US Federal $-- $7,054 $7,054
State $-- $ 482 $ 482
---- ------ ------
$-- $7,536 $7,536
</TABLE>
The income tax benefit differs from those computed using the statutory U.S.
Federal income tax rate as set forth below:
<TABLE>
<CAPTION>
---------------
1998 1999
------ ------
<S> <C> <C>
U.S. Federal statutory rate 35.00% 35.00%
State income taxes, net of federal benefit 0.80% 0.00%
Change in federal valuation allowance (16.56%) (34.12%)
Other, net (0.53%) (0.88%)
------ ------
Effective Tax Rate 18.71% 0.00%
====== ======
</TABLE>
F-16
<PAGE>
TRITON PCS, INC.
Notes to Consolidated Financial Statements--(Continued)
Period from March 6, 1997 (inception) to December 31, 1997,
and years ended December 31, 1998 and 1999
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:
<TABLE>
<CAPTION>
-----------------
1998 1999
------- --------
<S> <C> <C>
Deferred tax assets:
Non-deductible accrued liabilities $ 1,049 $ 411
Capitalized startup costs 2,736 2,176
Deferred gain -- 12,465
Net operating loss carryforward 16,022 76,607
------- --------
19,807 91,659
Valuation allowance (8,506) (66,684)
Net deferred tax assets 11,301 24,975
------- --------
Deferred liabilities Intangible assets 21,438 23,173
Capitalized interest 1,150 1,139
Depreciation and amortization 376 12,326
------- --------
Deferred tax liabilities 22,964 36,638
------- --------
Net deferred tax liabilities $11,663 $ 11,663
======= ========
</TABLE>
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. Management believes it is
more likely than not Triton will realize the benefits of the deferred tax
assets, net of the existing valuation allowance at December 31, 1999.
(13) Fair Value of Financial Instruments
Fair value estimates, assumptions, and methods used to estimate the fair value
of Triton's financial instruments are made in accordance with the requirements
of Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments. Triton 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 Triton
could realize currently. The use of different assumptions or estimating methods
may have a material effect on the estimated fair value amounts.
<TABLE>
<CAPTION>
-------------------------------------
December 31,
1998 1999
------------------ ------------------
Estimated Estimated
Carrying fair Carrying fair
amount value amount value
-------- --------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Interest rate swaps -- 623 -- 2,547
Long-term debt:
Subordinated debt 313,648 239,355 350,639 363,512
Bank term loan 150,000 150,000 150,000 150,000
Capital leases 2,322 2,322 5,274 5,274
Marketable securities 23,612 23,612 -- --
</TABLE>
The carrying amounts of cash and cash equivalents, accounts and notes
receivable, bank overdraft liability, accounts payable and accrued expenses are
a reasonable estimate of their fair value due to the short-term nature of the
instruments.
F-17
<PAGE>
TRITON PCS, INC.
Notes to Consolidated Financial Statements--(Continued)
Period from March 6, 1997 (inception) to December 31, 1997,
and years ended December 31, 1998 and 1999
The fair value of marketable securities is estimated based on quoted market
prices. We did not hold any marketable securities at December 31, 1999. At
December 31, 1998, marketable securities consisted of the following:
<TABLE>
<CAPTION>
--------------------------------
Unrealized
Cost Fair value gain (loss)
---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
Available for sale securities:
Debt securities due in one year or
less $23,612 $23,612 --
</TABLE>
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 bank loans are a reasonable estimate of its fair value
because market interest rate interest are variable. Capital leases are recorded
at their net present value, which approximates fair value.
Triton enters into interest rate swaps to hedge against the effect of interest
rate fluctuation on the variable portion of its debt. We do not hold or issue
financial instruments for trading or speculative purposes. A 100 basis point
fluctuation in market rates would not have a material effect on Triton's
overall financial condition.
As of December 31, 1999 Triton had two interest rate swap transactions
outstanding as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Fixed Variable Net
Term Notional Rate Rate Receivable Fair Value
--------------- ----------- ----- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
12/8/98-12/4/03 $35,000,000 4.805% 6.12% $33,272 $1,154,014
12/8/98-12/4/03 $40,000,000 4.760% 6.12% $39,325 $1,393,070
</TABLE>
As of December 31, 1999, the aggregate non-amortizing swap notional amount was
$75 million. Triton pays a fixed rate and receives 3-Month USD-LIBOR-BBA. Net
interest positions are settled quarterly. Swap counter-parties are major
commercial banks.
Management believes that determining a fair value for Holdings preferred stock
is impractical due to the closely held nature of these investments.
(14) Related-Party Transactions
Triton is associated with Triton Cellular Partners L.P. (Triton Cellular) by
virtue of certain management overlap. As part of this association, certain
costs are incurred on behalf of Triton Cellular and subsequently reimbursed to
Triton. Such costs totaled $148,000, $482,000 and $2.2 million during 1997,
1998 and 1999, respectively. In addition, pursuant to an agreement between
Triton and Triton Cellular, allocations for management services rendered are
charged to Triton Cellular. Such allocations totaled $469,000 and $505,000 for
1998 and 1999, respectively. The outstanding balance at December 31, 1998 and
1999 was $951,000 and $1.0 million, respectively. Triton expects settlement of
these outstanding charges during 2000.
In January 1998, we entered into a master service agreement with a related
party pursuant to which the related party will provide Triton with radio
frequency design and system optimization support services.
In February 1998, Triton entered into a credit facility for which affiliates of
certain investors serve as agent and lenders. In connection with execution of
the credit facility, the agent and lenders receive customary fees and expenses.
In May 1998, Triton consummated a private offering of senior subordinated
notes. Affiliates of several cash investors were initial purchasers in the
private offering and received a placement fee of $6.3 million.
F-18
<PAGE>
TRITON PCS, INC.
Notes to Consolidated Financial Statements--(Continued)
Period from March 6, 1997 (inception) to December 31, 1997,
and years ended December 31, 1998 and 1999
(15) Commitments and Contingencies
(a) Leases
Triton 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 2027. Triton has various capital lease commitments of
approximately $5.3 million as of December 31, 1999. As of December 31, 1999,
the future minimum rental payments under these lease agreements having an
initial or remaining term in excess of one year were as follows:
<TABLE>
<CAPTION>
-----------------
Operating Capital
--------- -------
(in thousands)
<S> <C> <C>
2000 $ 21,755 $1,582
2001 21,247 1,572
2002 20,709 1,475
2003 19,236 1,115
2004 7,288 297
Thereafter 116,754 --
-------- ------
Total $206,989 6,041
========
Interest expense 767
------
Net present value of future payments 5,274
Current portion of capital lease obligation 1,277
------
$3,997
======
</TABLE>
Rent expense under operating leases was $3.0 million and $13.2 million for the
year ended December 31, 1998 and 1999, respectively.
(b) Litigation
Triton has been involved in litigation relating to claims arising out of its
operations in the normal course of business. Triton does not believe that an
adverse outcome of any of these legal proceedings will have a material adverse
effect on Triton's results of operations.
(16) Preferred Stock and Shareholder's Equity
(a) Capital Contributions
On February 4, 1998, pursuant to the Securities Purchase Agreement, Holdings
issued $140.0 million of Series C Preferred Stock to certain institutional
investors and management shareholders in exchange for irrevocable capital
commitments aggregating $140.0 million. The Securities Purchase Agreement
provided that the cash contributions be made to Holdings. Holdings directed
that all cash contributions subsequent to the initial cash contributions be
made directly to Triton. All contributions have been received as of December
31, 1999.
(b) Initial Public Offering
On October 27, 1999, Holdings completed an initial public offering of shares of
its Class A common stock and raised approximately $190.2 million, net of $16.8
million of costs. Affiliates of Affordable Housing Community Development
Corporation and J.P. Morgan Investment Corporation, each of which beneficially
owns more than 5% of the Company's stock, served as underwriters and received
underwriter's fees in connection with the initial public offering.
F-19
<PAGE>
TRITON PCS, INC.
Notes to Consolidated Financial Statements--(Continued)
Period from March 6, 1997 (inception) to December 31, 1997,
and years ended December 31, 1998 and 1999
(17) 401(K) Savings Plan
Triton 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. Triton matches a portion of
the voluntary employee contributions. The cost of the Savings Plan charged to
expense was $65,000 in 1998 and $482,400 in 1999.
(18) Supplemental Cash Flow Information
<TABLE>
<CAPTION>
----------------
1998 1999
-------- -------
(in thousands)
<S> <C> <C>
Cash paid during the year for interest, net of
amounts capitalized. $ 8,150 $ 4,111
Non-cash investing and financing activities:
Equipment acquired under capital lease obligation 2,529 3,456
Capital contribution in connection with conversion
of short-term debt to equity. 13,362 --
Issuance of Preferred stock in connection with
Norfolk Acquisition 14,555 --
Issuance of Preferred stock in connection with AT&T
transaction net of deferred taxes 100,947 --
Issuance of Preferred stock in connection with
Savannah/Athens Transaction -- 10,432
Capital expenditures included in accounts payable 21,027 26,145
</TABLE>
F-20
