UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ........... to .........
Commission File No. 0-28435
TRITEL, INC
(Exact name of registrant as specified in its charter)
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Delaware 64-0896417
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
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111 E. Capitol Street, Suite 500
Jackson, MS 39201
(Registrant's Mailing Address)
Registrant's telephone number, including area code: (601) 914-8000
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, par value $0.01
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No _ .
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
On March 27, 2000 there were 97,798,181 shares of Class A Common
Stock, 2,927,120 shares of Class B Common Stock, 1,380,448 shares of Class C
Common Stock, 4,962,804 shares of Class D Common Stock and 6 shares of Voting
Preference Common Stock outstanding. The aggregate market value of such shares
held by non-affiliates on the reported closing price of $38.75 on the NASDAQ
National Market on that date, was approximately $2,973,066,625.
PART I
Item 1. Business
We are an AT&T Wireless affiliate with licenses to provide personal
communications services, called PCS, to approximately 14.0 million people in
contiguous markets in the south-central United States. We began to provide
wireless services in eight of our major markets during 1999. In January 1999,
we entered into our affiliation agreement with AT&T Wireless, our largest
stockholder with 21.6% ownership of our company. We have also joined with two
other AT&T Wireless affiliates to operate under a common regional brand name,
SunCom. We provide our PCS services as a member of the AT&T Wireless Network,
serving as the preferred roaming provider to AT&T Wireless' digital wireless
customers in virtually all of our markets and co-branding our services with
the AT&T and SunCom brands and logos, giving equal emphasis to each.
AT&T Wireless operates the largest digital wireless network in North
America. Its network consists of AT&T Wireless' existing digital and analog
systems, PCS systems being constructed by four joint venture partners,
including our company, and systems currently operated by third parties with
which AT&T Wireless has roaming agreements. In the aggregate, these systems
cover over 95% of the total population, called Pops, throughout the United
States as of December 31, 1999.
Our senior management team has substantial experience in the wireless
communications industry, with a significant operating history in the
south-central United States. We have commenced commercial PCS services in
eight of our ten largest markets. We expect to be able to provide service to
over 98% of the Pops in our license areas by the end of 2000. We define
coverage to include an entire basic trading area if we have a significantly
developed system in that basic trading area.
The following table sets forth our ten largest markets and the date
on which we have commenced or expect to commence commercial PCS service.
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Commercial
Market Launch Date 1998 Pops
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Jackson and Vicksburg, MS................................. September 1999 719,500
Nashville and Clarksville, TN/Hopkinsville, KY............ November 1999 1,936,500
Knoxville, TN............................................. November 1999 1,074,000
Chattanooga and Cleveland, TN/Dalton, GA.................. November 1999 760,800
Huntsville, AL............................................ November 1999 496,400
Montgomery, AL............................................ November 1999 475,300
Louisville, KY............................................ December 1999 1,448,400
Lexington, KY............................................. December 1999 893,400
Birmingham, AL............................................ Expected 2nd Quarter 2000 1,297,800
Mobile, AL................................................ Expected 2nd Quarter 2000 653,900
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Our affiliation with AT&T Wireless is an integral part of our
strategy. AT&T Wireless contributed PCS licenses covering 9.1 million Pops to
us in exchange for its ownership stake in our company. As an AT&T Wireless
affiliate, we enjoy numerous important benefits, including the following:
o Use of AT&T Brand and Logo. We believe the AT&T brand is among the
most recognized brands in the United States. We have the right to use
the AT&T and SunCom brand names and logos in our markets, giving
equal emphasis to each.
o Preferred Provider of PCS to AT&T Wireless Customers. As a member of
the AT&T Wireless Network, we are the preferred provider of mobile
wireless services to AT&T Wireless' digital wireless customers in
virtually all of our markets. We believe our AT&T Wireless
affiliation will continue to provide us with a consistent base of
recurring roaming revenue.
o Coast-to-Coast Coverage. We are able to offer our customers
immediate, coast-to-coast roaming on the AT&T Wireless Network. We
believe that our ability to offer coast-to-coast coverage is a
competitive advantage as customers increasingly choose national rate
plans.
We have also entered into an agreement with two other AT&T Wireless
affiliates, Triton PCS, Inc. and TeleCorp PCS, Inc., to operate with those
affiliates under a common regional brand name, SunCom, throughout an area
covering approximately 43 million Pops primarily in the south-central and
southeastern United States. Our license area is adjacent to and between the
license areas of our SunCom partners.
Merger with TeleCorp PCS, Inc.
On February 28, 2000, Tritel and TeleCorp PCS, Inc. announced the
signing of a definitive agreement and plan of reorganization and contribution,
called the Merger Agreement, for an all stock, tax-free merger, called the
Merger. The Merger Agreement provides for the creation of a new entity to be
called TeleCorp PCS, Inc. Tritel and TeleCorp will merge into subsidiaries of
the new entity.
Under the Merger Agreement, Tritel's Class A common stock will be
converted into the right to receive 0.76 shares of the new entity's Class A
common stock for each share of Tritel common stock. This exchange ratio is
fixed regardless of future stock price movement.
The Merger has been unanimously approved by the Tritel and TeleCorp
boards of directors with three members of the TeleCorp board abstaining.
Shareholders with an excess of 50% of the voting power of each company have
entered into agreements to vote in favor of the Merger. The Merger is still
subject to regulatory approval and other conditions.
The new entity will continue to provide, as an AT&T Wireless
affiliate, digital wireless service under the SunCom and AT&T brand names,
giving equal emphasis to each. In terms of licensed Pops, the new entity will
cover approximately 35 million Pops and will become one of the top ten
wireless service providers in the U.S. The Merger creates a new contiguous
service area that connects the middle of the country and plays a more
strategic role for the AT&T Wireless Network. The new entity will have sixteen
of the top 100 markets located in fourteen states and the Commonwealth of
Puerto Rico. We expect the Merger to be completed in the last quarter of 2000.
The Tritel Network
Our network offers advanced PCS services on a local and regional
basis and through roaming agreements with AT&T Wireless and other carriers in
many other markets throughout the United States. We intend to offer contiguous
market coverage using our own network facilities, the regional markets covered
by the SunCom brand alliance and the AT&T Wireless Network, all of which use a
common technology platform, IS-136 Time Division Multiple Access, or TDMA. We
believe that IS-136 TDMA provides our subscribers with excellent voice
quality, fewer dropped calls than existing analog systems and coast-to-coast
roaming over the AT&T Wireless Network. To maximize the commercial utility of
IS-136 TDMA, we offer our customers tri-mode handsets, which can utilize
IS-136 TDMA systems and analog as well as TDMA-based digital cellular systems
throughout the nation. Several major wireless telecommunications service
providers in North America have selected IS-136 TDMA for their digital PCS
networks, including AT&T Wireless, SBC Communications, BellSouth, United
States Cellular Corporation and Canada's Rogers Cantel Mobile Communications,
Inc. BellSouth currently provides IS-136 TDMA service within many of our
markets.
Our Own Network Facilities. We expect to be able to provide service
to over 98% of the Pops in our license areas by the end of 2000. We have
commenced PCS service in eight major markets: Jackson, Mississippi; Nashville,
Knoxville and Chattanooga, Tennessee; Huntsville and Montgomery, Alabama; and
Louisville and Lexington, Kentucky; and expect to commence PCS service in
Birmingham and Mobile, Alabama during the second quarter of 2000.
We have designed our PCS network to offer efficient and extensive
coverage within our markets. Our cell site acquisition strategy is to
co-locate as many of our cell sites as possible on existing towers and other
transmitting or receiving facilities. We believe this strategy has reduced and
will continue to reduce our site acquisition costs and minimize delays due to
zoning and other local regulations. We launch service only after comprehensive
and reliable coverage can be maintained within a particular market.
We expect that there will be areas within our markets that we will
ultimately build out, but where we will not, at least initially, have
coverage. In these areas of our markets, we benefit from AT&T Wireless'
existing roaming arrangements with other carriers to provide service. We may
seek direct roaming agreements with some local carriers providing compatible
service. These agreements will also allow us to launch our service at a lower
level of capital expenditures than would otherwise be required, without
adversely impacting the service we will be able to offer our customers.
The SunCom Brand Alliance. We have entered into an agreement with two
other AT&T Wireless affiliates, Triton PCS and TeleCorp PCS, to create a
common regional market brand, SunCom, and to provide for sharing certain
development, research, advertising and support costs. The members of this
regional brand alliance hold PCS licenses that cover approximately 43 million
Pops primarily in the south-central and southeastern United States from New
Orleans, Louisiana to Richmond, Virginia. Each of the SunCom companies owns
one-third of Affiliate License Co., which owns the SunCom brand. We and the
other SunCom companies license the SunCom name from Affiliate License Co. The
SunCom alliance will continue in effect between Telecorp PCS, Inc. and Triton
PCS, Inc. after the Merger.
To ensure that all SunCom customers will receive the same high
quality service throughout the SunCom region, all three SunCom affiliates:
o have agreed to build out their respective networks, adhering to the
same AT&T Wireless quality standards,
o have agreed to use tri-mode handsets with IS-136 TDMA technology, and
o have entered into reciprocal roaming agreements.
The AT&T Wireless Network. AT&T Wireless is one of the largest
providers of wireless telecommunications services in the United States. The
AT&T Wireless Network provides coast-to-coast coverage for wireless services.
We are the preferred provider of mobile PCS services for the AT&T
Wireless Network using equal emphasis co-branding with AT&T within our
markets, except for 790,000 Pops in Kentucky. AT&T Wireless has granted us a
license to co-brand with the AT&T logo and other service marks in our covered
markets. We also have established roaming, purchasing, engineering and other
arrangements with AT&T Wireless. These arrangements will provide our customers
immediate, coast-to-coast roaming on the AT&T Wireless Network.
Strategic Alliance with AT&T
Our strategic alliance with AT&T Wireless is part of AT&T's strategy
to expand its IS-136 TDMA digital wireless coverage in the United States.
AT&T's four affiliates, including us, will provide AT&T Wireless subscribers
roaming in our markets with features and functionality typically offered by
the AT&T Wireless Network. The relationship with AT&T Wireless is valuable to
us because, among other reasons, the relationship enables us to market our
service using what we believe to be one of the world's most respected and
recognizable brands, AT&T, in equal emphasis with the SunCom regional brand
name. We also expect to take advantage of the coast-to-coast coverage of the
AT&T Wireless Network and the extensive national advertising of AT&T Wireless
and AT&T.
As part of our alliance with AT&T Wireless, AT&T Wireless contributed
licenses for approximately 9.1 million of our 14.0 million total licensed
Pops. In exchange for the AT&T contributed Pops and the other benefits
provided for in the agreements governing the joint venture, AT&T Wireless
received a 17.09% fully diluted common equity interest in us, consisting of
preferred stock with a stated value of $137.1 million. AT&T Wireless increased
its ownership to approximately 21.6% through the purchase of shares of our
Series C Preferred Stock from another investor and maintained that percentage
through the purchase of Class B Common Stock in the December 1999 private
stock offering concurrent with our initial public offering.
The AT&T Wireless licenses contributed to us provide for the right to
use 20 MHz of authorized frequencies in the geographic areas covered by those
licenses. In order to create these licenses, AT&T Wireless partitioned and
disaggregated the original 30-MHz A- and B-Block PCS licenses it received in
these markets. AT&T Wireless has retained 10 MHz of spectrum licenses in those
markets it contributed and has the right to offer any non-competing services
on that spectrum. We will maximize the following benefits of our AT&T
affiliation to distinguish ourselves from other PCS providers in our markets:
Use of AT&T Brand and Logo. We believe the AT&T brand is
among the most recognized brands in the United States. Management
believes that branding has become increasingly important as the
consumer base for wireless services has expanded. The AT&T brand
affiliation will be the highest point of emphasis in marketing our
services. Wherever possible, advertisements, handsets, product
packaging, billing statements and in-store retail displays
prominently display the AT&T logo in equal emphasis with the SunCom
logo. We may not use the AT&T logo on the exterior of our retail
stores.
Preferred Provider of PCS to AT&T Wireless Customers. As a
member of the AT&T Wireless Network, we are the preferred provider of
mobile wireless services to AT&T Wireless' digital wireless customers
in our markets, except for 790,000 Pops in Kentucky. We will provide
PCS services to customers located in our markets responding to AT&T's
national advertising and to AT&T's national account customers located
in our markets.
Coast-to-Coast Coverage. We expect to offer our customers
immediate, coast-to-coast roaming on the AT&T Wireless Network. We
believe many of the roaming arrangements negotiated by AT&T Wireless
are at rates more favorable than we would be able to negotiate on our
own.
AT&T Sales Efforts. AT&T currently employs a sales force for
long distance and other AT&T services within our markets. We expect
to piggyback on AT&T's sales efforts to provide PCS services to those
AT&T customers in our markets seeking wireless services as part of
their AT&T service package.
Marketing and Distribution
Our overall marketing strategy emphasizes the AT&T brand name in
equal emphasis with the SunCom brand name, the benefits of digital technology,
the breadth of our coverage and our focus on customer service, all of which is
provided at competitive prices. We employ a sales and marketing approach with
highly definable measurable goals, which focuses primarily on the use of
company stores to build our customer base.
Company Stores. Our company-owned and operated retail stores are
modeled after AT&T Wireless's retail stores, with the exception that we may
not use the AT&T logo on the outside of our store fronts. Sales
representatives in company stores receive in-depth training on the advantages
of PCS and the AT&T Wireless and SunCom alliances. Management also believes
that in-store customer education on PCS services and features will increase
customer satisfaction and usage. The company stores are intended to be
customer destinations in response to advertising and promotions, rather than
impulse stops.
Company stores are being designed to facilitate demonstration of the
benefits of Tritel's PCS services and features. In addition, emphasis is
placed on the coast-to-coast roaming and service features attributable to the
IS-136 TDMA technology and the tri-mode handsets.
We seek to locate company stores on heavy traffic arteries, in high
visibility areas, and near high profile anchor retailers. Nearly all of the
company stores are located in retail shopping centers and range in size from
1,200 to 2,000 square feet. We had opened 30 company stores as of December 31,
1999 and plan to open an additional 53 stores by the end of 2000.
Direct Sales Force. We also use a dedicated sales force. Our sales
representatives are assigned to specific regions within our markets and use
our company stores as their bases of operations. Sales representatives receive
training on the advantages of PCS and are provided with product and service
research, proposal writing and competitor analysis information. Our sales
force will seek to coordinate with AT&T to offer bundled telephony and related
services. We currently have a direct sales force of 61 people and plan to have
approximately 134 sales people by the end of 2000.
Indirect Distribution Channels. To augment our direct distribution
efforts, we use mass retailers in our markets, including Circuit City, Office
Depot and Best Buy. Management believes that the AT&T brand recognition along
with over-the-air activation capability will facilitate distribution through
mass retailers. In the future, we may use other distribution techniques as
well, including simplified retail sales processes and new, lower cost channels
such as inbound telesales through a toll-free number, affinity marketing
programs and internet sales.
Competition
There are two established cellular providers in each of our markets.
These providers have significant infrastructure in place, often at low
historical cost, have been operational for many years, have substantial
existing subscriber bases and have substantially greater capital resources
than we do. In addition, in most of our markets, there are at least two or
three other PCS providers currently offering commercial service or likely to
begin offering service before we will. We also face competition from paging,
dispatch and conventional mobile radio operations as well as SMR and ESMR,
including those ESMR networks operated by Nextel and its affiliates in our
markets. We are also competing with resellers of wireless services. Over the
past several years, the FCC has auctioned, and will continue to auction large
amounts of spectrum that could be used to compete with PCS services. We expect
competition in the wireless telecommunications industry to be dynamic and
intense as a result of the entrance of new competition and the development of
new technologies, products and services.
We compete directly with up to five or more PCS and cellular
providers in each of our markets. Principal existing PCS and cellular
competitors in our markets are BellSouth, Powertel, GTE, Sprint PCS,
Centurytel, PrimeCo and ALLTEL.
Industry Overview
Wireless telecommunications products and services evolved from basic
paging services to mass-market voice only analog cellular services and have
now progressed to PCS, digital cellular and wireless data. Each new generation
of wireless telecommunications products and services has generally been
characterized by improved product quality, broader service offerings and
enhanced features. Because PCS operators have selected different technologies
and are targeting different market segments, no uniform definition of PCS
exists. Rather, individual operators have implemented separate service
strategies with a wide range of differentiation in service offerings and
targeted markets.
The provision of cellular telephone service began with providers
utilizing the 800 MHz band of radio frequency in 1982 when the FCC began
issuing two licenses per market throughout the United States. Since then, the
demand for wireless telecommunications has grown rapidly, driven by the
increased availability of services, technological advancements, regulatory
changes, increased competition and lower prices.
In 1993, Congress directed the FCC to allocate additional radio
spectrum for the provision of new wireless communications services. In
response, the FCC allocated spectrum for a new class of service, known as
personal communications services, called PCS. The FCC has described PCS as
radio communications that encompass mobile and ancillary communication that
provide services to individuals and businesses and can be integrated with a
variety of competing networks. The FCC's stated objectives in auctioning
bandwidth for PCS were to foster competition to existing carriers, increase
availability of wireless services to a broader segment of the public, and
bring innovative technology to the U.S. wireless industry. Since 1995, the FCC
has been conducting auctions in which industry participants were awarded PCS
licenses for designated areas throughout the United States, and we expect the
FCC to continue to conduct periodic auctions for additional spectrum which
could be used for competing PCS services.
Industry Outlook. Wireless telecommunication technology developments
are expected to evolve and continue to drive consumer growth as users demand
more sophisticated services and products. Technological advancements, from
longer battery life to improved voice quality, have begun to make wireless
service increasingly comparable to wireline communications. Additionally,
customers have begun to expect custom calling features that are similar to
those available on a wireline network. Digital service, as opposed to analog
service, permits wireless providers to offer these types of enhanced services
to users.
Existing and new wireless data technologies, coupled with the
widespread use of the Internet, have caused wireless providers to focus on
wireless data services offerings. These services predominantly have been used
to date to carry corporate data applications. The introduction of new
applications for corporate and eventually for consumer users, such as access
to email, news, sports, weather summaries, travel services, financial
information and services and comparison shopping applications, will drive the
growth for wireless data network services. To this end, enabling technologies,
such as Wireless Access Protocol, provide an environment that encourages
developers to create innovative data services for wireless networks. In
addition, applications, such as email, instant messages, banking, wireless
portals and web services, are being developed and marketed.
We believe that the initial success of PCS operators in the United
States, and the corresponding acceleration of wireless penetration overall,
supports the forecasted rapid growth of PCS services.
GOVERNMENT REGULATION
Overview
As a recipient of licenses acquired through the C-Block auction and
the F-Block auction, our ownership structure and operations are and will be
subject to substantial FCC regulation.
FCC Authority
The Communications Act of 1934, as amended, grants the FCC the
authority to regulate the licensing and operation of all non-federal
government radio-based services in the United States. The scope of the FCC's
authority includes:
o allocating radio frequencies, or spectrum, for specific services;
o establishing qualifications for applicants seeking authority to
operate such services, including PCS applicants;
o approving initial licenses, modifications thereto, license renewals,
and the transfer or assignment of such licenses;
o promulgating and enforcing rules and policies that govern the
operation of spectrum licensees, including safe and efficient use of
radio spectrum;
o regulating the technical operation of wireless services,
interconnection responsibilities between and among PCS, other
wireless services such as cellular, and landline carriers; and
o imposing monetary fines and license revocations for any substantial
violations of those rules and regulations under its broad oversight
authority.
With respect to market entry and the promotion of a competitive
marketplace for wireless providers, the FCC regularly conducts rulemaking and
adjudicatory proceedings to determine and enforce rules and policies
potentially affecting broadband PCS operations, and to periodically allocate
additional spectrum.
General PCS Regulations
In June 1994, the FCC allocated spectrum for broadband PCS services
between the 1850-to 1990-MHz bands. Of the 120 MHz available for licensed PCS
services, the FCC created six separate blocks of spectrum identified as the
A-, B-, C-, D-, E- and F-Blocks. The A-, B- and C-Blocks are each allocated 30
MHz of spectrum and the D-, E- and F-Blocks are allocated 10 MHz each. For
each block, the FCC adopted a 10-year PCS license term with an opportunity to
renew. The FCC also allocated 20 MHz of spectrum within the PCS band for
unlicensed use.
The FCC adopted a rebuttable presumption that all PCS licensees are
common carriers, subject to Title II of the Communications Act. Accordingly,
each PCS licensee deemed to be a common carrier must provide services upon
reasonable request and the rates, terms and conditions of service must not be
unjust, nor may the licensee unreasonably discriminate among similarly
situated customers.
Structure of PCS Block Allocations
The FCC defines the geographic contours of the licenses within each
PCS block based on the major trading areas and basic trading areas. The FCC
awarded A- and B-Block licenses in 51 major trading areas. The C-, D-, E- and
F-Block spectrum were allocated on the basis of 493 smaller basic trading
areas.
The auctioned A- and B-Block licenses were awarded in June 1995.
Spectrum in the C- and F-Blocks is reserved for entrepreneurs. The FCC
completed its initial auction for the C-Block on May 6, 1996 and relicensed 18
C-Block licenses on which initial auction winners defaulted in a re-auction
that ended on July 16, 1996. The D-, E-, and F-Block licenses were auctioned
simultaneously, with the auction closing on January 14, 1997. The FCC
conducted a re-auction of the C-, D-, E- and F-Block spectrum, which closed on
April 15, 1999. The FCC has scheduled another C-, D-, E- and F-Block
re-auction, to commence on July 26, 2000. In addition, the FCC can be expected
to conduct additional auctions for spectrum which could be used for competing
PCS services.
In December 1996, the FCC adopted rules permitting broadband PCS
carriers to partition any service areas within their license areas and
disaggregate any amount of spectrum within their spectrum blocks to entities
that meet the eligibility requirements for the spectrum blocks. The purpose of
the FCC's rule change was to permit existing PCS licensees and new PCS
entrants to have greater flexibility to determine how much spectrum and
geographic area they need or desire in order to provide PCS service. Thus, A-,
B-, D- and E-Block licensees may sell or lease partitioned or disaggregated
portions of their licenses at any time to entities that meet the minimum
eligibility requirements of the Communications Act. C-and F- Block licensees
may only sell or lease partitioned or disaggregated portions of their licenses
to other qualified entrepreneurs during the first five years of their license
terms, and such entities would take over partitioned service areas subject to
separately established installment payment obligations. After five years,
licenses are freely transferable, subject to unjust enrichment penalties. If
transfer occurs during years six through ten of the initial license term to a
company that does not qualify for auction preferences, such a sale would be
subject to immediate payment of the outstanding balance of the government
installment payment debt as a condition of transfer. A transfer to a company
that qualifies for a lower level of auction preferences will be subject to
partial repayment of bidding credits and installment payments as a condition
of transfer. Additionally, such a sale may be subject to full repayment of the
bidding credits.
The 1996 Act
On February 8, 1996, the President signed the 1996 Act, which
effected a sweeping overhaul of the Communications Act. In particular, the
1996 Act substantially amended Title II of the Communications Act, which
governs telecommunications common carriers. The policy underlying this
legislative reform was the opening of the telephone exchange service markets
to full competition. The 1996 Act makes unlawful state and local barriers to
competition which prohibit or have the effect of prohibiting entry by
competitors, whether they are direct or indirect. It directs the FCC to
initiate rulemaking proceedings on local competition matters and to preempt
inconsistent state and local laws and regulations. The 1996 Act requires
incumbent landline local exchange carriers to open their networks to
competition through interconnection and access to unbundled network elements
and prohibits state and local barriers to the provision of interstate and
intrastate telecommunications services.
Some specific provisions of the 1996 Act that are expected to affect
wireless providers are summarized below. These provisions generally have
proven helpful to wireless carriers. There can be no assurance, however, that
these provisions or their implementation by federal or state regulators will
not have a material adverse effect on us.
Expanded Interconnection Obligations
The 1996 Act establishes a general duty of all telecommunications
carriers, including PCS licensees, to interconnect with other
telecommunications carriers, directly or indirectly. The 1996 Act also
contains a detailed list of requirements with respect to the interconnection
obligations of local exchange carriers. These interconnection obligations
include resale, number portability, dialing parity, access to rights-of-way
and reciprocal compensation. The FCC has determined that all CMRS carriers are
considered telecommunications carriers, but for now, CMRS providers such as us
do not meet the 1996 Act's definition of a local exchange carrier.
The 1996 Act establishes a framework for state commissions to mediate
and arbitrate negotiations between incumbent local exchange carriers and
carriers requesting interconnection, services or network elements. The 1996
Act establishes deadlines and policy guidelines for state commission
decision-making and federal preemption in the event a state commission fails
to act.
Review of Universal Service Requirements
The 1996 Act contemplates that interstate telecommunications
providers, including CMRS providers, will "make an equitable and
non-discriminatory contribution" to support the cost of providing universal
service, although the FCC can grant exemptions in certain circumstances. A
decision adopted by the 1996 Act-mandated Federal-State Joint Board rejected
arguments that CMRS providers should be exempted from universal service
obligations and concluded that, to the extent such carriers provide interstate
service, they must contribute to universal service support mechanisms. The
Joint Board also found that states could require CMRS providers to contribute
to state support mechanisms. The FCC now requires all CMRS carriers to
contribute to a universal service fund.
Prohibition Against Subsidized Telemessaging Services
The 1996 Act prohibits incumbent local exchange carriers from
subsidizing telemessaging services, including voice mail, voice
storage/retrieval, live operator service, and related ancillary services from
their telephone exchange service or exchange access and from discriminating in
favor of their own telemessaging operations.
Conditions on Regional Bell Operating Companies Provision of
In-Region InterLATA Services
The 1996 Act establishes conditions generally requiring that, before
engaging in landline interexchange services in states in which they provide
landline local service, referred to as in-region interLATA services, regional
Bell Operating Companies and their affiliates must provide access and
interconnection to one or more unaffiliated competing providers of telephone
exchange service. Regional Bell Operating Companies and their affiliates may
provide wireless services, including broadband PCS, in markets that cross LATA
boundaries as an incidental interLATA service.
Regional Bell Operating Companies Commercial Mobile Joint Marketing
The regional Bell Operating Companies are permitted to market jointly
and sell wireless services in conjunction with telephone exchange service,
exchange access, intraLATA and interLATA telecommunications and information
services.
CMRS Facilities Siting
The 1996 Act limits the rights of states and localities to regulate
placement of CMRS facilities so as to prohibit or prohibit effectively the
provision of wireless services or to discriminate among providers of such
services. It also eliminates environmental effects from radiofrequency
emissions, provided the wireless system complies with FCC rules, as a basis
for states and localities to regulate the placement, construction or operation
of wireless facilities.
Equal Access
The 1996 Act provides that wireless carriers are not required to
provide equal access to common carriers for interexchange toll services. The
FCC is authorized to require unblocked access to long distance providers of
the user's choice subject to certain conditions.
Deregulation
The FCC is required to forebear from applying any statutory or
regulatory provision that it determines is not necessary to keep
telecommunications rates and terms reasonable or to protect consumers. A state
may not apply a statutory or regulatory provision that the FCC decides to
forebear from applying. In addition, the FCC must review its
telecommunications regulations every two years and change any that are no
longer necessary.
The 1996 Act was explicit in its preemption of certain components of
local regulation of CMRS carriers, including the authority to preclude antenna
site construction due to concerns over radiofrequency emissions. Rather than
directly challenge federal authority in this area, local governments have
instituted moratoria on further construction while the health, safety and
historic preservation aspects of this matter are studied further. Currently
there are over 200 such moratoria in effect across the country. There are a
number of bills pending in Congress, some of which would strengthen the
federal government's preemption authority and some which would weaken federal
authority. We can not predict how this issue will be resolved and the extent
to which it may have a material impact on our ability to rapidly and
efficiently construct our PCS network.
Relocation of Fixed Microwave Licensees
In an effort to balance the competing interests of existing microwave
users and newly authorized PCS licensees in the spectrum allocated for PCS
use, the FCC has adopted (a) a transition plan to relocate fixed microwave
operators that currently are operating in the PCS spectrum, and (b) a cost
sharing plan so that if the relocation of an incumbent benefits more than one
PCS licensee, the benefiting PCS licensees will help defray the costs of the
relocation. PCS licensees will only be required to relocate fixed microwave
incumbents if they cannot share the same spectrum. The transition and cost
sharing plans expire on April 4, 2005, at which time remaining incumbents in
the PCS spectrum will be responsible for their costs to relocate their fixed
microwave to alternate spectrum locations.
Relocation generally involves a PCS operator compensating an
incumbent for costs associated with system modifications and new equipment
required to move to alternate, readily available spectrum. The transition
plan, as modified, allows most microwave users to operate in the PCS spectrum
for a two-year voluntary negotiation period and an additional one-year
mandatory negotiation period. For public safety entities dedicating a majority
of their system communications for police, fire or emergency medical service
operations, the voluntary negotiation period is three years. The FCC recently
shortened the voluntary negotiation period to one year for commercial
microwave operators, but retained the three year negotiation period for public
safety licenses. Parties unable to reach agreement within these time periods
may refer the matter to the FCC for resolution, but the existing microwave
user is permitted to continue its operations until final FCC resolution of the
matter.
The FCC's cost-sharing plan allows PCS licensees that relocate fixed
microwave links outside of their licensed spectrum to receive reimbursements
from later-entrant PCS licensees that benefit from the clearing of their
spectrum. Two non-profit clearinghouses currently administer the FCC's
cost-sharing plan. Thus, we may be required in certain circumstances to defray
the cost of earlier relocations by A-, B-, C-, D-, E- and F-Block licensees.
Including cost sharing for relocations performed by other PCS
licensees and cost sharing reimbursements by other PCS licenses paid to us, we
expect to spend a total of approximately 17.0 million for microwave
relocation, approximately $3.5 million of which was expended through December
31, 1999. We have completed microwave relocations for all 1999 launch cities
and do not expect any delays to our scheduled service launches in 2000.
C-Block License Requirements
Airwave Communications, one of our predecessor companies, was the
winning bidder for six licenses in the original C-Block auction. The C-Block
was designated as an entrepreneurs Block which means that each C-Block
applicant must qualify as an entrepreneur in order to hold C-Block licenses
and qualify as a small business in order to receive certain financing
preferences. The FCC initially determined that Entrepreneurs that qualify as
small businesses would be eligible to receive a C-Block Loan from the U.S.
Government for 90% of the dollar amount of their net winning bids in the
C-Block auction. For small businesses, the period during which C-Block
licensees may make interest-only payments is six years, with payments of
principal and interest amortized over the remaining four years of the license
term. For licenses acquired in the first C-Block auction, the interest rate
for outstanding principal is 7.0%. In the most recent C- and F-Block
re-auction, the FCC did not use installment payments, but instead required all
applicants to pay their net bid in cash prior to granting the licenses. In
order to ensure continued compliance with the FCC rules, the FCC has announced
its intention to conduct random audits during the initial ten-year PCS license
terms.
We have relied on representations of our investors to determine our
compliance with the FCC's rules applicable to C-Block and F-Block licenses.
There can be no assurance, however, that our investors or we will continue to
satisfy these requirements during the terms of the PCS licenses granted to us
or that we will be able to successfully implement divestiture or other
mechanisms included in our Restated Certificate of Incorporation that are
designed to ensure compliance with FCC rules. Any non-compliance with FCC
rules could subject us to penalties, including a fine or revocation of our PCS
licenses.
Entrepreneurs Requirements
In order to hold a C-Block license, an entity and its affiliates must
have had (a) less than $125 million in gross revenues in each of fiscal 1993
and 1994 and (b) less than $500 million in total assets at the time it filed
its application to qualify for the C-Block auction on FCC Form 175. Airwave
Communications filed its Form 175 on November 6, 1995. In calculating a
licensee's gross revenues and total assets for purposes of the entrepreneurs
requirements, the FCC includes the gross revenues and total assets of the
licensee's affiliates, those persons or entities that hold attributable
interests in the licensee, and the affiliates of such persons or entities.
However, the gross revenues and total assets of certain affiliates are not
attributable to the licensee if the licensee maintains an organizational
structure that satisfies certain control group requirements defined below. For
at least five years after winning a C-Block license, a licensee must continue
to meet the entrepreneurs requirements in order to remain eligible for the
bidding credits and installment financing it received in the FCC's designated
entity program.
Airwave Communications qualified to enter the C-Block auction. If the
FCC were to determine that Airwave Communications did not satisfy the
entrepreneurs requirements at the time it participated in the C-Block auction
or that we fail to meet the ongoing entrepreneurs requirements, the FCC could
revoke our PCS licenses, require us to restructure in order to come into
compliance with the relevant regulation, fine us, accelerate our installment
payment obligations, or take other enforcement actions, including imposing the
unjust enrichment penalties. Although we believe we have met the entrepreneurs
requirements, there can be no assurance that we will continue to meet such
requirements or that, if we fail to continue to meet such requirements, the
FCC will not take action against us.
Small Business Requirements
An entity that meets the entrepreneurs requirements may also receive
certain preferential financing terms if it meets certain other small business
requirements. These preferential financing terms include a 25% bidding credit
and the ability to make quarterly interest-only payments on its C-Block Loan
for the first six years of the license term. To meet the small business
requirements, a licensee must have had average annual gross revenues of not
more than $40 million for the three calendar years preceding the date it filed
its Form 175. In calculating a licensee's gross revenues for purposes of the
small business requirements, the FCC includes the gross revenues of the
licensee's affiliates, those persons or entities that hold attributable
interests in the licensee, and the affiliates of such persons or entities.
As a small business, Airwave Communications, our predecessor in
interest, qualified for the 25% bidding credit and preferential financing. If
the FCC were to determine that we no longer qualify as a small business, then
we could be forced to repay the value of the bidding credit and preferential
financing for which we were not qualified. Further, the FCC could revoke our
PCS licenses, require us to restructure in order to come into compliance with
the relevant regulation, accelerate our installment payment obligations, cause
us to lose our bidding credits retroactively, fine us or take other
enforcement actions, including imposing unjust enrichment penalties. Although
we have been structured to meet the small business requirements, there can be
no assurance that we will continue to meet such requirements or that, if we
fail to continue to meet such requirements, the FCC will not take any of the
aforementioned actions against us.
Control Group Requirements
If a C-Block licensee maintains an organizational structure in which
at least 25% of its total equity on a fully-diluted basis is held by a control
group that meets certain requirements, the FCC excludes the assets and
revenues of certain investors from being attributed to such total revenue and
gross asset calculations. The control group requirements mandate that the
control group, among other things, have and maintain both actual and legal
control of the licensee. Under the control group requirements:
o an established group of investors meeting certain financial
qualifications must own at least 15% of the licensee
entity's total equity interest on a fully-diluted basis and
at least 50.1% of the voting power in the licensee entity;
o additional control group members must hold, on a
fully-diluted basis, the remaining 10% control group equity
interest in the licensee entity; and,
o nonqualifying (passive) investors may own up to 25% of the
total equity on a fully diluted basis and may vote up to 25%
of the voting interests.
Additional control group members must be either:
o other qualifying investors in the control group;
o individual members of the licensee's management; or
o non-controlling institutional investors, including most
venture capital firms meeting FCC-specified criteria.
A C-Block licensee must have met the control group requirements at
the time it filed its Form 175 and must continue to meet the control group
requirements for five years following the license grant date, subject to
possible unjust enrichment obligations for ten years. Commencing the fourth
year of the license term, the FCC rules (a) eliminate the requirement that
additional control group members hold the 10% control group equity interest
and (b) allow the qualifying investors to reduce the minimum required control
group equity interest from 15% to 10%.
In order to assure that we can continue to comply with the FCC's
control group rules, our Restated Certificate of Incorporation provides that
our outstanding shares of capital stock will always be subject to
redemption by action of our Board of Directors if, in the judgment of the
Board of Directors, such redemption is necessary to prevent the loss or secure
the reinstatement of any license from the FCC held by us or any of our
subsidiaries. Although we believe that we have taken sufficient steps to meet
the control group requirements, there can be no assurance that we have met or
will continue to meet the control group requirements, or that the failure to
meet such requirements would not have a material adverse effect on us,
including the possible revocation of our PCS licenses by the FCC.
Foreign Ownership Limitations
The Communications Act provides that non-U.S. citizens, their
representatives, foreign governments or corporations otherwise subject to
domination and control by non-U.S. citizens may not own of record or vote (a)
more than 20% of the capital contribution to a common carrier directly, or (b)
more than 25% of the capital contribution to the parent corporation of a
common carrier licensee, if the FCC determines such holdings are not within
the public interest. Because the FCC classifies PCS as a common carrier
offering, PCS licensees are subject to the foreign ownership limits.
Congress recently eliminated restrictions on non-U.S. citizens
serving as members on the board of directors and officers of a common carrier
radio licensee or its parent. Under the World Trade Organization agreement,
ratified by the United States and 69 other countries as of February 5, 1998,
the United States has agreed to permit indirect foreign ownership of up to
100% of a licensed company; however direct ownership will continue to be
limited to 20%. Entities wishing to exceed the 25% indirect ownership
threshold will now be accorded a strong presumption that foreign investment by
other World Trade Organization member countries would serve the public
interest. The FCC will review applications to exceed the 25% benchmark on a
streamlined processing schedule.
Airwave Communications' license application, filed with the FCC after
the completion of the C-Block auction, indicates that Airwave Communications
is in compliance with the FCC's foreign ownership rules. However, if our
foreign ownership were to exceed 25% in the future, the FCC could revoke our
licenses, require us to restructure our ownership to come into compliance with
the foreign ownership rules or impose other penalties. Further, our Restated
Certificate of Incorporation enables us to redeem shares from holders of
common stock whose acquisition of such shares results in a violation of such
limitation. The restrictions on foreign ownership could adversely affect our
ability to attract additional equity financing from entities that are, or are
owned by, non-U.S. entities.
F-Block License Requirements
The FCC has for the most part extended its C-Block eligibility
requirements and auction rules to the F-Block, with the following exceptions.
For the purposes of determining the entrepreneur's asset limit, F-Block
applicants do not count the value of C-Block licenses, although they must
count other CMRS licenses, including A-Block and B-Block PCS licenses. F-Block
auction participants, as well as D- and E-Block participants, were required to
pay 20% of their net winning bid, as opposed to only 10% required of C-Block
bidders.
Participants in the F-Block auction could qualify for either of two
bidding credit levels: applicants with average gross revenues of not more than
$40 million during the previous three years received a 15% bidding credit,
while applicants with average gross revenues of not more than $15 million for
the same period are referred to as very small businesses and received a 25%
bidding credit. For small businesses and very small businesses, the period
during which F-Block licensees may make interest-only payments is two years,
as opposed to six years for C-Block small businesses, with payments of
principal and interest amortized over the remaining eight years of the license
term. The interest rate applicable to Digital PCS, one of our predecessor
companies and the winning bidder for 32 licenses in the D-, E- and F-Block
auction, for outstanding principal is 6.125%. Furthermore, F-Block licensees
that fall behind in scheduled installment payments will incur a 5% late
payment fee if payment is made up to 90 days after the due date, and an
additional 10% late payment fee if payment is made 91-180 days after the due
date (for a total of 15%). After 180 days, the FCC takes the position that the
license automatically cancels. By qualifying as a very small business, Airwave
Communications qualified for the 25% bidding credit and the most favorable
installment payment plan offered by the FCC.
The markets acquired by Digital PCS are comprised of 29 licenses in
the F-Block, one license in the D-Block and two licenses in the E-Block. With
respect to those licenses won in the F-Block auction, we believe that Digital
PCS structured itself to satisfy the FCC's very small business requirements,
and we intend to maintain diligently our qualification as a very small
business.
We have relied on representations of our investors to determine our
compliance with the FCC's rules applicable to C-Block and F-Block licenses.
There can be no assurance, however, that our investors or we will continue to
satisfy these requirements during the terms of the PCS licenses granted to us
or that we will be able to successfully implement divestiture or other
mechanisms included in our Restated Certificate of Incorporation that are
designed to ensure compliance with FCC rules. Any non-compliance with FCC
rules could subject us to penalties, including a fine or revocation of our PCS
licenses.
Transfer Restrictions
Within the first five years of the grant of a C- or F-Block license,
transfer of the license is permitted only to another entity eligible for the
C- or F-Block, such as another small business or very small business. If
transfer occurs during years six through ten of the initial license term to a
company that does not qualify for the same level of auction preferences as the
transferor, such a sale would be subject to full payment of bidding credits
and immediate payment of the outstanding balance of the government installment
payment debt as a condition of transfer, known as the FCC unjust enrichment
penalties. In addition, if we wish to make any changes in ownership structure
during the initial license term involving the de facto or de jure control of
us, we must seek FCC approval and may be subject to the FCC unjust enrichment
penalties indicated above.
Buildout Requirements
The FCC has mandated that recipients of PCS licenses adhere to
five-year and ten-year buildout requirements. Under both five- and ten-year
buildout requirements, all 30-MHz PCS licensees, such as C-Block licensees,
must construct facilities that offer coverage to at least one-third of the
population in their service area within five years from the date of initial
license grants. Service must be provided to two-thirds of the population
within ten years. In the D-, E- and F-Blocks, 10 MHz PCS licenses and the 15
MHz Blocks resulting from the C-Block disaggregation option are required to
reach one-quarter of the population within five years or make a showing of
substantial service within five years. The FCC, however, has not defined the
term "substantial service". If we fail to meet the FCC's construction
benchmarks, the FCC takes the position that our license automatically cancels
with respect to any unconstructed territory. Violations of these regulations
could result in license revocations or forfeitures or fines or other
sanctions, such as reductions in service areas.
Penalties for Payment Default
In the event that we default on our obligations under the government
financing, the FCC takes the position that any license in payment default for
more than 180 days cancels automatically. The FCC may in such instances
reclaim some or possibly all of our licenses, re-auction them, and subject us
to additional penalties to compensate the government for any shortfall
incurred as a result of the default and cover the cost of conducting a
re-auction.
Other FCC Requirements
The FCC imposes additional regulatory requirements on all Commercial
Mobile Radio Service, or CMRS, operators, which include PCS and cellular
systems, as well as some specialized mobile radio systems. Some of the current
requirements include:
Regulatory Parity. The FCC has adopted rules designed to create
consistency in the manner in which it regulates similar types of mobile
service providers. According to these rules, all CMRS providers that offer
substantially similar services will be subject to similar regulation. A CMRS
service is one in which the mobile radio service is provided for a profit,
interconnected to the public switched telephone networks, and made available
to the public. Under these rules, providers of SMR and ESMR services are
subject to regulations similar to those governing cellular and PCS carriers if
they offer an interconnected commercial mobile service.
Commercial Mobile Radio Service Spectrum Ownership Limit. The FCC has
limited the amount of broadband CMRS spectrum, including cellular, broadband
PCS and SMR, in which an entity may hold an attributable interest in a given
geographic area to 45 MHz (55 MHz in certain rural areas). For these purposes,
only PCS and other CMRS licenses are attributed to an entity where its equity
exceeds certain thresholds, the entity is, or has to the power to appoint an
officer or director of a broadband PCS, cellular or SMR licensee, or certain
other relationships exist which cause an interest to be attributable. Our
ability to raise capital from entities with attributable broadband CMRS
interests in certain geographic areas is likely to be limited by this
restriction. See "Management's Discussion and Analysis--Pending License
Acquisition".
Resale. The FCC has adopted rules that prohibit broadband PCS,
cellular and certain SMR and ESMR licensees from restricting the resale of
their services. The FCC has determined that the availability of resale will
increase competition at a faster pace by allowing new entrants to launch
service quickly through the resale of their competitors' services while they
are building out their own facilities. This prohibition is scheduled to expire
in November 2002. However, the FCC has received petitions requesting the FCC
to extend the five-year period.
Roaming. The FCC requires such carriers to provide roaming service to
subscribers of other CMRS carriers, through which roaming subscribers of other
carriers may make calls after establishing a method of payment with a host
carrier.
Number Portability. The FCC has imposed number portability
requirements on broadband PCS, cellular and certain SMR and ESMR providers.
The Commission's number portability rules requires that such licensees provide
their customers with the ability to change carriers while retaining phone
numbers. By November 24, 2002, CMRS providers must be able to offer number
portability without the impairment of quality, reliability or convenience when
switching service providers, including the ability to support roaming
throughout their networks. The FCC has solicited further comment on the
appropriate cost-recovery methods regarding long-term number portability.
E-911. The FCC requires cellular, PCS, and certain SMR and ESMR
carriers to transmit all wireless 911 emergency calls to Public Safety
Answering Points without any credit checks or validation. The FCC also
requires that such carriers must be capable of transmitting 911 calls from
individuals with speech or hearing disabilities through means such as text
telephone devices. By October 2001, carriers must be able to provide the
Public Safety Answering Point with the location of the mobile caller within a
radius of 125 meters. The FCC proceeding implementing these requirements is
ongoing and these requirements remain subject to further modification. On
October 26, 1999, the Wireless Communications and Public Safety Act was signed
into law by President Clinton. This new law seeks to enhance public safety by
making 911 the universal emergency assistance number, promoting wireless
communications, clarifying and enhancing the liability protections afforded to
wireless carriers for both emergency and non-emergency service, and supporting
the location of wireless consumers in distress.
RF Emissions. In August 1996, as revised in August 1997, the FCC
adopted new guidelines and methods for evaluating the effects of
radiofrequency emissions from transmitters including PCS mobile telephones and
base stations. The new guidelines, which are generally more stringent than
previous requirements, were effective immediately for hand-held devices and
became effective for other devices on October 15, 1998.
Wiretap Act. Wireless providers are subject to the Communications
Assistance for Law Enforcement Act also known as the Wiretap Act, which is
under the purview of the Department of Justice. The Wiretap Act requires
carriers to have a specific number of open ports available for law enforcement
personnel with the appropriate legal authority to perform wiretaps on the
carrier's network. Full implementation of the Wiretap Act's assistance
capability requirements, however, is not required until June 30, 2000, because
the FCC has found that there is a lack of equipment available to meet these
requirements.
Accessibility to Persons with Disabilities. Section 255 of the
Communications Act of 1934 requires all carriers to ensure that service is
accessible and usable by individuals with disabilities, if readily achievable.
On September 29, 1999, the FCC adopted rules to implement Section 255,
specifically affirming that all carriers are obligated to work toward meeting
the telecommunications needs of consumers with disabilities. By March 1, 2001,
all common carriers, including the Company, are required to provide speech-to
speech relay services and interstate Spanish relay services for the hearing
impaired. In determining whether a particular upgrade is "readily achievable",
the FCC can be expected to examine the nature of the action needed, the costs
of the action needed, the overall financial resources of the service provider,
and the type of operations performed by the carrier. Accordingly, it is
unclear at this time what impact, if any, these new regulatory requirements
will have on the Company's operations.
Calling Party Pays. The FCC is considering mechanisms to permit CMRS
carriers to charge the party initiating the call (even if not the CMRS
subscriber).
Other Federal Regulations. Wireless networks are subject to certain
Federal Aviation Administration, Environmental Protection Agency and FCC
guidelines regarding the location, lighting and construction of transmitter
towers and antennas. In addition, the FCC has authority to enforce certain
provisions of the National Environmental Policy Act as they would apply to our
facilities. We intend to use common carrier point-to-point microwave and
traditional landline facilities to connect base station sites and to link them
to their respective main switching offices. These microwave facilities have
historically been separately licensed by the FCC on a first-come, first-served
basis, although the FCC could decide to auction certain of such licenses, and
are subject to specific service rules.
Wireless providers also must satisfy a variety of FCC requirements
relating to technical and reporting matters. One such requirement is the
coordination of proposed frequency usage with adjacent wireless users,
permittees and licensees in order to avoid radiofrequency interference between
adjacent networks. In addition, the height and power of base station
transmitting facilities and the type of signals they emit must fall within
specified parameters.
State and Local Regulation. The scope of state regulatory authority
covers such matters as implementing those parts of the Communications Act
governing the terms and conditions of interconnection between local exchange
carriers and wireless carriers, customer billing information and practices,
billing disputes, other consumer protection matters, environmental, zoning,
and historical preservation, certain facilities construction issues, the
bundling of services and equipment, and requirements relating to making
capacity available to third party carriers on a wholesale basis. In these
areas, particularly the terms and conditions of interconnection between local
exchange carriers and wireless providers, the FCC and state regulatory
authorities share regulatory responsibilities with respect to interstate and
intrastate issues, respectively.
We have been and intend to remain active participants in rulemaking
and other administrative policy proceedings before the FCC and before state
regulatory authorities. Proceedings with respect to the foregoing policy
issues before the FCC and state regulatory authorities could have a
significant impact on the competitive market structure among wireless
providers and the relationships between wireless providers and other carriers.
Personnel
At December 31, 1999, we had 628 employees, including 109 in
technical operations, 335 in marketing and sales operations, 74 in customer
operations, 21 in management information systems, 22 in human resources and 67
in corporate and financial. Most of our employees are located at the corporate
and customer service operations locations in Jackson, Mississippi. Technical
operations and sales operations personnel are located in each of the regional
markets of Birmingham, Chattanooga, Huntsville, Jackson, Knoxville,
Louisville, Lexington, Mobile, Montgomery and Nashville. We consider our
relations with our employees to be good. None of our employees is represented
by a union.
Operating Revenue
For more information about our operating revenues and expenses please
see the financial statements and notes thereto contained elsewhere in the
report. All such information is incorporated herein by reference.
Item 2. Properties
We currently own no real property. We have entered into leases for an
aggregate of 57,000 square feet of office space in Jackson, Mississippi for
use as our principal executive offices. The leases have initial terms ranging
from five years to ten years, with an option to renew for an additional five
years. We have also entered into a lease for 48,900 square feet of office
space in Jackson, Mississippi for use as a customer operations center. This
lease has an initial term of five and one-half years, with an option to renew
for an additional five years. Management expects that our current executive
office and customer operations office facilities will be sufficient through at
least 2001.
We have entered into leases in Jackson, Birmingham, Mobile,
Nashville, Knoxville, Louisville, Lexington and elsewhere for regional
offices.
We have leased mobile switching centers in Knoxville, Nashville,
Birmingham, Louisville and Jackson. Each switching center has a common design
with up to 13,000 square feet of space. The lease term for the switch centers
is generally in the range of ten to fifteen years, with us having an option to
extend the term for five or ten years. These five switch centers have
sufficient square footage to house switches covering all of our markets and,
accordingly, we do not expect to add switch centers in the future.
Company retail stores will be located throughout our markets. These
stores will generally cover 1,200 to 2,000 square feet of space and the leases
will generally be for an initial five-year term, with one or more five-year
renewal options. We opened 30 company stores in 1999 and plan to open an
additional 53 stores in 2000 to service all markets being launched in 1999 and
2000.
We expect to lease approximately 90% of our cell sites, either
through existing sites or built-to-suit sites. The cell site lease term is
generally for five years with one or more five-year renewal options.
Maintenance of the site is typically included in the lease arrangement and
performed by the lessor. Additionally, we have negotiated master lease
agreements with other wireless providers and tower companies to lease space on
their existing cell sites throughout our markets. We expect that our company
will need to construct up to 114 greenfield cell sites for our planned network
buildout through 2000.
Item 3. Legal Proceedings
We are a party to various legal proceedings, none of which, in the
opinion of management, are material.
Item 4. Submission of Matters to a Vote of Shareholders
On December 9, 1999, the holders of 79,465,690 shares of Class A
Common Stock and six shares of the Voting Preference Stock, by written consent
in lieu of a special meeting:
(i) approved an amendment to our Restated Certificate of
Incorporation to (a) increase the total number of authorized
shares to 1,019,100,009, (b) increase the term of each
director to three years and divide the board into three
classes (c) subject to certain restrictions, grant the
existing directors the power to fill vacancies on the board,
and, (d) subject to certain restrictions, to allow for the
removal of directors only upon cause;
(ii) approved the Amended and Restated Bylaws, dated December 9,
1999 to (a) eliminate the power of the stockholders to act
by written consent in lieu of a meeting, (b) subject to
certain restrictions, to eliminate the power to remove
directors for any reason, and (c) to grant a majority of the
directors the right to amend the bylaws subject to the
powers of the shareholders;
(iii) approved the adoption of the 1999 Stock Option Plan and
authorized and approved for issuance thereunder 10,462,400
shares of Class A Common Stock; and
(iv) approved the adoption of the 1999 Stock Option Plan for
Non-Employee Directors and authorized and approved for
issuance thereunder 100,000 shares of Class A Common Stock.
PART II
Item 5. Market for Registrant's Shares and Related Shareholder Matters
Our common stock is currently traded on the Nasdaq National Market
under the symbol "TTEL". As of March 2, 2000, there were approximately 9,128
holders of record of our common stock.
Our common stock began trading on the Nasdaq National Market on
December 14, 1999. For the period between December 14, 1999 and December 31,
1999, our highest price was $35.125 and our lowest was $25.
We have never declared or paid any cash dividends on our capital
stock and we do not anticipate paying cash dividends in the foreseeable
future.
Unregistered Sale of Securities
On January 7, 1999, AT&T Wireless PCS, Inc. and TWR Cellular, Inc.
contributed PCS licenses to Tritel and entered into agreements with Tritel for
the use of the AT&T logo and other service marks, and for roaming
arrangements. In exchange for the contributed assets, AT&T Wireless received
90,668 shares of Series A Convertible Preferred Stock and 46,374 shares of
Series D Convertible Preferred Stock in Tritel with a stated value of
$137,042,000.
On January 7, 1999, Airwave Communications and Digital PCS
transferred substantially all of their assets and liabilities at historical
cost to Tritel in exchange for 18,262 shares of Series C Convertible Preferred
Stock.
On January 7, 1999, Tritel acquired all of the assets and liabilities
of Central Alabama Partnership, LP 132 in exchange for 2,602 shares of Series
C Convertible Preferred Stock in Tritel with a stated value of $2,602,000.
On January 7, we completed a private offering of our Series C
Convertible Preferred Stock pursuant to Rule 144A and Regulation S of the
Securities Act of 1933, as amended, from which we received $163.4 million in
gross proceeds. After deducting expenses, the net proceeds of the offering
were $154.9 million. The proceeds of the offering were used for capital
expenditures, including the buildout of our network, to cover financing fees
and expenses, and as working capital.
The Series C Convertible Preferred Stock issued on January 7, 1999
converted to an aggregate of 78,312,424 shares of our Class A and Class D
Common Stock upon the closing of our initial public offering.
Registered Sale of Securities
On December 13, 1999, in connection with our initial public offering,
our Registration Statement on Form S-1 (File no. 333-91207) was declared
effective by the Securities and Exchange Commission, pursuant to which
10,781,250 million shares of our Class A Common Stock were sold at a price of
$18.00 per share, generating gross proceeds of $194.1 million. The managing
underwriters were Goldman, Sachs & Co, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Bear, Stearns & Co, Inc., and Donaldson, Lufkin & Jenrette.
After deducting approximately $13.6 million in underwriting discounts and
commissions and approximately $1.8 million in other offering expenses payable
by us, the net proceeds were approximately $178.7 million. In addition, on
December 17, 1999, we completed a concurrent private offering to certain of
our existing stockholders of 884,019 shares of our Class A Common Stock and
2,927,120 shares of our Class B Common Stock at a price of $16.74 per share,
from which we received proceeds of $63.8 million. As of December 31, 1999, we
will use the proceeds of the offering for general corporate purposes,
including capital expenditures in connection with the construction of our PCS
network, sales and marketing activities and working capital.
The foregoing use of the proceeds does not represent a material
change in the use of net proceeds described in the registration statement.
Item 6. Selected Financial Data
Selected Consolidated Financial Data
The following selected financial data for the periods indicated have
been derived from the Consolidated Financial Statements of Tritel, Inc. which
statements have been audited by KPMG LLP, independent certified public
accountants, whose report thereon, other than operations for the period from
inception through December 31, 1995 and for the year ended December 31, 1996
and balance sheets at December 31, 1995, 1996 and 1997, appears elsewhere in
this Form 10-K. The selected financial data should be read in conjunction with
"Management's Discussion and Analysis" and the Consolidated Financial
Statements and notes thereto of Tritel included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
Period from
Inception
to December Year Ended December 31,
31, ---------------------------------------------------
1995 1996 1997 1998 1999
---------------------------------------------------------------
(dollars in thousands)
Statements of Operations:
<S> <C> <C> <C> <C> <C>
Revenues $ -- $ -- $ -- $ -- $6,759
---------- -------- -------- -------- ----------
Operating expenses:
Costs of services and equipment -- -- -- -- 6,966
Technical operations -- 4 104 1,939 18,459
Sales, general and administrative 121 1,486 3,151 5,399 43,319
Stock-based compensation -- -- -- -- 190,664
Depreciation and amortization -- 2 20 348 12,839
---------- -------- -------- -------- ----------
Total operating expense 121 1,492 3,275 7,686 272,247
---------- -------- -------- -------- ----------
Operating loss (121) (1,492) (3,275) (7,686) (265,488)
Interest income 1 31 121 77 16,791
Interest expense and financing cost -- -- -- (722) (27,200)
---------- -------- -------- -------- ----------
Loss before extraordinary item and
income taxes -- (1,461) (3,154) (8,331) (275,897)
(120)
Income tax benefit -- -- -- -- 28,443
---------- -------- -------- -------- ----------
Loss before extraordinary item (120) (1,461) (3,154) (8,331) (247,454)
Extraordinary item--
Loss on return of spectrum -- -- -- (2,414) --
---------- -------- -------- -------- ----------
Net loss (120) (1,461) (3,154) (10,745) (247,454)
Accrual of dividends on Series A
redeemable preferred stock -- -- -- -- (8,918)
---------- -------- -------- -------- ----------
Net loss available to common $(120) $(1,461) $(3,154) (10,745) $(256,372)
shareholders ========== ======== ======== ======== ==========
Basic and diluted net loss per $(33.25)
==========
common share
Weighted average common shares
outstanding (1) 7,710, 649
==========
</TABLE>
(1) Per share information is not included for periods prior to 1999 because
our predecessor companies were limited liability companies with different
capital structures.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------
1995 1996 1997 1998 1999
---------------------------------------------------------------
(dollars in thousands)
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $400 $32 $1,763 $846 $ 609,269
Other current assets 4,501 5,000 285 960 21,295
Property and equipment, net -- 10 13 13,816 262,343
FCC licensing costs 40 62,503 99,425 71,466 (1) 201,946
Intangible assets, net 3 186 1,027 1,933 59,508
Other assets -- -- -- -- 42,001
---------- -------- -------- -------- ----------
Total assets $4,944 $67,731 $102,513 $89,021 $1,196,362
========== ======== ======== ======== ==========
Total current liabilities $3,425 $8,553 $8,425 $32,911 $114,247
Long-term debt -- 53,504 77,200 51,599 (2) 557,716
Other non-current liabilities -- -- 8,126 6,494 37,367
Total Series A redeemable preferred -- -- -- -- 99,586
stock
Total stockholders' equity (deficit) 1,519 5,674 8,762 (1,983) 387,446
---------- -------- -------- -------- ----------
Total liabilities and stockholders' $4,944 $67,731 $102,513 $89,021 $1,196,362
equity ========== ======== ======== ======== ==========
Other Financial Data:
=====================================
Ratio of earnings to fixed charges -- -- -- -- --
</TABLE>
For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as income before income taxes plus fixed charges. Fixed
charges consist of interest expense and other financing costs on all
indebtedness, including amortization of discount and deferred debt issuance
costs. Earnings were insufficient to cover fixed charges by $140,000 for the
period from inception, July 27, 1995, through December 31, 1995, $4.8 million,
$10.4 million, $18.9 million and $271.1 million for the years ended December
31, 1996, 1997, 1998 and 1999, respectively.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our consolidated
financial statements and notes thereto, which are included in this Form 10-K.
See also "Information Regarding Forward Looking Statements and Market Data."
General
We are an AT&T Wireless affiliate with licenses to provide PCS
services to approximately 14.0 million people in contiguous markets in the
south-central United States. We began providing wireless services in our
Jackson, Mississippi market in September 1999 and in seven other major markets
by year end. In January 1999, we entered into our affiliation agreement with
AT&T Wireless, our largest equity shareholder with 21.6% ownership of our
company. We have also joined with two other AT&T Wireless affiliates to
operate under a common regional brand name, SunCom. We provide our PCS
services as a member of the AT&T Wireless Network, serving as the preferred
roaming provider to AT&T Wireless' digital customers in virtually all of our
markets and co-branding our services with the AT&T and SunCom brands and
logos, giving equal emphasis to each.
AT&T Wireless operates the largest digital wireless network in North
America. Its network consists of AT&T Wireless' existing digital and analog
systems, PCS systems being constructed by four joint venture partners,
including our company, and systems currently operated by third parties with
which AT&T Wireless has roaming agreements. In the aggregate, these systems
covered over 95% of the total Pops throughout the United States as of December
31, 1999.
We have incurred significant expenditures in conjunction with our
organization and financing, PCS license acquisitions, hiring key personnel and
the design and construction of our PCS network facilities. We have commenced
commercial PCS services in eight of our ten largest markets. We expect to have
commenced commercial PCS service in all of our major population and business
centers by the end of 2000. The timing of launch in individual markets will be
determined by various factors, principally the success of our site acquisition
program, zoning and microwave relocation activities, equipment delivery
schedules and local market and competitive considerations. We provided service
to over 50% of the Pops in our license area at the end of 1999 and expect to
be providing service to over 98% by the end of 2000. Thereafter, we will
evaluate further coverage expansion on a market-by-market basis.
The extent to which we are able to generate operating revenues and
earnings will be dependent on a number of business factors, including
successfully deploying the PCS network and attaining profitable levels of
market demand for our products and services.
Revenues
We generate substantially all of our revenues from the following
sources:
Service. We sell wireless personal communications services. The
various types of service revenue associated with personal 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' charges are dependent
on their rate plans, based on the number of minutes included in their plans.
Service revenue also includes monthly non-recurring airtime usage associated
with our prepaid subscribers and non-recurring activation and deactivation
service charges.
Equipment. We sell wireless PCS handsets and accessories that are
used by our customers in connection with our wireless services.
Roaming. We charge monthly, non-recurring, per minute fees to other
wireless companies whose customers use our network facilities to place and
receive wireless services.
Industry statistics indicate that average revenue per unit, called
ARPU, for the wireless communications business has declined substantially over
the period 1993-1998. Although this decline has stabilized recently,
management believes that some deterioration in ARPU will continue. Management
believes that certain direct operating costs, including billing, interconnect,
roaming and long distance charges will decline. However, our ability to
improve our margins will depend primarily on our ability to manage our
variable costs, including selling, general and administrative expense and
costs per new subscriber.
A particular focus of our strategy is to reduce subscriber churn.
Industry data suggest that providers (including PCS 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 launch service in a new market only after we believe that comprehensive and
reliable coverage and service can be maintained in that market. In addition,
we have designed our billing system to provide simple and understandable
options to our subscribers and to permit subscribers to select a flexible
billing cycle.
We also focus resources on a proactive subscriber retention program,
strict credit policies and alternative methods of payment for
credit-challenged customers. However, future PCS churn rates may be higher
than historical rates due to the increase in number of competitors and
expanded marketbase.
Cost of Services and Equipment
Our cost of services and equipment has consisted of, and we expect,
will continue to consist of, the following:
Equipment. We purchase personal communications handsets and
accessories from third party vendors to resell to our customers for use in
connection with our services. The cost of handsets has been, and is expected
to remain, higher than the resale price to the customer. This cost is recorded
as a cost of services and equipment. We do not manufacture any of this
equipment.
Roaming Fees. We pay fees to other wireless communications companies
based on airtime usage of our customers on other communications networks. It
is expected that reciprocal roaming rates charged between our company and
other carriers will decrease.
Variable Interconnect. We pay monthly charges associated with the
connection of our network with other carriers' networks. These fees are based
on minutes of use by our customers. This is known as interconnection.
Variable Long Distance. We pay monthly usage charges to other
communications companies for long distance service provided to our customers.
These variable charges are based on our subscribers' usage, applied at
pre-negotiated rates with the other carriers.
Clearinghouse Fees. We pay fees to an independent clearinghouse for
processing our call data records and performing monthly intercarrier financial
settlements for all charges that we pay to other wireless companies when our
customers use their network, and that other wireless companies pay to us when
their customers use our network. These fees are based on the number of
transactions processed in a month.
Operating Expenses
Our operating expenses have consisted of, and we expect will continue
to consist of, the following costs:
Technical Operations. Our technical operations expense includes
engineering operations and support, cell site lease expenses, field
technicians, network implementation support, and engineering management. This
expense also includes monthly recurring charges directly associated with the
maintenance of network facilities and equipment.
General and Administrative. Our general and administrative expense
includes customer service, billing, information technology, finance,
accounting, human resources and legal services.
Sales and Marketing. Our sales and marketing expense includes
salaries and benefits, commissions, advertising and promotions, retail
distribution, sales training, and direct and indirect support.
Stock Based Compensation. We have issued a total of 12,362,380 shares
of our Class A and Class C common stock to members of our management,
primarily in connection with the formation of the joint venture with AT&T
Wireless. These shares are subject to vesting and are currently held in
escrow. These shares are also subject to repurchase agreements, which are
considered a "variable stock plan" under generally accepted accounting
principles. Under the repurchase agreements, the management holders will pay
$2.50 per share for these shares, payable by surrendering shares to us valued
at their fair value. Based on the average closing price of our common stock
for the last ten trading days of 1999, we recorded non-cash compensation
expense of approximately $190.7 million in the fourth quarter of 1999 relating
to the earned portion of the stock issued to management. Subsequent to year
end, the Board of Directors approved a plan to modify these awards to remove
the provision that requires management to surrender a portion of their shares
consistent with the conditions of the merger agreement. The effective date of
this modification if and when completed will become the measurement date upon
which the value of the award will be fixed. Assuming our Class A common stock
continues to have a fair value of approximately $28.50 per share on the
measurement date, we would record additional non-cash compensation expense
related to these shares for the period from 2000 to 2004 of approximately
$131.0 million. Future stock price movement will result in charges that differ
from this amount. Each dollar increase or decrease in the average closing
price of our common stock for the last ten trading days of any quarter will
result in an increase or decrease in the non-cash compensation expense related
to these shares of approximately $12.4 million.
Depreciation and Amortization. Property and equipment are depreciated
using the straight-line method, generally over three to seven years, based
upon the estimated useful lives of the respective assets. Leasehold
improvements are depreciated over the term of the lease. Network development
costs are capitalized and are depreciated generally over seven years beginning
as PCS service is commenced in each of our markets.
PCS license costs are amortized over 40 years beginning as PCS
service is commenced in each of our markets. The AT&T agreements, including
the Network Membership License Agreement and the Intercarrier Roamer Service
Agreement, are amortized over the lives of the agreements, 10 years and 20
years, respectively, beginning in January 1999.
Interest Income (Expense). Interest income is earned primarily on our
cash and cash equivalents and restricted cash. Interest expense through
December 1999 consists of interest due on our senior credit facilities and
debt owed to the U.S. government related to our licenses as well as discount
accretion on the senior subordinated discount notes.
Results of Operations
Revenues. Revenues for the year ended December 31, 1999 were $6.8
million. We launched commercial service in Jackson, Mississippi in September
1999 and launched commercial service in seven other major markets during the
fourth quarter of 1999. We had not previously recognized any revenues.
Revenues consist primarily of revenues derived from service to our customers,
roaming services provided to customers of other carriers, and the sale of
handsets and accessories.
We ended 1999 with approximately 24,600 subscribers in eight major
markets. Our ARPU including service and feature revenue as well as airtime and
incollect roaming charges was $45 for the fourth quarter of 1999. We expect an
increase in ARPU as we begin to target business customers, implement a
national accounts program, focus on value added features and provide
incentives to our sales force for selling higher priced rate plans.
We anticipate strong growth in 2000 in revenue and subscribers as we
continue to expand our operations in our licensed areas. We expect to launch
substantially all of our remaining markets during 2000. We expect to begin
offering SunCom service in two of our largest markets, Birmingham and Mobile,
Alabama in the second quarter of 2000.
We expect roaming revenues to increase during 2000 as we expand our
coverage areas as well as complete our first full year of operations in the
markets that became operational during 1999.
Operating Expenses
Cost of services and equipment was $7.0 million for the year ended
December 31, 1999. Cost of equipment includes primarily the cost of equipment
sold to customers, costs paid to other carriers for roaming services and
wireline access and long-distance costs from customer use on our system. These
costs are expected to increase in future periods as subscribers are added to
the system and usage of our system increases.
Technical operations expenses were $104,000, $1.9 million and $18.5
million for the years ended December 31, 1997, 1998, and 1999, respectively.
These expenses include primarily the cost of engineering and operating staff
devoted to the oversight of the design, implementation and monitoring of our
network, cell site lease expense, charges incurred to connect our network to
other carriers and construction site office expenses.
We expect that the majority of our future technical operations
expenses will consist of costs relating to operating the network, including
the cost of interconnection to wireline and other wireless networks, cell site
lease costs, network personnel and repair and maintenance. We expect these
costs to increase in future periods as we expand our coverage areas, add
additional subscribers and incur a full year of operational expenses.
Our general and administrative expense includes customer service,
billing, information technology, finance, accounting, human resources and
legal services. General and administrative expenses increased from $3.1
million in 1997, to $4.9 million in 1998 and $22.9 million in 1999. The
increase was due primarily to increased staffing in various departments,
including information technology, billing, customer care, accounting, human
resources and other administrative functions, incurred in preparation for
commercial launch of our network in 1999, as well as costs related to our
redefined employment agreement with Jerry M. Sullivan, Jr. totaling $5.8
million recorded in 1999.
Effective September 1, 1999, we and Mr. Sullivan entered into an
agreement to redefine Mr. Sullivan's relationship with us. Mr. Sullivan
resigned as one of our officers and directors. Mr. Sullivan will retain the
title Executive Vice President through December 15, 2001; however, under the
agreement, he is not permitted to represent us nor will he perform any
functions for us. As part of the agreement, Mr. Sullivan will also receive an
annual salary of $225,000 and an annual bonus of $112,500 through December 31,
2002. Mr. Sullivan is fully vested in 1,800,000 shares of Class A common stock
and has returned all other shares held by him, including his Voting Preference
common stock, to us. Accordingly, we recorded $5.8 million in additional
compensation expense for the year ended December 31, 1999. The $5.8 million
was determined pursuant to the settlement of Mr. Sullivan's employment
relationship with the Company and includes $4.5 million for the grant of
additional stock rights, $225,000 annual salary and $112,500 annual bonus
through December 31, 2002, and other related amounts.
We expect general and administrative expenses to increase during 2000
as we continue to launch additional markets and provide customer support
functions to a larger customer base.
Our sales and marketing expense includes salaries and benefits,
commissions, advertising and promotions, retail distribution, sales training,
and direct and indirect support. Sales and marketing expenses increased from
$28,000 in 1997 to $452,000 in 1998 and $20.4 million in 1999. The increase
was associated with the salary and benefits for sales and marketing personnel,
market deployment, including planning and leasing of sales offices and retail
store locations and advertising costs related to 1999 market launches. We
expect to incur significant selling and marketing costs during 2000 primarily
related to sales commissions, ongoing advertising and promotions in our
existing markets and promotional events and advertising incurred in connection
with market launches.
Depreciation and amortization expenses were $20,000 in 1997 compared
to $348,000 in 1998 and $12.8 million in 1999. The 1999 expenses related
primarily to the depreciation of network system equipment placed into service
in 1999 and the amortization of our roaming and license agreements with AT&T
Wireless, as well as depreciation of computer hardware, software, furniture,
fixtures, and office equipment. Depreciation and amortization expenses are
expected to increase during 2000 as we complete the construction of our
network as well as recognize a full year of depreciation expense on our
network assets placed in service during 1999.
Non-Operating Income and Expense
Interest income was $121,000 in 1997, $77,000 in 1998 and $16.8
million in 1999. This significant increase in 1999 as compared to 1998 was a
result of our investment of the cash received from equity investors of $163.4
million, advances under our bank facility of $300.0 million, proceeds from the
sale of senior subordinated discount notes of approximately $200.2 million and
proceeds from the sale of common stock in our initial public offering of
approximately $242.5 million. Our short-term cash investments consist
primarily of U.S. Government securities and highly rated commercial paper with
a dollar-weighted average maturity of 90 days or less.
Financing costs were $2.2 million for the year ended December 31,
1999. These costs were associated with the January 1999 conversion by Digital
PCS of debt due to an investor to equity in Airwave Communications.
Interest expense was $722,000 in 1998 and $25.0 million in 1999 and
consisted of interest incurred related to borrowing under our bank credit
facility and the FCC debt and discount accretion on the senior subordinated
discount notes issued in May 1999. Interest expense is net of the amount
capitalized for the purpose of completing the network buildout.
For the year ended December 31, 1999, we recorded a deferred income
tax benefit of $28.4 million. The valuation allowance for the gross deferred
tax asset at December 31, 1999 was $1.0 million. No valuation allowance was
considered necessary for the remaining gross deferred tax asset, principally
due to the existence of a deferred tax liability which was recorded upon the
closing of the AT&T transaction on January 7, 1999. Prior to this date, the
Predecessor Company was a limited liability corporation and was not subject to
income taxes.
During June 1998, we took advantage of a reconsideration order by the
FCC allowing companies holding C-Block PCS licenses several options to
restructure their license holdings and associated obligations. We elected the
disaggregation option and returned one-half of the broadcast spectrum
originally acquired for each of the C-Block license areas. As a result, we
reduced the carrying amount of the related licenses by one-half, or $35.4
million, and reduced the discounted debt and accrued interest due to the FCC
by $33.0 million. As a result of the disaggregation election, we recognized an
extraordinary loss in 1998 of approximately $2.4 million.
Liquidity and Capital Resources
The buildout of our network and the marketing and distribution of our
products and services will require substantial capital. We currently estimate
that our capital requirements for the period from inception through the end of
2001, assuming substantial completion of our network buildout, will total
approximately $1.4 billion. We estimate those capital requirements will be met
as follows:
Bank facility $ 550.0
Senior subordinated discount notes 200.2
Government financing 47.5
Net proceeds from public offering of stock 242.5
Cash equity 163.4
Non-cash equity 157.9
-----
Total estimated capital requirements $1,361.5
========
On January 7, 1999, we entered into a loan agreement that provides
for a senior bank facility with a group of lenders for an aggregate amount of
$550 million of senior secured credit. The bank facility provides for:
o a $250 million reducing revolving credit facility maturing on June
30, 2007,
o a $100 million term credit facility maturing on June 30, 2007, and
o a $200 million term credit facility maturing on December 31, 2007.
Up to $10 million of the facility may be used for letters of credit.
We estimate that the $550 million bank facility will be drawn through the end
of 2001 for capital requirements. The terms of the bank facility will permit
us, subject to certain terms and conditions, including compliance with certain
leverage ratios and satisfaction of buildout and subscriber milestones, to
draw up to $550 million to finance working capital requirements, capital
expenditures or other corporate purposes. As of December 31, 1999, we could
have borrowed up to a total of approximately $550 million pursuant to the
terms of the bank facility. See "Description of Certain Indebtedness--Bank
Facility".
On May 11, 1999, we issued senior subordinated discount notes with a
principal amount at maturity of $372.0 million. These notes were issued at a
substantial discount from their principal amount at maturity for proceeds of
$200.2 million. No interest will be paid on the notes prior to May 15, 2004.
We will recognize interest expense for discount accretion during this period.
Thereafter, the notes will bear interest at the stated rate. The notes mature
on May 15, 2009.
Our predecessor companies received preferential financing from the
U.S. Government for the C and F-Block licenses, which they contributed to us
in exchange for Series C Preferred Stock. As a result, we are obligated to pay
$47.5 million to the U.S. Government under the terms of preferential financing
terms. The debt relating to the C-Block licenses requires interest only
payments for the first six years of the term and then principal and interest
payments in years seven through ten. The debt relating to the F-Block licenses
requires interest only payments for the first two years of the term and then
principal and interest payments in years three through ten.
In connection with the consummation of our affiliation with AT&T
Wireless, we received equity from institutional investors in the aggregate
amount of $149.2 million in return for the issuance of Series C Preferred
Stock. Additionally, on January 7, 1999, in exchange for the issuance of
Series C Preferred Stock we received $14.2 million of cash from Airwave
Communications and Digital PCS.
Non-cash equity consists of:
o Series A Preferred Stock and Series D Preferred Stock valued at
$137.1 million issued to AT&T Wireless on January 7, 1999 in exchange
for the licenses it contributed and for entering into exclusivity,
license and roaming agreements,
o Series C Preferred Stock valued at $18.3 million issued to Airwave
Communications and Digital PCS on January 7, 1999 in exchange for the
net assets it contributed, and
o Series C Preferred Stock valued at $2.6 million issued to Central
Alabama Partnership on January 7, 1999 in exchange for the net assets
it contributed.
In connection with the December 1999 initial public offering, the
Series C Preferred Stock converted to Class A and Class D common stock.
As stated previously, we currently estimate that our capital
requirements, including capital expenditures, the cost of acquiring licenses,
working capital, debt service requirements and anticipated operating losses,
for the period from inception through the end of 2001, assuming substantial
completion of our network buildout will total approximately $1.4 billion. We
estimate those capital requirements will be applied as follows:
Acquisition of PCS licenses and exclusivity, license and
roaming agreements $192.9
Capital expenditures 706.6
Cash interest and fees 147.6
Working capital 314.4
-----
Total estimated use of capital $1,361.5
========
We have funded $192.9 million in capital for the acquisition of the
PCS licenses and the agreements with AT&T Wireless relating to exclusivity,
license and roaming. This amount includes the acquisition of PCS licenses from
AT&T Wireless, Central Alabama Partnership, Airwave Communications and Digital
PCS. The cash portion of this capital requirement of $14.7 million was paid by
Airwave Communications and Digital PCS primarily as a downpayment on the
purchase of the C- and F-Block licenses.
Management estimates that capital expenditures associated with the
buildout will total approximately $706.6 million from inception through the
end of 2001, including a commitment to purchase a minimum of $300 million in
equipment and services from Ericsson. Costs associated with the network
buildout include switches, base stations, towers and antennae, radiofrequency
engineering, cell site acquisition and construction, and microwave relocation.
The actual funds required to build out our network may vary materially from
these estimates, and additional funds could be required in the event of
significant departures from the current business plan, unforeseen delays, cost
overruns, unanticipated expenses, regulatory expenses, engineering design
changes and other technological risks. We have incurred approximately $260.3
million in capital expenditures through December 31, 1999.
We estimate that cash interest and fees through 2001 will total
approximately $147.6 million, including debt issuance costs related to the
bank credit facility and the senior subordinated discount notes. This amount
represents interest and fees on the senior bank facility and interest on the
preferential financing from the U.S. Government for the C and F-Block
licenses. Cash interest will not be paid on the senior subordinated discount
notes until 2004. We incurred approximately $28.0 million in cash interest and
fees during the year ended December 31, 1999.
We estimate that working capital requirements during the period from
inception through 2001 will total $314.4 million. This amount represents the
costs related to initiating, marketing, operating and managing our PCS
network.
We believe that the proceeds from the initial public offering
completed in December 1999, together with the proceeds from our sale of senior
subordinated discount notes, the financing made available to us by the FCC,
borrowings under our bank credit facility and the equity investments we have
received, will provide us with sufficient funds to build out our existing
network as planned and fund operating losses until we complete our planned
network buildout and generate positive cash flow.
Our ability to meet our capital requirements without additional
financing is subject to our ability to construct our network and obtain
customers in accordance with our plans and assumptions and a number of other
risks and uncertainties. The development of our network may not be completed
as projected and we may not be able to generate positive cash flow. If any of
our projections are incorrect, we may not be able to meet our projected
capital requirements.
On February 28, 2000, the Company announced an agreement to merge
with Telecorp PCS, Inc., headquartered in Arlington, Virginia. This merger is
expected to take place during the last quarter of 2000 and is a tax-free
exchange of stock. The Company does not expect the merger to have any material
effect on its current plans related to network buildout.
Digital PCS holds licenses covering 2.0 million Pops in Florida and
southern Georgia. These markets include the cities of Pensacola, Tallahassee
and Panama City, Florida. As part of our formation, we received from Digital
PCS an option to purchase these licenses for approximately 1.2 million shares
of our Class A common stock (reflecting the conversion of Series C Preferred
Stock and the stock split of our Class A common stock in December 1999) and
our assumption of approximately $12.0 million of FCC debt. In May 1999, we
exercised this option, and the licenses will be transferred to us after FCC
approval.
As part of our arrangements with AT&T Wireless, we have committed to
sell, to an entity in which AT&T Wireless has a non-attributable interest,
these licenses for the assumption of all outstanding FCC debt on the licenses
and cash in the amount equal to 110% of the sum of (i) the amount payable to
the FCC in respect of the licenses minus the amount of FCC debt assumed, plus
(ii) the aggregate amount of interest paid on the FCC debt by us and Digital
PCS.
Merger with TeleCorp PCS, Inc.
On February 28, 2000, Tritel and TeleCorp PCS, Inc. announced the
signing of a definitive agreement and plan of reorganization and contribution,
called the Merger Agreement, for an all stock, tax-free merger, called the
Merger. The Merger Agreement provides for the creation of a new entity to be
called TeleCorp PCS, Inc. Tritel and TeleCorp will merge into subsidiaries of
the new entity.
Under the Merger Agreement, Tritel's Class A common stock will be
converted into the right to receive 0.76 shares of the new entity's Class A
common stock per share of Tritel Inc.'s common stock. This exchange ratio is
fixed regardless of future stock price movement.
The Merger has been unanimously approved by the Tritel and TeleCorp
boards of directors, with three members of the TeleCorp board abstaining.
Shareholders with an excess of 50% of the voting power of each company have
entered into agreements to vote in favor of the Merger. The Merger is still
subject to regulatory approval and other conditions.
The new entity will continue to provide, as an AT&T Wireless
affiliate, digital wireless service under the SunCom and AT&T brand names,
giving equal emphasis to each. In terms of licensed Pops, the new entity will
cover approximately 35 million Pops and will become one of the top ten
wireless service providers in the U.S. The Merger creates a new contiguous
service area that connects the middle of the country and plays a more
strategic role for the AT&T Wireless Network. The new entity will have sixteen
of the top 100 markets located in fourteen states and the Commonwealth of
Puerto Rico. It is expected that the Merger will be completed in the last
quarter of 2000.
Pending License Acquisition
On March 23, 1999, the FCC commenced a re-auction of the C-, D-,
E-and F-Block licenses that had been returned to the FCC under an FCC
restructuring order or that had been forfeited for noncompliance with FCC
rules or for default under the related FCC financing. Before the re-auction,
we loaned $7.5 million to ABC Wireless, an entity formed to participate in the
C-Block re-auction as a "very small business" under applicable FCC rules, to
partially fund its participation in the re-auction.
In the re-auction, ABC Wireless was successful in bidding for an
additional 15 to 30 MHz of spectrum covering a total of 5.7 million Pops, all
of which are already covered by our existing licenses. Nashville and
Chattanooga are the largest cities covered by the additional licenses. The
total bid price for these additional licenses was $7.8 million. We have
increased our loan to ABC Wireless to $7.8 million. Our purchase of licenses
from ABC Wireless would be subject to, among other things, the consent of AT&T
Wireless.
As a result of the re-auction and our contractual rights to purchase
from ABC Wireless PCS licenses, we could hold an attributable interest in
Commercial Mobile Radio Service, or CMRS, spectrum in excess of 45 MHz in
several cities in our markets. Current FCC rules limit PCS licensees and
certain PCS investors in PCS licensees from having an attributable interest in
more than 45 MHz of CMRS spectrum (or 55 MHz where there is an overlap between
a PCS service area and rural cellular service area) in any given geographic
area. In order to exceed the 45 MHz spectrum limit, we and certain investors,
including AT&T, would have to obtain the consent of the FCC. There is no
assurance that the FCC will give its consent and seeking such consent could
delay the processing of the required applications to assign the licenses from
ABC Wireless to us. We believe the FCC will approve the disaggregation of
spectrum from the ABC Wireless licenses and transfer to us portions of the
licenses so we will be in compliance with the CMRS spectrum cap rules.
Year 2000
Many currently installed computer systems and software applications
are encoded to accept only two digit entries in the year entry of the date
code field. Beginning in the year 2000, these codes will need to accept four
digit year entries to distinguish 21st century dates from 20th century dates.
We implemented a Year 2000 program to ensure that our computer systems and
applications would function properly after 1999. We believe that we allocated
adequate resources for this purpose and successfully completed our Year 2000
compliance program on a timely basis. We did not incur material expenses or
meaningful delays as a result of the Year 2000 date change. To date, we have
experienced no material adverse effects related to the Year 2000 computer
issue.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("FAS 133"). FAS 133 establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. FAS 133 will significantly change the accounting
treatment of derivative instruments and, depending upon the underlying risk
management strategy, these accounting changes could affect future earnings,
assets, liabilities, and shareholders' equity. We are closely monitoring the
deliberations of the FASB's derivative implementation task force. With the
issuance of Statement of Financial Accounting Standards No. 137, Accounting
for Derivative Instruments and Hedging Activities--Deferral of the Effective
Date of FASB Statement No. 133, which delayed the effective date of FAS 133,
we will be required to adopt FAS 133 on January 1, 2001. Presently, we have
not yet quantified the impact that the adoption will have on our consolidated
financial statements.
Quantitative and Qualitative Disclosure about Market Risk
We are exposed to market risk from changes in interest rates that
could impact results of operations. We manage interest rates through a
combination of fixed and variable rate debt. We have entered into interest
rate swap agreements as a risk management tool, not for speculative purposes.
See Note 9 of Notes to Consolidated Financial Statements.
At December 31, 1999 we had $300 million of Term A and Term B Notes
under our bank facility, which carried a rate of 10.62%; $372 million of the
original 12.75% senior subordinated discount notes, due 2009; $38.0 million of
7%, discounted to yield 10%, debt to the FCC, due in quarterly installments
from 2003 to 2006; and $9.5 million of 6 1/8%, discounted to yield 10%, debt
to the FCC, due in quarterly installments from 2000 to 2008.
Our senior subordinated discount notes and FCC debt are fixed
interest rate and as a result we are less sensitive to market rate
fluctuations. However, our Term A and Term B Notes outstanding and other
amounts available to us under our bank facility agreement are variable
interest rate. Beginning in May 1999, we entered into interest rate swap
agreements with notional amounts totaling $200 million to manage our interest
rate risk under the bank facility. The swap agreements establish a fixed
effective rate of 9.05% on $200.0 million of the current balance outstanding
under the bank facility through the earlier of March 31, 2002 or the date on
which we achieve operating cash flow breakeven. Market risk, due to potential
fluctuations in interest rates, is inherent in swap agreements.
The following table provides information about our market risk
exposure associated with changing interest rates on our fixed rate debt at
maturity value of the debt (dollars in millions):
<TABLE>
<CAPTION>
EXPECTED MATURITY
-------------------------------------------------------------------
1999 2000 2001 2002 2003 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Face value of long-term fixed -- $0.9 $1.0 $1.1 $9.7 $406.8 $419.5
rate debt
Average interest rate -- 6.1% 6.1% 6.1% 6.9% 12.2% --
</TABLE>
Collectively, our fixed rate debt has a carrying value of $258.6
million at December 31, 1999. The carrying amount of fixed rate debt is
believed to approximate fair value because a portion of such debt was
discounted to reflect a market interest rate at inception and the remaining
portion of fixed rate debt was issued in May 1999 and therefore approximates
fair value due to its recent issuance.
We are also exposed to the impact of interest rate changes on our
short-term cash investments, consisting primarily of U.S. government
securities and highly rated commercial paper with a dollar weighted average
maturity of 90 days or less. As with all investments, these short-term
investments carry a degree of interest rate risk.
We are not exposed to fluctuations in currency exchange rates since
our operations are entirely within the United States.
Forward Looking Statements; Cautionary Statements
Statements in this report expressing our expectations and beliefs of
the Company regarding our future results or performance are forward-looking
statements that involve a number of risks and uncertainties. In particular,
certain statements contained in this Management's Discussion and Analysis of
Financial Condition and Results of Operations which are not historical facts
constitute "forward-looking statements." Our actual future results may differ
significantly from those stated in any forward-looking statements. Factors
that may cause or contribute to such differences include, but are not limited
to, risks discussed in our Registration Statement on Form S-1 (Reg. No.
333-91207) and from time to time in our other filings with the Securities and
Exchange Commission, including, without limitation, the following: (1) we
depend on our agreements with AT&T for our success, and under certain
circumstances AT&T could terminate its exclusive relationship with us and our
use of the AT&T brand name and logo, (2) we may not be able to manage the
construction of our network or the growth of our business successfully, (3) we
have substantial existing debt, and may incur substantial additional debt,
that we may be unable to service, (4) we may not be able to obtain the
additional financing we may need to complete our network and fund operating
losses, (5) we have many competitors that have substantial coverage of our
licensed areas, (6) difficulties in obtaining infrastructure equipment or
sites may affect our ability to construct our network and meet our development
requirements, (7) potential acquisitions may require us to incur substantial
additional debt and integrate new technologies, operations and services, which
may be costly and time consuming, (8) we may experience a high rate of
customer turnover, (9) our association with the other SunCom companies may
harm our reputation if consumers react unfavorably to them, (10) we depend
upon consultants and contractors for our network services, (11) we may become
subject to new health and safety regulations, which may result in a decrease
in demand for our services, (12) changes in our licenses or other governmental
action or regulation could affect how we do business, (13) we could lose our
PCS licenses or incur financial penalties if the FCC determines we are not a
very small business or if we do not meet the FCC's minimum construction
requirements, (14) the technologies that we use may become obsolete, which
would limit our ability to compete effectively, and (15) we may incur
operating costs due to fraud. In addition, new factors emerge from time to
time, and it is not possible for us to predict all of these factors. Further,
we cannot assess the impact of each such factor on our business or the extent
to which any factor, or combination of factors, may cause actual results to be
materially different from those contained in any forward-looking statements.
As a result of the foregoing and other factors, we may experience material
fluctuations in future operating results on a quarterly or annual basis which
could materially and adversely affect our business, financial condition,
operating results and stock price. We specifically decline any obligation to
publicly release the result of any revisions that may be made to forward-
looking statements to reflect anticipated or unanticipated events or
circumstances occurring after the date of such statement.
Item 8. Financial Statements and Supplementary Data
Our financial statements, including our consolidated balance sheets
as of December 31, 1998 and 1999 and consolidated statements of operations,
consolidated statements of cash flows and consolidated statements of changes
in members' and stockholders' equity for the years ended December 31, 1997,
1998 and 1999, together the report of KPMG LLP, dated February 18, 2000,
except with respect to Note 21 which is as of February 28, 2000, and the Notes
thereto are attached to this report as pages F-1 - F-32.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information relating to directors and director nominees and executive
officers of the Registrant will be provided in the Proxy Statement of the
Registrant for the Company's 2000 Annual Meeting of shareholders, which
definitive proxy statement will be filed pursuant to Regulation 14A not later
than 120 days following the Company's fiscal year ended December 31, 1999, and
is incorporated herein by this reference.
Item 11. Executive Compensation
Information relating to executive compensation of the Registrant will
be provided in the Proxy Statement of the Registrant for the Company's 2000
Annual Meeting of shareholders, which definitive proxy statement will be filed
pursuant to Regulation 14A not later than 120 days following the Company's
fiscal year ended December 31, 1999, and is incorporated herein by this
reference.
Item 12. Securities Ownership of Certain Beneficial Owners and Management
Information relating to security ownership of certain beneficial
owners and management of the Registrant will be provided in the Proxy
Statement of the Registrant for the Company's 2000 Annual Meeting of
shareholders, which definitive proxy statement will be filed pursuant to
Regulation 14A not later than 120 days following the Company's fiscal year
ended December 31, 1999, and is incorporated herein by this reference.
Item 13. Certain Relationships and Related Transactions
Information relating to certain relationships and related
transactions of the Registrant is will be provided in the Proxy Statement of
the Registrant for the Company's 2000 Annual Meeting of shareholders, which
definitive proxy statement will be filed pursuant to Regulation 14A not later
than 120 days following the Company's fiscal year ended December 31, 1999, and
is incorporated herein by this reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
<S> <C>
2.1 Agreement and Plan of Reorganization and Contribution, between Tritel, Inc., TeleCorp PCS, Inc. and
AT&T Wireless Services, Inc., dated February 28, 2000.
3.1+ Restated Certificate of Incorporation of Tritel, Inc., dated January 4, 1999.
3.2++ Certificate of Amendment to Restated Certificate of Incorporation, dated December 9, 1999.
3.2+ Amended and Restated Bylaws of Tritel, Inc., dated December 9, 1999.
10.1.1+ Stockholders' Agreement by and among AT&T Wireless PCS Inc., Cash Equity Investors, Management
Stockholders, and Tritel, Inc. dated January 7, 1999.
10.1.2+ First Amendment to Stockholders' Agreement, dated August 27, 1999.
10.1.3+ Second Amendment to Stockholders' Agreement, dated as of September 1, 1999.
10.1.4++ Third Amendment to Stockholders' Agreement, dated November 18, 1999.
10.1.5++ Fourth Amendment to Stockholders' Agreement, dated December 10, 1999.
10.2+ Investors Stockholders' Agreement by and among Tritel, Inc., Washington National Insurance Company,
United Presidential Life Insurance Company, Dresdner Kleinwort Benson Private Equity Partners LP,
Toronto Dominion Investments, Inc., Entergy Wireless Corporation, General Electric Capital
Corporation, Triune PCS, LLC, FCA Venture Partners II, L.P., Clayton Associates LLC, Trillium PCS,
LLC, Airwave Communications, LLC, Digital PCS, LLC, and The Stockholders Named Herein dated January
7, 1999.
10.3+ AT&T Wireless Services Network Membership License Agreement between AT&T Corp. and Tritel, Inc.
dated January 7, 1999.
10.4+ Intercarrier Roamer Service Agreement between AT&T Wireless Services, Inc. and Tritel, Inc. dated
January 7, 1999.
10.5+ Amended and Restated Agreement between Telecorp Communications, Inc., Triton PCS, Inc., Tritel
Communications, Inc. and Affiliate License Co., L.L.C. dated April 16, 1999.
10.6+ Form of Employment Agreement.
10.7++ Tritel, Inc. Amended and Restated 1999 Stock Option Plan, effective January 7, 1999.
10.8+ Form of Restricted Stock Agreements pursuant to the Tritel, Inc. Amended and Restated 1999 Stock
Option Plan.
10.9++ Tritel, Inc. Amended and Restated 1999 Stock Option Plan for Nonemployee Directors, effective
January 7, 1999.
10.10+ Amended and Restated Loan Agreement among Tritel Holding Corp., Tritel, Inc., The Financial
Institutions Signatory Hereto, and Toronto Dominion (Texas), Inc. dated March 31, 1999.
10.11+ First Amendment to Amended and Restated Loan Agreement among Tritel Holding Corp., Tritel, Inc., The
Financial Institutions Signatory Thereto, and Toronto Dominion (Texas), Inc. dated April 21, 1999.
10.12+ Master Lease Agreement between Tritel Communications, Inc. and Crown Communication Inc. dated
October 30, 1998.
10.13+ Master Lease Agreement between Signal One, LLC and Tritel Communications, Inc. dated December 31,
1998.
10.14.1+ Management Agreement between Tritel Management, LLC and Tritel, Inc. dated January 1, 1999.
10.14.2+ First Amendment to Management Agreement, dated as of September 1, 1999.
10.15+ Master Antenna Site Lease No. D41 between Pinnacle Towers Inc. and Tritel Communications, Inc. dated
October 23, 1998.
10.16+ Installment Payment Plan Note made by Mercury PCS, LLC in favor of the Federal Communications
Commission in the amount of $42,525,211.95, dated October 9, 1996.
10.17+ First Modification of Installment Payment Plan Note for Broadband PCS F Block by and between Mercury
PCS II, L.L.C. and the Federal Communications Commission, dated July 2, 1998, effective as of July
31, 1998.
10.18+ Services Agreement by and between Tritel Communications, Inc. and Wireless Facilities, Inc., dated
July 1, 1999.
10.19+ Letter Agreement by and between Tritel Communications, Inc. and H.S.I. GeoTrans Wireless, dated July
2, 1998, referring to a service agreement covering certain Site Acquisition Services applicable to
certain FCC licenses owned or to be acquired by Tritel.
10.20.1+ Services Agreement by and between Tritel Communications, Inc. and Galaxy Personal Communications
Services, Inc., which is a wholly-owned subsidiary of World Access, Inc., dated as of June 1, 1998.
10.20.2+ Addendum to June 1, 1998 Services Agreement, dated as of March 23, 1999.
10.21+ Services Agreement by and between Tritel Communications, Inc. and Galaxy Personal Communications
Services, Inc., which is a wholly-owned subsidiary of World Access, Inc., dated as of August 27,
1998.
10.22+ Agreement by and between BellSouth Telecommunications, Inc. and Tritel Communications, Inc.,
effective as of March 16, 1999.
10.23+ Agreement for Project and Construction Management Services between Tritel Communications, Inc. and
Tritel Finance, Inc. and Bechtel Corporation, dated November 24, 1998.
10.24+ Services Agreement by and between Tritel Communications, Inc. and SpectraSite Communications, Inc.,
dated as of July 28, 1998.
10.25+ Acquisition Agreement Ericsson CMS 8800 Cellular Mobile Telephone System by and between Tritel
Finance, Inc. and Tritel Communications, Inc. and Ericsson Inc., made and effective as of December
30, 1998.
10.26+ Securities Purchase Agreement by and among AT&T Wireless PCS Inc., TWR Cellular, Inc., Cash Equity
Investors, Mercury PCS, LLC, Mercury PCS II, LLC, Management Stockholders and Tritel, Inc., dated as
of May 20, 1998.
10.27+ Closing Agreement by and among AT&T Wireless PCS, Inc., TWR Cellular, Inc., Cash Equity Investors,
Airwave Communications, LLC, Digital PCS, LLC, Management Stockholders, Mercury Investor Indemnitors
and Tritel, Inc., dated as of January 7, 1999.
10.28+ Master Build To Suit And Lease Agreement between Tritel Communications, Inc., a Delaware corporation
and American Tower, L.P., a Delaware limited partnership.
10.29+ Master Build To Suit And Lease Agreement between Tritel Communications, Inc. and SpectraSite
Communications, Inc.
10.30+ Master Build To Suit Services And License Agreement between Tritel Communications, Inc. and Crown
Communication Inc.
10.31+ Master Build To Suit And Lease Agreement by and between Tritel Communications, Inc. and SBA Towers,
Inc.
10.32+ Master Site Agreement between Tritel Communications, Inc. and BellSouth Mobility Inc., dated July 2,
1999.
10.33+ Master Site Agreement between Tritel Communications, Inc. and BellSouth Mobility PCS, dated March
10, 1999.
10.34+ Consent to Exercise of Option between Tritel, Inc., AT&T Wireless PCS, Inc., TWR Cellular, Inc. and
Management Stockholders dated May 20, 1999.
10.35+ License Purchase Agreement between Digital PCS, LLC and Tritel, Inc. dated as of May 20, 1999.
10.36+ Amended and Restated Employment Agreement of Jerry M. Sullivan, Jr., dated as of September 1, 1999.
10.37+ Stock Purchase Agreement between Jerry M. Sullivan, Jr. and Tritel, Inc., dated as of September 1,
1999.
10.38+ Mutual Release and Termination Agreement between Jerry M. Sullivan, Jr. and Tritel, Inc., dated as
of September 1, 1999.
21+ Subsidiaries of Tritel, Inc.
23.1 Consent of KPMG LLP.
27 Financial Data Schedule.
- -------------------------------------------------------------------------------------------------------------------
+ Incorporated by reference to the Registration Statement on Form S-4 (File No. 333-82509) of Tritel PCS,
Inc.
++ Incorporated by reference to the Registration Statement on Form S-1 (File No. 333-91207) of Tritel, Inc.
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Tritel, Inc.
------------
(Registrant)
Date: March 28, 2000 By: /s/ E.B. Martin, Jr.
---------------------
E.B. Martin, Jr.
Executive Vice President, Treasurer,
Chief Financial Officer and Director
By: /s/ Karlen Turbeville
---------------------
Karlen Turbeville
Senior Vice President of Finance
(Principal Accounting Officer)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ William M. Mounger, II Chief Executive Officer and Director March 28, 2000
__________________________
William M. Mounger, II
/s/ William S. Arnett President and Director March 28, 2000
__________________________
William S. Arnett
/s/ E.B. Martin, Jr. Executive Vice President, Treasurer, Chief March 28, 2000
__________________________
E.B. Martin, Jr. Financial Officer and Director
/s/ Scott Anderson Director March 28, 2000
__________________________
Scott Anderson
/s/ Alexander P. Coleman Director March 28, 2000
__________________________
Alexander P. Coleman
/s/ Gary S. Fuqua Director March 28, 2000
__________________________
Gary S. Fuqua
/s/ Ann K. Hall Director March 28, 2000
__________________________
Ann K. Hall
/s/ Andrew Hubregsen Director March 28, 2000
__________________________
Andrew Hubregsen
/s/ David A. Jones, Jr. Director March 28, 2000
__________________________
David A. Jones, Jr.
/s/ H. Lee Maschmann Director March 28, 2000
__________________________
H. Lee Maschmann
/s/ Elizabeth Nichols Director March 28, 2000
__________________________
Elizabeth Nichols
/s/ Kevin J. Shepherd Director March 28, 2000
__________________________
Kevin J. Shepherd
</TABLE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Tritel, Inc.:
We have audited the accompanying consolidated balance sheets of Tritel, Inc.
and subsidiaries (the Company) as of December 31, 1998 and 1999, and the
related consolidated statements of operations, members' and stockholders'
equity, and cash flows for each of the years in the three year period ended
December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Tritel, Inc. and subsidiaries as of December 31, 1998 and 1999, and the
results of their operations and their cash flows for each of the years in the
three year period ended December 31, 1999 in conformity with generally
accepted accounting principles.
Jackson, Mississippi KPMG LLP
February 18, 2000, except
with respect to Note 21
which is as of February 28, 2000
TRITEL, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1999
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
December 31,
Assets 1998 1999
---- ----
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 846 $ 609,269
Due from affiliates 241 2,565
Accounts receivable, net -- 5,040
Inventory -- 8,957
Prepaid expenses and other current assets 719 4,733
--------- ----------
Total current assets 1,806 630,564
--------- ----------
Restricted cash -- 6,594
Property and equipment, net 13,816 262,343
FCC licensing costs, net 71,466 201,946
Intangible assets, net -- 59,508
Other assets 1,933 35,407
--------- ----------
Total assets $89,021 $1,196,362
</TABLE ========= ==========
Liabilities, Redeemable Preferred Stock and
Stockholders' Equity
Current liabilities:
Notes payable $ 22,405 $ --
Current maturities of long-term debt -- 923
Accounts payable 8,221 103,677
Accrued liabilities 2,285 9,647
--------- ----------
Total current liabilities 32,911 114,247
--------- ----------
Non-current liabilities:
Long-term debt 51,599 557,716
Note payable to related party 6,270 --
Deferred income taxes and other liabilities 224 37,367
--------- ----------
Total non-current liabilities 58,093 595,083
--------- ----------
Total liabilities 91,004 709,330
--------- ----------
Series A 10% redeemable convertible preferred stock -- 99,586
Stockholders' equity:
Preferred stock, 3,100,000 shares authorized:
Series D, 46,374 shares outstanding at December 31, 1999 -- 46,374
Common stock, 30 shares issued and outstanding
at December 31, 1998 -- --
Common stock issued and outstanding at December 31, 1999 Class A Voting -
97,796,906 shares; Class B Non-voting -
2,927,120 shares; Class C - 1,380,448 shares; Class D -
4,962,804 shares; Voting Preference -6 shares -- 1,071
Contributed capital--Predecessor Companies 13,497 --
Additional paid in capital -- 611,277
Accumulated deficit (15,480) (271,276)
--------- ----------
Total stockholders' equity (deficit) (1,983) 387,446
--------- ----------
Total liabilities, redeemable preferred stock
and stockholders' equity
$ 89,021 $1,196,362
========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
TRITEL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1997, 1998 and 1999
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Revenues $ -- $ -- $ 6,759
-------- --------- ----------
Operating expenses:
Cost of services and equipment -- -- 6,966
Technical operations 104 1,939 18,459
General and administrative 3,123 4,947 22,915
Sales and marketing 28 452 20,404
Stock-based compensation -- -- 190,664
Depreciation and amortization 20 348 12,839
-------- --------- ----------
Total operating expenses 3,275 7,686 272,247
-------- --------- ----------
Operating loss (3,275) (7,686) (265,488)
Interest income 121 77 16,791
Financing cost -- -- (2,230)
Interest expense -- (722) (24,970)
-------- --------- ----------
Loss before extraordinary item and income taxes (3,154) (8,331) (275,897)
Income tax benefit -- -- 28,443
-------- --------- ----------
Loss before extraordinary items (3,154) (8,331) (247,454)
Extraordinary item -
Loss on return of spectrum -- (2,414) --
-------- --------- ----------
Net loss (3,154) (10,745) (247,454)
Series A preferred dividend requirement -- -- (8,918)
-------- --------- ----------
Net loss available to common stockholders $(3,154) $(10,745) $(256,372)
======== ========= ==========
Basic and diluted net loss per share $(33.25)
========
</TABLE>
See accompanying notes to consolidated financial statements.
TRITEL, INC.
CONSOLIDATED STATEMENTS OF MEMBERS' AND STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1997, 1998 and 1999
(amounts in thousands)
<TABLE>
<CAPTION>
Additional Members' and
Preferred Common Contributed Paid in Accumulated Stockholders'
Stock Stock Capital Capital Deficit Equity
----- ----- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ -- $ -- $ 7,255 $ -- $ (1,581) $ 5,674
Contributed capital, net of
expenses of $148 -- -- 5,437 -- -- 5,437
Conversion of debt to members'
equity -- -- 805 -- -- 805
Net loss -- -- -- -- (3,154) (3,154)
---------- --------- --------- --------- --------- --------
Balance at December 31, 1997 -- -- 13,497 -- (4,735) 8,762
Net loss -- -- -- -- (10,745) (10,745)
---------- --------- --------- --------- --------- --------
Balance at December 31, 1998 -- -- 13,497 -- (15,480) (1,983)
Conversion of debt to members'
equity in Predecessor Company -- -- 8,976 -- -- 8,976
Series C Preferred Stock issued to
Predecessor Company, including
distribution of assets and
liabilities 17,193 -- (22,473) -- 576 (4,704)
Series C Preferred Stock issued in
exchange for cash 163,370 -- -- -- -- 163,370
Payment of preferred stock
issuance costs (8,507) -- -- -- -- (8,507)
Series C Preferred Stock issued to
Central Alabama in exchange for
net assets 2,602 -- -- -- -- 2,602
Series D Preferred Stock issued to
AT&T Wireless in exchange for
licenses and other agreements 46,374 -- -- -- -- 46,374
Grant of unrestricted rights in
common stock to officer -- -- -- 4,500 -- 4,500
Conversion of preferred stock into
common stock (174,658) 783 -- 173,875 -- --
Sale of common stock, net of
issuance costs of $15,338 -- 288 -- 242,238 -- 242,526
Stock-based compensation -- -- -- 190,664 -- 190,664
Accrual of dividends on Series A
redeemable preferred stock -- -- -- -- (8,918) (8,918)
Net loss -- -- -- -- (247,454) (247,454)
---------- --------- --------- --------- --------- --------
Balance at December 31, 1999 $ 46,374 $1,071 $ -- $611,277 $(271,276) $387,446
========== ========= ========= ========= ========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
TRITEL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997, 1998 and 1999
(amounts in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1998 1999
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss $(3,154) $(10,745) $(247,454)
Adjustments to reconcile net loss to net cash used
in operating activities:
Loss on return of spectrum -- 2,414 --
Financing costs -- -- 2,230
Depreciation and amortization 20 348 12,839
Stock-based compensation and grant of unrestricted
rights in common stock to officer -- -- 195,164
Accretion of discount on debt and amortization of
debt issue costs -- -- 10,608
Deferred income tax benefit -- -- (28,443)
Changes in operating assets and liabilities:
Inventory -- -- (8,957)
Accounts payable and accrued expenses 45 (180) 24,659
Other current assets and liabilities (814) (333) (11,721)
-------------- --------------- --------------
Net cash used in operating activities (3,903) (8,496) (51,075)
-------------- --------------- --------------
Cash flows from investing activities:
Capital expenditures (6) (5,970) (172,448)
Payment for FCC licenses (3,935) -- --
Refund of FCC deposit 1,376 -- --
Advance under notes receivable -- -- (7,550)
Capitalized interest on network construction and
FCC licensing costs (415) (2,905) (13,623)
Increase in restricted cash -- -- (6,594)
Other (72) --
(614)
-------------- --------------- --------------
Net cash used in investing activities (3,052) (8,875) (200,829)
-------------- --------------- --------------
Cash flows from financing activities:
Proceeds from notes payable to related parties 5,700 -- --
Proceeds from notes payable 5,000 38,705 --
Proceeds from long-term debt -- -- 300,000
Proceeds from senior subordinated discount notes -- -- 200,240
Repayments of notes payable (6,200) (21,300) (22,100)
Payment of preferred stock issuance costs -- -- (8,507)
Payment of debt issuance costs and other deferred charges (1,251) (951) (30,202)
Proceeds from vendor discount -- -- 15,000
Issuance of preferred stock -- -- 163,370
Issuance of common stock, net of issuance costs -- -- 242,526
Capital contributions, net of related expenses 5,437 -- --
-------------- --------------- --------------
Net cash provided by financing activities 8,686 16,454 860,327
-------------- --------------- --------------
Net increase (decrease) in cash and cash equivalents 1,731 (917) 608,423
Cash and cash equivalents at beginning of period 32 1,763
846
-------------- --------------- --------------
Cash and cash equivalents at end of period $1,763 $846 $609,269
============== =============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
TRITEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Consolidated)
TRITEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization and Principles of Consolidation
Airwave Communications, LLC ("Airwave Communications") (formerly
Mercury PCS, LLC) and Digital PCS, LLC ("Digital PCS") (formerly Mercury PCS
II, LLC) were formed on July 27, 1995 and July 29, 1996, respectively, to
acquire for development Personal Communications Services ("PCS") licenses in
markets in the south-central United States. Airwave Communications and Digital
PCS are referred to collectively as "the Predecessor Company" or "the
Predecessor Companies."
Tritel, Inc. ("Tritel") was formed on April 23, 1998 by the
controlling shareholders of Airwave Communications and Digital PCS to develop
PCS markets in the south-central United States. Tritel's 1998 activities
consisted of $1.5 million in capital expenditures and $32,000 in net loss. On
January 7, 1999, the Predecessor Companies transferred substantially all of
their assets and liabilities at historical cost to Tritel in exchange for
18,262 shares of Series C Preferred Stock in Tritel. The controlling
shareholders of the Predecessor Companies control Tritel. Tritel will continue
the activities of the Predecessor Companies and, for accounting purposes, this
transaction was accounted for as a reorganization of the Predecessor Company
into a C corporation and a name change to Tritel. Tritel and the Predecessor
Company, together with Tritel's subsidiaries, are referred to collectively as
"the Company."
Tritel began commercial operations during the fourth quarter of 1999.
Prior to that time, Tritel and the Predecessor Companies were considered to be
in the development stage.
The consolidated accounts of the Company include its subsidiaries,
Tritel PCS, Inc. ("Tritel PCS"); Tritel A/B Holding Corp.; Tritel C/F Holding
Corp.; Tritel Communications, Inc.; Tritel Finance, Inc.; and others. All
significant intercompany accounts or balances have been eliminated in
consolidation.
Cash and Cash Equivalents
For purposes of financial statement classification, the Company
considers all highly liquid investments with original maturities of three
months or less to be cash equivalents.
Accounts Receivable
Accounts receivable balances are presented net of allowances for
losses. The Company's allowance for losses was $42,000 as of December 31,
1999.
Inventory
Inventory consisting primarily of wireless telephones and telephone
accessories is stated at cost.
Restricted Cash
On March 31, 1999, the Company entered into a deposit agreement with
Toronto Dominion (Texas), Inc., as administrative agent, on behalf of the
depository bank and the banks and other financial institutions who are a party
to the bank facility described in Note 8. Under the terms of the agreement,
the Company has placed on deposit $6,594,000 at December 31, 1999 with the
depository bank, which will be used for the payment of interest and/or
commitment fees due under the bank facility.
Property and Equipment
Property and equipment are stated at cost, less accumulated
depreciation. When assets are placed in service, depreciation is calculated
using the straight-line method over the estimated useful lives of the assets,
generally seven years for wireless network assets and three years for
information systems assets. Leasehold improvements are amortized over the
lease term. The Company capitalizes interest on certain of its wireless
network construction activities. Routine expenditures for repairs and
maintenance are charged to expense as incurred.
FCC Licensing Costs
Licensing costs are accounted for in accordance with industry
standards and include the value of license fees at date of acquisition and the
direct costs incurred to obtain the licenses. Licensing costs also include
capitalized interest during the period of time necessary to build out the
wireless network.
The FCC grants licenses for terms of up to ten years, and generally
grants renewals if the licensee has complied with its license obligations. The
Company believes it will be able to secure renewal of its PCS licenses.
Amortization of such license costs, which begins for each geographic service
area upon commencement of service, is over a period of 40 years. Accumulated
amortization on FCC licensing costs at December 31, 1999 was $597,000.
The Company evaluates the propriety of the carrying amounts of its
FCC licensing costs whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable. There have been no impairments
through December 31, 1999.
Derivative Financial Instruments
Derivative financial instruments in the form of interest rate swap
agreements are entered into by the Company to manage interest rate exposure.
These are contractual agreements between counterparties to exchange interest
streams based on notional principal amounts over a set period of time.
Interest rate swap agreements normally involve the exchange of fixed and
floating rate interest payment obligations without the exchange of the
underlying principal amounts. The notional or principal amount does not
represent the amount at risk, but is used only as a basis for determining the
actual interest cash flows to be exchanged related to the interest rate
contracts. Market risk, due to potential fluctuations in interest rates, is
inherent in swap agreements. Amounts paid or received under these agreements
are included in interest expense during the period accrued or earned.
Interest Capitalization
In accordance with Statement of Financial Accounting Standards
("SFAS") No. 34, Tritel capitalizes interest expense related to the
construction or purchase of certain assets including its FCC licenses which
constitute activities preliminary to the commencement of the planned principal
operations. Interest capitalized in the years ended December 31, 1997, 1998,
and 1999 was $7,214,000, $10,545,000 and $23,685,000, respectively.
Income Taxes
Because the Predecessor Company was a nontaxable entity, operating
results prior to January 7, 1999 were included in the income tax returns of
its members. Therefore, the accompanying consolidated financial statements do
not include any provision for income tax benefit for the years ended December
31, 1997 and 1998 or any deferred income taxes on any temporary differences in
asset bases as of December 31, 1998.
As of January 7, 1999, the Company accounts for income taxes in
accordance with SFAS No. 109, which requires the use of the asset and
liability method in accounting for deferred taxes.
Revenue Recognition
The Company earns revenue by providing wireless services to both its
subscribers and subscribers of other wireless carriers traveling in the
Company's service area, as well as sale of equipment and accessories.
Generally, access fees, airtime and long distance are billed monthly and are
recognized as service is provided. Revenue from the sale of equipment is
recognized when sold to the customer.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising costs
totaled $6.2 million for the year ended December 31, 1999. No advertising
costs were incurred prior to 1999.
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation" encourages,
but does not require, companies to record compensation cost for stock-based
compensation plans at fair value. The Company has chosen to continue to
account for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees." See Note 12.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. A significant estimate impacting the preparation of the
consolidated financial statements is the estimated useful life of FCC
licensing costs. Actual results could differ from those estimates.
Per Share Amounts
The Company computes net loss per common share in accordance with
SFAS No. 128, "Earnings per Share" and SEC Staff Accounting Bulletin No. 98
("SAB 98"). Under the provisions of SFAS No. 128 and SAB 98, basic and diluted
net loss per common share is computed by dividing the net loss available to
common shareholders for the period by the weighted average number of shares of
all classes of common stock outstanding during the period. For purposes of
this calculation, common stock issued on January 7, 1999 was assumed to be
outstanding as of January 1, 1999. Series D preferred stock was included in
the computation of common shares outstanding after December 13, 1999, as
19,712,328 shares of common stock are issuable upon the conversion of Series D
Preferred Stock. Such conversion can be made at any time at the option of the
holder and the number of shares to be received upon conversion is fixed. In
accordance with SFAS No. 128, outstanding stock options and nonvested
restricted stock grants have been excluded from these calculations as the
effect would be antidilutive. Weighted average common shares used for the
purpose of calculating net loss per share for 1999 was 7,710,649.
Net loss per common share has not been reflected in the accompanying
financial statements for periods prior to 1999 because the Predecessor
Companies were limited liability corporations and did not have the existing
capital structure.
Comprehensive Income
Comprehensive income is the total of net income (loss) and all other
non-owner changes in stockholders' equity in a given period. The Company had
no comprehensive income components as of December 31, 1997, 1998, and 1999;
therefore, comprehensive loss is the same as net loss for all periods.
Segment Reporting
The Company presently operates in a single business segment as a
provider of wireless services in its licensed regions in the south-central
United States.
Stock Split
On November 19, 1999, the board of directors approved a 400-for-1
stock split for Class A, Class B, Class C and Class D common stock effective
immediately prior to the initial public offering. All common stock share data
have been retroactively adjusted to reflect this change.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities ("SFAS 133"). SFAS 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
SFAS 133 will significantly change the accounting treatment of derivative
instruments and, depending upon the underlying risk management strategy, these
accounting changes could affect future earnings, assets, liabilities, and
shareholders' equity. The Company is closely monitoring the deliberations of
the FASB's derivative implementation task force. With the issuance of SFAS No.
137, Accounting for Derivative Instruments and Hedging Activities--Deferral of
the Effective Date of FASB Statement No. 133, which delayed the effective date
of SFAS 133, the Company will be required to adopt SFAS 133 on January 1,
2001. Presently, the Company has not yet quantified the impact that the
adoption will have on its consolidated financial statements.
(2) LIQUIDITY
As reflected in the accompanying consolidated financial statements,
we began commercial operations in certain of our markets late in 1999 and,
therefore, have limited revenues to fund expenditures. We expect to grow
rapidly while we develop and construct our PCS network and build our customer
base. We expect this growth to strain our financial resources and result in
significant operating losses and negative cash flows.
The planned high level of indebtedness could have a material adverse
effect on the Company, including the effect of such indebtedness on: (i) the
Company's ability to fund internally, or obtain additional debt or equity
financing in the future for capital expenditures, working capital, debt
service requirements, operating losses, acquisitions and other purposes; (ii)
the Company's ability to dedicate funds for the wireless network buildout,
operations or other purposes, due to the need to dedicate a substantial
portion of operating cash flow to fund interest payments; (iii) the Company's
flexibility in planning for, or reacting to, changes in its business and
market conditions; (iv) the Company's ability to compete with less highly
leveraged competitors; and (v) the Company's financial vulnerability in the
event of a downturn in its business or the economy.
The Company believes that the proceeds from the equity offerings in
December 1999, together with the proceeds from the sale of senior subordinated
discount notes, the financing made available to us by the FCC, borrowings
under our bank credit facility and the equity investment we have received,
will provide us with sufficient funds to build out our existing network as
planned and fund operating losses until we complete our planned network
buildout and generate positive cash flow. There can be no assurance that such
funds will be adequate to complete the buildout of the Company's PCS network.
Under those circumstances, the Company could be required to change its plans
relating to the buildout of the network.
(3) PROPERTY AND EQUIPMENT
Major categories of property and equipment are as follows:
December 31,
1998 1999
---- ----
(dollars in thousands)
Furniture and fixtures $ 1,779 $14,853
Network construction and development 11,416 230,777
Leasehold improvements 728 22,082
--------- --------
13,923 267,712
Less accumulated depreciation (107) (6,834)
Deposits on equipment -- 1,465
--------- --------
$13,816 $262,343
========= ========
(4) FCC LICENSING COSTS
During 1996 and 1997, the FCC granted to the Predecessor Company as
the successful bidder C-, D-, E- and F-Block licenses with an aggregate
license fee of $106,716,000 after deducting a 25% small business discount.
The FCC provided below market rate financing for a portion of the bid
price of the C-and F-Block licenses. Based on the Company's estimates of
borrowing costs for similar debt, the Company discounted the face amount of
the debt to yield a market rate and the discount was applied to reduce the
carrying amount of the licenses and the debt. Accordingly, the licenses were
recorded at $90,475,000.
During July 1998, the Company took advantage of a reconsideration
order by the FCC allowing companies holding C-Block PCS licenses several
options to restructure their license holdings and associated obligations. The
Company elected the disaggregation option and returned one-half of the
broadcast spectrum originally acquired for each of the C-Block license areas.
As a result, the Company reduced the carrying amount of the related licenses
by one-half, or $35,442,000, and reduced the discounted debt and accrued
interest due to the FCC by $33,028,000. As a result of the disaggregation
election, the Company recognized an extraordinary loss of approximately
$2,414,000.
AT&T Wireless contributed certain A- and B-Block PCS licenses to the
Company on January 7, 1999 in exchange for preferred stock. The Company
recorded such licenses at $127,307,000 including related costs of the
acquisition. Also, in an acquisition of Central Alabama Partnership, LP 132,
the Company acquired certain C-Block licenses with an estimated fair value of
$9,284,000, exclusive of $6,072,000 of debt to the FCC.
Additionally on January 7, 1999, licenses with a carrying amount,
including capitalized interest and costs, totaling $21,874,000 were retained
by the Predecessor Company (see Note 15). The assets and liabilities retained
by the Predecessor Company have been reflected in these financial statements
as a distribution to the Predecessor Company.
Each of the Company's licenses is subject to an FCC requirement that
the Company construct wireless network facilities offering coverage to certain
percentages of the population within certain time periods following the grant
of such licenses. Failure to comply with these requirements could result in
the revocation of the related licenses or the imposition of fines on the
Company by the FCC.
(5) AT&T TRANSACTION
On May 20, 1998, the Predecessor Company and Tritel entered into a
Securities Purchase Agreement with AT&T Wireless and the other stockholders of
Tritel, whereby the Company agreed to construct a PCS network and provide
wireless services using the AT&T and SunCom brand names, giving equal emphasis
to each, in the south-central United States. On January 7, 1999, the parties
closed the transactions contemplated in the Securities Purchase Agreement.
At the closing, Tritel issued preferred stock to AT&T Wireless in
exchange for 20 MHz A- and B-Block PCS licenses which were assigned to the
Company, and for certain other agreements covering the Company's markets,
including the following agreements.
License Agreement
Pursuant to a Network Membership License Agreement, dated January 7,
1999 (the "License Agreement"), between AT&T Corp. and the Company, AT&T
granted to the Company a royalty-free, nontransferable, non-exclusive,
nonsublicensable, limited right, and license to use certain licensed marks
solely in connection with certain licensed activities. The licensed marks
include the logo containing AT&T and the globe design and the expression
"Member of the AT&T Wireless Network." The "Licensed Activities" include (i)
the provision to end-users and resellers, solely within the territory as
defined in the License Agreement, of Company communications services as
defined in the License Agreement on frequencies licensed to the Company for
Commercial Mobile Radio Services ("CMRS") provided in accordance with the
License Agreement (collectively, the "Licensed Services") and (ii) marketing
and offering the Licensed Services within the territory. The License Agreement
also grants to the Company the right and license to use licensed marks on
certain permitted mobile phones.
The License Agreement contains numerous restrictions with respect to
the use and modification of any of the licensed marks. Furthermore, the
Company is obligated to use commercially reasonable efforts to cause all
Licensed Services marketed and provided using the licensed marks to be of
comparable quality to the Licensed Services marketed and provided by AT&T and
its affiliates in areas that are comparable to the territory taking into
account, among other things, the relative stage of development of the areas.
The License Agreement also sets forth specific testing procedures to determine
compliance with these standards, and affords the Company with a grace period
to cure any instances of alleged noncompliance therewith.
The Company may not assign or sublicense any of its rights under the
License Agreement; provided, however, that the License Agreement may be
assigned to the Company's lenders under the Bank Facility and after the
expiration of any applicable grace and cure periods under the Bank Facility,
such lenders may enforce the Company's rights under the License Agreement and
assign the License Agreement to any person with AT&T's consent.
The term of the License Agreement is for five years and renews for an
additional five-year period if each party gives the other notice to renew the
Agreement. The License Agreement may be terminated by AT&T at any time in the
event of a significant breach by the Company, including the Company's misuse
of any licensed marks, the Company licensing or assigning any of the rights in
the License Agreement, the Company's failure to maintain AT&T's quality
standards or if a change in control of the Company occurs. After the initial
five-year term, AT&T may also terminate the License Agreement upon the
occurrence of certain transactions described in the Stockholders' Agreement.
The License Agreement, along with the exclusivity provisions of the
Stockholders' Agreement and the Resale Agreement will be amortized on a
straight-line basis over the ten-year term of the agreement. Accumulated
amortization related to these agreements at December 31, 1999 was
approximately $4.8 million.
Roaming Agreement
Pursuant to the Intercarrier Roamer Service Agreement, dated as of
January 7, 1999 (the "Roaming Agreement"), between AT&T Wireless, the Company,
and their affiliates, each party agrees to provide (each in its capacity as
serving provider, the "Serving Carrier") mobile wireless 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 mobile
wireless radio/telephone system and station. Each Home Carrier whose customers
receive service from a Serving Carrier shall pay to such Serving Carrier 100%
of the Serving Carrier's charges for wireless service and 100% of pass-through
charges (i.e., toll or other charges). Each Serving Carrier's service charges
for use per minute or partial minute for the first three years will be at a
fixed rate, and thereafter may be adjusted to a lower rate as the parties may
negotiate from time to time. Each Serving Carrier's toll charges per minute of
use for the first three years will be at a fixed rate, and thereafter such
other rates as the parties negotiate from time to time.
The Roaming Agreement has a term of 20 years, unless terminated
earlier by a party due to the other party's uncured breach of any term of the
Roaming Agreement.
Neither party may assign or transfer the Roaming Agreement or any of
its rights thereunder except to an assignee of all or part of its license or
permit to provide CMRS, provided that such assignee expressly assumes all or
the applicable part of the obligations of such party under the Roaming
Agreement.
The Roaming Agreement will be amortized on a straight-line basis over
the 20-year term of the agreement. Accumulated amortization related to this
agreement at December 31, 1999 was approximately $800,000.
(6) NOTE RECEIVABLE
On March 1, 1999, the Company entered into agreements with AT&T
Wireless, Lafayette Communications Company L.L.C. ("Lafayette") and ABC
Wireless L.L.C. ("ABC") whereby the Company, AT&T Wireless and Lafayette would
lend $29,500,000 to ABC to fund its participation in the re-auction of FCC
licenses that were returned to the FCC by various companies under the July
1998 reconsideration order. The Company's portion of this loan was $7,500,000
and was recorded in Other Assets. Subsequent to closing of the agreements, ABC
was the successful bidder for licenses covering the Tritel markets with an
aggregate purchase price of $7,789,000. The Company has agreed to purchase
these licenses for $7,789,000 and expects to consummate that purchase during
2000. If the licenses are not purchased by March 1, 2004, the note will mature
on that date. The note has a stated interest rate of 16% per year. There are
no required payments of principal or interest on the note until maturity. The
note is secured by all assets of ABC, including, if permitted by the FCC, the
FCC licenses awarded in the re-auction, and ranks pari passu with the notes to
AT&T Wireless and Lafayette.
(7) INCOME TAXES
On January 7, 1999 the Company recorded a deferred tax liability of
$55,100,000 primarily related to the difference in asset bases on the assets
acquired from AT&T Wireless.
Because the Predecessor Company was a nontaxable entity, the results
presented below relate solely to the year ended December 31, 1999. Components
of income tax benefit for the year ended December 31, 1999 are as follows:
For the Year Ended December 31, 1999
-----------------------------------------
Current Deferred Total
------- -------- -----
(dollars in thousands)
Federal $ - $(24,725) $(24,725)
State - (3,718) (3,718)
------ --------- ---------
Total $ - $(28,443) $(28,443)
======= ========= =========
Actual tax benefit differs from the "expected" tax benefit using the
federal corporate rate of 35% as follows:
December 31, 1999
-----------------------
(dollars in thousands)
Computed "expected" tax benefit $(96,564)
Reduction (increase) resulting from:
Change in valuation allowance for deferred
tax assets 1,020
Nondeductible compensation related expense 68,308
Nontaxable loss of Predecessor Company 780
Nondeductible portion of discount accretion 557
State income taxes, net of federal tax (2,496)
benefit
Other (48)
------------
$(28,443)
The tax effects of temporary differences that give rise to
significant portions of the deferred tax liability at December 31, 1999 are as
follows:
December 31, 1999
---------------------
(dollars in thousands)
Deferred tax assets:
Net operating loss carryforward $25,232
Tax basis of capitalized start-up costs in excess
of book basis 11,533
Discount accretion in excess of tax basis 5,700
Tax basis of property and equipment in excess of
book basis 1,865
Other 785
------
Total gross deferred tax assets 45,115
Less: valuation allowance (1,020)
------
Net deferred tax assets 44,095
------
Deferred tax liabilities:
Intangible assets book basis in excess of tax basis 22,646
FCC licenses book basis in excess of tax basis 32,245
Capitalized interest book basis in excess of tax 12,779
basis
Discount accretion book basis in excess of tax basis 2,130
------
Total gross deferred tax liabilities 69,800
------
Net deferred tax liability $25,705
=======
At December 31, 1999, the Company has net operating loss
carryforwards for federal income tax purposes of $65,965,000 which are
available to offset future federal taxable income, if any, through 2019.
The valuation allowance for the gross deferred tax asset at December
31, 1999 was $1,020,000. No valuation allowance has been provided for the
remaining gross deferred tax asset principally due to the existence of a
deferred tax liability which was recorded upon the closing of the AT&T
Wireless transaction on January 7, 1999. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during
the period in which those temporary differences become deductible. Management
considered the scheduled reversal of deferred tax liabilities in making this
assessment. Based upon anticipated future taxable income over the periods in
which the deferred tax assets are realizable, management believes it is more
likely than not the Company will realize the benefits of these deferred tax
assets.
(8) NOTES PAYABLE AND LONG-TERM DEBT
A summary of long-term debt is as follows:
December 31,
--------------------------
1998 1999
---- ----
(dollars in thousands)
Bank facility $ - $300,000
Senior Subordinated Discount Notes - 216,734
FCC debt 51,599 41,905
----------- ---------
51,599 558,639
Less current maturities - (923)
----------- ---------
$51,599 $557,716
=========== =========
Bank Facility
During 1999, the Company entered into a loan agreement (the "Bank
Facility"), which provides for (i) a $100,000,000 senior secured term loan
(the "Term Loan A"), (ii) a $200,000,000 senior secured term loan (the "Term
Loan B") and (iii) a $250,000,000 senior secured reducing revolving credit
facility (the "Revolver"). Tritel PCS Inc., Toronto Dominion (Texas), Inc., as
Administrative Agent, and certain banks and other financial institutions are
parties thereto.
The commitment to make loans under the Revolver automatically and
permanently reduces, quarterly beginning on December 31, 2002. The quarterly
reductions in the commitment are $6.25 million on December 31, 2002, $7.4
million for each quarter in 2003, $11.3 million for each quarter in 2004,
$13.3 million for each quarter in 2005, $16.0 million for each quarter in
2006, and $25.8 million for the first two quarters of 2007.
Interest on the Revolver, Term Loan A and Term Loan B accrues, at the
Company's option, either at a LIBOR rate plus an applicable margin or the
higher of the issuing bank's prime rate and the Federal Funds Rate (as defined
in the Bank Facility) plus 0.5%, plus an applicable margin. The borrowings
outstanding at December 31, 1999 carried a 10.62% average interest rate as of
that date. The Revolver requires an annual commitment fee ranging from 0.50%
to 1.75% of the unused portion of the Bank Facility.
The Bank Facility also required the Company to purchase an interest
rate hedging contract covering an amount equal to at least 50% of the total
amount of the outstanding indebtedness of the Company (other than indebtedness
which bears interest at a fixed rate). In May 1999, Tritel entered into such
interest rate hedging contracts which are further described in Note 9.
The Term Loans are required to be prepaid and commitments under the
Revolving Bank Facility reduced in an aggregate amount equal to 50% of excess
cash flow of each fiscal year commencing with the fiscal year ending December
31, 2001; 100% of the net proceeds of asset sales, in excess of a yearly
threshold, outside the ordinary course of business or unused insurance
proceeds; and 50% of the net cash proceeds of issuances of equity by Tritel
PCS or its subsidiaries.
All obligations of the Company under the facilities are
unconditionally and irrevocably guaranteed by Tritel and all subsidiaries of
Tritel PCS. The bank facilities and guarantees, and any related hedging
contracts provided by the lenders under the Bank Facility, are secured by
substantially all of the assets of Tritel PCS. and certain subsidiaries of
Tritel PCS, including a first priority pledge of all of the capital stock held
by Tritel or any of its subsidiaries, but excluding the Company's PCS
licenses. The PCS licenses will be held by one or more single purpose
subsidiaries of the Company and, in the future if the Company is permitted to
pledge its PCS licenses, they will be pledged to secure the obligations of the
Company under the Bank Facility.
The Bank Facility contains covenants customary for similar facilities
and transactions, including covenants relating to the amounts of indebtedness
that the Company may incur, limitations on dividends and distributions on, and
redemptions and repurchases of, capital stock and other similar payments and
various financial maintenance covenants. The Bank Facility also contains
covenants relating to the population covered by the Company's network and
number of customers, as well as customary representations, warranties,
indemnities, conditions precedent to borrowing, and events of default.
Loans under the Bank Facility are available to fund capital
expenditures related to the construction of the Company's PCS network, the
acquisition of related businesses, working capital needs of the Company, and
customer acquisition costs. All indebtedness under the Bank Facility will
constitute senior debt.
The terms of the Bank Facility allow the Company to incur senior
subordinated debt with gross proceeds of not more than $250,000,000.
As of December 31, 1999, the Company has drawn $300,000,000 of
advances under Term Loan A and Term Loan B.
Senior Subordinated Discount Notes
On May 11, 1999, Tritel PCS, Inc. ("Tritel PCS"), a wholly-owned
subsidiary of the Company, issued unsecured senior subordinated discount notes
with a principal amount at maturity of $372,000,000. Such notes were issued at
a discount from their principal amount at maturity for proceeds of $200.2
million. No interest will be paid on the notes prior to May 15, 2004.
Thereafter, Tritel PCS will be required to pay interest semiannually at 12
3/4% per annum beginning on November 15, 2004 until maturity of the notes on
May 15, 2009.
The notes are fully unconditionally guaranteed on a joint and several
basis by the Company and by Tritel Communications, Inc. and Tritel Finance,
Inc., both of which are wholly-owned subsidiaries of Tritel PCS. (See Note
20.) The notes are subordinated in right of payment to amounts outstanding
under the Company's Bank Facility and to any future subordinated indebtedness
of Tritel PCS or the guarantors.
The indenture governing the notes limit, among other things, the
Company's ability to incur additional indebtedness, pay dividends, sell or
exchange assets, repurchase its stock, or make investments.
FCC Debt
The FCC provided below market rate financing for 90% of the bid price
of the C-Block PCS licenses and 80% of the bid price of the F-Block PCS
licenses. Such FCC debt is secured by all of the Company's rights and interest
in the licenses financed.
The debt incurred in 1996 by the Company for the purchase of the
C-Block PCS licenses totaled $63,890,000 (undiscounted). The debt bears
interest at 7%; however, based on the Company's estimate of borrowing costs
for similar debt, a rate of 10% was used to determine the debt's discounted
present value of $52,700,000. As discussed in Note 4, the Company elected to
disaggregate and return one-half of the broadcast spectrum of the C-block
licenses. The FCC permitted such spectrum to be returned effective as of the
original purchase. As a result, the Company reduced the discounted debt due to
the FCC for such licenses by $27,410,000.
F-Block licenses were granted in 1997. The debt incurred by the
Company for the purchase of such licenses totaled $28,167,000 (undiscounted).
The debt bears interest at 6.125%, however; based on the Company's estimate of
borrowing costs for similar debt, a rate of 10% was used to determine the
debt's discounted present value of $23,116,000.
In the acquisition of Central Alabama Partnership, LP 132 on January
7, 1999, the Company assumed debt of $6,072,000 payable to the FCC for the
licenses acquired.
Additionally, certain licenses and the related FCC debt for those
licenses were retained by the Predecessor Company. The discounted carrying
amount of the debt for the licenses retained by the Predecessor Company was
$15,889,000.
All the scheduled interest payments on the FCC debt were suspended
for the period from January 1997 through March 1998 by the FCC. Payments of
such suspended interest resumed in July 1998 with the total suspended interest
due in eight quarterly payments through April 30, 2000. The Company is
required to make quarterly principal and interest payments on the FCC debt.
Notes Payable
At December 31, 1998, the Company had $22,100,000 payable under a
$28,500,000 loan agreement with a supplier. The loan agreement was secured by
a pledge of the membership equity interests of certain members of Predecessor
Company management and the interest rate was 9%. Amounts outstanding under
this loan agreement were repaid in January 1999.
At December 31, 1998, the Predecessor Company had a $1,000,000 line
of credit with a commercial bank, that expired July 27, 1999 bearing interest
at the bank's prime rate of interest plus 1% at December 31, 1998. The amount
outstanding on the line of credit was $305,000 at December 31, 1998. This line
of credit related specifically to licenses that were retained by the
Predecessor Company. Amounts outstanding under this loan agreement were repaid
in January 1999.
Notes Payable to Related Party
In March 1997, the Predecessor Company entered into a loan agreement
for a $5,700,000 long-term note payable to Southern Farm Bureau Life Insurance
Company ("SFBLIC"). SFBLIC was a member of Mercury Southern, LLC, which was a
member of the Predecessor Company. This note was secured by a pledge of the
membership equity interests of certain members of Predecessor Company
management and interest accrued annually at 10% on the anniversary date of the
note. At December 31, 1998, the balance of the note was $6,270,000 as a result
of the capitalization of the first year's interest. The indebtedness under the
note was convertible into equity at the face amount at any time at the option
of SFBLIC, subject to FCC equity ownership limitations applicable to
entrepreneurial block license holders. The Predecessor Company and SFBLIC
subsequently negotiated a revised arrangement under which the amount due of
$6,270,000 plus accrued interest of $476,000 was not paid but instead was
converted into $8,976,000 of members' equity in the Predecessor Company on
January 7, 1999. The $2,230,000 preferred return to the investor was accounted
for as a financing cost during the year ended December 31, 1999. The interest
accrued at the contractual rate was capitalized during the accrual period.
As of December 31, 1999, the following is a schedule of future
minimum principal payments of the Company's long-term debt due within five
years and thereafter:
December 31, 1999
----------------------------
(dollars in thousands)
December 31, 2000 $ 923
December 31, 2001 1,004
December 31, 2002 5,567
December 31, 2003 23,548
December 31, 2004 30,483
Thereafter 657,950
-------
719,475
Less unamortized discount (160,836)
--------
Total $558,639
========
(9) INTEREST RATE SWAP AGREEMENTS
As of December 31, 1999, the Company was a party to interest rate
swap agreements with a total notional amount of $200 million. The agreements
establish a fixed effective rate of 9.05% on $200.0 million of the current
balance outstanding under the Bank Facility through the earlier of March 31,
2002 or the date on which the Company achieves operating cash flow breakeven.
(10) REDEEMABLE PREFERRED STOCK
Series A Preferred Stock
The Series A Preferred Stock, with respect to dividend rights and
rights on liquidation, dissolution or winding up, ranks on a parity basis with
the Series B Preferred Stock, and ranks senior to Series C Preferred Stock,
Series D Preferred Stock and Common Stock. The holders of Series A Preferred
Stock are entitled to receive cumulative quarterly cash dividends at the
annual rate of 10% multiplied by the liquidation preference, which is equal to
$1,000 per share plus declared but unpaid dividends. Tritel may elect to defer
payment of any such dividends until the date on which the 42nd quarterly
dividend payment is due, at which time, and not earlier, all deferred payments
must be made. Except as required by law or in certain circumstances, the
holders of the Series A Preferred Stock do not have any voting rights. The
Series A Preferred Stock is redeemable, in whole but not in part, at the
option of Tritel on or after January 15, 2009 and at the option of the holders
of the Series A Preferred Stock on or after January 15, 2019. Additionally, on
or after January 15, 2007, AT&T Wireless, and qualified transferees, have the
right to convert each share of Series A Preferred Stock into shares of Class A
Common Stock. The number of shares the holder will receive upon conversion
will be the liquidation preference per share divided by the market price of
Class A Common Stock times the number of shares of Series A Preferred Stock to
be converted.
The Company issued 90,668 shares of Series A Preferred Stock with a
stated value of $90,668,000 to AT&T Wireless on January 7, 1999.
Series B Preferred Stock
The Series B Preferred Stock ranks on a parity basis with the Series
A Preferred Stock and is identical in all respects to the Series A Preferred
Stock, except:
o the Series B Preferred Stock is redeemable at any time at
the option of Tritel,
o the Series B Preferred Stock is not convertible into shares
of any other security issued by Tritel, and
o the Series B Preferred Stock may be issued by Tritel
pursuant to an exchange event as defined in the Restated
Certification of Incorporation.
No Series B Preferred Stock has been issued by the Company.
(11) STOCKHOLDERS' EQUITY
The Predecessor Companies were organized as limited liability
corporations (LLC) and as such had no outstanding stock. Owners (members)
actually held a membership interest in the LLC. As a result, the investment of
those members in the Predecessor Companies is reflected as contributed
capital--Predecessor Company in the accompanying balance sheet.
On January 7, 1999, the Company issued stock to the Predecessor
Company as well as other parties as described herein.
Preferred Stock
Following is a summary of the preferred stock of the Company:
3,100,000 shares of authorized preferred stock, par value $.01 per
share (the "Preferred Stock"), 1,100,000 of which have been designated as
follows:
o 200,000 shares designated "Series A Convertible Preferred
Stock" (the "Series A Preferred Stock"), 10% redeemable
convertible, $1,000 stated and liquidation value (See Note
10);
o 300,000 shares designated "Series B Preferred Stock" (the
"Series B Preferred Stock"), 10% cumulative, $1,000 stated
and liquidation value (See Note 10);
o 500,000 shares designated "Series C Convertible Preferred
Stock" (the "Series C Preferred Stock"), 6.5% cumulative
convertible, $1,000 stated and liquidation value; and
o 100,000 shares designated "Series D Convertible Preferred
Stock" (the "Series D Preferred Stock"), 6.5% cumulative
convertible, $1,000 stated and liquidation value.
Series C Preferred Stock
Series C Preferred Stock (1) ranks junior to the Series A Preferred
Stock and the Series B Preferred Stock with respect to dividend rights and
rights on liquidation, dissolution or winding up, (2) ranks junior to the
Series D Preferred Stock with respect to rights on a statutory liquidation,
(3) ranks on a parity basis with the Series D Preferred Stock with respect to
rights on liquidation, dissolution or winding up, except a statutory
liquidation, (4) ranks on a parity basis with Series D Preferred Stock and
Common Stock with respect to dividend rights, and (5) ranks senior to the
Common Stock and any other series or class of the Company's common or
preferred stock, now or hereafter authorized, other than Series A Preferred
Stock, Series B Preferred Stock or Series D Preferred Stock, with respect to
rights on liquidation, dissolution and winding up.
Holders of Series C Preferred Stock are entitled to dividends in cash
or property when, as and if declared by the Board of Directors of Tritel. Upon
any liquidation, dissolution or winding up of Tritel, holders of Series C
Preferred Stock are entitled to receive, after payment to any stock ranking
senior to the Series C Preferred Stock, a liquidation preference equal to (1)
the quotient of the aggregate paid-in-capital of all Series C Preferred Stock
held by a stockholder divided by the total number of shares of Series C
Preferred Stock held by that stockholder plus (2) declared but unpaid
dividends on the Series C Preferred Stock, if any, plus (3) an amount equal to
interest on the invested amount at the rate of 6 1/2% per annum, compounded
quarterly. The holders of the Series C Preferred Stock have the right at any
time to convert each share of Series C Preferred Stock, and upon the initial
public offering in December 1999, each share of Series C Preferred Stock
automatically converted into shares of Class A Common Stock of and Class D
Common Stock. The number of shares the holder received upon conversion was
determined by dividing the aforementioned liquidation preference by the
conversion price in effect at the time of $2.50. On all matters to be
submitted to the stockholders of Tritel, the holders of Series C Preferred
Stock shall have the right to vote on an as-converted basis as a single class
with the holders of the Common Stock. Additionally, the affirmative vote of
the holders of a majority of the Series C Preferred Stock is required to
approve certain matters. The Series C Preferred Stock is not redeemable.
The Company issued 18,262 shares of Series C Preferred Stock with a
stated value of $18,262,000 to the Predecessor Company on January 7, 1999 in
exchange for certain of its assets, liabilities and continuing operations. The
stock was recorded at the historical cost of the assets and liabilities
acquired from the Predecessor Company since, for accounting purposes, this
transaction was accounted for as a reorganization of the Predecessor Company
into a C corporation and a name change to Tritel.
The Company also issued 14,130 shares of Series C Preferred Stock
with a stated value of $14,130,000 to the Predecessor Company on January 7,
1999 in exchange for cash of $14,130,000. In the same transaction, the Company
also issued 149,239 shares of Series C Preferred Stock with a stated value of
$149,239,000 to investors on January 7, 1999 in exchange for cash. The stock
was recorded at its stated value and the costs associated with this
transaction have been offset against equity.
Additionally, the Company issued 2,602 shares of Series C Preferred
Stock with a stated value of $2,602,000 to Central Alabama Partnership, LP 132
on January 7, 1999 in exchange for its net assets. The stock was recorded at
its stated value and the assets and liabilities were recorded at estimated
fair values.
All of the Series C Preferred Stock outstanding converted into
73,349,620 shares of Class A and 4,962,804 shares of Class D common stock upon
the closing of the initial public offering on December 13, 1999.
Series D Preferred Stock
The Series D Preferred Stock (1) ranks junior to the Series A
Preferred Stock and the Series B Preferred Stock with respect to dividend
rights and rights on liquidation, dissolution or winding up, (2) ranks senior
to the Series C Preferred Stock with respect to rights on a statutory
liquidation, (3) ranks on a parity basis with Series C Preferred Stock with
respect to rights on liquidation, dissolution and winding up, except a
statutory liquidation, (4) ranks on a parity basis with Series C Preferred
Stock and Common Stock with respect to dividend rights, and (5) ranks senior
to the Common Stock and any other series or class of Tritel's common or
preferred stock, now or hereafter authorized, other than Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock, with respect to
rights on liquidation, dissolution and winding up. Subject to the preceding
sentence, the Series D Preferred Stock is identical in all respects to the
Series C Preferred Stock, except:
o the Series D Preferred Stock is convertible into an
equivalent number of shares of Series C Preferred Stock at
any time. This stock is then convertible to common stock at
the conversion rate of the original Series C Preferred Stock
set forth on the date of the initial public offering, or
18,463,121 shares of Class A Common stock and 1,249,207
shares of Class D common stock;
o the liquidation preference for Series D Preferred Stock
equals $1,000 per share plus declared but unpaid dividends
plus an amount equal to interest on $1,000 at the rate of 6
1/2% per annum, compounded quarterly, from the date of
issuance of such share to and including the date of the
payment:
o the holders of Series D Preferred Stock do not have any
voting rights, other than those required by law or in
certain circumstances; and
o shares of Series D Preferred Stock are not automatically
convertible upon an initial public offering of the Company's
stock.
The Company issued 46,374 shares of Series D Preferred Stock with a
stated value of $46,374,000 to AT&T Wireless on January 7, 1999.
Common Stock
Following is a summary of the common stock of the Company:
1,016,000,009 shares of common stock, par value $.01 per share (the
"Common Stock"), which have been designated as follows:
o 500,000,000 shares designated "Class A Voting Common Stock"
(the "Class A Common Stock"),
o 500,000,000 shares designated "Class B Non-Voting Common
Stock" (the "Class B Common Stock"),
o 4,000,000 shares designated "Class C Common Stock" (the
"Class C Common Stock"),
o 12,000,000 shares designated "Class D Common Stock" (the
"Class D Common Stock") and
o nine shares designated "Voting Preference Common Stock" (the
"Voting Preference Common Stock")
The Common Stock of Tritel is divided into two groups, the
"Non-Tracked Common Stock," which is comprised of the Class A Common Stock,
the Class B Common Stock and the Voting Preference Common Stock, and the
"Tracked Common Stock," which is comprised of the Class C Common Stock and
Class D Common Stock. Each share of Common Stock is identical, and entitles
the holder thereof to the same rights, powers and privileges of stockholders
under Delaware law, except:
o dividends on the Tracked Common Stock track the assets and
liabilities of Tritel C/F Holding Corp., a subsidiary of
Tritel;
o rights on liquidation, dissolution or winding up of Tritel
of the Tracked Common Stock track the assets and liabilities
of Tritel C/F Holding Corp.;
o the Class A Common Stock, together with the Series C
Preferred Stock, has 4,990,000 votes, the Class B Common
Stock has no votes, the Class C Common Stock has no votes,
the Class D Common Stock has no votes and the Voting
Preference Common Stock has 5,010,000 votes, except that in
any matter requiring a separate class vote of any class of
Common Stock or a separate vote of two or more classes of
Common Stock voting together as a single class, for the
purposes of such a class vote, each share of Common Stock of
such classes will be entitled to one vote per share;
o in the event the FCC indicates that the Class A Common Stock
and the Voting Preference Stock (1) may be voted as a single
class on all matters, (2) may be treated as a single class
for all quorum requirements and (3) may have one vote per
share, then, absent action by the Board of Directors and
upon an affirmative vote of 66 2/3% or more of the Class A
Common Stock, Tritel must seek consent from the FCC to
permit the Class A Common Stock and the Voting Preference
Common Stock to vote and act as a single class in the manner
described above;
o the holders of shares of Class B Common Stock shall be
entitled to vote as a separate class on any amendment,
repeal or modification of any provision of the restated
certificate of Incorporation that adversely affects the
powers, preferences or special rights of the holders of the
Class B Common Stock;
o each share of Class B Common Stock may be converted, at any
time at the holder's option, into one share of Class A
Common Stock;
o each share of Class A Common Stock may be converted, at any
time at the holder's option, into one share of Class B
Common Stock; and
o in the event the FCC indicates that it will permit the
conversion of Tracked Common Stock into either Class A
Common Stock or Class B Common Stock, then, absent action by
the Board of Directors and upon an affirmative vote of 66
2/3% or more of the Class A Common Stock, such conversion
will be allowed by Tritel at the option of the holders of
the Tracked Common Stock.
As of December 31, 1999, the Company has issued 10,981,932 shares of
Class A Common Stock, 1,380,448 shares of Class C Common Stock and 6 shares of
Voting Preference Common Stock to certain members of management of the
Company. The Class A and Class C common stock issued to management are
restricted shares subject to repurchase agreements which require the holders
to sell to the Company at a $0.01 repurchase price per share, the number of
shares that would be equal to $2.50 per share on specified "Trigger Dates"
including a change of control, termination of employment, or the seventh
anniversary of the agreement. On the "Trigger Date", the holders must sell to
the Company the number of shares necessary, based on the then current fair
value of the stock based on the average closing price for the most recent ten
trading days, to reduce the number of shares of stock held by an amount equal
to the number of shares then held by the holder times $2.50 per share (in
essence, requiring the holders to pay $2.50 per share for their shares of
stock). Also, in the event the Company does not meet certain performance
measurements, certain members of management will be required to sell to the
Company a fixed number of shares at $0.01 per share.
Based on the terms of the repurchase agreement, this plan is being
accounted for as a variable stock plan. Accordingly, the Company will record
Stock-based Compensation Expense over the vesting period for the difference
between the quoted market price of the Company's stock at each measurement
date and the current fair value of the stock to be repurchased from the
individuals. Subsequent to year end, the Board of Directors approved a plan to
modify these awards to remove the provision that requires management to
surrender a portion of their shares. The effective date of this modification
if and when completed will become the measurement date upon which the value of
the award will be fixed. Assuming our Class A common stock continues to have a
fair value of approximately $28.50 per share on the measurement date, we would
record additional non-cash compensation expense related to these shares for
the period from 2000 to 2004 of approximately $131.0 million. Future stock
price movement will result in charges that differ from this amount. Each
dollar increase or decrease in the average closing price of our common stock
for the last ten trading days of any quarter will result in an increase or
decrease in the non-cash compensation expense related to these shares of
approximately $12.4 million.
In conjunction with the Company's agreement with Mr. Sullivan (see
Note 17), the Company agreed to repurchase 1,276,000 shares of the officer's
stock at $0.01 per share and allow the officer to become fully vested in his
remaining 1.8 million shares without restriction or repurchase rights. As a
result, the Company recorded $4.5 million as compensation expense and
additional paid in capital. Such amount represents the fair value of the stock
at the time of the agreement without restrictions or repurchase rights.
(12) STOCK OPTION PLANS
In January 1999, the Company adopted a stock option plan for
employees and a stock option plan for non-employee directors.
Tritel's 1999 Stock Option Plan (the "Stock Option Plan") authorizes
the grant of certain tax-advantaged stock options, nonqualified stock options
and stock appreciation rights for the purchase of an aggregate of up to
10,462,400 shares of common stock of Tritel. The Stock Option Plan benefits
qualified officers, employee directors and other key employees of, and
consultants to, Tritel and its subsidiaries in order to attract and retain
those persons and to provide those persons with appropriate incentives. The
Stock Option Plan also allows grants or sales of common stock to those
persons. The maximum term of any stock option to be granted under the Stock
Option Plan is ten years. Grants of options under the Stock Option Plan are
determined by the Board of Directors or a compensation committee designated by
the Board.
The exercise price of incentive stock options under the Stock Option
Plan must not be less than the fair market value of the common stock on the
grant date and the exercise price of all other options must not be less that
75% of such fair market value. The Stock Option Plan will terminate in 2009
unless extended by amendment.
As of December 31, 1999, 4,585,028 restricted shares and 2,081,422
stock options with an average exercise price of $18.05 were granted under the
Stock Option Plan. The restricted stock is subject to the repurchase
agreements as discussed in Note 11. The restricted shares will vest in varying
percentages, up to 80% vesting, over five years. The remaining 20% will vest
if the Company meets certain performance benchmarks for development and
construction of its wireless PCS network. Stock options generally vest 25% on
each of the first four anniversaries of the date of the grant. A portion of
the stock options granted to employees in connection with the initial public
offering vest 25% on the thirty-first day after grant and 25% on each of the
first three anniversaries of the date of the grant. The stock options
outstanding as of December 31, 1999 vest 100% upon a change of control.
Tritel's 1999 Stock Option Plan for Non-employee Directors (the
"Non-employee Directors Plan") authorizes the grant of certain nonqualified
stock options for the purchase of an aggregate of up to 100,000 shares of
common stock of Tritel. The Non-employee Directors Plan benefits non-employee
directors of Tritel in order to attract and retain those persons and to
provide those persons with appropriate incentives. The maximum term of any
stock option to be granted under the Non-employee Directors Plan is ten years.
Grants of options under the Non-employee Directors are determined by the Board
of Directors.
The exercise price of nonqualified stock options granted under the
Non-employee Directors Plan must not be less than the fair market value of the
common stock on the grant date. The Non-employee Directors Plan will terminate
in 2009 unless extended by amendment.
As of December 31, 1999, 45,000 options with an exercise price of $18
per share were outstanding under the Non-employee Directors Plan. These
options vest 20% on the date of grant and an additional 20% on each of the
first four anniversaries of the date of the grant and fully vest upon a change
of control.
The Company has adopted the disclosure only provisions of SFAS No.
123, "Accounting for Stock-Based Compensation." Accordingly, no compensation
has been recognized for the stock options. If compensation cost had been
determined based on the fair value at grant date for awards in 1999 in
accordance with SFAS No. 123, the Company's net loss and net loss per share
would have increased to the pro forma amounts indicated below (dollars in
thousands):
Net loss - As reported $247,454
Net loss - Pro forma 250,608
Net loss per share - As reported 33.25
Net loss per share - Pro forma 33.66
The fair value of each option on the date of grant is estimated using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:
Expected life 5 Years
Risk-free interest rate 6.16%
Expected volatility 56%
Dividend yield 0%
The weighted average fair value of options granted during 1999 was
$8.52 per share. At December 31, 1999, 9,000 options were exercisable.
The following table summarizes information about stock options
outstanding at December 31, 1999:
Exercise Number of Remaining
Price Options Outstanding Contractual Life
----- ------------------- ----------------
$18.00 2,119,572 10 years
31.69 6,850 10 years
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made pursuant to SFAS No. 107, "Disclosures About Fair Value of
Financial Instruments." Fair value estimates are subject to inherent
limitations. Estimates of fair value are made at a specific point in time,
based on relevant market information and information about the financial
instrument. The estimated fair values of financial instruments are not
necessarily indicative of amounts the Company might realize in actual market
transactions. Estimates of fair value are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly affect
the estimates. The carrying amounts at December 31, 1998 and 1999 for cash and
cash equivalents, accounts receivable, notes receivable, accounts payable,
accrued liabilities, notes payable, and variable rate long-term debt are
reasonable estimates of their fair values. The carrying amount of fixed-rate
long-term debt is believed to approximate fair value because such debt was
discounted to reflect market interest rate at inception and such discount is
believed to be approximate for valuation of this debt.
(14) RELATED PARTY TRANSACTIONS
On January 7, 1999, the Company entered into a secured promissory
note agreement under which it agreed to lend up to $2,500,000 to the
Predecessor Company. Interest on advances under the loan agreement is 10% per
year. The interest will compound annually and interest and principal are due
at maturity of the note. The note is secured by the Predecessor Company's
ownership interest in the Company. Any proceeds from the sales of licenses by
the Predecessor Company, net of the repayment of any FCC debt, are required to
be applied to the note balance. If the note has not been repaid within five
years, it will be repaid through a reduction of the Predecessor Company's
interest in the Company based on a valuation of the Company's stock at that
time. The balance of this note at December 31, 1999 was approximately $2.3
million.
(15) ASSETS AND LIABILITIES RETAINED BY PREDECESSOR COMPANY
Certain assets and liabilities, with carrying amounts of $22,070,000
and $17,367,000, respectively, principally for certain FCC licenses and
related FCC debt, which were retained by the Predecessor Company have been
reflected in these financial statements as a distribution to the Predecessor
Company. The Predecessor Company is holding such assets and liabilities but is
not currently developing the PCS markets. Of the assets retained by the
Predecessor Company, Tritel was granted an option to acquire certain PCS
licenses for approximately 1.2 million shares of Class A common stock. During
May 1999, Tritel notified the Predecessor Company of its intent to exercise
this option. Such licenses will be transferred to Tritel after approval by the
FCC. Tritel has committed to sell to AT&T Wireless or its designee such
licenses.
(16) LEASES
The Company leases office space, equipment, and co-location tower
space under noncancelable operating leases. Expense under operating leases was
$3,000, $334,000 and $7.2 million for 1997, 1998 and 1999, respectively.
Management expects that in the normal course of business these leases will be
renewed or replaced by similar leases. The leases extend through 2008.
Future minimum lease payments under these leases at December 31, 1999
are as follows:
(dollars in thousands)
2000 $13,940
2001 13,846
2002 13,731
2003 13,239
2004 8,955
Thereafter 8,881
------
Total $72,592
======
(17) COMMITMENTS AND CONTINGENCIES
Effective September 1, 1999, Tritel, Inc. and Jerry M. Sullivan
entered into an agreement to redefine Mr. Sullivan's relationship with Tritel,
Inc. and its subsidiaries. Mr. Sullivan has resigned as an officer and a
director of Tritel, Inc. and all of its subsidiaries. Mr. Sullivan will retain
the title Executive Vice President of Tritel, Inc. through December 31, 2001;
however, under the agreement, he is not permitted to represent the Company nor
will he perform any functions for Tritel, Inc. As part of the agreement, Mr.
Sullivan will also receive an annual salary of $225,000 and an annual bonus of
$112,500 through December 31, 2002. Mr. Sullivan became fully vested in
1,800,000 shares of Class A Common Stock and returned all other shares held by
him, including his Voting Preference Common Stock to Tritel, Inc. Accordingly,
the Company has recorded $5.8 million in additional compensation expense
during 1999. The $5.8 million was determined pursuant to the settlement of Mr.
Sullivan's employment relationship with the Company, and includes $4.5 million
for the grant of additional stock rights, $225,000 annual salary and $112,500
annual bonus through December 31, 2002, and other related amounts.
Mr. Sullivan had served as Director, Executive Vice President and
Chief Operating Officer of Tritel, Inc. since 1993. The foregoing agreements
supersede the employment relationship between Tritel, Inc. and Mr. Sullivan
defined by the Management Agreement and Mr. Sullivan's employment agreement.
In December 1998, the Company entered into an acquisition agreement
with an equipment vendor whereby the Company agreed to purchase a minimum of
$300,000,000 of equipment, software and certain engineering services over a
five-year period in connection with the construction of its wireless
telecommunications network. The Company agreed that the equipment vendor would
be the exclusive provider of such equipment during the term of the agreement.
As part of this agreement, the vendor advanced $15,000,000 to the Company at
the closing of the transactions described herein. The $15,000,000 deferred
credit is accounted for as a reduction in the cost of the equipment as the
equipment is purchased.
(18) QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected unaudited quarterly financial data is as follows:
<TABLE>
<CAPTION>
(dollars in thousands except per share data)
For the Quarters Ended
March 31 June 30 September 30 December 31
1998 1999 1998 1999 1998 1999 1998 1999
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ $ $ $ $ $ 179 $ $ 6,580
Operating loss (763) (7,471) (997) (8,801) (1,390) (22,305) (4,536) (226,911)
Loss before extraordinary
item (743) (8,247) (990) (10,027) (1,398) (10,482) (5,200) (218,698)
Net loss (743) (8,247) (990) (10,027) (3,812) (10,482) (5,200) (218,698)
Net loss per common share $(2.76) $(3.30) $(3.45) $(9.20)
</TABLE>
(19) SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1997 1998 1999
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Cash paid for interest, net of amounts capitalized $ - $ - $ 14,362
Significant non-cash investing and financing activities:
Long-term debt incurred to obtain FCC licenses, net of
discount 23,116 - -
Capitalized interest and discount on debt 6,799 7,614 10,062
Deposits applied to purchase of FCC licenses 5,000 - -
Capital expenditures included in accounts payable - 5,762 81,913
Election of FCC disaggregation option for return of
spectrum:
Reduction in FCC licensing costs - 35,442 -
Reduction in accrued interest payable and long-term - 33,028 -
debt
Preferred stock issued in exchange for assets and - - 156,837
liabilities
</TABLE>
(20) CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The following condensed consolidating financial statements as of and
for the year ended December 31, 1999 are presented for Tritel, Tritel PCS,
those subsidiaries of Tritel PCS who serve as guarantors and those
subsidiaries who do not serve as guarantors of the senior subordinated
discount notes.
<TABLE>
<CAPTION>
Condensed Consolidating Balance Sheet
As of December 31, 1999
Tritel PCS, Guarantor NonGuarantor Consolidated
(dollars in thousands) Tritel, Inc. Inc. Subsidiaries Subsidiaries Eliminations Tritel, Inc.
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ - 613,999 (4,730) - - 609,269
Other current assets 2,462 1,407 17,426 - - 21,295
Intercompany receivables 1,799 210,673 - - (212,472) -
============================================================================================
Total current assets 4,261 826,079 12,696 - (212,472) 630,564
Restricted cash - 6,594 - - - 6,594
Property and equipment, net - - 262,343 - - 262,343
Licenses and other intangibles 59,508 - - 201,946 - 261,454
Investment in subsidiaries 445,301 73,286 - - (518,587) -
Other long term assets - 62,633 82 - (27,308) 35,407
============================================================================================
Total assets $ 509,070 968,592 275,121 201,946 (758,367) 1,196,362
============================================================================================
Current liabilities:
Accounts payable, accrued
expenses and $ 29 1,240 111,257 1,721 - 114,247
other current liabilities
Intercompany payables - - 196,950 15,522 (212,472) -
============================================================================================
Total current liabilities 29 1,240 308,207 17,243 (212,472) 114,247
============================================================================================
Non-current liabilities:
Long-term debt - 516,734 27,121 40,982 (27,121) 557,716
Deferred income taxes and 22,009 5,318 (20,024) 30,251 (187) 37,367
other
============================================================================================
Total liabilities 22,038 523,292 315,304 88,476 (239,780) 709,330
Series A redeemable convertible
preferred stock 99,586 - - - - 99,586
============================================================================================
Stockholders' equity (deficit) 387,446 445,300 (40,183) 113,470 (518,587) 387,446
============================================================================================
Total liabilities and $ 509,070 968,592 275,121 201,946 (758,367) 1,196,362
equity
============================================================================================
============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Condensed Consolidating Statement of Operations
For the Year Ended December 31, 1999
Tritel PCS, Guarantor NonGuarantor Consolidated
(dollars in thousands) Tritel, Inc. Inc. Subsidiaries Subsidiaries Eliminations Tritel, Inc.
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ - - 7,974 1,038 (2,253) 6,759
============================================================================================
Operating Expenses:
Cost of services and equipment - - 6,966 - - 6,966
Technical operations - - 18,459 - - 18,459
General and administrative 56 45 25,065 2 (2,253) 22,915
Sales and marketing - 20,404 - - 20,404
Stock-based compensation 190,664 - - - - 190,664
Depreciation and amortization 5,620 - 6,621 598 - 12,839
============================================================================================
Total operating expenses 196,340 45 77,515 600 (2,253) 272,247
============================================================================================
Operating loss (196,340) (45) (69,541) 438 - (265,488)
Interest income 170 16,553 255 - (187) 16,791
Financing cost - - (2,230) - - (2,230)
Interest expense - (24,924) (233) - 187 (24,970)
============================================================================================
Income (loss) before income (196,170) (8,416) (71,749) 438 - (275,897)
taxes
Income tax benefit (expense) 2,051 3,135 23,420 (163) - 28,443
============================================================================================
Net loss $ (194,119) (5,281) (48,329) 275 - (247,454)
============================================================================================
============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Condensed Consolidating Statement of Cash Flows
For the Year Ended December 31, 1999
Tritel PCS, Guarantor NonGuarantor Consolidated
(dollars in thousands) Tritel, Inc. Inc. Subsidiaries Subsidiaries Eliminations Tritel, Inc.
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $ (3,648) 3,554 (50,981) - - (51,075)
============================================================================================
Cash flows from investing activities:
Capital expenditures - - (172,448) - - (172,448)
Advance under notes receivable - (7,500) (50) - - (7,550)
Investment in subsidiaries (376,718) 376,718 - - - -
Capitalized interest on debt - - (3,863) (9,760) - (13,623)
Decrease in other assets (325) (6,883) - - - (7,208)
============================================================================================
Net cash provided by (used in)
investing activities: (377,043) 362,335 (176,361) (9,760) - (200,829)
============================================================================================
Cash flows from financing activities:
Proceeds from long term debt - 300,000 - - - 300,000
Proceeds from senior - 200,240 - - - 200,240
subordinated debt
Repayments of notes payable (22,100) - - - - (22,100)
Payment of debt issuance
costs and other deferred (8,507) (30,202) - - - (38,709)
charges
Intercompany 4,556 (236,928) 222,612 9,760 - -
receivable/payable
Proceeds from vendor discount 15,000 - - - 15,000
Issuance of preferred stock 163,370 - - - - 163,370
Issuance of common stock, net 242,526 - - - - 242,526
Net cash provided by financing ============================================================================================
activities: 379,845 248,110 222,612 9,760 - 860,327
============================================================================================
Net increase (decrease) in
restricted cash, cash and
cash equivalents (846) 613,999 (4,730) - - 608,423
============================================================================================
Cash and cash equivalents at
beginning of period 846 - - - - 846
============================================================================================
Cash and cash equivalents at
End of period $ - 613,999 (4,730) - - 609,269
============================================================================================
</TABLE>
The condensed combining financial statements for 1998 of Tritel, Inc.
and the Predecessor Companies have been provided below to comply with the
current requirement to show consolidating data for guarantors and
non-guarantors for all periods presented. While Tritel, Inc. and its
subsidiaries were formed during 1998, their only activities in 1998 were the
acquisition of property and equipment approximating $1.5 million and losses
totaling $32,000. The assets of the Predecessor Companies and the assets
acquired from AT&T Wireless and Central Alabama were transferred to Tritel,
Inc. and its subsidiaries during 1999. Therefore, the following statements do
not correspond with the current corporate structure and do not show data by
guarantor and non-guarantor relationship to the senior subordinated discount
notes.
<TABLE>
Combining Balance Sheet
As of December 31, 1998
Predecessor
Companies Tritel Eliminations Combined
-------------------------------------------------------------
<S> <C> <C> <C> <C>
(dollars in thousands)
Assets
Current assets:
Cash and cash equivalents $ 845 $ 1 $ -- $ 846
Due from affiliates 1,817 -- (1,576) 241
Other current assets 719 -- -- 719
-------------- ----------- ------------ ------------
Total current assets 3,381 1 (1,576) 1,806
Property and equipment, net 12,263 1,553 -- 13,816
FCC licensing costs 71,466 -- -- 71,466
Other assets 1,933 -- -- 1,933
-------------- ----------- ------------ ------------
Total assets $89,043 $1,554 $(1,576) $89,021
Liabilities and Members' Equity (Deficit)
Current liabilities:
Notes payable $22,405 $ -- $ -- $22,405
Due to affiliates -- 1,576 (1,576) --
Accounts payable and accrued expenses 10,496 10 -- 10,506
-------------- ----------- ------------ ------------
Total current liabilities 32,901 1,586 (1,576) 32,911
Non-current liabilities:
Long-term debt 51,599 -- -- 51,599
Note payable to related party 6,270 -- -- 6,270
Other liabilities 224 -- -- 224
-------------- ----------- ------------ ------------
Total non-current liabilities 58,093 -- -- 58,093
-------------- ----------- ------------ ------------
Total liabilities 90,994 1,586 (1,576) 91,004
Contributed capital, net 13,497 -- -- 13,497
Deficit accumulated during development stage (15,448) (32) -- (15,480)
-------------- ----------- ------------ ------------
Total members' equity (deficit) (1,951) (32) -- (1,983)
-------------- ----------- ------------ ------------
Total liabilities and members' $89,043 $1,554 $(1,576) $89,021
equity (deficit)
============== =========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
Combining Statement of Operations
For the Year Ended December 31, 1998
Predecessor
Companies Tritel Combined
-----------------------------------------------------------
<S> <C> <C> <C>
(dollars in thousands)
Revenues: $ $ $
------------------ ----------- ----------------
Operating expenses:
Technical operations 1,918 21 1,939
General and administrative 4,937 10 4,947
Sales and marketing 451 1 452
Depreciation and amortization 348 -- 348
------------------ ----------- ----------------
7,654 32 7,686
------------------ ----------- ----------------
Operating loss (7,654) (32) (7,686)
Interest income 77 -- 77
Interest expense (722) -- (722)
------------------ ----------- ----------------
Loss before extraordinary item (8,299) (32) (8,331)
Loss on return of spectrum (2,414) -- (2,414)
------------------ ----------- ----------------
Net loss $(10,713) $(32) $(10,745)
================== =========== ================
</TABLE>
<TABLE>
<CAPTION>
Combining Statement of Cash Flows
For the Year Ended December 31, 1998
Predecessor
Companies Tritel Combined
------------------------------------------------
<S> <C> <C> <C>
(dollars in thousands)
Net cash used in operating activities $(10,039) $1,543 $(8,496)
---------------- --------- -------------
Cash flows from investing activities:
Purchase of property and equipment (4,428) (1,542) (5,970)
Capitalized interest on debt used to obtain FCC
licenses (2,905) -- (2,905)
---------------- --------- -------------
Net cash used in investing activities (7,333) (1,542) (8,875)
---------------- --------- -------------
Cash flows from financing activities:
Proceeds from notes payable to others 38,705 -- 38,705
Repayments of notes payable to others (21,300) -- (21,300)
Payment of debt issuance costs and other deferred
charges (951) -- (951)
---------------- --------- -------------
Net cash provided by financing activities 16,454 -- 16,454
---------------- --------- -------------
Net increase (decrease) in cash and cash equivalents (918) 1 (917)
Cash and cash equivalents at beginning of year 1,763 -- 1,763
---------------- --------- -------------
Cash and cash equivalents at end of year $ 845 $ 1 $ 846
================ ========= =============
</TABLE>
Tritel, Inc. was formed during 1998. Therefore, the 1997 combining
financial information is identical to the Consolidated Financial Statements.
(21) SUBSEQUENT EVENT
On February 28, 2000, the Company announced an agreement to merge with
TeleCorp PCS, Inc., headquartered in Arlington, Virginia. This merger is
expected to take place during the second half of 2000 and is a tax-free
exchange of stock with Tritel shareholders receiving 0.76 shares of the new
entity's stock in exchange for each of their Tritel shares. The exchange ratio
is fixed regardless of future stock price movement. This transaction is
expected to be accounted for as a purchase business combination.
On the closing of the merger, AT&T will extend its initial five-year
brand sharing agreement for an additional two years.
Exhibit 2.1
EXECUTION COPY
==============================================================================
AGREEMENT AND PLAN OF REORGANIZATION AND CONTRIBUTION
by and among
TELECORP PCS, INC.,
TRITEL, INC.
and
AT&T WIRELESS SERVICES, INC.
Dated as of February 28, 2000
=============================================================================
TABLE OF CONTENTS
Page
ARTICLE I
THE MERGERS AND THE CONTRIBUTION
1.1 The Mergers..........................................................3
1.2 Effective Time.......................................................3
1.3 Effect of the Mergers................................................4
1.4 Certificates of Incorporation and By-laws of TeleCorp II and
Tritel II............................................................4
1.5 Directors and Officers...............................................5
1.6 Conversion of Capital Stock, Etc.....................................5
1.7 Cancellation of Treasury Shares.....................................11
1.8 Stock Options.......................................................12
1.9 Capital Stock of the Merger Subs....................................14
1.10 Adjustments to Exchange Ratios......................................14
1.11 Fractional Shares...................................................15
1.12 Surrender of Certificates...........................................16
1.13 Further Ownership Rights in Shares..................................19
1.14 Contribution........................................................20
1.15 Closing.............................................................24
1.16 Lost, Stolen or Destroyed Certificates..............................24
1.17 Tax Consequences....................................................25
ARTICLE II
STRUCTURE OF HOLDING COMPANY AND RELATED MATTERS
2.1 Organization of the Holding Company.................................25
2.2 Board of Directors of the Holding Company...........................26
2.3 Officers of the Holding Company.....................................27
2.4 Indemnification and Insurance.......................................27
2.5 Headquarters of the Holding Company.................................29
2.6 Merger Subs Organization............................................29
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TELECORP
3.1 Organization and Qualification; Subsidiaries........................31
3.2 Certificate of Incorporation; By-laws...............................32
3.3 Capitalization......................................................32
3.4 Authority; Enforceability...........................................35
3.5 Required Vote.......................................................36
3.6 No Conflict; Required Filings and Consents..........................36
3.7 Material Agreements.................................................38
3.8 Compliance..........................................................39
3.9 SEC Filings; Financial Statements...................................40
3.10 Licenses and Authorizations.........................................41
3.11 No Violation of Law.................................................43
3.12 Absence of Certain Changes or Events................................44
3.13 No Undisclosed Liabilities..........................................45
3.14 Absence of Litigation...............................................45
3.15 Employee Benefit Plans..............................................45
3.16 Employment and Labor Matters........................................49
3.17 Registration Statement; Proxy Statement/Prospectus..................49
3.18 Absence of Restrictions on Business Activities......................51
3.19 Title to Assets; Leases.............................................51
3.20 Taxes...............................................................51
3.21 Environmental Matters...............................................54
3.22 Intellectual Property...............................................56
3.23 No Restrictions on the Merger; Takeover Statutes....................57
3.24 Tax Matters.........................................................57
3.25 Brokers.............................................................57
3.26 Opinion of Financial Advisor........................................58
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF TRITEL
4.1 Organization and Qualification; Subsidiaries........................59
4.2 Certificate of Incorporation; By-laws...............................60
4.3 Capitalization......................................................60
4.4 Authority; Enforceability...........................................63
4.5 Required Vote.......................................................64
4.6 No Conflict; Required Filings and Consents..........................64
4.7 Material Agreements.................................................65
4.8 Compliance..........................................................67
4.9 SEC Filings; Financial Statements...................................67
4.10 Licenses and Authorizations.........................................68
4.11 No Violation of Law.................................................70
4.12 Absence of Certain Changes or Events................................71
4.13 No Undisclosed Liabilities..........................................72
4.14 Absence of Litigation...............................................72
4.15 Employee Benefit Plans..............................................72
4.16 Employment and Labor Matters........................................76
4.17 Registration Statement; Proxy Statement/Prospectus..................76
4.18 Absence of Restrictions on Business Activities......................77
4.19 Title to Assets; Leases.............................................77
4.20 Taxes...............................................................78
4.21 Environmental Matters...............................................80
4.22 Intellectual Property...............................................81
4.23 No Restrictions on the Merger; Takeover Statutes....................82
4.24 Tax Matters.........................................................83
4.25 Brokers.............................................................83
4.26 Opinion of Financial Advisor........................................83
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF AT&T
5.1 Authority; Enforceability...........................................84
5.2 No Conflict; Required Filings and Consents..........................84
5.3 Tax Matters.........................................................85
5.4 Brokers.............................................................86
5.5 Registration Statement; Proxy Statement/Prospectus..................86
5.6 Waiver..............................................................86
5.7 Investment Experience...............................................87
5.8 Investment Intent...................................................87
5.9 Registration or Exemption Requirements..............................88
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Access to Information; Confidentiality..............................88
6.2 Conduct of Business Pending the Closing Date........................90
6.3 Registration Statement; Other Filings; Board Recommendations.......100
6.4 Meeting of Company Stockholders....................................102
6.5 Non-Solicitation...................................................104
6.6 Subsequent Financial Statements....................................107
6.7 Nasdaq National Market Listing.....................................108
6.8 Comfort Letters....................................................108
6.9 Further Actions....................................................108
6.10 Notification.......................................................111
6.11 Notice of Breaches; Updates........................................111
6.12 No Inconsistent Action.............................................112
6.13 Commercially Reasonable Efforts....................................112
6.14 Affiliates.........................................................112
6.15 Blue Sky...........................................................113
6.16 Tax-Free Exchange..................................................113
6.17 AT&T Actions.......................................................113
6.18 Transition Committee...............................................114
6.19 Employee Benefit Matters...........................................114
6.20 Novation of Affiliation Agreements.................................115
6.21 Indemnity for Indus and Airadigm Liabilities.......................115
ARTICLE VII
CLOSING CONDITIONS
7.1 Conditions to Obligations of TeleCorp and Tritel to Effect
the Mergers........................................................116
7.2 Additional Conditions to Obligations of TeleCorp...................119
7.3 Additional Conditions to the Obligations of Tritel.................120
7.4 Conditions to Obligations of the Holding Company to Issue
the Shares.........................................................121
7.5 Conditions to Obligations of AT&T to Effect the Contribution.......123
ARTICLE VIII
TERMINATION
8.1 General...........................................................125
8.2 Obligations in Event of Termination...............................127
8.3 Termination of Contribution.......................................127
8.4 Obligations in Event of Termination of Contribution...............128
ARTICLE IX
NO SURVIVAL
9.1 No Survival of Representations and Warranties.....................128
ARTICLE X
MISCELLANEOUS
10.1 Public Announcements..............................................129
10.2 Fees and Expenses.................................................129
10.3 Notices...........................................................130
10.4 Certain Definitions...............................................132
10.5 Interpretation....................................................134
10.6 Entire Agreement..................................................135
10.7 Binding Effect; Benefit...........................................135
10.8 Assignability.....................................................135
10.9 Amendment; Waiver.................................................135
10.10 Section Headings; Table of Contents...............................136
10.11 Severability......................................................136
10.12 Counterparts......................................................136
10.13 GOVERNING LAW; JURISDICTION AND SERVICE OF PROCESS................136
EXHIBITS
EXHIBIT A - Voting Agreement
EXHIBIT B-1 - Form of Certificate of Merger
EXHIBIT B-2 - Form of Certificate of Merger
EXHIBIT C-1 - Certificate of Incorporation of TeleCorp II
EXHIBIT C-2 - Certificate of Incorporation of Tritel II
EXHIBIT D-1 - License Extension Amendment
EXHIBIT D-2 - Airadigm Letter of Intent
EXHIBIT E - Intentionally Omitted
EXHIBIT F - Plan of Reorganization
EXHIBIT G-1 - Indus Assignment
EXHIBIT G-2 - Indus Merger Agreement
EXHIBIT H - Form of the Holding Company Certificate of Incorporation
EXHIBIT I - Form of the Holding Company By-laws
EXHIBIT J - Affiliate Agreement
EXHIBIT I-1 - TeleCorp PCS, Inc. Tax Representations
EXHIBIT I-2 - Tritel, Inc. Tax Representations
EXHIBIT I-3 - The Holding Company Tax Representations Regarding
TeleCorp Merger
EXHIBIT I-4 - The Holding Company Tax Representations Regarding
Tritel Merger
EXHIBIT I-5 - AT&T Tax Representations
EXHIBIT J-1 - Mounger Employment Agreement
EXHIBIT J-2 - Martin Employment Agreement
EXHIBIT K-1 New Network Membership License Agreement
EXHIBIT K-2 New Intercarrier Roamer Service Agreement
EXHIBIT K-3 New Roaming Administration Agreement
SCHEDULES
SCHEDULE A - Directors and Officers of TeleCorp II, Tritel II and
the Holding Company
SCHEDULE B - Certain Actions Pending the Closing Date
SCHEDULE 1.8 - Tritel Restricted Stock Agreements
SCHEDULE 3.3(b) - The TeleCorp Options
SCHEDULE 3.10(c) - TeleCorp Authorizations
SCHEDULE 4.3(b) - The Tritel Options
SCHEDULE 3.10(c) - Tritel Authorizations
SCHEDULE 6.2(a) - TeleCorp's Conduct of Business Pending the Closing Date
SCHEDULE 6.2(b) - Tritel's Conduct of Business Pending the Closing Date
SCHEDULE 6.9 - Aggregate out-of-pocket costs to obtain consents
SCHEDULE 6.14 - All persons who are, or may be, as of the date
hereof "affiliates" of TeleCorp and Tritel
AGREEMENT AND PLAN OF REORGANIZATION AND CONTRIBUTION
AGREEMENT AND PLAN OF REORGANIZATION AND CONTRIBUTION (this
"Agreement"), dated as of February 28, 2000, by and among TeleCorp PCS, Inc.,
a Delaware corporation ("TeleCorp"), Tritel, Inc., a Delaware corporation
("Tritel") and AT&T Wireless Services, Inc., a Delaware corporation ("AT&T").
WITNESSETH:
WHEREAS, the respective Boards of Directors of TeleCorp and
Tritel have each determined to engage in the transactions contemplated by this
Agreement. This Agreement provides for (A) the organization under the General
Corporation Law of the State of Delaware (the "DGCL") of a new holding company
(the "Holding Company"), which will become the parent and sole stockholder of
both TeleCorp and Tritel pursuant to (i) the conversion of all outstanding
shares of capital stock of TeleCorp into shares of capital stock of the
Holding Company by means of a merger (the "First Merger") of a wholly owned
subsidiary of the Holding Company, to be organized under the DGCL (the "First
Merger Sub"), into and with TeleCorp, with TeleCorp as the surviving
corporation, and (ii) the conversion of all outstanding shares of capital
stock of Tritel into shares of capital stock of the Holding Company by means
of a merger (the "Second Merger" and, together with the First Merger, the
"Mergers") of a wholly owned subsidiary of the Holding Company, to be
organized under the DGCL (the "Second Merger Sub" and, together with the First
Merger Sub, the "Merger Subs"), with and into Tritel, with Tritel as the
surviving corporation and (B) as part of the transaction, AT&T shall
contribute or cause to be contributed certain property to the Holding Company
in consideration of the issuance to AT&T (or its Affiliates) of 9,272,740
shares (the "Shares") of Class A Voting Stock (as defined below) (the
"Contribution"). The Mergers shall be effected simultaneously in accordance
with the DGCL and it is intended that the Contribution shall occur
simultaneously with the Mergers. As a result of the Mergers, the stockholders
of TeleCorp and the stockholders of Tritel shall become stockholders of the
Holding Company, and TeleCorp and Tritel shall continue to conduct their
respective businesses and operations as wholly owned subsidiaries of the
Holding Company;
WHEREAS, as a condition to the willingness of, and an
inducement to, TeleCorp, Tritel and AT&T to enter into this Agreement,
contemporaneously with the execution and delivery of this Agreement, certain
holders of shares of capital stock of TeleCorp and Tritel are entering into
simultaneously hereafter agreements dated as of the date hereof and effective
as of the Effective Time (as defined below) providing for certain actions
relating to the transactions contemplated by this Agreement and the further
governance of the Holding Company;
WHEREAS, as an inducement to and a condition to Tritel
entering into this Agreement, certain stockholders of TeleCorp are entering
into simultaneously herewith a Voting Agreement relating to the agreement of
such stockholders to vote to approve the transactions contemplated by this
Agreement (the "TeleCorp Voting Agreement"), in the form of Exhibit A;
WHEREAS, as an inducement to and a condition to TeleCorp
entering into this Agreement, certain stockholders of Tritel are entering into
simultaneously herewith a Voting Agreement relating to the agreement of such
stockholders to vote to approve the transactions contemplated by this
Agreement (the "Tritel Voting Agreement") in the form of Exhibit A; and
WHEREAS, for Federal income tax purposes, it is intended
that the Mergers and the Contribution, taken together, will qualify as a
tax-free transaction within the meaning of Section 351 of the Internal Revenue
Code of 1986, as amended (the "Code"), that the Mergers will each qualify as a
tax-free reorganization under Section 368(a) of the Code, that the
stockholders of TeleCorp and Tritel will recognize no gain or loss for Federal
income tax purposes as a result of the consummation of the Mergers and AT&T
will recognize no gain or loss for Federal income tax purposes as a result of
consummation of the Contribution.
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto,
intending to be legally bound, agree as follows:
ARTICLE I
THE MERGERS AND THE CONTRIBUTION
1.1 The Mergers. At the Effective Time (as defined in
Section 1.2) and subject to the terms and conditions of this Agreement, and in
accordance with the DGCL, the First Merger Sub shall be merged with and into
TeleCorp, with TeleCorp as the surviving corporation, and the Second Merger
Sub shall be merged with and into Tritel, with Tritel as the surviving
corporation. From and after the Effective Time, the separate corporate
existences of the First Merger Sub and the Second Merger Sub shall cease and
TeleCorp, as the surviving corporation in the First Merger, and Tritel, as the
surviving corporation in the Second Merger, shall continue their respective
existence under the laws of the State of Delaware as wholly owned subsidiaries
of the Holding Company. TeleCorp, as the surviving corporation after the First
Merger, is hereinafter sometimes referred to as "TeleCorp II" and Tritel, as
the surviving corporation after the Second Merger, is hereinafter sometimes
referred to as "Tritel II."
1.2 Effective Time. As promptly as practicable after the
satisfaction or, to the extent permitted hereunder, waiver of the conditions
set forth in Article VII, but in no event prior to the Closing (as defined
below), TeleCorp and Tritel shall cause the Mergers to be consummated by
simultaneously filing two certificates of merger (the "Certificates of
Merger") with the Secretary of State of the State of Delaware, in
substantially the form of Exhibits B-1 and B-2 attached hereto, respectively,
and executed in accordance with the relevant provisions of the DGCL (the date
and time of such filing, or such later date and time as may be specified in
the Certificates of Merger, being the "Effective Time").
1.3 Effect of the Mergers. At the Effective Time, the effect
of the Mergers shall be as provided in the applicable provisions of the DGCL
and the applicable Certificate of Merger. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time (i) all the assets,
property, rights, privileges, immunities, powers and franchises of TeleCorp
and the First Merger Sub shall vest in TeleCorp II, and all debts, liabilities
and duties of TeleCorp and the First Merger Sub shall become the debts,
liabilities and duties of TeleCorp II, and (ii) all the assets, property,
rights, privileges, immunities, powers and franchises of Tritel and the Second
Merger Sub shall vest in Tritel II, and all debts, liabilities and duties of
Tritel and the Second Merger Sub shall become the debts, liabilities and
duties of Tritel II.
1.4 Certificates of Incorporation and By-laws of TeleCorp II
and Tritel II.
(a) At the Effective Time and without further action on the
part of any party, the Certificate of Incorporation of TeleCorp II shall be
amended to read in its entirety as set forth in Exhibit C-1 attached hereto,
and the By-laws of the First Merger Sub shall be the By-laws of TeleCorp II
until thereafter amended as provided by the DGCL.
(b) At the Effective Time and without further action on the
part of any party, the Certificate of Incorporation of Tritel II shall be
amended to read in its entirety as set forth in Exhibit C-2 attached hereto,
and the By-laws of the Second Merger Sub shall be the By-laws of Tritel II
until thereafter amended as provided by the DGCL.
1.5 Directors and Officers.
(a) The directors and officers of TeleCorp II immediately
following the Effective Time, each to hold office in accordance with the
Certificate of Incorporation and the By-laws of TeleCorp II until their
respective successors are duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with TeleCorp II's
Certificate of Incorporation and By-laws, shall be as set forth on Schedule A
hereto.
(b) The directors and officers of Tritel II immediately
following the Effective Time, each to hold office in accordance with the
Certificate of Incorporation and the By-laws of Tritel II until their
respective successors are duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with Tritel II's
Certificate of Incorporation and By-laws, shall be as set forth on Schedule A
hereto.
1.6 Conversion of Capital Stock, Etc. Subject to the
provisions of this Article I, at the Effective Time, by virtue of the First
Merger or the Second Merger, as applicable, and without any action on the part
of any party:
(a) With respect to each share of Common Stock, par value
$0.01 per share, of TeleCorp ("TeleCorp Common Stock"):
(i) each share of TeleCorp Class A Voting Common Stock, par
value $0.01 per share, issued and outstanding immediately prior to
the Effective Time (other than any shares to be canceled pursuant to
Section 1.7) shall be converted automatically into and become
exchangeable for that number (expressed as a decimal) of fully paid
and non-assessable shares of the Holding Company Class A Voting
Common Stock, par value $0.01 per share ("Class A Voting Stock"),
equal to the TeleCorp Exchange Ratio (as defined in subsection (e)
below);
(ii) each share of TeleCorp Class B Non-Voting Common Stock,
par value $0.01 per share, issued and outstanding immediately prior
to the Effective Time (other than any shares to be canceled pursuant
to Section 1.7) shall be converted automatically into and become
exchangeable for that number (expressed as a decimal) of fully paid
and non-assessable shares of the Holding Company Class A Voting
Common Stock, par value $0.01 per share, equal to the TeleCorp
Exchange Ratio;
(iii) each share of TeleCorp Class C Common Stock, par value
$0.01 per share, issued and outstanding immediately prior to the
Effective Time (other than any shares to be canceled pursuant to
Section 1.7) shall be converted automatically into and become
exchangeable for that number (expressed as a decimal) of fully paid
and non-assessable shares of the Holding Company Class C Common
Stock, par value $0.01 per share ("Class C Common Stock"), equal to
the TeleCorp Exchange Ratio;
(iv) each share of TeleCorp Class D Common Stock, par value
$0.01 per share, issued and outstanding immediately prior to the
Effective Time (other than any shares to be canceled pursuant to
Section 1.7) shall be converted automatically into and become
exchangeable for that number (expressed as a decimal) of fully paid
and non-assessable shares of the Holding Company Class D Common
Stock, par value $0.01 per share ("Class D Common Stock"), equal to
the TeleCorp Exchange Ratio; and
(v) each share of TeleCorp Voting Preference Common Stock,
par value $0.01 per share, issued and outstanding immediately prior
to the Effective Time (other than any shares to be canceled pursuant
to Section 1.7) shall be converted automatically into and become
exchangeable for that number (expressed as a decimal) of fully paid
and non-assessable shares of the Holding Company Voting Preference
Common Stock, par value $0.01 per share ("Voting Preference Stock"),
equal to the TeleCorp Exchange Ratio.
(b) With respect to each share of Preferred Stock, par value
$0.01 per share, of TeleCorp ("TeleCorp Preferred Stock" and, together with
the TeleCorp Common Stock, "TeleCorp Capital Stock"):
(i) each share of TeleCorp Series A Preferred Stock, par
value $0.01 per share, issued and outstanding immediately prior to
the Effective Time (other than any shares to be canceled pursuant to
Section 1.7) shall be converted automatically into and become
exchangeable for that number (expressed as a decimal) of fully paid
and non-assessable shares of the Holding Company Series A Preferred
Stock, par value $0.01 per share ("Series A Preferred Stock"), equal
to the TeleCorp Exchange Ratio;
(ii) each share of TeleCorp Series C Preferred Stock, par
value $0.01 per share, issued and outstanding immediately prior to
the Effective Time (other than any shares to be canceled pursuant to
Section 1.7) shall be converted automatically into and become
exchangeable for that number (expressed as a decimal) of fully paid
and non-assessable shares of the Holding Company Series C Preferred
Stock, par value $0.01 per share ("Series C Preferred Stock"), equal
to the TeleCorp Exchange Ratio;
(iii) each share of TeleCorp Series D Preferred Stock, par
value $0.01 per share, issued and outstanding immediately prior to
the Effective Time (other than any shares to be canceled pursuant to
Section 1.7) shall be converted automatically into and become
exchangeable for that number (expressed as a decimal) of fully paid
and non-assessable shares of the Holding Company Series D Preferred
Stock, par value $0.01 per share ("Series D Preferred Stock"), equal
to the TeleCorp Exchange Ratio;
(iv) each share of TeleCorp Series E Preferred Stock, par
value $0.01 per share, issued and outstanding immediately prior to
the Effective Time (other than any shares to be canceled pursuant to
Section 1.7) shall be converted automatically into and become
exchangeable for that number (expressed as a decimal) of fully paid
and non-assessable shares of the Holding Company Series E Preferred
Stock, par value $0.01 per share ("Series E Preferred Stock"), equal
to the TeleCorp Exchange Ratio; and
(v) each share of TeleCorp Series F Preferred Stock, par
value $0.01 per share, issued and outstanding immediately prior to
the Effective Time (other than any shares to be canceled pursuant to
Section 1.7) shall be converted automatically into and become
exchangeable for that number (expressed as a decimal) of fully paid
and non-assessable shares of the Holding Company Series F Preferred
Stock, par value $0.01 per share ("Series F Preferred Stock"), equal
to the TeleCorp Exchange Ratio.
(c) With respect to each share of Common Stock, par value
$0.01 per share, of Tritel ("Tritel Common Stock"):
(i) each share of Tritel Class A Voting Common Stock, par
value $0.01 per share, issued and outstanding immediately prior to
the Effective Time (other than any shares to be canceled pursuant to
Section 1.7) shall be converted automatically into and become
exchangeable for that number (expressed as a decimal) of fully paid
and non-assessable shares of Class A Voting Stock equal to the
Tritel Exchange Ratio (as defined in subsection (e) below);
(ii) each share of Tritel Class B Non-Voting Common Stock,
par value $0.01 per share, issued and outstanding immediately prior
to the Effective Time (other than any shares to be canceled pursuant
to Section 1.7) shall be converted automatically into and become
exchangeable for that number (expressed as a decimal) of fully paid
and non-assessable shares of Class A Voting Stock equal to the
Tritel Exchange Ratio;
(iii) each share of Tritel Class C Common Stock, par value
$0.01 per share, issued and outstanding immediately prior to the
Effective Time (other than any shares to be canceled pursuant to
Section 1.7) shall be converted automatically into and become
exchangeable for that number (expressed as a decimal) of fully paid
and non-assessable shares of the Holding Company Class E Common
Stock, par value $0.01 per share ("Class E Common Stock"), equal to
the Tritel Exchange Ratio multiplied by 0.01 and that number
(expressed as a decimal) of fully paid and non-assessable shares of
Class A Voting Stock equal to the Tritel Exchange Ratio multiplied
by 0.99;
(iv) each share of Tritel Class D Common Stock, par value
$0.01 per share, issued and outstanding immediately prior to the
Effective Time (other than any shares to be canceled pursuant to
Section 1.7) shall be converted automatically into and become
exchangeable for that number (expressed as a decimal) of fully paid
and non-assessable shares of the Holding Company Class F Common
Stock, par value $0.01 per share ("Class F Common Stock"), equal to
the Tritel Exchange Ratio multiplied by 0.01 and that number
(expressed as a decimal) of fully paid and non-assessable shares of
Class A Voting Stock equal to the Tritel Exchange Ratio multiplied
by 0.99; and
(v) all Tritel Voting Preference Common Stock, par value
$0.01 per share, issued and outstanding immediately prior to the
Effective Time (other than any shares to be canceled pursuant to
Section 1.7) shall be converted automatically into and become
exchangeable for the right to receive an aggregate amount of
$10,000,000 in immediately available funds to be paid at the
Effective Time (which source of funds will come from Tritel and not
from TeleCorp or the Holding Company); all shares of Tritel Voting
Preference Common Stock owned by William M. Mounger, II shall be
converted into three shares of Voting Preference Stock; Messers.
Martin and Mounger own all the outstanding shares of Tritel Voting
Preference Common Stock.
(d) With respect to each share of Preferred Stock, par value
$0.01 per share, of Tritel ("Tritel Preferred Stock" and, together with the
Tritel Common Stock, "Tritel Capital Stock"):
(i) each share of Tritel Series A Preferred Stock, par value
$0.01 per share, issued and outstanding immediately prior to the
Effective Time (other than any shares to be canceled pursuant to
Section 1.7) shall be converted automatically into and become
exchangeable for one fully paid and non-assessable share of the
Holding Company Series B Preferred Stock, par value $0.01 per share
("Series B Preferred Stock");
(ii) each share of Tritel Series D Preferred Stock, par
value $0.01 per share, issued and outstanding immediately prior to
the Effective Time (other than any shares to be canceled pursuant to
Section 1.7) shall be converted automatically into and become
exchangeable for one fully paid and non-assessable share of the
Holding Company Series G Preferred Stock, par value $0.01 per share
("Series G Preferred Stock").
(e) For purposes of this Agreement, the "TeleCorp Exchange
Ratio" shall initially be 1.00 and the "Tritel Exchange Ratio" shall initially
be 0.76, in each case subject to adjustment from time to time in accordance
with Section 1.10. The TeleCorp and Tritel Exchange Ratios are sometimes
referred to herein as the "Exchange Ratios".
(f) As of the Effective Time, all shares of TeleCorp Capital
Stock shall no longer be outstanding and shall automatically be deemed
canceled and shall cease to exist, and each holder of a certificate
representing any such shares shall cease to have any rights with respect
thereto, except the right to receive the applicable Holding Company Capital
Stock specified in Section 1.6(a) and (b) (the "TeleCorp Merger
Consideration") as the case may be, and any cash in lieu of fractional shares
to be issued or paid in consideration therefor upon surrender of such
certificate in accordance with Section 1.12 hereof without interest. For
purposes hereof, the term "Holding Company Common Stock" shall mean the Class
A Voting Stock, the Class C Common Stock, the Class D Common Stock, the Class
E Common Stock, the Class F Common Stock and the Voting Preference Stock; the
term "Holding Company Preferred Stock" shall mean the Series A Preferred
Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series
D Preferred Stock, the Series E Preferred Stock, the Series F Preferred Stock
and the Series G Preferred Stock; and the term "Holding Company Capital Stock"
shall mean the Holding Company Common Stock and the Holding Company Preferred
Stock, collectively.
(g) As of the Effective Time, all shares of Tritel Capital
Stock shall no longer be outstanding and shall automatically be redeemed and
canceled and shall cease to exist, and each holder of a certificate
representing any such shares shall cease to have any rights with respect
thereto, except the right to receive the applicable Holding Company Capital
Stock specified in Section 1.6(c) and (d) (the "Tritel Merger Consideration")
and any cash in lieu of fractional shares to be issued or paid in
consideration therefor upon surrender of such certificate in accordance with
Section 1.12 hereof without interest.
1.7 Cancellation of Treasury Shares.
(a) At the Effective Time, each share of TeleCorp Capital
Stock, if any, held in the treasury of TeleCorp shall be canceled and
extinguished without any conversion thereof and no consideration shall be
delivered in exchange therefor.
(b) At the Effective Time, each share of Tritel Capital
Stock held in the treasury of Tritel, shall be canceled and extinguished
without any conversion thereof and no consideration shall be delivered in
exchange therefor.
1.8 Stock Options.
(a) At the Effective Time, all options to purchase shares of
TeleCorp Common Stock then outstanding under the TeleCorp 1999 Stock Option
Plan (the "TeleCorp 1999 Plan"), by virtue of the First Merger and without any
action on the part of the holder thereof, shall no longer be options to
acquire TeleCorp Common Stock and shall become options to acquire Class A
Voting Stock with such terms as provided in Section 1.8(b). At the Effective
Time, all options to purchase shares of Tritel Common Stock then outstanding
under the Tritel Non-Employee Directors Stock Option Plan (the "Tritel
Directors Plan") and the Tritel 1999 Stock Option Plan (the "Tritel 1999
Plan," and with the TeleCorp Option Plans and Tritel Directors Plan, the
"Option Plans"), by virtue of the Second Merger and without any action on the
part of the holder thereof, shall no longer be options to acquire Tritel
Common Stock and shall become options to acquire Class A Voting Stock with
such terms as provided in Section 1.8(b). Outstanding options under the Option
Plans are referred to herein as "Outstanding Employee Options."
(b) Each such Outstanding Employee Option shall continue to
have, and be subject to, the same terms and conditions set forth in the
relevant Option Plan, option agreements thereunder and other relevant
documentation immediately prior to the Effective Time, except that such
Outstanding Employee Options will be exercisable solely for that number of
whole shares of Class A Voting Stock equal to the product of the number of
shares of TeleCorp or Tritel Common Stock, as the case may be, that were
purchasable under such Outstanding Employee Option immediately prior to the
Effective Time multiplied by the applicable Exchange Ratio, rounded down to
the nearest whole number of shares of the Holding Company Common Stock and the
per-share exercise price for the shares of Class A Voting Stock issuable upon
exercise of such assumed Outstanding Employee Options will be equal to the
quotient determined by dividing the exercise price per-share of TeleCorp or
Tritel Common Stock, as the case may be, at which such Outstanding Employee
Options were exercisable immediately prior to the Effective Time by the
relevant Exchange Ratio, and rounding the resulting exercise price up to the
nearest whole cent.
(c) The Holding Company shall reserve for issuance a
sufficient number of shares of Class A Voting Stock for delivery upon exercise
of Outstanding Employee Options. As soon as practicable after the Effective
Time, the Holding Company shall file a registration statement on Form S-8
under the Securities Act covering the shares of Class A Voting Stock issuable
upon the exercise of the Outstanding Employee Options assumed by the Holding
Company, and shall use its reasonable efforts to cause such registration
statement to become effective as soon thereafter as practicable and to
maintain such registration in effect until the exercise or expiration of such
assumed Outstanding Employee Options.
(d) TeleCorp and Tritel shall take all such steps as may be
required to cause consummation of the transactions contemplated by Section
1.8(a) and (b) and any other disposition of TeleCorp or Tritel equity
securities (including derivative securities) in connection with this Agreement
by each individual who (x) is a director or officer of TeleCorp or Tritel or
(y) at the Effective Time will be a director or officer of the Holding
Company, to be exempt under Rule 16b-3 promulgated under the Exchange Act (as
defined below), such steps to be taken in accordance with the No-Action Letter
dated January 12, 1999, issued by the SEC (as defined below) to Skadden, Arps,
Slate, Meagher & Flom LLP.
(e) At the Effective Time, the Holding Company shall assume
all of the obligations of TeleCorp under the TeleCorp 1998 Restricted Stock
Plan (the "TeleCorp Restricted Stock Plan") and of Tritel under the Tritel
Restricted Stock Agreements specified in Schedule 1.8.
1.9 Capital Stock of the Merger Subs.
(a) Each share of common stock, par value $0.01 per share,
of the First Merger Sub ("First Merger Sub Common Stock") issued and
outstanding immediately prior to the Effective Time shall be converted into
and exchanged for one validly issued, fully paid and non-assessable share of
common stock of TeleCorp II. Each stock certificate of First Merger Sub
evidencing ownership of any First Merger Sub Common Stock shall after the
Effective Time evidence ownership of such shares of capital stock of TeleCorp
II.
(b) Each share of common stock, par value $0.01 per share,
of the Second Merger Sub ("Second Merger Sub Common Stock") issued and
outstanding immediately prior to the Effective Time shall be converted into
and exchanged for one validly issued, fully paid and non-assessable share of
common stock of Tritel II. Each stock certificate of Second Merger Sub
evidencing ownership of any Second Merger Sub Common Stock shall, after the
Effective Time, evidence ownership of such shares of capital stock of Tritel
II.
1.10 Adjustments to Exchange Ratios. Without limiting any
other provision of this Agreement, the TeleCorp Exchange Ratio and the Tritel
Exchange Ratio shall each be adjusted, at any time and from time to time, to
fully reflect the effect of any stock split, reverse split, stock dividend
(including, without limitation, any stock dividend of securities convertible
into TeleCorp Capital Stock or Tritel Capital Stock, as the case may be),
reorganization, recapitalization or other like change with respect to TeleCorp
Capital Stock or Tritel Capital Stock occurring or with a record date after
the date hereof and prior to the Effective Time.
1.11 Fractional Shares.
(a) No fraction of a share of Class A Voting Stock shall be
issued, but in lieu thereof each holder of shares of TeleCorp Common Stock or
Tritel Common Stock, as the case may be, who would otherwise be entitled to a
fraction of a share of Class A Stock (after aggregating all fractional shares
of Class A Voting Stock to be received by such holder) shall receive from the
Exchange Agent (as defined below) in lieu of such fractional shares of Class A
Voting Stock, an amount of cash (rounded to the nearest whole cent and without
interest) representing such holder's proportionate interest, if any, in the
net proceeds from the sale by the Exchange Agent in one or more transactions
(which sale transactions shall be made at such times, in such manner and on
such terms as the Exchange Agent shall determine in its reasonable discretion)
on behalf of all such holders of the aggregate of the fractional shares of
Class A Voting Stock which would otherwise have been issued (the "Excess
Shares"). The sale of the Excess Shares by the Exchange Agent shall be
executed on the Nasdaq National Market System and shall be executed in round
lots to the extent practicable. Until the net proceeds of such sale or sales
have been distributed to the holders of TeleCorp Common Stock or Tritel Common
Stock, as applicable, the Exchange Agent will hold such proceeds in trust for
the holders of the applicable TeleCorp Common Stock and the Tritel Common
Stock. The Holding Company shall pay all commissions, transfer taxes and other
out-of-pocket transaction costs, including, without limitation, the expenses
and compensation of the Exchange Agent, incurred in connection with such sale
of the Excess Shares. The Holding Company may decide, at its option, exercised
prior to the Effective Time, in lieu of the issuance and sale of Excess Shares
and the making of the payments heretofore contemplated by Section 2.4 that the
Holding Company shall pay to the Exchange Agent an amount sufficient for the
Exchange Agent to pay each holder of TeleCorp Common Stock and Tritel Common
Stock the amount such holder would have received pursuant to the foregoing
assuming that the sales of Class A Stock were made at a price equal to the
average of the closing bid prices of the Class A Stock on the Nasdaq National
Market System, for the ten consecutive trading days immediately following the
Effective Time and, in such case, all references herein to the cash proceeds
of the sale of the Excess Shares and similar references shall be deemed to
mean and refer to the payments calculated as set forth in this sentence. In
such event, Excess Shares shall not be issued or otherwise transferred to the
Exchange Agent. As soon as practicable after the determination of the amount
of cash, if any, to be paid to holders of TeleCorp Common Stock or Tritel
Common Stock, as applicable, in lieu of any fractional shares of the
applicable TeleCorp Common Stock and the Tritel Common Stock, the Exchange
Agent shall make available such amounts to such holders of shares of the
applicable TeleCorp Common Stock and the Tritel Common Stock without interest.
(b) Fractions of a share of all classes and series of the
Holding Company Capital Stock, other than Class A Voting Stock, may be issued
in connection with the Mergers.
1.12 Surrender of Certificates.
(a) Exchange Agent. Prior to the Effective Time, the Holding
Company shall designate a bank or trust company to act as exchange agent (the
"Exchange Agent") in connection with the Mergers.
(b) The Holding Company to Provide Capital Stock. When and
as needed, the Holding Company shall make available to the Exchange Agent for
exchange in accordance with this Article I, through such reasonable procedures
as the Holding Company may adopt, sufficient shares of the Holding Company
Capital Stock to be exchanged pursuant to Section 1.6.
(c) Exchange Procedures. Promptly after the Effective Time,
the Holding Company shall cause to be mailed to each holder of record of a
certificate or certificates (the "Certificates") which immediately prior to
the Effective Time represented outstanding shares of TeleCorp Capital Stock
and Tritel Capital Stock whose shares were converted into the right to receive
shares of the Holding Company Capital Stock pursuant to Section 1.6, a letter
of transmittal (which shall specify that delivery shall be effected, and risk
of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such
other provisions as the TeleCorp and/or Tritel may reasonably specify) and
instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of the Holding Company Capital
Stock. Upon surrender of a Certificate for cancellation to the Exchange Agent,
together with such letter of transmittal, duly completed and validly executed
in accordance with the instructions thereto, the holder of such Certificate
shall be entitled to receive in exchange therefor a certificate representing
the number and type of shares of the Holding Company Capital Stock or, in the
case of Class A Voting Stock, payment in lieu of fractional shares which such
holder has the right to receive pursuant to Section 1.11, and the Certificate
so surrendered shall forthwith be canceled. Until so surrendered, each
outstanding Certificate that, prior to the Effective Time, represented shares
of TeleCorp Capital Stock or Tritel Capital Stock, as the case may be, shall
be deemed from and after the Effective Time, for all legal purposes, to
evidence only the right to receive the number of shares of the Holding Company
Capital Stock into which the holder of such shares of TeleCorp Capital Stock
or Tritel Capital Stock, as the case may be, is entitled and, in the case of
Class A Voting Stock, the right to receive an amount in cash in lieu of the
issuance of any fractional shares in accordance with Section 1.11. Any portion
of the shares of the Holding Company Capital Stock and cash deposited with the
Exchange Agent pursuant to Section 1.12(b) which remains undistributed to the
holders of Certificates representing shares of TeleCorp Capital Stock or
Tritel Capital Stock, as the case may be, for six (6) months after the
Effective Time shall be delivered to the Holding Company, upon demand, and any
holders of shares of TeleCorp Capital Stock or Tritel Capital Stock, as the
case may be, who have not theretofore complied with the provisions of this
Article I shall thereafter look only to the Holding Company and only as
general creditors thereof for payment of their claim for the Holding Company
Capital Stock, any cash in lieu of fractional shares of Class A Voting Stock
and any dividends or distributions with respect to the Holding Company Capital
Stock to which such holders may then be entitled.
(d) Distributions With Respect to Unexchanged Shares. No
dividends or other distributions declared or made after the Effective Time
with respect to the Holding Company Capital Stock with a record date after the
Effective Time will be paid to the holder of any unsurrendered Certificate
with respect to the shares of the Holding Company Capital Stock represented
thereby until the holder of record of such Certificate shall surrender such
Certificate. Subject to applicable law, following the surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing shares of the Holding Company Capital Stock issued in exchange
therefor, without interest, at the time of such surrender, the amount of
dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such shares of the Holding Company Capital
Stock.
(e) Transfers of Ownership. If any certificate for shares of
the Holding Company Capital Stock is to be issued in a name other than that in
which the Certificate surrendered in exchange therefor is registered in the
stock register of TeleCorp or Tritel, as applicable, it shall be a condition
of the issuance thereof that the Certificate so surrendered shall be properly
endorsed and otherwise be in proper form for transfer and that the stockholder
requesting such exchange shall have paid to the Holding Company, or any agent
designated by it, any transfer or other taxes required by reason of the
issuance of a certificate for shares of the Holding Company Capital Stock in
any name other than that of the registered holder of the Certificate
surrendered, or established to the reasonable satisfaction of the Holding
Company or any agent designated by it that such tax has been paid or is
otherwise not payable.
(f) No Liability. Notwithstanding anything to the contrary
in this Agreement, none of the Exchange Agent, the Holding Company, TeleCorp
II or Tritel II shall be liable to a holder of shares of TeleCorp Capital
Stock or Tritel Capital Stock, as the case may be, for the Holding Company
Capital Stock or any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
(g) Withholding of Tax. Either the Holding Company or the
Exchange Agent shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any holder of shares of
TeleCorp Capital Stock or Tritel Capital Stock, as the case may be, such
amounts as the Holding Company (or any Affiliate thereof (as defined in
Section 10.4)) or the Exchange Agent shall determine in good faith they are
required to deduct and withhold with respect to the making of such payment
under the Code or any provision of any applicable state, local or foreign tax
law. To the extent that amounts are so withheld by the Holding Company or the
Exchange Agent, such withheld amounts will be treated for all purposes of this
Agreement as having been paid to the holder of the shares of TeleCorp Capital
Stock or Tritel Capital Stock, as the case may be, in respect of whom such
deduction and withholding were made by the Holding Company.
1.13 Further Ownership Rights in Shares. All shares of the
Holding Company Capital Stock issued upon the surrender for exchange of shares
of TeleCorp Capital Stock or Tritel Capital Stock, as the case may be, in
accordance with the terms of this Article I (including any cash paid in
respect thereof) shall be deemed to have been issued in full satisfaction of
all rights pertaining to such shares of TeleCorp Capital Stock or Tritel
Capital Stock, as the case may be, and there shall be no further registration
of transfers on the records of either TeleCorp II or Tritel II of shares of
capital stock which were outstanding immediately prior to the Effective Time.
If, after the Effective Time, Certificates are presented to either TeleCorp II
or Tritel II for any reason, they shall be canceled and exchanged as provided
in this Article I.
1.14 Contribution.
(a) As soon as practicable after the Effective Time and
subject to, and upon the terms and conditions of, this Agreement, AT&T shall
deliver or cause to be delivered (i) an amendment to the Network Membership
License Agreement, then in effect between AT&T Corp., a New York corporation,
and the Holding Company or TeleCorp (the "Existing Network Membership License
Agreement"), in the form attached as Exhibit D-1 (the "License Extension
Amendment"), (ii) the Airadigm Assignment (as defined below), (iii) the Indus
Assignment (as defined below) and (iv) a wire transfer of immediately
available funds in the amount of $20,000,000 (the "Cash Contribution") (the
items described in items (i) through (iv), the "Contributed Property") and the
Holding Company shall, and shall cause TeleCorp to, as appropriate, execute
the License Extension Amendment, the Airadigm Assignment and the Indus
Assignment and the Holding Company shall issue to AT&T (or its Affiliates) the
Shares. It is expressly understood by the parties that the failure of the
Contribution to occur at the Effective Time shall not prevent the Mergers from
occurring. As used herein, the term "Airadigm Assignment" shall mean the
assignment by AT&T (or one of its Affiliates) of all its rights, title and
interest in, to and under a certain Letter of Intent attached hereto as
Exhibit D-2 (the "Airadigm Letter of Intent") which contemplates the entering
into of an asset purchase agreement (the "Airadigm Purchase Agreement")
between Airadigm Communications, Inc., a Wisconsin corporation ("Airadigm"),
and a buyer designated by AT&T (the "Airadigm Buyer"), as part of, and subject
to the approval of, a Plan of Reorganization filed January 24, 2000 in
connection with the bankruptcy proceedings entitled In re Airadigm
Communications, Inc., No. 99-33500, Bktcy. W.D. Wisc., a copy of which is
attached as Exhibit F (the "Plan of Reorganization"). In the event the
Airadigm Purchase Agreement is entered into, the term "Airadigm Assignment"
shall mean the assignment by AT&T of all its right, title and interest in, to
and under the Airadigm Purchase Agreement. As used herein, the term "Indus
Assignment" shall mean the assignment by AT&T (or its Affiliates) to the
Holding Company or TeleCorp (or one of their respective Affiliates) of all its
right, title and interest in, to and under that certain Agreement and Plan of
Merger in the form of Exhibit G-1 dated as of February 27, 2000, between
Indus, Inc. Milwaukee PCS LLC, a Delaware limited liability company (the
"Indus Buyer") and certain other parties (the "Indus Merger Agreement"), in
the form of Exhibit G-2.
(b) The failure to occur of any or all of the transactions
contemplated by the Airadigm Assignment shall not prevent the Contribution
from occurring at the Effective Time with respect to the other aspects of the
Contribution with respect to which the conditions specified in Section 7.4
shall have been satisfied.
(c) Notwithstanding anything to the contrary in this
Agreement, prior to the Effective Time, TeleCorp and AT&T will execute and
deliver the Indus Assignment and one or more amendments to the Network
Membership License Agreement between AT&T Corp. and TeleCorp dated as of July
17, 1998, the Intercarrier Roamer Service Agreement between AT&T and TeleCorp
dated as of July 17, 1998 and the Roaming Administration Agreement between
AT&T and TeleCorp dated as of July 17, 1998 extending the rights of TeleCorp
under such agreements to the Indus territory in form and substance acceptable
to AT&T and TeleCorp (the "Indus Amendments"), as soon as the conditions to
the consummation of the transaction contemplated by the Indus Merger Agreement
shall be satisfied if such conditions shall be satisfied prior to the
Effective Time (an "Early Indus Closing"). In the event of an Early Indus
Closing, TeleCorp will not be required to pay AT&T any consideration at the
time of the Early Indus Closing. In the event the Early Indus Closing occurs
and the Contribution is consummated, the Early Indus Closing shall be deemed
part of the Contribution. In the event the Early Indus Closing occurs,
TeleCorp or one of its Affiliates will assume all of the obligations of AT&T
(or its Affiliates) pursuant to that certain Organizational Agreement
effective as of February 27, 2000, among Kailas Rao, Indus, Inc., AT&T
Wireless Services, Inc., the Indus Buyer and AT&T Milwaukee JV, Inc. (the
"Indus Organization Agreement") (such costs being referred to herein as the
"Indus Transaction Costs"). If the Early Indus Closing occurs and this
Agreement is (or the provisions of this Agreement relating to the Contribution
are) terminated without the Contribution occurring, then at the option of
AT&T: either (i) TeleCorp will re-assign and transfer to AT&T (or its
Affiliates or designees) all assets and rights which were assigned and
transferred to TeleCorp by AT&T in connection with the Early Indus Closing
(and AT&T will reimburse TeleCorp for all out-of-pocket costs incurred by
TeleCorp in connection with (x) the Indus Transaction Costs or (y) any
improvements to or maintenance of such assets to the extent that AT&T
determines reasonably and in good faith that, in the case of clause (x), such
costs were either reasonably incurred or were costs that are of the nature of
costs that AT&T (or its Affiliates) would incur under similar circumstances
or, in the case of clause (y), to the extent such costs improved the value of
the Indus assets or were costs that AT&T (or its Affiliates or successor in
title) would have to incur in any event; or (ii) TeleCorp will pay AT&T an
amount in TeleCorp Class A Voting Stock valued at the average of the closing
bid prices for the TeleCorp Class A Voting Stock for the ten trading days
immediately preceding the date of the Early Indus Closing equal to (1) $175
times the number of Indus POPS (where "POPs" means Paul Kagan Associates, Inc.
estimate of the 1998 population of a geographic area), less (2) the amount of
the purchase price that was paid plus the amount of the Indus debt assumed
pursuant to the Indus Merger Agreement or (without duplication) the Indus
Organization Agreement. In the event of an Early Indus Closing, if this
Agreement is (or the provisions of this Agreement relating to the Contribution
are) terminated without the Contribution occurring, AT&T and TeleCorp will
take all action necessary so that the Indus Amendments shall be terminated and
all the rights thereunder shall revert to AT&T (or its Affiliate).
(d) (i) In the event that AT&T is unable to deliver, or
cause the delivery of, the Indus Assets, then AT&T may in lieu thereof deliver
or cause to be delivered to the Holding Company executed assignments in form
and substance reasonably satisfactory to the Holding Company for 20 MHz of PCS
licenses (chosen at AT&T's option) for at least an equivalent number of POPs
in the Kansas City or Indianapolis BTAs and their surrounding BTAs or in such
other BTA's as the parties agree in good faith are reasonably equivalent to
the aforementioned regions (the "Replacement Assets"), provided that if AT&T
chooses to provide Replacement Assets, the Holding Company will deliver to
AT&T (or its Affiliates) an amount of the Class A Voting Stock (valued based
on the average of the closing prices of such stock for the ten trading days
immediately preceding delivery of such Class A Voting Stock by the Holding
Company) equal to the amount of the purchase price that was required to be
paid (plus the amount of the Indus debt to be assumed) pursuant to the Indus
Merger Agreement and the transactions contemplated thereby, and, if the number
of POPs included in the Replacement Assets chosen exceeds the number of Indus
POPs, the Holding Company will deliver to AT&T (or its Affiliates) an
additional amount of Class A Voting Stock, valued as described above, equal to
$175 times the number of such excess POPs (in which case the defined term
"Shares" shall include such additional shares of Class A Voting Stock).
(ii) In the event that AT&T is unable to deliver, or cause
the delivery of, the Indus Assets and AT&T does not elect to deliver
or cause to be delivered to the Holding Company Replacement Assets,
AT&T shall provide prompt notice thereof to TeleCorp (or, after the
Effective Time, the Holding Company) and TeleCorp (or the Holding
Company) may, by notice given within five business days after
receipt of such notice from AT&T, elect to terminate the
Contribution.
1.15 Closing. Unless this Agreement shall have been
terminated and the transactions contemplated by this Agreement abandoned
pursuant to the provisions of Article VIII, and subject to the provisions of
Article VII, the closing of the Mergers (the "Closing") shall take place at
10:00 a.m. (eastern standard time) on a date (the "Closing Date") to be
mutually agreed upon by the parties, which date shall be not later than the
fifth business day after all the conditions set forth in Article VII
(excluding conditions that, by their nature, cannot be satisfied until or on
the Closing Date) shall have been satisfied (or waived in accordance with
Article VII, to the extent the same may be waived), unless another time and/or
date is agreed to in writing by the parties. The Closing shall take place at
the offices of Cadwalader, Wickersham & Taft, 100 Maiden Lane, New York, NY,
unless another place is agreed to by the parties.
1.16 Lost, Stolen or Destroyed Certificates. In the event
any Certificates evidencing shares of TeleCorp Capital Stock or Tritel Capital
Stock, as the case may be, shall have been lost, stolen or destroyed, the
Exchange Agent shall issue in exchange for such lost, stolen or destroyed
certificates, upon the making of an affidavit of that fact by the holder
thereof in form and substance reasonably acceptable to the Holding Company,
such shares of the Holding Company Capital Stock to which the holder of such
Certificate would otherwise be entitled to pursuant to the provisions of
Section 1.6 and cash for fractional shares, if any, as may be required
pursuant to Section 1.11; provided, however, that the Holding Company may, in
its discretion and as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed certificates to deliver a bond in
such sum as it may reasonably direct as indemnity against any claim that may
be made against the Holding Company or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
1.17 Tax Consequences. For Federal income tax purposes, the
parties intend that the Mergers and the Contribution, taken together, will
qualify as a tax-free transaction within the meaning of Section 351 of the
Code and that each of the Mergers be treated as a tax-free reorganization
under Section 368(a) of the Code. Except to the extent otherwise required
pursuant to a "determination" within the meaning of Code Section 1313(a), the
parties shall not take a position on any Tax Return (as defined below)
inconsistent with this Section 1.17.
ARTICLE II
STRUCTURE OF HOLDING COMPANY AND RELATED MATTERS
2.1 Organization of the Holding Company.
(a) The Holding Company shall be organized as a corporation
under the laws of the State of Delaware and at all times prior to the
Effective Time be 50% owned by TeleCorp and 50% owned by Tritel. Upon the
Effective Time, the Holding Company shall change its name to "TeleCorp PCS,
Inc." The Certificate of Incorporation and By-laws of the Holding Company in
effect immediately prior to the Effective Time shall be in the form of Exhibit
H and Exhibit I attached hereto. TeleCorp and Tritel shall effect all steps to
organize the Holding Company as soon as practicable after the date of this
Agreement. Prior to the Effective Time, the Board of Directors of the Holding
Company shall adopt resolutions either designating the Holding Company
Preferred Stock and appropriate certificates of designation shall be filed
with the Secretary of State of the State of Delaware or amending and restating
the Holding Company Certificate of Incorporation and an appropriate Amended
and Restated Certificate of Incorporation of the Holding Company shall be
filed with the Secretary of State of the State of Delaware .
(b) At the Effective Time, each share of the Holding Company
Common Stock held by either TeleCorp or Tritel shall be canceled and all
consideration paid therefor shall be returned. Prior to the Effective Time,
the Holding Company shall not (i) conduct any business operations whatsoever
or (ii) enter into any contract or agreement of any kind, acquire any assets,
or incur any liability, except in connection with the organization of the
Merger Subs, as may be specifically contemplated by this Agreement, or as the
parties may otherwise agree in writing. In the event this Agreement is
terminated prior to the Effective Time, the Holding Company shall be promptly
dissolved.
(c) Prior to the Effective Time, TeleCorp and Tritel will
(i) cause the Holding Company, First Merger Sub and Second Merger Sub to
execute and deliver a joinder to this Agreement pursuant to Section 251 of the
DGCL, (ii) execute a formal written consent under Section 228 of the DGCL as
both of the stockholders of the Holding Company, approving the execution,
delivery and performance of this Agreement by the Holding Company and (iii)
cause the Holding Company to execute a formal written consent under Section
228 of the DGCL as the sole stockholder of First Merger Sub and Second Merger
Sub, approving the execution, delivery and performance of this Agreement by
First Merger Sub and Second Merger Sub.
2.2 Board of Directors of the Holding Company. The initial
Board of Directors of the Holding Company shall be as set forth on Schedule A
, and such Board of Directors shall take all actions necessary to cause the
Board of Directors of the Holding Company, as of the Effective Time, to
consist of the persons identified on Schedule A hereto, classified into three
classes and with terms expiring as set forth on such Schedule A.
2.3 Officers of the Holding Company. As of the Effective
Time, the Board of Directors of the Holding Company shall take all actions
necessary to elect as officers of the Holding Company the individuals set
forth on Schedule A hereto.
2.4 Indemnification and Insurance.
(a) From and after the Effective Time, the Holding Company
will, or will cause TeleCorp II and Tritel II to, fulfill and honor in all
respects the obligations of TeleCorp and Tritel pursuant to their respective
Certificates of Incorporation and By-laws and any indemnification agreements
between TeleCorp, Tritel and each of their respective directors and officers
existing prior to the Effective Time. The Certificate of Incorporation and
By-laws of each of TeleCorp II and Tritel II will contain the provisions with
respect to indemnification set forth in the Certificate of Incorporation and
By-laws of TeleCorp and Tritel, respectively, prior to the Effective Time,
which provisions shall not be amended, repealed or otherwise modified for a
period of six (6) years from the Effective Time in any manner that would
adversely affect the rights thereunder of individuals who, at any time prior
to the Effective Time, were directors, officers, employees or agents of
TeleCorp or Tritel, unless such modification is required by applicable law.
(b) From and after the Effective Time, the Holding Company
will, and will cause TeleCorp II and Tritel II, to the fullest extent
permitted under applicable law, to indemnify and hold harmless, each present
and former director and/or officer of TeleCorp and Tritel (collectively, the
"Indemnified Parties") against any costs or expenses (including, without
limitation, attorneys' fees), judgments, fines, losses, claims, damages,
liabilities and amounts paid in settlement in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, to the extent arising out of or pertaining to
any action or omission in his capacity as a director or officer of TeleCorp or
Tritel, respectively, for a period of six (6) years after the date hereof.
Without limiting any of the foregoing, in the event of any such claim, action,
suit, proceeding or investigation (whether arising before or after the
Effective Time), (i) any counsel retained by the Indemnified Parties for any
period after the Effective Time must be reasonably satisfactory to the Holding
Company, (ii) after the Effective Time, the Holding Company will pay, and will
cause TeleCorp II or Tritel II, as the case may be, to pay, the reasonable
fees and expenses of such counsel, promptly after statements therefor are
received and (iii) the Holding Company will, and will cause TeleCorp II or
Tritel II, as the case may be, to cooperate in the defense of any such matter;
provided, however, that neither the Holding Company, TeleCorp II or Tritel II,
as the case may be, shall be liable for any settlement effected without its
written consent (which consent will not be unreasonably withheld or delayed);
and provided, further, that, in the event that any claim or claims for
indemnification are asserted or made within such six-year period, all rights
to indemnification in respect of any such claim or claims will continue until
the disposition of any and all such claims and provided, further, that nothing
in this Section 2.4 shall impair any rights or obligations of any present or
former employees, agents, directors or officers of TeleCorp or Tritel. The
Indemnified Parties as a group may retain only one law firm (in addition to
local counsel) to represent them with respect to any single action unless
there is, under applicable standards of professional conduct, a conflict on
any significant issue between the positions of any two or more Indemnified
Parties. In the event that the Holding Company, TeleCorp II, Tritel II or any
of their respective successors or assigns (i) consolidates with or merges into
any other Person and shall not be the continuing or surviving corporation or
entity of such consolidation or merger, or (ii) transfers or conveys all or
substantially all of its properties and assets to any person, then, and in
each such case, to the extent necessary to effectuate the purposes of this
Section 2.4, proper provision shall be made so that the successors and assigns
of TeleCorp II and Tritel II assume the obligations set forth in this Section
2.4 and none of the actions described in clause (i) or (ii) shall be taken
until such provision is made.
(c) For a period of six (6) years after the Effective Time,
the Holding Company will, or will cause TeleCorp II and Tritel II to, maintain
in effect, if available, directors' and officers' liability insurance covering
those persons who are currently covered by TeleCorp's and Tritel's directors'
and officers' liability insurance policies on terms at least comparable to
those in effect on the date hereof; provided, that in no event shall the
Holding Company be required to, or be required to cause TeleCorp II or Tritel
II to, maintain directors' and officers' liability insurance with comparable
coverage if the annual premium of such insurance is more than one hundred and
twenty-five percent (125%) of the cost of the most recent annual premium paid
by TeleCorp or Tritel, as applicable, but in such case, the Holding Company
shall, and shall cause, as much coverage as possible for such amount to be
purchased.
(d) This Section 2.4 will survive the consummation of the
Mergers, is intended to benefit the Indemnified Parties, and shall be binding
on all successors and assigns of TeleCorp II, Tritel II and the Holding
Company.
2.5 Headquarters of the Holding Company. The headquarters of
the Holding Company shall be located in Arlington, Virginia. Following the
Effective Time, the principal corporate offices of TeleCorp II shall be
located in Arlington, Virginia, and the principal corporate offices of Tritel
II shall be located in Jackson, Mississippi.
2.6 Merger Subs Organization. The Holding Company shall
organize the First Merger Sub and the Second Merger Sub under the laws of the
State of Delaware. Prior to the Effective Time, the outstanding capital stock
of the First Merger Sub and the Second Merger Sub shall each consist of 1,000
shares of common stock, par value $0.01 per share, all of which shall be owned
by the Holding Company. Prior to the Effective Time, the Merger Subs shall not
(i) conduct any business operations whatsoever or (ii) enter into any contract
or agreement of any kind, acquire any assets or incur any liability, except as
may be specifically contemplated by this Agreement. If this Agreement is
terminated prior to the Effective Time, the Merger Subs shall be promptly
dissolved.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TELECORP
Except as set forth in the TeleCorp SEC Reports (as defined
in Section 3.9) or the TeleCorp Disclosure Schedule previously delivered to
Tritel (the "TeleCorp Disclosure Schedule"), TeleCorp, on behalf of itself and
its Subsidiaries (as defined in Section 10.4), represents and warrants to
Tritel and AT&T that the statements contained in this Article III are true,
complete and correct. The TeleCorp Disclosure Schedule shall be arranged in
paragraphs corresponding to the numbered and lettered paragraphs contained in
this Article III, and the disclosure in any paragraph shall qualify only the
corresponding paragraph of this Article III, unless the disclosure contained
in such paragraph contains such information so as to enable a reasonable
person to determine that such disclosure qualifies or otherwise applies to
other paragraphs of this Article III. As used in this Agreement, a "TeleCorp
Material Adverse Effect" means any change, event or effect that is materially
adverse to the business, assets (including intangible assets), financial
condition or results of operations of TeleCorp and its Subsidiaries, taken as
a whole, excluding any adverse change in, or effect on, the financial
condition or revenues of TeleCorp to the extent attributable to (i) general
economic conditions in the United States and (ii) conditions affecting the
wireless communications industry generally.
3.1 Organization and Qualification; Subsidiaries.
(a) TeleCorp is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware and has
all the requisite corporate power and authority necessary to own, lease and
operate its properties and to carry on its business as it is now being
conducted. TeleCorp is duly qualified or licensed as a foreign corporation to
do business, and is in good standing, in each jurisdiction where the character
of the properties owned, leased or operated by it or the nature of its
activities makes such qualification or licensing necessary, except where the
failure to be so qualified would not, individually or in the aggregate,
reasonably be expected to have a TeleCorp Material Adverse Effect.
(b) All of the shares of capital stock of each Subsidiary
(as defined in Section 10.4 below) of TeleCorp are owned by TeleCorp or by a
Subsidiary of TeleCorp (other than director's qualifying shares in the case of
foreign Subsidiaries), and are validly issued, fully paid and non-assessable,
and there are no outstanding subscriptions, options, calls, contracts, voting
trusts, proxies or other commitments, understandings, restrictions,
arrangements, rights or warrants with respect any such Subsidiaries capital
stock.
(c) Each Subsidiary of TeleCorp is a legal entity, duly
incorporated or organized, validly existing and in good standing under the
laws of its respective jurisdiction of incorporation or organization and has
all the requisite power and authority necessary to own, lease and operate its
properties and to carry on its business as it is now being conducted. Each
Subsidiary of TeleCorp is duly qualified or licensed as a foreign corporation
to do business, and is in good standing, in each jurisdiction where the
character of the properties owned, leased or operated by it or the nature of
its activities makes such qualification or licensing necessary, except where
the failure to be so qualified would not, individually or in the aggregate,
reasonably be expected to have a TeleCorp Material Adverse Effect.
3.2 Certificate of Incorporation; By-laws. TeleCorp has
heretofore made available to Tritel a true, complete and correct copy of its
and each of its Subsidiaries' respective Certificate of Incorporation and
By-laws (or other equivalent organizational documents), each as amended or
restated to date. Each such Certificate of Incorporation and By-laws (or other
equivalent organizational documents) of TeleCorp and each of its Subsidiaries
are in full force and effect. Neither TeleCorp nor any of its Subsidiaries is
in violation of any of the provisions of its Certificate of Incorporation or
By-laws or other equivalent organizational documents.
3.3 Capitalization.
(a) The authorized capital of TeleCorp consists of: (i)
918,339,090 shares of TeleCorp Common Stock, consisting of: (A) 608,550,000
shares of TeleCorp Class A Voting Common Stock, (B) 308,550,000 shares of
TeleCorp Class B Non-Voting Common Stock, (C) 309,000 shares of TeleCorp Class
C Common Stock, (D) 927,000 shares of TeleCorp Class D Common Stock, and (E)
3,090 shares of TeleCorp Voting Preference Common Stock; (ii) 17,045,000
shares of TeleCorp Preferred Stock, consisting of: (A) 100,000 shares of
TeleCorp Series A Preferred Stock, (B) 200,000 shares of TeleCorp Series B
Preferred Stock, (C) 215,000 shares of TeleCorp Series C Preferred Stock, (D)
50,000 shares of TeleCorp Series D Preferred Stock, (E) 30,000 shares of
TeleCorp Series E Preferred Stock, (F) 15,450,000 shares of TeleCorp Series F
Preferred Stock, and (G) 1,000,000 undesignated shares;
(b) As of February 25, 2000: (i) 86,067,221 shares of
TeleCorp Common Stock were issued and outstanding, which consisted of: (A)
86,928,889 shares of TeleCorp Class A Voting Common Stock, (B) 283,813 shares
of TeleCorp Class C Common Stock, (C) 851,429 shares of TeleCorp Class D
Common Stock, and (D) 3,090 shares of TeleCorp Voting Preference Common Stock;
(ii) 15,295,317 shares of TeleCorp Preferred Stock were issued and
outstanding, which consisted of: (A) 97,473 shares of TeleCorp Series A
Preferred Stock, (B) 210,608 shares of TeleCorp Series C Preferred Stock, (C)
49,417 shares of TeleCorp Series D Preferred Stock, (D) 25,041 shares of
TeleCorp Series E Preferred Stock, and (E) 14,912,778 shares of TeleCorp
Series F Preferred Stock; (iii) no shares of TeleCorp Common Stock were held
in treasury of TeleCorp or any of its Subsidiaries; (iv) no shares of TeleCorp
Capital Stock were held by any Subsidiary of TeleCorp; (v) 503,022 shares of
TeleCorp Class A Voting Stock and 1,111.11 shares of TeleCorp Series E
Preferred Stock reserved for issuance pursuant to the TeleCorp Restricted
Stock Plan and (vi) there were outstanding employee and non-employee options
in the amount set forth on Schedule 3.3(b) (the "TeleCorp Options"), with the
exercise price, vesting schedule and name of each holder of such options and
the amount of options held by each such holder specified on Schedule 3.3(b).
None of the outstanding shares of TeleCorp Common Stock are subject to, nor
were they issued in violation of, any purchase option, call option, right of
first refusal, preemptive right, subscription right or any similar right.
(c) Except as set forth above, no shares of voting or
non-voting capital stock, other equity interests, or other voting securities
of TeleCorp were or are issued, reserved for issuance or outstanding. All
outstanding shares of TeleCorp Capital Stock are, and all shares which may be
issued upon the exercise of TeleCorp Options will be, when issued, duly
authorized, validly issued, fully paid and non-assessable and not subject to
any kind of preemptive (or similar) rights. There are no bonds, debentures,
notes or other indebtedness of TeleCorp with voting rights (or convertible
into, or exchangeable for, securities with voting rights) on any matters on
which stockholders of TeleCorp may vote.
(d) All of the outstanding shares of capital stock or other
security or equity interests of each of TeleCorp's Subsidiaries have been duly
authorized, validly issued, fully paid and non-assessable, are not subject to,
and were not issued in violation of, any preemptive (or similar) rights, and
are owned, of record and beneficially, by TeleCorp or one of its direct or
indirect Subsidiaries, free and clear of all Liens (as defined in Section
10.4) whatsoever. There are no restrictions of any kind which prevent the
payment of dividends, where applicable, by any of TeleCorp's Subsidiaries, and
neither TeleCorp nor any of its Subsidiaries is subject to any obligation or
requirement to provide funds for or to make any investment (in the form of a
loan or capital contribution) to or in any Person (as defined in Section
10.4).
(e) Section 3.3(e) of the TeleCorp Disclosure Schedule sets
forth a true, complete and correct list of all securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of any
kind (contingent or otherwise) to which TeleCorp or any of its Subsidiaries is
a party or by which any of them is bound obligating TeleCorp or any of its
Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock or other voting securities of
TeleCorp or of any of its Subsidiaries or obligating TeleCorp or any of its
Subsidiaries to issue, grant, extend or enter into any such security, option,
warrant, call, right, commitment, agreement, arrangement or undertaking (other
than the TeleCorp Options) and specifying the material terms of each such
security, option, warrant, call, right, commitment, agreement, arrangement or
undertaking including the applicable exercise price or purchase price and the
name of the person or entity to whom each such security, option, warrant,
call, right, commitment, agreement, arrangement or undertaking was issued.
There are no outstanding contractual obligations of TeleCorp or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital
stock (or options to acquire any such shares) or other security or equity
interest of TeleCorp or its Subsidiaries. There are not outstanding any
stock-appreciation rights, security-based performance units, "phantom" stock
or other security rights or other agreements, arrangements or commitments of
any character (contingent or otherwise) pursuant to which any Person is or may
be entitled to receive any payment or other value based on the revenues,
earnings or financial performance, stock price performance or other attribute
of TeleCorp or any of its Subsidiaries or assets or calculated in accordance
therewith (other than ordinary course payments or commissions to sales
representatives of TeleCorp based upon revenues generated by them without
augmentation as a result of the transactions contemplated hereby) or to cause
TeleCorp or any of its Subsidiaries to file a registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), or which otherwise
relate to the registration of any securities of TeleCorp or its Subsidiaries.
(f) Except as set forth in the TeleCorp SEC Reports or as
contemplated by the Stockholders Agreement, there are no voting trusts,
proxies or other agreements, commitments or understandings of any character to
which TeleCorp or any of its Subsidiaries or, to the knowledge of TeleCorp,
any of the stockholders of TeleCorp, is a party or by which any of them is
bound with respect to the issuance, holding, acquisition, voting or
disposition of any shares of capital stock or other security or equity
interest of TeleCorp or any of its Subsidiaries.
3.4 Authority; Enforceability. TeleCorp has all necessary
corporate power and authority to execute and deliver this Agreement, the
Tritel Voting Agreement, the Stockholders Agreement, the Investors Stockholder
Agreement and each other agreement or instrument required to be executed and
delivered by it at the Closing (each, including the TeleCorp Voting Agreement,
the License Extension Amendment, the Indus Amendments, the Airadigm Assignment
and the Indus Assignment, a "Related Agreement"), and to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery by TeleCorp of
this Agreement and each Related Agreement to which it is a party, the
performance of its obligations hereunder and thereunder, and the consummation
by TeleCorp of the transactions contemplated hereby and thereby, have been
duly and validly authorized by all corporate action and no other corporate
proceedings on the part of TeleCorp are necessary to authorize this Agreement
or any Related Agreement to which it is a party or to consummate the
transactions so contemplated, other than the approval and authorization of
this Agreement and the First Merger by votes of the holders of a majority of
the outstanding shares of TeleCorp Capital Stock entitled to vote thereon in
accordance with the DGCL, TeleCorp's Certificate of Incorporation and By-laws,
and the Special Vote (as defined below). Each of this Agreement and the
Related Agreements to which TeleCorp is a party has been duly and validly
executed and delivered by TeleCorp and, assuming the due authorization,
execution and delivery thereof by all other parties to each such agreement,
constitutes a legal, valid and binding obligation of TeleCorp in accordance
with its terms.
3.5 Required Vote. The Board of Directors of TeleCorp has,
at a meeting duly called and held, (i) approved and declared advisable this
Agreement and approved each Related Agreement to which it is a party, (ii)
determined that the transactions contemplated hereby and thereby are
advisable, fair to and in the best interests of the holders of TeleCorp
Capital Stock, (iii) resolved to recommend adoption of this Agreement, the
First Merger and the other transactions contemplated hereby and thereby to the
stockholders of TeleCorp and (iv) directed that this Agreement be submitted to
the stockholders of TeleCorp for their approval and authorization. The
affirmative vote of a majority of the voting power of all outstanding shares
of TeleCorp Class A Voting Common Stock and TeleCorp Voting Preference Common
Stock voting together as one class, are the only votes of the holders of any
class or series of capital stock of TeleCorp necessary to approve and
authorize this Agreement, the First Merger, the Related Agreements (to the
extent TeleCorp is a party thereto) and the other transactions contemplated
hereby and thereby in their capacity as stockholders of TeleCorp.
3.6 No Conflict; Required Filings and Consents.
(a) The execution and delivery by TeleCorp of this Agreement
and the Related Agreements to which it is a party do not, and the performance
of this Agreement and the Related Agreements to which it is a party will not,
(i) conflict with or violate the Certificate of Incorporation or By-laws or
other equivalent organizational documents of TeleCorp or any of its
Subsidiaries, (ii) conflict with or violate any Law, Regulation or Order (as
defined in Section 10.4) in each case applicable to TeleCorp or any of its
Subsidiaries or by which any of their respective properties is bound or
affected, or (iii) result in any breach or violation of or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, or impair TeleCorp's or any of its Subsidiaries' rights or
alter the rights or obligations of any third party under, or give to others
any rights of termination, amendment, acceleration or cancellation of, or
result in the creation of a Lien on any of the properties or assets of
TeleCorp or any of its Subsidiaries pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which TeleCorp or any of its Subsidiaries is a
party or by which TeleCorp or any of its Subsidiaries or its or any of their
respective properties is bound or affected, except in the case of clauses (ii)
or (iii) above, for any such conflicts, breaches, violations, defaults or
other occurrences that would not (x) individually or in the aggregate,
reasonably be expected to have a TeleCorp Material Adverse Effect, or (y)
prevent or materially impair or delay the consummation of the transactions
contemplated by this Agreement and the Related Agreements or (z) for purposes
of this representation being made to AT&T, individually, or in the aggregate,
reasonably be expected to have a Material Adverse Effect on the value of the
Shares.
(b) The execution and delivery by TeleCorp of this Agreement
and the Related Agreements to which it is a party do not, and the performance
of this Agreement and the Related Agreements, will not, require TeleCorp or
any of its Subsidiaries to obtain any approval of any Person or approval of,
observe any waiting period imposed by, or make any filing with or notification
to, any Governmental Authority (as defined in Section 10.4), domestic or
foreign, except for (i) compliance with applicable requirements of the
Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), state securities laws ("Blue Sky Laws"), the pre-merger notification
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), or any Foreign Competition Laws (as defined in
Section 10.4), the Communications Act of 1934, as amended (the "Communications
Act") and the regulations of the Federal Communications Commission (the
"FCC"), state public utility, telecommunications or public service laws, (ii)
the filing of the Certificates of Merger in accordance with the DGCL and/or
(iii) where the failure to obtain such approvals, or to make such filings or
notifications, would not, individually or in the aggregate, reasonably be
expected to have a TeleCorp Material Adverse Effect or prevent or materially
delay the consummation of the transactions contemplated by this Agreement.
3.7 Material Agreements. Neither TeleCorp nor any of its
Subsidiaries has breached, or received in writing any claim or threat that it
has breached, any of the terms or conditions of any agreement, contract or
commitment that is of a type which is required to be included as an exhibit to
the annual reports on Form 10-K required to be filed by TeleCorp pursuant to
Item 601 of Regulation S-K promulgated by the Securities and Exchange
Commission ("SEC") (collectively, the "TeleCorp Material Contracts") in such a
manner as would permit any other party to cancel or terminate the same or
would permit any other party to collect material damages from TeleCorp or any
of its Subsidiaries under any TeleCorp Material Contract. Each TeleCorp
Material Agreement is in full force and effect, is a valid and binding
obligation of TeleCorp or such Subsidiary and, to the knowledge of TeleCorp,
of each other party thereto, and is enforceable against TeleCorp or such
Subsidiary in accordance with its terms, and, to the knowledge of TeleCorp,
enforceable against each other party thereto, in each case except that the
enforcement thereof may be limited by (i) the effects of bankruptcy,
insolvency, reorganization, moratorium or other similar law now or hereafter
in effect relating to creditors' rights generally and (ii) general principles
of equity (regardless of whether enforceability is considered in a proceeding
in equity or at law), and such TeleCorp Material Agreements will continue to
be valid, binding and enforceable in accordance with their respective terms
and in full force and effect immediately following the consummation of the
transactions contemplated hereby with no material alteration or acceleration
or increase in fees or liabilities. Neither TeleCorp nor any of its
Subsidiaries is or is alleged to be and, to the knowledge of TeleCorp, no
other party is or is alleged to be in default under, or in breach or violation
of, any TeleCorp Material Agreement, and, to the knowledge of TeleCorp, no
event has occurred which (whether with or without notice or lapse of time or
both) would constitute such a default, breach or violation. To the knowledge
of TeleCorp, no party to a TeleCorp Material Contract has terminated or in any
way expressed an intent to materially reduce or terminate the amount of
business with TeleCorp and its Subsidiaries in the future.
3.8 Compliance. Each of TeleCorp and its Subsidiaries is in
compliance in all respects with, and is not in default or violation of, (i)
its Certificate of Incorporation and By-laws or other equivalent
organizational documents, (ii) any Law or Order or by which any of their
respective assets or properties are bound or affected or (iii) any note, bond,
mortgage, indenture, contract, permit, franchise or other instruments or
obligations to which any of them are a party or by which any of them or any of
their respective assets or properties are bound or affected, except, in the
case of clauses (ii) and (iii), for any such failures of compliance, defaults
and violations which would not, individually or in the aggregate, reasonably
be expected to have a TeleCorp Material Adverse Effect.
3.9 SEC Filings; Financial Statements.
(a) TeleCorp has timely filed all forms, reports, schedules,
statements and documents required to be filed by it with the SEC since October
13, 1999 (collectively, with the Registration Statement on Form S-1 dated
October 20, 1999, as amended (the "TeleCorp S-1"), the "TeleCorp SEC Reports")
pursuant to the Federal securities Laws and the SEC regulations promulgated
thereunder. The TeleCorp SEC Reports were prepared in accordance, and complied
as of their respective filing dates in all material respects, with the
requirements of the Exchange Act and the Securities Act and the rules and
regulations promulgated thereunder and did not at the time they were filed (or
if amended or superseded by a filing prior to the date hereof, then on the
date of such filing) contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading. None of TeleCorp's Subsidiaries has filed, or is
obligated to file, any forms, reports, schedules, statements or other
documents with the SEC.
(b) Each of the audited and unaudited consolidated financial
statements (including, in each case, any related notes and schedules thereto)
contained in the TeleCorp SEC Reports (i) complied in all material respects
with applicable accounting requirements and the published regulations of the
SEC with respect thereto, (ii) were prepared in accordance with generally
accepted accounting principles ("GAAP") (except, in the case of unaudited
statements, to the extent otherwise permitted by Form 10-Q) applied on a
consistent basis throughout the periods involved (except as may be expressly
described in the notes thereto) and (iii) fairly present in all material
respects the consolidated financial position of TeleCorp and its Subsidiaries
as at the respective dates thereof and the consolidated results of its
operations and cash flows for the periods indicated, subject in the case of
interim financial statements to normal year-end adjustments.
3.10 Licenses and Authorizations.
(a) TeleCorp and its Subsidiaries hold all licenses,
permits, certificates, franchises, ordinances, registrations, or other rights,
applications and authorizations required to be filed with or granted or issued
by any Governmental Authority, including, without limitation, the FCC or any
state authority asserting over TeleCorp, its Subsidiaries and their respective
properties and assets, that are required for the conduct of their businesses
as currently being conducted (each, as amended to date, the "TeleCorp
Authorizations"), other than such licenses, permits, certificates, franchises,
ordinances, registrations, or other rights, applications and authorizations
the absence of which would not, individually or in the aggregate, be
reasonably likely to have a TeleCorp Material Adverse Effect or prevent or
materially impair or delay the ability of TeleCorp to consummate the
transactions contemplated hereby. TeleCorp has made available to Tritel a
true, complete and correct list of such TeleCorp Authorizations.
(b) TeleCorp has previously made available to Tritel and
AT&T a true, complete and correct list of (i) each application of TeleCorp or
any of its Subsidiaries pending before the FCC (the "TeleCorp FCC
Applications"); (ii) each FCC permit and FCC license which is not a TeleCorp
Authorization but in which TeleCorp or any of its Subsidiaries, directly or
indirectly, holds an interest, including as a stakeholder in the licensee
(collectively, the "Indirect TeleCorp Authorizations"); and (iii) all
licenses, permits, certificates, franchises, ordinances, registrations, or
other rights, applications and authorizations for the benefit of TeleCorp or
any of its Subsidiaries , as applicable, pending before any state authority
(collectively, the "TeleCorp State Authorizations"). The TeleCorp
Authorizations, the TeleCorp FCC Applications, the Indirect TeleCorp
Authorizations and the TeleCorp State Authorizations (collectively, the
"TeleCorp Licenses and Applications") are the only Federal, state or local
licenses, permits, certificates, franchises, ordinances, registrations, or
other rights, applications and authorizations that are required for the
conduct of the business and operations of TeleCorp and its Subsidiaries as
currently conducted, other than such licenses, permits, certificates,
franchises, ordinances, registrations, or other rights, applications and
authorizations the absence of which would not, individually or in the
aggregate, be considered reasonably likely to have a TeleCorp Material Adverse
Effect or prevent or materially delay or impair the ability of TeleCorp to
consummate the transactions contemplated hereby.
(c) The TeleCorp Authorizations and, to the knowledge of
TeleCorp, the Indirect TeleCorp Authorizations, are in full force and effect
and, except as disclosed on Schedule 3.10(c), have not been pledged or
otherwise encumbered, assigned, suspended or modified in any material respect
(except as a result of FCC rule changes applicable to the PCS industry
generally), canceled or revoked, and TeleCorp and each of its Subsidiaries
have each operated in compliance with all terms thereof or any renewals
thereof applicable to them, other than where the failure to so comply would
not, individually or in the aggregate, be considered reasonably likely to have
a TeleCorp Material Adverse Effect or materially impair the ability of
TeleCorp to consummate the transactions contemplated hereby. To the knowledge
of TeleCorp, no event has occurred with respect to any of the TeleCorp
Authorizations which permits, or after notice or lapse of time or both would
permit, revocation or termination thereof or would result in any other
material impairment of the rights of the holder of any such TeleCorp
Authorizations. To the knowledge of TeleCorp, there is not pending any
application, petition, objection or other pleading with the FCC, any state
authority or any similar entity having jurisdiction or authority over the
operations of TeleCorp or any of its Subsidiaries which questions the validity
or contests any TeleCorp Authorization or which could reasonably be expected,
if accepted or granted, to result in the revocation, cancellation, suspension
or any materially adverse modification of any TeleCorp Authorization.
(d) Except for the approvals contemplated by Section 3.6, no
permit, consent, approval, authorization, qualification or registration of, or
declaration to or filing with, any Governmental Entity is required to be made
or obtained by TeleCorp or any of its Subsidiaries in connection with the
transfer or deemed transfer of the TeleCorp Licenses and Authorizations as a
result of the consummation of the transactions contemplated hereby and such
transactions will not result in a breach of such approvals, except where the
failure to obtain or make such permit, consent, approval, authorization,
qualification, registration, declaration or filing would not be considered
reasonably likely to have a TeleCorp Material Adverse Effect or prevent or
materially impair or delay the ability of TeleCorp to consummate the
transactions contemplated hereby.
3.11 No Violation of Law. The business of TeleCorp and its
Subsidiaries is not being conducted in violation of any Laws, except for
possible violations none of which, individually or in the aggregate, would
reasonably be expected to have a TeleCorp Material Adverse Effect. Except as
disclosed in TeleCorp SEC Reports, no investigation, review or proceeding by
any Governmental Authority (including, without limitation, any stock exchange
or other self-regulatory body) with respect to TeleCorp or its Subsidiaries in
relation to any alleged violation of law or regulation is pending or, to
TeleCorp's knowledge, threatened, nor has any Governmental Authority
(including, without limitation, any stock exchange or other self-regulatory
body) indicated an intention to conduct the same, except for such
investigations which, if they resulted in adverse findings, would not
reasonably be expected to have, individually or in the aggregate, a TeleCorp
Material Adverse Effect. Except as set forth in the TeleCorp SEC Reports,
neither TeleCorp nor any of its Subsidiaries is subject to any cease and
desist or other order, judgment, injunction or decree issued by, or is a party
to any written agreement, consent agreement or memorandum of understanding
with, or is a party to any commitment letter or similar undertaking to, or is
subject to any order or directive by, or has adopted any board resolutions at
the request of, any Governmental Authority that materially restricts the
conduct of its business or which would reasonably be expected to have a
TeleCorp Material Adverse Effect, nor has TeleCorp or any of its Subsidiaries
been advised that any Governmental Authority is considering issuing or
requesting any of the foregoing. None of the representations and warranties
made in this Section 3.11 are being made with respect to Environmental Laws.
3.12 Absence of Certain Changes or Events.
(a) Since September 30, 1999, TeleCorp and its Subsidiaries
have conducted their businesses only in the ordinary course of business
consistent with past practice (the "Ordinary Course of Business") and, since
such date, there has not been any change, event, development, damage or
circumstance affecting TeleCorp or any of its Subsidiaries which, individually
or in the aggregate, has had, or could reasonably be expected to have, a
TeleCorp Material Adverse Effect.
(b) Since September 30, 1999, (i) there has not been any
material change by TeleCorp in its accounting methods, principles or
practices, any revaluation by TeleCorp of any of its assets, including writing
down the value of inventory or writing off notes or accounts receivable other
than in the Ordinary Course of Business, and (ii) there has not been (A) any
other action or event, and neither TeleCorp nor any of its Subsidiaries has
agreed in writing or otherwise to take any other action, that would have
required the consent of Tritel pursuant to Section 6.2(a) had such action or
event occurred after the date hereof and prior to the Effective Time, or (B)
any condition, event or occurrence which could reasonably be expected to
prevent, hinder or materially delay the ability of TeleCorp to consummate the
transactions contemplated by this Agreement or the Related Agreements to which
it is a party.
3.13 No Undisclosed Liabilities. TeleCorp and its
Subsidiaries do not have any liabilities or obligations of any nature (whether
absolute, accrued, fixed, contingent or otherwise) which would be required to
be reflected in financial statements prepared in accordance with GAAP, except
liabilities or obligations which (i) are reflected in the TeleCorp SEC
Reports, or (ii) have been incurred in the Ordinary Course of Business since
September 30, 1999.
3.14 Absence of Litigation. There is no Litigation (as
defined in Section 10.4) pending or, to the knowledge of TeleCorp, threatened
against TeleCorp or any of its Subsidiaries, or any properties or rights of
TeleCorp or any of its Subsidiaries, before or subject to any Court (as
defined in Section 10.4) or Governmental Authority which, individually or in
the aggregate, has had, or would reasonably be expected to have, a TeleCorp
Material Adverse Effect or would prevent, or materially hinder or delay
TeleCorp from consummating the transactions contemplated by this Agreement.
3.15 Employee Benefit Plans.
(a) TeleCorp has made available to Tritel true, complete and
correct copies of all employee benefit plans (as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) and
all bonus, stock or other security option, stock or other security purchase,
stock or other security appreciation rights, incentive, deferred compensation,
retirement or supplemental retirement, severance, golden parachute, vacation,
cafeteria, dependent care, medical care, employee assistance program,
education or tuition assistance programs, plant closing or similar benefit
plans, retiree health or life benefit plans, insurance and other similar
fringe or employee benefit plans, programs or arrangements, and any executive
employment or executive compensation or severance agreements, or a written
summary of the material terms of any of the foregoing agreements if not in
writing, which have ever been sponsored, maintained, contributed to or entered
into for the benefit of, or relating to, any present or former employee,
officer, director or consultant of TeleCorp or any of its Subsidiaries, or any
trade or business (whether or not incorporated) which is a member of a
controlled group or which is under common control with TeleCorp, or any
Subsidiary of TeleCorp, within the meaning of Section 414 of the Code or
Section 4001 of ERISA (a "TeleCorp ERISA Affiliate"), whether or not such plan
is terminated (together, the "TeleCorp Employee Plans"). In addition, TeleCorp
has made available to Tritel with respect to each TeleCorp Employee Plan true,
complete and correct copies of each of the following, if applicable: the most
recent summary plan description and any subsequent summary of material
modifications, any related trust, insurance policy or other funding vehicle or
contract providing for benefits, and the three most recent Form 5500 series
Annual Report with all schedules filed with the IRS. Subject to the
requirements of ERISA, there are no restrictions on the ability of the sponsor
of each TeleCorp Employee Plan to amend or terminate any TeleCorp Employee
Plan and each TeleCorp Employee Plan may with the Consent of TeleCorp (or
applicable Subsidiary or TeleCorp ERISA Affiliate) be assumed by the Holding
Company or the First Merger Sub, as the case may be.
(b) There has been no "prohibited transaction," as such term
is defined in Section 406 of ERISA and Section 4975 of the Code, with respect
to any TeleCorp Employee Plan; there are no claims pending (other than routine
claims for benefits) or threatened against any TeleCorp Employee Plan or
against the assets of any TeleCorp Employee Plan, nor are there any current or
threatened Liens on the assets of any TeleCorp Employee Plan; each TeleCorp
Employee Plan conforms to, and in its operation and administration is in all
material respects in compliance with the terms thereof and the requirements
prescribed by any and all statutes (including ERISA and the Code), orders, or
governmental rules and regulations currently in effect with respect thereto
(including, without limitation, all applicable requirements for notification,
reporting and disclosure to participants or the Department of Labor, the IRS
or Secretary of the Treasury), and TeleCorp, each of its Subsidiaries and
TeleCorp ERISA Affiliates have performed all obligations required to be
performed by them under, are not in default under or violation of, and have no
knowledge of any default or in violation by any other party with respect to,
any TeleCorp Employee Plan; each TeleCorp Employee Plan intended to qualify
under Section 401(a) of the Code and each corresponding trust intended to be
exempt under Section 501 of the Code has received or is the subject of a
favorable determination or opinion letter from the IRS (a true and complete
copy of which has been provided by TeleCorp to Tritel) and nothing has
occurred which may be expected to cause the loss of such qualification or
exemption; all contributions (including premiums for any insurance policy
under which benefits for any TeleCorp Employee Plan are provided) required to
be made to any TeleCorp Employee Plan pursuant to Section 412 of the Code, or
any contract, or the terms of the TeleCorp Employee Plan or any collective
bargaining agreement, or otherwise have been made on or before their due dates
and a reasonable amount has been accrued for contributions to each TeleCorp
Employee Plan for its current plan year; the transaction contemplated herein
will not directly or indirectly result in an increase of benefits,
acceleration of vesting or acceleration of timing for payment of any benefit
to any participant or beneficiary under any TeleCorp Employee Plan; each
TeleCorp Employee Plan, if any, which is maintained outside of the United
States has been operated in all material respects in conformance with the
applicable statutes or governmental regulations and rulings relating to such
plans in the jurisdictions in which such TeleCorp Employee Plan is present or
operates and, to the extent relevant, the United States; no TeleCorp Employee
Plan is an "employee pension benefit plan" (within the meaning of Section 3(2)
of ERISA) subject to Title IV of ERISA (a "Defined Benefit Plan"), or a
Multiemployer Plan (as such term is defined in Section 3(37) of ERISA), or a
"single-employer plan which has two or more contributing sponsors at least two
of whom are not under common control" as described in Section 4063 of ERISA,
and none of TeleCorp, any of its Subsidiaries or any TeleCorp ERISA Affiliate
has ever maintained or sponsored, participated in, or made or been obligated
to make contributions to such a Defined Benefit Plan or such a Multiemployer
Plan or such a single employer plan as described in Section 4063 of ERISA.
(c) Each TeleCorp Employee Plan that is a "group health
plan" (within the meaning of Code Section 5000(b)(1)) has been operated in
compliance in all material respects with all laws applicable to such plan, its
terms, and with the group health plan continuation coverage requirements of
Section 4980B of the Code and Sections 601 through 608 of ERISA ("COBRA
Coverage"), Section 4980D of the Code and Sections 701 through 707 of ERISA,
Title XXII of the Public Health Service Act, the provisions of the Social
Security Act, and the provisions of any similar law of any state providing for
continuation coverage, in each case to the extent such requirements are
applicable. No TeleCorp Employee Plan or written or oral agreement exists
which obligates TeleCorp, any of its Subsidiaries or any TeleCorp ERISA
Affiliate to provide health care coverage, medical, surgical, hospitalization,
death, life insurance or similar benefits (whether or not insured) to any
current or former employee, officer, director or consultant of TeleCorp, any
of its Subsidiaries or any TeleCorp ERISA Affiliate or to any other person
following such current or former employee's, officer's, director's or
consultant's termination of employment with TeleCorp, any of its Subsidiaries
or any TeleCorp ERISA Affiliate, other than COBRA Coverage.
(d) The consummation of the transactions contemplated by
this Agreement will not constitute a "prohibited transaction" under ERISA or
the Code for which an exemption is unavailable.
3.16 Employment and Labor Matters. There are no
controversies pending or threatened, between TeleCorp or any of its
Subsidiaries and any of their respective employees which could reasonably be
expected to have a TeleCorp Material Adverse Effect; neither TeleCorp nor any
of its Subsidiaries is a party to any collective bargaining agreement or other
labor union contract applicable to persons employed by TeleCorp or its
Subsidiaries nor to TeleCorp's knowledge are there any activities or
proceedings of any labor union to organize any such employees of TeleCorp or
any of its Subsidiaries. Since January 1, 1999, there have been no strikes,
slowdowns, work stoppages, lockouts, or threats thereof, by or with respect to
any employees of TeleCorp or any of its Subsidiaries. TeleCorp does not have
nor at the Closing will TeleCorp have any obligation under the Worker
Adjustment and Retraining Notification Act (the "WARN Act") as a result of any
acts of TeleCorp taken in connection with the transactions contemplated
hereby. Except as would not reasonably be expected to result in a TeleCorp
Material Adverse Effect, each of TeleCorp and its Subsidiaries is in
compliance with all applicable Federal, state, local, and foreign employment,
wage and hour, labor non-discrimination and other applicable laws or
regulations, except where failure to comply with such laws would not be
reasonably expected to have a TeleCorp Material Adverse Effect.
3.17 Registration Statement; Proxy Statement/Prospectus.
None of the information supplied by TeleCorp in writing for inclusion in the
registration statement on Form S-4, or any amendment or supplement thereto,
pursuant to which the shares of the Holding Company Capital Stock to be issued
in the Mergers will be registered with the SEC (including any amendments or
supplements, the "Registration Statement") shall, at the time such document is
filed, at the time amended or supplemented, at the time the Registration
Statement is declared effective by the SEC and at the Effective Time, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. None of the information supplied by TeleCorp for inclusion in the
joint proxy statement/prospectus to be sent to the stockholders of TeleCorp
and Tritel in connection with the respective special meetings of the
stockholders of TeleCorp (the "TeleCorp Stockholders' Meeting"), and Tritel
(the "Tritel Stockholders' Meeting") in connection with the Mergers (such
proxy statement/prospectus, as amended or supplemented, is referred to herein
as the "Joint Proxy Statement") will, on the date the Joint Proxy Statement is
first mailed to the stockholders of TeleCorp and Tritel, at the time of the
TeleCorp Stockholders' Meeting and the Tritel Stockholders' Meeting and at the
Effective Time, contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. If at any time prior to the Effective Time any event relating to
TeleCorp or any of its Affiliates (as defined in Section 10.4), officers or
directors should be discovered by TeleCorp which should be set forth in an
amendment or supplement to the Registration Statement or an amendment or
supplement to the Joint Proxy Statement, TeleCorp shall promptly inform the
Holding Company, AT&T and Tritel. The Joint Proxy Statement (other then
information relating solely to Tritel) shall comply in all material respects
as to form and substance with the requirements of the Exchange Act and the
rules and regulations promulgated thereunder. Notwithstanding the foregoing,
TeleCorp makes no representation or warranty with respect to any information
supplied by Tritel or AT&T which is contained in the Registration Statement or
Joint Proxy Statement.
3.18 Absence of Restrictions on Business Activities. There
is no TeleCorp Material Agreement binding upon TeleCorp or any of its
Subsidiaries or any of their respective properties which has had or could
reasonably be expected to have the effect of prohibiting or materially
impairing any business practice of TeleCorp or any of its Subsidiaries or the
conduct of business by TeleCorp or any of its Subsidiaries as currently
conducted.
3.19 Title to Assets; Leases. Each of TeleCorp and its
Subsidiaries has good title to all of their owned properties and assets, free
and clear of all Liens, charges and encumbrances, except Liens for Taxes (as
defined in Section 3.20) not yet due and payable and such Liens or other
imperfections of title, if any, as do not materially detract from the value of
or interfere with the present use of the property affected thereby
(collectively, the "Permitted Encumbrances"). All leases pursuant to which
TeleCorp or any of its Subsidiaries lease real or personal property from
others are valid and effective in accordance with their respective terms, and
there is not, under any such lease, any existing material default or event of
default (or event which with notice or lapse of time, or both, would
constitute a material default) and in respect of which TeleCorp or such
Subsidiary has not taken adequate steps to prevent such a default from
occurring where such default would reasonably be expected to have a TeleCorp
Material Adverse Effect.
3.20 Taxes.
(a) For purposes of this Agreement, "Tax" or "Taxes" shall
mean (i) taxes and governmental impositions of any kind in the nature of (or
similar to) taxes, payable to any Federal, state, local or foreign taxing
authority, including but not limited to those on or measured by or referred to
as income, franchise, profits, gross receipts, capital ad valorem, custom
duties, alternative or add-on minimum taxes, estimated, environmental,
disability, registration, value added, sales, use, service, real or personal
property, capital stock, license, payroll, withholding, employment, social
security, workers' compensation, unemployment compensation, utility,
severance, production, excise, stamp, occupation, premiums, windfall profits,
transfer and gains taxes, and interest, penalties and additions to tax imposed
with respect thereto, (ii) liability for the payment of any amounts of the
types described in clause (i) as a result of being a member of an affiliated,
consolidated, combined or unitary group, and (iii) liability for the payment
of any amounts as a result of being party to any tax sharing agreement or as a
result of any express or implied obligation to indemnify any other person with
respect to the payment of any amounts of the type described in clause (i) or
(ii); and "Tax Returns" shall mean returns, reports and information
statements, including any schedule or attachment thereto, with respect to
Taxes required to be filed with the IRS or any other governmental or taxing
authority or agency, domestic or foreign, including consolidated, combined and
unitary tax returns.
(b) All Federal, state, local and foreign Tax Returns
required to be filed (taking into account extensions) by or on behalf of
TeleCorp, each of its Subsidiaries, and each affiliated, combined,
consolidated or unitary group for tax purposes of which TeleCorp or any of its
Subsidiaries is or has been a member have been timely filed, and all such Tax
Returns are true, complete and correct, except to the extent that any failure
to file or any inaccuracies in filed Tax Returns would not, individually or in
the aggregate, reasonably be expected to have a TeleCorp Material Adverse
Effect.
(c) All Taxes due and payable by or with respect to TeleCorp
and each of its Subsidiaries have been timely paid, or are adequately reserved
for (other than a reserve for deferred Taxes established to reflect timing
differences between book and Tax treatment) in accordance with GAAP on
TeleCorp's September 30, 1999 audited balance sheet (the "Most Recent TeleCorp
Balance Sheet"), except to the extent that such amount would not, individually
or in the aggregate, reasonably be expected to have a TeleCorp Material
Adverse Effect. No deficiencies, delinquencies or defaults for any Taxes have
been proposed, asserted or assessed either orally or in writing or become a
Lien for taxes against TeleCorp or any of its Subsidiaries that are not
adequately reserved for in accordance with GAAP on the Most Recent TeleCorp
Balance Sheet nor are there any outstanding Tax audits or inquiries. All
assessments for Taxes due and owing by or with respect to TeleCorp and each of
its Subsidiaries with respect to completed and settled examinations or
concluded litigation have been paid.
(d) Neither TeleCorp nor any of its Subsidiaries has
requested, or been granted any waiver of any Federal, state, local or foreign
statute of limitations with respect to, or any extension of a period for the
assessment of, any Tax. No extension or waiver of time within which to file
any Tax Return of, or applicable to, TeleCorp or any of its Subsidiaries has
been granted or requested which has not since expired. None of the Federal
income Tax Returns of TeleCorp or any of its Subsidiaries consolidated in such
returns either have been examined and settled with the IRS or have been closed
by virtue of the applicable statute of limitations.
(e) Other than with respect to its Subsidiaries, TeleCorp is
not and has never been (nor does TeleCorp have any liability for unpaid Taxes
because it once was) a member of an affiliated, consolidated, combined or
unitary group, and neither TeleCorp nor any of its Subsidiaries is a party to
any Tax allocation or sharing agreement or is liable for the Taxes of any
other party, as transferee or successor, by contract, or otherwise.
(f) TeleCorp and its Subsidiaries have not made any
payments, are not obligated to make any payments, and are not a party to any
agreements that under any circumstances could obligate any of them to make any
payments that will not be deductible under Section 280G of the Code or would
constitute compensation in excess of the limitation set forth in Section
162(m) of the Code.
(g) TeleCorp has not been a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(h) Each of TeleCorp and its Subsidiaries has complied in
all material respects with all applicable Laws relating to the payment and
withholding of Taxes (including, without limitation, withholding of Taxes
pursuant to Sections 1441, 1442 and 3406 of the Code or similar provisions
under any foreign Laws) and have, within the time and in the manner required
by Law, been withheld from employee wages and paid over to the proper
Governmental Authorities all amounts required to be so withheld and paid over
under all applicable Laws.
(i) Neither TeleCorp nor any Subsidiary has executed or
entered into any closing agreement under Section 7121 of the Code (or any
similar provision of state, local or foreign law) or has agreed to make any
adjustment to its income or deductions pursuant to Section 481(a) of the Code
(or similar provision of state, local or foreign law), in either case that
could affect the Tax liability after the Closing Date to any material extent.
(j) None of TeleCorp or any of its Subsidiaries shall be
required to include in a taxable period ending after the Effective Time a
material amount of a taxable income attributable to income that accrued in a
prior taxable period but was not recognized in any prior taxable period as a
result of the installment method of accounting, the completed contract method
of accounting, the long-term contract method of accounting, the cash method of
accounting or Section 481 of the Code or comparable provisions of state, local
or foreign tax law.
3.21 Environmental Matters. Except for such instances, if
any, which would not, individually or in the aggregate, reasonably be expected
to have a TeleCorp Material Adverse Effect, (i) TeleCorp and each of its
Subsidiaries have obtained all applicable permits, licenses and other
authorizations which are required under applicable Environmental Laws as
defined below; (ii) TeleCorp and each of its Subsidiaries are in full
compliance with all applicable Environmental Laws and with the terms and
conditions of all required permits, licenses and authorizations, and also are
in compliance with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
such laws or contained in any applicable regulation, code, plan, order,
decree, judgment, notice or demand letter issued, entered, promulgated or
approved thereunder; and (iii) as of the date hereof, there has not been any
event, condition, circumstance, activity, practice, incident, action or plan
which is reasonably likely to interfere with or prevent continued compliance
with the terms of such permits, licenses and authorizations or which would
give rise to any common law or statutory liability, or otherwise form the
basis of any claim, action, suit or proceeding, based on or resulting from
TeleCorp's or any of its Subsidiaries' (or any of their respective agent's)
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling, or the emission, discharge, or release into the
environment, of any Hazardous Material (as defined below); and (iv) TeleCorp
and each of its subsidiaries has taken all actions necessary under applicable
requirements of federal, state or local laws, rules or regulations to register
any products or materials required to be registered by TeleCorp or its
Subsidiaries (or any of their respective agents) thereunder. There is no
civil, criminal or administrative action, suit, demand, claim, hearing, notice
of violation, investigation, proceeding, notice or demand letter pending or,
to the knowledge of TeleCorp, threatened against TeleCorp or any of its
Subsidiaries relating in any way to the Environmental Laws (as defined in
Section 10.4) or any Regulation, code, plan, Order, decree, judgment, notice
or demand letter issued, entered, promulgated or approved thereunder.
3.22 Intellectual Property.
(a) TeleCorp and its Subsidiaries own, or are licensed or
otherwise possess legally enforceable rights to use, all patents, trademarks,
trade names, service marks, copyrights and mask works, any applications for
and registrations of such patents, trademarks, trade names, service marks,
copyrights and mask works, and all processes, formulae, methods, schematics,
technology, know-how, computer software programs or applications and tangible
or intangible proprietary information or material that are necessary to
conduct the business of TeleCorp and its Subsidiaries as currently conducted,
the absence of which would be considered reasonably likely to have a TeleCorp
Material Adverse Effect (the "TeleCorp Intellectual Property Rights").
(b) Neither TeleCorp nor any of its Subsidiaries is, or will
as a result of the execution and delivery of this Agreement or the performance
of TeleCorp's obligations under this Agreement or otherwise be, in breach of
any license, sublicense or other agreement relating to the TeleCorp
Intellectual Property Rights, or any material licenses, sublicenses and other
agreements as to which TeleCorp or any of its Subsidiaries is a party and
pursuant to which TeleCorp or any of its Subsidiaries is authorized to use any
third party patents, trademarks or copyrights, including software ("TeleCorp
Third Party Intellectual Property Rights") which is used by TeleCorp or any of
its Subsidiaries, the breach of which would be considered reasonably likely to
have a TeleCorp Material Adverse Effect.
(c) All patents, registered trademarks, service marks and
copyrights which are held by TeleCorp or any of its Subsidiaries, and which
are material to the business of TeleCorp and its Subsidiaries, taken as a
whole, are valid and subsisting. TeleCorp (i) has not been sued in any suit,
action or proceeding which involves a claim of infringement of any patents,
trademarks, service marks, copyrights or violation of any trade secret or
other proprietary right of any third party; and (ii) has no knowledge that the
marketing, licensing or sale of its services infringes any patent, trademark,
service mark, copyright, trade secret or other proprietary right of any third
party, which infringement would reasonably be expected to have a TeleCorp
Material Adverse Effect.
3.23 No Restrictions on the Merger; Takeover Statutes. No
applicable takeover statute or similar Law and no provision of the Certificate
of Incorporation or By-laws, or other organizational document or governing
instruments of TeleCorp or any of its Subsidiaries or any TeleCorp Material
Agreement to which any of them is a party (a) would or would purport to impose
restrictions which might adversely affect or delay the consummation of the
transactions contemplated by this Agreement, the TeleCorp Voting Agreement,
the Investor Stockholder Agreement or the Stockholders Agreement or (b) as a
result of the consummation of the transactions contemplated by this Agreement,
the TeleCorp Voting Agreement or the Stockholders Agreement (i) would or would
purport to restrict or impair the ability of the Holding Company to vote or
otherwise exercise the rights of a stockholder with respect to securities of
TeleCorp, any of its Subsidiaries or TeleCorp II or (ii) would or would
purport to entitle any Person to acquire securities of TeleCorp or TeleCorp
II.
3.24 Tax Matters. Neither TeleCorp nor any of its Affiliates
has taken or agreed to take any action, failed to take any action or is aware
of any fact or circumstance that is reasonably likely to prevent the Mergers
and the Contribution, taken together, from constituting a tax-free transaction
within the meaning of Section 351 of the Code or that would cause either
Merger to fail to qualify as a tax-free reorganization under Section 368(a) of
the Code.
3.25 Brokers. Except for Lehman Brothers Inc. ("Lehman
Brothers"), no broker, financial advisor, finder or investment banker or other
Person is entitled to any broker's, financial advisor's, finder's or other fee
or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of TeleCorp. TeleCorp
has heretofore furnished to Tritel a true, complete and correct copy of all
agreements between TeleCorp and Lehman Brothers pursuant to which such firm
would be entitled to any payment relating to the transactions contemplated
hereunder.
3.26 Opinion of Financial Advisor. TeleCorp has received the
written opinion of its financial advisor, Lehman Brothers, to the effect that,
in its opinion, as of the date hereof, from a financial point of view the
exchange ratio in the Mergers is fair to the stockholders of TeleCorp, and
TeleCorp has provided copies of such opinion to Tritel.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF TRITEL
Except as set forth in the Tritel SEC Reports (as defined in
Section 4.9) or the Tritel Disclosure Schedule previously delivered to
TeleCorp (the "Tritel Disclosure Schedule"), Tritel, on behalf of itself and
its Subsidiaries, represents and warrants to TeleCorp and AT&T that the
statements contained in this Article IV are true, complete and correct. The
Tritel Disclosure Schedule shall be arranged in paragraphs corresponding to
the numbered and lettered paragraphs contained in this Article IV, and the
disclosure in any paragraph shall qualify only the corresponding paragraph of
this Article IV, unless the disclosure contained in such paragraph contains
such information so as to enable a reasonable person to determine that such
disclosure qualifies or otherwise applies to other paragraphs of this Article
IV. As used in this Agreement, a "Tritel Material Adverse Effect" means any
change, event or effect that is materially adverse to the business, assets
(including intangible assets), financial condition or results of operations of
Tritel and its Subsidiaries, taken as a whole, excluding any adverse change
in, or effect on, the financial condition or revenues of Tritel to the extent
attributable to (i) general economic conditions in the United States and (ii)
conditions affecting the wireless communications industry generally.
4.1 Organization and Qualification; Subsidiaries.
(a) Tritel is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware and has
all the requisite corporate power and authority necessary to own, lease and
operate its properties and to carry on its business as it is now being
conducted. Tritel is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its activities
makes such qualification or licensing necessary, except where the failure to
be so qualified would not, individually or in the aggregate, reasonably be
expected to have a Tritel Material Adverse Effect.
(b) All of the shares of capital stock of each Subsidiary of
Tritel are owned by Tritel or by a Subsidiary of Tritel (other than director's
qualifying shares in the case of foreign Subsidiaries), and are validly
issued, fully paid and non-assessable, and there are no outstanding
subscriptions, options, calls, contracts, voting trusts, proxies or other
commitments, understandings, restrictions, arrangements, rights or warrants
with respect any such Subsidiaries capital stock.
(c) Each Subsidiary of Tritel is a legal entity, duly
incorporated or organized, validly existing and in good standing under the
laws of its respective jurisdiction of incorporation or organization and has
all the requisite power and authority necessary to own, lease and operate its
properties and to carry on its business as it is now being conducted. Each
Subsidiary of Tritel is duly qualified or licensed as a foreign corporation to
do business, and is in good standing, in each jurisdiction where the character
of the properties owned, leased or operated by it or the nature of its
activities makes such qualification or licensing necessary, except where the
failure to be so qualified would not, individually or in the aggregate,
reasonably be expected to have a Tritel Material Adverse Effect.
4.2 Certificate of Incorporation; By-laws. Tritel has
heretofore made available to TeleCorp a true, complete and correct copy of its
and each of its Subsidiaries' respective Certificate of Incorporation and
By-laws (or other equivalent organizational documents), each as amended or
restated to date. Each such Certificate of Incorporation and By-laws (or other
equivalent organizational documents) of Tritel and each of its Subsidiaries
are in full force and effect. Neither Tritel nor any of its Subsidiaries is in
violation of any of the provisions of its Certificate of Incorporation or
By-laws or other equivalent organizational documents.
4.3 Capitalization.
(a) The authorized capital of Tritel consists of: (i)
1,016,000,009 shares of Tritel Common Stock, consisting of: (A) 500,000,000
shares of Tritel Class A Voting Common Stock, (B) 500,000,000 shares of Tritel
Class B Non-Voting Common Stock, (C) 4,000,000 shares of Tritel Class C Common
Stock, (D) 12,000,000 shares of Tritel Class D Common Stock, and (E) nine
shares of Tritel Voting Preference Common Stock; (ii) 3,100,000 shares of
Tritel Preferred Stock, consisting of: (A) 200,000 shares of Tritel Series A
Preferred Stock, (B) 300,000 shares of Tritel Series B Preferred Stock, (C)
500,000 shares of Tritel Series C Preferred Stock, (D) 100,000 shares of
Tritel Series D Preferred Stock, and (E) 2,000,000 undesignated shares;
(b) As of January 31, 2000: (i) 107,068,559 shares of Tritel
Common Stock were issued and outstanding, which consisted of: (A) 97,798,181
shares of Tritel Class A Voting Common Stock, (B) 2,927,120 shares of Tritel
Class B Common Stock, (C) 1,380,448 shares of Tritel Class C Common Stock, (D)
4,962,804 shares of Tritel Class D Common Stock and (E) six shares of Tritel
Voting Preference Common Stock; (ii) 137,042 shares of Tritel Preferred Stock
were issued and outstanding, which consisted of: (A) 90,668 shares of Tritel
Series A Preferred Stock, (B) 46,374 shares of Tritel Series D Preferred
Stock; (iii) 4,885.56 shares of Tritel Common Stock were held in treasury;
(iv) no shares of Tritel Capital Stock were held by any Subsidiary of Tritel;
and (v) there were outstanding employee and non-employee options in the amount
set forth on Schedule 4.3(b) (the "Tritel Options"), with the exercise price,
vesting schedule, and name of each holder of such options and the amount of
options held by each such holder specified on Schedule 4.3(b). None of the
outstanding shares of Tritel Common Stock are subject to, nor were they issued
in violation of, any purchase option, call option, right of first refusal,
preemptive right, subscription right or any similar right.
(c) Except as set forth above, no shares of voting or
non-voting capital stock, other equity interests, or other voting securities
of Tritel were or are issued, reserved for issuance or outstanding. All
outstanding shares of Tritel Capital Stock are, and all shares which may be
issued upon the exercise of Tritel Options will be, when issued, duly
authorized, validly issued, fully paid and non-assessable and not subject to
any kind of preemptive (or similar) rights. There are no bonds, debentures,
notes or other indebtedness of Tritel with voting rights (or convertible into,
or exchangeable for, securities with voting rights) on any matters on which
stockholders of Tritel may vote.
(d) All of the outstanding shares of capital stock or other
security or equity interests of each of Tritel's Subsidiaries have been duly
authorized, validly issued, fully paid and non-assessable, are not subject to,
and were not issued in violation of, any preemptive (or similar) rights, and
are owned, of record and beneficially, by Tritel or one of its direct or
indirect Subsidiaries, free and clear of all Liens whatsoever. There are no
restrictions of any kind which prevent the payment of dividends, where
applicable, by any of Tritel's Subsidiaries, and neither Tritel nor any of its
Subsidiaries is subject to any obligation or requirement to provide funds for
or to make any investment (in the form of a loan or capital contribution) to
or in any Person.
(e) Section 4.3(e) of Tritel Disclosure Schedule sets forth
a true, complete and correct list of all securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of any kind
(contingent or otherwise) to which Tritel or any of its Subsidiaries is a
party or by which any of them is bound obligating Tritel or any of its
Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock or other voting securities of Tritel
or of any of its Subsidiaries or obligating Tritel or any of its Subsidiaries
to issue, grant, extend or enter into any such security, option, warrant,
call, right, commitment, agreement, arrangement or undertaking (other than the
Tritel Options) and specifying the material terms of each such security,
option, warrant, call, right, commitment, agreement, arrangement or
undertaking including the applicable exercise price or purchase price and the
name of the person or entity to whom each such security, option, warrant,
call, right, commitment, agreement, arrangement or undertaking was issued.
There are no outstanding contractual obligations of Tritel or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital
stock (or options to acquire any such shares) or other security or equity
interest of Tritel or its Subsidiaries. There are not outstanding any
stock-appreciation rights, security-based performance units, "phantom" stock
or other security rights or other agreements, arrangements or commitments of
any character (contingent or otherwise) pursuant to which any Person is or may
be entitled to receive any payment or other value based on the revenues,
earnings or financial performance, stock price performance or other attribute
of Tritel or any of its Subsidiaries or assets or calculated in accordance
therewith (other than ordinary course payments or commissions to sales
representatives of Tritel based upon revenues generated by them without
augmentation as a result of the transactions contemplated hereby) or to cause
Tritel or any of its Subsidiaries to file a registration statement under the
Securities Act, or which otherwise relate to the registration of any
securities of Tritel or its Subsidiaries.
(f) Except as set forth in the Tritel SEC Reports or as
contemplated by the Stockholders Agreement, there are no voting trusts,
proxies or other agreements, commitments or understandings of any character to
which Tritel or any of its Subsidiaries or, to the knowledge of Tritel, any of
the stockholders of Tritel, is a party or by which any of them is bound with
respect to the issuance, holding, acquisition, voting or disposition of any
shares of capital stock or other security or equity interest of Tritel or any
of its Subsidiaries.
4.4 Authority; Enforceability. Tritel has all necessary
corporate power and authority to execute and deliver this Agreement and each
Related Agreement to which it is a party, and to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated
hereby and thereby. The execution and delivery by Tritel of this Agreement and
each Related Agreement to which it is a party, the performance of its
obligations hereunder and thereunder, and the consummation by Tritel of the
transactions contemplated hereby and thereby, have been duly and validly
authorized by all corporate action and no other corporate proceedings on the
part of Tritel are necessary to authorize this Agreement or any Related
Agreement to which it is a party or to consummate the transactions so
contemplated, other than the approval and authorization of this Agreement and
the Second Merger by votes of the holders of a majority of the outstanding
shares of Tritel Capital Stock entitled to vote thereon in accordance with the
DGCL and Tritel's Certificate of Incorporation and By-laws. Each of this
Agreement and the Related Agreements to which Tritel is a party has been duly
and validly executed and delivered by Tritel and, assuming the due
authorization, execution and delivery thereof by all other parties to such
agreements, constitutes a legal, valid and binding obligation of Tritel in
accordance with its terms.
4.5 Required Vote. The Board of Directors of Tritel has, at
a meeting duly called and held, (i) approved and declared advisable this
Agreement and approved each Related Agreement to which it is a party, (ii)
determined that the transactions contemplated hereby and thereby are
advisable, fair to and in the best interests of the holders of Tritel Capital
Stock, (iii) resolved to recommend adoption of this Agreement, the Second
Merger and the other transactions contemplated hereby and thereby to the
stockholders of Tritel and (iv) directed that this Agreement be submitted to
the stockholders of Tritel for their approval and authorization. The
affirmative vote of a majority of the voting power of all outstanding shares
of Tritel Class A Voting Stock and Tritel Voting Preference Common Stock
voting as a class is the only vote of the holders of any class or series of
capital stock of Tritel necessary to approve and authorize this Agreement, the
Second Merger, the Related Agreements (to the extent Tritel is a party
thereto) and the other transactions contemplated hereby and thereby in their
capacity as stockholders of Tritel.
4.6 No Conflict; Required Filings and Consents.
(a) The execution and delivery by Tritel of this Agreement
and the Related Agreements to which it is a party do not, and the performance
of this Agreement and the Related Agreements to which it is a party will not,
(i) conflict with or violate the Certificate of Incorporation or By-laws or
other equivalent organizational documents of Tritel or any of its
Subsidiaries, (ii) conflict with or violate any Law, Regulation or Order in
each case applicable to Tritel or any of its Subsidiaries or by which any of
their respective properties is bound or affected, or (iii) result in any
breach or violation of or constitute a default (or an event that with notice
or lapse of time or both would become a default) under, or impair Tritel's or
any of its Subsidiaries' rights or alter the rights or obligations of any
third party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a Lien on any of
the properties or assets of Tritel or any of its Subsidiaries pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Tritel or any of its
Subsidiaries is a party or by which Tritel or any of its Subsidiaries or its
or any of their respective properties is bound or affected, except in the case
of clauses (ii) or (iii) above, for any such conflicts, breaches, violations,
defaults or other occurrences that would not (x) individually or in the
aggregate, reasonably be expected to have a Tritel Material Adverse Effect,
(y) prevent or materially impair or delay the consummation of the transactions
contemplated by this Agreement and the Related Agreements or (z) for purposes
of this representation being made to AT&T, individually, or the aggregate,
reasonably be expected to have a Material Adverse Effect on the value of the
Shares.
(b) The execution and delivery by Tritel of this Agreement
and the Related Agreements to which it is a party do not, and the performance
of this Agreement and the Related Agreements, will not, require Tritel or any
of its Subsidiaries to obtain any approval of any Person or approval of,
observe any waiting period imposed by, or make any filing with or notification
to, any Governmental Authority domestic or foreign, except for (i) compliance
with applicable requirements of the Securities Act, the Securities Exchange
Act, Blue Sky Laws, the HSR Act, or any Foreign Competition Laws, the
Communications Act, and the regulations of the FCC, state public utility,
telecommunications or public service laws, (ii) the filing of the Certificates
of Merger in accordance with the DGCL and/or (iii) where the failure to obtain
such approvals, or to make such filings or notifications, would not,
individually or in the aggregate, reasonably be expected to have a Tritel
Material Adverse Effect or prevent or materially delay the consummation of the
transactions contemplated by this Agreement.
4.7 Material Agreements. Neither Tritel nor any of its
Subsidiaries has breached, or received in writing any claim or threat that it
has breached, any of the terms or conditions of any agreement, contract or
commitment that is of a type which is required to be included as an exhibit to
the annual reports on Form 10-K required to be filed by Tritel pursuant to
Item 601 of Regulation S-K promulgated by the SEC (collectively, the "Tritel
Material Contracts") in such a manner as would permit any other party to
cancel or terminate the same or would permit any other party to collect
material damages from Tritel or any of its Subsidiaries under any Tritel
Material Contract. Each Tritel Material Agreement is in full force and effect,
is a valid and binding obligation of Tritel or such Subsidiary and, to the
knowledge of Tritel, of each other party thereto and is enforceable against
Tritel or such Subsidiary in accordance with its terms, and, to the knowledge
of Tritel, enforceable against each other party thereto, in each case except
that the enforcement thereof may be limited by (i) the effects of bankruptcy,
insolvency, reorganization, moratorium or other similar law now or hereafter
in effect relating to creditors' rights generally and (ii) general principles
of equity (regardless of whether enforceability is considered in a proceeding
in equity or at law), and such Tritel Material Agreements will continue to be
valid, binding and enforceable in accordance with their respective terms and
in full force and effect immediately following the consummation of the
transactions contemplated hereby with no material alteration or acceleration
or increase in fees or liabilities. Neither Tritel nor any of its Subsidiaries
is or is alleged to be and, to the knowledge of Tritel, no other party is or
is alleged to be in default under, or in breach or violation of, any Tritel
Material Agreement, and, to the knowledge of Tritel, no event has occurred
which (whether with or without notice or lapse of time or both) would
constitute such a default, breach or violation. To the knowledge of Tritel, no
party to a Tritel Material Contract has terminated or in any way expressed an
intent to materially reduce or terminate the amount of business with Tritel
and its Subsidiaries in the future.
4.8 Compliance. Each of Tritel and its Subsidiaries is in
compliance in all material respects with, and is not in default or violation
of, (i) its Certificate of Incorporation and By-laws or other equivalent
organizational documents, (ii) any Law or Order or by which any of their
respective assets or properties are bound or affected or (iii) any note, bond,
mortgage, indenture, contract, permit, franchise or other instruments or
obligations to which any of them are a party or by which any of them or any of
their respective assets or properties are bound or affected, except, in the
case of clauses (ii) and (iii), for any such failures of compliance, defaults
and violations which would not, individually or in the aggregate, reasonably
be expected to have a Tritel Material Adverse Effect.
4.9 SEC Filings; Financial Statements.
(a) Tritel has timely filed all forms, reports, schedules,
statements and documents required to be filed with the SEC since November 17,
1999 (collectively, with Registration Statement on Form S-1 dated November 18,
1999, as amended (the "Tritel S-1"), the "Tritel SEC Reports") pursuant to the
Federal securities Laws and the SEC regulations promulgated thereunder. The
Tritel SEC Reports were prepared in accordance, and complied as of their
respective filing dates in all material respects, with the requirements of the
Exchange Act and the Securities Act and the rules and regulations promulgated
thereunder and did not at the time they were filed (or if amended or
superseded by a filing prior to the date hereof, then on the date of such
filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. None of Tritel's Subsidiaries has filed, or is obligated to
file, any forms, reports, schedules, statements or other documents with the
SEC.
(b) Each of the audited and unaudited consolidated financial
statements (including, in each case, any related notes and schedules thereto)
contained in the Tritel SEC Reports (i) complied in all material respects with
applicable accounting requirements and the published regulations of the SEC
with respect thereto, (ii) were prepared in accordance with GAAP (except, in
the case of unaudited statements, to the extent otherwise permitted by Form
10-Q) applied on a consistent basis throughout the periods involved (except as
may be expressly described in the notes thereto) and (iii) fairly present in
all material respects the consolidated financial position of Tritel and its
Subsidiaries as at the respective dates thereof and the consolidated results
of its operations and cash flows for the periods indicated, subject in the
case of interim financial statements to normal year-end adjustments.
4.10 Licenses and Authorizations.
(a) Tritel and its Subsidiaries hold all licenses, permits,
certificates, franchises, ordinances, registrations, or other rights,
applications and authorizations required to be filed with or granted or issued
by any Governmental Authority, including, without limitation, the FCC or any
state authority asserting over Tritel, its Subsidiaries and their respective
properties and assets, that are required for the conduct of their businesses
as currently being conducted (each, as amended to date, the "Tritel
Authorizations"), other than such licenses, permits, certificates, franchises,
ordinances, registrations, or other rights, applications and authorizations
the absence of which would not, individually or in the aggregate, be
reasonably likely to have a Tritel Material Adverse Effect or prevent or
materially impair or delay the ability of Tritel to consummate the
transactions contemplated hereby. Tritel has made available to TeleCorp a
true, complete and correct list of such Tritel Authorizations.
(b) Tritel has previously made available to TeleCorp and
AT&T a true, complete and correct list of (i) each application of Tritel or
any of its Subsidiaries pending before the FCC (the "Tritel FCC
Applications"); (ii) each FCC permit and FCC license which is not a Tritel
Authorization but in which Tritel or any of its Subsidiaries, directly or
indirectly, holds an interest, including as a stakeholder in the licensee
(collectively, the "Indirect Tritel Authorizations"); and (iii) all licenses,
permits, certificates, franchises, ordinances, registrations, or other rights,
applications and authorizations for the benefit of Tritel or any of its
Subsidiaries, as applicable, pending before any state authority (collectively,
the "Tritel State Authorizations"). The Tritel Authorizations, the Tritel FCC
Applications, the Indirect Tritel Authorizations and the Tritel State
Authorizations (collectively, the "Tritel Licenses and Applications") are the
only Federal, state or local licenses, permits, certificates, franchises,
ordinances, registrations, or other rights, applications and authorizations
that are required for the conduct of the business and operations of Tritel and
its Subsidiaries as currently conducted, other than such licenses, permits,
certificates, franchises, ordinances, registrations, or other rights,
applications and authorizations the absence of which would not, individually
or in the aggregate, be considered reasonably likely to have a Tritel Material
Adverse Effect or prevent or materially delay or impair the ability of Tritel
to consummate the transactions contemplated hereby.
(c) The Tritel Authorizations and, to the knowledge of
Tritel, the Indirect Tritel Authorizations, are in full force and effect and,
except as disclosed on Schedule 4.10(c) have not been pledged or otherwise
encumbered, assigned or suspended, modified in any material respect (except as
a result of FCC rule changes applicable to the PCS industry generally),
canceled or revoked, and Tritel and each of its Subsidiaries have each
operated in compliance with all terms thereof or any renewals thereof
applicable to them, other than where the failure to so comply would not,
individually or in the aggregate, be considered reasonably likely to have a
Tritel Material Adverse Effect or materially impair the ability of Tritel to
consummate the transactions contemplated hereby. To the knowledge of Tritel,
no event has occurred with respect to any of the Tritel Authorizations which
permits, or after notice or lapse of time or both would permit, revocation or
termination thereof or would result in any other material impairment of the
rights of the holder of any such Tritel Authorizations. To the knowledge of
Tritel, there is not pending any application, petition, objection or other
pleading with the FCC, any state authority or any similar entity having
jurisdiction or authority over the operations of Tritel or any of its
Subsidiaries which questions the validity or contests any Tritel Authorization
or which could reasonably be expected, if accepted or granted, to result in
the revocation, cancellation, suspension or any materially adverse
modification of any Tritel Authorization.
(d) Except for the approvals contemplated by Section 4.6, no
permit, consent, approval, authorization, qualification or registration of, or
declaration to or filing with, any Governmental Entity is required to be made
or obtained by Tritel or any of its Subsidiaries in connection with the
transfer or deemed transfer of the Tritel Licenses and Authorizations as a
result of the consummation of the transactions contemplated hereby and such
transactions will not result in a breach of such approvals, except where the
failure to obtain or make such permit, consent, approval, authorization,
qualification, registration, declaration or filing would not be considered
reasonably likely to have a Tritel Material Adverse Effect or prevent or
materially impair or delay the ability of Tritel to consummate the
transactions contemplated hereby.
4.11 No Violation of Law. The business of Tritel and its
Subsidiaries is not being conducted in violation of any Laws, except for
possible violations none of which, individually or in the aggregate, would
reasonably be expected to have a Tritel Material Adverse Effect. Except as
disclosed in Tritel SEC Reports, no investigation, review or proceeding by any
Governmental Authority (including, without limitation, any stock exchange or
other self-regulatory body) with respect to Tritel or its Subsidiaries in
relation to any alleged violation of law or regulation is pending or, to
Tritel's knowledge, threatened, nor has any Governmental Authority (including,
without limitation, any stock exchange or other self-regulatory body)
indicated an intention to conduct the same, except for such investigations
which, if they resulted in adverse findings, would not reasonably be expected
to have, individually or in the aggregate, a Tritel Material Adverse Effect.
Except as set forth in the Tritel SEC Reports, neither Tritel nor any of its
Subsidiaries is subject to any cease and desist or other order, judgment,
injunction or decree issued by, or is a party to any written agreement,
consent agreement or memorandum of understanding with, or is a party to any
commitment letter or similar undertaking to, or is subject to any order or
directive by, or has adopted any board resolutions at the request of, any
Governmental Authority that materially restricts the conduct of its business
or which would reasonably be expected to have a Tritel Material Adverse
Effect, nor has Tritel or any of its Subsidiaries been advised that any
Governmental Authority is considering issuing or requesting any of the
foregoing. None of the representations and warranties made in this Section
4.11 are being made with respect to Environmental Laws.
4.12 Absence of Certain Changes or Events.
(a) Since September 30, 1999, Tritel and its Subsidiaries
have conducted their businesses only in the Ordinary Course of Business and,
since such date, there has not been any change, event, development, damage or
circumstance affecting Tritel or any of its Subsidiaries which, individually
or in the aggregate, has had, or could reasonably be expected to have, a
Tritel Material Adverse Effect.
(b) Since September 30, 1999, (i) there has not been any
material change by Tritel in its accounting methods, principles or practices,
any revaluation by Tritel of any of its assets, including, writing down the
value of inventory or writing off notes or accounts receivable other than in
the Ordinary Course of Business and (ii) there has not been (A) any other
action or event, and neither Tritel nor any of its Subsidiaries has agreed in
writing or otherwise to take any other action, that would have required the
consent of TeleCorp pursuant to Section 6.2(b) had such action or event
occurred after the date hereof and prior to the Effective Time, or (B) any
condition, event or occurrence which could reasonably be expected to prevent,
hinder or materially delay the ability of Tritel to consummate the
transactions contemplated by this Agreement or the Related Agreements to which
it is a party.
4.13 No Undisclosed Liabilities. Tritel and its Subsidiaries
do not have any liabilities or obligations of any nature (whether absolute,
accrued, fixed, contingent or otherwise) which would be required to be
reflected in financial statements prepared in accordance with GAAP, except
liabilities or obligations which (i) are reflected in the Tritel SEC Reports,
or (ii) have been incurred in the Ordinary Course of Business since September
30, 1999.
4.14 Absence of Litigation. There is no Litigation pending
or, to the knowledge of Tritel, threatened against Tritel or any of its
Subsidiaries, or any properties or rights of Tritel or any of its
Subsidiaries, before or subject to any Court or Governmental Authority which,
individually or in the aggregate, has had, or would reasonably be expected to
have, a Tritel Material Adverse Effect or would prevent, or materially hinder
or delay Tritel from consummating the transactions contemplated by this
Agreement.
4.15 Employee Benefit Plans.
(a) Tritel has made available to TeleCorp true, complete and
correct copies of all employee benefit plans (as defined in Section 3(3) of
the ERISA) and all bonus, stock or other security option, stock or other
security purchase, stock or other security appreciation rights, incentive,
deferred compensation, retirement or supplemental retirement, severance,
golden parachute, vacation, cafeteria, dependent care, medical care, employee
assistance program, education or tuition assistance programs, plant closing or
similar benefit plans, retiree health or life benefit plans, insurance and
other similar fringe or employee benefit plans, programs or arrangements, and
any executive employment or executive compensation or severance agreements, or
a written summary of the material terms of any of the foregoing agreements if
not in writing, which have ever been sponsored, maintained, contributed to or
entered into for the benefit of, or relating to, any present or former
employee, officer, director or consultant of Tritel or any of its
Subsidiaries, or any trade or business (whether or not incorporated) which is
a member of a controlled group or which is under common control with Tritel,
or any Subsidiary of Tritel, within the meaning of Section 414 of the Code or
Section 4001 of ERISA (a "Tritel ERISA Affiliate"), whether or not such plan
is terminated (together, the "Tritel Employee Plans"). In addition, Tritel has
made available to TeleCorp with respect to each Tritel Employee Plan true,
complete and correct copies of each of the following, if applicable: the most
recent summary plan description and any subsequent summary of material
modifications; any related trust, insurance policy or other funding vehicle or
contract providing for benefits (including any trusts of the type known as
"rabbi trusts"); and the three most recent Form 5500 series Annual Report with
all schedules filed with the IRS. Subject to the requirements of ERISA, there
are no restrictions on the ability of the sponsor of each Tritel Employee Plan
to amend or terminate any Tritel Employee Plan and each Tritel Employee Plan
may with the consent of Tritel (or applicable Subsidiary or Tritel ERISA
Affiliate) be assumed by the Holding Company or the Second Merger Sub, as the
case may be.
(b) There has been no "prohibited transaction," as such term
is defined in Section 406 of ERISA and Section 4975 of the Code, with respect
to any Tritel Employee Plan; there are no claims pending (other than routine
claims for benefits) or threatened against any Tritel Employee Plan or against
the assets of any Tritel Employee Plan, nor are there any current or
threatened Liens on the assets of any Tritel Employee Plan; each Tritel
Employee Plan conforms to, and in its operation and administration is in all
material respects in compliance with the terms thereof and the requirements
prescribed by any and all statutes (including ERISA and the Code), orders, or
governmental rules and regulations currently in effect with respect thereto
(including, without limitation, all applicable requirements for notification,
reporting and disclosure to participants or the Department of Labor, the IRS
or Secretary of the Treasury and, in the case of any "rabbi trust", the
requirements of Revenue Procedure 92-64, 1992-2 C.B. 422), and Tritel, each of
its Subsidiaries and Tritel ERISA Affiliates have performed all obligations
required to be performed by them under, are not in default under or in
violation of, and have no knowledge of any default or violation by any other
party with respect to, any Tritel Employee Plan; each Tritel Employee Plan
intended to qualify under Section 401(a) of the Code and each corresponding
trust intended to be exempt under Section 501 of the Code has received or is
the subject of a favorable determination or opinion letter from the IRS (a
true and complete copy which has been provided by Tritel to TeleCorp), and
nothing has occurred which could reasonably be expected to cause the loss of
such qualification or exemption; all contributions (including premiums for any
insurance policy under which benefits for any Tritel Employee Plan are
provided) required to be made to any Tritel Employee Plan pursuant to Section
412 of the Code, or any contract, or the terms of the Tritel Employee Plan or
any collective bargaining agreement, or otherwise have been made on or before
their due dates and a reasonable amount has been accrued for contributions to
each Tritel Employee Plan for its current plan year; the transaction
contemplated herein will not directly or indirectly result in an increase of
benefits, acceleration of vesting or acceleration of timing for payment of any
benefit to any participant or beneficiary under any Tritel Employee Plan; each
Tritel Employee Plan, if any, which is maintained outside of the United States
has been operated in all material respects in conformance with the applicable
statutes or governmental regulations and rulings relating to such plans in the
jurisdictions in which such Tritel Employee Plan is present or operates and,
to the extent relevant, the United States; no Tritel Employee Plan is a
Defined Benefit Plan, or a Multiemployer Plan (as such term is defined in
Section 3(37) of ERISA), or a "single-employer plan which has two or more
contributing sponsors at least two of whom are not under common control" as
described in Section 4063 of ERISA, and none of Tritel, any of its
Subsidiaries or any Tritel ERISA Affiliate has ever maintained or sponsored,
participated in, or made or been obligated to make contributions to such a
Defined Benefit Plan or such a Multiemployer Plan or such a single employer
plan as described in Section 4063 of ERISA.
(c) Each Tritel Employee Plan that is a "group health plan"
(within the meaning of Code Section 5000(b)(1)) has been operated in
compliance in all material respects with all laws applicable to such plan, its
terms, and with COBRA Coverage, Section 4980D of the Code and Sections 701
through 707 of ERISA, Title XXII of the Public Health Service Act, the
provisions of the Social Security Act, and the provisions of any similar law
of any state providing for continuation coverage, in each case to the extent
such requirements are applicable. No Tritel Employee Plan or written or oral
agreement exists which obligates Tritel, any of its Subsidiaries or any Tritel
ERISA Affiliate to provide health care coverage, medical, surgical,
hospitalization, death, life insurance or similar benefits (whether or not
insured) to any current or former employee, officer, director or consultant of
Tritel, any of its Subsidiaries or any Tritel ERISA Affiliate or to any other
person following such current or former employee's, officer's, director's or
consultant's termination of employment with Tritel, any of its Subsidiaries or
any Tritel ERISA Affiliate, other than COBRA Coverage.
(d) The consummation of the transactions contemplated by
this Agreement will not constitute a "prohibited transaction" under ERISA or
the Code for which an exemption is unavailable.
4.16 Employment and Labor Matters. There are no
controversies pending or threatened, between Tritel or any of its Subsidiaries
and any of their respective employees which could reasonably be expected to
have a Tritel Material Adverse Effect; neither Tritel nor any of its
Subsidiaries is a party to any collective bargaining agreement or other labor
union contract applicable to persons employed by Tritel or its Subsidiaries
nor to Tritel's knowledge are there any activities or proceedings of any labor
union to organize any such employees of Tritel or any of its Subsidiaries.
Since January 1, 1999, there have been no strikes, slowdowns, work stoppages,
lockouts, or threats thereof, by or with respect to any employees of Tritel or
any of its Subsidiaries. Tritel does not have nor at the Closing will Tritel
have any obligation under the WARN Act as a result of any act of Tritel taken
in connection with the transactions contemplated hereby. Except as would not
reasonably be expected to result in a Tritel Material Adverse Effect, each of
Tritel and its Subsidiaries is in compliance with all applicable Federal,
state, local, and foreign employment, wage and hour, labor non-discrimination
and other applicable laws or regulation except where failure to comply with
such laws would not be reasonably expected to have a Tritel Material Adverse
Effect.
4.17 Registration Statement; Proxy Statement/Prospectus.
None of the information supplied by Tritel in writing for inclusion in the
Registration Statement shall, at the time such document is filed, at the time
amended or supplemented, at the time the Registration Statement is declared
effective by the SEC and at the Effective Time, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of the
information supplied by Tritel for inclusion in the Joint Proxy Statement in
connection with the TeleCorp Stockholders' Meeting and the Tritel
Stockholders' Meeting will, on the date the Joint Proxy Statement is first
mailed to the stockholders of Tritel and TeleCorp, at the time of the Tritel
Stockholders' Meeting and the TeleCorp Stockholders' Meeting and at the
Effective Time, contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. If at any time prior to the Effective Time any event relating to
Tritel or any of its Affiliates, officers or directors should be discovered by
Tritel which should be set forth in an amendment or supplement to the
Registration Statement or an amendment or supplement to the Joint Proxy
Statement, Tritel shall promptly inform the Holding Company, AT&T and
TeleCorp. The Joint Proxy Statement shall comply in all material respects as
to form and substance with the requirements of the Exchange Act and the rules
and regulations promulgated thereunder. Notwithstanding the foregoing, Tritel
makes no representation or warranty with respect to any information supplied
by TeleCorp or AT&T which is contained in the Registration Statement or Joint
Proxy Statement.
4.18 Absence of Restrictions on Business Activities. There
is no Tritel Material Agreement binding upon Tritel or any of its Subsidiaries
or any of their respective properties which has had or could reasonably be
expected to have the effect of prohibiting or materially impairing any
business practice of Tritel or any of its Subsidiaries or the conduct of
business by Tritel or any of its Subsidiaries as currently conducted.
4.19 Title to Assets; Leases. Each of Tritel and its
Subsidiaries has good title to all of their owned properties and assets, free
and clear of all Liens, charges and encumbrances, except for Permitted
Encumbrances. All leases pursuant to which Tritel or any of its Subsidiaries
lease real or personal property from others are valid and effective in
accordance with their respective terms, and there is not, under any such
lease, any existing material default or event of default (or event which with
notice or lapse of time, or both, would constitute a material default) and in
respect of which Tritel or such Subsidiary has not taken adequate steps to
prevent such a default from occurring where such default would reasonably be
expected to have a Tritel Material Adverse Effect.
4.20 Taxes.
(a) All Federal, state, local and foreign Tax Returns
required to be filed (taking into account extensions) by or on behalf of
Tritel, each of its Subsidiaries, and each affiliated, combined, consolidated
or unitary group for tax purposes of which Tritel or any of its Subsidiaries
is or has been a member have been timely filed, and all such Tax Returns are
true, complete and correct, except to the extent that any failure to file or
any inaccuracies in filed Tax Returns would not, individually or in the
aggregate, be reasonably expected to have a Tritel Material Adverse Effect.
(b) All Taxes due and payable by or with respect to Tritel
and each of its Subsidiaries have been timely paid, or are adequately reserved
for (other than a reserve for deferred Taxes established to reflect timing
differences between book and Tax treatment) in accordance with GAAP on
Tritel's September 30, 1999 audited balance sheet (the "Most Recent Tritel
Balance Sheet"), except to the extent that such amount would not, individually
or in the aggregate, reasonably be expected to have a Tritel Material Adverse
Effect. No deficiencies, delinquencies or defaults for any Taxes have been
proposed, asserted or assessed either orally or in writing or become a Lien
for taxes against Tritel or any of its Subsidiaries that are not adequately
reserved for in accordance with GAAP on the Most Recent Tritel Balance Sheet
nor are there any outstanding Tax audits or inquiries. All assessments for
Taxes due and owing by or with respect to Tritel and each of its Subsidiaries
with respect to completed and settled examinations or concluded litigation
have been paid.
(c) Neither Tritel nor any of its Subsidiaries has
requested, or been granted any waiver of any Federal, state, local or foreign
statute of limitations with respect to, or any extension of a period for the
assessment of, any Tax. No extension or waiver of time within which to file
any Tax Return of, or applicable to, Tritel or any of its Subsidiaries has
been granted or requested which has not since expired. None of the Federal
income Tax Returns of Tritel or any of its Subsidiaries consolidated in such
returns either have been examined and settled with the IRS or have been closed
by virtue of the applicable statute of limitations.
(d) Other than with respect to its Subsidiaries, Tritel is
not and has never been (nor does Tritel have any liability for unpaid Taxes
because it once was) a member of an affiliated, consolidated, combined or
unitary group, and neither Tritel nor any of its Subsidiaries is a party to
any Tax allocation or sharing agreement or is liable for the Taxes of any
other party, as transferee or successor, by contract, or otherwise.
(e) Tritel and its Subsidiaries have not made any payments,
are not obligated to make any payments, and are not a party to any agreements
that under any circumstances could obligate any of them to make any payments
that will not be deductible under Section 280G of the Code or would constitute
compensation in excess of the limitation set forth in Section 162(m) of the
Code.
(f) Tritel has not been a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(g) Each of Tritel and its Subsidiaries has complied in all
material respects with all applicable Laws relating to the payment and
withholding of Taxes (including, without limitation, withholding of Taxes
pursuant to Sections 1441, 1442 and 3406 of the Code or similar provisions
under any foreign Laws) and have, within the time and in the manner required
by Law, been withheld from employee wages and paid over to the proper
Governmental Authorities all amounts required to be so withheld and paid over
under all applicable Laws.
(h) Neither Tritel nor any Subsidiary has executed or
entered into any closing agreement under Section 7121 of the Code (or any
similar provision of state, local or foreign law) or has agreed to make any
adjustment to its income or deductions pursuant to Section 481(a) of the Code
(or similar provision of state, local or foreign law), in either case that
could affect the Tax liability after the Closing Date to any material extent.
(i) None of Tritel or any of its Subsidiaries shall be
required to include in a taxable period ending after the Effective Time a
material amount of a taxable income attributable to income that accrued in a
prior taxable period but was not recognized in any prior taxable period as a
result of the installment method of accounting, the completed contract method
of accounting, the long-term contract method of accounting, the cash method of
accounting or Section 481 of the Code or comparable provisions of state, local
or foreign tax law.
4.21 Environmental Matters. Except for such instances, if
any, which would not, individually or in the aggregate, reasonably be expected
to have a Tritel Material Adverse Effect, (i) Tritel and each of its
Subsidiaries have obtained all applicable permits, licenses and other
authorizations which are required under applicable Environmental Laws; (ii)
Tritel and each of its Subsidiaries are in full compliance with all applicable
Environmental Laws and with the terms and conditions of all required permits,
licenses and authorizations, and also are in compliance with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in such laws or contained in
any applicable regulation, code, plan, order, decree, judgment, notice or
demand letter issued, entered, promulgated or approved thereunder; and (iii)
as of the date hereof, there has not been any event, condition, circumstance,
activity, practice, incident, action or plan which is reasonably likely to
interfere with or prevent continued compliance with the terms of such permits,
licenses and authorizations or which would give rise to any common law or
statutory liability, or otherwise form the basis of any claim, action, suit or
proceeding, based on or resulting from Tritel's or any of its Subsidiaries'
(or any of their respective agent's) manufacture, processing, distribution,
use, treatment, storage, disposal, transport, or handling, or the emission,
discharge, or release into the environment, of any Hazardous Material; and
(iv) Tritel and each of its Subsidiaries has taken all actions necessary under
applicable requirements of federal, state or local laws, rules or regulations
to register any products or materials required to be registered by Tritel or
its Subsidiaries (or any of their respective agents) thereunder. There is no
civil, criminal or administrative action, suit, demand, claim, hearing, notice
of violation, investigation, proceeding, notice or demand letter pending or,
to the knowledge of Tritel, threatened against Tritel or any of its
Subsidiaries relating in any way to the Environmental Laws or any Regulation,
code, plan, Order, decree, judgment, notice or demand letter issued, entered,
promulgated or approved thereunder.
4.22 Intellectual Property.
(a) Tritel and its Subsidiaries own, or are licensed or
otherwise possess legally enforceable rights to use, all patents, trademarks,
trade names, service marks, copyrights and mask works, any applications for
and registrations of such patents, trademarks, trade names, service marks,
copyrights and mask works, and all processes, formulae, methods, schematics,
technology, know-how, computer software programs or applications and tangible
or intangible proprietary information or material that are necessary to
conduct the business of Tritel its Subsidiaries as currently conducted, the
absence of which would be considered reasonably likely to have a Tritel
Material Adverse Effect (the "Tritel Intellectual Property Rights").
(b) Neither Tritel nor any of its Subsidiaries is, or will
as a result of the execution and delivery of this Agreement or the performance
of Tritel's obligations under this Agreement or otherwise be, in breach of any
license, sublicense or other agreement relating to the Tritel Intellectual
Property Rights, or any material licenses, sublicenses and other agreements as
to which Tritel or any of its Subsidiaries is a party and pursuant to which
Tritel or any of its Subsidiaries is authorized to use any third party
patents, trademarks or copyrights, including software ("Tritel Third Party
Intellectual Property Rights") which is used by Tritel or any of its
Subsidiaries, the breach of which would be considered reasonably likely to
have a Tritel Material Adverse Effect.
(c) All patents, registered trademarks, service marks and
copyrights which are held by Tritel or any of its Subsidiaries, and which are
material to the business of Tritel and its Subsidiaries, taken as a whole, are
valid and subsisting. Tritel (i) has not been sued in any suit, action or
proceeding which involves a claim of infringement of any patents, trademarks,
service marks, copyrights or violation of any trade secret or other
proprietary right of any third party; and (ii) has no knowledge that the
marketing, licensing or sale of its services infringes any patent, trademark,
service mark, copyright, trade secret or other proprietary right of any third
party, which infringement would reasonably be expected to have a Tritel
Material Adverse Effect.
4.23 No Restrictions on the Merger; Takeover Statutes. No
applicable takeover statute or similar Law and no provision of the Certificate
of Incorporation or By-laws, or other organizational document or governing
instruments of Tritel or any of its Subsidiaries or any Tritel Material
Agreement to which any of them is a party (a) would or would purport to impose
restrictions which might adversely affect or delay the consummation of the
transactions contemplated by this Agreement, the Tritel Voting Agreement, the
Investor Stockholder Agreement or the Stockholders Agreement or (b) as a
result of the consummation of the transactions contemplated by this Agreement,
the Tritel Voting Agreement or the Stockholders Agreement (i) would or would
purport to restrict or impair the ability of the Holding Company to vote or
otherwise exercise the rights of a stockholder with respect to securities of
Tritel, any of its Subsidiaries or Tritel II or (ii) would or would purport to
entitle any Person to acquire securities of Tritel or Tritel II.
4.24 Tax Matters. Neither Tritel nor any of its Affiliates
has taken or agreed to take any action, failed to take any action or is aware
of any fact or circumstance that is reasonably likely to prevent the Mergers
or the Contribution from constituting part of a tax-free transaction within
the meaning of Section 351 of the Code or that would cause either Merger to
fail to qualify as a tax-free reorganization under Section 368(a) of the Code.
4.25 Brokers. Except for Merrill Lynch, Pierce, Fenner &
Smith Incorporated, no broker, financial advisor, finder or investment banker
or other Person is entitled to any broker's, financial advisor's, finder's or
other fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of Tritel. Tritel
has heretofore furnished to TeleCorp a true, complete and correct copy of all
agreements between Tritel and Merrill Lynch, Pierce, Fenner & Smith
Incorporated pursuant to which such firm would be entitled to any payment
relating to the transactions contemplated hereunder.
4.26 Opinion of Financial Advisor. Tritel has received the
written opinion of its financial advisor, Merrill Lynch, Pierce, Fenner &
Smith Incorporated, to the effect that, in its opinion, as of the date hereof,
from a financial point of view the exchange ratio in the Mergers is fair to
the stockholders of Tritel Class A Voting Common Stock (other than AT&T and
its Affiliates), and Tritel has provided copies of such opinion to TeleCorp.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF AT&T
AT&T represents and warrants to TeleCorp and Tritel as
follows:
5.1 Authority; Enforceability. AT&T has all necessary
corporate power and authority to execute and deliver this Agreement and each
Related Agreement to which it is a party, and to perform its obligations
hereunder and thereunder and each Related Agreement to which it is a party the
transactions contemplated hereby and thereby. Each of this Agreement and each
Related Agreement to which it is a party that has been (or will be at the
Effective Time) duly and validly executed and delivered by AT&T and, assuming
the due authorization, execution and delivery thereof by all other parties
thereto, constitutes (or will constitute when executed and delivered) a legal,
valid and binding obligation of AT&T in accordance with its terms.
5.2 No Conflict; Required Filings and Consents.
(a) The execution and delivery by AT&T of this Agreement and
each Related Agreement to which it is a party do not, and the performance of
this Agreement and each Related Agreement to which it is a party by AT&T will
not, (i) conflict with or violate the Certificate of Incorporation or By-laws
or other equivalent organizational documents of AT&T or any of its
Subsidiaries, (ii) conflict with or violate any Law, Regulation or Order in
each case applicable to AT&T or any of its Subsidiaries or by which any of
their respective properties is bound or affected, or (iii) result in any
breach or violation of or constitute a default (or an event that with notice
or lapse of time or both would become a default) under, or impair AT&T's or
any of its Subsidiaries' rights or alter the rights or obligations of any
third party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a Lien on any of
the properties or assets of AT&T or any of its Subsidiaries pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which AT&T or any of its
Subsidiaries is a party or by which AT&T or any of its Subsidiaries or its or
any of their respective properties is bound or affected, except in the case of
clauses (ii) or (iii) above, for any such conflicts, breaches, violations,
defaults or other occurrences that would not (x) individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
value of the Contribution to the Holding Company or (y) prevent or materially
impair or delay the consummation of the transactions contemplated by this
Agreement and the Related Agreements (an "AT&T Material Adverse Effect").
(b) The execution and delivery by AT&T of this Agreement and
each Related Agreement to which it is a party do not, and the performance of
this Agreement and each Related Agreement to which it is a Party, will not,
require AT&T or any of its Subsidiaries to obtain any approval of any Person
or approval of, observe any waiting period imposed by, or make any filing with
or notification to, any Governmental Authority domestic or foreign except for
(i) compliance with applicable requirements of the Securities Act, the
Securities Exchange Act, Blue Sky Laws, the HSR Act, or any Foreign
Competition Laws, the Communications Act, and the regulations of the FCC,
state public utility, telecommunications or public service laws, (ii) the
filing of the Certificates of Merger in accordance with the DCGL and/or (iii)
where the failure to obtain such approvals, or to make such filings or
notifications, would not, individually or in the aggregate, reasonably be
expected to have an AT&T Material Adverse Effect.
5.3 Tax Matters. Neither AT&T nor any of its Affiliates has
taken or agreed to take any action, failed to take any action or is aware of
any fact or circumstance that is reasonably likely to prevent the Mergers and
the Contribution, taken together, from constituting a tax-free transaction
within the meaning of Section 351 of the Code.
5.4 Brokers. No broker, financial advisor, finder or
investment banker or other Person is entitled to any broker's, financial
advisor's, finder's or other similar fee or commission in connection with the
transactions contemplated by this Agreement or the Related Agreements based
upon arrangements made by or on behalf of AT&T.
5.5 Registration Statement; Proxy Statement/Prospectus. None
of the information supplied by AT&T in writing specifically for inclusion in
the Registration Statement shall, at the time such document is filed, at the
time amended or supplemented, at the time the Registration Statement is
declared effective by the SEC and at the time of the Tritel Stockholders
Meeting and the TeleCorp Stockholders Meeting, contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of the
information supplied by AT&T in writing specifically for inclusion in the
Joint Proxy Statement in connection with the TeleCorp Stockholders' Meeting
and the Tritel Stockholders' Meeting will, on the date the Joint Proxy
Statement is first mailed to the stockholders of Tritel and TeleCorp, and at
the time of the Tritel Stockholders' Meeting and the TeleCorp Stockholders'
Meeting, contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading. If at any
time prior to the Effective Time any event relating to AT&T or any of its
respective Affiliates, officers or directors should be discovered by AT&T
which should be set forth in an amendment or supplement to the Registration
Statement or an amendment or supplement to the Joint Proxy Statement, AT&T
shall promptly inform the Holding Company, TeleCorp and Tritel.
5.6 Waiver. AT&T has all necessary corporate power and
authority to execute and deliver the Waiver (as defined below) contained in
Section 6.17(b). The granting of such Waiver has been duly and validly
authorized by all corporate action on the part of AT&T and no other corporate
proceedings on the part of AT&T are necessary to authorize the Waiver. The
Waiver constitutes a legal, valid and binding obligation of AT&T in accordance
with its terms.
5.7 Investment Experience. AT&T is an "accredited investor"
as defined in Rule 501(a) under the Securities Act. AT&T has reviewed the
TeleCorp SEC Reports, the Tritel SEC Reports and this Agreement and all
exhibits and schedules hereto, and has had the opportunity to ask questions
and receive answers from representatives of TeleCorp and Tritel. AT&T is aware
of TeleCorp's and Tritel's business affairs and financial condition and has
had access to and has acquired sufficient information about the Holding
Company to reach an informed and knowledgeable decision to acquire the Shares.
AT&T has such business and financial experience as is required to give it the
capacity to evaluate the merits and risks of the investment in the Shares and
to protect its own interests in connection with the purchase of the Shares.
AT&T is able to bear the economic risk of holding the Shares to be purchased
by it for an indefinite period, including the loss of AT&T's entire
investment. The Shares were not offered or sold to AT&T by any form of general
solicitation or advertising within the meaning of Rule 502(c) under the
Securities Act.
5.8 Investment Intent. AT&T (or its Affiliate) is purchasing
the Shares for its own account as principal, for investment purposes only, and
not with a view to, or for, resale, distribution or fractionalization thereof,
in whole or in part, within the meaning of the Securities Act, in any manner
that would violate the Securities Act. AT&T understands that the acquisition
of the Shares has not been registered under the Securities Act or registered
or qualified under any state securities laws in reliance on specific
exemptions therefrom, which exemptions may depend upon, among other things,
the bona fide nature of AT&T's investment intent as expressed herein.
5.9 Registration or Exemption Requirements. AT&T
acknowledges that the Shares have not been registered under the Securities
Act. AT&T further acknowledges and understands that the Shares may not be
resold or otherwise transferred except in a transaction registered under the
Securities Act or pursuant to an exemption from the registration requirements
of the Securities Act. AT&T understands that the certificate(s) evidencing the
Shares will be imprinted with a legend that prohibits the transfer of such
Shares unless: (i) they are registered under the Securities Act or such
registration is not required, or (ii) (A) the transfer is pursuant to an
exemption from registration, and (B) if the Holding Company shall so request
in writing, an opinion satisfactory to the Holding Company of AT&T's counsel
is obtained to the effect that the transaction does not require registration
under the Securities Act, will not be in violation of the Securities Act and
is in compliance with any applicable federal and state laws.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Access to Information; Confidentiality.
(a) TeleCorp agrees that, during the period commencing on
the date hereof and ending on earlier to occur of the termination of this
Agreement in accordance with Article VIII or the Closing Date (in either case,
the "Interim Period"), (i) it will give or cause to be given to Tritel and its
counsel, financial advisors, auditors and other authorized representatives
(collectively, "Representatives") such access, during normal business hours
and upon reasonable advance notice, to the plants, properties, books and
records of TeleCorp and its Subsidiaries as Tritel may from time to time
reasonably request; provided, however, that TeleCorp shall have the right to
have a representative present at all such times, (ii) it will furnish or cause
to be furnished to Tritel and its Representatives such financial and operating
data and other information as Tritel may from time to time reasonably request,
and (iii) it will provide Tritel and its Representatives such access to the
representatives, officers and employees of TeleCorp and its Subsidiaries as
Tritel may reasonably request; provided, that all requests for information, to
visit plants or facilities or to interview employees shall be directed to the
Chief Financial Officer of TeleCorp or such other Person as he shall
designate. Tritel agrees that it will, and will cause its Representatives to,
continue to treat all information so obtained from TeleCorp as "Evaluation
Material" under the Letter Agreement entered into between TeleCorp and Tritel
dated as of February 24, 2000 ( the "Confidentiality Agreement"), and will
continue to honor its obligations thereunder and that, if requested by
TeleCorp, it will cause any of its Representatives so requested to enter into
a written agreement acknowledging the terms of the Confidentiality Agreement
and agreeing to be bound thereby.
(b) Tritel agrees that, during the Interim Period: (i) it
will give or cause to be given to TeleCorp and its Representatives such
access, during normal business hours and upon reasonable advance notice, to
the plants, properties, books and records of Tritel and its Subsidiaries as
Tritel may from time to time reasonably request; provided, however, that
Tritel shall have the right to have a representative present at all such
times, (ii) it will furnish or cause to be furnished to TeleCorp and its
Representatives such financial and operating data and other information as
TeleCorp may from time to time reasonably request, and (iii) it will provide
TeleCorp and its Representatives such access to the representatives, officers
and employees of Tritel and its Subsidiaries as TeleCorp may reasonably
request; provided, that all requests for information, to visit plants or
facilities or to interview employees shall be directed to the Chief Financial
Officer of Tritel or such other Person as he shall designate. TeleCorp agrees
that it will, and will cause its Representatives to, continue to treat all
information so obtained from Tritel as "Evaluation Material" under the
Confidentiality Agreement, and will continue to honor its obligations
thereunder and that, if requested by Tritel, it will cause any of its
Representatives so requested to enter into a written agreement acknowledging
the terms of the Confidentiality Agreement and agreeing to be bound thereby.
(c) Each of TeleCorp and Tritel agrees that, during the
Interim Period: (i) it will give or cause to be given to AT&T and its
Representatives such access, during normal business hours and upon reasonable
advance notice, to the plants, properties, books and records of it and its
Subsidiaries as AT&T may from time to time reasonably request; provided,
however, that TeleCorp or Tritel, as applicable, shall have the right to have
a representative present at all such times; (ii) it will furnish or cause to
be furnished to AT&T and its Representatives such financial and operating data
and other information as AT&T may from time to time reasonably request; and
(iii) it will provide AT&T and its Representatives such access to the
representatives, officers and employees of TeleCorp and Tritel and their
respective Subsidiaries as AT&T may reasonably request provided that all
requests for information to visit plants or facilities or to interview
employees shall be directed to the Chief Financial Officer of Tritel or
TeleCorp, as applicable, or to such other person as such Chief Financial
Officer shall designate. AT&T agrees that it will, and will cause its
Representatives to, continue to treat all information so obtained from Tritel
or TeleCorp, as applicable, as confidential under the confidentiality
provisions of its stockholders agreement with Tritel or TeleCorp, as
applicable, and after the Effective Time with the Holding Company, and will
continue to honor its obligations thereunder.
6.2 Conduct of Business Pending the Closing Date.
(a) TeleCorp agrees with Tritel that, except as permitted,
required or contemplated by this Agreement, as described on Schedule B hereto,
as described in reasonable detail on Schedule 6.2(a) or as otherwise consented
to in writing by Tritel (which consent shall not be unreasonably withheld or
delayed), during the Interim Period:
(i) it shall cause its business to be conducted only in the
Ordinary Course of Business provided, however, that no action by TeleCorp or
any of its Subsidiaries with respect to matters specifically addressed by any
other provision of this Section 6.2(a) shall be deemed a breach of this clause
(i) unless such action would constitute a breach of one or more of such other
provisions;
(ii) it will use all commercially reasonable efforts to
preserve substantially intact its business organization, to keep available the
services of its employees and to preserve the current relationships with its
customers, suppliers and other persons with which it has significant business
relations;
(iii) it shall not, and shall not permit any of its
Subsidiaries to:
(A) amend its Certificate of Incorporation or By-laws
or other equivalent organizational document
(B) merge or consolidate, or obligate itself to do so,
with or into any other entity;
(C) issue or sell any shares of its capital stock or
other equity interests in or securities convertible into
or exchangeable for such shares or equity interests, or
sell or transfer any assets, except for the exercise of
outstanding options or convertible securities, sales of
assets in the Ordinary Course of Business, other asset
sales for consideration aggregating not more than
$25,000,000 in the aggregate, the issuance of up to
1,000,000 shares of TeleCorp Class A Voting Common Stock
in acquisition transactions, and the granting of stock
options to purchase Shares of Class A TeleCorp Common
Stock to employees, and no more than 25% of such options
being granted to employees who are in a category of senior
vice president or higher, in an aggregate amount not to
exceed options to purchase more than 2 million shares of
Class A TeleCorp Common Stock, with an exercise price not
less than the average closing bid price of the TeleCorp
Common Stock for the five trading days prior to the date
hereof and with a 4 year vesting schedule (with 50%
vesting in equal installment over such 4 year period and
50% vesting at the end of such 4 year period);
(D) split, combine or reclassify any outstanding
shares of its capital stock;
(E) declare, set aside, make or pay any dividend
(other than dividends by Subsidiaries of TeleCorp to
wholly owned Subsidiaries of TeleCorp or to TeleCorp) or
other distribution, payable in stock, property or
otherwise, with respect to any of its capital stock except
in the Ordinary Course of Business or redeem, purchase or
otherwise acquire or offer to redeem, purchase or
otherwise acquire any shares of its capital stock except
the acquisition, redemption or repurchase of capital stock
pursuant to existing arrangements;
(F) establish or materially increase any bonus,
insurance, severance, deferred compensation, pension,
retirement, profit sharing, stock option (including,
without limitation, the granting of stock options, stock
appreciation rights, performance awards, or restricted
stock awards), stock purchase or other employee benefit
plan, or otherwise increase the compensation payable or to
become payable to any of its officers or key employees or
those of any Subsidiary, except in the Ordinary Course of
Business, as permitted under sub-clause (C) above or as
may be required to comply with applicable law or existing
contractual arrangements;
(G) enter into any employment or severance agreement
with any of its employees or establish, adopt or enter
into any collective bargaining agreement, except in the
Ordinary Course of Business or as may be required by
applicable law or existing contractual arrangements;
(H) acquire (including, without limitation, by merger,
consolidation or acquisition of stock or assets) any
corporation, partnership, limited liability company, other
business organization or any division thereof for
consideration in excess of $50,000,000 in the aggregate or
with capital stock other than in accordance with the
exception to sub-clause (C) above or enter into any joint
venture;
(I) assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of
any Person, or make any loans or advances, except in the
Ordinary Course of Business and except in connection with
transaction permitted by clause (M) below;
(J) make any capital expenditures that are not
provided for in the capital expenditure budget previously
provided to Tritel aggregating in excess of $25,000,000;
(K) make a purchase commitment inconsistent with past
practice or materially in excess of the normal, ordinary
and usual requirements;
(L) change accounting methods, principles or
practices, except insofar as may be required by a change
in GAAP;
(M) incur any indebtedness for borrowed money other
than (i) indebtedness incurred pursuant to credit
facilities in effect on the date hereof, (ii) additional
unsecured indebtedness in an aggregate amount not to
exceed $100,000,000, (iii) sale-leaseback transactions for
tower facilities and (iv) indebtedness assumed pursuant to
acquisition transactions permitted by clause (H) above, or
mortgage or pledge any of its property or assets relating
to its business or subject any such assets to any material
encumbrance other than (i) Permitted Encumbrances and (ii)
in connection with indebtedness permitted to be incurred
pursuant to this clause (M);
(N) sell, assign, transfer or license any TeleCorp
Intellectual Property Rights, except in the Ordinary
Course of Business;
(O) enter into, amend, terminate, take or omit to take
any action that would constitute a material violation of
or default under, or waive any material rights under, any
TeleCorp Material Contract;
(P) take any action or fail to take any reasonable
action permitted by this Agreement if such action or
failure to take action would result in (x) any of its
representations and warranties set forth in this Agreement
becoming untrue in any material respect or (y) any of the
conditions to the Closing set forth in Article VII of this
Agreement not being satisfied;
(Q) take any action or fail to take any action that
would prevent the Mergers and the Contribution from
constituting a tax-free transaction within the meaning of
Section 351 of the Code or that would cause either Merger
to fail to qualify as a tax-free reorganization under
Section 368(a) of the Code; or
(R) enter into or amend any contract, agreement,
commitment or arrangement with respect to any matter
otherwise prohibited by this Section 6.2(a).
(b) Tritel agrees with TeleCorp that, except as permitted,
required or contemplated by this Agreement, as described on Schedule B hereto,
as described in reasonable detail on Schedule 6.2(b) or as otherwise consented
to in writing by TeleCorp (which consent shall not be unreasonably withheld or
delayed), during the Interim Period:
(i) it shall cause its business to be conducted only in the
Ordinary Course of Business provided, however, that no action by
Tritel or any of its Subsidiaries with respect to matters
specifically addressed by any other provision of this Section 6.2(b)
shall be deemed a breach of this clause (i) unless such action would
constitute a breach of one or more such other provisions;
(ii) it will use all commercially reasonable efforts to
preserve substantially intact its business organization, to keep
available the services of its employees and to preserve the current
relationships with its customers, suppliers and other persons with
which it has significant business relations;
(iii) it shall not, and shall not permit any of its
Subsidiaries to:
(A) amend its Certificate of Incorporation or By-laws
or other equivalent organizational document
(B) merge or consolidate, or obligate itself to do so,
with or into any other entity;
(C) issue or sell any shares of its capital stock or
other equity interests in or securities convertible into
or exchangeable for such shares or equity interests; or
sell or transfer any Assets, except for the exercise of
outstanding options or convertible securities, sales of
assets in the Ordinary Course of Business, other asset
sales for consideration aggregating not more than
$25,00,000 in the aggregate, the issuance of up to
1,000,000 shares of Tritel Class A Voting Common Stock in
acquisition transactions and the granting of stock options
to purchase shares of Tritel Class A Common Stock to
employees, and no more than 25% of such options being
granted to employees who are in a category of senior vice
president or higher, in an aggregate amount not to exceed
options to purchase more than 2.6 million shares of Tritel
Class A Common Stock with an exercise price not less than
the average closing bid price of the Tritel Class A Common
Stock for the five trading days prior to the date hereof
and with a 4 year vesting schedule (with 50% vesting in
equal installments over such 4 year period and 50% vesting
at the end of such 4 year period); it being understood
that Tritel may amend the 1999 Tritel Stock Option Plan to
permit the grants described herein.
(D) split, combine or reclassify any outstanding
shares of its capital stock;
(E) declare, set aside, make or pay any dividend
(other than dividends by Subsidiaries of Tritel to wholly
owned Subsidiaries of Tritel or to Tritel) or other
distribution, payable in stock, property or otherwise,
with respect to any of its capital stock except in the
Ordinary Course of Business or redeem, purchase or
otherwise acquire any shares of its capital stock except
the acquisition, redemption or repurchase of capital stock
pursuant to existing arrangements;
(F) establish or materially increase any bonus,
insurance, severance, deferred compensation, pension,
retirement, profit sharing, stock option (including,
without limitation, the granting of stock options, stock
appreciation rights, performance awards, or restricted
stock awards), stock purchase or other employee benefit
plan, or otherwise increase the compensation payable or to
become payable to any of its officers or key employees or
those of any Subsidiary, except in the Ordinary Course of
Business, as permitted under sub-clauses (C) above and (G)
below or as may be required to comply with applicable law
or existing contractual arrangements; (notwithstanding the
foregoing, Tritel may amend its Restricted Stock
Agreements (a) to fully vest all recipients thereof on or
before December 31, 2002, and in the event (i) any
recipient of a grant thereunder is terminated without
cause, (ii) there is a diminution in the recipient's
current authority, responsibilities, duties, position or
title or (iii) the recipient is required to relocate more
than 50 miles from Tritel's current headquarters in
Jackson, Mississippi; (b) to remove the automatic
repurchase provisions relating to the change of control
that would be caused by the Mergers; (c) to amend the
provisions relating to the requirement to pay upon
exercise; (d) to provide for a payment to the recipient of
an amount necessary to offset the income and excise tax
effects of the amendments and the Merger with an aggregate
cost to Tritel under (i) this sub-clause (d), (ii) the
proviso immediately succeeding this sub-clause (d) (of the
nature described in this sub-clause (d)) and (iii)
paragraph (G) of this Section 6.2(b)(iii) (of the nature
described in this sub-clause (d)), not to exceed, in the
aggregate, $26,000,000; provided, however, that Tritel may
amend the employment agreement of Mr. William Arnett to
fully vest all restricted stock awards at the Effective
Time and make other changes similar to those to be made to
the Restricted Stock Agreement; and; provided, further,
however, Tritel may amend the Restricted Stock Agreement
of Karlen Turbeville to provide for immediate vesting of
all her restricted stock awards upon a significant change
in the scope of her job responsibilities (it being
understood that any requirement of significant travel
shall be deemed a significant change in scope of
responsibilities and that employment by Tritel II and not
the Holding Company shall not, per se, be a factor
constituting a significant change in scope of
responsibilities);
(G) enter into any employment or severance agreement
with any of its employees, other than the agreements dated
the date hereof with Messrs. Mounger and Martin and
attached as Exhibits J-1 and J-2 hereto, or establish,
adopt or enter into any collective bargaining agreement,
except in the Ordinary Course of Business or as may be
required by applicable law or existing contractual
arrangements;
(H) acquire (including, without limitation, by merger,
consolidation or acquisition of stock or assets) any
corporation, partnership, limited liability company, other
business organization or any division thereof for
consideration in excess of $50,000,000 in the aggregate or
with capital stock other than in accordance with the
exception to sub-clause (C) above or enter into any joint
venture;
(I) assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of
any Person, or make any loans or advances, except in the
Ordinary Course of Business and except in connection with
transactions permitted by clause (M) below;
(J) make any capital expenditures that are not
provided for in the capital expenditures budget previously
provided to Tritel aggregating in excess of $25,000,000;
(K) make a purchase commitment inconsistent with past
practice or materially in excess of the normal, ordinary
and usual requirements;
(L) change accounting methods, principles or
practices, except insofar as may be required by a change
in GAAP;
(M) incur any indebtedness for borrowed money other
than (i) indebtedness incurred pursuant to credit
facilities in effect on the date hereof, (ii) additional
unsecured indebtedness in an aggregate amount not to
exceed $100,000,000, (iii) sale-leaseback transactions for
tower facilities and (iv) indebtedness assumed pursuant to
acquisition transactions permitted by clause (H) above, or
mortgage or pledge any of its property or assets relating
to its business or subject any such assets to any material
encumbrance other than (i) Permitted Encumbrances and (ii)
in connection with indebtedness permitted to be incurred
pursuant this to clause (M);
(N) sell, assign, transfer or license any Tritel
Intellectual Property Rights, except in the Ordinary
Course of Business;
(O) enter into, amend, terminate, take or omit to take
any action that would constitute a material violation of
or default under, or waive any material rights under, any
Tritel Material Contract;
(P) take any action or fail to take any reasonable
action permitted by this Agreement if such action or
failure to take action would result in (x) any of its
representations and warranties set forth in this Agreement
becoming untrue in any material respect or (y) any of the
conditions to the Closing set forth in Article VII of this
Agreement not being satisfied;
(Q) take any action, or fail to take any action, that
would prevent the Mergers and the Contribution from
constituting a tax-free transaction within the meaning of
Section 351 of the Code or that would cause either Merger
to fail to qualify as a tax-free reorganization under
Section 368(a) of the Code; or
(R) enter into or amend any contract, agreement,
commitment or arrangement with respect to any matter
otherwise prohibited by this Section 6.2(b).
(c) The provisions of this Section 6.2 shall be without
prejudice to any approval, veto or similar rights AT&T may have with respect
to any of the actions or events specified above.
6.3 Registration Statement; Other Filings; Board
Recommendations.
(a) As promptly as practicable after the execution of this
Agreement, TeleCorp and Tritel will cooperate in preparing and will cause the
Holding Company to, and the Holding Company shall, file with the SEC the
Registration Statement, which shall include the Joint Proxy Statement. Each of
TeleCorp and Tritel will respond jointly and promptly to any comments of the
SEC, will use its respective reasonable best efforts to cause the Holding
Company to have the Registration Statement declared effective under the
Securities Act as promptly as practicable after such filing, and TeleCorp and
Tritel will cause the Joint Proxy Statement to be mailed to their respective
stockholders at the earliest practicable time after the Registration Statement
has been declared effective by the SEC. As promptly as practicable after the
date of this Agreement, each of TeleCorp and Tritel will prepare and file any
other documents required to be filed by it under the Exchange Act, the
Securities Act or any other Federal, state, foreign or Blue Sky or related
laws relating to the Mergers and the transactions contemplated by this
Agreement (the "Other Filings"). No amendment or supplement to the Joint Proxy
Statement or the Registration Statement will be made by TeleCorp, Tritel or
the Holding Company, in the case of the Joint Proxy Statement, without the
prior approval of each other party, or, in the case of the Registration
Statement, without the prior approval or TeleCorp and Tritel. Each of the
Holding Company, TeleCorp and Tritel will notify the other promptly upon the
receipt of any comments from the SEC or its staff or any other government
officials and of any request by the SEC or its staff or any other government
officials for amendments or supplements to the Registration Statement, the
Joint Proxy Statement or any Other Filing or for additional information and
will supply the other with copies of all correspondence between such party or
any of its representatives, on the one hand, and the SEC, or its staff or any
other government officials, on the other hand, with respect to the
Registration Statement, the Joint Proxy Statement, the Mergers or any Other
Filing. Each of the Holding Company, TeleCorp and Tritel will cause all
documents that it is responsible for filing with the SEC or other regulatory
authorities under this Section 6.3(a) to comply in all material respects with
all applicable requirements of law and the rules and regulations promulgated
thereunder. Whenever any event occurs that is required to be set forth in an
amendment or supplement to the Joint Proxy Statement, the Registration
Statement or any Other Filing, the Holding Company, TeleCorp, or Tritel, as
the case may be, will promptly inform the other of such occurrence and
cooperate in filing with the SEC or its staff or any other government
officials, and/or mailing to stockholders of TeleCorp or Tritel, such
amendment or supplement. Tritel and TeleCorp will cooperate with AT&T and
provide AT&T a reasonable opportunity to review and comment on any public
statements or filings made with any Governmental Authority; it being
understood that the consent of AT&T will not be required as a condition to any
such filings.
(b) The Joint Proxy Statement will include (x) the unanimous
recommendation of the TeleCorp Board of Directors in favor of the adoption and
approval of this Agreement and the First Merger (the "TeleCorp Proposals")
(except that, notwithstanding anything to the contrary contained in this
Agreement, the TeleCorp Board may withdraw, modify or refrain from making such
recommendation or recommend a Superior Proposal (as defined in Section 6.5 of
this Agreement) to the extent that the TeleCorp Board of Directors determines,
in good faith, after consultation with, and based upon the advice of, outside
legal counsel, that such action is necessary for the TeleCorp Board of
Directors to comply with its fiduciary duties to its stockholders under the
DGCL) and (y) the unanimous recommendation of the Tritel Board of Directors in
favor of the adoption and approval of this Agreement and the Second Merger
(the "Tritel Proposals") (except that, notwithstanding anything to the
contrary contained in this Agreement, the Tritel Board of Directors may
withdraw, modify or refrain from making such recommendation or recommend a
Superior Proposal to the extent that the Tritel Board of Directors determines,
in good faith, after consultation with, and based upon the advice of, outside
legal counsel, that such action is necessary for the Tritel Board of Directors
to comply with its fiduciary duties to its stockholders under the DGCL).
6.4 Meeting of Company Stockholders.
(a) TeleCorp shall promptly after the date hereof take all
action necessary in accordance with the DGCL and its Certificate of
Incorporation and By-laws to duly call, give notice of and hold the TeleCorp
Stockholders' Meeting as soon as practicable following the date hereof in
order to permit the consummation of the First Merger prior to the Outside Date
(as defined below), for the purpose of obtaining approval of the TeleCorp
Proposals. Once the TeleCorp Stockholders' Meeting has been called and
noticed, TeleCorp shall not postpone or adjourn (other than for the absence of
a quorum and then only to the next possible future date) the TeleCorp
Stockholders' Meeting. The Board of Directors of TeleCorp has declared that
this Agreement is advisable and, subject to Section 6.3(b), shall recommend
that this Agreement and the transactions contemplated hereby be approved and
authorized by the stockholders of TeleCorp and shall include in the
Registration Statement and Proxy Statement such recommendations. The Board of
Directors of TeleCorp shall submit this Agreement to the stockholders of
TeleCorp, whether or not the Board of Directors of TeleCorp at any time
changes, withdraws or modifies its recommendation. TeleCorp shall solicit from
stockholders of TeleCorp proxies in favor of the First Merger and shall take
all other action necessary or advisable to secure the vote or consent of
stockholders required by the DGCL and its Certificate of Incorporation to
authorize this Agreement and the First Merger, except to the extent the
TeleCorp Board of Directors determines in good faith, after consultation with
counsel, that doing so would cause the TeleCorp Board or Directors to breach
its fiduciary duties to its stockholders under the DGCL. Without limiting the
generality of the foregoing, (i) TeleCorp agrees that its obligation to duly
call, give notice of, convene and hold the TeleCorp Stockholders' Meeting as
required by this Section 6.4, shall not be affected by any withdrawal,
amendment or modification of the Board of Directors' recommendation of the
First Merger and this Agreement, and (ii) TeleCorp agrees that its obligations
under this Section 6.4 shall not be affected by the commencement, public
proposal, public disclosure or communication to TeleCorp of any Acquisition
Proposal.
(b) Tritel shall promptly after the date hereof take all
action necessary in accordance with the DGCL and its Certificate of
Incorporation and By-laws to duly call, give notice of and hold the Tritel
Stockholders' Meeting as soon as practicable following the date hereof in
order to permit the consummation of the Second Merger prior to the Outside
Date, for the purpose of obtaining approval of the Tritel Proposals. Once the
Tritel Stockholders' Meeting has been called and noticed, Tritel shall not
postpone or adjourn (other than for the absence of a quorum and then only to
the next possible future date) the Tritel Stockholders' Meeting. The Board of
Directors of Tritel has declared that this Agreement is advisable and, subject
to Section 6.3(b), shall recommend that this Agreement and the transactions
contemplated hereby be approved and authorized by the stockholders of Tritel
and shall include in the Registration Statement and Proxy Statement such
recommendations. The Board of Directors of Tritel shall submit this Agreement
to the stockholders of Tritel, whether or not the Board of Directors of Tritel
at any time changes, withdraws or modifies its recommendation. Tritel shall
solicit from stockholders of Tritel proxies in favor of the Second Merger and
shall take all other action necessary or advisable to secure the vote or
consent of stockholders required by the DGCL and its Certificate of
Incorporation to authorize this Agreement and the Second Merger, except to the
extent the Tritel Board of Directors determines in good faith, after
consultation with counsel, that doing so would cause the Tritel Board of
Directors to breach its fiduciary duties to its stockholders under the DGCL.
Without limiting the generality of the foregoing, (i) Tritel agrees that its
obligation to duly call, give notice of, convene and hold the Tritel
Stockholders' Meeting as required by this Section 6.4, shall not be affected
by any withdrawal, amendment or modification of the Board of Directors'
recommendation of the Second Merger and this Agreement, and (ii) Tritel agrees
that its obligations under this Section 6.4 shall not be affected by the
commencement, public proposal, public disclosure or communication to Tritel
any Acquisition Proposal.
6.5 Non-Solicitation.
(a) From and after the date of this Agreement until the
earlier of the Effective Time or the termination of this Agreement in
accordance with Article VIII, neither TeleCorp nor Tritel shall, nor shall
they permit any of their Subsidiaries to, nor shall they authorize or permit
any of their respective officers, directors or employees to, and shall use
their commercially reasonable efforts to cause any investment banker,
financial advisor, attorney, accountant, or other representatives retained by
them or any of their respective Subsidiaries not to, directly or indirectly,
through any other Person, (i) solicit, initiate or encourage (including by way
of furnishing information) any proposals that constitute, or could reasonably
be expected to result in, a proposal or offer for an Acquisition Proposal, or
(ii) engage in negotiations or discussions concerning, or provide any
non-public information regarding TeleCorp or Tritel, as applicable, to any
person or entity relating to, any Acquisition Proposal, or (iii) agree to,
approve or recommend to its stockholders any Acquisition Proposal; provided,
however, that nothing contained in this Agreement shall prevent TeleCorp or
its Board of Directors or Tritel or its Board of Directors, as the case may
be, from (A) furnishing non-public information to, or entering into
discussions with, any person or entity in connection with an unsolicited bona
fide written Acquisition Proposal by such person or entity (including a new
and unsolicited Acquisition Proposal received by TeleCorp or Tritel after the
execution of this Agreement from a person or entity whose initial contact with
TeleCorp or Tritel may have been solicited by TeleCorp or Tritel,
respectively, prior to the execution of this Agreement) if and only to the
extent that (1) the Board of Directors of TeleCorp or the Board of Directors
of Tritel, as the case may be, believes in good faith (after consultation with
its financial advisors) that such Acquisition Proposal would, if consummated,
result in a transaction more favorable to TeleCorp stockholders or Tritel
stockholders, respectively, from a financial point of view than the
transactions contemplated by this Agreement (any such more favorable
Acquisition Proposal being referred to in this Agreement as a "Superior
Proposal") and the Board of Directors of TeleCorp or the Board of Directors of
Tritel determines in good faith after consultation with its outside legal
counsel that such action could be reasonably deemed necessary for the Board of
Directors of TeleCorp or the Board of Directors of Tritel, as the case may be,
to comply with its fiduciary duties to its stockholders under applicable law
and (2) prior to furnishing such non-public information to, or entering into
discussions or negotiations with, such Person or entity, such Board of
Directors receives from such Person or entity an executed non-disclosure
agreement with terms no less favorable to such party than those contained in
the Confidentiality Agreement, (B) complying with Rules 14d-9 and 14e-2(a)
promulgated under the Exchange Act, with regard to an Acquisition Proposal or
(C) making any disclosure to its stockholders if, in the good faith judgment
of the Board of Directors of such party, after receipt of advice from outside
counsel, failure to disclose would result in a reasonable likelihood that such
Board of Directors would breach its duties to such party's stockholders under
applicable law. Each of TeleCorp and Tritel shall promptly notify the other
party and AT&T orally and in writing of any request for information or of any
proposal in connection with an Acquisition Proposal, the material terms and
conditions of such request or proposal and the identity of the person making
such request or proposal. Each of TeleCorp and Tritel will keep the other
party and AT&T reasonably informed of the status (including amendments or
proposed amendments) of such request or proposal on a current basis. Each of
TeleCorp and Tritel shall immediately cease and terminate any existing
solicitation, initiation, encouragement activity, discussion or negotiation
with any persons conducted heretofore by them or their representatives with
respect to the foregoing.
(b) Each of TeleCorp and Tritel (i) agrees not to release
any Third Party (as defined below) from, or waive any provision of, or fail to
enforce, any standstill agreement or similar agreement to which it is a party
related to, or which could affect, an Acquisition Proposal and (ii)
acknowledges that the provisions of clause (i) are an important and integral
part of this Agreement.
(c) For purposes of this Agreement, "Acquisition Proposal"
means a proposal or intended proposal, regarding any of (i) a transaction or
series of transactions pursuant to which any Person (or group of Persons)
other than any party hereto ("Party") and its Subsidiaries (a "Third Party")
acquires or would acquire, directly or indirectly, beneficial ownership (as
defined in Rule 13d-3 under the Exchange Act) of more than twenty percent
(20%) of the outstanding shares of TeleCorp or Tritel, as the case may be,
whether from TeleCorp or Tritel, as the case may be, or pursuant to a tender
offer or exchange offer or otherwise, (ii) any acquisition or proposed
acquisition of, or business combination with TeleCorp or Tritel, as
applicable, by a merger or other business combination (including any so-called
"merger-of-equals" and whether or not TeleCorp or Tritel, as the case may be,
is the entity surviving any such merger or business combination), or (iii) any
other transaction pursuant to which any Third Party acquires or would acquire,
directly or indirectly, control of assets (including for this purpose the
outstanding equity securities of Subsidiaries of TeleCorp or Tritel, as the
case may be, and any entity surviving the merger or business combination
including any of them) of TeleCorp or Tritel, as the case may be, for
consideration equal to twenty percent (20%) or more of the fair market value
of all of the outstanding shares of TeleCorp or twenty percent (20%) or more
of the fair market value of all of the outstanding shares of Tritel, as the
case may be, on the date of this Agreement.
6.6 Subsequent Financial Statements. Prior to the Effective
Time, each of TeleCorp or Tritel will timely file with the SEC, each Annual
Report on Form 10-K, Quarterly Report on Form 10-Q and Current Report on Form
8-K required to be filed by such Party under the Exchange Act and the rules
and regulations promulgated thereunder and will promptly deliver to the other
copies of each such report filed with the SEC. As of their respective dates,
none of such reports shall contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading. The respective audited financial statements and
unaudited interim financial statements of each of TeleCorp or Tritel, as the
case may be, included in such reports will fairly present the financial
position of such Party and its Subsidiaries as at the dates thereof and the
results of their operations and cash flows for the periods then ended in
accordance with GAAP applied on a consistent basis and, subject, in the case
of unaudited interim financial statements, to normal year-end adjustments and
any other adjustments described therein.
6.7 Nasdaq National Market Listing. TeleCorp and Tritel
agree to cooperate to have the shares of Class A Voting Common Stock issuable
in connection with the Mergers approved for quotation on the Nasdaq National
Market System subject only to official notice of issuance.
6.8 Comfort Letters. TeleCorp shall use its reasonable best
efforts to cause PricewaterhouseCoopers LLP, certified public accountants to
TeleCorp, to provide a letter reasonably acceptable to Tritel, relating to
their review of the financial statements relating to TeleCorp contained in or
incorporated by reference in the Registration Statement. Tritel shall use its
reasonable best efforts to cause KPMG Peat Marwick, certified public
accountants to Tritel, to provide a letter reasonably acceptable to TeleCorp,
relating to their review of the financial statements relating to Tritel
contained in or incorporated by reference in the Registration Statement.
6.9 Further Actions.
(a) Subject to the terms and conditions hereof, TeleCorp,
Tritel and AT&T agree to use all reasonable efforts to take, or cause to be
taken, all action and to do, or cause to be done, all things necessary, proper
or advisable to consummate and make effective the transactions contemplated by
this Agreement and the Related Agreements, including, without limitation,
using all reasonable best efforts: (i) to obtain prior to the Closing Date all
licenses, certificates, permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and any other Person,
including Persons who are parties to contracts with TeleCorp or any of its
Subsidiaries, Tritel or any of its Subsidiaries or AT&T or any of its
Subsidiaries as are necessary for the consummation of the transactions
contemplated hereby or thereby, including, without limitation, such consents
and approvals as may be required under the Communications Act, the HSR Act and
any similar Federal, state or foreign legislation; (ii) to effect all
necessary registrations and filings; and (iii) to furnish to each other such
information and assistance as reasonably may be requested in connection with
the foregoing. Each of TeleCorp, Tritel and AT&T shall cooperate fully with
each other to the extent reasonably required to obtain such consents.
Notwithstanding the foregoing or anything to the contrary in this Agreement,
(i) without the prior written consent of TeleCorp, Tritel will not incur
aggregate out-of-pocket costs (not including legal fees) in excess of the
amount specified in Schedule 6.9 to obtain third party consents and approvals
(other than governmental consents and approvals) to consummate the Mergers and
(ii) AT&T shall not be required to expend any significant moneys or make any
other concessions to third parties to obtain any consents or approvals
required under this Agreement and the Related Agreements.
(b) Tritel, TeleCorp and AT&T shall make all filings which
may be required by each of them in connection with the consummation of the
transactions contemplated hereby under the HSR Act and any similar Federal,
state or foreign legislation no later than March 31, 2000.
(c) TeleCorp, Tritel and AT&T shall each use their
reasonable best efforts to resolve any competitive issues relating to or
arising under the HSR Act or any other Federal, state or foreign antitrust or
fair trade law raised by any Governmental Entity in connection with the
transactions contemplated by this Agreement or the Related Agreements. If such
offers are not accepted by such Governmental entity, TeleCorp (with Tritel's
cooperation) shall pursue all litigation resulting from such issues. The
parties hereto will consult and cooperate with one another, and consider in
good faith the views of one another, in connection with any analyses,
appearances, presentations, memoranda, briefs, arguments, opinions and
proposals made or submitted by or on behalf or any party hereto in connection
with proceedings under or relating to the HSR Act or any other Federal, state
or foreign antitrust or fair trade law. In the event of a challenge to the
transaction contemplated by this Agreement pursuant to the HSR Act, the
parties hereto shall use their reasonable best efforts to defeat such
challenge, including by institution and defense of litigation, or to settle
such challenge on terms that permit the consummation of the Mergers and the
Contribution; provided, however, that nothing herein shall require either
party to agree to divest or hold separate any portion of its business or
otherwise take action that could reasonably be expected to impair the ability
of (i) the Holding Company, to own and operate the respective businesses of
TeleCorp and Tritel after the Closing or (ii) AT&T, to own the Shares after
the Closing, or (iii) TeleCorp, Tritel or AT&T, as the case may be, to own and
operate their respective business if the transactions contemplated hereby are
not consummated, in either case, in substantially the same manner as operated
immediately prior to the date hereof or impair the ability of the Holding
Company to own and operate the Contributed Property as contemplated by this
Agreement. Without limiting the foregoing, in the event that either the
Federal Trade Commission or the Antitrust Division of the United Department of
Justice should issue a Request for Additional Information or Documentary
Material under 17 C.F.R. ss.803.20 (a "Second Request"), then TeleCorp, Tritel
and, if applicable, AT&T each agree to use their reasonable best efforts to
respond fully to such Second Request within 20 days after its receipt and
shall promptly make any further filings or information submissions and use its
reasonable efforts to make any employee available for interview or testimony
pursuant to the foregoing (both before and after any Second Request) whose
interview or testimony may be necessary, proper or advisable.
6.10 Notification. Each party shall promptly notify the
other parties of:
(a) any notice or other communication from any Person
alleging that the consent of such Person is or may be required in connection
with the transactions contemplated by this Agreement or the Related
Agreements;
(b) any material notice or other communication from any
Governmental Entity in connection with the transactions contemplated by this
Agreement or the Related Agreements; and
(c) any action suit, claim, investigation or proceeding
commenced or, to its knowledge, threatened against or otherwise affecting such
notifying party, which relates to the consummation of the transactions
contemplated by this Agreement or the Related Agreements.
6.11 Notice of Breaches; Updates.
(a) TeleCorp shall promptly deliver to Tritel and AT&T
written notice of any event or development that would (i) render any
statement, representation or warranty of TeleCorp in this Agreement or the
Related Agreements (including the TeleCorp Disclosure Schedule) inaccurate or
incomplete in any material respect or (ii) constitute or result in a breach by
TeleCorp of, or a failure by TeleCorp or any Subsidiary of TeleCorp to comply
with, any agreement or covenant in this Agreement or the Related Agreements
applicable to it. No such disclosure shall be deemed to avoid or cure any such
misrepresentation or breach.
(b) Tritel shall promptly deliver to TeleCorp and AT&T
written notice of any event or development that would (i) render any
statement, representation or warranty of the Tritel in this Agreement or the
Related Agreements (including the Tritel Disclosure Schedule) inaccurate or
incomplete in any material respect or (ii) constitute or result in a breach by
the Tritel or a failure by Tritel or any Subsidiary of Tritel to comply with,
any agreement or covenant in this Agreement or the Related Agreements
applicable to it. No such disclosure shall be deemed to avoid or cure any such
misrepresentation or breach.
(c) AT&T shall promptly deliver to Tritel and TeleCorp
written notice of any event or development that would (i) render any
statement, representation or warranty of AT&T in this Agreement or the Related
Agreements inaccurate or incomplete in any material respect or (ii) constitute
or result in a breach by AT&T of, or a failure by AT&T or any Subsidiary to
comply with, any agreement or covenant in this Agreement or the Related
Agreements applicable to it. No such disclosure shall be deemed to avoid or
cure any such misrepresentation or breach.
6.12 No Inconsistent Action. Subject to the provisions of
Sections 6.4 or 6.5, neither TeleCorp, Tritel nor AT&T shall take any action
inconsistent with their obligations under this Agreement or any of the Related
Agreements or which could materially hinder or delay the consummation of the
transactions contemplated by this Agreement.
6.13 Commercially Reasonable Efforts. Each of TeleCorp and
Tritel shall use its commercially reasonable efforts to obtain the opinions
referred to in Section 7.1(g).
6.14 Affiliates. Each of TeleCorp and Tritel, as applicable
(i) has disclosed to the other on Schedule 6.14 hereof all persons who are, or
may be, as of the date hereof its "affiliates" for purposes of Rule 145 under
the Securities Act, and (ii) shall use all commercially reasonable efforts to
cause each person who is identified as its "affiliate" on Schedule 6.14 to
deliver to the Holding Company as promptly as practicable but in no event
later than the Closing Date, a signed agreement substantially in the form
attached hereto as Exhibit J. Each of TeleCorp and Tritel shall notify the
other from time to time of any other persons who then are, or may be, such an
"affiliate" and use all commercially reasonable efforts to cause each
additional person who is identified as an "affiliate" to execute a signed
agreement as set forth in this Section 6.14.
6.15 Blue Sky. TeleCorp, Tritel and the Holding Company will
use their commercially reasonable efforts to obtain prior to the Effective
Time all necessary state securities or "blue sky" Permits and approvals
required to permit the distribution of the shares of the Holding Company to be
issued in accordance with the provisions of this Agreement.
6.16 Tax-Free Exchange. Each of the Parties will use its
commercially reasonable efforts, and each agrees to cooperate with the other
Parties and provide one another with such documentation, information and
materials, as may be reasonably necessary, proper or advisable, to cause the
transactions to be effected pursuant to this Agreement to qualify for U.S.
Federal income tax purposes as a tax-free transaction or series of
transactions, reorganizations or contributions, as the case may be.
6.17 AT&T Actions.
(a) AT&T will use commercially reasonable efforts to obtain
all necessary corporate approvals for the Contribution.
(b) AT&T hereby waives all rights it may have to object to,
and otherwise consents to, the transactions expressly described in this
Agreement, including but not limited to any rights it has pursuant to Section
7.4 of the Stockholders Agreement by and among AT&T, TeleCorp and the
Management Stockholders and Cash Equity Investors described therein dated as
of July 17, 1998, as amended, (the "Waiver").
(c) AT&T will cooperate after a reasonable request by
TeleCorp in exercising any rights AT&T may have under the Airadigm Purchase
Agreement or the Indus Merger Agreement.
(d) From and after the Effective Time and/or the
Contribution, AT&T shall take all such further action as TeleCorp or the
Holding Company shall reasonably request to effectuate, or in furtherance of,
the provisions of this Agreement and the Related Agreements.
6.18 Transition Committee. Commencing on the date when the
condition contained in Section 7.1(h) is first satisfied, all consents sought
with regard to Sections 6.1 or 6.2 shall be submitted to a transition
committee (the "Transition Committee") comprised of Jerry Vento, Thomas H.
Sullivan, E.B. Martin, Jr., William H. Mounger, II, Andrew Hubregsen, Michael
H. Hannon and Scott Anderson for a recommendation as to the advisability of
such consent, which recommendation shall be presented, together with the
request for a consent pursuant to Section 6.1 or 6.2, to TeleCorp or Tritel,
as appropriate.
6.19 Employee Benefit Matters. Following the Effective Time,
the Holding Company shall provide to officers and employees of Tritel and its
Subsidiaries employee benefits under employee benefit plans on terms and
conditions which are substantially similar in the aggregate to those provided
by Tritel and its Subsidiaries to their officers and employees prior to the
Effective Time but in no event less favorable than those provided to similarly
situated officers and employees of TeleCorp prior to the Effective Time. With
respect to any benefits plans of the Holding Company or its Subsidiaries in
which the officers and employees of the Tritel and its Subsidiaries
participate after the Effective Time, the Holding Company shall: (i) waive any
limitations as to pre-existing conditions, exclusions and waiting periods with
respect to participation and coverage requirements applicable to such officers
and employees under any welfare benefit plan in which such employees may be
eligible to participate after the Effective Time (provided, however, that no
such waiver shall apply to a pre-existing condition of any such officer or
employee who was, as of the Effective Time, excluded from participation in a
Tritel benefit plan by nature of such pre-existing condition), (ii) provide
each such officer and employee with credit for any co-payments and deductibles
paid prior to the Effective Time during the year in which the Effective Time
occurs in satisfying any applicable deductible or out-of-pocket requirements
under any welfare benefit plan in which such employees may be eligible to
participate after the Effective Time, and (iii) recognize all service of such
officers and employees with Tritel and its Subsidiaries (and their respective
predecessors) for all purposes (including without limitation purposes of
eligibility to participate, vesting credit, entitlement for benefits, and
benefit accrual) in any benefit plan in which such employees may be eligible
to participate after the Effective Time, except to the extent such treatment
would result in duplicative accrual of benefits for the same period of
service.
6.20 Novation of Affiliation Agreements. Prior to but
effective as of the Effective Time, AT&T, the Holding Company and, as
appropriate, their respective Affiliates shall enter into (i) a Network
Membership License Agreement in the form of Exhibit K-1 hereto, (ii) an
Intercarrier Roamer Service Agreement in the form of Exhibit K-2 hereto and
(iii) a Roaming Administration Agreement in the form of Exhibit K-3 hereto.
6.21 Indemnity for Indus and Airadigm Liabilities. Each of
TeleCorp and the Holding Company agrees to indemnify AT&T and its Affiliates
and hold each of them harmless against any liabilities retained by or asserted
against any of them in respect of Indus or Airadigm or the agreements they
entered into in connection with securing the rights to acquire Indus or
Airadigm (and any costs or losses incurred in connection therewith).
ARTICLE VII
CLOSING CONDITIONS
7.1 Conditions to Obligations of TeleCorp and Tritel to
Effect the Mergers. The respective obligations of TeleCorp and Tritel to
effect the Mergers shall be subject to the satisfaction at or prior to the
Closing Date of each of the following conditions:
(a) Stockholder Approval of TeleCorp. The TeleCorp Proposals
shall each have been duly approved by the requisite vote under applicable law
and the rules of the National Association of Securities Dealers, Inc. by the
stockholders of TeleCorp.
(b) Stockholder Approval of Tritel. The Tritel Proposals
shall each have been duly approved by the requisite vote under applicable law
and the rules of the National Association of Securities Dealers, Inc. by the
stockholders of Tritel.
(c) TeleCorp Consents. TeleCorp shall have obtained the
consent or approval of any Person (other than a Governmental Authority) whose
consent or approval shall be required under any agreement or instrument in
order to permit the consummation of the transactions contemplated hereby
(other than the Contribution) except those which the failure to obtain would
not, individually or in the aggregate, have a Tritel Material Adverse Effect
or a TeleCorp Material Adverse Effect.
(d) Tritel Consents. Tritel shall have obtained the consent
or approval of any Person (other than a Governmental Authority) whose consent
or approval shall be required in order to permit the consummation of the
transactions contemplated hereby (other than the Contribution) except those
which the failure to obtain would not, individually or in the aggregate, have
a TeleCorp Material Adverse Effect or a Tritel Material Adverse Effect.
(e) Registration Statement Effective; Joint Proxy Statement.
The SEC shall have declared the Registration Statement effective prior to the
mailing of the Joint Proxy Statements by each of TeleCorp and Tritel to its
respective stockholders. No stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued and be in
effect and no proceeding for that purpose, and no similar proceeding in
respect of the Joint Proxy Statement, shall have been initiated or threatened
in writing by the SEC and not concluded or withdrawn.
(f) No Order. No Governmental Entity shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which has the effect of (i)
prohibiting consummation of the Mergers or (ii) creating a TeleCorp Material
Adverse Effect or a Tritel Material Adverse Effect.
(g) Tax Opinions. TeleCorp and Tritel shall each have
received substantially identical written opinions from their respective tax
counsel (Cadwalader, Wickersham & Taft and Brown & Wood LLP, respectively), in
form and substance reasonably acceptable to Tritel or TeleCorp, as the case
may be, to the effect that the First Merger and the Second Merger,
respectively, will constitute part of a tax-free transaction within the
meaning of Section 351 of the Code and that the First Merger and the Second
Merger, respectively, will each qualify as a tax-free reorganization under
Section 368(a) of the Code and such opinions shall not have been withdrawn.
Tritel, TeleCorp and AT&T agree to make reasonable and customary
representations substantially in the form of Exhibits I-1, I-2, I-3, I-4, and
I-5 respectively, and counsel shall be entitled to rely upon such
representations in rendering such opinions.
(h) HSR Act. Any waiting period applicable to the
consummation of the Mergers under the HSR Act shall have expired or been
terminated.
(i) Blue Sky. All state securities or "blue sky" Permits or
approvals required to carry out the transactions contemplated hereby shall
have been received.
(j) Affiliate Agreements. The Holding Company shall have
received the agreements required by Section 6.14 hereof to be delivered by
TeleCorp and Tritel "affiliates," duly executed by each "affiliate" of
TeleCorp or Tritel, as the case may be.
(k) Governmental Filings and Consents.
(i) All governmental filings (other than filings with the
FCC) required to be made prior to the Effective Time by TeleCorp,
Tritel and the Holding Company with, and all governmental consents
(other than consents of the FCC) required to be obtained prior to
the Effective Time by TeleCorp, Tritel, and the Holding Company from
governmental and regulatory authorities in connection with the
execution and delivery of this Agreement by TeleCorp and Tritel and
the consummation of the transactions contemplated hereby (other than
the Contribution) shall have been made or obtained, except where the
failure to make such filing or obtain such consent would not
reasonably be expected to result in a TeleCorp Material Adverse
Effect or Tritel Material Adverse Effect, as the case may be or a
material adverse effect on the Holding Company (assuming the First
Merger and Second Merger had taken place).
(ii) All required consents of the FCC to all matters
contemplated by the Mergers shall have been obtained pursuant to
Final Orders, free of any conditions materially adverse to TeleCorp
or Tritel, other than those applicable to the PCS or wireless
communications services industry generally. For the purposes of this
Agreement, "Final Order" means an action or decision that has been
granted by the FCC as to which (A) no request for a stay or similar
request is pending, no stay is in effect, the action or decision has
not been vacated, reversed, set aside, annulled or suspended and any
deadline for filing such request that may be designated by statute
or regulation has passed, (B) no petition for rehearing or
reconsideration or application for review is pending and the time
for the filing of any such petition or application has passed, (C)
the FCC does not have the action or decision under reconsideration
on its own motion and the time within which it may effect such
reconsideration has passed and (D) no appeal is pending, including
other administrative or judicial review, or in effect and any
deadline for filing any such appeal that may be designated by
statute or rule has passed.
(l) Nasdaq National Market Listing. The shares of Class A
Voting Stock issuable to stockholders of TeleCorp and Tritel pursuant to this
Agreement shall have been approved for quotation on the Nasdaq National Market
System, subject only to official notice of issuance.
7.2 Additional Conditions to Obligations of TeleCorp. The
obligation of TeleCorp to consummate and effect the First Merger shall be
subject to the satisfaction at or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing, exclusively by
TeleCorp:
(a) Representations and Warranties. The representations and
warranties of Tritel contained in this Agreement shall have been true,
complete and correct as of the date of this Agreement and as of the Closing
Date except (i) to the extent that the failure of such representations and
warranties (other than the representation in Sections 4.3, 4.4 and 4.6) to be
true, complete and correct in each case or in the aggregate does not
constitute a Tritel Material Adverse Effect, (ii) for changes contemplated by
this Agreement and (iii) for those representations and warranties which
address matters only as of the date of this Agreement or any other particular
date (which shall have been true, complete and correct as of such particular
date except to the extent that the failure of such representations and
warranties to have been true, complete and correct as of such particular date
does not constitute a Tritel Material Adverse Effect) (it being understood
that, for purposes of determining the accuracy of such representations and
warranties all "Tritel Material Adverse Effect" qualifications and other
qualifications based on the word "material" or similar phrases contained in
such representations and warranties shall be disregarded). TeleCorp shall have
received a certificate with respect to the foregoing signed on behalf of
Tritel by the Chief Executive Officer and the Chief Financial Officer of
Tritel.
(b) Agreements and Covenants. Tritel shall have performed or
complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by them on or prior to the
Closing Date, and TeleCorp shall have received a certificate to such effect
signed on behalf of Tritel by the Chief Executive Officer and the Chief
Financial Officer of Tritel.
(c) Completion of Second Merger. The Second Merger shall
have been or shall be simultaneously completed.
7.3 Additional Conditions to the Obligations of Tritel. The
obligations of Tritel to consummate and effect the Second Merger shall be
subject to the satisfaction at or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing, exclusively by
Tritel:
(a) Representations and Warranties. The representations and
warranties of TeleCorp contained in this Agreement shall have been true,
complete and correct as of the date of this Agreement and as of the Closing
Date except (i) to the extent that the failure of such representations and
warranties (other than the representations in Sections 3.3, 3.4 and 3.6) to be
true, complete and correct in each case or in the aggregate does not
constitute a TeleCorp Material Adverse Effect, (ii) for changes contemplated
by this Agreement and (iii) for those representations and warranties which
address matters only as of the date of this Agreement or any other particular
date (which shall have been true, complete and correct as of such particular
date except to the extent that the failure of such representations and
warranties to be true, complete and correct as of such particular date does
not constitute a TeleCorp Material Adverse Effect) (it being understood that,
for purposes of determining the accuracy of such representations and
warranties all "TeleCorp Material Adverse Effect" qualifications and other
qualifications based on the word "material" or similar phrases contained in
such representations and warranties shall be disregarded). Tritel shall have
received a certificate with respect to the foregoing signed on behalf of
TeleCorp by the Chief Executive Officer and the Chief Financial Officer of
TeleCorp.
(b) Agreements and Covenants. TeleCorp shall have performed
or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it at or prior
to the Closing Date, and Tritel shall have received a certificate to such
effect signed on behalf of TeleCorp by the Chief Executive Officer and the
Chief Financial Officer of TeleCorp.
(c) Completion of First Merger. The First Merger shall have
been or shall be simultaneously completed.
7.4 Conditions to Obligations of the Holding Company to
Issue the Shares. The obligation of the Holding Company to issue the Shares to
AT&T (or its Affiliates) shall be subject to the satisfaction at or prior to
the Closing Date of each of the following conditions, any of which may be
waived, in writing, exclusively by the Holding Company:
(a) Representations and Warranties. The representations and
warranties of AT&T contained in this Agreement shall have been true, complete
and correct in all material respects as of the date of this Agreement and as
of the Closing Date except (i) for changes contemplated by this Agreement and
(ii) for those representations and warranties which address matters only as of
a particular date (which shall have been true, complete and correct in all
material respects as of such particular date). The Holding Company shall have
received a certificate with respect to the foregoing signed on behalf of AT&T
by an appropriate officer of AT&T.
(b) Agreements and Covenants. AT&T shall have performed or
complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by it at or prior to the
Closing Date, and the Holding Company shall have received a certificate to
such effect signed on behalf of AT&T by an appropriate officer of AT&T.
(c) No Order. No Governmental Entity shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which has the effect of (i)
making the Contribution illegal or otherwise prohibiting consummation of the
Contribution or (ii) creating a AT&T Material Adverse Effect.
(d) Governmental Filings and Consents. All governmental
filings required to be made prior to the Effective Time by AT&T with, and all
governmental consents required to be obtained prior to the Effective Time by
AT&T from, governmental and regulatory authorities in connection with the
execution and delivery of this Agreement by AT&T and the consummation of the
Contribution shall have been made or obtained, except where the failure to
make such filing or obtain such consent would not reasonably be expected to
result in a AT&T Material Adverse Effect.
(e) HSR Act. Any waiting period applicable to the
consummation of the Contribution under the HSR Act shall have expired or been
terminated.
(f) The Airadigm Assignment. Subject to the provisions of
Section 1.14(b), the Airadigm Assignment shall have been executed and
delivered by AT&T to the Holding Company.
(g) The Indus Assignment. The Indus Merger Agreement and the
Indus Assignment and Assumption Agreement shall have been executed and
delivered in the respective forms attached hereto as Exhibits H and I and the
conditions to the consummation of the transactions contemplated thereby shall
have been satisfied.
(h) The License Extension Amendment. AT&T shall have duly
executed and delivered the License Extension Amendment to the Holding Company.
(i) Exchange Agreement. The transactions contemplated by the
Exchange Agreement dated as of the date hereof between AT&T, and certain of
its Affiliates, and TeleCorp, and certain of its Affiliates (the "Exchange
Agreement"), shall have been consummated.
7.5 Conditions to Obligations of AT&T to Effect the
Contribution. The obligations of AT&T to effect the Contribution and execute
the License Extension Amendment shall be subject to the satisfaction at or
prior to the Closing Date of each of the following conditions, any of which
may be waived, in writing, exclusively by AT&T:
(a) Representations and Warranties. The representations and
warranties of each of TeleCorp and Tritel contained in this Agreement shall
have been true, complete and correct as of the date of this Agreement and as
of the Closing Date except (i) to the extent that the failure of such
representations and warranties (other than the representations in Sections
3.3, 3.4 and 3.6) to be true, complete and correct in each case or in the
aggregate does not constitute a TeleCorp Material Adverse Effect or a Tritel
Material Adverse Effect, as appropriate, (ii) for changes contemplated by this
Agreement and (iii) for those representations and warranties which address
matters only as of a particular date (which shall have been true, complete and
correct as of such particular date except to the extent that the failure of
such representations and warranties to be true, complete and correct as of
such particular date does not constitute a TeleCorp Material Adverse Effect or
a Tritel Material Adverse Effect, as appropriate) (it being understood that,
for purposes of determining the accuracy of such representations and
warranties all "TeleCorp Material Adverse Effect" and "Tritel Material Adverse
Effect" qualifications and other qualifications based on the word "material"
or similar phrases contained in such representations and warranties shall be
disregarded). AT&T shall have received a certificate with respect to the
foregoing signed on behalf of TeleCorp by the Chief Executive Officer and the
Chief Financial Officer of TeleCorp and on behalf of Tritel by the Chief
Executive Officer and the Chief Financial Officer of Tritel.
(b) Agreements and Covenants. TeleCorp and Tritel shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by each
of them at or prior to the Closing Date, and AT&T shall have received a
certificate to such effect signed on behalf of TeleCorp by the Chief Executive
Officer and the Chief Financial Officer of TeleCorp and on behalf of Tritel by
the Chief Executive Officer and the Chief Financial Officer of TeleCorp.
(c) No Order. No Governmental Entity shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which has the effect of (i)
making the Contribution illegal or otherwise prohibiting consummation of the
Contribution, (ii) creating a TeleCorp Material Adverse Effect or a Tritel
Material Adverse Effect or (iii) which would reasonably be expected to have a
material adverse effect on AT&T.
(d) Governmental Filings and Consents. All governmental
filings required to be made prior to the Effective Time by TeleCorp, Tritel
and the Holding Company with, and all governmental consents required to be
obtained prior to the Effective Time by TeleCorp, Tritel, and the Holding
Company from, governmental and regulatory authorities in connection with the
Contribution shall have been made or obtained, except where the failure to
make such filing or obtain such consent would not reasonably be expected to
result in a TeleCorp Material Adverse Effect or Tritel Material Adverse
Effect, as the case may be or a material adverse effect on AT&T or the Holding
Company (assuming the First Merger and Second Merger had taken place), and the
waiting periods under the HSR Act for the consummation or the Contribution
shall have expired or been terminated.
(e) Completion of Mergers. The First Merger and the Second
Merger shall have been completed.
(f) Issuance of Shares. The Holding Company shall have
issued or shall simultaneously issue the Shares, to AT&T (or one of its
Affiliates).
(g) Exchange Agreement. The transactions contemplated by the
Exchange Agreement shall have been consummated.
ARTICLE VIII
TERMINATION
8.1 General. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Effective Time notwithstanding approval thereof by the stockholders of
TeleCorp and the stockholders of Tritel:
(a) by mutual written consent duly authorized by the Boards
of TeleCorp and Tritel;
(b) by TeleCorp or Tritel if the Closing shall not have
occurred on or before December 31, 2000 (the "Outside Date"); provided,
however, that if the Merger shall not have been consummated solely due to the
waiting period (or any extension thereof) or approvals under the HSR Act or
approvals or consent of the FCC not having expired or been terminated or
received, then such date shall be extended to March 31, 2001; and provided,
further, that the right to terminate this Agreement under this Section 8.1(b)
shall not be available to any party whose willful failure to fulfill any
material obligation under this Agreement has been the cause of, or resulted
in, the failure of the Closing to occur before such date;
(c) by TeleCorp, (A) if Tritel shall have breached or failed
to perform in any material respect any of its representations, warranties,
covenants or other agreements contained in this Agreement, which breach or
failure to perform (1) is incapable of being cured by Tritel prior to the
Outside Date, and (2) renders any condition under Sections 7.1 or 7.2
incapable of being satisfied prior to the Outside Date, or (B) if a condition
under Sections 7.1 or 7.2 to TeleCorp obligations hereunder is incapable of
being satisfied prior to the Outside Date;
(d) by Tritel, (A) if TeleCorp shall have breached or failed
to perform in any material respect any of its representations, warranties,
covenants or other agreements contained in this Agreement, which breach or
failure to perform (1) is incapable of being cured by TeleCorp prior to the
Outside Date, and (2) renders any condition under Sections 7.1 or 7.3
incapable of being satisfied prior to the Outside Date, or (B) if a condition
under Sections 7.1 or 7.3 to Tritel obligations hereunder is incapable of
being satisfied prior to the Outside Date;
(e) by TeleCorp or Tritel, upon written notice to the other
party, if a governmental authority of competent jurisdiction shall have issued
an injunction, order or decree enjoining or otherwise prohibiting the
consummation of the transactions contemplated by this Agreement (other than
just the Contribution), and such injunction, order or decree shall have become
final and non-appealable; provided, however, that the party seeking to
terminate this Agreement pursuant to this clause (v) has used reasonable best
efforts to remove such injunction, order or decree; or
(f) by either TeleCorp, Tritel or AT&T (with respect to the
Contribution only) if the TeleCorp Proposals or the Tritel Proposals shall
fail to have been approved as provided herein at the TeleCorp Stockholder
Meeting or the Tritel Stockholder Meeting, as applicable, including any
adjournments thereof.
8.2 Obligations in Event of Termination. In the event of any
termination of this Agreement as provided in Section 8.1, this Agreement shall
forthwith become wholly void and of no further force and effect and there
shall be no liability on the part of TeleCorp, Tritel or AT&T, except that the
obligations of the parties under the last sentence of Section 1.14(c), the
last sentences each of Sections 6.1(a), (b) and (c), Section 6.21 (but only if
an Early Indus Closing shall have occurred), Section 10.2 and this Section 8.2
shall remain in full force and effect, and except that termination shall not
preclude any party from suing the other party for breach of this Agreement.
8.3 Termination of Contribution. The provisions of this
Agreement relating to the Contribution may be terminated and the Contribution
may be abandoned at any time notwithstanding approval thereof by the
stockholders of TeleCorp and the stockholders of Tritel:
(a) by mutual written consent duly authorized by the Boards
of the Holding Company (or, before the Effective Time, TeleCorp) and AT&T;
(b) by either the Holding Company (or, before the Effective
Time, TeleCorp) or AT&T if the Closing shall have occurred but the
Contribution shall not have occurred on or before the Outside Date; provided,
however, that the right to terminate the Contribution under this Section
8.3(b) shall not be available to any party whose willful failure to fulfill
any material obligation under this Agreement has been the cause of, or
resulted in, the failure of the Contribution to occur before such date;
(c) by either the Holding Company (or, before the Effective
Time, TeleCorp) or AT&T, upon written notice to the other party, if a
Governmental Authority of competent jurisdiction shall have issued an
injunction, order or decree enjoining or otherwise prohibiting the
consummation of the Contribution, and such injunction, order or decree shall
have become final and non-appealable; provided, however, that the party
seeking to terminate this Agreement pursuant to this Section 8.3(c) has used
reasonable best efforts to remove such injunction, order or decree; or
(d) by TeleCorp or the Holding Company pursuant to Section
1.14(d)(ii).
8.4 Obligations in Event of Termination of Contribution. In
the event of any termination of the provisions of this Agreement relating to
the Contribution, as provided in Section 8.3, such provisions shall forthwith
become wholly void and of no further force and effect and there shall be no
liability in respect thereof on the part of the Holding Company, TeleCorp,
Tritel or AT&T, except that the obligations of the parties under the last
sentence of Section 1.14(c) shall remain in full force and effect, and except
that such termination shall not relieve any party from liability for breach of
this Agreement.
ARTICLE IX
NO SURVIVAL
9.1 No Survival of Representations and Warranties. All
representations and warranties in this Agreement of any Party or in any
instrument delivered pursuant to this Agreement (each as modified by the
appropriate Disclosure Schedule) shall terminate at the Effective Time.
ARTICLE X
MISCELLANEOUS
10.1 Public Announcements. Prior to the Closing Date, no
news release or other public announcement pertaining in any way to the
transactions contemplated by this Agreement will be made by either TeleCorp,
Tritel or AT&T without the prior consent of the other party, unless in the
opinion of counsel to such party such release or announcement is required by
applicable law or the requirements of the Nasdaq National Market.
10.2 Fees and Expenses. (a) Except as set forth in this
Section 10.2, all fees and expenses, including Taxes, incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such expenses whether or not the Mergers and the
Contribution are consummated; provided, however, that TeleCorp and Tritel
shall share equally all fees and expenses, other than attorneys' and
accountants' fees and expenses, incurred in relation to the printing and
filing (with the SEC) of the Joint Proxy Statement (including any preliminary
materials related thereto) and the Registration Statement (including financial
statements and exhibits) and any amendments or supplements thereto.
(b) The Holding Company shall file any return with respect
to any state or local transfer, stamp, sales or similar Taxes (including any
penalties or interest with respect thereto), if any, which are attributable to
(i) the transfer of the beneficial ownership of TeleCorp's or Tritel's real
property or (ii) the transfer of Tritel's Common or Preferred Stock or
TeleCorp's Common or Preferred Stock pursuant to this Agreement (collectively,
the "Transfer Taxes") as a result of the Mergers. Each of TeleCorp and Tritel
acknowledges that the amount of the Transfer Taxes payable with respect to any
shares of TeleCorp's Common or Preferred Stock or Tritel's Common or Preferred
Stock may be withheld by the Holding Company from the amount paid pursuant to
the Mergers with respect to such shares to the extent required by law.
TeleCorp, AT&T and Tritel shall cooperate with the Holding Company in the
filing of such returns, including supplying in a timely manner a complete list
of all real property interests held by TeleCorp or Tritel and any information
with respect to such property that is reasonably necessary to complete such
returns. The fair market value of any real property of TeleCorp or Tritel
subject to the Transfer Taxes shall be determined by the Holding Company in
its discretion.
10.3 Notices. All notices, requests, demands and other
communications which are required or may be given under this Agreement shall
be in writing and shall be deemed to have been duly given if delivered
personally, if telecopied or mailed, first class mail, postage prepaid, return
receipt requested, or by overnight courier as follows:
If to TeleCorp:
TeleCorp PCS, Inc.
1010 Glebe Road
Arlington, VA 22201
Attn: Thomas Sullivan
with a copy to:
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, MA 02111
Attention: John R. Pomerance
Fax: (617) 542-2241
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
Attention: Brian Hoffmann
Fax: (212) 504-6666
If to Tritel:
Tritel, Inc.
111 East Capital Street, Suite 500
Jackson, MS 39201
Attention: E.B. Martin
Fax: 601-914-8285
with a copy to:
Brown & Wood LLP
One World Trade Center
New York, NY 10048
Attention: Michael King
Fax: (212) 839-5599
If to AT&T:
AT&T Wireless Services, Inc.
7277 164th Avenue NE
Redmond, WA 98052
Attention: William H. Hague
Fax: (425) 580-8405
with a copy to:
AT&T Corp.
295 North Maple Avenue
Basking Ridge, NJ 07920
Attention: Marilyn J. Wasser
Fax: (908) 221-6618
with a copy to:
Wachtell Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Attention: Steven A. Rosenblum and Trevor S. Norwitz
Fax: (212) 403-2000
or to such other address as either party shall have specified by notice in
writing to the other party. All such notices, requests, demands and
communications shall be deemed to have been received on the date of personal
delivery or telecopy, on the third business day after the mailing thereof or
on the first day after delivery by overnight courier.
10.4 Certain Definitions. For purposes of this Agreement,
the term:
(a) "Affiliate" means a Person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first mentioned Person;
(b) "Court" means any court or arbitration tribunal of the
United States, any domestic state, or any foreign country, and any political
subdivision thereof.
(c) "Environmental Laws" means any Law pertaining to: (i)
the protection of the indoor or outdoor environment; (ii) the conservation,
management or use of natural resources and wildlife; (iii) the protection or
use of surface water and ground water; (iv) the management, manufacture,
possession, presence, use, generation, transportation, treatment, storage,
disposal, emission, discharge, release, threatened release, abatement,
removal, remediation or handling of, or exposure to, any Hazardous Material;
or (v) pollution of air, land, surface water and ground water; and includes,
without limitation, the Comprehensive Environmental, Response, Compensation,
and Liability Act of 1980, as amended, and the Regulations promulgated
thereunder and the Solid Waste Disposal Act, as amended, 42 U.S.C. ss.ss. 6901
et seq.
(d) "Foreign Competition Laws" means any foreign statutes,
rules, Regulations, Orders, administrative and judicial directives, and other
foreign Laws, that are designed or intended to prohibit, restrict or regulate
actions having the purpose or effect of monopolization, lessening of
competition or restraint of trade.
(e) "Governmental Authority" means any governmental,
legislature agency or authority (other than a Court) of the United States, any
domestic state, or any foreign country, and any political subdivision or
agency thereof, and includes any authority having governmental or
quasi-governmental powers, including any administrative agency or commission.
(f) "Hazardous Material" means any substance, chemical,
compound, product, solid, gas, liquid, waste, by-product, pollutant,
contaminant or material which is hazardous or toxic and is regulated under any
Environmental Law, and includes without limitation, asbestos or any substance
containing asbestos, polychlorinated biphenyls or petroleum (including crude
oil or any fraction thereof), or any substance defined or regulated as a
"hazardous material", "hazardous waste", "hazardous substance", "toxic
substance", or similar term under any Environmental Law or regulation
promulgated thereunder.
(g) "Law" means all laws, statutes, ordinances and
Regulations of any Governmental Authority including all decisions of Courts
having the effect of law in each such jurisdiction;
(h) "Lien" means any mortgage, pledge, security interest,
attachment, encumbrance, lien (statutory or otherwise), option, conditional
sale agreement, right of first refusal, first offer, termination,
participation or purchase or charge of any kind (including any agreement to
give any of the foregoing); provided, however, that the term "Lien" shall not
include (i) statutory liens for Taxes, which are not yet due and payable or
are being contested in good faith by appropriate proceedings, (ii) statutory
or common law liens to secure landlords, lessors or renters under leases or
rental agreements confined to the premises rented, (iii) deposits or pledges
made in connection with, or to secure payment of, workers' compensation,
unemployment insurance, old age pension or other social security programs
mandated under applicable Laws, (iv) statutory or common law liens in favor of
carriers, warehousemen, mechanics and materialmen, to secure claims for labor,
materials or supplies and other like liens, and (v) restrictions on transfer
of securities imposed by applicable state and federal securities Laws;
(i) "Litigation" means any suit, action, arbitration, cause
of action, claim, complaint, criminal prosecution, investigation, demand
letter, governmental or other administrative proceeding, whether at law or at
equity, before or by any Court or Governmental Authority, before any
arbitrator or other tribunal;
(j) "Parties" shall mean the signatories to this Agreement,
provided that such term shall not include AT&T except in the context of the
Contribution, it being understood that AT&T's only obligations under the
Agreeement relate to the Contribution and the waiver contained in Section
6.17(b).
(k) "Order" means any judgment, order, writ, injunction,
ruling or decree of, or any settlement under the jurisdiction of any Court or
Governmental Authority.
(l) "Person" means an individual, corporation, partnership,
association, trust, unincorporated organization, limited liability company,
other entity or group (as defined in Section 13(d)(3) of the Exchange Act);
(m) "Regulation" means any rule or regulation of any
Governmental Entity having the effect of Law; and
(n) "Subsidiary" or "Subsidiaries" of any corporation,
partnership, joint venture, limited liability company or other legal entity of
which such Person (either alone or through or together with any other
Subsidiary) owns, directly or indirectly, 50% or more of the stock or other
equity interests the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such corporation
or other legal entity.
10.5 Interpretation. When a reference is made in this
Agreement to Sections, subsections, Schedules or Exhibits, such reference
shall be to a Section, subsection, Schedule or Exhibit to this Agreement
unless otherwise indicated. The words "include," "includes" and "including"
when used herein shall be deemed in each case to be followed by the words
"without limitation." The word "herein" and similar references mean, except
where a specific Section or Article reference is expressly indicated, the
entire Agreement rather than any specific Section or Article.
10.6 Entire Agreement. This Agreement, the TeleCorp Voting
Agreement, the Tritel Voting Agreement, the Exchange Agreement, the
Stockholders Agreement, the Investors Stockholder Agreement, the License
Extension Amendment and the letter agreements executed by Tritel and TeleCorp
on the date hereof with Mr. William Mounger and Mr. E.B. Martin, including the
Exhibits and Schedules hereto, constitute the entire agreement between the
parties hereto and supersedes all prior agreements and understandings, oral
and written, between the parties hereto with respect to the subject matter
hereof.
10.7 Binding Effect; Benefit. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors and assigns. Except as otherwise provided in Section 2.4, nothing
in this Agreement, expressed or implied, is intended to confer on any Person
other than the parties hereto or their respective successors and assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
10.8 Assignability. This Agreement shall not be assignable
by TeleCorp without the prior written consent of Tritel and AT&T, by Tritel
without the prior written consent of TeleCorp and AT&T or by AT&T without the
prior written consent of TeleCorp and Tritel (except that AT&T may assign its
rights but not its obligations hereunder to an Affiliate of AT&T).
10.9 Amendment; Waiver. This Agreement may be amended,
supplemented or otherwise modified only by a written instrument executed by
the parties hereto. No waiver by either party of any of the provisions hereof
shall be effective unless explicitly set forth in writing and executed by the
party so waiving. Except as provided in the preceding sentence, no action
taken pursuant to this Agreement, including without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained herein, and in any documents
delivered or to be delivered pursuant to this Agreement and in connection with
the Closing hereunder. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of
any subsequent breach.
10.10 Section Headings; Table of Contents. The section
headings contained in this Agreement and the table of contents to this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
10.11 Severability. If any provision of this Agreement shall
be declared by any court of competent jurisdiction to be illegal, void or
unenforceable, all other provisions of this Agreement shall not be affected
and shall remain in full force and effect.
10.12 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original and
all of which together shall be deemed to be one and the same instrument.
10.13 GOVERNING LAW; JURISDICTION AND SERVICE OF PROCESS.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, THE DOMESTIC LAWS OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO ANY
CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF
DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE
LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE. EACH OF THE PARTIES
HERETO IRREVOCABLY AGREES THAT ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO
THIS AGREEMENT OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT
HEREOF BROUGHT BY ANY OTHER PARTY HERETO OR ITS SUCCESSORS OR ASSIGNS MAY BE
BROUGHT AND DETERMINED IN THE COURTS OF THE STATE OF DELAWARE, AND EACH OF THE
PARTIES HERETO HEREBY IRREVOCABLY SUBMITS WITH REGARD TO ANY SUCH ACTION OR
PROCEEDING FOR ITSELF AND IN RESPECT TO ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, TO THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS.
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO
ASSERT, BY WAY OF MOTION, AS A DEFENSE, COUNTERCLAIM OR OTHERWISE, IN ANY
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, ANY CLAIM (A) THAT IT IS
NOT PERSONALLY SUBJECT TO THE JURISDICTION OF THE ABOVE-NAMED COURTS FOR ANY
REASON, (B) THAT IT OR ITS PROPERTY IS EXEMPT OR IMMUNE FROM JURISDICTION OF
ANY SUCH COURT OR FROM ANY LEGAL PROCESS COMMENCED IN SUCH COURTS (WHETHER
THROUGH SERVICE OF JUDGMENT, EXECUTION OF JUDGMENT, OR OTHERWISE), OR (C) TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THAT (I) THE SUIT, ACTION OR
PROCEEDING IN SUCH COURT IS BROUGHT IN AN INCONVENIENT FORUM, (II) THE VENUE
OF SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER AND (III) THIS AGREEMENT, OR
THE SUBJECT MATTER HEREOF, MAY NOT BE ENFORCED IN OR BY SUCH COURTS.
[Intentionally Left Blank]
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date first above written.
TELECORP PCS, INC.
By: _____________________________
Name:________________________
Title:________________________
TRITEL, INC.
By: ___________________________
Name:______________________
Title:_____________________
AT&T WIRELESS SERVICES, INC.
By: __________________________
Name:_____________________
Title:_____________________
GLOSSARY OF TERMS
Defined Term Section
- ------------ -------
Airadigm Assignment...........................................1.14(a)
Airadigm Purchase Agreement...................................1.14
Affiliate.....................................................10.4(a)
Agreement.....................................................Preamble
License Extension Amendment...................................1.14
Acquisition Proposals.........................................6.5(c)
Average Closing Price.........................................1.11(c)
AT&T..........................................................Preamble
AT&T Excess Assets............................................1.14
Blue Sky Laws.................................................3.6(b)
Cash Contribution.............................................1.14(a)
Certificates .................................................1.12(c)
Certificates of Merger........................................1.2
Class A Voting Stock..........................................1.6(a)(i)
Class C Common Stock..........................................1.6(a)(iii)
Class D Common Stock..........................................1.6(a)(iv)
Class E Common Stock..........................................1.6(c)(iii)
Class F Common Stock..........................................1.6(c)(iv)
Closing Date..................................................1.15
Closing.......................................................1.15
COBRA Coverage................................................3.15(d)
Code..........................................................Recitals
Communications Act............................................3.6(b)
Confidentiality Agreement.....................................6.1(a)
Contributed Property..........................................1.14(a)
Contribution..................................................Recitals
Court.........................................................10.4(b)
DGCL..........................................................Recitals
Effective Time................................................1.2
Environmental Laws............................................10.4(c)
ERISA Affiliate...............................................3.15(a)
ERISA.........................................................3.15(a)
Evaluation Material...........................................6.1(a) and (b)
Excess Shares.................................................1.11
Exchange Act..................................................3.6(b)
Exchange Agent ...............................................1.12(a)
Exchange Agreement ...........................................1.14
Exchange Ratios ..............................................1.6(e)
Express Shares ...............................................1.11
FCC...........................................................3.6(b)
Final Order...................................................7.1(k)
First Merger..................................................Recitals
First Merger Sub..............................................Recitals
First Merger Sub Common Stock.................................1.9(a)
Foreign Competition Laws......................................10.4(d)
GAAP..........................................................3.9(b)
Governmental Authority........................................10.4(e)
Hazardous Material............................................10.4(f)
The Holding Company...........................................Recitals
Holding Company Capital Stock.................................1.6(f)
Holding Company Common Stock .................................1.6(f)
Holding Company Preferred Stock ..............................1.6(f)
HSR Act.......................................................3.6(b)
Indemnified Parties...........................................2.4(b)
Indirect Tritel Authorizations................................4.10(b)
Indirect TeleCorp Authorizations..............................3.10(b)
Indus Amendments..............................................1.14(c)
Indus Assignment and Assumption Agreement.....................1.14(a)
Indus Merger Agreement........................................1.14(a)
Indus Transaction Costs.......................................1.14(c)
Interim Period................................................6.1(a)
IRS...........................................................3.15(b)
Joint Proxy Statement.........................................3.17
Law...........................................................10.4(g)
Lehman Brothers...............................................3.25
Lien..........................................................10.4(h)
Litigation....................................................10.4(i)
Merger Subs...................................................Recitals
Mergers.......................................................Recitals
Most Recent Tritel Balance Sheet..............................4.20(b)
Most Recent TeleCorp Balance Sheet............................3.20(c)
Network Membership License Agreement..........................1.14(a)
Option Plans..................................................1.8
Order.........................................................10.4(j)
Ordinary Course of Business...................................3.12
Other Filings.................................................6.3(b)
Outside Date..................................................8.1(b)
Outstanding Employee Options..................................1.8
Outstanding Tritel Options ...................................4.3(b)
Party.........................................................6.5(c)
Permitted Encumbrances........................................3.19
Person........................................................10.4(k)
Plan of Reorganization........................................1.14(a)
Registration Statement........................................3.17
Regulation....................................................10.4(l)
Related Agreement.............................................3.4
Replacement Assets............................................1.14(d)
Representatives...............................................6.1(a)
SEC...........................................................3.7
Second Merger.................................................Recitals
Second Merger Sub.............................................Recitals
Second Merger Sub Common Stock................................1.9(b)
Second Request................................................5.9(c)
Securities Act................................................3.3(h)
Series A Preferred Stock......................................1.6(b)(i)
Series B Preferred Stock .....................................1.6(b)(ii)
Series C Preferred Stock......................................1.6(b)(iii)
Series D Preferred Stock......................................1.6(b)(iv)
Series E Preferred Stock......................................1.6(b)(v)
Series F Preferred Stock......................................1.6(b)(vi)
Series G Preferred Stock......................................1.6(d)
Shares........................................................Recitals
Special Vote..................................................3.5
Subsidiary or Subsidiaries....................................10.4(m)
Superior Proposal.............................................6.5(a)
Systems.......................................................3.27(a)
Tritel........................................................Preamble
Tritel 1999 Plan..............................................1.8(b)
Tritel Authorizations.........................................4.10(a)
Tritel Capital Stock..........................................1.6(d)
Tritel Common Stock...........................................1.6(c)
Tritel Directors Plan.........................................1.8(a)
Tritel Disclosure Schedule....................................4
Tritel Employee Plans.........................................4.15(a)
Tritel ERISA Affiliate........................................4.15(a)
Tritel Exchange Ratio.........................................1.6(e)
Tritel FCC Application........................................4.10(b)
Tritel II.....................................................1.1
Tritel Intellectual Property Rights...........................4.22(a)
Tritel Licenses and Applications..............................4.10(b)
Tritel Material Adverse Effect................................4
Tritel Material Contracts.....................................4.7
Tritel Merger Consideration...................................1.6(g)
Tritel Preferred stock........................................1.6(d)
Tritel Proposals..............................................6.3(b)
Tritel S-1....................................................4.9(a)
Tritel SEC Reports............................................4.9(a)
Tritel State Authorizations...................................4.10(b)
Tritel Stockholders Meeting...................................3.17
Tritel Third Party Intellectual Property Rights...............4.22(b)
Tritel Voting Agreement.......................................4.15(a)
Tax...........................................................3.20(a)
Taxes.........................................................3.20(a)
Tax Returns...................................................3.20(a)
TeleCorp......................................................Preamble
TeleCorp 1998 Plan............................................1.8(a)
TeleCorp 1999 Plan............................................1.8(a)
TeleCorp Authorizations ......................................3.10(a)
TeleCorp Capital Stock........................................1.6(b)
TeleCorp Common Stock.........................................1.6(a)
TeleCorp Disclosure Schedule..................................3
TeleCorp Employee Plans.......................................3.15(a)
TeleCorp ERISA Affiliate......................................3.15(a)
TeleCorp Exchange Ratio.......................................1.6(e)
TeleCorp FCC Applications.....................................3.10(b)
TeleCorp II...................................................1.1
TeleCorp Intellectual Property Rights.........................3.22(a)
TeleCorp Licenses and Applications............................3.10(b)
TeleCorp Material Adverse Effect .............................3
TeleCorp Material Contracts...................................3.7
TeleCorp Merger Considerations................................1.6(f)
TeleCorp Option Plan..........................................1.8(a)
TeleCorp Options..............................................3.3(b)(v)
TeleCorp Preferred Stock......................................1.6(b)
TeleCorp Proposals............................................6.3(b)
TeleCorp Restricted Stock Plan................................1.8(e)
TeleCorp S-1..................................................3.9(a)
TeleCorp SEC Reports..........................................3.9(a)
TeleCorp State Authorizations.................................3.10(b)
TeleCorp Stockholders Meeting.................................3.17
TeleCorp Third Party Intellectual Property Rights.............3.22(b)
TeleCorp Voting Agreement.....................................3.4
Third Party...................................................6.5(c)
Transfer Taxes................................................10.2(b)
Transition Committee..........................................6.18
Voting Preference Stock.......................................1.6(a)(v)
Waiver........................................................6.17(b)
WARN Act......................................................3.16
SCHEDULE A
Board of Directors and Officers
TELECORP II:
Officers:
NAME POSITION
Gerald T. Vento Chief Executive Officer
Thomas H. Sullivan President, Treasurer and Secretary
Julie A. Dobson Chief Operating Officer
Board of Directors:
NAME POSITION
Thomas H. Sullivan Director
Gerald T. Vento Director
TRITEL II:
Officers:
NAME POSITION
Gerald T. Vento Chief Executive Officer
Thomas H. Sullivan President, Treasurer and Secretary
William Arnett Chief Operating Officer
Board of Directors:
NAME POSITION
Thomas H. Sullivan Director
Gerald T. Vento Director
HOLDING COMPANY:
Officers:
NAME POSITION
Gerald T. Vento Chief Executive Officer
Thomas H. Sullivan Chief Financial Officer
William M. Mounger Chairman of the Board of Directors
E.B. Martin Vice-Chairman of the Board of Directors
Board of Directors:
CLASS NAME POSITION
Class of 2001 Gerald T. Vento Director
Thomas H. Sullivan Director
William M. Mounger* Director
E.B. Martin* Director
Class 2002 Alex P. Coleman Director
Michael R. Hannon Director
Michael Schwartz Director
Mary Hawkins-Key Director
Scott Anderson Director
Class of 2003 James M. Hoak Director
David A. Jones, Jr. Director
Andrew Hubregsen Director
[Designee of Majority of Voting Director
Preferred and Reasonably
Satisfactory to AT&T]
Rohit M. Desai Director
* Mr. Mounger and Mr. Martin hold two seats, but are entitled to one vote.
SCHEDULE B
Certain Actions Pending the Closing Date
1. Notwithstanding anything to the contrary in the
Agreement, TeleCorp may enter into and consummate (with only immaterial
changes therein) the transactions contemplated by the Swap Agreement with AT&T
(or its Affiliates) pursuant to which TeleCorp is exchanging certain assets
for assets controlled by AT&T (or its Affiliates).
2. Notwithstanding anything to the contrary in the
Agreement, in the event that between the date hereof and Closing Date, either
Party wishes to participate in any Federal Communications Commission auctions
of licenses to radio spectrum for use in providing wireless communications
services or wishes to enter into any transactions with AT&T Wireless PCS, LLC
for the acquisition and/or disposition of any such licenses with a transaction
value not to exceed $500,000,000, such Party shall have the authority to take
such actions if approved by a majority of the Transition Committee.
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Tritel, Inc.:
We consent to incorporation by reference in the registration statements (No.
333-92739 and No. 333-92727) on Forms S-8 of Tritel, Inc. of our report dated
February 18, 2000, relating to the consolidated balance sheets of Tritel, Inc.
and subsidiaries as of December 31, 1999, and 1998, and the related
consolidated statements of operations, members' and stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1999, which report appears in the December 31, 1999, annual report on Form
10-K of Tritel, Inc.
/s/ KPMG LLP
Jackson, Mississippi
March 29, 2000
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