<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER , 1996
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
OMNIPOINT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
2000 NORTH 14TH STREET, SUITE 550 ARLINGTON, VA 22201 (703) 522-7778
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
DELAWARE 4812 04-2969720
(PRIMARY STANDARD (IRS EMPLOYER
(STATE OR OTHER INDUSTRIAL IDENTIFICATION NO.)
JURISDICTION OF CLASSIFICATION CODE
INCORPORATION OR NUMBER)
ORGANIZATION)
----------------
DOUGLAS G. SMITH OMNIPOINT CORPORATION 2000 NORTH 14TH STREET, SUITE 550
ARLINGTON, VA 22201 (703) 522-7778
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE
OF AGENT FOR SERVICE)
----------------
COPIES TO:
EDWIN M. MARTIN, JR., ESQUIRE JAY GARY FINKELSTEIN, ESQUIRE PIPER & MARBURY
L.L.P. 1200 19TH STREET, N.W. WASHINGTON, D.C. 20036 (202) 861-3900
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the Registration Statement becomes
effective.
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF TO BE PER NOTE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE(1) OFFERING PRICE REGISTRATION FEE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11 5/8% Senior Notes due
2006.................. 250,000 $1,000 $250,000,000 $86,200
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</TABLE>
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(1) The Proposed Maximum Offering Price Per Note is based on the actual
Offering Price Per Note of $1,000.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO CHANGE, COMPLETION OR AMENDMENT +
+WITHOUT NOTICE. THIS OFFERING MEMORANDUM SHALL NOT CONSTITUTE AN OFFER TO +
+SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF +
+THESE SECURITIES IN ANY JURISDICTION IN WHICH SUCHOFFER, SOLICITATION OR SALE +
+WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES +
+LAWS OF ANY SUCH JURISDICTION. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, OCTOBER , 1996
[LOGO OF OMNIPOINT CORPORATION APPEARS HERE]
OFFER TO EXCHANGE ITS 11 5/8% SENIOR NOTES DUE 2006,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OF ITS OUTSTANDING 11 5/8% SENIOR NOTES DUE 2006
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., EASTERN STANDARD TIME, ON ,
1996, UNLESS EXTENDED.
Omnipoint Corporation (the "Company" or "Omnipoint") hereby offers, upon the
terms and subject to the conditions set forth in this Prospectus and the
accompanying letter of transmittal (the "Letter of Transmittal" and, together
with this Prospectus, the "Exchange Offer"), to exchange its 11 5/8% Senior
Notes due 2006 (the "New Notes") which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which this Prospectus is a part, for an equal
principal amount of its outstanding 11 5/8% Senior Notes due 2006 (the "Old
Notes"), of which $250,000,000 aggregate principal amount are outstanding as of
the date hereof. The New Notes and the Old Notes are collectively referred to
herein as the "Notes."
The Company will accept for exchange any and all Old Notes that are validly
tendered and not withdrawn on or prior to 5:00 p.m., Eastern Standard Time, on
the date the Exchange Offer expires (the "Expiration Date"), which will be
, 1996 (20 business days following the commencement of the Exchange Offer),
unless the Exchange Offer is extended. Tenders of Old Notes may be withdrawn at
any time prior to 5:00 p.m., Eastern Standard Time, on the Expiration Date. The
Exchange Offer is not conditioned upon any minimum principal amount of Old
Notes being tendered for exchange. The Old Notes may be tendered only in
integral multiples of $1,000. See "The Exchange Offer."
The New Notes will be obligations of the Company evidencing the same
indebtedness as the Old Notes and will be entitled to the benefits of the same
Indenture (as defined), which governs both the Old Notes and the New Notes. The
form and terms of the New Notes are generally the same as the form and terms of
the Old Notes, except that the New Notes have been registered under the
Securities Act and therefore will not bear legends restricting the transfer
thereof. See "Description of the New Notes."
Interest on the New Notes will be payable semi-annually on February 15 and
August 15 of each year, commencing February 15, 1997. The New Notes will mature
on August 15, 2006 and except as set forth below, the New Notes will not be
redeemable at the option of the Company prior to August 15, 2001. On or after
August 15, 2001, the Company may redeem the New Notes, in whole or in part, at
the redemption prices set forth herein, plus accrued and unpaid interest and
Liquidated Damages (as defined), if any, to the date of redemption. In
addition, at any time prior to August 15, 1999, the Company may redeem up to
one-third of the Notes originally outstanding at a redemption price of 111.625%
of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of redemption, with the net proceeds of
one or more Public Equity Offerings or sales of certain capital stock of the
Company to one or more Strategic Equity Investors (each as defined); provided
that after any such redemption at least two-thirds of the aggregate principal
amount of the Notes originally outstanding remains outstanding.
(continued on next page)
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS OF
OLD NOTES WHO TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER, SEE "RISK FACTORS"
BEGINNING ON PAGE 10 OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS OCTOBER , 1996.
<PAGE>
Upon the occurrence of a Change of Control (as defined), the Company will be
required to offer to repurchase the outstanding New Notes at a price equal to
101% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of purchase.
The New Notes will be senior unsecured obligations of the Company ranking
pari passu in right of payment with all existing and future senior
indebtedness of the Company and will rank senior to all existing and future
subordinated indebtedness of the Company. Since the Company conducts a
substantial amount of its business through subsidiaries, the New Notes will be
effectively subordinated to all existing and future indebtedness and other
liabilities and commitments of the Company's subsidiaries. As of June 30,
1996, the Company has approximately $699.6 million of consolidated
indebtedness on a pro forma basis after giving effect to the private placement
of the Old Notes, and the Company's subsidiaries have approximately $432.6
million of aggregate indebtedness (including trade payables) to which the New
Notes would be effectively subordinated. The indenture pursuant to which the
New Notes are to be issued (the "Indenture") permits the Company and its
subsidiaries to incur additional indebtedness, including senior and secured
indebtedness, subject to certain limitations. See "Description of the New
Notes."
Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission"), as set forth in no-action letters issued to
third parties, the Company believes that the New Notes issued pursuant to the
Exchange Offer may be offered for resale, resold or otherwise transferred by
holders thereof (other than any holder that is an "affiliate" of the Company
as defined under Rule 405 of the Securities Act), provided that such New Notes
are acquired in the ordinary course of such holders' business and such holders
are not engaged in, and do not intend to engage in, a distribution of such New
Notes and have no arrangement with any person to participate in the
distribution of such New Notes. However, the staff of the Commission has not
considered the Exchange Offer in the context of a no-action letter and there
can be no assurance that the staff of the Commission would make a similar
determination with respect to the Exchange Offer as in such other
circumstances. By tendering the Old Notes in exchange for the New Notes, each
holder, other than a broker-dealer, will represent to the Company that (i) it
is not an affiliate of the Company (as defined under Rule 405 of the
Securities Act); (ii) any New Notes to be received by it were acquired in its
ordinary business; and (iii) it is not engaged in, and does not intend to
engage in, a distribution of such New Notes and has no arrangement or
understanding to participate in a distribution of the New Notes. Each broker-
dealer that receives New Notes for its own account pursuant to the Exchange
Offer must acknowledge that it will deliver a prospectus in connection with
any resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of New
Notes received in exchange for Old Notes where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, starting on the Expiration Date and
ending on the close of business one year after the Expiration Date, it will
make this Prospectus available to any broker-dealer for use in connection with
any such resale. See "Plan of Distribution."
Prior to this Exchange Offer, there has been no public market for the Old
Notes or New Notes. If such a market were to develop, the New Notes could
trade at prices that may be higher or lower than their principal amount. The
Company does not intend to apply for listing or quotation of the New Notes on
any securities exchange or stock market. Therefore, there can be no assurance
as to the liquidity of any trading market for the New Notes or that an active
public market for the New Notes will develop. See "Risk Factors--Lack of
Public Market."
Donaldson, Lufkin & Jenrette Securities Corporation and Goldman, Sachs & Co.
(the "Initial Purchasers") have agreed that one or more of them will act as
market-makers for the New Notes. However, the Initial Purchasers are not
obligated to so act and they may discontinue any such market-making at any
time without notice. The Company will not receive any proceeds from this
Exchange Offer. The Company has agreed to pay the expenses of the Exchange
Offer. No underwriter is being used in connection with this Exchange Offer.
ii
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Prospectus. As used herein, unless otherwise indicated, the
terms "Company" and "Omnipoint" refer to Omnipoint Corporation and its
subsidiaries, and "OCI" refers to Omnipoint Communications Inc. The term
population equivalents ("POPs") means the Paul Kagan Associates 1995 PCS Atlas
& Databook estimate of the 1995 population of a particular Major Trading Area
("MTA") or Basic Trading Area ("BTA") or the total U.S. Certain other terms
used in this Prospectus are defined in the "Glossary of Terms."
THE COMPANY
Omnipoint is a leader in commercializing personal communications services
("PCS"). Omnipoint intends to provide wireless communications services in areas
covering approximately 40.3 million POPs, of which 97.1% are located in a
contiguous area in the northeast region of the U.S. Omnipoint is currently the
fifth largest PCS licensee in the U.S., based on POPs. The Company holds a
license for the New York MTA, the largest MTA in the U.S., with approximately
27.0 million POPs, and Entrepreneurs' Band C Block PCS licenses for 18 BTAs
with approximately 13.4 million POPs, including the Philadelphia, Atlantic
City, Buffalo and Rochester BTAs. The Company will pay an average of $21.24 per
POP over periods of five and 10 years for its 40.3 million POPs. In addition,
the Company is participating in the auctions of D, E and F Block PCS licenses,
each consisting of 10 MHz of spectrum (the "D, E and F Block"). The Company
also develops technology and equipment for PCS. The Company's proprietary
technology is suitable for a variety of digital wireless applications including
mobile network systems and wireless local loop ("WLL"). Omnipoint's technology
will be integrated with wireless Global System for Mobile Communications
("GSM") networks and local telephone switching platforms.
Omnipoint has spent several years developing and refining its core technology
based on spread spectrum since the Company's incorporation in 1987. From
inception to 1992, the Company developed several working prototypes for various
wireless voice, data and digitized compressed video transmission projects. The
Company's success in developing its technology for the first digital PCS system
at 1.9 GHz during 1991 and 1992 was instrumental in the Federal Communications
Commission ("FCC") awarding the Company one of three Pioneer's Preferences in
1993. As a result of the Pioneer's Preference, the FCC issued to the Company in
December 1994 a 30 MHz license to provide PCS services for the New York MTA
(the "New York MTA License"). See "Business--Regulatory Environment--Pioneer's
Preference Program."
Omnipoint's strategy for its service business is to become a leading provider
of wireless services in its markets. The Company believes that it will be the
first to offer commercial PCS service in the New York City area beginning in
the fourth quarter of 1996. The Company will continue to build out the New York
MTA network and plans to build and operate PCS networks in the areas covered by
its BTA licenses, focusing initially on the most densely populated portions of
these areas and on major commuting corridors. The Company believes that
existing cellular systems in the most densely populated areas, particularly
within the New York City metropolitan area, provide inadequate capacity and
that the anticipated growth in wireless demand will add to this problem,
particularly during peak service hours. The Company intends to use a
combination of Omnipoint's proprietary technology system (the "Omnipoint
System") and GSM to provide superior wireless services to its customers. The
Company plans to offer a variety of services to its customers, including voice
and data transmission, call forwarding, call waiting and paging capability. See
"Business--Service Business--Marketing Strategy."
The Company will pay $347.5 million for the New York MTA License. The Company
is required to pay only interest on the total amount due until March 8, 1998,
and to pay the principal balance and remaining interest
1
<PAGE>
during the period March 1998 to March 2001. In the recently completed auction
by the FCC of the C Block PCS licenses for BTAs, consisting of 30 MHz of
spectrum (the "Entrepreneurs' Band"), the Company bid successfully for licenses
for 18 BTAs with approximately 13.4 million POPs. On September 17, 1996, the
FCC granted the Company's 18 Entrepreneurs' Band C Block PCS licenses. The
Company has made a 10% down payment, or approximately $51.0 million, to the FCC
for these licenses, will pay interest only until 2003 and will pay the
principal balance of approximately $458.2 million and remaining interest over
the period 2003 to 2006. See "Business--Regulatory Environment."
Omnipoint's strategy for its technology development and equipment business is
to establish the Omnipoint System as a leading PCS standard. The Joint
Technical Committee on Wireless Access has designated the Omnipoint System as
IS-661. The Omnipoint System is one of four competing common air interface
("CAI") standards that have been selected by PCS license holders in the U.S. to
serve the mobile PCS market. The Omnipoint System is designed to provide
enhanced voice quality, higher speed data transmission rates and increased
capacity and service reliability relative to analog systems and other digital
wireless systems. Additionally, the Omnipoint System is designed to have lower
infrastructure costs than traditional cellular and other PCS systems. See
"Business--Technology Business--Omnipoint System Advantages."
The Omnipoint System is also particularly well suited for fixed WLL
applications. Initially, the Company plans to focus its domestic WLL activities
on providing wireless competitive access provider ("CAP") services in the New
York MTA and other targeted cities to businesses in small- and medium-sized
locations, whose capacity requirements do not justify the expense of
alternative bypass technologies, such as leased line, fiber or microwave
technologies. In addition, the Company intends to access international markets
through sales of equipment (i) to service providers for WLL applications as an
alternative to expanding fixed wireline services in countries where telephone
services have not been well developed, and (ii) as an upgrade to GSM networks
in the 98 countries where GSM has been deployed or selected for deployment.
The Company has established strategic relationships with Northern Telecom
Inc. ("Northern Telecom"), Ericsson Inc. ("Ericsson") and Hansol Paper Co.,
Ltd. and its telecom affiliates ("Hansol"). A substantial portion of
Omnipoint's equipment purchases for the buildout of the New York MTA network is
being financed by Northern Telecom under a $382.5 million vendor financing
facility (the "NT Credit Facility") and by Ericsson under a $132.0 million
vendor financing facility (the "Ericsson Credit Facility"). Northern Telecom
and Omnipoint are integrating the Omnipoint System with Northern Telecom's GSM
digital switch, with the first integrated system to be deployed in the New York
MTA. The Company and Ericsson have agreements involving (i) the purchase and
sale of Ericsson-manufactured infrastructure equipment and handsets for the
Company's PCS networks, and (ii) a licensing and acquisition arrangement
relating to the Omnipoint System. The Company and Orbitel Mobile Communications
Limited ("Orbitel"), a wholly-owned subsidiary of Ericsson, have entered into a
non-binding memorandum of understanding involving Orbitel's development and
manufacture of single mode IS-661 and dual mode IS-661/PCS 1900 handsets. The
Company has entered into a strategic alliance with Hansol under which it
licensed Hansol to manufacture handsets. The two companies also agreed to
cooperate on promoting the Omnipoint System in the Republic of Korea and other
parts of Asia. In addition, each of Pacific Bell Mobile Services, Inc.
("PacBell"), BellSouth Personal Communications, Inc. ("BellSouth"), Western
Wireless Corporation ("Western Wireless"), InterCel, Inc. ("InterCel"),
American Personal Communications, Inc. ("APC") and American Portable Telecom,
Inc. ("APT") has signed a separate non-binding memorandum of understanding with
the Company to provide subscribers with roaming capabilities and to conduct
trials using Omnipoint's equipment in the areas where each has PCS licenses.
These arrangements will together cover approximately 150 million POPs, or 57%
of the U.S. population. The Company expects that roaming will be expanded to
areas covering approximately 200 million POPs, or approximately 76% of the U.S.
population, based on the results of the Entrepreneurs' C Band auction and the
announced intentions of those successful bidders therein who have chosen to use
GSM-based systems. Currently, in the D, E and F Block auction, which is in its
third and final stage, the bidders that have declared their intentions to
deploy GSM-based networks are the high bidders on licenses which may bring GSM
coverage to over 90% of the U.S. population. The Company is in discussions with
other equipment vendors and service providers regarding additional strategic
relationships.
2
<PAGE>
THE EXCHANGE OFFER
Registration Agreement............ The Old Notes were sold by the Company on
August 27, 1996 (the "Issue Date"), to Don-
aldson, Lufkin & Jenrette Securities Corpo-
ration and Goldman, Sachs & Co. (the "Ini-
tial Purchasers"), which placed the Old
Notes with institutional investors (the
"Private Placement"). In connection there-
with, the Company executed and delivered
for the benefit of the holders of the Old
Notes the Registration Rights Agreement (as
defined) obligating the Company to file
with the Commission within 45 days after
the date of issuance of the Old Notes, a
registration statement under the Securities
Act relating to an exchange offer for the
Old Notes (the "Exchange Offer") and will
use its best efforts to cause such regis-
tration statement to become effective
within 90 days after the Issue Date.
The Exchange Offer................ New Notes are being offered in exchange for
an equal principal amount of Old Notes. As
of the date hereof, $250,000,000 aggregate
principal amount of Old Notes are outstand-
ing. Since the New Notes will be recorded
in the Company's accounting records at the
same carrying value as the Old Notes, no
gain or loss will be recognized by the Com-
pany upon the consummation of the Exchange
Offer. See "The Exchange Offer--Accounting
Treatment." Holders of the Old Notes do not
have appraisal or dissenter's rights in
connection with the Exchange Offer under
the Delaware General Corporation Law, the
governing law of the state of incorporation
of the Company.
Based on interpretations by the staff of
the Commission, as set forth in no-action
letters issued to third parties, the Com-
pany believes that holders of Old Notes
(other than any holder who is an "affili-
ate" of the Company within the meaning of
Rule 405 under the Securities Act) who ex-
change their Old Notes for New Notes pursu-
ant to the Exchange Offer may offer such
New Notes for resale, resell such New Notes
and otherwise transfer such New Notes with-
out compliance with the registration and
prospectus delivery provisions of the Secu-
rities Act; provided such New Notes are ac-
quired in the ordinary course of the hold-
er's business and such holders are not en-
gaged in, and do not intend to engage in, a
distribution of such new Notes and have no
arrangement or understanding with any per-
son to participate in a distribution of
such New Notes. The staff of the Commission
has not considered the Exchange Offer in
the context of a no-action letter and there
can be no assurance that the staff of the
Commission would make a similar determina-
tion with respect to the Exchange Offer.
3
<PAGE>
Each broker-dealer that receives New Notes
for its own account in exchange for Old
Notes, where such Old Notes were acquired
by such broker-dealer as a result of a mar-
ket-making activities or other trading ac-
tivities, must acknowledge that it will de-
liver a prospectus in connection with any
resale of such New Notes. See "Plan of Dis-
tribution." To comply with the securities
laws of certain jurisdictions, it may be
necessary to qualify for sale or register
the New Notes prior to offering or selling
such New Notes. The Company has agreed,
pursuant to the Registration Agreement and
subject to certain specified limitations
therein, to register or qualify the New
Notes for offer or sale under the securi-
ties or "blue sky" laws of such jurisdic-
tions as may be necessary to permit the
holders of New Notes to trade the New Notes
without any restrictions or limitations un-
der the securities laws of the several
states of the United States. If a holder of
Old Notes does not exchange such Old Notes
for New Notes pursuant to the Exchange Of-
fer, such Old Notes will continue to be
subject to the restrictions on transfer
contained in the legend thereon. In gener-
al, the Old Notes may not be offered or
sold, unless registered under the Securi-
ties Act, except pursuant to an exemption
from, or in a transaction not subject to,
the Securities Act and applicable state se-
curities laws. See "Risk Factors--Conse-
quences of Failure to Exchange" and "De-
scription of the New Notes--Exchange Offer;
Registration Rights; Liquidated Damages."
Expiration Date................... 5:00 p.m. Eastern Standard Time, on ,
1996 (20 days following the commencement of
the Exchange Offer), unless the Exchange
Offer is extended, in which case the term
"Expiration Date" means the latest date and
time to which the Exchange Offer is extend-
ed.
Conditions to the Exchange Offer.. The Exchange Offer is subject to certain
customary conditions, which may be waived
by the Company. See "The Exchange Offer--
Conditions." Except for the requirements of
applicable Federal and state securities
laws, there are no Federal or state regula-
tory requirements to be complied with or
obtained by the Company in connection with
the Exchange Offer. NO VOTE OF THE
COMPANY'S SECURITY HOLDERS IS REQUIRED TO
EFFECT THE EXCHANGE OFFER AND NO SUCH VOTE
(OR PROXY THEREFOR) IS BEING SOUGHT HEREBY.
Procedures for Tendering Old
Notes............................. Each holder of Old Notes wishing to accept
the Exchange Offer must complete, sign and
date the Letter of Transmittal, or a fac-
simile thereof, in accordance with the in-
structions contained herein and therein,
and mail or otherwise deliver such Letter
of Transmittal, or such facsimile to-
4
<PAGE>
gether with the Old Notes to be exchanged
and any other required documentation to the
Exchange Agent (as defined) at the address
set forth herein and therein. See "The Ex-
change Offer--Procedures for Tendering."
Withdrawal Rights................. Tenders of Old Notes may be withdrawn at
any time prior to 5:00 p.m., Eastern Stan-
dard Time, on the Expiration Date. To with-
draw a tender of Old Notes, a written or
facsimile transmission notice of withdrawal
must be received by the Exchange Agent at
its address set forth below under "Exchange
Agent" prior to 5:00 p.m., Eastern Standard
Time, on the Expiration Date.
Acceptance of Old Notes and
Delivery of New Notes............ Subject to certain conditions, the Company
will accept for exchange any and all Old
Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m., on the
Expiration Date. The New Notes issued pur-
suant to the Exchange Offer will be deliv-
ered promptly following the Expiration
Date. See "The Exchange Offer--Terms of the
Exchange Offer."
Exchange Agent.................... Marine Midland Bank is serving as exchange
agent (the "Exchange Agent") in connection
with the Exchange Offer.
Use of Proceeds................... There will be no proceeds to the Company
from the Exchange Offer. The net proceeds
to the Company from the Private Placement
were approximately $241.1 million (after
deduction of discounts and estimated offer-
ing expenses). The Company will continue
using such proceeds for working capital and
for general corporate purposes, including
payments for licenses awarded, if any,
through participation in the D, E and F
Block auctions. Approximately $53.3 million
of such proceeds has been used to fund the
Escrow Account (which amount, together with
the proceeds from the investment thereof,
will be sufficient to pay two years' inter-
est on the Notes).
5
<PAGE>
SUMMARY OF TERMS OF NEW NOTES
The Exchange Offer relates to the exchange of up to $250,000,000 aggregate
principal amount of Old Notes for an equal aggregate principal amount of New
Notes. The New Notes will be obligations of the Company evidencing the same
indebtedness as the Old Notes, and will be entitled to the benefits of the same
Indenture. The form and terms of the New Notes are generally the same as the
form and terms of the Old Notes, except that the New Notes have been registered
under the Securities Act and therefore will not bear legends restricting the
transfer thereof. See "Description of the New Notes."
COMPARISON WITH OLD NOTES
Freely Transferable............... Generally, the New Notes will be freely
transferable under the Securities Act by
holders who are not affiliates of the Com-
pany. The New Notes otherwise will be sub-
stantially identical in all material re-
spects (including interest rate and maturi-
ty) to the Old Notes. See "The Exchange Of-
fer--Terms of the Exchange Offer."
Registration Rights............... The holders of Old Notes currently are en-
titled to certain registration rights pur-
suant to a registration rights agreement
(the "Registration Rights Agreement") dated
as of August 27, 1996, between the Company
and the Initial Purchasers. However, upon
consummation of the Exchange Offer, subject
to certain exceptions, holders of Old Notes
who do not exchange their Old Notes for New
Notes in the Exchange Offer will no longer
be entitled to registration rights and will
not be able to offer or sell their Old
Notes, unless such Old Notes are subse-
quently registered under the Securities Act
(which, subject to certain limited excep-
tions, the Company will have no obligations
to do), except pursuant to an exemption
from, or in an transaction not subject to,
the Securities Act and applicable state se-
curities laws. See "Risk Factors--Conse-
quences of Failure to Exchange."
THE NEW NOTES
TERMS OF THE NEW NOTES
Maturity Date..................... August 15, 2006.
Interest.......................... Interest on the New Notes will be payable
at a rate of 11 5/8% per annum.
Interest Payment Dates............ February 15 and August 15 of each year,
commencing February 15, 1997.
Ranking........................... The Notes will rank senior in right of pay-
ment to all subordinated indebtedness of
the Company and will rank pari passu in
right of payment with all existing and fu-
ture senior indebtedness of the Company.
The Notes will effectively
6
<PAGE>
be subordinated to all existing and future
third party indebtedness and other liabili-
ties of the Company's subsidiaries. As of
June 30, 1996, the Company has approxi-
mately $699.6 million of consolidated in-
debtedness on a pro forma basis after giv-
ing effect to the private placement of the
Old Notes, and the Company's subsidiaries
have approximately $432.6 million of aggre-
gate indebtedness (including trade
payables) to which the Notes would have
been effectively subordinated. See "Risk
Factors--High Leverage; Debt Service; Re-
strictive Covenants," "--Dependence Upon
Cash Flow from Subsidiaries; Subordination
to Subsidiary Liabilities" and "Description
of the New Notes--Ranking."
Escrow Agreement.................. The Company has placed approximately $53.3
million of the net proceeds realized from
the sale of the Old Notes, representing
funds that together with the proceeds from
the investment thereof will be sufficient
to pay two years' interest on the Notes,
into the Escrow Account to be held by the
Escrow Agent (as defined) for the benefit
of the holders of the Notes. Until dis-
bursed in accordance with the Escrow Agree-
ment (as defined), the Escrow Account is
designed to secure a portion of the
Company's obligations under the Notes.
Funds will be disbursed from the Escrow Ac-
count to reimburse the Company for interest
payments the Company makes on the Notes,
and in certain circumstances, upon the re-
tirement of Notes. Upon acceleration of the
maturity of the Notes, the Escrow Agreement
will provide for the payment of the amount
remaining in the Escrow Account to the
Trustee to be applied on account of amounts
owing on the Notes. Pending such disburse-
ment, all funds contained in the Escrow Ac-
count will be invested in Temporary Cash
Investments (as defined). See "Description
of the New Notes--Disbursement of Funds--
Escrow Account" and "--Escrow Agreement--
Security."
Optional Redemption............... The Notes will be redeemable at the option
of the Company, in whole or in part, at any
time on or after August 15, 2001 at the re-
demption prices set forth herein, plus ac-
crued and unpaid interest and Liquidated
Damages, if any, to the date of redemption.
In addition, at any time and from time to
time prior to August 15, 1999, the Company
may redeem up to one-third of the Notes
originally outstanding at a redemption
price of 111.625% of the principal amount
thereof, plus accrued and unpaid interest
and Liquidated Damages, if any, to the date
of redemption with the net proceeds of one
or more Public Equity Offerings or sales of
certain capital stock of the Company to one
or more Strategic Equity Investors (each as
defined); provided that after any such re-
demption at least two-thirds of the aggre-
gate principal amount of Notes originally
outstanding remains outstanding. See "De-
scription of the New Notes--Optional Re-
demption."
7
<PAGE>
Change of Control................. Upon the occurrence of a Change of Control,
the Company is required to make an offer to
purchase all of the Notes at a price equal
to 101% of the principal amount thereof,
plus accrued and unpaid interest and Liqui-
dated Damages, if any, to the date of re-
purchase. See "Description of the Notes--
Covenants--Repurchase of Notes upon a
Change of Control."
Certain Covenants................. The Indenture will contain certain cove-
nants that will, among other things, limit
the ability of the Company and its subsidi-
aries to: (i) make restricted payments;
(ii) incur additional indebtedness and is-
sue certain redeemable stock; (iii) create
liens; (iv) enter into agreements that
would limit the ability of the Restricted
Subsidiaries to make distributions, loans
and other payments to the Company; (v) en-
ter into consolidations or mergers or sell
all, or substantially all, of their assets;
(vi) make asset sales; (vii) enter into
certain sale-leaseback transactions and
(viii) enter into transactions with affili-
ates. See "Description of the New Notes--
Covenants."
For additional information concerning the New Notes, see "Description of the
New Notes."
RISK FACTORS
See "Risk Factors" for certain factors that should be considered by holders
of Old Notes before tendering their Old Notes in the Exchange Offer.
8
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The information below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and Notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31 JUNE 30
--------------------------- ------------------
1993 1994 1995 1995 1996
(AUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues..................... $ 1,618 $ 3,000 $ -- $ -- $ --
Operating expenses:
Research and development.... 4,593 7,018 14,345 5,177 13,418
Sales, general and
administrative............. 2,974 6,290 12,619 4,414 10,039
Depreciation and
amortization............... 246 1,125 11,038 5,381 6,595
------- -------- -------- -------- --------
Total operating expense.... 7,813 14,433 38,002 14,972 30,052
------- -------- -------- -------- --------
Loss from operations......... (6,195) (11,433) (38,002) (14,972) (30,052)
Net loss..................... (6,227) (9,330) (37,770) (31,154) (37,413)
Pro forma net loss per common
share(1).................... $ (0.96)
Proforma weighted average
number of common shares
outstanding(1).............. 39,529
Net loss per common share.... $ (0.99) $ (0.87)
Weighted average common
shares outstanding.......... 31,357 43,045
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
AS OF -----------------------
DECEMBER 31, 1995 ACTUAL AS ADJUSTED(2)
(AUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)........... $ (1,410) $110,778 $397,764(3)
New York MTA License................ 338,402 334,058 334,058
Total assets........................ 474,990 567,757 928,557
New York MTA License obligation..... 347,518 347,518 347,518
Other long term debt................ 48,349 89,021 339,021
Total stockholders' equity
(deficit).......................... (30,548) 111,149 222,614
</TABLE>
- --------------------
(1) Gives effect to the conversion of all outstanding shares of preferred
stock, par value $.01 per share (the "Preferred Stock"), and accrued
dividends thereon into 10,605,591 shares of Common Stock and conversion of
the convertible subordinated notes in the aggregate principal amount of
$25.0 million (the "Convertible Subordinated Notes") into 1,562,500 shares
of Common Stock at the closing of the Company's initial public offering on
January 31, 1996 (the "IPO").
(2) Gives effect to the sale of the Old Notes and the closing of the Company's
public offering of 4,500,000 primary shares of Common Stock on July 3,
1996. The Company has made a 10% down payment, or approximately $51.0
million, to the FCC for 18 Entrepreneurs' Band C Block PCS licenses granted
to the Company on September 17, 1996. The as adjusted data excludes
indebtedness of approximately $458.2 million incurred in connection with
the issuance of such licenses.
(3) Includes the short term portion of the proceeds from the sale of the Old
Notes placed in the Escrow Account. See "Use of Proceeds."
9
<PAGE>
RISK FACTORS
Holders of Old Notes should carefully consider the following risk factors,
as well as other information set forth in this Prospectus, before tendering
the Old Notes in the Exchange Offer. The risk factors below (other than
"Consequences of Failure to Exchange") are generally applicable to Old Notes
as well as the New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old Notes
may not be offered or sold, unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Old Notes under the Securities
Act. Based on interpretations by the staff of the Commission, as set forth in
no-action letters to third parties, the Company believes that the New Notes
issued pursuant to the Exchange Offer in exchange for Old Notes may be offered
for resale, resold or otherwise transferred by holder thereof (other than any
such holder that is an "affiliate" of the issuer within the meaning of Rule
405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act provided that such New
Notes are acquired in the ordinary course of such holders' business and such
holders are not engaged in, and do not intend to engage in, a distribution of
such New Notes and have no arrangement or understanding with any person to
participate in the distribution of such New Notes. The staff of the Commission
has not considered the Exchange Offer in the context of a no-action letter and
there can be no assurance that the staff of the Commission would make a
similar determination with respect to the Exchange Offer. Each broker-dealer
that receives New Notes for its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a prospectus in connection with any
resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning or the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of New
Notes received in exchange for Old Notes where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of one year after the
Expiration Date, it will make this Prospectus available to any broker-dealer
for use in connection with any such resale. See "Plan of Distribution."
However, to comply with the securities laws of certain jurisdictions, if
applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or an exemption for
registration or qualification is available and is complied with. To the extent
that Old Notes are tendered and accepted in the Exchange Offer, the trading
market for the untendered and the tendered but unaccepted Old Notes could be
adversely affected.
HIGH LEVERAGE; DEBT SERVICE; RESTRICTIVE COVENANTS
The Company is, and will continue to be, highly leveraged and subject to
significant financial restrictions and limitations. As of June 30, 1996, on a
pro forma basis after giving effect to the issuance of the Entrepreneurs' Band
licenses, completion of the Company's public offering of shares of Common
Stock on July 3, 1996 and the offering of the Old Notes and the application of
the net proceeds therefrom, the Company's total indebtedness was $1,157.8
million or approximately 84.7% of its total capitalization. See "Use of
Proceeds," "Capitalization," "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Description of the New Notes."
There can be no assurance that the Company will generate sufficient cash
flow from operating activities and/or other sources to meet its working
capital requirements and debt service obligations, including those on the
Notes. Based upon historical operating results, without a substantial increase
in the operating results of its subsidiaries, the Company anticipates that it
will be unable to generate sufficient cash flow to permit dividends to the
Company in amounts sufficient to meet the Company's interest payment
obligations under the Notes which
10
<PAGE>
begin after the depletion of the Escrow Account. In that event the Company
anticipates that such obligations will only be met by seeking additional
financing or refinancing existing indebtedness. There can be no assurance that
the Company will be successful in generating sufficient cash flow or raising
debt or equity capital in sufficient amounts on terms acceptable to it, if at
all. The failure to generate sufficient cash flow or to raise sufficient funds
may require the Company to delay or abandon some or all of its development and
expansion plans, including the buildout of its networks, which could have a
material adverse effect on growth, its ability to compete in PCS and its
ability to service its debt, including the Notes. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The Company believes that its present funds, borrowings available under the
NT Credit Facility, the Ericsson Credit Facility and parallel vendor financing
facilities relating to the Entrepreneurs' Band BTA networks currently under
negotiation and the proceeds from the sale of the Old Notes will be sufficient
to fund operating losses, capital expenditures and working capital through
1997. To the extent that the build-out of the networks is faster than
expected, the costs are greater than anticipated or the Company takes
advantage of opportunities, including those that may arise through current and
future FCC auctions or otherwise, the Company may require additional funding
to implement its business strategy. There can be no assurance that the Company
will be able to obtain such financing on acceptable terms and in adequate
amounts to accomplish its objectives, if at all.
The NT Credit Facility and the Ericsson Credit Facility contain, the
Indenture for the Notes will contain, and any additional financing agreements
may contain, certain restrictive covenants. The NT Credit Facility requires
and the Indenture will require the Company to comply with certain financial
and operational performance covenants, and, while the Company expects to
remain in compliance with such covenants, there can be no assurance to that
effect. The restrictions contained in the NT Credit Facility and the Indenture
will affect, and in some cases will significantly limit or prohibit, among
other things, the ability of the Company to incur indebtedness, make
prepayments of certain indebtedness, pay dividends, make investments, create
liens, sell assets and engage in mergers and consolidations. In addition, the
NT Credit Facility requires the Company to maintain certain financial ratios.
An event of default under each of the NT Credit Facility and the Indenture
would allow the respective lenders thereunder to accelerate the maturity of
the indebtedness thereunder. The Ericsson Credit Facility contains similar
covenants. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" and "Description
of the New Notes."
The degree to which the Company is leveraged could have important
consequences to the holders of the Notes, including, but not limited to, the
following: (i) increasing the Company's vulnerability to adverse changes in
market conditions or increases in the prevailing interest rates; (ii) limiting
the Company's ability to obtain additional financing for working capital,
capital expenditures, acquisitions, general corporate purposes, including the
buildout of the networks; (iii) requiring a substantial portion of the
Company's cash flow from operations to be dedicated to debt service
requirements, thereby reducing the funds available for operations and future
business opportunities; and (iv) increasing the Company's exposure to
increases in interest rates given that certain of the Company's borrowings may
be at variable rates of interest. Further, a substantial portion of the
indebtedness of the Company is expected to mature prior to the maturity of the
Notes. In addition, the Company may under certain circumstances be obligated
to offer to repurchase its outstanding debt securities prior to maturity and
there can be no assurances that the Company will have the financial resources
necessary or otherwise be able to repurchase these securities in such
circumstances.
DEPENDENCE UPON CASH FLOW FROM SUBSIDIARIES; SUBORDINATION TO SUBSIDIARY
LIABILITIES
The Company conducts most of its operations through its direct and indirect
subsidiaries. The exception is the Company's technology business (see
"Business--Technology Business") which currently operates as a division of the
parent company. It is expected that the technology business will be
transferred to a new subsidiary in the near future. Accordingly, other than
the technology business, the Company holds only its investments in and
advances to its subsidiaries and is dependent upon receipt of sufficient funds
from its subsidiaries to meet its own obligations, including the Notes. The
Notes are not secured by any of the assets of the Company and will
11
<PAGE>
not initially be guaranteed by any of the Company's subsidiaries (although
under certain circumstances the Company's subsidiaries may be required to
guarantee the Notes). See "Description of the Notes--Covenants-- Limitation on
Guarantees of Indebtedness by Restricted Subsidiaries." The ability of the
Company and its creditors, including holders of the Notes, to benefit in the
distribution of assets of any of the Company's subsidiaries upon any
liquidation of any such subsidiary will be subject to the prior claims of the
subsidiary's creditors, including trade creditors and, to the extent that such
subsidiary is not directly owned by the Company, to the prior claims of any
other persons directly or indirectly owning such subsidiary. The ability of
the Company to pay interest on the Notes or to repay the Notes at maturity or
otherwise, will be dependent upon the cash flows of its subsidiaries and the
payment of funds by those subsidiaries to the Company in the form of repayment
of loans, dividends or otherwise. The Company's subsidiaries have no
obligation, contingent or otherwise, to pay amounts due pursuant to the Notes
or to make funds available for those payments, whether in the form of loans,
dividends or otherwise. In addition, the creditors of the Company's
subsidiaries may impose restrictions on the rights of the Company to receive
from its subsidiaries repayment of or interest in respect of intercompany
loans. Certain of the Company's subsidiaries may be prevented from paying
dividends or making other distributions. Therefore, the Company's ability to
make interest and principal payments when due to holders of the Notes or other
indebtedness of the Company and the Company's ability to purchase the Notes
and other debt that may become payable or repurchaseable upon a Change of
Control is dependent upon the receipt of sufficient funds from its
subsidiaries, which may be restricted by the terms of future indebtedness of
the Company's subsidiaries.
Each of the Company's subsidiaries is a Delaware corporation and may pay
dividends, under the Delaware General Corporation Law (the "DGCL"), only out
of its surplus, or, in the circumstances prescribed by the DGCL, out of its
net profits for the fiscal year in which the dividend is declared and/or the
preceding fiscal year.
The Notes are effectively subordinated to all existing and future
indebtedness and other liabilities and commitments of the Company's
subsidiaries. The total liabilities of the Company's subsidiaries as of June
30, 1996, was approximately $432.6 million. In addition, the Indenture permits
subsidiaries of the Company to incur additional indebtedness to finance the
construction and working capital needs of the PCS networks and the acquisition
of assets or the acquisition of certain businesses, subject to certain
limitations. See "Description of the Notes." In light of the Company's
strategy of continued growth, in part through acquisitions, the Company and
its subsidiaries may incur substantial indebtedness in the future. A
substantial portion of the Company's and its subsidiaries' existing and future
indebtedness (other than the Notes) is expected to be secured by liens over
the assets of the Company's subsidiaries and the shares of the Company's
subsidiaries. In addition, the ability of the Company and its creditors,
including the holders of the Notes, to benefit from distributions of assets of
the Company's subsidiaries may be limited to the extent that the outstanding
shares of any of its subsidiaries are pledged to secure other debt of the
Company or its subsidiaries. The principal fixed assets of the Company's
subsidiaries are highly specialized to the PCS industry and, taken
individually, can be expected to have limited marketability. Consequently, in
the event that secured creditors seek to realize on the collateral securing
debt of the Company's subsidiaries, these creditors would be likely to seek to
sell the business as a going concern (possibly through a sale of pledged
shares of subsidiaries), either in its entirety, or by franchise or other
business unit, in order to maximize the proceeds realized.
Therefore, for the reasons described above, there can be no assurance that
the Company will be able to receive any cash flow from its subsidiaries in a
timely manner or at all.
LIMITED OPERATING HISTORY; PAST AND CURRENT LOSSES; UNCERTAINTY OF FUTURE
OPERATING RESULTS
The Company was founded in 1987 and has incurred cumulative net losses from
inception through June 30, 1996 of approximately $96.9 million and expects
such losses to continue for several years. The continuation of losses will
depend in part on the timing and amount of revenues generated from the
operation of the Company's networks and sales of Omnipoint System equipment,
as well as other factors. These losses resulted primarily from expenditures
associated with research and development of the Company's products and
equipment and from expenditures associated with the Company's pursuit of the
Pioneer's Preference from the FCC. See "Business--
12
<PAGE>
Regulatory Environment--Pioneer's Preference Program." The Company continues
to develop its products and equipment while focusing on marketing activities
and the buildout of the networks in its markets. To date, the Company has sold
PCS equipment only for trials, and the Company does not expect to have
significant PCS equipment revenue before 1998.
The Company believes that its future operating results over both the short
and long term will be subject to annual and quarterly fluctuations due to
several factors, some of which are outside the control of the Company. These
factors include the cost of buildout of the networks (including any
unanticipated costs associated therewith), fluctuating market demand for the
Company's equipment and services, establishment of a market for PCS, pricing,
competitive services, the timing of significant orders for its equipment,
delays in the introduction of the Company's equipment, competitive equipment
introductions, changes in the regulatory environment, the cost and
availability of equipment components and general economic conditions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
EMERGING MARKET FOR PCS SERVICE
The Company's success in the implementation and operation of its networks is
subject to certain factors beyond the Company's control. These factors
include, without limitation, changes in the general and local economic
conditions, availability of equipment, changes in communications service rates
charged by others, changes in the supply and demand for PCS and the commercial
viability of PCS systems as a result of competition from wireline and wireless
operators in the same geographic region, changes in the federal and state
regulatory schemes affecting the operation of PCS systems (including the
enactment of new statutes and the promulgation of changes in the
interpretation or enforcement of existing or new rules and regulations) and
changes in technology that have the potential of rendering obsolete the
Omnipoint/GSM system planned for deployment. In addition, the extent of the
potential demand for PCS in the Company's markets cannot be estimated with any
degree of certainty. There can be no assurance that one or more of these
factors will not have an adverse effect on the Company's financial condition
and results of operations.
BUILDOUT OF THE NEW YORK MTA NETWORK
The Company is currently in the acquisition and buildout phases of the New
York MTA network. The Company anticipates that it will take several years to
substantially complete the Company's targeted buildout over the geographic
area of the New York MTA. The New York MTA License is subject to a requirement
that the Company construct network facilities that offer coverage to at least
one-third of the population in the New York MTA within five years of the grant
of the New York MTA License, by December 1999 (the "Five-Year Buildout
Requirement"), and to at least two-thirds of the population within 10 years,
by December 2004 (the "10-Year Buildout Requirement"). Should the Company fail
to meet these coverage requirements, the New York MTA License may be subject
to forfeiture. See "Business--Regulatory Environment--Conditions on Licenses."
The buildout of the network is subject to successful completion of network
design, site and facility acquisitions, purchase and installation of network
equipment, network testing and satisfactory accommodation of microwave users
currently using the Company's spectrum. Delays in any of these areas might
have a material and adverse effect on the Company's ability to complete the
buildout in a timely manner.
The successful implementation of the New York MTA network will depend to a
significant degree upon the Company's ability to lease or acquire sites for
the location of its base station equipment. Although the Company has begun the
selection of sites and has acquired the rights to use sites in the New York
MTA, there can be no assurance that the Company will be able to deploy its
equipment in a sufficient number of sites to implement the initial commercial
service. The site selection process will require the continued successful
negotiation of use agreements for or acquisitions of numerous additional
sites, and may require the Company to obtain zoning variances or other
governmental or local regulatory approvals, which are beyond the Company's
control. Delays in the site selection process, including delays in
negotiations with property owners, as well as construction delays and other
factors, could adversely affect the timing of the commencement of commercial
service over the New
13
<PAGE>
York MTA's network currently anticipated to begin in late 1996. See
"Business--Service Business--Overview."
As the New York MTA network is currently in the acquisition and buildout
phases, the capital cost of completing the project could vary materially from
the Company's current estimates. If adequate funds are not available from its
existing capital resources, including the financing provided by Northern
Telecom and Ericsson, the Company may be required to curtail its service
operations or to obtain additional funds on terms less favorable than those
contained in the Company's current arrangements.
In addition, the implementation of the New York MTA buildout plan is subject
to the availability from suppliers of the infrastructure equipment and
subscriber equipment the Company plans to use. There are risks associated with
the completion of development, timely manufacture and successful
implementation of newly developed complex telecommunications equipment in the
buildout of the network. The Company has entered into agreements with Northern
Telecom and Ericsson for infrastructure equipment and with Orbitel for
subscriber equipment. While the Company has signed a non-binding memorandum of
understanding with Orbitel to develop dual mode phones that allow users to
access both GSM networks and Omnipoint System networks, there can be no
assurance that such phones will be successfully developed and manufactured or
that the Company will obtain such phones at competitive prices. The Company
plans to enter into additional agreements for the supply of subscriber
equipment. To the extent the Company does not enter into agreements with
others it will be dependent on the aforementioned suppliers for its equipment
needs. See "Business--Service Business" and "--Strategic Relationships."
To secure a sufficient amount of unencumbered spectrum to operate its PCS
system efficiently, the Company is negotiating with incumbent microwave
operators to relocate their operations. There can be no assurance that the
Company will be successful in reaching timely agreements with the existing
microwave licensees or that such agreements will be on terms favorable to the
Company. Delay in the relocation of such licensees may adversely affect the
Company's ability to commence timely commercial operations in the New York
MTA. See "Business--Regulatory Environment--PCS Licensing."
BUILDOUT OF THE ENTREPRENEURS' BAND BTA NETWORKS
The Entrepreneurs' Band BTA licenses are subject to buildout requirements
substantially equivalent to the Five-Year Buildout Requirement and 10-Year
Buildout Requirement. The buildout of each of the Entrepreneurs' Band BTA
networks involves risks of delay and unanticipated costs similar to those
described above for the New York MTA. The Company expects to commence the
engineering and design phases and the selection and acquisition of sites for
these networks by the time the licenses are issued. The Company's agreements
with Northern Telecom and Ericsson regarding the supply of infrastructure
equipment and subscriber equipment for the New York MTA network contemplate
purchases or parallel agreements for these BTA networks. The Company has
received non-binding commitment letters from both Northern Telecom and
Ericsson regarding the provision of vendor financing for equipment purchases
for these networks. However, there can be no assurance that such agreements
for the supply of infrastructure and subscriber equipment or the financing
thereof will be consummated.
CONTROL GROUP REQUIREMENT
The Company qualified as an Entrepreneur and a Small Business, as such terms
are defined by the FCC rules and regulations, for participation in the
Entrepreneurs' Band auction and payment for its Entrepreneurs' Band licenses.
To retain its Entrepreneurs' Band licenses and its favorable government
financing, the Company must maintain such status (the "Designated Entity
Status"). It may also assign or transfer its licenses to another entity
qualifying for Designated Entity Status, subject to prior FCC approval. To
maintain all of the benefits of its Designated Entity Status, the Company's
control group and qualifying investors must retain certain minimum stock
ownership and voting stock of the Company as well as de jure and de facto
control of the Company for 10 years from the date of grant of its C Block PCS
licenses. The FCC has indicated that it will not rely solely on de
14
<PAGE>
jure control in determining whether the control group and its qualifying
investors are truly in control of an entity. Even if the control group (and
the qualifying investors) holds the requisite percentages of equity and voting
control, the FCC may still engage in a fact-specific inquiry to determine
whether actual control exists.
The Company believes it has taken steps to comply with and prevent violation
of such regulatory requirements, but there can be no assurance that the
Company's ownership and control structure will not be challenged. If such
challenges are successful, the Company could be required to restructure or
recapitalize, and possibly forfeit its C Block PCS licenses. Failure by the
Company to maintain its Designated Entity Status could result in the
imposition of less favorable schedules for or the acceleration of payments due
under the government financing or revocation of its licenses. The inability of
non-control group stockholders to gain control of the Company could negatively
impact the Company's ability to attract additional capital. This control
requirement may also discourage certain transactions involving an actual or
potential change of control of the Company.
MARKET ACCEPTANCE OF THE OMNIPOINT SYSTEM
When the FCC first licensed cellular systems in the U.S., it mandated all
technical aspects of system operation and protocol to ensure nationwide
compatibility between all cellular carriers. In sharp contrast, the FCC has
avoided mandating the technology protocols for PCS operations, leaving each
licensee free to select among competing technologies that have sufficient
technological differences to preclude their interoperability without dual mode
operation. The Company has chosen its own technology in conjunction with GSM
for deployment in its PCS markets in a manner which will allow roaming with
other GSM-based networks. However, there are technological and market risks
associated with the deployment of this integrated Omnipoint/GSM system,
including lack of previous commercial scale operation, the possible selection
by the PCS industry of a universal competing and incompatible technology and
the ability of the Company to offer roaming service.
COMMERCIAL OPERATIONS
A risk associated with the deployment of the integrated system is that the
Company's IS-661 technology has not been implemented on a commercial scale in
an operational PCS system. The successful implementation and operation of such
a system will be a complex process requiring coordination of a number of
factors, including the successful interface between infrastructure and
subscriber equipment and the public wireline network. There can be no
assurance that unforeseen complications will not arise in the scale-up and
operation of commercial IS-661-based PCS systems and subscriber equipment that
could materially delay or limit the commercial use of the IS-661 technology or
render it unable to perform at the quality, capacity and cost levels required
for success.
To the extent that the rest of the PCS industry agrees in the future upon a
universal competing technology that is not compatible with the Omnipoint/GSM
system, the Company's financial condition and results of operations would be
adversely affected and the Omnipoint System would only be useful for fixed WLL
applications or in markets deploying compatible technologies. In addition, the
Company's ability to market the Omnipoint System as an augmentation to GSM
systems outside the U.S. may require the approval of various GSM standards
bodies and such approval may not be available on a timely basis.
LIMITED ROAMING
A further risk associated with the Company's selection of the integrated
Omnipoint/GSM system is the ability of the Company to offer PCS roaming
service to its customers and obtain PCS roaming service from other markets. In
order for the Company's subscribers to roam in other wireless markets (and
vice-versa), at least one PCS licensee in the other market must utilize either
an Omnipoint or GSM protocol, or the subscribers must use a dual frequency
phone that would permit the subscriber to use the cellular system existing in
the other market. The Company has been advised that such dual frequency phones
are not expected to be available until late 1997 at the earliest, and then
only in limited quantities. The fact that the Company's early PCS subscribers
will not be able to roam into regions not served by either Omnipoint or GSM
systems, unless the subscribers use dual
15
<PAGE>
frequency phones that would permit them to use the existing cellular wireless
system, may adversely affect the Company's ability to establish a PCS customer
base and to successfully compete in the PCS business with those PCS operators
offering greater roaming capabilities. Based on the technology preferences
indicated by the A and B Block license holders and by the high bidders in the
Entrepreneurs' C Band auction, GSM will be deployed by license holders with
licenses covering approximately 76% of the total population of the U.S. if
these bidders involved in the Entrepreneurs' C Band auction are ultimately
awarded these licenses. Although there can be no assurance, this percentage
could increase when additional successful bidders in the Entrepreneurs' Band
auction and the D, E and F Block auctions have selected their technology. The
Company and certain other PCS license holders are currently exploring
alternatives to ensure that the GSM protocol will be available in all markets.
There can be no assurance that the Company or others will be successful in
this endeavor. The Company's reduced ability to compete for PCS customers may
have a material adverse effect on its financial condition and results of
operations. See "Business--Service Business" and "--Strategic Relationships."
COMPETITION
SERVICE BUSINESS
PCS is a new technology and service and, as a result, the level and timing
of development of a customer base for PCS applications, on which the Company's
future revenues depend significantly, is uncertain. In development of the PCS
market, the Company and other PCS licensees will be competing with the more
established cellular industry, as well as other wireless communications
technologies, existing and future, with similar applications. Many of the
Company's PCS and cellular telephone competitors, including joint ventures
involving some of the nation's largest regional and long distance telephone
carriers, have substantially greater access to capital than the Company,
substantially greater technical, marketing, sales and distribution resources
than those of the Company and significantly greater experience than the
Company in providing wireless services.
The success of the Company's PCS service business will depend upon its
ability to compete, especially with respect to features, such as data and
voice transmission, call waiting, call forwarding and paging capability,
pricing, availability and reliability of its service, with two cellular
operators, two other existing PCS licensees and one or more winners of future
PCS spectrum auctions and other potential future wireless communications
providers. The Bell Atlantic Corporation ("Bell Atlantic")/NYNEX Corporation
("NYNEX") consortium and AT&T Corp.'s wireless services operations, including
McCaw Cellular Communications, Inc. ("AT&T Wireless"), currently provide
cellular services in the New York MSA and surrounding areas. Sprint
Telecommunications Venture, operating as Sprint Spectrum ("Sprint Spectrum"),
holds the B Block New York MTA license, and NextWave Telecom, Inc.
("NextWave") was the successful bidder in the Entrepreneurs' Band auction for
the New York BTA PCS license. A variety of companies, including AT&T Wireless
and Sprint Spectrum, provide cellular service or have PCS licenses in the
various Entrepreneurs' Band BTAs.
The Company also faces competition from other communications technologies
such as SMR, ESMR and paging services. ESMR is a "cellular-like"
communications service supplied by converting analog SMR services into an
integrated, digital transmission system providing for call hand-off, frequency
reuse and wide call delivery networks. The FCC has licensed current SMR
operators to construct ESMR systems on existing SMR frequencies in many major
metropolitan areas in the U.S. See "Business--Service Business--Competition."
In the future, PCS will also compete more directly with traditional landline
telephone service providers and with cable operators who expand into the
offering of traditional communications services over their cable systems and
may face competition from other technologies including mobile satellite
systems.
TECHNOLOGY BUSINESS
Competition in the communications equipment industry is intense. The
industry consists primarily of major domestic and international companies
which have financial, technical, marketing, sales, manufacturing, distribution
and other resources substantially greater than those of the Company. In the
cellular, PCS and WLL markets, the Company competes against analog and various
digital technologies, the most prominent of which are either TDMA-based or
CDMA-based systems. In addition, a number of private and publicly held
16
<PAGE>
telecommunications companies, including Northern Telecom and Ericsson, are
developing digital telecommunications systems and products implementing
competing digital wireless technologies. There can be no assurance that the
Company's competitors will not devote significantly greater financial,
technical, marketing and other resources to aggressively market competitive
communications systems or develop and adopt competitive digital cellular
technologies, and that such efforts will not materially adversely affect the
Company's financial condition and results of operations in the future. See
"Business--Technology Business--Competition."
RELIANCE ON NORTHERN TELECOM AND ERICSSON RELATIONSHIPS
The Company substantially relies upon its relationship with Northern
Telecom. The Company has entered into a series of OEM and equipment supply
agreements, a collaborative development agreement and a vendor financing
agreement with Northern Telecom. The Company has agreed to purchase from
Northern Telecom $250.0 million of equipment and services over the next five
years. The Company relies substantially on the $382.5 million NT Credit
Facility for the buildout of the New York MTA network, including for the
purchase of equipment. The NT Credit Facility is secured by a pledge of the
Company's stock in Omnipoint Communications Inc. ("OCI"), which is a 95.58%
owned subsidiary of the Company, and substantially all of OCI's assets. Under
the terms of the NT Credit Facility, OCI is subject to certain financial and
operational covenants including restrictions on the payment of dividends,
restrictions on additional indebtedness and financial maintenance obligations.
Although the Company is currently in compliance with such covenants, there can
be no assurance that the Company will be able to continue to comply with such
covenants in the future. A portion of the outstanding balance of the NT Credit
Facility is due June 30, 1997, with the remaining principal balance under the
facility due in installments beginning March 31, 2000. The final payment of
principal and interest is due December 31, 2004. The termination of the OEM
and supply agreements or the NT Credit Facility would have a material and
adverse affect on the Company's financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources" and "Business--Strategic
Relationships--Northern Telecom Relationship."
The Company also substantially relies on its relationship with Ericsson. The
Company has entered into agreements to sell IS-661 base stations to Ericsson
and to license to Ericsson Omnipoint's technology relevant to integrating such
base stations into networks. The Company has also entered into agreements for
Ericsson to supply GSM and IS-661 infrastructure equipment and to supply GSM
handsets for the Company's markets. The parties have entered into the Ericsson
Credit Facility through which Ericsson provides up to $132.0 million in vendor
financing for the New York MTA network including for the purchase of
equipment. The Ericsson Credit Facility is secured by a pledge of the
Company's stock in OCI and substantially all of OCI's assets. Under the terms
of the Ericsson Credit Facility, OCI is subject to certain financial and
operational covenants including restrictions on the payment of dividends,
restrictions on additional indebtedness and financial maintenance obligations.
Although the Company is currently in compliance with such covenants, there can
be no assurance that the Company will be able to continue to comply with such
covenants in the future. A portion of the Ericsson Credit Facility will mature
on June 30, 1998, with the remaining principal balance under the facility due
in installments beginning in 2000. The final payment of principal and interest
is due December 31, 2004. The Company and Orbitel have entered into a non-
binding memorandum of understanding for Orbitel to develop and manufacture
single mode IS-661 and dual mode IS-661/PCS 1900 handsets. Ericsson has agreed
to support this effort. There can be no assurance that the Company will
consummate definitive agreements with Orbitel with respect to the handsets in
a timely manner or at all. The termination of the agreements with Ericsson
including the Ericsson Credit Facility would have a material and adverse
effect on the Company's financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Business--Strategic
Relationships--Ericsson Relationship."
The Company has had limited revenues and has been dependent on a limited
number of customers for its revenues in the last three fiscal years. In 1994,
the Company received all of its revenue, $3.0 million, from Northern Telecom,
representing a non-refundable license fee received upon entering into a non-
exclusive OEM
17
<PAGE>
agreement. Under the terms of the agreement, Northern Telecom may pay up to an
aggregate of $12.0 million in license and OEM fees under certain
circumstances. In April 1996, the Company and Ericsson entered into an
agreement for the sale of IS-661 base stations to Ericsson and to license
Omnipoint's relevant technology as described above. If either agreement were
terminated, the lack of revenues from sales to Northern Telecom or Ericsson
would have a material adverse effect upon the Company's financial condition
and results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company will require future capital for principal and interest payments
for the Company's licenses and for the buildout of the Company's networks. In
addition, the Company expects to require substantial additional capital beyond
the proceeds of the sale of the Old Notes to continue the development,
production, sales and marketing of Omnipoint System equipment. The amount of
such required capital will depend on many factors, including buildout costs,
the market acceptance of Omnipoint System equipment, the resources required to
launch the sale of its equipment and attain a competitive position in the
marketplace, the extent to which the Company invests in new technology and
improvements to its existing RF technology and the response of competitors to
Omnipoint System equipment and the Company's services. In addition to the
funds provided by the Offering, the public equity offerings, the NT Credit
Facility, the Ericsson Credit Facility and various private debt placements,
the Company will need to raise additional funds through private financings,
including strategic partnerships, or public financings. No assurance can be
given that additional financing will be available or that, if available, such
funding can be obtained on terms favorable to the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation."
RAPID TECHNOLOGICAL CHANGE; MANUFACTURING OF IS-661 EQUIPMENT
The wireless PCS products industry is embryonic and is experiencing very
rapid technological change. To remain competitive, the Company's technology
business must develop or gain access to new technologies in order to increase
product performance and functionality, continue to reduce product size and
increase cost-effectiveness. Given the emerging nature of the wireless PCS
industry, there can be no assurance that the Company's products or technology
will not be rendered obsolete by alternative technologies. The development of
new wireless PCS products is highly complex and the Company could experience
delays in developing and introducing its equipment.
Additional software and hardware development must be completed by the
Company before its subscriber and infrastructure products will be available
for commercial sale. The Company is investing substantial funds to complete
these development efforts. There can be no assurance that the Company will be
able to complete these development efforts within the time frames required to
enable it to establish customers for its commercial equipment business. In
addition, the Company may spend substantially more on such software and
hardware development than currently anticipated. The Company has limited
manufacturing capability and has no experience in large scale manufacturing.
The Company plans to subcontract and/or license to others the manufacturing of
commercial volumes of its equipment. There can be no assurance that the
Company will be able to manage the manufacture of commercial quantities of its
products by subcontractors or licensees at commercially acceptable costs in a
timely manner to meet industry requirements. Any delays or difficulties could
have a material adverse effect on the Company's financial condition and
results of operations. If the Company is unable to provide IS-661 subscriber
and infrastructure equipment at commercially acceptable costs, the Company's
competitive position and ability to achieve a profitable return on its
technology business will be materially impaired. See "Business--Technology
Business."
ENTREPRENEURS' BAND AUCTION RISK
The Company, through its subsidiary, Omnipoint PCS Entrepreneurs, Inc.
("OPCSE"), participated in the Entrepreneurs' Band auction that ended on May
6, 1996. As of the completion of the auction, the Company successfully bid for
PCS licenses in 18 BTAs, including Philadelphia, Atlantic City, Buffalo and
Rochester
18
<PAGE>
covering an aggregate of approximately 13.4 million POPs. On September 17,
1996, the FCC granted the Company's 18 Entrepreneurs' Band C Block PCS
licenses. The total purchase price for these licenses, after discounts, is
approximately $509.1 million, or an average of $38.13 per POP. The Company has
made a 10% down payment, or approximately $51.0 million, to the FCC for these
licenses. The remaining 90%, or approximately $458.2 million, will be due over
the seventh through the tenth year of the license and will bear interest until
paid at the 10-year Treasury note rate to be specified by the FCC. In
addition, there can be no assurance that the funds necessary to make payments
in the seventh through the tenth years of these licenses will be available
from the operations of the Company or, if not, if they will be available from
third parties on favorable terms or at all. See "Business--Service Business--
Omnipoint's PCS Markets."
GOVERNMENT REGULATION
The licensing, construction, operation, sale and interconnection
arrangements of wireless telecommunications systems are regulated to varying
degrees by the FCC and, depending on the jurisdiction, also may be regulated
by state regulatory agencies. State agencies having jurisdiction over the
Company's license areas have generally not sought to regulate PCS to date.
There can be no assurance that either the FCC or such state agencies will not
adopt regulations or take other actions that would adversely affect the
business of the Company. In addition, FCC licenses to provide cellular and PCS
services are subject to renewal and revocation. The New York MTA License will
expire in December 2004 and the Entrepreneurs' Band PCS licenses will expire
in 2006. There may be competition for the Company's PCS licenses upon their
expiration, and there can be no assurance that the licenses will be renewed.
On March 8, 1996, the FCC adopted an order establishing the interest rate
and timing of principal and interest payments for the New York MTA License,
which contains the following terms and conditions: (i) a five-year payment
period with interest accruing at 7.75% from the order adoption date with the
first payments due on April 8 and April 30, 1996 and subsequent quarterly
payments due on April 30, July 31, October 31 and January 31, (ii) interest
only payments for the first two years, and (iii) principal and interest
payments for the remaining three years.
The New York MTA License is subject to three specific conditions. The first
condition is the Five-Year Buildout Requirement and the 10-Year Buildout
Requirement; the second condition is that the license may not be assigned nor
may control of the licensee be transferred until the earlier of three years
after the date the license was awarded or the date when the Five-Year Buildout
Requirement is satisfied; and the third condition is that the network deployed
"substantially uses" the design and technology upon which the Pioneer's
Preference award was based, which is included in the Omnipoint System, until
the Five-Year Buildout Requirement is satisfied. The FCC has never defined the
phrase "substantially uses." In January 1996, Wireless Communications Council
("WCC"), a trade association with only one disclosed member, who is a
proponent of IS-95 CDMA technology, filed a petition with the FCC seeking
clarification of the phrase. In August 1996, the FCC denied the petition
noting that (a) using tests required by federal courts, WCC lacked standing,
(b) the petition was premature because the Company's compliance with the five-
year buildout condition should not be evaluated until December 1999, and (c)
compliance with the condition would involve consideration of several complex
factors. While WCC may file a petition for reconsideration or appeal the FCC's
decision to the federal court, the Company is not aware of any such action.
There can be no assurance as to how the FCC will in the future construe the
phrase "substantially use" and, accordingly, there can be no assurance that
the Company's plan for deployment in the New York MTA will be deemed to
satisfy the condition. The Company believes that its network design and
buildout plans and its financing plans will satisfy the conditions on the New
York MTA License. However, there is risk that subsequent FCC action or
unanticipated delays or difficulties in deployment of parts of the Company's
planned Omnipoint/GSM system may result in the Company not satisfying one or
more such conditions or needing to expend resources in connection with FCC
proceedings regarding such issues. The Company estimates that it will require
between $100 million and $150 million in capital expenditures to meet the
Five-Year Buildout Requirement for the New York MTA. Although not subject to
the "substantial use" condition, the Entrepreneurs' Band licenses are subject
to similar buildout requirements and additional transfer
19
<PAGE>
restrictions. The Company estimates that it will require between $50 million
and $75 million to meet the similar buildout requirements for the
Entrepreneurs' Band licenses.
Under existing law, no more than 20% of the capital stock of the Company's
subsidiaries which hold FCC licenses, and, except in extraordinary
circumstances, no more than 25% of Omnipoint's capital stock, may be owned,
directly or indirectly, or voted by non-U.S. citizens or their
representatives, by a foreign government or its representatives or by a
foreign corporation. In addition, under FCC regulations, no officer and no
more than 25% of the directors of Omnipoint and none of the licensees'
officers or directors may be non-U.S. citizens. If the foreign ownership or
control limits of Omnipoint or of the licensees are exceeded, the FCC could
revoke the Company's licenses if the FCC found the public interest would be
served by such revocation, although the Company could seek a public interest
finding from the FCC for higher foreign ownership levels or take other actions
to bring the Company within the foreign ownership and control limits. The
restrictions on foreign ownership could also adversely affect the ability of
the Company to attract additional equity financing from entities that are, or
are owned by, non-U.S. persons. See "Business--Regulatory Environment."
Finally, the PCS industry is subject to continually evolving regulation.
There are a number of issues on which various parties have or may in the
future suggest regulation. These include the effect of cellular and digital
wireless telephony on hearing aids, electromagnetic interference and cancer,
as well as interference between types of wireless systems. As new regulations
are promulgated on these subjects or other subjects, the Company may be
required to modify its business plans or operations in order to comply with
any such regulations. There can be no assurance that the Company will be able
to do so in a cost effective manner, if at all. See "--Radio Frequency
Emission Concerns; Medical Device Interference."
DEPENDENCE UPON KEY EMPLOYEES; RECENT MANAGEMENT ADDITIONS
The Company is highly dependent upon the technical and management skills of
its key employees, especially Douglas G. Smith, Chairman and CEO, and George
F. Schmitt, President of OCI and Executive Vice President of the Company. The
Company has an employment agreement with Mr. Schmitt but not with Mr. Smith.
The loss of the services of any key employee could adversely affect the
Company's financial condition and results of operations. There can be no
assurance that the Company will be successful in retaining its key employees
or that it can attract or retain additional skilled personnel. See
"Management." The Company maintains key man life insurance on the lives of
Messrs. Smith and Schmitt.
The Company's expected growth may cause a significant strain on its
management, operational and financial resources. The Company's ability to
manage its growth effectively will require it to continue to implement and
improve its operational and financial systems. The Company's success also
depends in large part on a limited number of key technical, marketing and
sales employees and on the Company's ability to continue to attract and retain
additional highly talented personnel. Competition for qualified personnel in
the PCS equipment and service industries is intense. These demands would
require the addition of new management personnel and the development of
additional expertise by existing management. The failure of the Company's
management team to effectively manage growth could have a materially adverse
impact on the Company's financial condition and results of operations. In this
regard, Mr. Schmitt and Bradley E. Sparks, Chief Financial Officer of the
Company, joined the Company during 1995. See "Management."
UNCERTAINTY OF PROTECTION OF PATENTS AND PROPRIETARY RIGHTS
The Company's technology business relies on a combination of patents,
trademarks and non-disclosure and development agreements in order to establish
and protect its proprietary rights. The Company has filed and intends to
continue to file applications as appropriate for patents covering its
technology and products. There can be no assurance that additional patents
will issue, that the existing patents and such additional patents allowed will
be sufficiently broad to protect the Company's technology or that the
confidentiality agreements and other methods on which the Company relies to
protect its trade secrets and proprietary information will be adequate. The
Company's 14 issued patents will expire between May 2008 and November 2013. In
addition, there can be
20
<PAGE>
no assurance that any patents issued to the Company will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will
provide proprietary protection to the Company. Litigation to defend and
enforce the Company's intellectual property rights could result in substantial
costs and diversion of resources and could have a materially adverse effect on
the Company's financial condition and results of operations regardless of the
final outcome of such litigation. Despite the Company's efforts to safeguard
and maintain its proprietary rights, there can be no assurance that the
Company will be successful in doing so or that the Company's competitors will
not independently develop or patent technologies that are substantially
equivalent or superior to the Company's technologies. If existing or future
patents containing broad claims are upheld by the courts, the holders of such
patents might be in a position to require companies to obtain licenses. There
can be no assurances that licenses which might be required for the Company's
products would be available on reasonable terms, if at all. To the extent that
licenses are unavailable, or not available on acceptable terms, no assurance
can be made that the failure to obtain a license would not adversely affect
the Company. See "Business--Patents and Other Intellectual Property Rights."
RADIO FREQUENCY EMISSION CONCERNS; MEDICAL DEVICE INTERFERENCE
Media reports have suggested that certain RF emissions from wireless
handsets may be linked to various health concerns, including cancer, and may
interfere with various electronic medical devices, including hearing aids and
pacemakers. Concerns over RF emissions may have the effect of discouraging the
use of wireless handsets, which could have an adverse effect on the Company's
business. On August 1, 1996, the FCC adopted rules which update the guidelines
and methods it uses for evaluating RF emissions from radio equipment,
including wireless handsets. While the adopted rules impose more restrictive
standards on RF emissions from lower power devices such as wireless handsets,
it is believed that all wireless handsets to be marketed and to be used by the
Company's subscribers, comply with such new standards.
Certain interest groups have requested that the FCC investigate claims that
the GSM technology poses health concerns and causes interference with hearing
aids and other medical devices. The Center for the Study of Electromagnetic
Compatibility at the University of Oklahoma, which was founded in 1994 with
funds from the wireless industry, is studying this issue and is expected to
issue its findings in 1996. In addition, the Personal Communications Industry
Association ("PCIA") announced in July 1995 that it was undertaking an
industry-wide study to gather information on possible PCS interference with
medical devices for all PCS standards. There can be no assurance that the
findings of such studies or any governmental regulations that may result
therefrom will not have an adverse effect on the Company's business (including
its use of GSM technology). See "Business--Governmental Regulation."
LIMITATIONS ON REPURCHASE OF NOTES UPON CHANGE OF CONTROL
Upon a Change of Control, each holder of the Notes will have certain rights
to require the Company to repurchase all or a portion of such holder's Notes.
See "Description of the Notes--Covenants--Repurchase of Notes upon a Change of
Control." If a Change of Control were to occur, there can be no assurance that
the Company would have sufficient funds to pay the repurchase price for the
Notes tendered by the holders thereof. In addition, the Change of Control
purchase feature of the Notes may make more difficult or discourage a takeover
of the Company and, thus, the removal of incumbent management. The Change of
Control purchase feature resulted from negotiations between the Company and
the Initial Purchasers and is not the result of management's knowledge of any
specific effort to obtain control of the Company by means of accumulating
shares of common stock of the Company or by means of a merger, tender offer,
solicitation or otherwise, or part of a plan by management to adopt a series
of anti-takeover provisions.
BANKRUPTCY RISK RELATED TO ESCROW ACCOUNT
The right of the Trustee under the Indenture and the Escrow Agreement to
foreclose on the Escrow Account upon the occurrence of an Event of Default on
the Notes is likely to be significantly impaired by applicable bankruptcy law
if a bankruptcy or reorganization case were to be commenced by or against the
Company. In
21
<PAGE>
addition, payments of interest from the Escrow Account may possibly be
considered to be preferences in the event of subsequent bankruptcy proceedings
and therefore recoverable from recipients in certain circumstances. Payments
of interest from the Escrow Account may be considered to be preferences in the
event of subsequent bankruptcy proceedings only if bankruptcy occurs within 90
days of execution of the Escrow Agreement.
ABSENCE OF PUBLIC MARKET
The Notes are a new issue of securities for which there is currently no
established market. There can be no assurance as to (i) the liquidity of any
such market that may develop, (ii) the ability of the holders of Notes to sell
their Notes, or (iii) the price at which the holders of Notes would be able to
sell their Notes. If such a market were to develop, the Notes could trade at
prices that may be higher or lower than their purchase price, depending on
many factors, including prevailing interest rates, the market for similar
securities and the financial performance of the Company. The Company does not
presently intend to apply for listing of the Notes on any national securities
exchange or on the Nasdaq National Market System; however, the Notes have been
designated for trading in the PORTAL market. See "Description of the New
Notes--Exchange Offer; Registration Rights; Liquidated Damages."
USE OF PROCEEDS
There will be no cash proceeds to the Company from the issuance of the New
Notes pursuant to the Exchange Offer. Approximately $53.3 million of the net
proceeds of the offering of the Old Notes, representing funds that (together
with the proceeds from the investment thereof) will be sufficient to pay two
years' interest on the Notes, has been deposited in the Escrow Account and,
pending disbursement, the Escrow Agent, for the benefit of the holders of the
Notes, will have a first priority lien on the Escrow Account. Funds may be
disbursed from the Escrow Account to reimburse the Company for interest
payments the Company makes on the Notes, and, in certain circumstances, upon
the retirement of Notes. See "Description of the Notes--Disbursement of
Funds--Escrow Account." Upon the acceleration of the maturity of the Notes or
the failure to pay principal at maturity, the Escrow Agreement will provide
for the foreclosure by the Trustee upon the net proceeds of the Escrow
Account. See "Description of the Notes--Escrow Agreement--Security." The
balance of the net proceeds of the offering of the Old Notes, together with
the Company's existing funds, will be used for working capital and general
corporate purposes, including payments for licenses awarded, if any, through
participation in the D, E and F Block auctions. The Company expects that it
will require further investment for the foregoing activities beyond the funds
provided by the sale of the Notes.
RATIO OF EARNINGS TO FIXED CHARGES
Earnings are inadequate to cover fixed charges for each of the five years in
the period ended December 31, 1995 and for the six month period ended June 30,
1996. The following table sets forth these deficiencies.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, FOR THE SIX
--------------------------------- MONTHS ENDED
1991 1992 1993 1994 1995 JUNE 30, 1996
------------------------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Earnings deficiency............. $15 $19 $233 $1,519 $1,493 $18,437
</TABLE>
The Company's earnings consist of pre-tax earnings from continuing
operations before fixed charges. Fixed charges consist of interest on
indebtedness, including any capitalized interest, interest associated with the
New York MTA License obligation, amortization of debt discounts and related
expenses and a portion of rent expenses which is deemed representative of an
interest factor.
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<PAGE>
CAPITALIZATION
The following table sets forth the consolidated cash and capitalization of
the Company as of June 30, 1996 and as adjusted to give effect to the sale of
the Old Notes and the closing of the Company's public offering of 4,500,000
primary shares of Common Stock on July 3, 1996. The as adjusted data excludes
indebtedness of approximately $458.2 million incurred in connection with the
issuance of 18 Entrepreneurs' Band C Block PCS licenses granted to the Company
on September 17, 1996, and includes the Company's 10% down payment, or $51.0
million, to the FCC for such licenses. This table should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
---------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash.................................................... $127,487 $400,575(1)
======== ========
Long-term debt:
New York MTA License obligations...................... $347,518 $347,518
NT Credit Facility.................................... 71,429 71,429
Senior Notes.......................................... 17,552 17,552
Notes exchanged hereby................................ -- 250,000
Other long-term debt.................................. 40 40
-------- --------
Total long-term debt................................ 436,539 686,539
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, no shares issued and outstanding......... -- --
Common stock, $.01 par value, 75,000,000 shares
authorized, 45,799,128 shares issued and outstanding
and 50,299,128 shares issued and outstanding as
adjusted............................................. 458 503
Additional paid-in capital............................ 209,669 321,089
Notes receivable...................................... (1,176) (1,176)
Unearned compensation................................. (891) (891)
Accumulated deficit................................... (96,911) (96,911)
-------- --------
Total stockholders' equity.......................... 111,149 222,614
-------- --------
Total capitalization.................................... $547,688 $909,153
======== ========
</TABLE>
- ---------------------
(1) Does not include approximately $53.3 million deposited in the Escrow
Account to pay the first two years' interest on the Notes.
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus. The selected
consolidated financial data as of December 31, 1994 and 1995, and for each of
the three years in the period ended December 31, 1995, have been derived from
the Company's audited Consolidated Financial Statements included elsewhere in
this Prospectus, which have been audited by Coopers & Lybrand L.L.P.,
independent accountants, whose reports thereon are also included in this
Prospectus. The selected consolidated financial data for the six months ended
June 30, 1995 and 1996 have been derived from the Company's unaudited
Consolidated Financial Statements, which in the opinion of management, include
all adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the information set forth therein. The results for the six
months ended June 30, 1996 are not necessarily indicative of the results that
may be expected for the full year or for any future period.
<TABLE>
<CAPTION>
SIX MONTH ENDED JUNE
YEARS ENDED DECEMBER 31, 30,
--------------------------------------------- ------------------------
1991 1992 1993 1994 1995 1995 1996
(AUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue................ $ 2,075 $ 3,399 $ 1,618 $ 3,000 $ -- $ -- $ --
Operating expenses:
Research and
development.......... 1,826 3,700 4,593 7,018 14,345 5,177 13,418
Sales, general and
administrative....... 2,054 2,475 2,974 6,290 12,619 4,414 10,039
Depreciation and
amortization......... 38 101 246 1,125 11,038 5,381 6,595
------- ------- ------- -------- -------- -------- --------
Total operating
expenses........... 3,918 6,276 7,813 14,433 38,002 14,972 30,052
------- ------- ------- -------- -------- -------- --------
Loss from operations... (1,843) (2,877) (6,195) (11,433) (38,002) (14,972) (30,052)
Interest income
(expense), net........ 61 82 (32) (1,156) 232 (16,182) (7,361)
Miscellaneous income... -- -- -- 65 -- -- --
Gain on sale of
subsidiary stock...... -- -- -- 3,194 -- -- --
------- ------- ------- -------- -------- -------- --------
Net Loss............... $(1,782) $(2,795) $(6,227) $ (9,330) $(37,770) $(31,154) $(37,413)
======= ======= ======= ======== ======== ======== ========
Pro forma net loss per
common shares(1)...... $ (0.96)
Pro forma weighted
average number of
common shares
outstanding(1)........ 39,529
Net loss per common
share................. $ (0.99) $ (0.87)
Weighted average common
shares outstanding.... 31,357 43,045
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30, 1996
--------------------------------------------- ------------------------
1991 1992 1993 1994 1995 ACTUAL AS ADJUSTED(2)
(AUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital
(deficit)............. $ 4,339 $ 1,340 $ 9,055 $ 3,094 $ (1,410) $110,778 $397,764(3)
New York MTA License... -- -- -- 347,090 338,402 334,058 334,058
Total assets........... 4,991 2,540 14,465 360,946 474,990 567,757 928,557
New York MTA License
obligations........... -- -- -- 347,518 347,518 347,518 347,518
Other long-term debt... -- -- -- 1,688 48,349 89,021 339,021
Preferred Stock........ 1,500 1,500 15,902 15,902 44,127 -- --
Total stockholders'
equity (deficit)...... 2,813 101 (6,031) (7,416) (30,548) 111,149 222,614
</TABLE>
- ---------------------
(1) Gives effect to the conversion of all outstanding shares of Preferred
Stock and accrued dividends thereon into 10,605,591 shares of Common Stock
and the Convertible Subordinated Notes into 1,562,500 shares of Common
Stock at the closing of the IPO on January 31, 1996.
(2) Gives effect to the sale of the Old Notes and the closing of the Company's
public offering of 4,500,000 primary shares of Common Stock on July 3,
1996. The Company has made a 10% down payment, or approximately $51.0
million, to the FCC for 18 Entrepreneurs' Band C Block PCS licenses
granted to the Company on September 17, 1996. The as adjusted data
excludes indebtedness of approximately $458.2 million incurred in
connection with the issuance of such licenses.
(3) Includes the short term portion of the proceeds from the sale of the Old
Notes placed in the Escrow Account. See "Use of Proceeds."
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations and other parts of this Prospectus contain forward-looking
statements which involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in "Risk Factors."
OVERVIEW
The Company was incorporated in Delaware in June 1987 to design, develop,
manufacture and market wireless digital communications products. From
inception to 1991, the Company focused primarily on developing its core
technology. The Company used its core technology to generate revenues from the
production of prototype equipment pursuant to agreements with companies in the
communications industry. In 1992, the principal focus of the Company shifted
from performing such activities to the development of its PCS business.
Since 1992, the Company has generated limited revenues primarily from
license fees, research and development services and prototype equipment sales
related to its proprietary technology. As the principal focus of the Company
has been the development of its PCS business, there has been minimal contract
and license fee activity. The Company expects to continue this focus and
anticipates that revenues in 1996 will be minimal. The Company believes that
period-to-period revenue comparisons are not necessarily meaningful as an
indication of future performance. In the future, the Company expects to derive
additional revenues from the sale of its equipment and the provision of PCS
service in the Company's markets.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Research and development expenses increased by 157.7%, or approximately $8.2
million, to $13.4 million for the six months ended June 30, 1996 compared to
$5.2 million for the six months ended June 30, 1995. The increase was due
primarily to an increase of $1.1 million in the purchase of research and
development components and non-recurring engineering, an increase of $1.3
million for the development and delivery of a pilot IS-661 mobility system, an
increase of $1.1 million for project management costs associated with the
buildout of the IS-661 pilot system and New York MTA PCS 1900 infrastructure,
an increase of $1.1 million for equipment leases and rentals and an increase
of $3.0 million in payroll and related payroll taxes, employee benefits and
employee recruiting costs associated with the Company's continued growth and
its development of the IS-661 technology. The Company expects that research
and development expenses will continue to increase significantly during the
remainder of 1996 as compared to 1995.
Sales, general and administrative expenses increased by 127.3%, or
approximately $5.6 million, to $10.0 million for the six months ended June 30,
1996 compared to $4.4 million for the six months ended June 30, 1995. Of this
increase, $2.1 million was due to payroll related expenses associated with
increases in headcount resulting from the expansion of the Company's
operations. The remaining increase consists primarily of increases of $914,000
in consulting service fees, $386,000 in rent expenses and utilities, $201,000
in legal fees, $521,000 in equipment rentals and $105,000 in insurance
expense. The Company expects that such expenses will continue to increase
significantly during 1996, as the Company continues to expand its operations.
Depreciation and amortization increased by 22.2%, or approximately $1.2
million to $6.6 million for the six months ended June 30, 1996 compared to
$5.4 million for the six months ended June 30, 1995. The increase in the 1996
period was due to a general increase in depreciation related to the Company's
research and development equipment.
25
<PAGE>
Interest income increased approximately $2.5 million to $2.7 million for the
six months ended June 30, 1996 compared to $153,000 for the six months ended
June 30, 1995. The increase was due to the increase in earnings on interest
bearing cash and cash equivalents. The increase in cash and cash equivalents
resulted from the issuance of $25.0 million in senior notes in November 1995,
$25.0 million in convertible notes in November and December 1995 and 8,050,000
shares of Common Stock related to the IPO.
Interest expense decreased by 38.0% or approximately $6.2 million, to $10.1
million for the six months ended June 30, 1996 as compared to $16.3 million
for the six months ended June 30, 1995. The interest expense for the six
months ended June 30, 1995 included $15.7 million of accrued estimated
interest expense related to the New York MTA License. On March 8, 1996, the
FCC adopted an order setting the interest rate for such License at 7.75% per
annum accruing from March 8, 1996. As a result, the Company reversed $33.5
million of accrued interest related to the New York MTA License during
December 1995. Had this adjustment been retroactively recorded in the six
months ended June 30, 1995, the net loss and loss per share would have been
$15.4 million and $0.49, respectively.
Net loss increased approximately $6.2 million to $37.4 million for the six
months ended June 30, 1996 compared to $31.2 million for the six months ended
June 30, 1995. This increase was due primarily to a general increase in
operating expenses, partially offset by a decrease of approximately $8.7
million in net interest expense.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
There were no revenues during the year ended December 31, 1995 as compared
to $3.0 million for the year ended December 31, 1994, consisting of a license
fee from Northern Telecom.
Research and development expenses increased by 104.3%, or approximately $7.3
million, to $14.3 million for the year ended December 31, 1995 compared to
$7.0 million for the year ended December 31, 1994. The increase was due
primarily to an increase of $3.1 million in the purchase of research and
development components and an increase of $3.3 million in payroll and related
payroll taxes and employee benefits associated with the Company's continued
growth and its development of the IS-661 technology.
Sales, general and administrative expenses increased by 100.0%, or
approximately $6.3 million, to $12.6 million for the year ended December 31,
1995 compared to $6.3 million for the year ended December 31, 1994. Of this
increase, $2.5 million was due to increases in management headcount resulting
from the expansion of the Company's operations. The remaining increase
consists primarily of increases of $1.1 million in legal fees, $300,000 in
accounting fees, $402,000 in rent expense and utilities, $664,000 in
consulting service fees and $530,000 in travel expenses.
Depreciation and amortization increased approximately $9.9 million to $11.0
million for the year ended December 31, 1995 compared to $1.1 million for the
year ended December 31, 1994. The increase in the 1995 period was due
primarily to 12 months of the amortization of the New York MTA License, which
is being amortized using the straight-line method over a period of 40 years.
Net interest income was $232,000 for the year ended December 31, 1995
compared to $1.2 million of net interest expense for the year ended December
31, 1994. The net interest expense for the year ended December 31, 1994
included $1.5 million of interest expense related to the New York MTA License.
Net loss increased approximately $28.5 million to $37.8 million for the year
ended December 31, 1995 compared to $9.3 million for the year ended December
31, 1994. This increase was due primarily to an increase of $8.7 million in
amortization associated with the New York MTA License and a general increase
in operating expenses.
26
<PAGE>
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Revenues increased by 87.5%, or approximately $1.4 million, to $3.0 million
in 1994 from $1.6 million in 1993. Northern Telecom accounted for 100% of the
Company's revenues in 1994, which represented a nonrefundable license fee
received upon entering into an OEM agreement. Three customers accounted for
90.2% of the revenues in 1993. The 1993 revenues were derived from contracts
related to research and development, prototype equipment sales and related
services in the field of wireless digital communications.
Research and development expenses increased by 52.2%, or approximately $2.4
million, to $7.0 million in 1994 from $4.6 million in 1993. These expenses
consisted primarily of payroll and related payroll taxes and employee benefits
of employees engaged in ongoing research, design and development activities
and the Company's continued growth and developing and testing of prototypes.
The increases in 1994 were primarily due to an increase of $1.6 million in
payroll and related payroll taxes and employee benefits, specifically in the
digital and software engineering departments, and an increase of $474,000 in
the purchases of research and development components.
Sales, general and administrative expenses increased by 110.0%, or
approximately $3.3 million, to $6.3 million in 1994 from $3.0 million in 1993.
These expenses consisted primarily of salaries and related payroll taxes and
employee benefits for management, finance and accounting, legal and other
professional services. The increase in 1994 is due to an increase of $800,000
in legal costs, primarily in connection with the New York MTA License, an
increase of $480,000 in office related expenses including utilities, office
supplies, postage and rent, an increase of $822,000 in payroll and related
payroll taxes and employee benefits and an increase of $276,000 in sales and
marketing costs due to increases in headcount combined with higher involvement
and attendance at tradeshows.
Depreciation and amortization increased by 357.7%, or approximately
$880,000, to $1.1 million in 1994 from $246,000 in 1993. The increase in 1994
was due primarily to amortization of the New York MTA License of $428,000.
Interest income (expense), net includes $1.5 million of interest expense in
1994 related to the New York MTA License, which was partially offset by
interest income of $360,000.
Net loss increased by 50.0%, or approximately $3.1 million, to $9.3 million
in 1994 from $6.2 million in 1993. The increase in net loss in 1994 was
primarily due to the $1.5 million of interest expense associated with the New
York MTA License and $428,000 of amortization of the New York MTA License. The
net loss was partially offset by $3.2 million of gain on the sale of stock of
its subsidiary during 1994.
LIQUIDITY AND CAPITAL RESOURCES
Since its formation through June 30, 1996, the Company has financed its
operations and met its capital requirements primarily through the IPO, three
Preferred Stock offerings, borrowings under a bridge loan, sale of stock of
its subsidiary, vendor financing and, to a lesser extent, equipment lease
arrangements. These financing activities provided net cash of $4.7 million in
1991, $17.4 million in 1993, $116.0 million in 1995 and $93.5 million for the
six months ended June 30, 1996. The Company received gross proceeds of $50.0
million through the sale of the Senior Notes, the Convertible Subordinated
Notes and associated warrants in November and December 1995. The Convertible
Subordinated Notes were subsequently converted into 1,562,500 shares of Common
Stock at the closing of the IPO.
Operating activities used net cash of $5.0 million in 1993, $7.9 million in
1994, $19.7 million in 1995 and $27.8 million for the six months ended June
30, 1996. These increases resulted from the Company's increased activity and
corresponding growth to support product development and to commence the
buildout of the New York MTA network. Investing activities used net cash of
$480,000 in 1993, provided net cash of $720,000 in 1994, used net cash of
$44.0 million in 1995, and provided net cash of $4.0 million for the six
months ended June 30, 1996, which consisted of capital expenditures for office
equipment, computers and related equipment
27
<PAGE>
used in engineering and manufacturing, purchase of New York MTA infrastructure
related products and the $25.5 million down payment on the Entrepreneurs' Band
licenses, offset by the refund of the $40 million deposit from the
Entrepreneurs' Band auction.
As of June 30, 1996, the Company had working capital of approximately $110.8
million. In January 1996, working capital increased by $135.4 million from a
deficit of $1.4 million at December 31, 1995 to $134.0 million upon receipt of
$118.4 million of proceeds, net of expenses, from the issuance of 8,050,000
shares of Common Stock in the IPO, the reduction of current liabilities of
$36.5 million and $16.3 million related to the repayment of debt outstanding
pursuant to a certain credit agreement, and the conversion of $25.0 million of
Convertible Subordinated Notes upon the IPO, respectively. This increase in
working capital was partially offset by the cash used to repay a short-term
credit agreement debt. In July 1996, the Company received approximately $110.8
million of proceeds, net of expenses, from the issuance of 4,500,000 shares of
Common Stock.
In 1993, the Company, through its subsidiary, OCI, was awarded a final
Pioneer's Preference for the New York MTA License that required no license
fee. Subsequent legislation mandated a methodology for charging for such
License and required that the FCC adopt an order setting forth the terms of
the principal and interest payments for such License. In accordance with terms
defined in that legislation, the Company is obligated to pay a license fee of
$347.5 million to the FCC for the New York MTA License. On March 8, 1996, the
FCC adopted such an order, the terms and conditions of which are as follows:
(i) a five-year payment period with interest accruing at 7.75% from the order
adoption date with the first payment due on the 30th day following such date
and subsequent quarterly payments due on April 30, July 31, October 31 and
January 31, (ii) interest only payments for the first two years and (iii)
principal and interest payments for the remaining three years. Through July
31, 1996, the Company had made interest payments totaling $13.4 million
representing interest expense through September 30, 1996.
The Company has an agreement to purchase $250.0 million of equipment and
services over the next five years from Northern Telecom. The Company has
purchased approximately $57.3 million of equipment and services under such
agreement. The Company has a $382.5 million credit facility with Northern
Telecom to finance purchases and installations of telecommunications
equipment, engineering services, certain related construction costs, third-
party equipment and other expenses. The Company also has an OEM agreement to
sell certain equipment, hardware and software to Northern Telecom at its
normal selling prices, which will result in licensing fees and revenues.
The NT Credit Facility is secured by a pledge of all capital stock of OCI
owned by a wholly-owned subsidiary of the Company (which constitutes a 95.58%
ownership interest) and substantially all of OCI's assets. Under the terms of
the NT Credit Facility, OCI is subject to certain financial and operational
covenants including restrictions on OCI's ability to pay dividends,
restrictions on indebtedness and certain financial maintenance requirements.
Additionally, the NT Credit Facility provides that, among other events, the
failure of OCI to pay when due amounts owing the FCC shall constitute an event
of default. Interest on the NT Credit Facility is payable quarterly.
A portion of the NT Credit Facility, which may be used for working capital
purposes including interest payments on the principal of such facility,
matures on June 30, 1997. Borrowings for working capital purposes which are
repaid may be subsequently borrowed for the other purposes allowed under the
NT Credit Facility. As of June 30, 1996, the Company owed $13.1 million on the
portion of the NT Credit Facility which matures June 30, 1997.
The principal amount of the non-working capital portions of the NT Credit
Facility is payable in installments beginning in 2000, with the final payment
due on December 31, 2004. As of June 30, 1996, OCI had a balance (principal
and accrued interest) of approximately $71.4 million outstanding under the
non-working capital portions of this facility.
28
<PAGE>
Subsequent to June 30, 1996, the Company initiated additional draws on the
NT Credit Facility and Ericsson Credit Facility totaling approximately $21.0
million and $2.1 million, respectively, to fund the purchase of construction
and consulting services related to the buildout of the New York MTA network.
During the third quarter of 1996, the Company paid all existing indebtedness
for the NT and Ericsson Credit Facility of approximately $73.8 million and
$2.1 million, respectively. Northern Telecom has executed a non-binding
commitment letter to extend the NT Credit Facility from $382.5 million to
$612.0 million on substantially the same terms. Such extension is subject to
approval by the Board of Directors of Northern Telecom. If a definitive
agreement is reached, the Company expects to use these funds in the New York
MTA or other markets which the Company acquired in the Entrepreneurs' Band
auction.
On November 22, 1995, the Company sold variable interest rate Senior Notes
in the aggregate amount of $25.0 million, together with warrants to purchase
625,000 shares of Common Stock at an exercise price of $.004 per share. The
Senior Notes mature in five years and may be prepaid at any time. The note
purchase agreement contains certain covenants and restrictions on the Company,
including a restriction on the payment of cash dividends and the requirement
that any indebtedness of the Company be pari passu or subordinate to the
Senior Notes.
On November 29, 1995, the Company sold Convertible Subordinated Notes in the
aggregate amount of $15.0 million, together with warrants to purchase 375,000
shares of Common Stock at an exercise price of $.004 per share. On December
18, 1995, the Company sold Convertible Subordinated Notes in the aggregate
amount of $10.0 million to Hansol, together with warrants to purchase 250,000
shares of Common Stock at an exercise price of $.004 per share. The
Convertible Subordinated Notes were converted upon the closing of the IPO into
1,562,500 shares of Common Stock.
On January 31, 1996, the Company completed its IPO of 8,050,000 shares of
Common Stock resulting in proceeds, net of related expenses, of approximately
$118.4 million. In connection with the IPO, the Preferred Stock was converted
into 10,605,591 shares of Common Stock and the Convertible Subordinated Notes
were converted into 1,562,500 shares of Common Stock. The Company used a
portion of the net proceeds to pay down the outstanding balance of $36.5
million due pursuant to a credit agreement.
On July 3, 1996, the Company completed a public offering of 4,500,000
primary shares of Common Stock resulting in proceeds, net of related expenses,
of approximately $110.8 million. The net proceeds are expected to be used
principally for the second required principal payment and subsequent interest
payments for the Entrepreneurs' Band licenses, for working capital and capital
expenditures related to the Entrepreneurs' Band networks and for the New York
MTA operations.
In August 1996, the Company, through its subsidiary, Omnipoint PCS
Entrepreneurs Two, Inc. ("OPCSE Two"), entered into a credit facility with a
bank. The agreement provides for up to $100.0 million in revolving credit for
general working capital purposes with a draw down termination date and final
repayment date of May 8, 1997. The initial funding took place on August 12,
1996, at which time the Company drew down $60.0 million (which amount was
repaid on August 13, 1996). Subsequent to the initial drawing, the committed
amount of the credit facility may not exceed the initial drawing and is
subject to mandatory reduction under the terms of the credit agreement. Under
the terms of the agreement, the Company paid a portion of the upfront fee and
will pay additional fees based in part on amounts outstanding from time to
time. Interest periods range from one to fourteen days, with interest rates
set by the bank based on wholesale money market rates available to the bank.
The facility is secured by all assets of OPCSE Two and a pledge of all capital
stock of OPCSE Two owned by a wholly-owned subsidiary of the Company. The
Company has also guaranteed the payment and performance of OPCSE Two's
obligations.
The Company entered into a credit facility with Ericsson, dated as of August
7, 1996, to provide financing to the Company for up to $132.0 million for the
purposes of financing the purchase of equipment and services from Ericsson for
the New York MTA market. A portion of the Ericsson Credit Facility, which may
be used for interest payments accruing under such facility, and a portion
which may be used to purchase handsets, mature on June 30, 1998. The principal
amount on other portions of the facility is payable in installments beginning
in 2000, with the final payment due on December 31, 2004. Amounts borrowed and
repaid are not available for reborrowing except for the $2.1 million repaid by
the Company during the third quarter of 1996. Interest on the Ericsson Credit
Facility is payable quarterly.
29
<PAGE>
Under the terms of the Ericsson Credit Facility, OCI is subject to certain
financial and operational covenants including restrictions on OCI's ability to
pay dividends, restrictions on indebtedness and certain financial maintenance
requirements. Additionally, the Ericsson Credit Facility provides that, among
other events, the failure of OCI to pay when due amounts owing the FCC shall
constitute an event of default. The Ericsson Credit Facility is secured by
substantially all of the assets of OCI, including a pledge of all capital
stock of OCI owned by a wholly-owned subsidiary of the Company (which
constitutes a 95.58% ownership interest). All collateral is held by a
collateral agent and is shared on a pari passu basis with Northern Telecom
pursuant to an inter-creditor arrangement.
The Company bid successfully for Entrepreneurs' Band licenses with an
aggregate license fee of approximately $509.1 million (net of the 25% small
business discount). On September 17, 1996, the FCC granted the Company's 18
Entrepreneurs' Band C Block PCS licenses. The Company has made a 10% down
payment, or approximately $51.0 million, to the FCC for these licenses. The
Company will pay interest only until 2003 and will pay the balance of $458.2
million and remaining interest in the period 2003 to 2006. This obligation
will bear interest until paid at the 10-year Treasury note rate to be
specified by the FCC. The Entrepreneurs' Band BTA licenses and any other
licenses the Company purchases in the future will be accounted for in
accordance with the recently agreed upon industry practices. Accordingly,
interest incurred for such licenses will be capitalized during the buildout
phase and amortization of such license costs will begin with the commencement
of service to customers.
In August 1996, the Company made a $60.0 million deposit with the FCC to
participate in the D, E and F Block auctions. The deposit qualifies the
Company to participate in the D, E and F Block auctions and will be used to
satisfy any commitments arising from the Company's successful bidding in the
D, E and F Block auctions. Winning bidders for the D and E Block licenses must
submit sufficient funds to bring the total amount of money on deposit with the
FCC to 20% of their net winning bids within five business days of the auction
closing notice and pay the remaining 80% within five business days of the
license grant. F Block winners will receive 15% or 25% bidding credit if their
annual gross revenues averaged over the preceding three calendar years is less
than $40.0 million or $15.0 million, respectively. Within five business days
after release of the D, E and F Block auction closing notices, F Block winning
bidders must submit sufficient funds to bring the total amount of money on
deposit with the FCC to 10% of their net winning bids. Within five business
days of the license grant, F Block winners must bring the total amount on
deposit with the FCC up to 20% of their net winning bids, and may execute a
10-year promissory note for the balance.
The Company believes that access to capital and financial flexibility are
necessary to successfully implement its strategy. The Company received net
proceeds of approximately $241.1 million from the private placement of the Old
Notes. The Company believes these proceeds, in combination with the NT Credit
Facility and Ericsson Credit Facility, will be sufficient to fund operating
losses, capital expenditures and working capital necessary for the initial
buildout of the Company's PCS networks. To the extent that the buildout of
these networks is faster than expected, the costs are greater than anticipated
or the Company takes advantage of other opportunities, including those that
may arise through current and future FCC auctions, the Company may require
additional funding to implement its business strategy. See "Use of Proceeds."
The Company's future capital requirements will depend upon many factors,
including the successful development of new products, the extent and timing of
acceptance of the Company's equipment in the market, requirements to maintain
adequate manufacturing facilities, the progress of the Company's research and
development efforts, expansion of the Company's marketing and sales efforts,
the Company's results of operations and the status of competitive products.
The Company estimates that it will require between $100 million to $150
million to build out its New York MTA network at a sufficient level to meet
the Five-Year Buildout Requirement imposed on the Company as a license holder.
The Company estimates that it will require between $50 million to $75 million
to meet similar buildout requirements for the Entrepreneurs' Band networks.
The Company believes that cash and cash equivalents on hand, including
proceeds from the private placement of the Old Notes, anticipated revenues,
vendor financing and additional strategic partnerships will be adequate to
fund its operations through 1997. There can be no assurance, however, that the
Company will not require additional financing prior to such date to fund its
operations. The Company believes that it will require substantial amounts of
additional capital over the next several years and anticipates that this
capital will be derived from a mix of public offerings and private placements
of debt or equity securities or both.
30
<PAGE>
THE EXCHANGE OFFER
TERMS OF EXCHANGE OFFER
GENERAL
In connection with the sale of the Old Notes pursuant to a Purchase
Agreement dated as of August 22, 1996, between the Company and the Initial
Purchasers, the Initial Purchasers and their assignees became entitled to the
benefits of the Registration Rights Agreement, dated August 27, 1996.
Under the Registration Rights Agreement, the Company is obligated to (i)
file the Registration Statement of which this Prospectus is a part for a
registered exchange offer with respect to an issue of New Notes with terms
substantially identical in all material respects to the Old Notes (except that
such New Notes will not contain terms with respect to transfer restrictions)
within 45 days after August 27, 1996, the date the Old Notes were issued (the
"Issue Date"), and (ii) use its best efforts to cause the Registration
Statement to be declared effective with 90 days after the Issue Date. For each
Old Note surrendered pursuant to the Exchange Offer, the holder of such Old
Note will receive the New Notes having a principal amount equal to that of the
surrendered Old Note. The Exchange Offer being made hereby if commenced and
consummated within such applicable time periods will satisfy those
requirements under the Registration Rights Agreement. See "Description of New
Notes--Exchange Offer, Registration Rights."
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal (which together constitute the Exchange
Offer), the Company will accept for exchange all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., Eastern Standard Time, on the Expiration
Date. The Company will issue New Notes in exchange for an equal principal
amount of outstanding Old Notes accepted in the Exchange Offer.
As of the date of this Prospectus $250,000,000 aggregate principal amount of
Old Notes were outstanding. This Prospectus, together with the Letter of
Transmittal, is being sent to all registered holders as of , 1996. The
Company's obligation to accept Old Notes for exchange pursuant to the Exchange
Offer is subject to certain condition as set forth herein under "--
Conditions."
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Old Notes for the purposes of receiving the New Notes from the Company and
delivering New Notes to such holders.
In the event the Exchange Offer is consummated, subject to certain limited
exceptions, the Company will not be required to register the Old Notes. In
such event, holders of Old Notes seeking liquidity in their investment would
have to rely on exemptions to registration requirements under the U.S.
securities laws. See "Risk Factors--Consequences of Failure to Exchange."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean , 1996 (20 business days
following the commencement of Exchange Offer), unless the Company, in its sole
discretion, extends the Exchange Offer, in which case the term "Expiration
Date" shall mean the latest date to which the Exchange offer is extended. In
order to extend the Expiration Date, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the record
holders of Old Notes an announcement thereof, each prior to 9:00 a.m., Eastern
Standard Time, on the next business day after the previously scheduled
Expiration Date. Such announcement may state that the Company is extending the
Exchange Offer for a specified period of time.
Notwithstanding any extension of the Exchange Offer, if for any reason the
Exchange offer is not consummated before January 9, 1997, the Company will, at
its own expense, (a) as promptly as practicable, file
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a shelf registration statement covering resales of the Old Notes (a "Shelf
Registration Statement"), (b) use its best efforts to cause a Shelf
Registration Statement to be declared effective under the Securities Act as
promptly as practicable after the filing of such Registration Statement and
(c) use its best efforts to keep effective such Shelf Registration Statement
until the earlier of 36 months following the Issue Date and such time as all
of the Old Notes have been sold thereunder, or otherwise cease to be a
Transfer Restricted Security (as defined in the Registration Rights
Agreement). The Company will, in the event a Shelf Registration Statement is
required to be filed, provide to each holder of the Old Notes copies of the
prospectus which is part of such Shelf Registration Statement, notify each
such holder when such Shelf Registration Statement for the Old Notes has
become effective and take certain other actions as are required to permit
unrestricted resales of the Old Notes. A holder of the Old Notes who sells
such Old Notes pursuant to the Shelf Registration Statement generally would be
required to be named as a selling security holder in the related prospectus
and to deliver a prospectus to purchasers, will be subject to certain of the
civil liability provisions under the Securities Act in connection with such
sales and will be bound by the provisions of the Registration Rights Agreement
which is applicable to such a holder (including certain indemnification and
contribution rights and obligations).
The Company reserves the right (i) to delay accepting any Old Notes, to
extend the Exchange Offer or to terminate the Exchange Offer and not accept
Old Notes not previously accepted if any of the conditions set forth herein
under "--Conditions" shall have occurred and shall not have been waived by the
Company, by giving oral or written notice of such delay, extension or
termination to the Exchange Agent, or (ii) to amend the terms of the Exchange
Offer in any manner deemed by it to be advantageous to the holders of the Old
Notes. Any such delay in acceptance, extension, termination or amendment will
be followed as promptly as practicable by oral or written notice thereof. If
the Exchange Offer is amended in a manner determined by the Company to
constitute a material change, the Company will promptly disclose such
amendment in a manner reasonably calculated to inform the holders of the Old
Notes of such amendment and the Company will extend the Exchange Offer for a
period of five to 10 business days, depending upon the significance of the
amendment and the manner of disclosure to holders of the Old Notes, if the
Exchange Offer would otherwise expire during such five to 10 business day
period.
Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, the Company shall have no obligations to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to an appropriate news agency.
NO VOTE OF THE COMPANY'S SECURITY HOLDERS IS REQUIRED UNDER APPLICABLE LAW
TO EFFECT THE EXCHANGE OFFER AND NO SUCH VOTE (OR PROXY THEREFOR) IS BEGIN
SOUGHT HEREBY.
Holders of Old Notes do not have any appraisal of dissenters' rights in
connection with the Exchange Offer under the Delaware General Corporation Law,
the state in which the Company is incorporated.
INTEREST ON THE NEW NOTES
Interest on the New Notes will be payable at a rate of 11 5/8% per annum,
paid semi-annually in arrears on February 15 and August 15 of each year,
commencing February 15, 1997.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with any other
required documents, to the Exchange Agent prior to 5:00 p.m. Eastern Standard
Time, on the Expiration Date. In addition, either (i) certificates for such
Old Notes must be received by the Exchange Agent along with the Letter of
Transmittal, (ii) a timely confirmation of a book-entry transfer (a "Book-
Entry Confirmation") of such Old Notes, if such
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procedure is available, into the Exchange Agent's account at the Depository
Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedure
for book-entry transfer described below, must be received by the Exchange
Agent prior to the Expiration Date or (iii) the holder must comply with the
guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF OLD
NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDERS, IF SUCH DELIVERY IS BY MAIL, IT IS
RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE
COMPANY. To be tendered effectively, the Old Notes, Letter of Transmittal and
all other required documents must be received by Exchange Agent prior to 5:00
p.m., Easter Standard Time, on the Expiration Date. Delivery of all documents
must be made to the Exchange Agent at its address set forth below. Holders may
also request their respective brokers, dealers, commercial banks, trust
companies or nominees to effect such tender for such holders.
The tender by a holder of Old Notes will constitute an agreement between
such holder and the Company in accordance with the terms and subject to the
conditions set forth therein and in the Letter of Transmittal.
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
The term "holder" with respect to the Exchange Offer means any person in whose
name Old Notes are registered on the books of the Company or any other person
who has obtained a properly completed bond power form the registered holder.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial owner wishes to
tender on his own behalf, such beneficial owner must, prior to completing and
executing the Letter of Transmittal and delivering his Old Notes, either make
appropriate arrangements to register ownership of the Old Notes in such
owner's name or obtain a properly completed bond power from the registered
holder. The transfer of registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by any member firm of a registered nation
securities exchange or of the National Association of Securities Dealers, Inc.
or a commercial bank or trust company having an office or correspondent in the
U.S. (an "Eligible Institution") unless the Old Notes tendered pursuant
thereto are tendered (i) by a registered holder who has not completed the box
entitled "Special Issuance Instructions" or Special Delivery Instructions" on
the Letter of Transmittal or (ii) for the account of an Eligible Institution.
In the event that signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantee
must be by an Eligible Institution.
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by bond powers and a proxy which authorizes such person to tender
the Old Notes on behalf of the registered holder, in each case as the name of
the registered holder or holders appears on the Old Notes.
If the Letter of Transmittal of any Old Notes bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
person should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as the validity, form, eligibility (including time of receipt)
and withdrawal of the tendered Old Notes will be determined by the Company in
its sole discretion, which determination will be final and binding. The
Company reserves the absolute right to reject any and all Old Notes not
properly tendered or any Old Notes which, if accepted by the Company, would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any irregularities or conditions of tender as to
particular Old notes.
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The Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Company shall determine. None of the Company, the Exchange Agent or any other
person shall be under any duty to give notification of defects or
irregularities with respect to tenders of Old Notes, nor shall any of them
incur any liability for failure to give such notification. Tenders of Old
Notes will not be deemed to have been made until such irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned without cost to such holder by the Exchange
Agent to the tendering holders of Old Notes, unless otherwise provided in the
Letter of Transmittal, as soon as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion, subject
to the provisions of the Indenture, to (i) purchase or make offers for any Old
Notes that remain outstanding subsequent to the Expiration Date or, as set
forth under "--Conditions," to terminate the Exchange Offer in accordance with
the terms of the Registration Rights Agreement and (ii) to the extent
permitted by applicable law, purchase Old Notes in the open market, in
privately negotiated transactions or otherwise. The terms of any such
purchases or offers could differ from the terms of the Exchange Offer.
By tendering, each holder will represent to the Company that: (i) it is not
an affiliate of the Company (as defined under Rule 405 of the Securities Act);
(ii) any New Notes to be received by it were acquired in the ordinary course
of its business; and (iii) at the time of commencement of the Exchange Offer,
it was not engaged in, and did not intend to engage in, a distribution of such
New Notes and had no arrangement or understanding with any person to
participate in a distribution (within the meaning of the Securities Act) of
the New Notes. If a holder of Old Notes is an affiliate of the Company, and is
engaged in or intends to engage in a distribution of the New Notes or has any
arrangement or understanding with respect to the distribution of the New Notes
to be acquired pursuant to the Exchange Offer, such holder could not rely on
the applicable interpretations of the staff of the Commission and must comply
with the registration and prospectus delivery requirement of the Securities
Act in connection with any secondary resale transaction. Each broker or dealer
that receives New Notes for its own account in exchange for Old Notes, where
such Old Notes were acquired by such broker or dealer as a result of market-
making activities, or other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of such New Notes. See
"Plan of Distribution."
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of
the Old Notes. See "--Conditions" below. For purposes of the Exchange Offer,
the Company shall be deemed to have accepted validly tendered Old Notes for
exchange when, as and if the Company has given oral or written notice thereof
to the Exchange Agent.
For each Old Note for exchange, the holder of such Old Notes will receive a
New Note having a principal amount equal to that of the surrendered Old Note.
If (a) neither of registration statement for the Exchange Offer (the "Exchange
Offer Registration Statement") of which this Prospectus is a part nor the
Shelf Registration Statement described above is filed on or before October 11,
1996 (45 days following the Issue Date), (b) neither of such registration
statements is declared effective by the Commission on or prior to November 25,
1996 (the 90th day after the Issue Date) (the "Effectiveness Target Date"),
(c) the Exchange Offer Registration Statement is declared effective and the
Company fails to consummate the Exchange offer within 45 days of the earlier
of the effectiveness of such registration statement or the Effectiveness
Target Date, or (d) the Shelf Registration Statement is declared effective but
thereafter ceases to be effective or usable in connection with resales of
Notes during the period specified in the Registration Rights Agreement (each
such event referred to the clauses (a) through (d) above a "Registration
Default"), then the Company will pay liquidated damages ("Liquidated Damages")
to each holder of the Notes, with respect to the first 90-day period
immediately following the occurrence of such Registration Default in an amount
equal to $.05 per week per $1,000 principal amount of the
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Notes held by such holder. Upon a Registration Default, liquidated damages
will accrue at the rate specified above until such Registration Default is
cured and the amount of liquidated damages will increase by an additional $.05
per week per $1,000 principal amount of Notes with respect to each subsequent
90-day period until all Registration Defaults have been cured, up to a maximum
amount of liquidated damages of $.50 per week per $1,000 principal amount of
Notes (regardless of whether one or more than one Registration Default is
outstanding). All accrued liquidated damages will be paid by the Company on
February 15 and August 15 of each year to the holders of Notes.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-
Entry Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old Notes are
not accepted for any reason set forth in the terms and conditions of the
Exchange Offer or if Old Notes are submitted for a greater principal amount
than the holder desires to exchange, such unaccepted or nonexchanged Old Notes
will be returned without expense to the tendering holder thereof (or, in the
case of Old Notes tendered by book-entry transfer procedures described below,
such nonexchanged Old Notes will be credited to an account maintained with
such Book-Entry Transfer Facility) as promptly as practicable after the
expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer facility for purposes of the
Exchange Offer within two business days after the date of the Prospectus. Any
financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the Book-
Entry Transfer Facility, the Letter of Transmittal or facsimile thereof with
any required signature guarantees and any other required documents must, in
any case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under "--Exchange Agent" on or prior to the
Expiration Date or the guaranteed delivery procedures described below must be
complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes,
the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedures for book-entry transfer cannot
be completed on a timely basis, a tender may be effected if (i) the tender is
made through an Eligible Institution, (ii) prior to the Expiration Date, the
Exchange Agent received from such Eligible Institution a properly completed an
duly executed Letter of Transmittal (or a facsimile thereof) and Notice of
Guaranteed Delivery, substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery), setting forth the named and
address of the holder of Old Notes and the amount of Old Notes tendered,
stating that the tender is being made thereby and guaranteeing that within
five New York Stock Exchange ("NYSE") trading days after the date of execution
of the Notice of Guaranteed Delivery, the certificates for all physically
tendered Old Notes, in proper form to transfer, or a Book-Entry Confirmation ,
as the case may be, and any other documents required by the Letter of
Transmittal will be deposited by the Eligible Institution with the Exchange
Agent, and (iii) the certificate for all physically tendered Old Notes, in
proper form for transfer, or a Book-Entry Confirmation, as the case may be,
and all other documents required by the Letter of Transmittal are received by
the Exchange Agent within five NYSE trading days after the date of execution
of the Notice of Guaranteed Delivery.
WITHDRAWAL OF TENDERS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m. Eastern
Standard Time, on the Expiration Date.
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For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
"Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes
to be withdrawn (including the principal amount of such Old Notes) and (where
certificates for Old Notes have been transmitted) specify the name in which
such Old Notes are registered, if different from that of the withdrawing
holder. If certificates for the Old Notes have been delivered or otherwise
identified to the Exchange Agent, then, prior to the release of such
certificates, the withdrawing holder must also submit the serial numbers of
the particular certificates to be withdrawn and a signed notice of withdrawal
with signatures guaranteed by the Eligible Institution unless such holder is
an Eligible Institution. If Old Notes have been tendered pursuant to the
procedures of book-entry transfer described above, any notice of withdrawal
must specify the name and number of the account at the Book-Entry Transfer
Facility to be credited with the withdrawn Old Notes and otherwise comply with
the procedures of such facility. All questions as to the validity, from and
eligibility (including time of receipt) of such notices will be determined by
the Company, whose determination shall be final and binding on all parties.
Any Old Notes so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the Exchange Offer. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Old Notes will be credited to an account
maintained with such Book-Entry Transfer Facility for the Old Notes) as soon
as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by following
one of the procedures described under the "--Procedures for Tendering" above
at any time on or prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or to issue New Notes in exchange for, any
Old Notes and may terminate or amend the Exchange Offer as provided herein
before the acceptance of such Old Notes, if because of any changes in law, or
applicable interpretations thereof by the Commission, the Company determines
that it is not permitted to effect the Exchange Offer. In addition, the
Company has no obligation to, and will not knowingly, accept tenders of Old
Notes from affiliates of the Company (within the meaning of Rule 405 under the
Securities Act) or from any other holder or holders who are not eligible to
participate in the Exchange Offer under applicable law or interpretations
thereof by the Commission, or if the New Notes to be received by such holder
or holders of Old Notes in the Exchange Offer, upon receipt, will not be
tradeable by such holder without restriction under the Securities Act and the
Exchange Act and without material restriction under the "blue sky" or
securities law of substantially all of the states.
EXCHANGE AGENT
Marine Midland Bank has been appointed as Exchange Agent for the Exchange
Offer. Questions and requests for assistance and requests for additional
copies of this Prospectus or of the Letter of Transmittal should be directed
to the Exchange Agent addressed as follows:
By Registered or Certified Mail;
By Overnight Courier; or By Hand:
Marine Midland Bank
140 Broadway--Level A
New York, New York 10005-1180
Attention: Corporation Trust Operations
By Facsimile: (212) 658-2292
Attention: Corporate Trust Operations
Telephone: (212) 658-5931
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FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tender pursuant to the
Exchange Offer is being made by mail; however, additional solicitations may be
made by telegraph, telephone, telecopy or in person by officers and regular
employees of the Company.
The Company will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for it reasonable out-of-pocket expenses in
connection therewith. The Company may also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of the Prospectus and related documents
to the beneficial owners of the Old Notes, and in handling or forwarding
tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer will be
paid by the Company, including fees and expenses of the Exchange Agent and
Trustee (as hereinafter defined) and accounting, legal printing and related
fees and expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or
issued in the name of, any person other than the registered holder of the Old
Notes tendered, or if tendered Old Notes are registered in the name of any
person other than the person signing the Letter of Transmittal, or if a
transfer tax is imposed for any reason other than exchange of Old Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
holder.
ACCOUNTING TREATMENT
The New Notes will be recorded in the Company's accounting records at the
same carrying value as the Old Notes as reflected in the Company's accounting
records on the date of the exchange. Accordingly, no gain or loss for
accounting purposes will be recognized upon the consummation of the Exchange
Offer. The expense of the Exchange Offer will be amortized by the Company over
the term of the New Notes in accordance with generally accepted accounting
principles.
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BUSINESS
In addition to the historical information contained herein, this Prospectus
contains forward-looking statements which involve risks and uncertainties. The
Company's actual results may differ significantly from those discussed herein.
Factors that might cause such a difference include, but are not limited to,
those discussed in "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" as well as those discussed
elsewhere in this Prospectus.
OVERVIEW
Omnipoint is a leader in commercializing personal communications services
("PCS"). Omnipoint intends to provide wireless communication services in areas
covering approximately 40.3 million POPs, of which 97.1% are located in a
contiguous area in the northeast region of the U.S. Omnipoint is currently the
fifth largest PCS licensee in the U.S., based on POPs. The Company holds a
license for the New York MTA, the largest MTA in the U.S., with approximately
27.0 million POPs, and bid successfully in the recently completed
Entrepreneurs' Band auction for 18 BTAs with approximately 13.4 million POPs,
including the Philadelphia, Atlantic City, Buffalo and Rochester BTAs. The
Company will pay an average of $21.24 per POP over a period of five to 10
years for its 40.3 million POPs. In addition, the Company is participating in
the D, E and F Block auctions. The Company also develops technology and
equipment for PCS. The Company's proprietary technology is suitable for a
variety of digital wireless applications including mobile network systems and
WLL. Omnipoint's technology will be integrated with wireless GSM networks and
local telephone switching platforms.
Omnipoint has spent several years developing and refining its core
technology based on spread spectrum since the Company's incorporation in 1987.
From inception to 1992, the Company developed several working prototypes for
various wireless voice, data and digitized compressed video transmission
projects. The Company's success in developing its technology for the first
digital PCS system at 1.9 GHz during 1991 and 1992 was instrumental in the FCC
awarding the Company one of three Pioneer's Preferences in 1993. As a result
of the Pioneer's Preference, the FCC issued to the Company in December 1994
the New York MTA License. Omnipoint's strategy for its service business is to
become a leading provider of wireless services in its markets. The Company
believes that it will be the first to offer commercial PCS services in the New
York City area beginning in the fourth quarter of 1996. The Company will
continue to build out the New York MTA network and plans to build and operate
PCS networks in the areas covered by its BTA licenses, focusing initially on
the most densely populated portions of these areas and on major commuting
corridors. The Company believes that existing cellular systems in the most
densely populated areas, particularly within the New York City metropolitan
area, provide inadequate capacity and that service during peak hours for
current cellular users and the anticipated growth in wireless demand will add
to this problem. The Company intends to use a combination of the Omnipoint
System and GSM to provide superior wireless services to its customers. The
Company plans to offer a variety of services to its customers, including voice
and data transmission, call forwarding, call waiting and paging capability.
The Company will pay $347.5 million for the New York MTA License. The
Company is required to pay only interest on the total amount due until March
8, 1998, and to pay the principal balance and remaining interest during the
period March 1998 to March 2001. In the recently completed auction by the FCC
of the Entrepreneurs' Band licenses, the Company bid successfully for licenses
for 18 BTAs with approximately 13.4 million POPs. On September 17, 1996, the
FCC granted the Company's 18 Entrepreneurs' Band C Block PCS licenses. The
total purchase price for these licenses after discount, is approximately
$509.1 million. The Company has made a 10% down payment, or approximately
$51.0 million, to the FCC for these licenses, will pay interest only until
2003 and will pay the principal balance of approximately $458.2 million and
remaining interest in the period 2003 to 2006. See "Business--Regulatory
Environment."
Omnipoint's strategy for its technology development and equipment business
is to establish the Omnipoint System as a leading PCS standard. The Joint
Technical Committee on Wireless Access has designated the Omnipoint System as
IS-661. The Omnipoint System is one of four competing CAI standards that have
been
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selected by PCS license holders in the U.S. to serve the mobile PCS market.
The Omnipoint System is designed to provide enhanced voice quality, higher
speed data transmission rates and increased capacity and service reliability
relative to analog systems and other digital wireless systems. Additionally,
the Omnipoint System is designed to have lower infrastructure costs than
traditional cellular and other PCS systems.
The Omnipoint System is also particularly well suited for fixed WLL
applications. Initially, the Company plans to focus its domestic WLL
activities on providing wireless CAP services in the New York MTA and other
targeted cities to businesses in small- and medium-sized business locations,
whose capacity requirements do not justify the expense of alternative bypass
technologies, such as leased line, fiber or microwave technologies. In
addition, the Company intends to access international markets through sales of
equipment (i) to service providers for WLL applications as an alternative to
expanding fixed wireline services in countries where telephone services have
not been well developed, and (ii) as an upgrade to GSM networks in the 98
countries where GSM has been deployed or selected for deployment.
The Company has established strategic relationships with Northern Telecom,
Ericsson and Hansol. A substantial portion of Omnipoint's equipment purchases
for the buildout of the New York MTA network is being financed by Northern
Telecom under the $382.5 million NT Credit Facility and by Ericsson under the
$132.0 million Ericsson Credit Facility. Northern Telecom and Omnipoint are
integrating the Omnipoint System with Northern Telecom's GSM digital switch,
with the first integrated system to be deployed in the New York MTA. The
Company and Ericsson have agreements involving (i) the purchase and sale of
Ericsson-manufactured infrastructure equipment and handsets for the Company's
PCS networks, and (ii) a licensing and acquisition arrangement relating to the
Omnipoint System. The Company and Orbitel have entered into a non-binding
memorandum of understanding involving Orbitel's development and manufacture of
single mode IS-661 and dual mode IS-661/PCS 1900 handsets. The Company has
entered into a strategic alliance with Hansol under which it licensed Hansol
to manufacture handsets. The two companies also agreed to cooperate on
promoting the Omnipoint System in the Republic of Korea and other parts of
Asia. In addition, each of PacBell, BellSouth, Western Wireless, InterCel, APC
and APT has signed a separate non-binding memorandum of understanding with the
Company to provide subscribers with roaming capabilities and to conduct trials
using Omnipoint's equipment in the areas where each has PCS licenses. These
arrangements will together cover approximately 150 million POPs, or 57% of the
U.S. population. The Company expects that roaming will be expanded to areas
covering approximately 200 million POPs, or approximately 76% of the U.S.
population, based on the results of the Entrepreneurs' C Band auction and the
announced intentions of those successful holders therein who have chosen to
use GSM-based systems. Currently, in the D, E and F block auction, which is in
its third and final stage, the bidders that have declared their intentions to
deploy GSM-based networks are the high bidders on licenses which may bring GSM
coverage to over 90% of the U.S. populations. The Company is in discussions
with other equipment vendors and service providers regarding additional
strategic relationships.
Omnipoint Corporation consists of a technology division and several
subsidiaries. Omnipoint PCS, Inc. ("OPI"), a wholly owned subsidiary of the
Company, has as its sole asset a 95.58% ownership interest in OCI. OCI is the
holder of the New York MTA License and will operate the service business in
the New York MTA. OPCS Corp., a wholly owned subsidiary of Omnipoint
Corporation, has as its sole asset 100% of the stock of OPCSE. Through OPCSE,
the Company bid successfully for 18 BTA licenses in the Entrepreneurs' Band
auction.
The Company was incorporated in 1987 in the State of Delaware. Its principal
executive offices are at 2000 North 14th Street, Arlington, Virginia 22201,
and its telephone number is (703) 522-7778.
STRATEGY
Omnipoint's strategy is to become a leading provider of wireless services
and products by deploying and operating PCS networks in the northeast region
of the U.S., providing wireless CAP services, expanding its PCS service area
through participation in future FCC PCS auctions, establishing the Omnipoint
System as a leading PCS standard and capitalizing on opportunities in
developing international markets for wireless applications.
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<PAGE>
LEADING SERVICE PROVIDER IN THE NORTHEAST
The Company plans to be a leading provider of wireless services in its
markets. The licenses held and to be held by the Company cover 40.3 million
POPs, 97.1% of which are in a contiguous area in the northeast region of the
U.S. The Company intends initially to offer service in the New York City
metropolitan area and its major commuting corridors and then expand service
throughout the New York MTA. The Company also plans to build and operate PCS
networks in the areas covered by its licenses for which it bid successfully in
the Entrepreneurs' Band auction, focusing initially on the most densely
populated portions of these areas and major commuting corridors. The Company
has completed building its pilot system in Manhattan using the Omnipoint
System. The Company plans to build all of its networks integrating Omnipoint's
IS-661 technology with a GSM system in order to provide mobile and fixed
telephone services, to provide roaming capability with other GSM based
networks and to facilitate rapid market entry. The Company will concentrate
its marketing efforts on cellular users who the Company believes have
experienced inadequate service and on the expanding market of new users.
WIRELESS CAP SERVICES
Omnipoint plans to introduce wireless CAP services to businesses in small-
and medium-sized locations whose capacity requirements do not justify the
expense of alternative bypass technologies, such as leased line, fiber or
microwave technologies. Omnipoint's wireless CAP services would allow
customers to bypass the local telephone exchange to complete calls with
wireline quality at discounts to prices such customers pay to the local
telephone exchange. The Company's wireless CAP services will operate through
radio units installed by the Company on customers' premises which will
communicate wirelessly with the Company's base stations.
FCC PCS AUCTIONS
Omnipoint is participating in the FCC's auctions for D, E and F Block PCS
licenses in order to expand its service area beyond the New York MTA and the
Entrepreneurs' Band BTAs where it has been the successful bidder for licenses.
On August 12, 1996, a subsidiary of the Company, OPCSE Two, made a $60 million
deposit in connection with the D, E and F Block auctions, which commenced in
late August 1996.
LEADING PCS STANDARD
The Company intends to establish the Omnipoint System as a leading PCS
standard through sales to other PCS service providers. The Company has an
agreement with Northern Telecom for the two companies to market an integrated
Omnipoint/GSM system throughout North America to prospective license holders
and to existing PCS license holders who deploy PCS 1900 systems. The Company
has entered into a non-binding memorandum of understanding with Orbitel for
Orbitel to develop and manufacture single mode IS-661 and dual mode IS-661/PCS
1900 phones and an agreement with Ericsson to sell Omnipoint base stations for
a variety of applications. The Company intends to enter similar arrangements
with other manufacturers from time to time.
INTERNATIONAL MARKETS
The Company is also developing international markets for its equipment for
WLL telephone service, for mobile networks and as an enhancement to GSM, which
has been deployed or chosen for deployment in 98 countries. Many developing
countries have a very limited wireline telephone infrastructure, and the cost
and time required to expand or upgrade a traditional telephone infrastructure
is often prohibitive. The Company will offer the Omnipoint System in such
countries on a cost-efficient, easily deployable basis to provide basic
telephone service wirelessly. The Company is also marketing the Omnipoint
System for mobile wireless networks and intends to sell its CAI access
equipment to augment GSM networks.
40
<PAGE>
INDUSTRY BACKGROUND
Since 1983, the demand for wireless telecommunications services has grown
dramatically as cellular, paging and other emerging wireless communications
services have become widely available and increasingly affordable. This growth
in wireless services has been driven by technological advances and changes in
both telecommunications regulations and consumer preferences. Mobile cellular
telephone service has been one of the fastest growing market segments within
the telecommunications industry. According to the Cellular Telecommunications
Industry Association, the number of cellular users in the U.S. grew from
340,000 at the end of 1985 to over 33.8 million at December 1995, and at a
compounded annual rate of 45.3% over the three year period ending December
1995. According to industry estimates, there are now approximately 85.0
million cellular users worldwide. Most industry analysts forecast that U.S.
penetration rates for mobile wireless service will reach between 40% and 50%
of the population by 2005.
Although analog cellular is the most widely deployed two-way wireless
service available today, it has several limitations, including inconsistent
service quality, lack of privacy, limited capacity and, currently, the
inability to transfer data without a modem. Most current cellular services
transmit voice and data signals over analog-based systems, which use one
continuous electronic signal that varies in amplitude or frequency over a
single radio channel. Digital systems, on the other hand, convert voice or
data signals into a stream of digits and typically use voice compression and
other techniques to allow a single radio channel to carry multiple
simultaneous signal transmissions. Digital technologies are expected to offer
new services, improved system flexibility, greater efficiency and increased
capacity.
PCS is a second generation comprehensive wireless communications service
that offers services generally comparable to or exceeding existing digital
cellular services. PCS systems in the U.S. are expected to operate under one
of four principal digital signal transmission technologies, or standards, that
have been proposed by various operators and vendors for use in PCS systems:
the Omnipoint System, GSM (known as PCS 1900 in the U.S.), CDMA or TDMA. See
"--Technology Business" and "--Strategic Relationships." GSM and TDMA are both
"time division-based" standards but are incompatible with each other and with
CDMA. The Omnipoint System is compatible with GSM and is being integrated with
GSM for deployment in the Company's markets. See "--Technology Business--
Competition."
GSM is the leading digital wireless technology in the world, with
approximately 175 networks being built or operating in 98 countries, including
all of western Europe. According to industry estimates, GSM networks serve
over 15 million subscribers worldwide as of May 1996, and are adding
approximately one million subscribers per month. APC introduced the first GSM
network in the U.S. in the Baltimore/Washington D.C. MTA in November 1995 and,
according to APC reports, as of September 1, 1996, the network served between
100,000 and 150,000 subscribers. In 1996, GSM systems were also introduced in
Hawaii, New Mexico, North Carolina and Utah. Ten PCS licensees have announced
their intention to use the GSM protocol in the construction of PCS networks
covering approximately 200 million POPs, representing approximately 76% of the
total population of the U.S. Currently, in the D, E and F Block auction, which
is in its third and final stage, the bidders that have declared their
intentions to deploy GSM-based networks are the high bidders on licenses which
may bring GSM coverage to over 90% of the U.S. population. An important
benefit associated with GSM technology is its use of an open system
architecture that will allow operators to purchase network equipment from a
variety of vendors that share standard interfaces for operation. This open
architecture provides significant flexibility by the operator in vendor cost
leveraging, and provisioning of features, products and services.
SERVICE BUSINESS
OVERVIEW
The Company's service business will provide mobile and fixed communications
service in its markets. The Company's wireless service is intended to provide
private, secure and enhanced voice, high-speed data, paging services and
imaging capabilities for both the office environment and outdoor mobile
coverage. The Company plans to provide a service with enhanced features
including voice mail, call forwarding and call waiting. The Company has
completed building its pilot system in Manhattan comprised of a limited number
of Omnipoint
41
<PAGE>
base stations. The Company plans to build all of its networks integrating
Omnipoint's IS-661 technology with the GSM system. Additionally, the Company
intends to introduce the first wireless CAP service in the New York City
metropolitan area.
Since securing the Pioneer's Preference award, the Company has been actively
designing and planning its network system to be built in the New York MTA and
has begun to install equipment for its initial service area. During the next
24 months, the Company plans to continue to install equipment and establish
marketing and distribution channels in its markets. The Company believes it
will be the first to offer commercial PCS services in the New York City area
beginning in the fourth quarter of 1996. The Company will continue to build
out the New York MTA network and plans to build and operate PCS networks in
the areas covered by its BTA licenses, focusing initially on the most densely
populated portions of these areas and major commuting corridors.
One of the Company's objectives is to reduce the risk of cell site related
delays during the buildout of its networks. The Company is locating sites for
its base stations and antennas where zoning approvals and other necessary
permits are not needed or are likely to be obtained more easily than for
traditional cellular equipment. Where high antenna sites are required, the
Company intends to facilitate the buildout through the use of existing towers
and structures occupied by telecommunications service providers, utility
companies and others. Although the Company has begun the selection of sites
and has acquired the rights to use sites in the New York MTA, there can be no
assurance that the Company will be able to deploy its equipment in a
sufficient number of sites to implement its initial commercial service. The
site selection process will require the continued successful negotiation of
use agreements for or acquisitions of numerous additional sites and may
require the Company to obtain zoning variances or other governmental or local
regulatory approvals. The Company is currently designing and planning its
Entrepreneurs' Band networks and intends to use a similar cell site
acquisition approach.
The Company's buildout schedule may be revised as a result of changing
circumstances. The Company's ability to proceed with the buildout of its
networks is subject to continued site acquisitions or leases, the availability
of equipment and financing, the receipt of local governmental approvals where
required and the relocation of incumbent microwave users of the Company's
spectrum.
MARKETING STRATEGY
The Company's marketing objective is to stimulate demand for PCS voice and
data service and attract subscribers by providing superior service and
reliability at attractive prices. Omnipoint intends to generate demand by
introducing a better alternative to cellular service. The Company intends to
concentrate its PCS marketing efforts on the following key customer segments:
(i) large, communications-intensive corporate accounts, currently using or
considering cellular or private radio systems, that would value the improved
quality and security and would benefit from the Company's enhanced products
and services; (ii) high-mobility customers using or considering cellular
telephones who would benefit from fewer dropped or blocked calls; and (iii)
low-mobility customers attracted to PCS as a more convenient alternative to
their landline telephones, particularly those who have multiple telephone
lines to their home or business and who have a need for high speed data
transmission.
In marketing its service, the Company intends to offer competitively priced
service that emphasizes voice clarity, reliability and a low probability of
blocked calls. The Company intends to include certain enhanced features
including call waiting, call forwarding, voice mail and paging as part of its
product offerings. The Company also will promote the improved call security
resulting from the use of digital technology which should encourage users to
make confidential professional and personal calls that they might otherwise
make only on landline telephones. In addition, the convenience of a single
telephone number for mobile, home and office use available to the customer
throughout the Omnipoint service area and the use of menu-driven subscriber
functions should enhance the convenience and usage of the Company's services.
The Company's strategy is to pursue multiple distribution channels through
which to market its services, generally on a non-exclusive basis, including a
direct sales force, retail stores and third party distributors or
42
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agents. In addition to these traditional distribution channels, the Company is
evaluating and experimenting with other, less traditional methods of marketing
the Company's services such as telemarketing and direct mail.
OMNIPOINT'S PCS MARKETS
The Company has, or is the successful bidder for, PCS licenses to provide
wireless communications services in areas covering approximately 40.3 million
POPs. The Company's licenses include the New York MTA, which includes 20 BTAs
with approximately 27.0 million POPs, and 18 BTAs with approximately 13.4
million POPs and including the Philadelphia, Atlantic City, Buffalo and
Rochester BTAs. Thirty-five of the Company's 38 BTAs, which contain 97.1% of
its POPs, are contiguous in the northeast region of the U.S. The Company's
other three BTAs border BTAs in which other licensees intend to deploy GSM
networks. The Company's markets cover large areas with attractive demographic
characteristics including growing populations, high population densities,
favorable commuting patterns, high household incomes and favorable business
climates. The following table sets forth all of the Company's BTAs and their
respective POPs.
<TABLE>
<CAPTION>
1995 POPS
<S> <C>
New York MTA:
New York, NY........................................................ 18,447,000
Hartford, CT........................................................ 1,117,000
Albany-Schenectady, NY.............................................. 1,063,000
New Haven-Waterbury-Meriden, CT..................................... 975,000
Syracuse, NY........................................................ 812,000
Allentown-Bethlehem-Easton, PA...................................... 725,000
Scranton-Wilkes Barre-Hazleton, PA.................................. 684,000
Poughkeepsie-Kingston, NY........................................... 442,000
Burlington, VT...................................................... 389,000
Binghamton, NY...................................................... 360,000
New London-Norwich, CT.............................................. 352,000
Elmira-Corning-Hornell, NY.......................................... 320,000
Utica-Rome, NY...................................................... 317,000
Watertown, NY....................................................... 11,000
Plattsburgh, NY..................................................... 126,000
Glens Falls, NY..................................................... 125,000
Stroudsburgh, PA.................................................... 113,000
Oneonta, NY......................................................... 111,000
Rutland-Bennington, VT.............................................. 100,000
Ithaca, NY.......................................................... 98,000
----------
Subtotal........................................................... 26,987,000
Other:
Philadelphia, PA-Wilmington, DE-Trenton, NJ......................... 6,065,000
Buffalo-Niagara Falls, NY........................................... 1,236,000
Rochester, NY....................................................... 1,154,000
Harrisburg, PA...................................................... 688,000
Springfield-Holyoke, MA............................................. 683,000
Wichita, KS......................................................... 630,000
York-Hanover, PA.................................................... 449,000
Amarillo, TX........................................................ 381,000
Reading, PA......................................................... 355,000
Atlantic City, NJ................................................... 339,000
Dover, DE........................................................... 276,000
Sunbury-Shamokin, PA................................................ 192,000
Lebanon-Claremont, NH............................................... 170,000
Williamsport, PA.................................................... 166,000
Pine Bluff, AR...................................................... 153,000
Pottsville-Frackville, PA........................................... 151,000
Pittsfield, MA...................................................... 135,000
State College, PA................................................... 130,000
----------
Subtotal........................................................... 13,353,000
----------
Total............................................................ 40,340,000
==========
</TABLE>
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<PAGE>
The New York MTA is an attractive wireless market due to its size, density
and demographics. In addition, the New York MTA is the country's largest
telecommunications market and has a disproportionately high share of all voice
and data traffic relative to its population, particularly with respect to
international calls placed to or from the U.S. New York is the largest MTA in
the U.S., with approximately 27.0 million POPs or approximately 10.2% of the
U.S. population, and is comprised of 20 BTAs, including New York, NY (which
includes northern New Jersey), Hartford, CT, Albany, NY, New Haven, CT and
Syracuse, NY. The New York MTA has a high share of households with annual
incomes of over $50,000, with 41.8% versus a nationwide average of 31.0%.
The two cellular systems operating in the New York area are capacity
constrained over the most densely populated traffic areas during peak hours.
Based on direct testing as well as information from a number of sources, the
Company believes that a significant number of the call attempts during peak
hours in certain areas of Manhattan fail to gain access to the cellular
networks due to capacity constraints in the networks. In addition, a large
percentage of calls that initially connect are dropped because of hand-off
failures between base stations due to the same capacity issues. The Company
believes that inherent capacity limits of existing cellular architectures will
allow new PCS entrants in New York to attract a large share of high-end
wireless users. Moreover, due to nationwide churn rates of the existing
installed cellular subscriber base of approximately 25% per year, the Company
believes the market shares of new PCS competitors are likely to rise
significantly over time.
In the recently completed Entrepreneurs' Band auction the Company bid
successfully for licenses for 18 BTAs with approximately 13.4 million POPs.
The Entrepreneurs' Band auction afforded the Company the opportunity to expand
its planned PCS services to additional markets. Fifteen of the Company's 18
Entrepreneurs' Band Markets are contiguous to the New York MTA which should
provide the Company with operating efficiencies. In addition, the Company
believes these markets have favorable demographics, including the percentage
of households with annual incomes over $50,000. Philadelphia, Atlantic City,
Buffalo and Rochester are the principal BTAs for which the Company
successfully bid. Because of the Company's success in the Entrepreneurs' Band
auction at assembling contiguous BTAs, the Company was able to acquire
licenses covering 95.1% of the POPs in the Philadelphia MTA and 84.8% of the
POPs in the Buffalo MTA.
In addition, the Company is participating in the D, E and F Block auctions
in order to expand its service area beyond the New York MTA and the
Entrepreneurs' Band BTAs.
COMPETITION
The success of Omnipoint's PCS service business will depend upon its ability
to compete with the two cellular operators, at least two other PCS licensees
and potential future wireless communications providers. The Bell
Atlantic/NYNEX consortium and AT&T Wireless currently provide cellular
services in the New York Metropolitan Statistical Area (MSA) and surrounding
areas. Sprint Spectrum was the winner of the B Block New York MTA PCS license.
NextWave was the successful bidder in the Entrepreneurs' Band auction for the
New York BTA PCS license. Each of the five operators (including the Company)
will be eligible to own one of the three 10 MHz PCS licenses still to be
auctioned. See "Regulatory Environment--PCS Licensing." No competing operator
has announced an intention to use PCS 1900 in the New York BTA. The Company's
Entrepreneurs' Band networks will face similar PCS and cellular competition
including competition in certain BTAs from AT&T Wireless, Sprint Spectrum,
Cellular One, COMCAST and Metrophone, among others. The Company believes that
ESMR, originally considered a PCS competitor, will have a limited competitive
impact because technical limitations have caused the ESMR operators to target
only vertical market niches such as dispatch services. In the future, PCS will
also compete more directly with traditional landline telephone service
providers and with cable operators who expand into the offering of traditional
communications services over their cable systems and may face competition from
other technologies including mobile satellite systems.
44
<PAGE>
WIRELESS COMPETITIVE ACCESS PROVIDER SERVICE
Omnipoint plans to introduce wireless CAP services to businesses in small-
and medium-sized locations allowing customers to bypass the local telephone
exchange to complete certain calls at lower prices than such customers
currently pay. The wireless CAP services will operate through radio units
installed by the Company on customers' premises which will communicate
wirelessly with the Company's base stations. The Company plans to initially
target business locations for which alternative bypass facilities are not as
economical.
The Telecommunications Act of 1996 (the "Telecom Act"), enacted on February
8, 1996, has created new opportunities for fixed WLL applications.
Historically, regulations have protected the regulated telephone monopolies
from competition in switched local exchange markets. In the past 12 months,
many states, including New York and Connecticut, began permitting local loop
competition by operators other than the local exchange carrier. Other states,
such as New Jersey, have initiated proceedings to do the same.
On August 1, 1996, the FCC adopted rules requiring incumbent LECs to provide
competitors with unbundled interconnections priced at "total element long run
incremental cost" and the substantial resale discounts (with a default range
of 17-25%) off retail rates. The FCC also ordered LECs to provide reasonable
reciprocal compensation arrangements for wireless carriers and not charge
wireless carriers for terminating LEC-originated traffic. Previously, LECs
generally charged wireless carriers for calls initiated on the wireless
network and terminated on a LEC's network, while wireless carriers could not
charge the LEC for calls initiated on a LEC's network and transported to and
terminated on the wireless network. The FCC's order will likely result in
significantly reduced termination fees for wireless to LEC calls. Several
companies have initiated federal court challenges to the Commission's rules.
ROAMING ARRANGEMENTS
The Company has signed memoranda of understanding with a number of different
U.S. GSM-based PCS providers, including PacBell, BellSouth, Western Wireless,
InterCel, APC and APT, to provide subscribers with roaming capability in the
markets where these parties will operate PCS services. The memoranda of
understanding are not binding unless incorporated in definitive agreements.
While roaming across the companies' GSM-based networks, subscribers will be
able to place and receive calls and maintain their customized profiles and
features without specific customer prior request. Additionally, the Company
and these GSM-based PCS providers will conduct joint tests of the Omnipoint
System and have agreed to work together on PCS infrastructure and handset
standards and to establish complementary marketing programs. The memoranda of
understanding also contemplate adding other PCS operators to the roaming
consortium. Based on the technology preferences indicated by the A and B Block
license holders and the successful bidders in the Entrepreneurs' Band auction,
GSM will be deployed by license holders with licenses covering approximately
200 million POPs, representing approximately 76% of the total population of
the U.S. Currently, in the D, E and F block auction, which is in its third and
final stage, the bidders that have declared their intentions to deploy GSM-
based networks are the high bidders on licenses which may bring GSM coverage
to over 90% of the U.S. populations. The Company and certain other PCS license
holders are currently exploring alternatives to ensure that the GSM protocol
will be available in all markets. In addition, the Company has entered into
discussions with several GSM-based PCS providers in Europe, Asia and the
Middle East to provide Omnipoint subscribers with roaming capabilities in the
areas where those parties provide PCS services. There can be no assurance that
the Company will enter into any definitive roaming agreements on favorable
terms, if at all.
TECHNOLOGY BUSINESS
OVERVIEW
Manufacturers of PCS equipment compete in a high-growth, cost-competitive
market in which they must offer a compact, cost-effective solution providing
fully functional PCS-full coverage, vehicular high-speed mobility, wireline
quality voice, data, multimedia, digitized compressed video, images and
broadcast data-at capital costs per subscriber that are significantly lower
than conventional cellular technologies. Due to evolving
45
<PAGE>
industry standards and the rapid introduction of new services, the success of
PCS equipment manufacturers will also depend on their ability to bring new
products to market quickly.
Customer acceptance and usage rates will drive PCS equipment revenues. Based
on projections by EMCI, Inc., cumulative PCS equipment sales for
infrastructure and handsets in the U.S. are anticipated to reach approximately
$25.4 billion by the end of 2000. The international market for WLL equipment
is estimated by Herschel Shosteck Associates, LTD. to reach $86.0 billion by
the end of 2000.
The Omnipoint System, officially designated as IS-661 by the Joint Technical
Committee on Wireless Access, is a proprietary CAI system using spread
spectrum, a technology originally developed for military applications. The
Omnipoint System is one of four competing CAI standards that have been
selected by PCS license holders to serve the mobile PCS market. The Company
designed its technology so that its infrastructure costs will be lower than
those of other PCS and cellular technologies. Furthermore, because of the
Omnipoint System's design features, voice quality, data rates, low cost, small
cell size and high capacity, the Omnipoint System will be particularly well
suited for WLL services. The Omnipoint System will offer the ability to
deliver both wireline voice quality and the enhanced services being sought by
customers.
The Company designs and tests its equipment and software at its engineering
facilities in Colorado Springs, Colorado. Manufacturing and assembly will be
subcontracted to third parties whenever possible. Currently, the Company and
Northern Telecom are integrating Omnipoint's RF access system and equipment
which provides communication between handsets and base stations, primarily
radio and digital cards for base stations, with Northern Telecom's switches.
This integrated system will be used in the New York MTA and marketed to other
domestic and international operators.
The Company has operated trial networks during the past three years in
Colorado Springs, New York City and northern New Jersey. Through these trials,
as well as independent system tests, the Company has verified the central
features of the Omnipoint System, including its miniaturized base stations,
vehicular speed mobility, wireline quality voice transmission, mobile directed
hand-off and data transmission capabilities.
The Company believes that its proprietary technology will provide a number
of advantages over cellular and other PCS technologies, including:
. Lower infrastructure costs resulting in reductions in per minute costs
and facilitating competition with wireline telephone systems for certain
market segments.
. Compatibility with GSM and central office switch infrastructures.
. Wireline quality voice and enhanced data, multimedia and digitized
compressed video and imaging capabilities.
The Company's technology is flexible enough to be deployed in both large,
developed, metropolitan centers and less developed, rural areas, both
domestically and internationally. The Company believes that the technical
characteristics and low cost of the Omnipoint System allow for the widespread
deployment of telecommunications services while avoiding the high cost of
wire-based infrastructure, making the Omnipoint technology particularly well
suited for many countries which are currently upgrading or developing their
telecommunications infrastructure. The Company has entered discussions with
telecommunications services providers from several countries including
Argentina, India, Mexico and South Korea.
OMNIPOINT SYSTEM ARCHITECTURE
The Omnipoint System is the result of technology developed by the Company,
particularly in the areas of protocol design and spread spectrum. The
Company's research and field testing of the Omnipoint System have provided an
understanding of the technical and business challenges facing PCS providers.
As a result, the Company has designed a system that it believes overcomes
several of the architectural weaknesses of existing wireless networks.
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<PAGE>
The Omnipoint System architecture utilizes the benefits of CDMA, TDMA and
FDMA technologies for multiple-user access to PCS networks, without incurring
many of the problems inherent in these techniques as used in traditional
wireless systems. Omnipoint's unique approach combines the major advantages of
these technologies in a hybrid solution that should provide significant price
and performance advantages over systems that rely upon only one technology for
separating users and cells. In particular, the cost of radio infrastructure
hardware should be significantly reduced. Omnipoint's use of wide band spread
spectrum will minimize the effects of interference and allow for the use of a
high data transmission rate. Instead of implementing spread spectrum for
classic CDMA reasons, i.e., to separate simultaneous users within a cell by
using different codes, the Omnipoint System uses spread spectrum to reduce the
cost of enhancing capacity using TDMA within a cell, while using CDMA between
cells that use the same frequencies.
The Omnipoint System has an expected cell radius ranging from seven miles to
a few hundred feet. The Base Station in each cell is connected by microwave,
fiber optic cable or telephone wires to the BSC. The BSC in turn connects to
the PCSS which uses adjunct computers to control the operation of the wireless
telephone system for its entire service area. The BSC and PCSS (i) control the
transfer of calls from cell to cell as a subscriber's handset travels, (ii)
manage call delivery to handsets, (iii) allocate calls among the cells within
the Omnipoint System, (iv) connect calls to local landline telephone systems
or to a long distance telephone carrier, and (v) provide most of the features
such as call waiting and three way calling.
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<PAGE>
The following diagram illustrates the Omnipoint System as deployed in a
complete network environment:
[Diagram appears here]
<TABLE>
<CAPTION>
COMPONENTS DESCRIPTION
<C> <S>
Base Station (BS) Base station radio equipment located at a
"cell site" can support up to 32 full duplex
voice channels per 3.75 MHz of RF bandwidth
or 16 voice channels per 1.875 MHz. The base
station connects to the BSC or directly to
the network using standard telecommunications
interfaces. A cell's radius can range from
seven miles to as little as a few hundred
feet depending on the nature of the area
being served (urban, suburban or rural).
Base Station Controller (BSC) The BSC receives inputs from multiple base
stations, performs inter-base station hand-
offs, converts and formats channel and
signaling information for presentation to the
network, manages visiting subscribers, and
provides multiple network interfaces and
basic administrative features.
Home Location Register (HLR) A home location register records subscriber
and usage information.
Visitor Location Register (VLR) The location register typically located at
the BSC or BS other than the HLR used by the
mobility Visitor Location Register (VLR)
switching center to direct the handling of
calls to or from an active visiting
subscriber.
PCS Switching System (PCSS) The PCSS provides connection and advanced
switching of traffic to and from BSCs and
provides interconnection to the PSTN and
long-distance carrier networks.
Mobility Control Point (MCP) The MCP coordinates and executes hand-offs
between switches.
Fixed or Mobile Subscriber Units The subscriber units can scan to any of the
over 56 RF channel center frequencies within
the 1850-1990 MHz band at any base station in
roughly 500 microseconds.
OA&M Position Operations, Administration and Maintenance
position is the human component of the
operational support system which incorporates
a plan designed to preserve network
integrity, monitor, test, administer and
manage traffic and billing information.
Operational Support System The operational support system supports the
OA&M position and covers diagnostics,
maintenance, internal messaging, preventive
maintenance and billing. Centralized
databases and switching control centers
permit real-time trouble detection and
analysis.
</TABLE>
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OMNIPOINT SYSTEM ADVANTAGES
The Company designed the Omnipoint System to be used for either fixed or
mobile PCS applications. The key differentiating features of the Omnipoint
System, as evidenced by the Company's field testing, are:
. Lower Infrastructure Costs
Lower Deployment Costs. The Company designed the Omnipoint System to
----------------------
provide both fully functional, fully mobile PCS as well as fixed WLL
services at per subscriber capital costs substantially below those of
cellular and other wireless systems that could be used for either
application. The Company believes that it can deploy the radio access
portion of the Omnipoint System, which accounts for 75% to 85% of the
costs of typical cellular systems, for approximately $300 to $600 per
subscriber, depending on average peak minutes of use per subscriber, RF
topology of the city, and the network layout. These infrastructure costs
can be achieved at subscriber penetration levels as low as two to three
percent in most major cities. The Company estimates that initial capital
costs for cellular technology-based systems are as much as $800 to $1,000
per subscriber at similar penetration levels.
Lower Incremental Capital Costs. Omnipoint expects that a PCS provider
-------------------------------
deploying the Omnipoint System will experience marginal capital
expenditures, excluding incremental switching costs, that will reach
approximately $150 per subscriber based on typical cellular usage rates.
Omnipoint believes it will achieve these cost savings as a result of its
hybrid solution. The cost of FDMA-only and CDMA only systems increases on
a linear basis because (i) channels are expensive and are built and
priced on a per channel basis, (ii) the equipment is large and requires
extensive cell site planning, building permits, site acquisition and
preparation and zoning approval, and (iii) each cell must be able to
independently handle localized peak loads, although such peak loads can
occur for less than one hour per day. In contrast, because each Omnipoint
base station needs only one set of core electronics for multiple
simultaneous users, the implicit cost per voice channel declines as the
number of voice channels used simultaneously increases (up to the
capacity limit of each base station). The primary benefit of this
capability is reduced expenditures on a per-call basis. Even when new
cell sites are required, the lower cost of individual Omnipoint cell
sites causes the marginal cost per new subscriber to remain low relative
to traditional cellular or currently deployed PCS technologies.
Rapid Deployment. The compact size of the Omnipoint base station, as
----------------
small as 13.5" X 14.5" X 29", will ease zoning and installation concerns
and reduce their associated costs. The Omnipoint System can provide
additional capacity wherever it is needed while maintaining economic
advantages. These base stations can support up to 32 voice channels per 3.75
MHz which typically would be provided by larger, bulkier cellular equipment.
With these traditional cellular systems, increasing the number of cell sites
requires relocation of current cells and the acquisition of additional large
sites. Omnipoint base stations and antennas are easily attached to existing
telephone poles, light poles or other available structures. Omnipoint's cell
sites on an installed basis are targeted to be less than 30% of the cost, on
a per channel basis, of the cell sites of systems that use traditional
cellular or currently deployed PCS technologies.
. Improved Performance Characteristics
Increased System Capacity. With all wireless technologies, the minimum
-------------------------
cell radius determines the maximum number of cells per area and thus a
wireless system's geographic capacity. For example, the capacity of
existing cellular systems is ultimately constrained by its minimum cell
radii, which is typically approximately one half mile to one quarter mile
depending on the environment. The Omnipoint System can be deployed for
cells with 14 mile diameters (for rural and highway coverage) as well as
much smaller cells for traffic "hot spots" with a range, for example, of
250 feet (a much shorter range than the capability of other mobile
systems). The Omnipoint System can thus provide more localized capacity
than other mobile systems depending on the network layout of the
geographic area.
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Wireline-Quality Voice. The Omnipoint System can support wireline quality
-----------------------
voice service which is currently unavailable from existing mobile
systems. This quality is particularly important for both PCS and WLL
applications.
High-Speed Data Services. The Omnipoint System is designed to offer
-------------------------
superior data transmission characteristics and support transmission of
multimedia images and digitized compressed video. The Omnipoint System
design is capable of wirelessly supporting ISDN rates provided that the
network transmission protocol supports these rates. In contrast, most
other existing mobile systems generally are architecturally limited to
less than 19.2 Kbps data transmission capabilities and are ill-suited for
wireless office applications.
. Compatibility with Existing Infrastructure
Compatibility and Flexibility With Existing Network Architectures. The
------------------------------------------------------------------
Omnipoint System architecture provides compatibility and flexibility in
telecommunications network design. It can be integrated into either GSM
networks, AIN networks or LEC central office switching networks.
Omnipoint is initially integrating its base stations with GSM systems,
which enhances the Company's ability to sell its equipment in the 98
countries where GSM has been deployed or selected for deployment. The
Omnipoint System can be integrated with a variety of existing
interconnection networks, including those of the LEC, CATV and other
wireless systems. Additionally, private systems can be designed using the
equivalent of a base station controller, whereas smaller systems could
connect a PBX or Centrex directly to a base station using standard analog
lines.
Software Architecture. The Omnipoint System is designed around a software
----------------------
architecture that provides the flexibility to interconnect to a number of
different network infrastructures. Moreover, end users and service
operators can develop their own applications to take advantage of the
Omnipoint System's flexible protocol.
Given the advantages of the Omnipoint System and its ability to interface
with different network standards, PCS service operators may choose to deploy
networks that combine systems based on the Company's technology with those
from other manufacturers. The Company also intends to license its technology
to manufacturers of competing systems. There can be no assurance, however,
that the Company will be successful in selling the Omnipoint System to PCS
service operators or to license its technology.
COMPETITION
Competition in the wireless telecommunications equipment industry is
intense. The industry consists of major domestic and international companies,
including those companies currently providing equipment to cellular providers,
most of which have substantially greater financial, technical, marketing,
sales, manufacturing, distribution and other resources than those of the
Company. The Company will compete with these other companies primarily by
selling equipment that provides enhanced features at a lower cost. Given the
rapid advances in the wireless telecommunications industry, there can be no
assurances that new technologies will not evolve that will compete with the
Company's products.
In addition to the Company's technology standard, three competing technology
standards have emerged in the mobile PCS industry.
PCS 1900 is a modified version of the European RF technology used to access
the standard GSM network for digital 900 MHz cellular telephones. PCS 1900 is
a TDMA-based technology supported by Ericsson, Motorola, NOKIA Mobile Phones
and Northern Telecom. Seven U.S. service operators with A and B Block licenses
covering approximately 150 million POPs have committed to this technology, and
it is widely believed to be a leading contender for further deployment,
particularly for operators without U.S. cellular properties. Based on the
technology preferences indicated by the A and B Block license holders and the
successful bidders in the Entrepreneurs' Band auction, GSM will be deployed by
license holders with licenses covering
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<PAGE>
approximately 200 million POPs, representing approximately 76% of the total
population of the U.S. Currently, in the D, E and F block auction, which is in
its third and final stage, the bidders that have declared their intentions to
deploy GSM-based networks are the high bidders on licenses which may bring GSM
coverage to over 90% of the U.S. population. APC introduced the first
commercial PCS system in the U.S. in the Baltimore/Washington, D.C. MTA in
November 1995 using PCS 1900 equipment. Because Omnipoint is integrating its
system with GSM, Omnipoint System equipment can be combined with PCS 1900
equipment in a single network. Accordingly, operators that select PCS 1900
represent additional potential customers for Omnipoint System equipment.
IS-95 CDMA is the CDMA standard proposed as an upgrade for existing analog
cellular service to digital service. Qualcomm is the primary proponent of IS-
95 CDMA for PCS service. IS-95 has also received support from Motorola, AT&T
Wireless and Northern Telecom. IS-95's service supporters include Sprint
Spectrum and Bell Atlantic, NYNEX, US West and AirTouch Communications Inc.,
through their consortium, PCS PrimeCo, L.P., which have announced their
intention to deploy a modified version of this technology at 1.9 GHz. However,
no PCS networks utilizing CDMA technology at 1.9 GHz are in commercial service
in the U.S.
IS-54 TDMA is the TDMA standard that several cellular carriers are
implementing as they upgrade to digital service. Primary network suppliers are
Lucent Technologies, Inc., Ericsson and Hughes. AT&T Wireless, SBC
Communications, Inc. ("SBC") and Bell Telephone Co. of Canada are the primary
800 MHz service supporters. AT&T Wireless and SBC have declared that they will
deploy systems based on IS-54 at 1.9 GHz, defined as IS-136 TDMA. IS-54 TDMA,
like PCS 1900, faces no major technological hurdles in upbanding to 1.9 GHz
PCS. Upbanded IS-54 TDMA equipment is expected to become generally available
in 1996.
STRATEGIC RELATIONSHIPS
NORTHERN TELECOM RELATIONSHIP
In 1994, the Company entered into a non-exclusive agreement to integrate its
technology with Northern Telecom's established network architectures. Pursuant
to the agreement, the parties will integrate the Omnipoint System with
Northern Telecom's digital GSM and Advanced Intelligent Network ("AIN")
central office switches. Omnipoint will deploy the Omnipoint/GSM integrated
system in the New York MTA and has also agreed to jointly market integrated
systems throughout North America.
The integrated system will offer wireless voice services including mobile
coverage at prices which the Company believes will be competitive with the
cellular operators and other PCS operators. The system will initially use a
GSM interface between Omnipoint's RF access technology and the digital
switches. Use of an available network interface such as GSM should ensure the
timely deployment of PCS systems utilizing Omnipoint's technology. Omnipoint
and Northern Telecom also plan to integrate Omnipoint's technology with
Northern Telecom's AIN Class 5 switches, which today are primarily sold to
Regional Bell Operating Companies for their central office switching.
Northern Telecom and the Company have signed a series of equipment OEM and
supply agreements, as well as the NT Credit Facility. Northern Telecom will
make varying payments as it purchases core electronics (primarily radio and
digital cards for base stations) and software from the Company. Northern
Telecom has made an initial $3.0 million license payment (part of up to $12.0
million in licensing and OEM fees to be paid to the Company under certain
circumstances) and may make additional royalty payments based upon shipments
of Omnipoint products. Northern Telecom will then sell Omnipoint/Northern
Telecom integrated systems to PCS operators, including the Company. A
substantial portion of the Company's purchases to build out the New York
network will be financed by Northern Telecom under the NT Credit Facility.
Northern Telecom has executed a non-binding commitment letter to extend the NT
Credit Facility from $382.5 million to $612.0 million on substantially the
same terms. Such extension is subject to approval by the Board of Directors of
Northern Telecom. If a definitive agreement is reached, the Company expects to
use these funds in the New York MTA or other markets which the Company
acquired in the Entrepreneurs' Band auction.
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<PAGE>
The pilot network has been delivered and installed in Manhattan using the
Omnipoint System. Omnipoint and Northern Telecom have announced that their
integrated systems will be introduced commercially for sale to other PCS
operators in 1998.
ERICSSON RELATIONSHIP
On April 16, 1996, Ericsson and the Company and their respective affiliates
entered into a series of definitive agreements including: (i) a licensing and
OEM agreement relating to the Omnipoint System; (ii) a GSM handset supply
agreement; and (iii) a supply agreement for infrastructure equipment to be
deployed as part of the Company's networks. Each of these agreements has a
term of five years commencing on the date on which it was executed. In
addition, Ericsson and the Company have entered into the Ericsson Credit
Facility for the New York MTA network.
Under the non-exclusive licensing and OEM agreement, Ericsson will purchase
from the Company base stations for resale worldwide as part of Ericsson
wireless systems in the 1850-1990 MHz frequency band. For the rights granted
under the licensing and OEM agreement, Ericsson will pay license fees and
royalties, including an initial $4.5 million license fee.
Under the agreement for the sale of Ericsson infrastructure equipment, the
Company and its affiliates, subject to certain conditions, have committed to
purchasing up to $250.0 million of a mix of IS-661 and PCS 1900 infrastructure
equipment, with a portion of such commitment being dependent on the licenses
that affiliates of the Company acquire through the Entrepreneurs' Band
auction. The Company will also purchase GSM handsets from Ericsson in
accordance with the terms of the GSM handset supply agreement.
Pursuant to the Ericsson Credit Facility, Ericsson will provide up to $132.0
million of vendor financing for the New York MTA network to OCI for (i)
amounts owed to Ericsson under the infrastructure supply agreement, and (ii)
amounts owed to Ericsson under the handset agreement, so long as these latter
amounts do not exceed 50% of the amounts owed to Ericsson for infrastructure
equipment.
Also in April 1996, the Company and Orbitel entered into a non-binding
memorandum of understanding regarding the development and manufacture of
single mode IS-661 and dual mode IS-661/PCS 1900 handsets. Under this
memorandum of understanding, Orbitel will develop, manufacture and provide
dual mode IS-661/PCS 1900 handsets in accordance with a mutually-agreed upon
timetable commencing at the time OCI shall agree to a minimum purchase
commitment to be determined after the parties have ascertained the resources
necessary for the development and manufacture of such handsets.
The definitive agreements contemplate other cooperation between the parties,
including assistance on IS-661 integration with the GSM interface and related
systems, cooperation on new applications for the Omnipoint System, including
data services, developmental efforts relating to handsets, technical trials of
IS-661 technology and the establishment of GSM standards. In addition, the
memorandum of understanding between the Company and Ericsson signed in
November 1995 contemplates an option for Ericsson to purchase up to 9.9% of a
subsidiary created by Omnipoint to pursue the Company's technology and
equipment business.
HANSOL RELATIONSHIP
On December 12, 1995, the Company granted a non-exclusive license to Hansol
to manufacture Omnipoint System handsets and entered into a strategic alliance
with Hansol for the promotion of the Omnipoint System in the Republic of Korea
and other parts of Asia. The agreement provides that, subject to certain
preconditions such as competitive pricing, quality and availability, Omnipoint
will purchase Hansol manufactured handsets for sale to subscribers in areas
covered by the Company's Entrepreneurs' Band markets. Hansol has the right to
designate management representatives and may have engineers and other
personnel working with Omnipoint to develop the Company's networks.
52
<PAGE>
ROAMING ARRANGEMENTS
The Company has signed memoranda of understanding with GSM-based PCS
providers PacBell, BellSouth, Western Wireless, InterCel, APC and APT, to
provide subscribers with roaming capability in the markets where these parties
will operate PCS services. The memoranda of understanding are not binding
unless incorporated in definitive agreements. Additionally, the Company and
these GSM-based PCS providers will conduct joint tests of Omnipoint's
technology and plan to work together to establish PCS infrastructure and
handset standards and conduct joint marketing efforts. Based on the technology
preferences indicated by the A and B Block license holders and the successful
bidders in the Entrepreneurs' Band auction, GSM will be deployed by license
holders with licenses covering approximately 76% of the total population of
the U.S. Currently, in the D, E and F block auction, which is in its third and
final stage, the bidders that have declared their intentions to deploy GSM-
based networks are the high bidders on licenses which may bring GSM coverage
to over 90% of the U.S. population. The Company and certain other PCS license
holders are currently exploring alternatives to ensure that the GSM protocol
will be available in all U.S. markets. There can be no assurance that the
Company or others will be successful in this endeavor. In addition, the
Company has entered into discussions with several GSM-based PCS providers in
Europe, Asia and the Middle East to provide Omnipoint subscribers with roaming
capabilities in the areas where those parties provide PCS services.
REGULATORY ENVIRONMENT
The FCC regulates the licensing, construction, operation and acquisition of
wireless telecommunications systems in the U.S. pursuant to the Communications
Act of 1934, as amended (the "Communications Act"), and the rules, regulations
and policies promulgated by the FCC thereunder. Under the Communications Act,
the FCC is authorized, among other things, to allocate, grant and deny
licenses for PCS frequencies, establish regulations governing the
interconnection of PCS systems with wireline and other wireless carriers,
grant or deny license renewals and applications for transfer of control or
assignment of PCS licenses, establish other regulations governing the
operations of PCS and other telecommunications carriers and impose fines and
forfeitures for any violations of FCC regulations.
PCS LICENSING
The FCC established PCS service areas in the U.S. based upon Rand McNally's
market definition of 51 MTAs comprised of 493 smaller BTAs. In June 1994, the
FCC finalized the allocations of the 1.85 to 1.99 GHz bands for broadband PCS
services. The Commission distinguished the licenses along four dimensions,
including (i) the amount of RF spectrum-30 MHz versus 10 MHz, (ii) the size of
geographic area-MTA versus BTA, (iii) the eligibility to hold the license and
participate in the specific auction for each type of license, and (iv) the
timing of the auctions regarding each of the above categories.
The FCC decided that two 30 MHz licenses, designated as Blocks A and B,
would be allocated geographically by MTAs (these include the Block A licenses
granted to the Pioneers in their respective MTAs). The 30 MHz MTA auction
ended in March 1995, and the FCC granted those licenses in June 1995. Four
licenses designated as Blocks C, D, E and F are allocated by BTAs. The C and F
Block licenses are allocated 30 MHz and 10 MHz of spectrum, respectively, and
reserved for "Entrepreneurs." Eligibility to bid for and hold licenses in the
C and F Blocks is limited to entities that, together with their affiliates and
certain investors, have gross revenues of less than $125 million in each of
the last two years and total assets of less than $500 million. Eligible
bidders in the Entrepreneurs' Band are given certain bidding credits and
successful bidders are given favorable installment payment terms. The most
favorable bidding credits and installment payment options are available only
to C Block applicants that qualify as small businesses, and to F Block
applicants that qualify as very small businesses. Generally, a small business
is an entity that has average annual gross revenues of not more than $40
million for the preceding three relevant years while a very small business is
an entity that has average annual gross revenues of not more than $15 million
for the preceding three relevant years.
In determining whether a C or F Block applicant meets the financial caps for
qualification as an Entrepreneur, a small business or a very small business,
the FCC examines, individually and cumulatively, the
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<PAGE>
assets and revenues of the applicant, its affiliates, investors with more than
25% or 49.9% (depending on which of the two control group equity structures is
used) of the applicant's fully-diluted equity or voting stock and its control
group members. Applicants seeking to qualify as an Entrepreneur, a small
business or a very small business, must be controlled by a control group made
up principally of individuals or entities who meet the financial
qualifications applicable to Entrepreneurs. Only certain non-qualifying
investors may be in the control group, such as members of the entity's
management team or qualifying institutional investors. The control group must
hold at least 25% or 50.1% (depending on which control group equity structure
is used) of the applicant's total equity during the first three years and
50.1% of the applicant's voting stock for the initial term of the license.
Over time, C and F Block licensees (as well as their affiliates and
investors) may exceed the gross revenue caps through equity investment by non-
attributable investors, debt financing, revenue from operations, business
development and expanded service. Furthermore, after three years from the date
of the license grant, the control group will be required to hold only 10% or
20% of the total equity (depending on which control group equity structure is
used). The control group must retain at least 50.1% of the ownership of voting
stock, however, for the duration of the initial license term, and the control
group must exercise de facto as well as de jure control over the Company. The
FCC has stated that it will conduct audits to ensure compliance with
Entrepreneurs' Band regulations.
The D and E Blocks are each 10 MHz and will be available to all auction
participants. The Entrepreneurs' Band auction for the C Block licenses ended
in May 1996. The D, E and F Block auctions began on August 26, 1996. The
remaining 20 MHz of the 140 MHz of PCS spectrum available was allocated for
unlicensed PCS applications such as wireless PBX adjuncts, LANs and home
cordless phones. All PCS licenses will be granted for a 10-year period, at the
end of which they must be renewed. Licenses may be revoked at any time for
cause.
The Company's New York MTA and Entrepreneurs' Band networks will operate in
the spectrum now partially occupied by private and common carrier fixed
microwave users. Many of these microwave incumbents provide services that may
interfere with or receive interference from the operation of PCS networks and,
as a result, will have to be negotiated with or relocated. In an effort to
balance the competing interests of existing microwave users and newly
authorized PCS licensees, the FCC has adopted a transition plan to relocate
such microwave operators to other spectrum blocks. In the event the Company
displaces a microwave incumbent, the Company must pay at least the microwave
incumbent's relocation expenses, and may be required to take actions necessary
to put the microwave incumbent's new facility into operation. The Company may
also be required to reimburse other entities for the relocation by such
entities of microwave incumbents that the Company would have displaced. The
Company expects to implement a frequency plan that will minimize to the extent
possible the number of existing microwave users that need to be relocated.
PIONEER'S PREFERENCE PROGRAM
Omnipoint is one of only three recipients of a broadband PCS Pioneer's
Preference license. Under the terms of the FCC's Pioneer's Preference program
and pursuant to an FCC order, Omnipoint was awarded a preference to apply for
a license not subject to competing applications to provide service in the New
York MTA. The Company received the New York MTA License consisting of 30 MHz
of PCS spectrum (1850 to 1865 MHz and 1930 to 1945 MHz) in December 1994. The
final terms of the Pioneer's Preference awards are contained in the GATT
legislation. All of the litigation related to the GATT legislation has been
dismissed and all appeal rights have expired.
Pursuant to the terms of the GATT legislation, each of the Pioneers is
required to pay for its license a sum equal to 85% of the product of (i) the
average per POP price paid in the auctions for the licenses in the top 20 MTAs
based on population, not including the three MTAs in which only one 30 MHz
license was to be auctioned due to the Pioneers' Preferences (i.e., the
average is based on the per POP prices for 40 licenses), times (ii) the number
of 1990 POPs in each of the Pioneer's MTAs. Based on the final round of the A
and B Block auctions, the Company will pay $347.5 million or $12.88 per POP
for the New York MTA License.
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<PAGE>
The GATT legislation prohibits the FCC from reconsidering its December 1993
Report and Order granting final preference awards to the three Pioneers. The
legislation also mandates that the decision is not subject to further
administrative or judicial review. GATT also provides that the FCC establish
by order the interest rate and the timing of principal and interest payments.
On March 8, 1996, the FCC adopted such an order, the terms and conditions of
which are as follows: (i) a five-year payment period with interest accruing at
7.75% from the order adoption date with the first payments due on April 8 and
April 30, 1996 and subsequent quarterly payments due on April 30, July 31,
October 31 and January 31, (ii) interest only payments for the first two
years, and (iii) principal and interest payments for the remaining three
years.
CONDITIONS ON LICENSES
The FCC has placed certain conditions on the Company's New York MTA License,
some of which will also apply to the Company's Entrepreneurs' Band licenses.
The conditions include the requirement that the Company construct network
facilities that offer coverage to at least one-third of the population in the
particular MTA or BTA service area within five years of the grant of the
license (the "Five-Year Buildout Requirement") and to at least two-thirds of
the population within 10 years (the "10-Year Buildout Requirement"),
assignment and change of control restrictions and substantial use
requirements. Violations of any of these conditions could result in license
revocations, forfeitures or fines.
The New York MTA License and the Company's Entrepreneurs' Band licenses are
subject to the Five-Year Buildout Requirement and the 10-Year Buildout
Requirement. In the case of the New York MTA License, the Five-Year Buildout
Requirement must be met by December 1999 and the 10-year Buildout Requirement
by December 2004. The Company believes it can achieve these requirements as
well as the buildout requirements that apply to its Entrepreneurs' Band
licenses. Licensees that fail to meet their respective coverage requirements
may be subject to forfeiture of the license.
The Pioneer's Preference PCS licenses contain a provision prohibiting an
assignment of the license or a transfer of control of the licensee until the
earlier of three years after the license grant (i.e., not before December
1997) or the date on which the Company has provided coverage for one-third of
the license area's population. In addition, the Communications Act requires
the FCC's prior approval of the assignment or transfer of control of a PCS
license. Furthermore, the FCC has established transfer disclosure requirements
that require licensees who transfer control of or assign a PCS license within
the first three years to file associated contracts for sale, option
agreements, management agreements or other documents disclosing the total
consideration that the applicant would receive in return for the transfer or
assignment of its license. Non-controlling interests in an entity that holds a
PCS license or PCS system generally may be bought or sold without prior FCC
approval.
The Entrepreneurs' Band licensees are prohibited from voluntarily assigning
or transferring control of their licenses for five years after grant date
except to assignees or transferees that satisfy the financial criteria
established for the Entrepreneurs' Band. Any transfers or assignments during
the 10-year initial license term are subject to unjust enrichment penalties
including the forfeiture of any bidding credits and the acceleration of any
installment payment plans if the assignee or transferee does not qualify for
the same benefits. In addition, licensees must maintain their Entrepreneurs'
Band eligibility for five years from the date of initial license grant. In
that regard, however, increased gross revenues, increased total assets from
non-attributable equity investments, debt financing, and revenue from
operations, business development or expanded service are not considered by the
FCC. The FCC has announced that it may conduct audits to ensure compliance
with all license conditions.
The New York MTA License contains a condition that requires the Company to
construct a PCS system that "substantially uses" the design and technology
upon which the Pioneer's Preference award was based. The condition expires
upon the system providing coverage for one-third of the population of the MTA.
The FCC has never specifically defined the phrase "substantial use." In
January 1996, Wireless Communications Council ("WCC"), a trade association
with only one disclosed member, who is a proponent of IS-95 CDMA technology,
filed a petition with the FCC seeking clarification of the phrase. In August
1996, the FCC denied the petition noting that (a) using tests required by
federal court, WCC lacked standing, (b) the petition was premature because
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the Company's compliance with the five-year buildout condition should not be
evaluated until December 1999, and (c) compliance with the condition would
involve consideration of several complex factors. While WCC may file a
petition for reconsideration or appeal the FCC's decision to the federal
court, the Company is not aware of any such action. Although there can be no
assurance as to whether or how the FCC will in the future construe the phrase
"substantial use", the Company believes, on the basis of prior FCC
pronouncements, that its present plan to use the Omnipoint/GSM System to build
out the New York MTA network will satisfy the "substantial use" condition. The
Entrepreneurs' Band licenses will not contain a similar condition.
In addition, to maintain all of the benefits of its Designated Entity
Status, the Company's control group and qualifying investors must retain
certain minimum stock ownership and voting stock of the Company and meet
certain other criteria. See "Risk Factors--Control Group Requirement."
CITIZENSHIP REQUIREMENTS
Under the Communications Act, non-U.S. citizens or their representatives,
foreign governments, or corporations otherwise subject to control by non-U.S.
citizens, may not own more than 20% of a PCS licensee directly, or, if the FCC
finds it consistent with the public interest, may not own more than 25% of the
parent of a PCS licensee. Under FCC regulations, non-U.S. citizens may not
serve as officers of a PCS licensee or as members of a PCS licensee's board of
directors, although up to one-fourth of the board of directors of a PCS
licensee's parent may be non-U.S. citizens
Failure to comply with these requirements may result in the FCC issuing an
order to the entity requiring divestiture of alien ownership to bring the
entity into compliance with the Communications Act. In addition, fines, a
denial of renewal or revocation of the license are possible. The Company has
no knowledge of any present foreign ownership in violation of the
Communications Act.
TELECOMMUNICATIONS ACT OF 1996
The Telecom Act is the first comprehensive legislation changing
telecommunications regulation in over 60 years. In general, its goal is to
remove the statutory, regulatory and court-ordered barriers that historically
prohibited new entrants into many segments of the telecommunications industry.
The Telecom Act enables LECs, long distance carriers, cable companies,
broadcasters and others to compete directly. The Telecom Act attempts to
create opportunities for competition within the local loop, while allowing
monopoly LECs eventually to enter the long distance market. It requires the
BOCs and other LECs to permit competitors to interconnect with their local
loop networks through unbundled network elements, resale and collocation. The
passage of the Telecom Act will affect the business of the Company because of
the likely creation of more opportunities to compete in both the local
exchange and long distance markets for the same or similar types of services
that the Company plans to offer as well as the specific treatment of
commercial mobile radio service operators such as the Company. However, the
Company cannot predict the exact nature and extent of this competition. On
August 1, 1996, the FCC adopted rules implementing the interconnection
provisions of the Telecom Act that provide for unbundled interconnection at
the incumbent LEC's long run incremental costs plus a reasonable share of
forward-looking joint and common costs ("total element long run incremental
cost") and for resale of incumbent LEC retail services at substantial
discounts off of retail rates (with a default range of 17-25%). In addition,
the FCC has adopted rules regarding telephone number portability pursuant to
which subscribers will be able to migrate their landline and cellular
telephone numbers to a PCS carrier, and from a PCS carrier to another service
provider. The FCC is also conducting or planning to conduct a number of
rulemaking proceedings, including proceedings anticipated to establish rules
expected to result in an overhaul of the access charges paid by long-distance
carriers to LECs and the funding mechanisms for universal service which may
require PCS licensees such as the Company to pay charges to support universal
service.
56
<PAGE>
PATENTS AND OTHER INTELLECTUAL PROPERTY RIGHTS
As of June 30, 1996, Omnipoint has received 14 patents on its technology,
has three patent applications which have been allowed, and has 52 U.S. and 71
foreign patent applications pending. The issued patents will expire between
May 2008 and November 2013. The Company will continue to file patent
applications as engineering developments occur. The policy of the Company is
to apply for patents or other appropriate or statutory protection when it
develops valuable new or improved technology. The Company believes, however,
that the successful development of its technology generally depends more upon
the experience, technical know-how and creative ability of its personnel
rather than on ownership of patents.
The status of patents involves complex legal and factual questions and the
breadth of claims allowed is uncertain. Accordingly, there can be no assurance
that patent applications filed by the Company will result in patents being
issued or that its patents, and any patents that may be issued to it in the
future, will afford protection against competitors with similar technology;
nor can there be any assurance that patents issued to the Company will not be
infringed upon or designed around by others or that others will not obtain
patents that the Company would need to license or design around. If existing
or future patents containing broad claims are upheld by the courts, the
holders of such patents might be in a position to require companies to obtain
licenses. There can be no assurances that licenses that might be required for
the Company's products would be available on reasonable terms, if at all. To
the extent that licenses are unavailable, or are not available on acceptable
terms, no assurance can be made that the failure to obtain a license would not
adversely impact the Company.
In addition to seeking patent protection, the Company relies on trade
secrets to protect its proprietary rights. The Company attempts to protect its
trade secrets and other proprietary information through agreements with
customers and suppliers, non-disclosure and non-competition agreements with
employees and consultants and other security measures. Although the Company
intends to protect its rights vigorously, there can be no assurance that these
measures will be successful.
FACILITIES
The Company's principal administrative offices are located in leased space
in Arlington, Virginia and its sales, marketing, support, research and
development personnel occupy two facilities in Colorado Springs, Colorado. The
largest facility is located in approximately 51,384 square feet of subleased
space (increasing to approximately 68,512 square feet in August 1996). Another
facility is located in approximately 35,000 square feet of leased space
(increasing to approximately 54,850 square feet in October 1996). The Virginia
lease and the Colorado sublease and lease are pursuant to agreements which
expire in February 1998, August 1997 and September 2000, respectively. The
Company recently leased a 20,000 square foot facility in Fort Worth, Texas,
which expires March 31, 1999
In November 1995, the Company acquired a building with approximately 24,000
square feet in Wayne, New Jersey to house OCI's network control center. OCI
leases a 12,000 square foot facility in Mountain Lakes, New Jersey, on a
short-term basis. In August 1996, OCI leased approximately 24,000 square feet
in Bethelehem, Pennsylvania to house its customer care/administrative support
center, and is now in the process of entering into a new lease for another
24,000 square feet for additional administrative purposes. The Company also
has acquired the rights to more than 5,000 sites in the New York MTA as
possible locations for cell sites.
EMPLOYEES
As of June 30, 1996, the Company had a total of 307 employees, including 220
in engineering, 38 in sales, marketing and product management and 49 in
administration and finance. The Company's future success will depend in
significant part on the continued service of its key technical, sales and
senior management personnel. Competition for such personnel is intense and
there can be no assurance that the Company can retain its key managerial,
sales and technical employees, or that it can attract, assimilate or retain
other highly qualified technical, sales and managerial personnel in the
future. None of the Company's employees is represented by a
57
<PAGE>
labor union. The Company has not experienced any work stoppages and considers
its relations with its employees to be good.
LITIGATION
The Company is not currently aware of any pending or threatened litigation
that could have a material adverse effect on the Company's financial
condition, results of operations or cash flows.
58
<PAGE>
MANAGEMENT
OFFICERS AND DIRECTORS
The table below sets forth the names, ages and titles of the officers and
directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Douglas G. Smith............... 43 President, Chief Executive Officer,
Chairman of the Board and Director
George F. Schmitt.............. 53 President of Omnipoint Communications Inc.,
Executive Vice President and Director of
Omnipoint Corporation
Bradley E. Sparks.............. 50 Chief Financial Officer
Randall R. Meals............... 40 Chief Operating Officer of Omnipoint
Technology Division
Evelyn R. Goldfine............. 49 Chief Administrative Officer and Director
Robert C. Dixon................ 64 Chief Scientist
Harry Plonskier................ 44 Vice President, Finance of Omnipoint
Communications Inc.
Arthur A. Pumo................. 57 Vice President, Human Resources
Richard L. Fields(1)........... 40 Director
Paul J. Finnegan(2)............ 43 Director
Arjun Gupta(1)................. 35 Director
James N. Perry, Jr.(1)......... 36 Director
James J. Ross(2)............... 58 Director and Vice Chairman of the Board
Edwin M. Martin, Jr. .......... 54 Secretary
</TABLE>
- ---------------------
(1) Member, Compensation Committee
(2) Member, Audit Committee
Douglas G. Smith founded the Company in June 1987 and has continuously
served as Chairman, President and Chief Executive Officer. From 1985 to 1987,
he was one of four professionals in a small venture capital fund focusing on
opportunities in the electronic information industry. From 1980 to 1985, he
founded and managed the Investment Data Systems Division of Strategic
Information (a division of Ziff-Davis Publishing). He received his M.B.A. from
the Harvard Business School, an M.A. from Oxford University and his B.A. from
Georgetown University.
George F. Schmitt has served as President of Omnipoint Communications Inc.
and Executive Vice President of the Company since October 1, 1995. From
November 1994 to September 1995, Mr. Schmitt was President and Chief Executive
Officer of PCS PrimeCo, a PCS partnership formed by AirTouch Communications,
Bell Atlantic, NYNEX and US West. From November 1993 to November 1994, Mr.
Schmitt was Executive Vice President, International Operations of AirTouch
Communications. From January 1990 to March 1994 he served as Vice President of
Pacific Telesis Group, a predecessor to AirTouch and was given the
responsibility of building and operating the first digital cellular system in
the world, the D2 GSM network in Germany in 1990. Prior to January 1990, Mr.
Schmitt held various senior management positions with Pacific Telesis Group
and Pacific Bell. Mr. Schmitt is a member of the Board of Directors of
Objective Systems Integrators, Inc. Mr. Schmitt received his MSM degree from
the Stanford University School of Business and a B.A. from St. Mary's College
of California.
Bradley E. Sparks became the Chief Financial Officer of Omnipoint
Corporation upon joining the Company in April 1995. Prior to that time, he was
employed by MCI Communications Corporation, an international
telecommunications company where, from 1993 to 1995, he held the position of
Vice President and Controller and, from 1988 to 1993, served as Vice President
and Treasurer. Prior to MCI, he worked for Ryder System, Inc. for over twelve
years in various financial management positions. Mr. Sparks holds a B.S.
degree from the
59
<PAGE>
U.S. Military Academy at West Point and a M.S. degree in Management from the
Alfred P. Sloan School of Management at MIT. He is also a certified public
accountant.
Randall R. Meals was named Chief Operating Officer for the Technology
Division in December 1994. Prior to joining the Company, from 1991, he was the
General Manager of Hewlett Packard's Information Networks Division and managed
a 600-person division addressing communications, networking, systems I/O and
peripherals for Hewlett Packard's computer systems business. Prior to joining
Hewlett Packard in 1991, Mr. Meals spent 14 years with ATT/NCR Corp. where he
held a number of positions. Mr. Meals received a B.S. degree from Iowa State
University, an M.S. degree from Kansas State University and an M.B.A. from
Wichita State University.
Evelyn R. Goldfine is a private venture investor who joined the Company as
Director of Administration in 1990, became a Director in late 1991 and become
Chief Administrative Officer in 1994. She is a certified public accountant and
holds a B.A. degree from the City University of New York and an accounting
degree from Bentley College.
Robert C. Dixon joined the Company as its Chief Scientist in July 1989. Mr.
Dixon has held various senior positions with many of the country's largest
defense contractors and technology companies since 1958, including Senior
Research Engineer for Northrop Corporation and Chief Scientist for Hughes
Aircraft. Mr. Dixon has also served as a consultant in the area of spread
spectrum technology.
Harry Plonskier became Vice President, Finance of OCI in July 1994. From
April 1992 to June 1994, he was Vice President of Dyson Kissner Corporation.
From 1986 to 1992 Mr. Plonskier served as Chief Financial Officer of Cellular
One of New York (the McCaw/LIN cellular system) and prior to that, he served
as Controller. Mr. Plonskier holds an M.B.A. and a B.A. degree from the
University of Michigan.
Arthur A. Pumo has served as Vice President, Human Resources of the Company
since September 1995. From January 1993 through April 1995, he served as Vice
President of Human Resources for Legent Corporation. From May through December
1992, he was the Manager, National Benefits Center for IBM Corp. From March
1990 through April 1992, Mr. Pumo was the Human Resource Director, North
Carolina Area, for IBM.
Richard L. Fields has served as Director of the Company since September
1991. Since February 1994, Mr. Fields has been a Managing Director and
Executive Vice President of Allen & Company Incorporated ("Allen"), and prior
to such time he was a Vice President of Allen.
Paul J. Finnegan, a Director of the Company since August 1993, has been Vice
President of Madison Dearborn Partners, Inc., the general partner of the
general partner of Madison Dearborn Capital Partners, L.P, since January 1993.
Previously, he served in various positions at First Capital Corporation of
Chicago and its affiliates. Mr. Finnegan currently serves as a director of The
Skyline Fund.
Arjun Gupta has served as a Director of the Company since August 1995. Since
August 1994, Mr. Gupta has been a Vice President of Chatterjee Management
Company. From November 1993 to July 1994, Mr. Gupta was a private consultant.
Prior to that, from June 1993 he was with Kleiner Perkins Caufield & Byers and
from October 1989 through June 1993, Mr. Gupta was with McKinsey & Company.
Mr. Gupta received an M.B.A. from the Stanford University School of Business
in 1989.
James N. Perry, Jr. has been a Director of the Company since August 1993. In
January 1993, he became Vice President of Madison Dearborn Partners, Inc., the
general partner of the general partner of Madison Dearborn Capital Partners,
L.P. Previously, Mr. Perry served in various positions at First Capital
Corporation of Chicago and its affiliates. Mr. Perry currently serves as a
director of Clearnet Communications, Inc.
60
<PAGE>
James J. Ross, Vice-Chairman and Director of the Company since 1989, is a
private venture investor. Since February 1995, Mr. Ross has been Of Counsel in
the law firm of Becker Ross Stone DeStefano & Klein and for more than five
years prior to such time, he was a partner at such firm.
Edwin M. Martin, Jr. has served as Secretary of the Company since 1987.
Since 1993, Mr. Martin has been a partner of the law firm of Piper & Marbury
L.L.P., which has provided legal services to the Company and which the Company
has retained to provide legal services in fiscal year 1996. Mr. Martin was
formerly a partner in the law firms of Pepper, Hamilton & Scheetz and Hale and
Dorr.
The Company currently has authorized eight directors. Each director holds
office until the next annual meeting of stockholders or until his successor is
duly elected and qualified. The officers serve at the discretion of the Board.
61
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain annual compensation information for
the Company's Chief Executive Officer and each of the other executive officers
of the Company whose annual salary exceeded $100,000 as of December 31, 1995
(collectively, the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------------- ---------------------
AWARDS
---------------------
RESTRICTED OPTIONS
NAME AND PRINCIPAL OTHER ANNUAL STOCK (IN NUMBER
POSITION YEAR SALARY BONUS(1) COMPENSATION(2) AWARDS OF SHARES)
<S> <C> <C> <C> <C> <C> <C>
Douglas G. Smith(3)..... 1995 $175,625 $100,350 $28,928 -- --
President and Chief
Executive Officer 1994 110,000 115,000(4) 15,996 -- --
1993 110,000 56,000(5) 19,258 -- --
Evelyn Goldfine......... 1995 100,625 20,000 28,615(6) -- 25,420(7)
Chief Administrative
Officer 1994 84,000 16,800 21,353 -- 420
1993 62,900 14,000 6,976 -- --
Randall R. Meals........ 1995 175,000 66,250(8) 57,680(9) -- 125,000(11)
Chief Operating
Officer, 1994 12,676 0 263 $ 0(10) 125,000(12)
Technology Division 1993 -- -- -- -- --
Harry Plonskier......... 1995 127,312 25,925 13,986 -- 37,759(11)
Vice President--
Finance, 1994 62,500 12,500 16,904 -- 37,759(12)
Omnipoint
Communications 1993 -- -- -- -- --
Bradley E. Sparks....... 1995 100,938 28,500 5,298 0(13) 100,000
Chief Financial Officer 1994 -- -- -- -- --
1993 -- -- -- -- --
</TABLE>
- ---------------------
(1) The Company's executive officers are eligible for annual cash bonuses.
Such bonuses are generally based upon achievement of corporate and
individual performance objectives determined by the Compensation
Committee; however, certain bonuses are specified in employment
agreements.
(2) Includes amounts reimbursed in connection with a supplemental benefit
program and premiums on life insurance.
(3) "Other Annual Compensation" includes office allowances for all years and
relocation expenses for 1993.
(4) Represents several bonuses earned in 1994 based on performance goals and
paid in July 1995.
(5) Represents several bonuses earned in 1993 based on performance goals and
paid in July 1995.
(6) Includes $22,000 of reimbursement for non-recurring expenses.
(7) Includes options to purchase 420 shares of Common Stock originally
granted in 1994 and repriced during 1995.
(8) Includes $54,250 for forgiveness of a loan in accordance with Mr. Meals'
employment Agreement. See "Certain Transactions--Loans to Certain
Officers."
(9) Includes $53,315 for relocation expenses in accordance with Mr. Meals'
employment agreement.
(10) Represents 25,000 shares of Common Stock at a value of $10.00 per share
on the date of the restricted stock grant, net of $10.00 per share paid
by the Named Officer. Such shares vest in annual installments over five
years, beginning December 1995. The aggregate value of such shares at
December 31, 1995, based on a fair market value of $14.00 per share, net
of consideration, was $100,000. See "Certain Transactions--Loans to
Certain Officers."
(11) Represents the repricing in 1995 of options which were originally granted
in 1994 and which vest over five years.
(12) Represents options which were subsequently canceled in connection with
their repricing in 1995.
(13) Represents 12,500 shares of Common Stock at a value of $6.00 per share on
the date of the restricted stock grant, net of $6.00 per share paid by
the Named Officer. Such shares vest in annual installments over five
years, beginning April 1996. The aggregate value of such shares at
December 31, 1995, based on a fair market value of $14.00 per share, net
of consideration was $100,000. See "Certain Transactions--Loans to
Certain Officers."
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<PAGE>
The following table contains further information concerning the stock option
grants made to each of the Named Officers during the fiscal year ended
December 31, 1995.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------- POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OR OPTION TERM(4)
OPTIONS IN FISCAL BASE PRICE -----------------------
NAME GRANTED(1) YEAR(2) ($/SH)(3) EXPIRATION DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Douglas G. Smith........ -- -- -- -- -- --
Evelyn Goldfine......... 25,420 1.38% $6.00 8/1/04-12/31/04 $ 95,919 $ 243,078
Randall R. Meals........ 125,000 6.78 6.00 1/5/05 471,671 1,195,307
Harry Plonskier......... 37,759 2.05 6.00 8/5/04-12/31/04 142,479 361,069
Bradley E. Sparks....... 100,000 5.42 6.00 4/17/05-5/17/05 377,337 956,245
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR(1)
- ---------------------
(1) Stock options vest over five years, 20% in the first year and monthly
thereafter on a pro rata basis, provided that such officer remains
continuously employed by the Company.
(2) Based on options to purchase 1,844,888 shares granted in fiscal 1995,
including repriced options to purchase 380,750 shares.
(3) All stock options were granted with exercise prices equal to the fair
market value, as determined by the Board of Directors, on the grant date.
Following the Company's financing in June 1995, the Board of Directors
repriced the stock options at $6.00 to reflect the adjusted fair market
value of the Common Stock.
(4) These amounts are based on compounded annual rates of stock price
appreciation of five and ten percent over the 10-year term of the options,
are mandated by rules of the Securities and Exchange Commission and are
not indicative of expected stock performance. Actual gains, if any, on
stock option exercises are dependent on future performance of the Common
Stock, overall market conditions, as well as the option holders' continued
employment throughout the vesting period. The amounts reflected in this
table may not necessarily be achieved or may be exceeded. The indicated
amounts are net of the option exercise price but before taxes that may be
payable upon exercise.
The following table sets forth certain information regarding options to
purchase Common Stock held as of December 31, 1995 by each of the Named
Officers. None of such Named Officers exercised any options during the year
ended December 31, 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR IN-THE-MONEY OPTIONS AT
END FISCAL YEAR END(1)
------------------------- -------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
Douglas G. Smith............ -- -- -- --
Evelyn Goldfine............. 235,745 25,330 $3,300,430 $ 354,620
Harry Plonskier............. 17,248 20,511 241,472 287,154
Randall R. Meals............ 25,000 100,000 350,000 1,400,000
Bradley E. Sparks........... 0 100,000 0 1,400,000
</TABLE>
- ---------------------
(1) Calculated on the basis of $14.00 per share, the fair market value of the
Common Stock at December 31, 1995, as determined by the Company's Board of
Directors, less the exercise price payable for such shares, multiplied by
the number of shares underlying the option.
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<PAGE>
EMPLOYMENT AGREEMENTS
The Company and OCI entered into an employment agreement with Mr. Schmitt
effective October 1, 1995, which provides for an annual salary of $175,000,
which is guaranteed by the Company, in addition to certain other benefits.
Pursuant to the agreement, Mr. Schmitt serves as President of OCI and
Executive Vice President of the Company. Mr. Schmitt is eligible for an annual
bonus of up to $50,000 or such greater amount as determined by the
Compensation Committee; provided that the bonus for 1995 is pro rated from
October 1, 1995. In the event the agreement is terminated without cause by the
Company or upon the occurrence of certain events, for a period of up to two
years following termination, Mr. Schmitt is entitled to receive severance
compensation in the amount of the base salary, bonus compensation and medical
benefits for the most recent 12-month period which would otherwise be payable
to Mr. Schmitt. Mr. Schmitt's employment agreement also provides for
forgiveness of the principal and interest payments due under a note from Mr.
Schmitt to the Company for the purchase of 125,000 shares of Common Stock. See
"Certain Relationships and Related Transactions--Loans to Certain Officers."
Mr. Schmitt's shares are subject to a five year repurchase option by the
Company that declines by 20% per year (a "Five Year Repurchase Option"). Mr.
Schmitt's employment agreement provides that during the employment period and
for two years thereafter, Mr. Schmitt will not engage in the business of
providing wireless personal communication services anywhere in the territory
covering the New York MTA or other geographic regions covered by licenses for
which Mr. Schmitt has managerial responsibility.
The Company granted to Mr. Schmitt an option to purchase 437,500 shares at a
purchase price of $6.00 per share; an option to purchase 250,000 shares at a
purchase price of $16.00 per share; an option to purchase 250,000 shares at a
purchase price of $20.00 per share and an option to purchase 125,000 shares at
a purchase price of $24.00 per share. All options vest in annual installments
over a five year period except the 125,000 share option which vests as to
12,500 shares on the first anniversary of the grant, 25,000 shares on each of
the next four anniversaries and 12,500 shares on the sixth anniversary.
On April 17, 1995, Mr. Sparks entered into an employment agreement with the
Company, pursuant to which Mr. Sparks serves as Vice President, Finance and
Chief Financial Officer of the Company. The agreement provides for an initial
annual base salary of $142,500, in addition to certain other benefits. Mr.
Sparks participates in the Executive Bonus Plan whereby he is eligible for
annual bonus payments in an amount up to 20% of his base salary, at the
discretion of the Chief Executive Officer and the Board of Directors. See "--
Executive Bonus Plan." Upon termination of the agreement by the Company
without cause, Mr. Sparks is entitled to receive the compensation and benefits
which would otherwise be payable to Mr. Sparks for a maximum of six months
following such termination. Mr. Sparks' employment agreement provides for
annual forgiveness of the principal and interest payments due under a note
from Mr. Sparks to the Company for the purchase of 12,500 shares of Common
Stock. See "Certain Relationships and Related Transactions--Loans to Certain
Officers." Mr. Sparks' shares are subject to a Five Year Repurchase Option.
The Company granted Mr. Sparks an option to purchase 100,000 shares at a
purchase price of $6.00 per share, vesting over a five year period.
In December 1994, Mr. Meals entered into an employment agreement with the
Company pursuant to which Mr. Meals serves as Chief Operating Officer of the
Company's Technology Division, and provides for a base salary of $175,000 per
year in addition to certain other benefits. Mr. Meals participates in the
Executive Bonus Plan whereby he is eligible to receive annual bonus payments
in an amount up to 20% of his base salary, at the discretion of the Board of
Directors. See "--Executive Bonus Plan." Mr. Meals' employment agreement
provides for a annual forgiveness of the principal and interest payments due
under a note from Mr. Meals to the Company for the purchase of 25,000 shares
of Common Stock. See "Certain Relationships and Related Transactions--Loans to
Certain Officers." Mr. Meals' shares are subject to a Five Year Repurchase
Option. The Company granted to Mr. Meals an option to purchase 125,000 shares
at a purchase price of $6.00 per share, vesting over a five year period.
Mr. Plonskier entered into an employment agreement with OCI effective July
5, 1994, to serve as Vice President, Finance with an annual base salary of
$125,000 per year, in addition to certain other benefits. The agreement
further provides that Mr. Plonskier participates in the Executive Bonus Plan
whereby he is eligible
64
<PAGE>
for an annual bonus in an amount up to 20% of his base salary, at the
discretion of the Compensation Committee of the Board of Directors. During
1994, the Company granted Mr. Plonskier options to purchase 37,762 shares at a
purchase price of $6.00 per share, vesting over a five year period.
Each of Mr. Meals', Mr. Sparks', Mr. Plonskier's and Mr. Schmitt's
employment agreements provides that the agreement may be terminated by the
employee upon 30 days prior written notice, or by the Company upon seven days
(30 days in the case of Mr. Plonskier) prior written notice. Additionally,
each agreement (other than Mr. Schmitt's) contains a general noncompete
provision applicable during the employment period and for one year thereafter
(180 days in the case of Mr. Schmitt in addition to the two year non-compete
described above), which prohibits the employee from directly or indirectly
engaging in the business of the Company (OCI in the case of Mr. Plonskier),
and from soliciting the employees, clients or customers of the Company (OCI in
the case of Mr. Plonskier). Mr. Schmitt's agreement provides in addition to
the two year non-compete described above, a 180 day general non-compete. Such
noncompetition provision is not violated by the employee's ownership of less
than 1% of the outstanding stock of a publicly held corporation.
Certain key employees of the Company are required to sign agreements which
prohibit the employee from directly or indirectly competing with the business
of the Company while employed by the Company and generally for a period of one
year thereafter. All employees have executed agreements which prohibit the
disclosure of confidential or proprietary information of the Company.
EXECUTIVE BONUS PLAN
Senior managers of the Company are eligible to receive an annual cash bonus
award from a bonus pool amount generally not exceeding 20% of the combined
annual base compensation of the senior managers. Each eligible manager is
measured against individually established goals and objectives that will
determine the award.
STOCK OPTION PLAN
The Company's 1990 Stock Option Plan (the "Option Plan") authorizes the
issuance of 6,250,000 shares of Common Stock pursuant to stock option grants.
At July 31, 1996, 724,201 shares had been issued under the Option Plan,
options for 3,425,078 shares were outstanding and 2,100,729 shares remained
available for future grant. There are also outstanding options for 797,188
shares issued outside of the Option Plan, but which contain terms similar to
the agreements issued under the Option Plan. 105,312 shares have been issued
pursuant to options granted outside of the Option Plan.
The Option Plan provides for grants of options to employees, consultants and
directors of the Company. Each stock option granted under the Option Plan is
evidenced by a written stock option agreement between the Company and the
optionee. The Option Plan provides for the granting of "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and non-statutory options. The Option Plan is
administered by the Board of Directors which has sole discretion and
authority, consistent with the provisions of the Option Plan, and has the
right, among other things, to determine which eligible participants will
receive options, the time when options will be granted, the terms of options
granted and the number of shares that will be subject to options granted under
the Option Plan. The Board may also appoint a committee to administer the
Option Plan and, subject to applicable law, to exercise all of the powers of
the Board under the Option Plan.
The exercise price of stock options must be not less than the fair market
value of the Common Stock on the date the option is granted (110% of the fair
market value with respect to optionees who own stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company
("10% Owners")). The Board of Directors has the authority to determine the
time or times at which options granted under the Option Plan become
exercisable; provided that options must expire no later than ten years from
the date of grant (five years with respect to 10% Owners). Options are non-
assignable and non-transferable, other than upon death, by will or the laws of
descent and distribution, and generally may be exercised only while the
optionee is either employed by, or rendering service to, the Company or within
three months thereafter (12 months in the event of death or disability). The
Board may accelerate the date of exercise of any option or waive any condition
or restriction pertaining to such option at any time. Unless terminated sooner
by the Board, the Option Plan will
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terminate on April 31, 2000, or the date on which all shares available for
issuance shall have been issued pursuant to the exercise or cancellation of
options granted under the Option Plan.
EMPLOYEE STOCK PURCHASE PLAN
The Company's stockholders approved the 1996 Employee Stock Purchase Plan
(the "Purchase Plan") at the annual meeting of stockholders held on May 30,
1996. The Purchase Plan authorizes the issuance of 200,000 shares of Common
Stock through payroll deductions to employees of the Company and its
participating subsidiaries. The Purchase Plan is intended to qualify as an
employee stock purchase plan under Section 423 of the Code. The Company
intends to file a registration statement on Form S-8 to register the issuances
of shares under the Purchase Plan prior to the commencement of the initial
offering period on July 1, 1996.
Employees of the Company and participating subsidiaries, who are regularly
scheduled to work 20 or more hours per week and who have been employed as such
for at least three months and do not own, or have the right to acquire, 5% or
more of the voting stock of the Company, will be eligible to participate in
the Purchase Plan. Approximately 175 employees would be eligible to
participate. The Purchase Plan will be administered by the Board of Directors
of the Company or by a committee appointed by the Board of Directors. The
Board or the Committee will be able to make rules and computations, and take
any other appropriate actions to administer the Purchase Plan.
Except for the initial offering, which will consist of a six-month period
from July 1, 1996 through December 31, 1996, each offering under the Purchase
Plan will be for the 12-month calendar year (the "Offering Period"). Each
Offering Period other than the initial Offering Period will consist of two
six-month purchase periods commencing on the first business day on or after
January 1 or July 1 of each year (each, a "Purchase Period"). Eligible
employees may elect to enroll in the Purchase Plan as of the first day of any
Purchase Period. Eligible employees will be re-enrolled automatically for each
new Purchase Period; provided, however, employees will be able to cancel their
enrollment at any time, in accordance with the Purchase Plan rules. Employee
contributions to the Purchase Plan will be made through payroll deductions.
Participating employees may contribute from 1% to 10% (in whole percentages)
of compensation through payroll deductions. Participating employees will be
able to decrease or discontinue the contribution percentage once during any
Purchase Period by submitting a new payroll deduction authorization form, and
will not be able to increase the contribution percentage during an Purchase
Period. On the last business day of each Purchase Period (the "Exercise
Date"), the employee's payroll deductions will be used to purchase shares of
the Company's Common Stock for the employee. The price of the shares purchased
will be the lower of (i) 85% of the stock's closing price on the commencement
date of the Offering Period or (ii) 85% of the stock's closing price on the
Exercise Date. The maximum aggregate purchases which an employee will be able
to make in a single calendar year is $25,000, based on the fair market value
of such Common Stock determined at the commencement date of the Offering
Period. Participation in the Purchase Plan terminates when a participating
employee's employment with the Company or its subsidiaries ceases for any
reason, the employee withdraws, or the Purchase Plan is terminated or amended
such that the employee is no longer eligible to participate.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation provides that to the fullest
extent permitted by Delaware law a director of the Company shall not be liable
to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director. Under current Delaware law, liability of a
director may not be limited (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) in respect of certain unlawful dividend payments or stock
redemptions or repurchases, and (iv) for any transaction from which the
director derives an improper personal benefit. The effect of this provision of
the Company's Certificate of Incorporation is to limit or eliminate the rights
of the Company and its stockholders (through stockholders' derivative suits on
behalf of the Company) to recover monetary damages against a director for
breach of the fiduciary duty of care as a director (including breaches
resulting from negligent or grossly negligent behavior) except in those
circumstances described in clauses (i) through (iv) above. This provision does
not limit or eliminate the rights of the Company or any stockholder to seek
nonmonetary relief such as an injunction or rescission in the event of a
breach of a director's duty of care. In addition, the Company's Certificate of
Incorporation and Bylaws provide
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that the Company shall indemnify its directors, officers, employees and agents
to the fullest extent permitted by Delaware law.
The Company's Bylaws provide that the Company shall indemnify its officers
and directors to the fullest extent permitted by Delaware law, including in
circumstances in which indemnification is otherwise discretionary under
Delaware law. The Company intends to obtain officer and director liability
insurance with respect to liabilities arising out of certain matters,
including matters arising under the 1933 Act.
At present, there is no pending litigation or proceeding involving any
officer or director, employee or agent of the Company where indemnification
will be required or permitted. The Company is not aware of any threatened
litigation or proceeding which may result in a claim for such indemnification.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATED PARTY TRANSACTIONS
In January 1995, the Company entered into a $10 million line of credit
facility with Madison Dearborn Capital Partners, L.P. ("MDCP"). In connection
with the facility, in March 1995, the Company issued to MDCP a warrant for the
purchase of 50,000 shares of Common Stock at an exercise price of $.004 per
share, and a warrant for the purchase of 179,167 shares of Common Stock at an
exercise price of $6.00 per share. In March and April 1995, the Company issued
to MDCP an aggregate of 151,714 shares of Series B Preferred Stock as accrued
dividends on its Series B Preferred Stock. The Series B Preferred Stock and
certain accrued dividends were converted into an aggregate of 4,273,082 shares
of Common Stock upon the closing of the Company's initial public offering and
accrued dividends of $236,892 through such date were paid in cash.
In mid-1995, the Company sold an aggregate of 1,866,338 shares of Series C
Convertible Preferred Stock ("Series C Preferred Stock") at a price of $15.00
per share, for an aggregate consideration of approximately $28 million, to
certain investors, including MDCP, Allen & Company Incorporated ("Allen"),
Quantum Industrial Partners LDC ("Quantum") and S-C Phoenix Holdings, L.L.C.
("S-C Phoenix"). MDCP paid for its Series C Preferred Stock by exchanging the
outstanding balance of the line of credit facility. The Company paid to Allen
a fee of $600,000 for services provided by Allen to the Company in connection
with this financing. Each of the holders of Series C Preferred Stock received
a transaction fee equal to two percent of its investment, for an aggregate
transaction fee of approximately $560,000. Subsequent to the transaction, Mr.
Gupta was elected to the Board of Directors as a representative of Quantum and
S-C Phoenix. The Series C Preferred Stock was converted into an aggregate of
4,665,842 shares of Common Stock upon the closing of the Company's initial
public offering and accrued dividends of $1,299,326 through such date were
paid in cash.
LOANS TO CERTAIN OFFICERS
Each of Mr. Meals and Mr. Sparks executed a five year promissory note for
the benefit of the Company in the original principal amount of $250,000 and
$75,000, respectively, plus interest on the unpaid principal balance from time
to time outstanding at the rate of 8.5% per year. Mr. Meals and Mr. Sparks
executed such promissory notes on December 5, 1994, and April 17, 1995,
respectively, as consideration for the purchase of Common Stock. Principal
payments under each of the notes are to be made in five equal annual
installments, together with interest accrued on such principal amount in
arrears. Mr. Meals' and Mr. Sparks' employment agreements each provide for
forgiveness of the principal and interest payments due under the notes,
provided that such person has been continuously employed by the Company at the
time such payments are due. Each note is immediately due and payable upon
default or the termination of employment with the Company. Additionally, on
September 19, 1995, Mr. Meals executed a three year promissory note for the
benefit of the Company in the original principal amount of $87,100, plus
interest on the unpaid principal balance from time to time outstanding at the
rate of 8.5% per year, on similar terms and conditions including the special
forgiveness provision. The note is related to relocation expenses. See
"Management--Employment Agreements."
Mr. Schmitt executed a five year balloon promissory note for the benefit of
the Company on October 1, 1995 in the original principal amount of $750,000,
plus interest on the unpaid principal balance from time to time outstanding at
the rate of 8% per year, as consideration for the purchase of 125,000 shares
of Common Stock at $6.00 per share. The principal and interest payment due
under the note may be forgiven pursuant to Mr. Schmitt's employment agreement,
provided that he has been continuously employed by the Company at the time
such payment is due. The note is immediately due and payable upon default or
the termination of Mr. Schmitt's employment with the Company. See
"Management--Employment Agreements."
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of July 31, 1996, by: (i) each person who is
known by the Company to own beneficially more than 5% of the Common Stock;
(ii) each of the Company's directors; (iii) each of the Named Officers; and
(iv) all current officers and directors as a group. Unless otherwise
indicated, each person has sole voting power and investment power with respect
to the shares attributed to them.
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED
AS OF JULY 31, 1996(1)
------------------------
BENEFICIAL OWNER NUMBER OF SHARES PERCENT
<S> <C> <C>
Avance Capital(2)..................................... 8,968,000 17.81%
Madison Dearborn Capital Partners, L.P.(3)............ 6,190,156 12.24
Allen & Company Incorporated(4)....................... 3,714,741 7.14
Richard Fields(5)..................................... 3,714,741 7.14
Paul J. Finnegan(6)................................... 6,190,156 12.24
Evelyn R. Goldfine(7)(16)............................. 362,139 *
Arjun Gupta(8)........................................ 1,482,673 2.94
Randall R. Meals(9)(16)............................... 50,300 *
James N. Perry, Jr.(10)............................... 6,190,156 12.24
Harry Plonskier(11)(16)............................... 29,185 *
James J. Ross(12)..................................... 1,719,720 3.36
George F. Schmitt(13)(16)............................. 230,000 *
Douglas G. Smith(14)(16).............................. 11,343,000 22.53
Bradley E. Sparks(15)(16)............................. 46,225 *
All officers and directors as a group (12
persons)(17)......................................... 25,168,139 47.04
</TABLE>
- ---------------------
*Less than one percent.
(1) As of July 31, 1996, the Company had outstanding 50,345,515 shares of
Common Stock. Amounts include outstanding options or warrants which are
exercisable within 60 days of July 31, 1996. Shares of Common Stock
subject to outstanding options or warrants which are exercisable within
60 days of July 31, 1996, are deemed outstanding for computing the
percentage ownership of the persons holding such options but are not
deemed outstanding for the percentage ownership of any other person.
(2) Avance Capital is a proprietorship. Mr. Smith has voting and investment
power with respect to these shares. Its address is 8300 Boone Blvd.,
Suite 500, Vienna, VA 22180.
(3) Includes 229,167 shares of Common Stock issuable upon exercise of
outstanding warrants. All of such shares are held of record by Madison
Dearborn Capital Partners, L.P. ("MDCP"). MDCP is a limited partnership.
Madison Dearborn Partners, L.P. ("MDP") is the general partner of MDCP.
Investment and voting control over securities owned by MDCP is shared by
a committee of the limited partners of MDP (the "L.P. Committee"). The
address of MDCP is Three First National Plaza, Suite 1330, Chicago,
Illinois 60602.
(4) Includes 1,665,000 of Common Stock issuable upon exercise of outstanding
warrants. Allen disclaims beneficial ownership of 839,870 shares and
364,398 shares issuable upon exercise of warrants which are beneficially
owned by certain officers of Allen and related persons. Allen's address
is 711 Fifth Avenue, New York, NY 10022.
(5) Represents 3,714,741 shares owned by Allen (including shares issuable
upon exercise of outstanding warrants) held by certain officers of Allen
and related parties. Mr. Fields is a Managing Director of Allen. Of such
amounts, Mr. Fields does not exercise voting or investment power over,
and disclaims beneficial ownership of, the 1,882,360 shares and 1,388,250
shares issuable upon exercise of outstanding warrants which are held by
Allen and other officers and related persons.
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(6) All of such shares are held of record by MDCP. Mr. Finnegan is a member
of the L.P. Committee. Mr. Finnegan may therefore be deemed to share
investment and voting control with respect to the shares of Common Stock
owned by MDCP and may therefore be deemed to have beneficial ownership of
shares of Common Stock owned by MDCP. Mr. Finnegan expressly disclaims
beneficial ownership of such shares of Common Stock. The business address
of Mr. Finnegan is c/o MDP Inc., Three First National Plaza, Suite 1330,
Chicago, Illinois 60602.
(7) Includes 240,807 shares of Common Stock issuable upon exercise of
outstanding options and 88,025 shares held in a family limited
partnership; Ms. Goldfine is a general partner in such partnership and
shares voting and investment power with regard to 88,025 shares so held.
(8) Represents 1,482,673 shares held by Quantum Industrial Partners LDC
("Quantum") and S-C Phoenix Holdings, L.L.C. ("S-C Phoenix"), associated
with Chatterjee Management Company. Mr. Gupta is a Vice President of
Chatterjee Management Company. Subject to certain conditions, Mr. Gupta
may have an economic interest in 16,667 of these shares and disclaims
beneficial ownership to all 1,482,673 shares over which he does not
exercise voting or investment power.
(9) Includes 25,000 shares of Common Stock issuable upon exercise of
outstanding options and 300 shares owned by his minor children.
(10) All of such shares are held of record by MDCP. Mr. Perry is a member of
the L.P. Committee. Mr. Perry may therefore be deemed to share investment
and voting control with respect to the shares of Common Stock owned by
MDCP and may therefore be deemed to have beneficial ownership of shares
of Common Stock owned by MDCP. Mr. Perry expressly disclaims beneficial
ownership of such shares of Common Stock. The business address of Mr.
Perry is c/o MDP Inc., Three First National Plaza, Suite 1330, Chicago,
Illinois 60602.
(11) Includes 25,685 shares of Common Stock issuable upon exercise of
outstanding options.
(12) Includes 840,375 shares of Common Stock issuable upon exercise of
outstanding options held by Mr. Ross and 286,100 shares owned by Mr.
Ross' children. With respect to shares owned by his children, Mr. Ross
shares voting and investment and voting power with regard to 143,050
shares and has sole voting and investment power with respect to 143,050
shares. As a result, Mr. Ross may be deemed to be the beneficial owner of
such shares. Mr. Ross' address is c/o Becker Ross Stone DeStefano &
Klein, 317 Madison Avenue, New York, NY 10017.
(13) Includes 100,000 shares of Common Stock issuable upon exercise of
outstanding stock options.
(14) Includes 31,720 shares owned by Mr. Smith's minor children, 8,968,000
shares held by Avance Capital, a sole proprietorship, and 1,180,569
shares held in a trust. Mr. Smith does not exercise voting or investment
power over, and disclaims beneficial ownership of, the shares held in the
trust. Mr. Smith has voting and investment power with respect to the
other shares.
(15) Includes 400 shares held as custodian for Mr. Sparks' minor child and
28,325 shares of Common Stock issuable upon exercise of outstanding
options.
(16) The address of each of Mr. Smith, Mr. Schmitt, Ms. Goldfine, Mr.
Plonskier, Mr. Meals and Mr. Sparks, is c/o the Company, 2000 N. 14th
Street, Arlington, VA 22201.
(17) Includes 3,154,359 shares issuable upon exercise of outstanding options
and warrants.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
NORTHERN TELECOM CREDIT FACILITY
The Company has a $382.5 million credit facility with Northern Telecom to
finance purchases and installations of telecommunications equipment,
engineering services, certain related construction costs, third-party
equipment and other expenses.
The NT Credit Facility is secured by a pledge of all capital stock of OCI
owned by a wholly-owned subsidiary of the Company (which constitutes a 95.58%
ownership interest) and substantially all of OCI's assets. Under the terms of
the NT Credit Facility, OCI is subject to certain financial and operational
covenants including restrictions on OCI's ability to pay dividends,
restrictions on indebtedness and certain financial maintenance requirements.
Additionally, the NT Credit Facility provides that, among other events, the
failure of OCI to pay when due amounts owing the FCC shall constitute an event
of default. Interest on the NT Credit Facility is payable quarterly.
A portion of the NT Credit Facility, which may be used for working capital
purposes including interest payments on the principal of such facility,
matures on June 30, 1997. Borrowings for working capital purposes which are
repaid may be subsequently borrowed for the other purposes allowed under the
NT Credit Facility. Other portions of the NT Credit Facility which are
borrowed and repaid are not available for reborrowing other than (a) that
portion of the facility which may be used for equipment purchases from
Northern Telecom, and (b) a reborrowing of up to approximately $73.8 million,
which was repaid during the third quarter of 1996 and can be reborrowed for
general corporate and working capital purposes through March 31, 1997. As of
September 30, 1996, the Company had no outstanding balance.
The principal amount of the non-working capital portions of the NT Credit
Facility is payable in installments beginning in 2000, with the final payment
due on December 31, 2004. As of September 30, 1996, the Company had no
outstanding balance under the non-working capital portions of this facility,
and has agreed not to make any additional borrowings or reborrowings of
prepaid amounts under the facility until January 2, 1997.
Northern Telecom has executed a non-binding commitment letter to extend the
NT Credit Facility from $382.5 million to $612.0 million on substantially the
same terms. Such extension is subject to approval by the Board of Directors of
Northern Telecom. If a definitive agreement is reached, the Company expects to
use these funds in the New York MTA or other markets which the Company
acquired in the Entrepreneurs' Band auction.
ERICSSON CREDIT FACILITY
The Company entered into a credit facility with Ericsson, dated as of August
7, 1996, to provide financing to the Company for up to $132.0 million for the
purposes of financing the purchase of equipment and services from Ericsson for
the New York MTA market. A portion of the Ericsson Credit Facility, which may
be used for interest payments accruing under such facility, and a portion
which may be used to purchase handsets, mature on June 30, 1998. The principal
amount on other portions of the facility is payable in twenty consecutive
quarterly installments beginning in 2000, with the final payment due on
December 31, 2004. Amounts borrowed and repaid are not available for
reborrowing. Interest on the Ericsson Credit Facility is payable quarterly at
varying interest rates at a base or LIBOR rate at the Company's election.
Under the terms of the Ericsson Credit Facility, OCI is subject to certain
financial and operational covenants including restrictions on OCI's ability to
pay dividends, restrictions on indebtedness and certain financial maintenance
requirements. Additionally, the Ericsson Credit Facility provides that, among
other events, the failure of OCI to pay when due amounts owing the FCC shall
constitute an event of default.
The Ericsson Credit Facility is secured by substantially all of the assets
of OCI, including a pledge of all capital stock of OCI owned by a wholly-owned
subsidiary of the Company (which constitutes a 95.58% ownership interest). All
collateral is held by a collateral agent and is shared on a pari passu basis
with Northern Telecom.
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PCS LICENSE OBLIGATIONS
The Company will pay $347.5 million for the New York MTA License, pursuant
to an FCC order dated March 8, 1996. The Company is required to pay only
interest on the total amount due until March 8, 1998 and to pay the principal
balance and remaining interest during the period March 1998 to March 2001. The
interest rate adopted by the FCC is 7.75%. Payments are due on the last day of
each financial quarter. The Company's New York MTA License is conditioned upon
the full and timely performance of payment obligations under the Company's
installment plan. If the Company is more than 90 days delinquent in any
payment, it will be deemed to be in default.
The Company bid successfully for Entrepreneurs' Band licenses with an
aggregate license fee of approximately $509.1 million (net of the 25% small
business discount). On September 17, 1996, the FCC granted the Company's 18
Entrepreneurs' Band C Block PCS licenses. The Company made a 10% down payment,
or approximately $51.0 million, to the FCC for these licenses. The Company
will pay interest only until 2003. The balance of approximately $458.2 million
will be due in quarterly installments beginning in the year 2003 and
continuing until 2006 and will bear interest at the 10-year Treasury note rate
on the date the licenses are awarded.
SENIOR NOTES
On November 22, 1995, the Company issued to two institutional investors
warrants to purchase an aggregate of 625,000 shares of Common Stock at $.004
per share (of which 346,999 shares have been exercised) and two five-year term
Senior Notes in the aggregate principal amount of $25.0 million. The Company
is subject to certain restrictions and requirements regarding the issuance of
indebtedness senior or pari passu to the Senior Notes. Under the terms of the
Senior Notes the Company is subject to certain covenants which, among other
things, restrict the ability of the Company and certain of its subsidiaries to
incur additional indebtedness; pay dividends or make distributions in respect
of its capital stock or make certain restricted payments; create liens; or
merge or sell all or substantially all of its assets. In the event that the
employment of a senior officer of the Company is terminated prior to June 30,
1998, the Company must either pay the Senior Notes in full or pay a one time
fee in an amount equal to 5% of the then outstanding principal amount of the
Senior Notes. The Company may prepay the Senior Notes at any time. Interest is
payable at 6% for the period November 22, 1995 to November 22, 1996, and
thereafter is payable at 12% semiannually for the period from November 22,
1996 to November 22, 2000. Interest accrued as of December 31, 1995 and June
30, 1996 was $162,500 and $125,000, respectively.
LINE OF CREDIT
In August 1996, the Company, through its subsidiary OPCSE Two, entered into
a credit facility with a bank. The agreement provides for up to $100.0 million
in revolving credit for general working capital purposes with a draw down
termination date and final repayment date of May 8, 1997. The initial funding
took place on August 12, 1996, at which time the Company drew down $60.0
million (which amount was repaid on August 13, 1996). Subsequent to the
initial drawing, the committed amount of the credit facility may not exceed
the initial drawing and is subject to mandatory reduction under the terms of
the credit agreement. Under the terms of the agreement, the Company paid a
portion of the upfront fee and will pay additional fees based in part on
amounts outstanding from time to time. Interest periods range from one to
fourteen days, with interest rates set by the bank based on wholesale money
market rates available to the bank. The facility is secured by all assets of
OPCSE Two and a pledge of all capital stock of OPCSE Two owned by a wholly-
owned subsidiary of the Company. The Company has also guaranteed the payment
and performance of OPCSE Two's obligations.
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DESCRIPTION OF THE NEW NOTES
The Old Notes have been, and the New Notes will be, issued under an
Indenture, dated as of the August 27, 1996 (the "Indenture"), between the
Company, as issuer, and Marine Midland Bank, as Trustee (the "Trustee"). The
terms of the Indenture will also be governed by certain provisions contained
in the Trust Indenture Act of 1939, as amended. The following summary contains
a description of all of the material provisions of the Indenture but does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all the provisions of the Indenture, including the definitions
of certain terms therein. A copy of the Indenture is available upon request.
For definitions of certain capitalized terms used in the following summary,
see "Certain Definitions."
GENERAL
The New Notes will be senior, unsecured, general obligations of the Company,
limited to $250 million aggregate principal amount and will mature on August
15, 2006. Interest on the New Notes will accrue at the rate of 11 5/8% per
annum from the date of original issuance or from the most recent interest
payment date to which interest has been paid or provided for, payable
semiannually (to Holders of record at the close of business on February 1 or
August 1 immediately preceding the interest payment date) on February 15 and
August 15 of each year, commencing February 15, 1997. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
Principal of, premium and Liquidated Damages (as defined), if any, and
interest on the Notes will be payable at the office or agency of the Company
in the Borough of Manhattan, the City of New York (which initially will be the
corporate trust office of the Trustee at 140 Broadway, New York, NY 10005,
Attention: Corporate Trust Administration). At the option of the Company,
payment of interest may be made by check mailed to the address of the Holder
as such address appears in the Security Register, provided that all payments
with respect to Global Notes (as defined), and Certificated Securities (as
defined) the Holders of which have given wire transfer instructions to the
Company, will be required to be made by wire transfer of immediately available
funds to the accounts specified by the Holders thereof.
The Notes will be issued only in registered form, without coupons, in
denominations of $1,000 and integral multiples thereof. The Notes issued to
"qualified institutional buyers" will initially be represented by one or more
Global Notes (the "Global Notes") and will be deposited with, or on behalf of,
The Depository Trust Company (the "Depository") and registered in the name of
a nominee of the Depository. Except as set forth in "Book-Entry, Delivery and
Form," owners of beneficial interests in such Global Notes who are "qualified
institutional buyers" will not be entitled to have Notes registered in their
names, will not receive or be entitled to receive physical delivery of Notes
in definitive form and will not be considered the owners or Holders thereof
under the Indenture. See "Book- Entry, Delivery and Form." No service charge
will be made for any registration of transfer or exchange of Notes, but the
Company may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.
DISBURSEMENT OF FUNDS--ESCROW ACCOUNT
In accordance with the Indenture, the Company has placed approximately $53.3
million of the net proceeds realized from the sale of the Old Notes,
representing funds that together with the proceeds from the investment thereof
will be sufficient to pay two years' interest on the Notes, in an escrow
account (the "Escrow Account") held by the Escrow Agent for the benefit of the
Trustee and the Holders of the Notes under the Indenture in accordance with
the Escrow Agreement dated as of August 27, 1996 among the Company, the
Trustee and the Escrow Agent. The Company has entered into the Escrow
Agreement, which provides, among other things, that funds may be disbursed
from the Escrow Account to reimburse the Company for interest payments the
Company makes on the Notes (and, if a portion of the Notes has been retired by
the Company, funds representing the lesser of (A) the excess of the amount
sufficient to pay interest through and including August 15, 1998 on the Notes
not so retired and (B) the interest payments which have not previously been
made on such retired Notes
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for each interest payment date through August 15, 1998 shall be paid to the
Company if no Default or Event of Default then exists under the Indenture).
Upon the acceleration of the maturity of the Notes, the Escrow Agreement
provides for payment of the amount remaining in the Escrow Account to the
Trustee to be applied on account of amounts owing on the Notes. Pending
disbursement, the Company will instruct the Escrow Agent to cause all funds
contained in the Escrow Account to be invested in Temporary Cash Investments.
Interest earned on these Temporary Cash Investments will be added to the
Escrow Account.
The New Notes to be issued are collateralized by a first priority security
interest in the Escrow Account. The ability of holders to realize upon any
such funds or securities may be subject to certain bankruptcy law limitations
in the event of the bankruptcy of the Company.
RANKING
The Indebtedness evidenced by the Notes will rank pari passu in right of
payment with all existing and future unsubordinated indebtedness of the
Company and senior in right of payment to all existing and future subordinated
indebtedness of the Company. The Company is permitted under the Indenture to
secure such indebtedness. The New Notes will be effectively subordinated to
such security interests to the extent of such security interests. In addition,
all existing and future liabilities (including trade payables and indebtedness
under the NT Credit Facility and Ericsson Credit Facility) of the Company's
subsidiaries will be effectively senior to the Notes. As of June 30, 1996, the
Company has approximately $699.6 million of consolidated indebtedness and the
Company's subsidiaries have approximately $432.6 million of aggregate
indebtedness (including trade payables) to which the Notes would be
effectively subordinated. The Company and the Restricted Subsidiaries will be
permitted to incur additional indebtedness to finance the acquisition of
telecommunications licenses, inventory, equipment and to buildout and
otherwise develop telecommunications systems, and up to $100 million of
indebtedness under one or more revolving credit or working capital facilities.
OPTIONAL REDEMPTION
The New Notes will be redeemable, at the Company's option, in whole or in
part, at any time or from time to time, on or after August 15, 2001 and prior
to maturity, upon not less than 30 nor more than 60 days' prior notice mailed
by first class mail to each Holder's last address as it appears in the
Security Register, at the redemption prices (expressed in percentages of
principal amount) set forth below, plus accrued and unpaid interest and
Liquidated Damages, if any, to the redemption date (subject to the right of
Holders of record on the relevant regular record date that is prior to the
redemption date to receive interest due on an interest payment date), if
redeemed during the 12-month period commencing August 15, of the years set
forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
<S> <C>
2001.................................................... 105.81%
2002.................................................... 103.88%
2003.................................................... 101.94%
2004 and thereafter..................................... 100.00%
</TABLE>
In addition, at any time prior to August 15, 1999, the Company may redeem up
to one-third of the aggregate principal amount of the Notes originally issued,
at any time as a whole or from time to time in part, with the proceeds of one
or more Public Equity Offerings or sales of Capital Stock (other than
Redeemable Stock) to one or more Strategic Equity Investors, each such Public
Equity Offering or sale to Strategic Equity Investors resulting in Net Cash
Proceeds of $50 million or more, at a redemption price (expressed as a
percentage of principal amount) of 111.625%, provided that after any such
redemption at least two-thirds of the aggregate principal amount of Notes
originally outstanding remains outstanding and each such redemption is
effected not more than 60 days after the consummation of such Public Equity
Offering or sale to Strategic Equity Investors.
If less than all of the Notes are to be redeemed at any time, the Trustee
will select the Notes, or portions thereof, for redemption in compliance with
the requirements of the principal national securities exchange, if any,
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on which the Notes are listed or, if the Notes are not listed on a national
securities exchange, on a pro rata basis, by lot or by such other method as
the Trustee in its sole discretion shall deem to be fair and appropriate,
provided that no Note of $1,000 in principal amount or less shall be redeemed
in part. If any Note is to be redeemed in part only, the notice of redemption
relating to such Note shall state the portion of the principal amount thereof
to be redeemed. A New Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the Old Note.
COVENANTS
The Indenture will contain, among others, the following covenants:
LIMITATION ON INDEBTEDNESS
The Company will not, and will not permit any of its Restricted Subsidiaries
to, Incur any Indebtedness (including Acquired Debt), provided, however, that
the Company may Incur Indebtedness and any of its Restricted Subsidiaries may
issue shares of Redeemable Stock if (i) no Default or Event of Default shall
have occurred and be continuing, and (ii) the Consolidated Leverage Ratio is
no greater than 7 to 1, for any Incurrence from the Closing Date through the
sixth anniversary of the Closing Date, or 6 to 1 thereafter.
Notwithstanding the foregoing, as long as no Default or Event of Default
shall have occurred and be continuing, the Company and (except as specified
below) any Restricted Subsidiary may issue or Incur each and all of the
following: (i) Indebtedness due and owing to government entities in connection
with telecommunications license fees or Indebtedness incurred to finance the
payment of deposits with and license fees to the FCC in connection with FCC
license auctions; (ii) Indebtedness Incurred by the Company or any Restricted
Subsidiary the proceeds of which are (or the credit support provided by any
such Indebtedness is) used to finance the development, construction, expansion
or operation of Telecommunications Assets; (iii) Indebtedness Incurred by the
Company or any Restricted Subsidiary the proceeds of which are (or the credit
support provided by any such Indebtedness is) used to finance the acquisition
of Telecommunications Assets or the Capital Stock of a Telecommunications
Business; (iv) Indebtedness outstanding as of the date hereof;
(v) Indebtedness under one or more revolving credit or working capital
facilities in an aggregate principal amount outstanding or available at any
time not to exceed $100 million; (vi) Indebtedness owed to the Company or any
of its Restricted Subsidiaries, provided that any subsequent issuance or
transfer of any Capital Stock which results in any such Restricted Subsidiary
owed such Indebtedness ceasing to be a Restricted Subsidiary or any subsequent
transfer of such Indebtedness (other than to the Company or another Restricted
Subsidiary) shall be deemed, in each case, to constitute the Incurrence of
such Indebtedness; (vii) Indebtedness issued in exchange for, or the net
proceeds of which are used to refinance or refund, then outstanding
Indebtedness, other than Indebtedness Incurred under clauses (v) and (viii) of
this paragraph, and any refinancings thereof in an amount not to exceed the
amount so refinanced or refunded (plus premiums, accrued interest, fees and
expenses), provided that (x) Indebtedness Incurred to refinance or refund the
Notes or Indebtedness does not have a higher relative seniority to the Notes
than the Indebtedness being refinanced or refunded, (y) the Average Life of
such new Indebtedness is at least equal to the remaining Average Life of the
Indebtedness to be refinanced or refunded and (z) Indebtedness Incurred to
refinance Indebtedness of the Company may only be Incurred by the Company;
(viii) Indebtedness (A) in respect of performance, surety or appeal bonds
provided in the ordinary course of business, (B) under Currency Agreements and
Interest Rate Agreements, provided that such agreements do not increase the
Indebtedness of the obligor outstanding at any time other than as a result of
fluctuation or interest rates or by reason of fees, indemnities and
compensation payable thereunder or (C) arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations Incurred
in connection with the disposition of any business, assets or Restricted
Subsidiary of the Company in a principal amount not to exceed the gross
proceeds actually received by the Company or any Restricted Subsidiary in
connection with such disposition; and (ix) Indebtedness represented by the
Notes.
Notwithstanding any other provision of this "Limitation on Indebtedness"
covenant, the maximum amount of Indebtedness that the Company or a Restricted
Subsidiary, may Incur pursuant to this "Limitation on
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Indebtedness" covenant shall not be deemed to be exceeded due solely to the
result of fluctuations in the exchange rates of currencies.
For purposes of determining any particular amount of Indebtedness under this
"Limitation on Indebtedness" covenant, (i) Guarantees, Liens or obligations
with respect to letters of credit supporting Indebtedness otherwise included
in the determination of such particular amount shall not be included and
(ii) any Liens granted pursuant to the equal and ratable provisions referred
to in the "Limitation on Liens" covenant described below shall not be treated
as Indebtedness. For purposes of determining compliance with this "Limitation
on Indebtedness" covenant, in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness described in the above
clauses, the Company, in its sole discretion, shall classify such item of
Indebtedness and only be required to include the amount and type of such
Indebtedness in one of such clauses.
LIMITATION ON RESTRICTED PAYMENTS
The Company will not, and will not permit any Restricted Subsidiary, to,
directly or indirectly, (i) declare or pay any dividend or make any
distribution on its Capital Stock (other than dividends or distributions
payable solely in shares of its or such Restricted Subsidiary's Capital Stock
(other than Redeemable Stock) of the same class held by such holders or in
options, warrants or other rights to acquire such shares of Capital Stock)
held by Persons other than (a) the Company, (b) any of its Restricted
Subsidiaries, or (c) any other shareholder of such Restricted Subsidiaries (so
long as the Company and its Restricted Subsidiaries receive their pro rata
share of such dividend or distribution based on their ownership of such class
or series of such Restricted Subsidiaries Capital Stock on which such dividend
or distribution is being made), (ii) purchase, redeem, retire or otherwise
acquire for value any shares of Capital Stock of the Company or an
Unrestricted Subsidiary (including options, warrants or other rights to
acquire such shares of Capital Stock) held by any Person (other than the
Company or a Restricted Subsidiary), (iii) make any payments on indebtedness
subordinate to the Notes, or (iv) make any Investment, other than a Permitted
Investment, in any Person (such payments or any other actions described in
clauses (i) through (iv) being collectively "Restricted Payments") unless, at
the time of, and after giving effect to, the proposed Restricted Payment: (A)
no Default or Event of Default shall have occurred and be continuing, (B) the
Company would be permitted to incur additional indebtedness pursuant to the
first paragraph of the covenant "Limitation on Indebtedness" and (C) the
aggregate amount expended for all Restricted Payments (the amount so expended,
if other than in cash, to be determined in good faith by the Board of
Directors, whose determination shall be conclusive and evidenced by a Board
Resolution) after the date of the Indenture shall not exceed the sum of (1)
the amount by which Consolidated EBITDA exceeds 1.5 times Consolidated
Interest Expense for the period from the Closing Date through the end of the
last completed fiscal quarter for which financial statements are available
plus (2) 100% of the aggregate Net Cash Proceeds received by the Company on or
after the Closing Date from the issuance and sale permitted by the Indenture
of its Capital Stock to a Person who is not a Subsidiary of the Company, or
from the issuance to a Person who is not a Subsidiary of the Company of any
options, warrants or other rights to acquire Capital Stock of the Company.
The foregoing provision shall not be violated by reason of (i) the payment
of any dividend within 60 days after the date of declaration thereof if, at
said date of declaration such payment would comply with the foregoing
paragraph; (ii) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of payment
to the Notes (including, premium, if any, and accrued and unpaid interest)
with the proceeds of, or in exchange for, Indebtedness incurred under clause
(vii) of the second paragraph of the "Limitation on Indebtedness" covenant;
(iii) the repurchase, redemption or other acquisition of Capital Stock of the
Company or any Restricted Subsidiary or any other Person in exchange for
shares of Capital Stock (other than Redeemable Stock) of the Company; (iv) the
acquisition of Indebtedness of the Company which is subordinated in right of
payment to the Notes in exchange for, or out of the proceeds of, a
substantially concurrent offering of shares of the Capital Stock of the
Company (other than Redeemable stock); (v) payments or distributions to
dissenting stockholders pursuant to applicable law in connection with a
consolidation, merger or transfer of assets that complies with the provisions
of the Indenture applicable to mergers, consolidations and
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transfers of all or substantially all of the property and assets of the
Company; (vi) the distribution to shareholders of the Company or any
Restricted Subsidiary of shares of Capital Stock of any Unrestricted
Subsidiary or the distribution to shareholders of the Company of shares of
Capital Stock of any Subsidiary holding only the assets of the Company's
technology business, provided that in such latter case, after giving effect to
such transaction on a pro forma basis, (x) the Company would be permitted to
incur additional indebtedness pursuant to the first paragraph of the covenant
"Limitation on Indebtedness" or (y) the Company's Annualized Consolidated
EBITDA would not decrease, provided, further, in such latter case, that such
Subsidiary has working capital not in excess of $5 million; and (vii) the
purchase, redemption, acquisition, cancellation or other retirement for value
of shares of Capital Stock of the Company to the extent required by FCC rules
in order to prevent the loss or secure the renewal or reinstatement of any
license or franchise held by the Company or any Restricted Subsidiary,
provided that except in the case of clause (i) of this paragraph no Default or
Event of Default shall have occurred and be continuing or occur as a
consequence of the actions or payments set forth therein. Each Restricted
Payment permitted pursuant to this paragraph (other than the Restricted
Payment referred to in clause (ii) hereof) and each payment pursuant to clause
(vi) of the definition of Permitted Investment shall be included in
calculating the aggregate amount of Restricted Payments for purposes of clause
(C) of the first paragraph of this "Limitation on Restricted Payments."
Any Investment in a Subsidiary that becomes an Unrestricted Subsidiary shall
become a Restricted Payment made on such date in the amount of the greater of
(x) the book value of such Subsidiary on the date such Subsidiary becomes an
Unrestricted Subsidiary and (y) the fair market value of such Subsidiary on
such date as determined (A) in good faith by the Board of Directors if such
fair market value is determined to be less than $10 million and (B) by an
investment banking firm of national standing with high yield underwriting
expertise if such fair market value is determined to be in excess of $10
million. Any Restricted Payment made by contribution or transfer of assets
shall be valued in the amount of the greater of (x) the book value of such
asset on the date of transfer or (y) the fair market value on such date as
determined (A) in good faith by the Board of Directors if such fair market
value is determined to be less than $10 million and (B) by an investment
banking firm of national standing with high yield underwriting expertise if
such fair market value is determined to be in excess of $10 million.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which any calculations
required by the "Limitation on Restricted Payments" covenant were computed,
which calculations may be based upon the Company's latest available financial
statements.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
The Company will not, and will not permit any Restricted Subsidiary to
create or otherwise cause or suffer to exist or become effective any
consensual encumbrance or restriction of any kind on the ability of any
Restricted Subsidiary to (i) pay dividends or make any other distributions
permitted by applicable law on any Capital Stock of such Restricted Subsidiary
owned by the Company or any other Restricted Subsidiary, (ii) pay any
Indebtedness owed to the Company or any other Restricted Subsidiary, (iii)
make loans or advances to the Company or any other Restricted Subsidiary or
(iv) transfer any of its property or assets to the Company or any other
Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Closing Date in the Indenture or any other
agreements in effect on the Closing Date, and any extensions, refinancings,
renewals or replacements of such agreements, provided that the encumbrances
and restrictions in any such extensions, refinancings, renewals or
replacements are no less favorable in any material respect to the Holders than
those encumbrances or restrictions that are then in effect and that are being
extended, refinanced, renewed or replaced; (ii) existing under or by reason of
applicable law, (iii) existing with respect to any Person or the property or
assets of such Person acquired by the Company or any Restricted Subsidiary and
existing at the time of such acquisition, which encumbrances or restrictions
are not applicable to any Person or the property or assets of any
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Person other than such Person or the property or assets of such Person so
acquired; (iv) in the case of clause (iv) of the first paragraph of this
"Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant, (A) that restrict in a customary manner the
subletting, assignment or transfer of any property or asset that is a license
or contract or (B) existing by virtue of any transfer of, agreement to
transfer, option or right with respect to, or Lien on, any property or assets
of the Company or any Restricted Subsidiary not otherwise prohibited by the
Indenture; or (v) with respect to a Restricted Subsidiary and imposed pursuant
to an agreement that has been entered into for the sale or disposition of all
or substantially all of the Capital Stock of, or property and assets of such
Restricted Subsidiary.
Nothing contained in this "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant shall prevent the
Company or any Restricted Subsidiary from (1) creating, incurring, assuming or
suffering to exist any Liens otherwise permitted in the "Limitation on Liens"
covenant, (2) restricting the sale or other disposition of property or assets
of the Company or any of its Restricted Subsidiaries that secure Indebtedness
of the Company or any of its Restricted Subsidiaries, or (3) restricting the
payment of dividends or distributions or other disposition of property or
assets of or the making of loans by any Restricted Subsidiary in connection
with any financing for the Telecommunications Business of such Restricted
Subsidiary, provided that in the case of clause (3) such restriction may be
entered into only if at such time the total amount, without duplication, of
(i) Mirror Indebtedness owed by Restricted Subsidiaries, less (ii) proceeds of
such Mirror Indebtedness that are invested in another Person, other than (x)
Investments in other Restricted Subsidiaries conducting no operations other
than the holding of government licenses or (y) Investments in Mirror
Indebtedness of other Restricted Subsidiaries, plus (iii) capital
contributions to the Special Subsidiary, plus (iv) the cash and Temporary Cash
Investments held by the Company (not on a consolidated basis), equals or
exceeds the outstanding principal amount of the Notes.
LIMITATION ON TRANSACTIONS WITH STOCKHOLDERS AND AFFILIATES
Except for any agreement entered into on or before the Closing Date, the
Company will not, and will not permit any Restricted Subsidiary to, directly
or indirectly, enter into, renew or extend any transaction (including, without
limitation, the purchase, sale, lease or exchange of property or assets, or
the rendering of any service) with any holder (or any Affiliate of such
holder) of 10% or more of any Voting Stock of the Company or with any
Affiliate of the Company or any Restricted Subsidiary, except upon fair and
reasonable terms no less favorable to the Company or such Restricted
Subsidiary than could be obtained, at the time of such transaction or at the
time of the execution of the agreement providing therefor, in a comparable
arm's-length transaction with a Person that is not such a holder or an
Affiliate.
In addition to the foregoing, transactions with any holder (or any Affiliate
of such holder) of 10% or more of any Voting Stock (i) having a fair market
value or involving payments equal to or in excess of $3 million shall be
approved by a majority of the disinterested members of the Board of Directors
and (ii) having a fair market value or involving payments equal to or in
excess of $7 million shall require the Company or a Restricted Subsidiary to
deliver to the Trustee a written opinion of a nationally recognized investment
banking firm stating that the transaction is fair to the Company or such
Restricted Subsidiary from a financial point of view. The foregoing limitation
shall not apply to (i) any transaction between the Company and any of its
Restricted Subsidiaries or between Restricted Subsidiaries; (ii) the payment
of reasonable and customary regular fees to directors of the Company who are
not employees of the Company and any employment agreement entered into by the
Company or any Restricted Subsidiary in the ordinary course of business; (iii)
any Restricted Payments not prohibited by the "Limitation on Restricted
Payments" covenant; or (iv) any transaction pursuant to an agreement in effect
on the Closing Date.
LIMITATION ON LIENS
The Company will not, and will not permit any Restricted Subsidiary to,
create, incur, assume or suffer to exist any Lien on any of its assets or
properties of any character, or any shares of Capital Stock or Indebtedness of
any Restricted Subsidiary, without making effective provision for all of the
Notes and all other amounts due
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under the Indenture to be directly secured equally and ratably with (or, if
the obligation or liability to be secured by such Lien is subordinated in
right of payment to the Notes, prior to) the obligation or liability secured
by such Lien. The foregoing limitation does not apply to (i) Liens existing on
the Closing Date; (ii) Liens granted after the Closing Date on any assets or
Capital Stock of the Company or its Restricted Subsidiaries created in favor
of the Holders; (iii) Liens with respect to the assets of a Restricted
Subsidiary granted by such Restricted Subsidiary to the Company or a
Restricted Subsidiary to secure Indebtedness owing to the Company or such
other Restricted Subsidiary, (iv) Liens securing obligations under revolving
credit or working capital facilities under clause (v) of the second paragraph
of the "Limitation on Indebtedness" covenant, provided that the aggregate
amount of Indebtedness secured by any such Liens shall not at any time exceed
the amount of Indebtedness permitted to be Incurred under clause (v) of the
second paragraph of the "Limitation on Indebtedness" covenant; (v) Liens
securing Indebtedness under clauses (i), (ii) or (iii) of the second paragraph
of the "Limitation on Indebtedness" covenant granted on or after the Closing
Date on the Capital Stock or assets of any Restricted Subsidiary, including
any Lien granted in connection with a refinancing thereof, provided that Lien
does not extend to any additional assets not originally pledged pursuant to
such refinanced Indebtedness; (vi) Liens on telecommunications licenses
securing obligations to government entities; (vii) Liens on property of a
person existing at the time such person is merged into, or the assets of such
person are acquired by, the Company or any Restricted Subsidiary, provided
that such Liens were in existence prior to the contemplation of such merger or
acquisition and do not secure any property or assets of the Company or any of
its Restricted Subsidiaries other than the property or assets subject to the
Liens prior to such merger or acquisition; or (viii) Permitted Liens.
LIMITATION ON SALE-LEASEBACK TRANSACTIONS
The Company will not, and will not permit any Restricted Subsidiary to enter
into any sale-leaseback transaction involving any of its assets or properties
whether now owned or hereafter acquired, whereby the Company or a Restricted
Subsidiary sells or transfers such assets or properties and then or thereafter
leases such assets or properties or any part thereof or any other assets or
properties which the Company or such Restricted Subsidiary, as the case may
be, intends to use for substantially the same purpose or purposes as the
assets or properties sold or transferred.
LIMITATION ON ASSET SALES
The Company will not, and will not permit any Restricted Subsidiary to,
consummate any Asset Sale, unless (i) the consideration received by the
Company or such Restricted Subsidiary is at least equal to the fair market
value of the assets sold or disposed of and (ii) at least 75% of the
consideration received consists of cash or Temporary Cash Investments,
provided, however, that the amount of (x) any liabilities of the Company or
any Restricted Subsidiary that are assumed by the transferee of any such
assets and (y) any notes or other obligations received by the Company or any
such Restricted Subsidiary from such transferee that are immediately converted
by the Company or such Restricted Subsidiary into cash, shall be deemed to be
Temporary Cash Investments (to the extent of the Temporary Cash Investments
received in such conversion) for the purposes of this clause (ii). In the
event and to the extent that the Net Cash Proceeds received by the Company or
any of its Restricted Subsidiaries from one or more Asset Sales occurring
after the Closing Date in any period of twelve consecutive months exceed $5
million, then the Company shall or shall cause the relevant Restricted
Subsidiary to (1) within twelve months after the date Net Cash Proceeds so
received exceed such an amount (a) apply an amount equal to such excess Net
Cash Proceeds to permanently repay Indebtedness of the Company or any
Restricted Subsidiary or (b) invest an equal amount, or the amount not so
applied pursuant to clause (a), (or enter into a definitive agreement
committing to so invest within twelve months after the date of such agreement)
in Telecommunications Assets (or in a company engaged in a Telecommunications
Business) and/or (2) apply (no later than the end of the twelve-month period
referred to in clause (1)) such excess Net Cash Proceeds (to the extent not
applied pursuant to clause (1)) as provided in the following paragraph of this
"Limitation on Asset Sales" covenant. The amount of such excess Net Cash
Proceeds required to be applied (or to be committed to
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be applied) during such twelve month period as set forth in clause (1) of the
preceding sentence and not applied as so required by the end of such period
shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to
this "Limitation on Asset Sales" covenant equals or exceeds $5 million, the
Company must commence, not later than the fifteenth Business Day of such
month, and consummate an Offer to Purchase from the Holders on a pro rata
basis an aggregate principal amount of Notes equal to the Excess Proceeds on
such date, at a purchase price equal to 100% of the principal amount of the
Notes, plus, in each case accrued interest (if any) to the Payment Date.
Notwithstanding the foregoing, to the extent that any amount of Excess
Proceeds remains after completion of any such Offer to Purchase, the Company
may use such remaining amount for general corporate purposes and the amount of
Excess Proceeds shall be reset to zero.
Notwithstanding anything to the contrary contained in this covenant, the
Company may distribute all or a portion of the capital stock of any Subsidiary
holding only the assets of the technology business of the Company to the
Company's shareholders, provided that after giving effect to such transaction
on a pro forma basis (A) the Company would be permitted to incur additional
indebtedness pursuant to the first paragraph of the covenant "Limitation on
Indebtedness" or (B) the Company's Annualized Consolidated EBITDA would not
decrease.
LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES
The Company (a) will not permit any Restricted Subsidiary to issue any
Capital Stock (other than to the Company or a Restricted Subsidiary) and (b)
will not permit any Person (other than the Company or a Restricted Subsidiary)
to own any Capital Stock of any Restricted Subsidiary, provided, however, that
this covenant will not prohibit (i) the sale or other disposition of all of
the issued and outstanding Capital Stock of any Restricted Subsidiary owned by
the Company or any Restricted Subsidiary in compliance with the other
provisions of the Indenture; (ii) the ownership by directors of director's
qualifying shares of Capital Stock of any Restricted Subsidiary, to the extent
mandated by applicable law; (iii) the ownership of Capital Stock of a
Restricted Subsidiary issued and outstanding either (A) as of the Closing Date
or (B) prior to the time that such Person becomes a Restricted Subsidiary so
long as such Capital Stock was not issued in contemplation of such Person's
becoming a Restricted Subsidiary of the Company or otherwise being acquired by
the Company; (iv) the issuance of Capital Stock of a Restricted Subsidiary
pursuant to an employee stock option plan approved by the Boards of Directors
of the Restricted Subsidiary and the Company; or (v) the issuance or sale of
Capital Stock of a Restricted Subsidiary in a transaction not prohibited by
the covenant entitled "Limitation on Asset Sales", provided that such
Restricted Subsidiary will remain a Restricted Subsidiary, and only if at the
time of such sale, the total amount, without duplication, of (i) Mirror
Indebtedness owed by Restricted Subsidiaries, less (ii) proceeds of such
Mirror Indebtedness that are invested in another Person, other than (x)
Investments in other Restricted Subsidiaries conducting no operations other
than the holding of government licenses or (y) Investments in Mirror
Indebtedness of other Restricted Subsidiaries, plus (iii) capital
contributions to the Special Subsidiary, plus (iv) the cash and Temporary Cash
Investments held by the Company (not on a consolidated basis), equals or
exceeds the outstanding principal amount of the Notes.
LIMITATION ON GUARANTEES OF INDEBTEDNESS BY RESTRICTED SUBSIDIARIES
The Company will not permit any Restricted Subsidiary to Guarantee or assume
the payment of any Indebtedness of the Company unless (i) (A) such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture
providing for a Guarantee of payment of the Notes by such Restricted
Subsidiary and (B) with respect to any Guarantee of Subordinated Indebtedness
of the Company by such Restricted Subsidiary, any such Guarantee shall be
subordinated to such Restricted Subsidiary's Guarantee with respect to the
Notes at least to the same extent as such Subordinated Indebtedness is
subordinated to the Notes and (ii) such Restricted Subsidiary waives any
rights of reimbursement, indemnity or subrogation or any other rights against
the Company or any other Restricted Subsidiary as a result of any payment by
such Restricted Subsidiary under its Guarantee until the Notes have been paid
in full. The incurrence by a Restricted Subsidiary as a primary obligor
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of any Indebtedness that is guaranteed by the Company will not be deemed a
Guarantee of the Company's Indebtedness for purposes of this covenant.
Notwithstanding the foregoing, any Guarantee of the relevant Notes or waiver
of rights created pursuant to the provisions described in the foregoing
paragraph will provide by their terms that they will be automatically and
unconditionally released and discharged upon the release by the holders of the
Indebtedness of the Company described in the preceding paragraph of their
Guarantee by such Restricted Subsidiary (including any deemed release upon
payment in full of all obligations under such Indebtedness, except by or as a
result of payment under such Guarantee), at a time when (A) no other
Indebtedness of the Company has been Guaranteed by such Restricted Subsidiary
or (B) the holders of all such other Indebtedness which is Guaranteed by such
Restricted Subsidiary also release their Guarantee by such Restricted
Subsidiary (including any deemed release upon payment in full of all
obligations under such Indebtedness, except by or as a result of payment under
such Guarantee).
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company shall not consolidate with, merge with or into, or sell, convey,
transfer, lease or otherwise dispose of all or substantially all of its
property and assets (as an entirety or substantially an entirety in one
transaction or a series of related transactions) to, any Person or permit any
Person to merge with or into the Company unless: (i) the Company shall be the
continuing Person or the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or that acquired or leased
such property and assets of the Company shall be a corporation organized and
validly existing under the laws of the United States of America or any
jurisdiction thereof and shall expressly assume by a supplemental indenture,
executed and delivered to the Trustee, all of the obligations of the Company
on all of the Notes and under the Indenture; (ii) immediately after giving
effect to such transaction, no Default or Event of Default shall have occurred
and be continuing; and (iii) immediately after giving effect to such
transaction on a pro forma basis, the Consolidated Net Worth of the Company or
any entity or person formed by or surviving any such consolidation or merger,
or to which such sale, assignment, transfer, lease, conveyance or other
disposition will have been made will be at least equal to the Consolidated Net
Worth of the Company before such transaction.
LIMITATION ON MIRROR INDEBTEDNESS
The Company will not forgive principal of or interest on Mirror
Indebtedness, or reduce the interest payable thereon, unless the remaining
principal amount of Mirror Indebtedness owed by Restricted Subsidiaries to the
Company, plus cash and Temporary Cash Investments held by the Company (not on
a consolidated basis), equals or exceeds the outstanding principal amount of
the Notes. The Company shall not need to maintain Mirror Indebtedness if the
conditions requiring Mirror Indebtedness no longer exist.
COMMISSION REPORTS AND REPORTS TO HOLDERS
The Company shall file with the Commission the annual, quarterly and other
reports and other information required by Section 13 (a) or 15 (d) of the
Exchange Act, regardless of whether such sections of the Exchange Act are
applicable to the Company. If the Commission will not accept such filings, the
Company shall mail or cause to be mailed copies of such reports to Holders and
the Trustee within 15 days after the date it would have been required to file
such reports with the Commission had it been subject to such sections;
provided, however, that the copies of such reports mailed to Holders may omit
exhibits, which the Company will supply to any Holder at such Holder's
request.
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
The Company shall commence, within 30 days of the occurrence of a Change of
Control and consummate an Offer to Purchase for all Notes then outstanding, at
a purchase price equal to 101% of the principal amount thereof, plus accrued
interest and Liquidated Damages, if any, to the Payment Date.
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There can be no assurances that the Company will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Notes) required by the foregoing covenant (as well
as may be contained in other securities of the Company which might be
outstanding at the time).
LIMITATION ON ACTIVITIES OF THE SPECIAL SUBSIDIARY
The Company shall not permit the Special Subsidiary to conduct any business
or operations other than the making of Temporary Cash Investments and
investments in Mirror Indebtedness of Restricted Subsidiaries, the holding of
Temporary Cash Investments, Mirror Indebtedness and cash and the payment of
dividends or distributions to the Company. Without limiting the foregoing, the
Company shall not permit the Special Subsidiary to make any Investment (other
than Temporary Cash Investments and investments in Mirror Indebtedness of
Restricted Subsidiaries), make any Restricted Payment, Incur any Indebtedness,
or issue any Equity Interest or Capital Stock except to the Company. The
Company shall not sell any Equity Interest or Capital Stock of the Special
Subsidiary or designate the Special Subsidiary an Unrestricted Subsidiary.
EVENTS OF DEFAULT
The following events will be defined as "Events of Default" in the
Indenture: (a) defaults in the payment of principal of (or premium, if any,
on) any Note when the same becomes due and payable at maturity, upon
acceleration, redemption or otherwise; (b) defaults in the payment of interest
(or Liquidated Damages, if any) on any Note when the same becomes due and
payable, and such default continues for a period of 30 days; (c) defaults in
the performance or breach of the provisions of the Indenture applicable to
mergers, consolidations and transfers of all or substantially all of the
property and assets of the Company or the failure to make or consummate an
Offer to Purchase in accordance with the provisions of the "Limitation on
Asset Sales" covenant or the "Repurchase of Notes upon a Change of Control"
covenant; (d) defaults in the performance of or breaches of any covenant or
agreement of the Company in the Indenture or under the Notes (other than a
default specified in clause (a), (b) or (c) above) and such default or breach
continues for a period of 30 consecutive days after written notice by the
Trustee or the Holders of 25% or more in aggregate principal amount of the
Notes; (e) there occurs with respect to any issue or issues of Indebtedness of
the Company or any Significant Subsidiary having an outstanding principal
amount greater than $10 million in the aggregate for all such issues of all
such Persons, whether such Indebtedness now exists or shall hereafter be
created, (i) an event of default that has caused the holder thereof to declare
such Indebtedness to be due and payable prior to its Stated Maturity and/or
(ii) the failure to make a principal payment and such defaulted payment shall
not have been made, waived or extended within 30 days of such payment default;
(f) any final judgment or order (not covered by insurance or indemnification
by a Person other than the Company or a Restricted Subsidiary, which indemnity
party is solvent and has acknowledged responsibility) (treating any
deductibles, self-insurance or retention as not so covered) for the payment of
money greater than $10 million in the aggregate for all such final judgments
or orders shall be rendered against the Company or any Significant Subsidiary
and shall not be paid or discharged or bonded over, and there shall be any
period of 30 consecutive days following entry of the final judgment or order
that causes the aggregate amount for all such final judgments or orders
outstanding and not paid or discharged or bonded over to exceed $10 million
during which a stay of enforcement of such final judgment or order by reason
of a pending appeal or otherwise shall not be in effect; (g) a court having
jurisdiction in the premises enters a decree or order for (A) relief in
respect of the Company or any Significant Subsidiary in an involuntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, (B) appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (C) the winding up or
liquidation of the affairs of the Company or any Significant Subsidiary and,
in each case, such decree or order shall remain unstayed and in effect for a
period of 60 consecutive days; or (h) the Company or any Significant
Subsidiary (A) commences a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or consents to the
entry of an order for relief in an involuntary case under any such law, (B)
consents to the appointment of or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the Company
or any Significant
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Subsidiary or for all or substantially all of the property and assets of the
Company or any Significant Subsidiary or (C) effects any general assignment
for the benefit of creditors.
If an Event of Default (other than an Event of Default specified in clause
(g) or (h) above that occurs with respect to the Company) occurs and is
continuing under the Indenture, the Trustee or the Holders of at least 25% in
aggregate principal amount of the Notes then outstanding by written notice to
the Company (and to the Trustee if such notice is given by the Holders), may,
and the Trustee at the request of such Holders shall, declare the principal
amount of, premium and Liquidated Damages, if any, and accrued interest on the
Notes to be immediately due and payable. Upon a declaration of acceleration,
such principal amount of, premium and Liquidated Damages, if any, and accrued
interest shall be immediately due and payable. In the event of a declaration
of acceleration because an Event of Default set forth in clause (e) above has
occurred and is continuing, such declaration of acceleration shall be
automatically rescinded and annulled if the event of default triggering such
Event of Default pursuant to clause (e) shall be remedied or cured by the
Company or the relevant Significant Subsidiary or waived by the holders of the
relevant Indebtedness within 60 days after the declaration of acceleration
with respect thereto. If an Event of Default specified in clause (g) or (h)
above occurs with respect to the Company, the principal amount of, premium and
Liquidated Damages, if any, and accrued interest on the Notes then outstanding
shall ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Holder. The Holders
of at least a majority in principal amount of the outstanding Notes, by
written notice to the Company and to the Trustee may waive all past defaults
and rescind and annul a declaration of acceleration and its consequences if
(i) all existing Events of Default, other than the nonpayment of the principal
amount of, premium and Liquidated Damages, if any, and interest on the Notes
that have become due solely by such declaration of acceleration have been
cured or waived and (ii) the rescission would not conflict with any judgment
or decree of a court of competent jurisdiction. For information as to the
waiver of defaults, see "Modification and Waiver."
The Holders of at least a majority in aggregate principal amount of the
outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the
Trustee in personal liability, or that the Trustee determines in good faith
may be unduly prejudicial to the rights of Holders of Notes not joining in the
giving of such direction and may take any other action it deems proper that is
not inconsistent with any such direction received from Holders of Notes. A
Holder may not pursue any remedy with respect to the Indenture or the Notes
unless: (i) the Holder gives the Trustee written notice of a continuing Event
of Default; (ii) the Holders of at least 25% in aggregate principal amount of
outstanding Notes make a written request to the Trustee to pursue the remedy,
(iii) such Holder or Holders offer the Trustee indemnity satisfactory to the
Trustee against any costs, liability or expense; (iv) the Trustee does not
comply with the request within 60 days after receipt of the request and the
offer of indemnity, and (v) during such 60-day period, the Holders of a
majority in aggregate principal amount of the outstanding Notes do not give
the Trustee a direction that is inconsistent with the request. However, such
limitations do not apply to the right of any Holder of a Note to receive
payment of the principal amount of, premium and Liquidated Damages, if any, or
interest on, such Note or to bring suit for the enforcement of any such
payment, on or after the due date expressed in the Notes, which right shall
not be impaired or affected without the consent of the Holder.
The Indenture will require certain officers of the Company to certify, on or
before a date not more than 90 days after the end of each fiscal year, that a
review has been conducted of the activities of the Company and its Restricted
Subsidiaries and the Company's and its Restricted Subsidiaries' performance
under the Indenture and that the Company has fulfilled all obligations
thereunder, or, if there has been a default in the fulfillment of any such
obligation, specifying each such default and the nature and status thereof.
The Company will also be obligated to notify the Trustee of any default or
defaults in the performance of any covenants or agreements under the
Indenture.
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DEFEASANCE
Defeasance and Discharge. The Indenture will provide that the Company will
be deemed to have paid and will be discharged from any and all obligations in
respect of the Notes on the 123rd day after the deposit referred to below, and
the provisions of the Indenture will no longer be in effect with respect to
the Notes except for, among other matters, certain obligations to register the
transfer or exchange of the Notes, to replace stolen, lost or mutilated Notes,
to maintain paying agencies and to hold monies for payment in trust) if among
other things, (A) the Company has deposited with the Trustee, in trust, money
and/or U.S. Government Obligations that through the payment of interest and
principal in respect thereof in accordance with their terms will provide money
in an amount sufficient to pay the principal of, premium and Liquidated
Damages, if any, and accrued interest on the Notes on the Stated Maturity of
such payments in accordance with the terms of the Indenture and the Notes, (B)
the Company has delivered to the Trustee (i) either (x) an Opinion of Counsel
to the effect that Holders will not recognize income, gain or loss for federal
income tax purposes as a result of the Company's exercise of its option under
this "Defeasance" provision and will be subject to federal income tax on the
same amount and in the same manner and at the same times as would have been
the case if such deposit, defeasance and discharge had not occurred, which
Opinion of Counsel must be based upon (and accompanied by a copy of) a ruling
of the Internal Revenue Service to the same effect unless there has been a
change in applicable federal income tax law after the date of the Indenture
such that a ruling is no longer required or (y) a ruling directed to the
Trustee received from the Internal Revenue Service to the same effect as the
aforementioned Opinion of Counsel and (ii) an Opinion of Counsel to the effect
that the creation of the defeasance trust does not violate the Investment
Company Act of 1940 and after the passage of 123 days following the deposit,
the trust fund will not be subject to the effect of Section 547 of the United
States Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law,
(C) immediately after giving effect to such deposit on a pro forma basis no
Event of Default, or event that after the giving of notice or lapse of time or
both would become an Event of Default, shall have occurred and be continuing
on the date of such deposit or during the period ending on the 123rd day after
the date of such deposit, and such deposit shall not result in a breach or
violation of, or constitute a default under, any other agreement or instrument
to which the Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries is bound, and (D) if at such time the Notes
are listed on a national securities exchange, the Company has delivered to the
Trustee an Opinion of Counsel to the effect that the Notes will not be
delisted as a result of such deposit, defeasance and discharge.
Defeasance of Covenants. The Indenture further will provide that the
provisions of the Indenture will no longer be in effect with respect to clause
(iii) under "Consolidation, Merger and Sale of Assets" and all the covenants
described herein under "Covenants" upon, among other things, the deposit with
the Trustee, in trust, of money and/or U.S. Government Obligations that
through the payment of interest and principal in respect thereof in accordance
with their terms will provide money in an amount sufficient to pay the
principal of, premium and Liquidated Damages, if any, and accrued interest on
the Notes on the Stated Maturity of such payments in accordance with the terms
of the Indenture and the Notes, the satisfaction of the provisions described
in clauses (B) (ii), (C) and (D) of the preceding paragraph and the delivery
by the Company to the Trustee of an Opinion of Counsel to the effect that,
among other things, the Holders will not recognize income gain or loss for
federal income tax purposes as a result of such deposit and defeasance of
certain covenants and Events of Default and will be subject to federal income
tax on the same amount and in the same manner and at the same times as would
have been the case if such deposit and defeasance had not occurred.
Defeasance and Events of Default. In the event the Company exercises its
option to omit compliance with certain covenants and provisions of the
Indenture with respect to the Notes as described in the immediately preceding
paragraph and the Notes are declared due and payable because of the occurrence
of an Event of Default, the amount of money and/or U.S. Government Obligations
on deposit with the Trustee will be sufficient to pay amounts due on the Notes
at the time of their Stated Maturity but may not be sufficient to pay amounts
due on the Notes at the time of the acceleration resulting from such Event of
Default. However, the Company will remain liable for such payments.
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MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company and
the Trustee with the consent of the Holders of not less than a majority in
aggregate principal amount of the outstanding Notes; provided, however, that
no such modification or amendment may, without the consent of each Holder
affected thereby, (i) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, (ii) reduce the principal amount of, or
premium and Liquidated Damages, if any, or interest on any Note, (iii) change
the place or currency of payment of principal of, or premium and Liquidated
Damages, if any, or interest on any Note, (iv) impair the right to institute
suit for the enforcement of any payment on or after the Stated Maturity (or,
in the case of a redemption, on or after the Redemption Date) of any Note, (v)
reduce the above-stated percentage of outstanding Notes the consent of whose
Holders is necessary to modify or amend the Indenture, (vi) waive a default in
the payment of principal of, premium and Liquidated Damages, if any, or
interest on the Notes or (vii) reduce the percentage or aggregate principal
amount of outstanding Notes the consent of whose Holders is necessary for
waiver of compliance with certain provisions of the Indenture or for waiver of
certain defaults.
NO PERSONAL LIABILITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS OR
EMPLOYEES
The Indenture provides that no recourse for the payment of the principal of
premium and Liquidated Damages, if any, or interest on any of the Notes or for
any claim based thereon or otherwise in respect thereof, and no recourse under
or upon any obligation, covenant or agreement of the Company in the Indenture
or in any of the Notes or because of the creation of any Indebtedness
represented thereby, shall be had against any incorporator, stockholder,
officer, director, employee or controlling person of the Company or of any
successor Person thereof. Each Holder, by accepting the Notes, waives and
releases all such liability.
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of a Default, the
Trustee will not be liable, except or the performance of such duties as are
specifically set forth in such Indenture. If an Event of Default has occurred
and is continuing, the Trustee will use the same degree of care and skill in
its exercise as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
The Indenture and provisions of the Trust Indenture Act of 1939, as amended,
incorporated by reference therein contain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Trustee is permitted
to engage in other transactions provided, however, that if it acquires any
convicting interest, it must eliminate such conflict or resign.
ESCROW AGREEMENT--SECURITY
The Notes will be collateralized, pending disbursement pursuant to the
Escrow Agreement, by a pledge of the Escrow Account, which will initially
contain approximately $53.3 million of the net proceeds from the sale of the
Notes to be issued pursuant to the offering (the "Escrow Collateral"),
representing funds that together with the proceeds from the investment thereof
will be sufficient to pay two years' interest on the Notes.
The Company will enter into the Escrow Agreement providing for the grant by
the Company to the Trustee for the benefit of the holders of security
interests in the Escrow Collateral. All such security interests will
collateralize the payment and performance when due of all of the obligations
of the Company under the Indenture with respect to the Notes to be issued
pursuant to the offering and under such Notes, as provided in the Escrow
Agreement. The liens created by the Escrow Agreement will be first priority
security interests in the Escrow Collateral. The ability of holders to realize
upon any such funds or securities may be subject to certain bankruptcy law
limitations in the event of the bankruptcy of the Company.
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Funds will be disbursed from the Escrow Account to reimburse the Company for
interest payments made by the Company on the Notes, and, in certain
circumstances, upon retirement of Notes. See "--Disbursement of Funds--Escrow
Account." Pending such disbursements, all funds contained in the Escrow
Account will be invested in Temporary Cash Investments. Upon the acceleration
of the maturity of the Notes or the failure to pay principal at maturity, the
Escrow Agreement will provide for the foreclosure by the Trustee upon the net
proceeds of the Escrow Account. Under the terms of the Indenture, the proceeds
of the Escrow Account shall be applied, first, to amounts owing to the Trustee
in respect of fees and expenses of the Trustee and second, to the obligations
under the Notes and the Indenture.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the definition of any other capitalized term used herein for
which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, Indebtedness of
any other Person existing at the time such other Person merged with or into or
became a Subsidiary of such specified Person, including Indebtedness incurred
in connection with, or in contemplation of, such other Person merging with or
into or becoming a Subsidiary of such specified Person.
"Adjusted Consolidated Net Income" means, for any period, the aggregate net
income (or loss) of the Company and its Restricted Subsidiaries for such
period determined in conformity with GAAP; provided that the following items
shall be excluded in computing Adjusted Consolidated Net Income (without
duplication): (i) the net income of any Person (other than net income
attributable to a Restricted Subsidiary) in which any Person (other than the
Company or any of its Restricted Subsidiaries) has a majority interest and the
net income of any Unrestricted Subsidiary, except to the extent of the amount
of dividends or other distributions actually paid to the Company or any of its
Restricted Subsidiaries by such other Person or such Unrestricted Subsidiary
during such period; (ii) the net income of any Restricted Subsidiary to the
extent that the declaration or payment of dividends or similar distributions
by such Restricted Subsidiary of such net income is not at the time permitted
by the operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable
to such Restricted Subsidiary; (iii) any gains or losses (on an after-tax
basis) attributable to Asset Sales; and (iv) all extraordinary gains and
extraordinary losses.
"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Annualized Consolidated EBITDA" means, with respect to any Person, such
Person's Consolidated EBITDA for the latest two fiscal quarters for which
financial statements are available multiplied by two.
"Asset Acquisition" means (i) an Investment by the Company or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person
shall become a Restricted Subsidiary of the Company or shall be merged into or
consolidated with the Company or any of its Restricted Subsidiaries, provided
that such Person's primary business is a Telecommunication Business or (ii) an
acquisition by the Company or any of its Restricted Subsidiaries of the
property and assets of any Person other than the Company or any of its
Restricted Subsidiaries that constitute all or substantially all of the assets
of such Person or a division or line of business of such Person, provided that
the property and assets acquired are Telecommunications Assets.
"Asset Disposition" means the sale or other disposition by the Company or
any of its Restricted Subsidiaries (other than to the Company or a Restricted
Subsidiary of the Company) of (i) all or substantially all
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of the Capital Stock of any Restricted Subsidiary of the Company or (ii) all
or substantially all of the assets that constitute a division or line of
business of the Company or any of its Restricted Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition (including by way
of merger, consolidation, and any sale-leaseback transaction) in one
transaction or a series of related transactions by the Company or any of its
Restricted Subsidiaries to any Person other than the Company or any of its
Restricted Subsidiaries of (i) all or any of the Capital Stock of any
Restricted Subsidiary, (ii) all or substantially all of the property and
assets of an operating unit or business of the Company or any of its
Restricted Subsidiaries or (iii) any other property and assets of the Company
or any of its Restricted Subsidiaries disposed of outside the ordinary course
of business of the Company or such Restricted Subsidiary and, in each case,
that is not governed by the provisions of the Indenture applicable to mergers,
consolidations and sales of all or substantially all of the assets of the
Company, provided that "Asset Sale" shall not include (i) sales or other
dispositions of inventory, receivables and other current assets, (ii)
substantially simultaneous exchanges by the Company or any Restricted
Subsidiary of Telecommunications Assets for other Telecommunications Assets,
provided that the Telecommunications Assets received by the Company or such
Restricted Subsidiary have at least substantially equal market value to the
Company or such Restricted Subsidiary (as determined by the Board of Directors
whose good faith determination shall be conclusive and evidenced by a Board
Resolution), provided further that, after giving pro forma effect to such
exchange, the Consolidated Leverage Ratio shall be no greater than the
Consolidated Leverage Ratio immediately prior to such exchange, (iii) sales or
other dispositions of assets with a fair market value (as certified in an
Officers' Certificate) not in excess of $1 million, (iv) any sale or other
disposition of any or all the Capital Stock of an Unrestricted Subsidiary or
(v) any sale or other disposition of Temporary Cash Investments. Additionally,
the contribution of Telecommunication Assets to an Unrestricted Subsidiary
whereby the Company or a Restricted Subsidiary receives Capital Stock of an
Unrestricted Subsidiary shall be deemed a Restricted Payment only and shall
not be deemed an Asset Sale.
"Average Life" means, at any date of determination with respect to any
Indebtedness, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then,
outstanding principal amount of such Indebtedness.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participation or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether now outstanding or
issued after the Closing Date, including, without limitation, all Common Stock
and preferred stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present
value of the rental obligations of such Person as lessee, in conformity with
GAAP, is required to be capitalized on the balance sheet of such Person.
"Capitalized Lease Obligations" means the discounted present value of the
rental obligations under a Capitalized Lease.
"Change of Control" means (a) the sale, lease, transfer, conveyance or other
disposition of all or substantially all of the assets of the Company to any
"person" or "group" (within the meaning of Sections 13(d)(3) and 14(d)(2) of
the Exchange Act or any successor provision to either of the foregoing,
including any group acting for the purpose of acquiring, holding or disposing
of securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act)
other than Existing Shareholders (except in connection with a liquidation or
dissolution of the Company that does not constitute a Change of Control under
clause (b) below), (b) the approval by the requisite shareholders of the
Company of a plan of liquidation or statutory dissolution (which shall not be
construed to include a plan of merger or consolidation) of the Company, unless
Existing Shareholders "beneficially own" (as defined in Rule 13d-3 under the
Exchange Act) at least the same percentage
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of voting power after the consummation of such plan as before or otherwise
retain the right or ability, by voting power, to control the Person that
acquires the proceeds of such liquidation or dissolution, (c) any "person" or
"group" (within the meaning of Sections 13(d)(3) and 14(d)(2) of the Exchange
Act or any successor provision to either of the foregoing, including any group
acting for the purpose of acquiring, holding or disposing of securities within
the meaning of Rule 13d-5(b)(1) under the Exchange Act), other than Existing
Shareholders, becomes the "beneficial owner" (as so defined) of more than 35%
of the total voting power of all classes of the Voting Stock of the Company
and/or warrants or options to acquire such Voting Stock, calculated on a fully
diluted basis, provided that Existing Shareholders "beneficially own" (as so
defined) in the aggregate a percentage of such Voting Stock or warrants having
a lesser percentage of voting power than such other "person" or "group" and do
not have the right or ability by voting power, contract or otherwise to elect
or designate for election a majority of the Company's Board of Directors, or
(d) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Company's Board of Directors
(together with any new directors whose election or appointment by such board
or whose nomination for election by the stockholders of the Company was
approved by a vote of the Existing Shareholders or a majority of the directors
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Company's Board of Directors
then in office.
"Closing Date" means the date on which the Notes are originally issued under
the Indenture.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's equity, other than Preferred Stock of
such Person, whether now outstanding or issued after the Closing Date,
including without limitation, all series and classes of such common stock.
"Consolidated EBITDA" means, for any period, the sum of the amounts for such
period of (i) Adjusted Consolidated Net Income, (ii) Consolidated Interest
Expense, (iii) income taxes, to the extent such amount was deducted in
calculating Adjusted Consolidated Net Income (other than income taxes (x)
(either positive or negative) attributable to extraordinary and nonrecurring
gains or losses or sales of assets and (y) actually payable with respect to
such period), (iv) depreciation expense, to the extent such amount was
deducted in calculating Adjusted Consolidated Net Income, (v) amortization
expense, to the extent such amount was deducted in calculating Adjusted
Consolidated Net Income, and (vi) all other non-cash items reducing Adjusted
Consolidated Net Income (other than items that will require cash payments and
for which an accrual or reserve is, or is required by GAAP to be, made), less
all non-cash items increasing Adjusted Consolidated Net Income, all as
determined on a consolidated basis for the Company and its Restricted
Subsidiaries in conformity with GAAP; provided that, if any Restricted
Subsidiary is not a wholly owned Restricted Subsidiary, Consolidated EBITDA
shall be reduced (to the extent not otherwise reduced in accordance with GAAP)
by an amount equal to (A) the amount of Consolidated EBITDA attributable to
such Restricted Subsidiary multiplied by (B) the quotient of (1) the number of
shares of outstanding Common Stock of such Restricted Subsidiary not owned on
the last day of such period by the Company or any of its Restricted
Subsidiaries divided by (2) the total number of shares of outstanding Common
Stock of such Restricted Subsidiary on the last day of such period.
"Consolidated Interest Expense" means, for any period, the aggregate amount
of interest in respect of Indebtedness (including amortization of original
issue discount on Indebtedness and the interest portion of any deferred
payment obligation, calculated in accordance with the effective interest
method of accounting; all commissions, discounts and other fees and charges
owed with respect to letters of credit and bankers' acceptance financing; the
net costs associated with Interest Rate Agreements, and Indebtedness that is
Guaranteed or secured by the Company or any of its Restricted Subsidiaries)
and all but the principal component of rentals in respect of Capitalized
Leases paid, accrued or scheduled to be paid or to be accrued by the Company
and its Restricted Subsidiaries during such period; excluding, however, any
amount of such interest of any Restricted Subsidiary to the extent the net
income of such Restricted Subsidiary is excluded in the calculation of
Adjusted Consolidated Net Income pursuant to clause (ii) of the definition
thereof (but only in the same proportion as the net income of such Restricted
Subsidiary is excluded from the calculation of Adjusted Consolidated Net
Income pursuant to
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clause (ii) of the definition thereof), all as determined on a consolidated
basis (without taking into account Unrestricted Subsidiaries) in conformity
with GAAP.
"Consolidated Leverage Ratio" means, on any date of determination, the ratio
of (i) the aggregate amount of Indebtedness of the Company and its Restricted
Subsidiaries on a consolidated basis as of the end of the two most recent
fiscal quarters for which financial statements of the Company have become
available prior to such date (the "Reference Period") to (ii) the aggregate
amount of Annualized Consolidated EBITDA. In making the foregoing calculation,
(A) Indebtedness shall be calculated after giving pro forma effect to (x) any
Indebtedness (including, if applicable, the Notes) Incurred subsequent to the
end of the Reference Period and on or prior to such date of determination, in
each case as if such Indebtedness had been Incurred and the proceeds thereof
had been applied on the last day of such Reference Period and (y) any
Indebtedness that was outstanding during such Reference Period or thereafter
but that is not outstanding or is to be repaid on such date of determination
in each case as if such Indebtedness was repaid on the last day of such
Reference Period; (B) pro forma effect shall be given to Asset Dispositions
and Asset Acquisitions (including giving pro forma effect to the application
of proceeds of any Asset Disposition) that occurred in such Reference Period
or thereafter and on or prior to such date of determination as if they had
occurred and such proceeds had been applied on the first day of such Reference
Period; (C) pro forma effect shall be given to asset dispositions and asset
acquisitions (including giving pro forma effect to the application of proceeds
of any asset disposition) that have been made by any Person that has become a
Restricted Subsidiary or has been merged with or into the Company or any
Restricted Subsidiary during such Reference Period or subsequent to such
period and on or prior to such date of determination and that would have
constituted Asset Dispositions or Asset Acquisitions had such transactions
occurred when such Person was a Restricted Subsidiary as if such asset
dispositions or asset acquisitions were Asset Dispositions or Asset
Acquisitions that occurred on the first day of such Reference Period; and (D)
the aggregate amount of indebtedness outstanding as of the end of the
Reference Period will be deemed to include the total amount of funds
outstanding and/or available on the date under any revolving credit facilities
of the Company or its Restricted Subsidiaries.
"Consolidated Net Worth" means, at any date of determination, stockholders'
equity as set forth on the most recently available consolidated balance sheet,
whether quarterly or annual, of the Company and its Restricted Subsidiaries,
less any amounts attributable to Redeemable Stock or any equity security
convertible into or exchangeable for Indebtedness, the cost of treasury stock
and the principal amount of any promissory notes receivable from the sale of
the Capital Stock of the Company or any of its Restricted Subsidiaries, each
item to be determined in conformity with GAAP.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Escrow Account" means the Escrow Account for the initial deposit of
approximately $53.3 million of the net proceeds from the sale of the Notes
under the Escrow Agreement.
"Escrow Agent" means The Chase Manhattan Bank, as Escrow Agent under the
Escrow Agreement, or any successor thereto appointed pursuant to such
Agreement.
"Escrow Agreement" means the Escrow Agreement, dated as of the date of the
Indenture, by and among the Escrow Agent, the Trustee and the Company,
governing the disbursement of funds from the Escrow Account, as amended.
"Existing Shareholders" means Douglas G. Smith, Madison Dearborn Capital
Partners, L.P., Allen & Company Incorporated and Chatterjee Management Company
and their respective Affiliates at the Closing Date.
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"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the date of the Indenture, including, without
limitation, those set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as approved
by a significant segment of the accounting profession.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and,
without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness of
such other Person (whether arising by virtue of partnership arrangements, or
by agreements to keep-well, to purchase assets, goods, securities or services,
to take-or-pay, or to maintain financial statement conditions or otherwise) or
(ii) entered into for purposes of assuring in any other manner the obligee of
such Indebtedness of the payment thereof or to protect such obligee against
loss in respect thereof (in whole or in part), provided that the term
"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Holder" means the registered holder of any Note.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including an Incurrence of Indebtedness by reason of the acquisition of more
than 50% of the Capital Stock of any Person; provided that neither the accrual
of interest nor the accretion of original issue discount shall be considered
an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto), (iv) all obligations of such
Person to pay the deferred and unpaid purchase price of property or services,
except Trade Payables, (v) all Capitalized Lease Obligations of such Person,
(vi) all Indebtedness of other Persons secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person, provided
that the amount of such Indebtedness shall be the lesser of (A) the fair
market value of such asset at such date of determination and (B) the amount of
such Indebtedness, (vii) all Indebtedness of other Persons Guaranteed by such
Person to the extent such Indebtedness is Guaranteed by such Person and (viii)
the maximum fixed redemption price of Redeemable Stock of such Person at the
time of determination, provided, however, if such Redeemable Stock is not
permitted to be redeemed at the date of determination, the price shall be the
book value of such Redeemable Stock. The amount of Indebtedness of any Person
at any date shall be the outstanding balance at such date (or in the case of a
revolving credit or other similar facility, the total amount of funds
outstanding and/or available on the date of determination) of all
unconditional obligations as described above and, with respect to contingent
obligations, the maximum liability upon the occurrence of the contingency
giving rise to the obligation, provided (i) that the amount outstanding at any
time of any Indebtedness issued with original issue discount is the face
amount of such Indebtedness and (ii) that Indebtedness shall not include any
liability for federal, state, local or other taxes.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee
or similar arrangement; but excluding advances to customers in the ordinary
course of business that are, in conformity with GAAP, recorded as accounts
receivable on the balance sheet of the Company or its Restricted Subsidiaries)
or capital contribution to (by means of any transfer
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of cash or other property to others or any payment for property or services
for the account or use of others), or any purchase or acquisition of Capital
Stock, bonds, notes, debentures or other similar instruments issued by, such
Person (whether purchased or acquired from the issuer or from a third party)
and shall include the designation of a Restricted Subsidiary as an
Unrestricted Subsidiary.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or
other title retention agreement or lease in the nature thereof, any sale with
recourse against the seller or any Affiliate of the seller, or any agreement
to give any security interest).
"Mirror Indebtedness" means Indebtedness, which may be subordinated in right
of payment to Indebtedness of the Restricted Subsidiaries permitted to be
Incurred pursuant to the "Limitation on Indebtedness" covenant, in the form of
either (i) a demand note or (ii) a term note having a final maturity no later
than the final maturity of the Notes, in each case owed by a Restricted
Subsidiary to the Company or another Restricted Subsidiary having interest
payment or accrual dates and an interest rate (whether current pay or accrual)
equal to, or more frequent than or greater than, the Notes.
"Net Cash Proceeds" means (a) with respect to any Asset Sale, the proceeds
of such Asset Sale in the form of cash or Temporary Cash Investments net of
(i) brokerage commissions and other fees and expenses (including fees and
expenses of counsel and investment bankers) related to such Asset Sale, (ii)
provisions for all taxes (whether or not paid or payable) as a result of such
Asset Sale without regard to the consolidated results of operations of the
Company and its Subsidiaries, taken as a whole, (iii) payments made to repay
Indebtedness or any other obligation outstanding at the time of such Asset
Sale that either (A) is secured by a Lien on the property or assets sold or
(B) is required to be paid as a result of such sale and (iv) appropriate
amounts to be provided by the Company or any Restricted Subsidiary of the
Company as a reserve against any liabilities associated with such Asset Sale,
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities
under any indemnification obligations associated with such Asset Sale, all as
determined in conformity with GAAP and (b) with respect to any issuance or
sale of Capital Stock, the proceeds of such issuance or sale in the form of
cash or cash equivalents, including payments in respect of deferred payment
obligations (to the extent corresponding to the principal, but not interest,
component thereof) when received in the form of cash or cash equivalents
(except to the extent such obligations are financed or sold with recourse to
the Company or any Restricted Subsidiary of the Company) and proceeds from the
conversion of other property received when converted to cash or cash
equivalents, net of attorney's fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees incurred in connection with such issuance or sale and net of taxes
paid or payable as a result thereof.
"Offer to Purchase" means an offer by the Company to purchase Notes from the
Holders commenced by mailing a notice to the Trustee and each Holder stating:
(i) the covenant pursuant to which the offer is being made and that all Notes
validly tendered will be accepted for payment on a pro rata basis, (ii) the
purchase price and the date of purchase (which shall be a Business Day no
earlier than 30 days nor later than 60 days from the date such notice is
mailed) (the "Payment Date"); (iii) that any Note not tendered will continue
to accrue interest pursuant to its terms; (iv) that, unless the Company
defaults in the payment of the purchase price, any Note accepted for payment
pursuant to the Offer to Purchase shall cease to accrue interest on and after
the Payment Date; (v) that Holders electing to have a Note purchased pursuant
to the Offer to Purchase will be required to surrender the Note, together with
the form entitled "Option of the Holder to Elect Purchase" on the reverse side
of the Note completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the Business Day immediately
preceding the Payment Date; (vi) that Holders will be entitled to withdraw
their election if the Paying Agent receives, not later than the close of
business on the third Business Day immediately preceding the Payment Date, a
telegram, facsimile transmission or letter setting forth the name of such
Holder, the principal amount of Notes delivered for purchase and a statement
that such Holder is withdrawing his election to have such Notes purchased; and
(vii) that Holders whose Notes are being purchased only in part will be issued
new Notes equal in principal amount to the unpurchased portion of the Notes
surrendered, provided that each Note purchased and each new Note issued shall
be in a principal amount of $1,000 or integral multiples thereof.
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On the Payment Date, the Company shall (i) accept for payment on a pro rata
basis Notes or portions thereof tendered pursuant to an Offer to Purchase;
(ii) deposit with the Paying Agent money sufficient to pay the purchase price
of all Notes or portions thereof so accepted; and (iii) deliver, or cause to
be delivered, to the Trustee all Notes or portions thereof so accepted
together with an Officers' Certificate specifying the Notes or portions
thereof accepted for payment by the Company. The Paying Agent shall promptly
mail to the Holders of Notes so accepted payment in an amount equal to the
purchase price, and the Trustee shall promptly authenticate and mail to such
Holders a new Note equal in principal amount to the unpurchased portion of the
Note surrendered, provided that each Note purchased and each new Note issued
shall be in a principal amount of $1,000 or integral multiples thereof. The
Company will publicly announce the results of an Offer to Purchase as soon as
practicable after the Payment Date. The Trustee shall act as the Paying Agent
for an Offer to Purchase. The Company will comply with Rule 14e-l under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable, in the event that the Company
is required to repurchase Notes pursuant to an Offer to Purchase.
"Permitted Investment" means (i) an Investment in the Company or a
Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary or be merged or consolidated with
or into or transfer or convey all or substantially all its assets to, the
Company or a Restricted Subsidiary; provided that such Person's primary
business is a Telecommunications Business; (ii) a Temporary Cash Investment;
(iii) stock, obligations or securities received in satisfaction of judgments;
(iv) any repurchase of stock, stock options, or warrants from employees
pursuant to agreements entered by the Company or any Restricted Subsidiary for
consideration not to exceed $2 million in any fiscal year; (v) any Investment,
together with all other Investments under this clause (v), less any previous
Investments in Persons pursuant to this clause (v) who subsequently become
Restricted Subsidiaries, not to exceed two times the Net Cash Proceeds
received by the Company on or after July 3, 1996 from the issuance and sale of
its Capital Stock (other than (A) Redeemable Stock and (B) Preferred Stock
that provides for the payment of dividends in cash) to a Person that is not a
Subsidiary of the Company, in a Person in a Telecommunications Business; and
(vi) any Investment or Investments not to exceed $50 million in the aggregate.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims that are being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made, (ii) statutory Liens of landlords
and carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or
other similar Liens arising in the ordinary course of business and with
respect to amounts not yet delinquent or being contested in good faith by
appropriate legal proceedings promptly instituted and diligently conducted and
for which a reserve or other appropriate provision, if any, as shall be
required in conformity with GAAP shall have been made; (iii) Liens incurred or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security, (iv)
Liens incurred or deposits made to secure the performance of tenders, bids,
leases, statutory or regulatory obligations, bankers' acceptances, surety and
appeal bonds, government contracts, performance and return of money bonds and
other obligations of a similar nature incurred in the ordinary course of
business (exclusive of obligations for the payment of borrowed money); (v)
easements, rights-of-way, municipal and zoning ordinances and similar charges,
encumbrances, title defects or other irregularities that do not materially
interfere with the ordinary course of business of the Company or any of its
Restricted Subsidiaries; (vi) Liens (including extensions and renewals
thereof) upon real or personal property, provided that (a) such Lien is
created solely for the purpose of securing Indebtedness Incurred in accordance
with "Limitation on Indebtedness" covenant described above (1) to finance the
cost (including the cost of improvement or construction) of the item of
property or assets subject thereto and such Lien is created prior to, at the
time of or within six months after the later of the acquisition, the
completion of construction or the commencement of full operation of such
property or (2) to refinance any Indebtedness previously so secured, (b) the
principal amount of the Indebtedness secured by such Lien does not exceed 100%
of such cost, and (c) any such Lien shall not extend to or cover any property
or assets other than such item of property or assets and any improvements on
such item; (vii) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the Company and its
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Restricted Subsidiaries, taken as a whole; (viii) Liens encumbering property
or assets under construction arising from progress or partial payments by a
customer of the Company or its Restricted Subsidiaries relating to such
property or assets; (ix) any interest or title of a lessor in the property
subject to any Capitalized Lease or operating lease; (x) Liens arising from
filing Uniform Commercial Code financing statements regarding leases; (xi)
Liens in favor of the Company or any Restricted Subsidiary, (xii) Liens
arising from the rendering of a final judgment or order against the Company or
any Restricted Subsidiary of the Company that does not give rise to an Event
of Default; (xiii) Liens securing reimbursement obligations with respect to
letters of credit that encumber documents and other property relating to such
letters of credit and the products and proceeds thereof, (xiv) Liens in favor
of customs and revenue authorities arising as a matter of law to secure
payment of customs duties in connection with the importation of goods; (xv)
Liens encumbering customary initial deposits and margin deposits, and other
Liens that are either within the general parameters customary in the industry
and incurred in the ordinary course of business, in each case securing
Indebtedness under Interest Rate Agreements and Currency Agreements and
forward contracts, options, future contracts, futures options or similar
agreements or arrangements designed solely to protect the Company or any of
its Restricted Subsidiaries from fluctuations in interest rates or the price
of commodities; (xvi) Liens arising out of conditional sale, title retention,
consignment or similar arrangements, or the sale of goods entered into by the
Company or any of its Restricted Subsidiaries in the ordinary course of
business in accordance with the past practices of the Company and its
Restricted Subsidiaries prior to the Closing Date; and (xvii) Liens on or
sales of receivables.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, trust, unincorporated organization or government or
any agency or political subdivision thereof.
"Public Equity Offering" means an underwritten public offering by the
Company of primary shares of Common Stock of the Company pursuant to an
effective registration statement under the Securities Act.
"Redeemable Stock" means any class or series of Capital Stock of any Person
that by its terms or otherwise is (i) required to be redeemed prior to the
Stated Maturity of the Notes, (ii) redeemable at the option of the holder of
such class or series of Capital Stock at any time prior to the Stated Maturity
of the Notes or (iii) convertible into or exchangeable for Capital Stock
referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Stated Maturity of the Notes, provided that any Capital
Stock that would not constitute Redeemable Stock but for provisions thereof
giving holders thereof the right to require such Person to repurchase or
redeem such Capital Stock upon the occurrence of an "asset sale" or "change of
control" occurring prior to the Stated Maturity of the Notes shall not
constitute Redeemable Stock if the "asset sale" or "change of control"
provisions applicable to such Capital Stock are no more favorable to the
holders of such Capital Stock than the provisions contained in "Limitation on
Asset Sales" and "Repurchase of Notes Upon a Change of Control" covenants
described above and such Capital Stock specifically provides that such Person
will not repurchase or redeem any such stock pursuant to such provision prior
to the Company's repurchase of such Notes as are required to be repurchased
pursuant to the "Limitation on Asset Sales" and "Repurchase of Notes Upon a
Change of Control" covenants described above.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Significant Subsidiary" means, at any date of determination, any Restricted
Subsidiary of the Company that, together with its Subsidiaries, (i) for the
most recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company and its Restricted Subsidiaries or (ii)
as of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Company and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of the
Company for such fiscal year.
"Special Subsidiary" means a direct wholly-owned Subsidiary of the Company
designated as such by an officers' certificate, which designation may not be
revoked, and subject to the covenant "Limitation on Activities of the Special
Subsidiary."
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"Stated Maturity" means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (ii)
with respect to any scheduled installment of principal of or interest on any
debt security, the date specified in such debt security as the fixed date on
which such installment is due and payable.
"Strategic Equity Investor" means a corporation or other entity with an
equity market capitalization, a net asset value or annual revenues of at least
$2 billion which is a Telecommunications Business.
"Subsidiary" means, with respect to any Person, any corporation. association
or other business entity of which more than 50% of the outstanding Voting
Stock is owned directly or indirectly, by such Person and one or more other
Subsidiaries of such Person.
"Telecommunications Assets" means, with respect to any Person, any asset
that is utilized by such Person, directly or indirectly, for the design,
development, construction, installation, integration, operation, management or
provision of telecommunications equipment, inventory, systems and/or services,
including without limitation, any mobile telephone, PCS, microwave or paging
assets. Telecommunications Assets shall include stock, joint venture or
partnership interests of an entity where substantially all of the assets of
the entity consist of Telecommunications Assets.
"Telecommunications Business" means a business primarily involved in the
ownership, design, development, construction, acquisition, installation,
integration, management and/or provision of Telecommunications Assets.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or
obligations fully and unconditionally guaranteed by the United States of
America or any agency thereof not having a maturity of more that two years
from the date of acquisition, (ii) time deposit accounts, certificates of
deposit and money market deposits maturing within 180 days of the date of
acquisition thereof issued by a bank or trust company which is organized under
the laws of the United States of America or any state thereof, and which bank
or trust company has capital surplus and undivided profits aggregating in
excess of $50 million and has outstanding debt which is rated "A" (or such
similar equivalent rating) or higher by at least one nationally recognized
statistical rating organizing (as defined in Rule 436 under the Securities
Act) or any money-market fund sponsored by a registered broker dealer or
mutual fund distributor, (iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (ii)
above entered into with a bank meeting the qualifications described in clause
(ii) above, (iv) commercial paper maturing not more than 90 days after the
date of acquisition, issued by a corporation (other than an Affiliate of the
Company) organized and in existence under the laws of the United States of
America or any state thereof with a rating at the time as of which any
investment therein is made of "P-1" (or higher) according to Moody's Investors
Service, Inc. or "A-1" (or higher) according to Standard & Poor's Ratings
Group, and (v) securities with maturities of six months or less from the date
of acquisition issued or fully and unconditionally guaranteed by any state,
commonwealth or territory of the United States of America, or by any political
subdivision or taxing authority thereof and rated at least "A" by Standard &
Poor's Ratings Group or Moody's Investors Service, Inc.
"Trade Payables" means any accounts payable or any other indebtedness or
monetary obligation to trade creditors created, assumed or Guaranteed by the
Company or any of its Restricted Subsidiaries arising in the ordinary course
of business in connection with the acquisition of goods or services, except
for payables that are more than 60 days past due and not contested in good
faith.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors may designate any
Restricted Subsidiary of the Company (including any newly acquired or newly
formed Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary owns any Capital Stock of or owns or holds any Lien on any property
of the
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Company or any Restricted Subsidiary, provided that either (A) the Subsidiary
to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000 that such designation would be
permitted under the covenant "Limitation on Restricted Payments." The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary of the Company, provided that immediately after giving effect to
such designation (x) the Company could incur $1.00 of additional Indebtedness
under the first paragraph of the covenant "Limitation on Indebtedness" and (y)
no Default or Event of Default shall have occurred and be continuing. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving effect
to such designation and an Officers' Certificate that such designation
complied with the foregoing provisions.
"Voting Stock" means with respect to any Person, Capital Stock of any class
or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
BOOK-ENTRY, DELIVERY AND FORM
All New Notes will be represented by a permanent Global Note in fully
registered form without coupons (the "Global Note"), which will be deposited
with the Trustee as custodian for the Depositary and registered in the name of
the Depositary or of a nominee of the Depositary.
Upon issuance of the Global Note, the Depositary will credit, on its
internal system, the respective amount of the individual beneficial interests
in the Global Note to persons who have accounts with the Depositary
("Participants"). Such accounts initially were designated by or on behalf of
the Initial Purchasers. Ownership of beneficial interests in the Global Note
will be shown on, and the transfer of such beneficial interests will be
effected only through, records maintained by the Depositary or its nominee
(with respect to interests of Participants) and the records of Participants
(with respect to interests of persons other than Participants). Holders may
hold their interests in the Global Note directly through the Depositary if
they are Participants, or indirectly through organizations which are
Participants.
So long as the Depositary or its nominee is the registered owner of the
Global Note, the Depositary or such nominee, as the case may be, will be
considered the sole owner of the New Notes represented by the Global Note for
all purposes under the Indenture and the New Notes. Accordingly, beneficial
owners of an interest in the Global Note must rely on the procedures of the
Depositary, and if such person is not a participant, on the procedures of the
Participant through which such person owns its interest, to exercise any
rights and fulfill any obligations of a holder under the Indenture. No
beneficial owner of an interest in the Global Note will be able to transfer
that interest except in accordance with the Depositary's applicable
procedures, in addition to those provided for in the Indenture.
Payments of the principal of, premium, if any, and interest on, the Global
Note will be made to the Depositary or its nominee, as the case may be, as the
registered owner thereof. Neither the Company, the Trustee or any Paying Agent
will have any responsibility or liability for any aspect of the records
relating to, or payments made on account of, beneficial interests in the
Global Note or for maintaining, supervising or reviewing any records relating
to such beneficial interests.
The Company expects that the Depositary or its nominee, upon receipt of any
payment of principal, premium or interest in respect of the Global Note will
credit Participants' accounts with payments in amounts proportionate to such
Participants' respective beneficial interests in the principal amount of such
Global Note as shown on the records of the Depositary or its nominee. The
Company also expects that payments by Participants to owners of beneficial
interests in the Global Note held through such Participants will be governed
by standing instructions and customary practices, as is now the case with
securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
Participants.
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<PAGE>
The Depositary has advised the Company that it will take any action
permitted to be taken by a holder of New Notes (including the presentation of
Old Notes for exchange as described below) only at the direction of one or
more Participants to whose accounts interests in the Global Note is credited
and only in respect of such portion of the aggregate principal amount of New
Notes, as the case may be, as to which such Participant or Participants has or
have given such direction.
The Depositary has advised the Company as follows: The Depositary is a
limited purpose trust company organized under the laws of the State of New
York, a "banking organization" within the meaning of New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. The Depositary
was created to hold securities for its Participants and facilitate the
clearance and settlement of securities transactions between Participants
through electronic book-entry changes in accounts of its Participants, thereby
eliminating the need for physical movement of certificates. Indirect access to
the Depositary system is available to others such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship
with a Participant ("Indirect Participants").
Although the Depositary and its Participants are expected to follow the
foregoing procedures in order to facilitate transfers of interests in the
Global Note among Participants, they are under no obligation to perform or
continue to perform such procedures, and such procedures may be discontinued
at any time. Neither the Company, the Trustee or any Paying Agent will have
any responsibility for the performance by the Depositary, Participants or
Indirect Participants of their respective obligations under the rules and
procedures governing their operations.
Owners of beneficial interests in the Global Note will be entitled to
receive Notes in definitive form ("Definitive Notes") if the Depositary is at
any time unwilling or unable to continue as, or ceases to be, a "clearing
agency" registered under Section 17A of the Exchange Act, and a successor to
the Depositary registered as a "clearing agency" under Section 17A of the
Exchange Act is not appointed by the Company within 90 days. Any Definitive
Notes issued in exchange for beneficial interests in the Global Note will be
registered in such name or names as the Depositary shall instruct the Trustee.
It is expected that such instructions will be based upon directions received
by the Depositary from Participants with respect to ownership of beneficial
interests in the Global Note.
In addition to the foregoing, on or after the occurrence of an Event of
Default under the Indenture, owners of beneficial interests in the Global Note
will be entitled to request and receive Definitive Notes. Such Definitive
Notes will be registered in such name or names as the Depositary shall
instruct the Trustee.
TRANSFER AND EXCHANGE
A holder may transfer or exchange New Notes in accordance with the
Indenture. The Company, the Registrar and the Trustee may require a holder,
among other things, to furnish appropriate endorsements and transfer documents
and the Company may require a holder to pay any taxes and fees required by law
or permitted by the Indenture.
EXCHANGE OFFER; REGISTRATION RIGHTS; LIQUIDATED DAMAGES
In connection with the initial issuance and sale of the Old Notes, the
Company entered into the Registration Rights Agreement with the Initial
Purchasers for the benefit of the holders of the Old Notes. Pursuant to such
Registration Rights Agreement, the Company has agreed for the benefit of the
holders of the Old Notes, that it will, at its cost, (i) on or before October
11, 1996 (45 days after August 27, 1996, the Issue Date of the Old Notes) file
a registration statement under the Securities Act (an "Exchange Offer
Registration Statement") with the Commission with respect to a registered
offer to exchange the Old Notes for the New Notes, which have terms
substantially identical in all material respects to the Old Notes (except that
the New Notes do not contain terms with respect to transfer restrictions) and
(ii) use its best efforts to cause such Exchange Offer Registration
96
<PAGE>
Statement to be declared effective under the Securities Act on or prior to
November 25, 1996 (90 days after August 27, 1996). Promptly after the Exchange
Offer Registration Statement is declared effective, the Company will offer the
New Notes in exchange for surrender of the Old Notes. The Company will keep
the Exchange Offer open for not less than 20 business days (or longer if
required by applicable law) after the date notice of such Exchange Offer is
mailed to the holders of the Old Notes. For each Old Note surrendered pursuant
to the Exchange Offer, the holder of such Note will receive the New Notes
having a principal amount equal to that of the surrendered Note.
Under existing Commission interpretations, the New Notes would in general be
freely transferable after the Exchange Offer without further registration
under the Securities Act; provided that in the case of broker-dealers a
prospectus meeting the requirements of the Securities Act must be delivered as
required. The Company has agreed for a period of at least 180 days after
consummation of the Exchange Offer to make available a prospectus meeting the
requirements of the Securities Act to any broker-dealer for use in connection
with any resale of any such New Notes so acquired. A broker-dealer that
delivers such a prospectus to purchasers in connection with such resales will
be subject to certain of the civil liability provisions under the Securities
Act and will be bound by the provisions of the Registration Rights Agreement
(including, without limitation, certain indemnification and contribution
rights and obligations).
Each holder of the Old Notes who wishes to exchange such Notes for the New
Notes in the Exchange Offer will be required to make certain representations
including representations that (i) any New Notes to be received by it will be
acquired in the ordinary course of its business, (ii) it has no arrangement
with any person to participate in the distribution of the New Notes and (iii)
it is not an "affiliate," as defined in Rule 405 of the Securities Act, of the
Company, or if it is an affiliate of the Company, it will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable. In addition, if the holder is not a broker-dealer, it will
be required to represent that it is not engaged in, and does not intend to
engage in, the distribution of the New Notes. If the holder is a broker-dealer
that will receive New Notes for its own account in exchange for the Notes that
were acquired as a result of market-making activities or other trading
activities, it will be required to acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes.
In the event that applicable interpretations of the staff of the Commission
do not permit the Company to effect such Exchange Offer, or if for any other
reason the Exchange Offer is not consummated within 135 days after August 27,
1996, the Company will, at its own expense, (a) as promptly as practicable,
file a shelf registration statement covering resales of the Old Notes (a
"Shelf Registration Statement"), (b) use its best efforts to cause such
Registration Statement to be declared effective under the Securities Act as
promptly as practicable after the filing of such Registration Statement and
(c) use its best efforts to keep effective such Shelf Registration Statement
until the earlier of 36 months following August 27, 1996 and such time as all
of the Notes have been sold thereunder, or otherwise cease to be a Transfer
Restricted Security (as defined in the Registration Rights Agreement). The
Company will, in the event a Shelf Registration Statement is required to be
filed, provide to each holder of the Notes copies of the prospectus which is a
part of such Shelf Registration Statement, notify each such holder when such
Shelf Registration Statement for the Notes has become effective and take
certain other actions as are required to permit unrestricted resales of the
Notes. A holder of the Notes who sells such Notes pursuant to the Shelf
Registration Statement generally would be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions of
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which is applicable to such a
holder (including certain indemnification and contribution rights and
obligations).
If (a) neither of the registration statements described above is filed on or
before October 11, 1996, (b) neither of such registration statements is
declared effective by the Commission on or prior to November 25, 1996 (the
90th day following the Issue Date, the "Effectiveness Target Date"), (c) an
Exchange Offer Registration Statement becomes effective, and the Company fails
to consummate the Exchange Offer within 45 days of the earlier of the
effectiveness of such registration statement or the Effectiveness Target Date,
or (d) the
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<PAGE>
Shelf Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Notes during the period
specified in the Registration Rights Agreement (each such event referred to in
clauses (a) through (d) above a "Registration Default"), then the Company will
pay liquidated damages ("Liquidated Damages") to each holder of the Notes,
with respect to the first 90-day period immediately following the occurrence
of such Registration Default in an amount equal to $.05 per week per $1,000
principal amount of the Notes held by such holder. Upon a Registration
Default, liquidated damages will accrue at the rate specified above until such
Registration Default is cured and the amount of liquidated damages will
increase by an additional $.05 per week per $1,000 principal amount of Notes
with respect to each subsequent 90-day period until all Registration Defaults
have been cured, up to a maximum amount of liquidated damages of $.50 per week
per $1,000 principal amount of Notes (regardless of whether one or more than
one Registration Default is outstanding). All accrued liquidated damages will
be paid by the Company on February 15 and August 15 of each year to the
holders of the Notes.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resale of New Notes received in exchange for the Old Notes
where such Old Notes were acquired as a result of market-making activities or
other trading activities. The Company has agreed that, starting on the
Expiration Date and ending on the close of business one year after the
Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until , 1996, all dealers effecting transactions in the New
Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from
any such broker-dealer and/or the purchasers of any such New Notes. Any
broker-dealer that resells New Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such new Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit of any
such resale of New Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
For a period of one year after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such
documents in the Letter of Transmittal. The Company has agreed to pay all
expenses incident to the Exchange Offer (including the expenses of one counsel
for the Holders of the Notes) other than commissions or concessions of any
brokers or dealers and will indemnify the Holders of the New Notes (including
any broker-dealers) against certain liabilities, including liabilities under
the Securities Act.
LEGAL MATTERS
The validity of the Notes offered hereby and certain other legal matters
regarding the debt securities will be passed upon by Piper & Marbury L.L.P.,
Washington, D.C., counsel to the Company.
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EXPERTS
The consolidated balance sheets of the Company as of December 31, 1994 and
1995, and the consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1995 included in this Prospectus and Registration Statement, have
been included herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the Exchange Act), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Any reports and other
information filed by the Company with the Commission may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices in New York, 7 World Trade Center, 13th
Floor, New York, NY. 10048, and in Chicago, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material may also be obtained by
mail from the Public Reference Section of the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rate. The
Commission also maintains a web site that contains reports, proxy statements
and other information regarding registrants, including the Company, that file
such information electronically with the Commission. The address of the
Commission's web site is http://www.sec.gov. The Company's Common Stock is
quoted on the Nasdaq National Market (Symbol:OMPT), and such reports, proxy
statements and other information concerning the Company can also be inspected
at the offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C.
20006.
The Company has also agreed to furnish to each purchaser and prospective
purchaser of the New Notes with annual reports containing audited financial
statements certified by its independent auditors and quarterly reports for
each of the first three quarters of each fiscal year containing unaudited
financial information.
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GLOSSARY OF TERMS
"1.9 GHz"--Generally, the radio spectrum between 1850 MHz and 1990 MHz.
"10-Year Buildout Requirement"--The requirement that a holder of a 30 MHz
MTA license build out its network so that service is available to two-thirds
of the population in the MTA within 10 years of the date the license was
issued.
"A Block"--One of two PCS 30MHz licenses covering an MTA.
"AIN"--Advanced Intelligent Network.
"airtime charges"--Charges for use of the wireless communication system
based on minutes of use (above any included in a monthly subscription) that
are in addition to any charges for access to the PSTN or for long distance.
"alternative bypass facilities"--Other access mechanisms for connecting a
telephone customer to a network other than using the regulated LEC, including
fiber optics.
"ASIC"--Application-specific integrated circuit.
"bandwidth on-demand protocol"--A protocol that allows a user to access
variable data rates dependent on it requirements and available bandwidth at
the time of access.
"base station"--A fixed site with network equipment that is used for RF
communications with mobile stations, and is part of a cell, or a sector within
a cell, and is backhauled to an MTSO or other part of a cellular system.
"B Block"--One of two PCS 30 MHz covering an MTA.
"Broadband PCS"--High frequency, next generation of wireless services.
"BTA"--Basic Trading Area.
"CAI"--Common Air Interface. A standard radio and protocol definition that
helps ensure interoperability of mobile and portable radios across multiple
vendors' base stations and/or handsets.
"CAP"--Competitive Access Provider services. Carriers that offer local
transport facilities to other interconnecting carriers in competition with the
LEC.
"CATV"--Community access (cable) television.
"CDMA"--Code Division Multiple Access is a digital wireless transmission
technology for use in cellular telephone communications, personal
communications services and other wireless communications systems. CDMA is a
spread spectrum technology in which calls are assigned a pseudo random code to
encode digital bit streams. The coded signals are then transmitted over the
air on a frequency between the end user and a cell site, where they are
processed by a base station. CDMA allows more than one wireless user to
simultaneously occupy a single radio frequency band with reduced interference.
"cellular system"--A telephone system based on a grid "cells" deployed at
800 MHz. Each cell contains transmitters, receivers, antennas, and is
connected to switching gear and control equipment.
"Centrex"--The switching system of a local telephone operator.
"channel"--A single path, either RF or voice, for transmitting electrical
signals.
G-1
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"churn rate"--Expressed as a rate for a given measurement period, equal to
the number of subscriber units disconnected divided by the average number of
units of the entire installed base of customers.
"CTIA"--The Cellular Telecommunications Industry Association, and industry
group in North America comprised primarily of cellular telephone service
companies and recently some PCS license holders.
"digital"--A method of storing, processing and transmitting information
through the use of distinct electronic or optical pulses that represent the
binary digits 0 and 1. Digital transmission/switching technologies employ a
sequence of discrete, distinct pulses to represent information, as opposed to
the continuously variable analog signal.
"digitized compressed imaging"--The compression of very large static
pictorial files in digitized form for transmission or storage.
"digitized compressed video"--The compression of video in digitized form for
transmission or storage, currently primarily to picturephone quality video.
"digital protocols"--Methodologies which serve to manage the communication
for digital signal transmission. CDMA and TDMA are examples of high level
digital protocols.
"dual mode operation"--A wireless system which is capable of supporting
either different digital protocols or both digital and analog technologies,
including at different frequencies.
"dual mode phone"--A mobile or portable phone which is capable of dual mode
operation.
"ESMR"--Enhanced Specialized Mobile Radio is a radio communications system
that employs digital technology with a multi-site configuration that permits
frequency reuse but used in SMR frequencies, offering enhanced dispatch
services to traditional analog SMR users.
"FCC"--The Federal Communications Commission.
"FDMA"--Frequency Division Multiple Access involves communicating with
devices by means of a technique that allocates different frequencies to
different users.
"Five-Year Buildout Requirement"--The requirement that a holder of a 30 MHz
MTA license buildout its network so that service is available to one-third of
a population in the MTA within five years of the date the license was issued.
"frequency"--The number of cycles per second, measure in hertz, of a
periodic oscillation or wave in radio propagation.
"frequency reuse"--A measure of relative efficiency in the use of frequency.
"GSM"--Global System for Mobile Communications is a distributed networking
architecture designed for managing digital mobile telephone users which was
designed in Europe to provide pan European roaming.
"hand-off"--The act of transferring communication with a mobile unit from
one base station to another. a hand-off transfers a call from the current base
station to the new base station. A "soft" hand-off establishes communications
with a new cell before termination communications with the old cell.
"infrastructure equipment"--Fixed infrastructure equipment consisting of
base stations, base station controllers, antennas, switches, management
information systems and other equipment making up the backbone of the wireless
communication system that receives, transmits and processes signals from and
to subscriber equipment and/or between wireless systems and the public
switched telephone network.
G-2
<PAGE>
"IS"--Interim Standard.
"ISDN"--Integrated Services Digital Network.
"LANs"--Local Area Networks.
"LEC"--Local Exchange Carrier.
"mobile network systems"--Satellite systems designed for communications in
remote locations where terrestrial wireless systems such as PCS are neither
feasible nor economical.
"MSA"--Metropolitan Statistical Area.
"MTA"--Major Trading Area.
"Network Equipment"--The fixed infrastructure consisting of base stations,
base station controllers, mobile switching centers and related information
processing control points that manages communications between the mobile unit
and the public switched telephone network.
"New York MTA License"--Omnipoint's 30 MHz A-Block license to provide 1.9
GHz PCS services of the New York MTA.
"PBX"--A Private Branch Exchange is a telephone system designed for use on
private premises such as offices.
"PCIA"--Personal Communications Industry Association is a North America
trade association whose members either have PCS or paging licenses.
"PCS"--Personal Communications Services.
"PCS-1900"--A 1.9 GHz upbanded version of 900 MHz RF access protocol to GSM,
proposed for use in PCS systems in the U.S.
"PSTN"--Public Service Telephone Network.
"radio card"--A card contained in a base station that spreads, despreads and
modulates the radio signal and utilizes a technique to improve radio
performance.
"RF"--Radio frequency. Frequencies of the electromagnetic spectrum that are
associated with radio wave propagation.
"RF access system"--The portion of the wireless network which involves the
communication of the handset to the base station.
"RF bandwidth"--The amount of radio frequency spectrum assigned to a channel
or license that encompasses a relative range of frequencies that can be passed
through a transmission medium without distortion (normally with respect to one
channel). The greater the bandwidth, the greater the information carrying
capacity. Bandwidth is measured in hertz.
"roaming"--A service offered by mobile communications network operators
which allows a subscriber to use his/her handset while in the service area of
another carrier. Roaming requires an agreement between operators or different
individual markets to permit customers of either operator to access the
other's system.
"SMR"--Specialized Mobile Radio is a public two-way analog radio
communications network, using simplex push-to-talk technology, whereby
typically services such as dispatch for taxis, delivery, service, and
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utility repair services use mobile radios in vehicles and/or portable radios,
and typically operate on a repeater network that "repeats" an incoming
transmission on one channel onto an appropriate outgoing designated or
available channel.
"spread spectrum"--A technology originally developed for military
applications which spreads a signal over a wider spectrum than would be used
with narrow band radio signals.
"subscriber equipment"--Mobile or portable wireless telephone handsets.
"switching platform"--A platform that provides interconnection of the RF
access system to the PSTN and supports the network with databases and other
support services.
"TDMA"--Time Division Multiple Access is a digital wireless transmission
technology which converts analog voice signals into digital data and puts more
than one voice channel on the single RF channel by separating the users in
time.
"vocoder"--A speech compression device which encodes voice signals to reduce
the amount of bandwith required for a voice transmission.
"wide call delivery network"--Networks over which calls directed to the
subscriber are delivered to the subscriber are processed.
"WLL"--Wireless Local Loop is a system that eliminates the need for a wire
(loop) connecting users to the public switched telephone network, which is
used in conventional wired telephone systems, by transmitting voice messages
over radio waves for the "last mile" connection between the location of the
customer's telephone and a base station connected to the network equipment.
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OMNIPOINT CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Accountants......................................... F-2
Consolidated Balance Sheets at December 31, 1994 and 1995 and June 30,
1996 (unaudited)......................................................... F-3
Consolidated Statements of Operations for the years ended December 31,
1993, 1994 and 1995 and for the six months ended June 30, 1995 and 1996
(unaudited).............................................................. F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the years
ended December 31, 1993, 1994 and 1995 and for the six months ended June
30, 1996 (unaudited)..................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1993, 1994 and 1995 and for the six months ended June 30, 1995 and 1996
(unaudited).............................................................. F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Omnipoint Corporation:
We have audited the accompanying consolidated balance sheets of Omnipoint
Corporation as of December 31, 1994 and 1995, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Omnipoint Corporation as of December 31, 1994 and 1995, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
March 15, 1996
F-2
<PAGE>
OMNIPOINT CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------ 1996
1994 1995 (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ 5,543 $ 57,784 $127,487
Prepaid expenses and other assets (Note 3).... 200 5,040 1,613
Inventory..................................... 605 1,310 1,747
-------- -------- --------
Total current assets......................... 6,348 64,134 130,847
-------- -------- --------
Fixed assets, net (Notes 4 and 10)............. 3,016 18,957 65,326
FCC deposit (Note 7)........................... -- 40,000 --
Other assets................................... -- 879 --
Licensing costs, net of accumulated
amortization of $428, $9,116 and $13,460 as of
December 31, 1994 and 1995, and June 30, 1996,
respectively.................................. 347,090 338,402 334,058
Unissued Entrepreneurs' Band FCC license
payments (Note 18)............................ -- -- 25,457
Deferred financing costs and other intangible
assets, net of accumulated amortization of
$87, $987 and $1,464 as of December 31, 1994
and 1995, and June 30, 1996, respectively..... 4,492 12,618 12,069
-------- -------- --------
Total assets................................. $360,946 $474,990 $567,757
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.............................. $ 896 $ 3,331 $ 2,905
Accrued expenses (Note 5)..................... 2,096 4,593 2,755
Accrued interest payable (Note 8)............. -- 388 125
Capital lease obligations--current portion
(Note 10).................................... 262 182 129
Credit agreement (Note 7)..................... -- 36,500 --
Convertible Subordinated Notes (Note 7)....... -- 16,250 --
Deferred revenue.............................. -- 4,300 1,050
Loan payable under financing agreement--
current portion (Note 7)..................... -- -- 13,105
-------- -------- --------
Total current liabilities.................... 3,254 65,544 20,069
Capital lease obligations--long-term portion
(Note 10)..................................... 231 106 40
Accrued interest payable (Note 8).............. 1,457 -- --
Loan payable under financing agreement (Note
7)............................................ -- 31,758 71,429
Senior notes (Note 7).......................... -- 16,485 17,552
New York MTA license obligation (Note 8)....... 347,518 347,518 347,518
Commitments and contingencies (Notes 8, 9 and
10)
Redeemable convertible preferred stock, $.01
par value, 4,000,000 shares authorized at
December 31, 1994 and 5,750,000 shares
authorized at December 31, 1995 (Notes 6 and
7):
Series A; 666,667 shares issued and
outstanding at December 31, 1994 and 1995 (at
liquidation preference)...................... 1,500 1,500 --
Series B; cumulative preferred stock;
1,500,000 shares issued and outstanding at
December 31, 1994 and 1,651,714 shares issued
and outstanding at December 31, 1995
(liquidation preference of $16,268 and
$17,244 at December 31, 1994 and 1995,
respectively), net of issuance costs......... 14,402 15,919 --
Series C; cumulative preferred stock;
1,866,338 shares issued and outstanding at
December 31, 1995 (liquidation preference of
$29,106), net of issuance costs.............. -- 26,708 --
Stockholders' equity (deficit) (Notes 6, 7 and
11):
Common stock, par value $.01 per share;
authorized 75,000,000 shares, issued and
outstanding 24,428,424 shares at December 31,
1994, 24,658,618 shares at December 31, 1995
and 45,799,128 shares at June 30, 1996....... 244 247 458
Additional paid-in capital.................... 14,334 29,860 209,669
Accumulated deficit........................... (21,728) (59,498) (96,911)
Unearned compensation......................... (20) (23) (891)
Notes receivable (Note 2)..................... (246) (1,134) (1,176)
-------- -------- --------
Total stockholders' equity (deficit)......... (7,416) (30,548) 111,149
-------- -------- --------
Total liabilities and stockholders' equity
(deficit)................................... $360,946 $474,990 $567,757
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
OMNIPOINT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------- --------------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
License fees (Note 9).. $ -- $ 3,000 $ -- $ -- $ --
Contract revenue (Note
2).................... 1,618 -- -- -- --
------- ------- -------- ------------ ------------
Total revenues........ 1,618 3,000 -- -- --
Operating expenses:
Research and
development........... 4,593 7,018 14,345 5,177 13,418
Sales, general and
administrative........ 2,974 6,290 12,619 4,414 10,039
Depreciation and
amortization.......... 246 1,125 11,038 5,381 6,595
------- ------- -------- ------------ ------------
Total operating
expenses............. 7,813 14,433 38,002 14,972 30,052
------- ------- -------- ------------ ------------
Loss from operations.. (6,195) (11,433) (38,002) (14,972) (30,052)
------- ------- -------- ------------ ------------
Other income (expense):
Interest income........ 201 363 749 153 2,711
Interest expense (Notes
7 and 8).............. (233) (1,519) (517) (16,335) (10,072)
Miscellaneous income... -- 65 -- -- --
Gain on sale of
subsidiary stock (Note
10)................... -- 3,194 -- -- --
------- ------- -------- ------------ ------------
Net loss.............. $(6,227) $(9,330) $(37,770) $(31,154) $(37,413)
======= ======= ======== ============ ============
Pro forma net loss per
common share
(unaudited) (Note 1)... $ (.96)
========
Pro forma weighted
average common shares
outstanding (unaudited)
(Note 1)............... 39,529
========
Net loss per common
share.................. $ (0.99) $ (0.87)
============ ============
Weighted average common
shares outstanding..... 31,357 43,045
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
OMNIPOINT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL STOCKHOLDERS'
----------------- PAID-IN ACCUMULATED UNEARNED NOTES EQUITY
SHARES AMOUNT CAPITAL DEFICIT COMPENSATION RECEIVABLE (DEFICIT)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1992................... 22,822,443 $228 $ 6,314 $ (6,171) $(120) $ (151) $ 100
Exercise of stock
options................ 13,343 -- 12 -- -- -- 12
Stock options granted
below market value..... -- -- 14 -- (14) -- --
Amortization of unearned
compensation........... -- -- -- -- 91 -- 91
Interest on employee
note receivable........ -- -- -- -- -- (7) (7)
Net loss................ -- -- -- (6,227) -- -- (6,227)
---------- ---- -------- -------- ----- ------- --------
Balance, December 31,
1993................... 22,835,786 228 6,340 (12,398) (43) (158) (6,031)
---------- ---- -------- -------- ----- ------- --------
Issuance of common stock
in exchange for
convertible
subordinated note...... 382,308 4 3,213 -- -- -- 3,217
Issuance of common stock
in exchange for an
option held by third
party to purchase
shares of subsidiary... 1,125,000 11 4,489 -- -- -- 4,500
Issuance of restricted
stock to employee...... 2,500 -- 25 -- -- -- 25
Issuance of common
stock.................. 270 -- -- -- -- -- --
Exercise of stock
options................ 57,560 1 17 -- -- -- 18
Issuance of restricted
stock in exchange for
employee note
receivable............. 25,000 -- 250 -- -- (250) --
Amortization of unearned
compensation........... -- -- -- -- 23 -- 23
Interest on employee
notes receivable....... -- -- -- -- -- (2) (2)
Forgiveness of employee
notes receivable....... -- -- -- -- -- 164 164
Net loss................ -- -- -- (9,330) -- -- (9,330)
---------- ---- -------- -------- ----- ------- --------
Balance, December 31,
1994................... 24,428,424 244 14,334 (21,728) (20) (246) (7,416)
---------- ---- -------- -------- ----- ------- --------
Issuance of 151,714
shares of Series B
preferred stock in
payment of Series B
dividend............... -- -- (1,517) -- -- -- (1,517)
Dividends accrued on
Series B and Series C
preferred stock........ -- -- (1,839) -- -- -- (1,839)
Issuance of warrants.... -- -- 17,797 -- -- -- 17,797
Issuance of common stock
in exchange for
services............... 8,700 -- 58 -- -- -- 58
Exercise of stock
options................ 83,994 1 91 -- -- -- 92
Issuance of options as
form of advanced
compensation........... -- -- 112 -- (112) -- --
Amortization of unearned
compensation........... -- -- -- -- 109 -- 109
Issuance of restricted
stock in exchange for
employee notes
receivable............. 137,500 2 824 -- -- (826) --
Issuance of employee
note receivable........ -- -- -- -- -- (87) (87)
Interest on employee
notes receivable....... -- -- -- -- -- (29) (29)
Forgiveness of employee
note receivable........ -- -- -- -- -- 54 54
Net loss................ -- -- -- (37,770) -- -- (37,770)
---------- ---- -------- -------- ----- ------- --------
Balance, December 31,
1995................... 24,658,618 247 29,860 (59,498) (23) (1,134) (30,548)
---------- ---- -------- -------- ----- ------- --------
Dividends accrued on
Series B and Series C
preferred stock........ -- -- (273) -- -- -- (273)
Shares issued in
connection with initial
public offering, net of
expenses............... 8,050,000 80 118,357 -- -- -- 118,437
Conversion of
subordinated debt...... 1,562,500 16 16,234 -- -- -- 16,250
Conversion of preferred
stock.................. 10,605,591 106 44,597 -- -- -- 44,703
Exercise of stock
options................ 609,919 6 579 -- -- -- 585
Exercise of stock
warrants............... 312,500 3 (2) -- -- -- 1
Issuance of options in
form of advanced
compensation........... -- -- 982 -- (982) -- --
Amortization of unearned
compensation........... -- -- -- -- 114 -- 114
Interest on employee
notes receivable....... -- -- -- -- -- (58) (58)
Forgiveness of employee
note receivable........ -- -- -- -- -- 16 16
Costs associated with
secondary offering..... -- -- (665) -- -- -- (665)
Net loss................ -- -- -- (37,413) -- -- (37,413)
---------- ---- -------- -------- ----- ------- --------
Balance, June 30, 1996.. 45,799,128 $458 $209,669 $(96,911) $(891) $(1,176) $111,149
========== ==== ======== ======== ===== ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
OMNIPOINT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------- ------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows used in operating
activities:
Net loss...................... $(6,227) $(9,330) $(37,770) $(31,154) $(37,413)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Amortization and
depreciation................. 246 1,125 11,038 5,381 6,595
Compensation expense from
stock grants................. 91 23 109 42 114
Pilot system equipment funded
by the financing agreement... -- -- 1,053 -- 1,321
Gain on sale of subsidiary
stock........................ -- (3,194) -- -- --
Increase in employee notes
receivable and related
accrued interest............. (7) (2) (116) (11) (58)
Forgiveness of employee notes
receivable................... -- 164 54 -- 16
Accrued interest.............. 213 217 -- 15,713 (262)
Payment in kind interest on
financing agreement.......... -- -- 553 -- 1,009
Accrued interest on New York
MTA License obligation and
reversal based on FCC order.. -- 1,457 (1,457) -- --
Interest expense associated
with warrants................ -- -- 533 300 --
Interest expense associated
with amortization of
discount and issuance cost... -- -- -- -- 1,147
Issuance of common stock in
exchange for services........ -- -- 58 -- --
Changes in assets and
liabilities:
(Increase) decrease in
operating assets:
Accounts receivable......... 601 110 -- -- --
Prepaid expenses and other
assets..................... (29) (149) 1 92 (320)
Inventory................... (84) (143) (705) 13 (437)
Other assets................ -- -- (879) -- 879
Increase (decrease) in
operating liabilities:
Accounts payable and accrued
expenses................... 201 1,827 3,481 (49) (426)
Deferred revenue............ -- -- 4,300 -- --
------- ------- -------- -------- --------
Net cash used in operating
activities.................... (4,995) (7,895) (19,747) (9,673) (27,835)
------- ------- -------- -------- --------
Cash flows from investing
activities:
Purchase of fixed assets...... (480) (2,424) (3,991) (620) (10,508)
FCC deposit................... -- -- (40,000) -- 40,000
Payment for unissued
Entrepreneurs' Band FCC
license...................... -- -- -- -- (25,457)
Purchase of license........... -- (50) -- -- --
Proceeds from sale of
subsidiary stock............. -- 3,194 -- -- --
------- ------- -------- -------- --------
Net cash provided by (used in)
investing activities.......... (480) 720 (43,991) (620) 4,035
------- ------- -------- -------- --------
Cash flows from financing
activities:
Proceeds from line of credit
loan agreement............... -- -- 10,000 10,000 --
Proceeds from issuance of
preferred stock, net of
issuance costs............... 14,402 -- 16,708 16,030 --
Proceeds from issuance of
debt......................... 3,000 -- -- -- --
Proceeds from issuance of
common stock................. 12 43 92 93 586
Payments of obligations under
capital leases............... (38) (19) (284) (157) (119)
Proceeds from convertible
subordinated and senior
notes........................ -- -- 50,000 -- --
Proceeds from credit
agreement.................... -- -- 40,000 -- --
Payments on credit agreement.. -- -- (3,500) -- (36,500)
Proceeds from financing
agreement.................... -- -- 4,500 -- 13,300
Payment of deferred financing
costs........................ -- -- (1,527) -- --
Payments of short-term debt
and notes payable............ -- (150) (10) -- --
Proceeds from initial public
offering, net of expenses.... -- -- -- -- 118,437
Costs associated with
secondary public offering.... -- -- -- -- (665)
Dividends accrued and paid.... -- -- -- -- (1,536)
------- ------- -------- -------- --------
Net cash provided by (used in)
financing activities.......... 17,376 (126) 115,979 25,966 93,503
------- ------- -------- -------- --------
Net increase (decrease) in cash
and cash equivalents.......... 11,901 (7,301) 52,241 15,673 69,703
Cash and cash equivalents at
beginning of period........... 943 12,844 5,543 5,543 57,784
------- ------- -------- -------- --------
Cash and cash equivalents at
end of period................. $12,844 $ 5,543 $ 57,784 $ 21,216 $127,487
======= ======= ======== ======== ========
Supplemental cash flow
information (Note 15):
Cash paid for interest........ $ 16 $ 107 $ 501 $ 322 $ 7,612
Cash paid for taxes........... 3 9 32 23 83
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995
AND 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RISKS:
General
Omnipoint Corporation ("Omnipoint" or the "Company"), was incorporated in
Delaware on June 18, 1987 to design, develop and market proprietary digital
wireless products based on spread spectrum. Substantially all of the Company's
revenues have been derived from contracts related to research and development,
prototype equipment sales and related services in the field of wireless
digital communication products. The Company's success in developing its
technology for the first digital personal communication service ("PCS") system
in 1991 and 1992 was instrumental in the Federal Communications Commission
("FCC") awarding Omnipoint Communications Inc. ("OCI"), a subsidiary of the
Company, a Pioneer's Preference in 1993. As a result of the Pioneer's
Preference, the FCC issued to OCI in December 1994 a 30 MHz license to provide
PCS services for the New York MTA (the "New York MTA License"). During 1994,
an unrelated party acquired a 4.42% minority interest in OCI.
On January 31, 1996, the Company completed an initial public offering in
which 8,050,000 shares of common stock were issued which provided the Company
with proceeds of approximately $118.4 million, net of expenses.
Principles of Consolidation
The consolidated financial statements include the accounts of Omnipoint
Corporation, OCI and Omnipoint Corporation's wholly-owned subsidiaries. Losses
in consolidated corporations attributable to minority interest holders in
excess of their respective share of the subsidiary's net equity are not
eliminated in consolidation. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Unaudited Consolidated Financial Statements
The accompanying consolidated financial statements of the Company as of June
30, 1996 and for the six months ended June 30, 1995 and 1996 are unaudited.
All adjustments (consisting only of normal recurring adjustments) have been
made which, in the opinion of management, are necessary for a fair
presentation thereof. Results of operations for the six months ended June 30,
1996 are not necessarily indicative of the results that may be expected for
the full year or for any future period.
Nature of Operations
The Company is currently in the acquisition and buildout phases of the New
York MTA network. The Company anticipates that it will take several years to
complete the buildout over the entire geographic area of the New York MTA. To
date, the Company has sold PCS equipment only for trials, and the Company does
not expect to have significant PCS services or equipment revenue before 1997.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expense during the
reporting period. Actual results could differ from those estimates.
Current Vulnerability Due to Certain Concentrations
The Company substantially relies upon its relationship with Northern Telecom
Inc. ("Northern Telecom"). The Company has entered into a series of OEM and
equipment supply agreements, a collaborative development agreement, and a
vendor financing agreement with Northern Telecom. The Company has agreed to
purchase from Northern Telecom $250.0 million of equipment and services over
the next five years. The Company relies substantially on the vendor financing
arrangement through which Northern Telecom provides a $382.5 million
F-7
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995
AND 1996 IS UNAUDITED)
financing agreement for the buildout of the New York MTA Network, including
the purchase of equipment (see Notes 7, 8, and 9).
The Company has had limited revenues and has been dependent on a limited
number of customers for its revenues. In 1994, the Company received all of its
revenue, $3.0 million from Northern Telecom, representing a non-refundable
license fee received upon entering into a non-exclusive OEM agreement. Under
the terms of the agreement, Northern Telecom may pay up to an aggregate of
$12.0 million in license and OEM fees under certain circumstances. The Company
expects Northern Telecom to be a source of significant revenue in the future.
If the agreement were terminated, the lack of revenues from sales to Northern
Telecom would have a material adverse effect upon the Company's financial
condition and results of operations.
Dependence Upon Key Employees
The Company is highly dependent upon the technical and management skills of
its key employees.
The Company's growth may cause a significant strain on its management,
operational and financial resources. The Company's ability to manage its
growth effectively will require it to continue to implement and improve its
operational and financing systems. The Company's success also depends in large
part on a limited number of key technical, marketing and sales employees and
on the Company's ability to continue to attract and retain additional highly
talented personnel. Competition for qualified personnel in the PCS equipment
and service industries is intense.
Uncertainty of Protection of Patents and Proprietary Rights
The Company's technology business relies on a combination of patents,
trademarks, and nondisclosure and developments agreements in order to
establish and protect its proprietary rights. The Company has filed and
intends to continue to file applications as appropriate for patents covering
its technology and products. There can be no assurance that additional patents
will issue, that the existing patents and such additional patents allowed will
be sufficiently broad to protect the Company's technology or that the
confidentiality agreements and other methods on which the Company relies to
protect its trade secrets and proprietary information will be adequate.
Pro Forma Presentation (Unaudited)
The unaudited pro forma net income (loss) per common share as of December
31, 1995 is shown on the face of the income statement because the Company
believes the pro forma presentation is more meaningful since it includes the
conversion of the Redeemable Convertible Preferred Stock and the conversion of
the Convertible Subordinated Notes. The unaudited pro forma net income (loss)
per common share is computed based upon the weighted average number of common
and common equivalent shares outstanding after certain adjustments described
below. Common equivalent shares are included in the calculations where the
effect on their inclusion would be dilutive. In accordance with Securities and
Exchange Commission Staff Accounting Bulletin No. 83 ("SAB No. 83"), all
common and common equivalent shares and other potentially dilutive instruments
which include stock options, stock warrants and the Series C Preferred Stock
issued during the twelve month period prior to the filing of the Registration
Statement have been included in the calculation as if they were outstanding
for all periods. As permitted under SAB No. 83, the common equivalent shares
for stock options and warrants, were determined using the treasury stock
method at the initial public offering price of $16.00 per share. In addition,
outstanding shares of Series A and Series B Preferred Stock that were
converted into common stock upon the effectiveness of the initial public
offering are treated as having been converted into Common Stock at
F-8
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995
AND 1996 IS UNAUDITED)
the date of original issuance. The Series C Preferred Stock, which is
considered a common stock equivalent, from the date of original issuance, was
also included pursuant to SAB No. 83 on an as-if converted basis from January
31, 1995 until the date of its original issuance. The Convertible Subordinated
Notes were treated as if they were converted on the date of their issuance.
Net Income (Loss) Per Common Share
Net income (loss) per common share on a historical basis is computed in the
same manner as pro forma net income (loss) per common share, except that
Redeemable Convertible Preferred Stock and the Convertible Subordinated Notes
are not assumed to be converted. In the computation of net income (loss) per
common share, dividends on Redeemable Convertible Preferred Stock are included
as an increase to net income (loss) to common stockholders.
Net income (loss) per common share on a historical basis is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1993 1994 1995
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
Net income (loss).................................. $(6,227) $(9,330) $(37,770)
Dividends on Redeemable Convertible Preferred
Stock............................................. -- -- 3,357
------- ------- --------
Net income (loss) to common Stockholders........... $(6,227) $(9,330) $(41,127)
======= ======= ========
Net income (loss) per common share................. $ (0.21) $ (0.30) $ (1.31)
======= ======= ========
Weighted average number of common shares
outstanding....................................... 29,702 30,752 31,410
</TABLE>
Cash and Cash Equivalents
Cash and cash equivalents are stated at cost which approximates market. The
Company considers all highly liquid debt instruments purchased with an
original maturity at time of purchase of three months or less to be cash
equivalents.
Inventory
Inventory is recorded at the lower of cost or market on the basis of average
cost. Inventory consists of raw materials and other items used in development
of the Company's technology.
Prepaid Expenses and Other Assets
Included in prepaid expenses and other assets is an advance payment for
pilot system equipment financed through the financing agreement.Upon receipt
the pilot system equipment will be expensed and will be included in research
and development expense in the consolidated statement of operations.
Fixed Assets and Depreciation
Fixed assets are recorded at cost. Major renewals and improvements are
capitalized; repairs and maintenance are charged to expense. Depreciation is
provided by use of the straight-line method over estimated useful lives of
three to five years. Depreciation begins when the fixed asset is placed into
service. Upon retirement or sale, the cost of the asset disposed of and the
related accumulated depreciation are removed from the accounts and any
resulting gain or loss is credited or charged to income.
Other Assets
Included in other assets are costs incurred in the preparation of the
Company's initial public offering. The offering costs, which were included in
accounts payable and accrued expense at December 31, 1995, were charged to
additional paid-in capital upon completion of the offering on January 31,
1996.
F-9
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995
AND 1996 IS UNAUDITED)
Licensing Costs and Other Intangible Assets
Licensing costs represent the license fees of $347.5 million for the New
York MTA License granted by the FCC in December 1994. Among other conditions,
the New York MTA License requires that the Company construct a 30 MHz system
in the New York MTA that offers coverage to at least one-third of the
population of the New York MTA within five years of the license grant date and
at least two-thirds of the population within 10 years. The New York MTA
License also contains a condition that requires the Company to construct a PCS
system that "substantially uses" the design and technology upon which the
Pioneer's Preference Award was based. The condition expires upon the system
providing coverage for one-third of the population of the New York MTA.
The New York MTA License expires in December 2004; however, FCC rules
provide for renewal expectancy provisions. The Company expects to exercise the
renewal provisions, and accordingly the New York MTA License is being
amortized from the date of grant using the straight-line method over a period
of 40 years. The Entrepreneurs' Band BTA licenses and any other licenses the
Company purchases in the future will be accounted for in accordance with the
recently agreed upon industry practices. Accordingly, interest incurred for
licenses will be capitalized during the buildout phase and amortization of the
license cost will begin with the commencement of service to customers.
Deferred financing costs include amounts paid related to obtaining proceeds
under debt, credit facilities and financing agreements. These costs are
amortized over the life of the related debt agreement, generally one to ten
years.
Other intangible assets include an asset recorded in connection with shares
of the Company's Common Stock issued in exchange for a previously granted
option to purchase from the Company shares of common stock of OCI (See Note
11). This asset is being amortized using the straightline method over a 40
year period. Other intangible assets also include costs incurred for the
rights to certain information and technologies. These costs are being
amortized over their estimated useful lives of five to 10 years.
Periodically management assesses, based on undiscounted cash flows, if there
has been a permanent impairment in the carrying value of its intangible assets
and, if so, the amount of any such impairment by comparing anticipated
discounted future operating income resulting from intangible assets with the
carrying value of the related asset. In performing this analysis, management
considers such factors as current results, trends and prospects, in addition
to other economic factors.
The Company is required to implement Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" in 1996. As the Company continually
evaluates the realizability of its long-lived assets, including intangibles,
adoption of the statement is not anticipated to have a material effect on the
Company's financial statements at the date of adoption.
Common and Preferred Stock
On December 27, 1995, the Board of Directors authorized, and on December 28,
1995, the stockholders approved, a 2.5-for-one stock split of the Common
Stock, effected in the form of a stock dividend. All share and per share data
have been restated in these financial statements for all periods presented to
reflect this stock split.
Effective on the closing of the initial public offering, the Company's Board
of Directors authorized 5,000,000 shares of preferred stock. The Board of
Directors has the authority to issue these shares and to determine the price,
rights, preferences, privileges and restrictions, including voting rights, of
those shares without further vote or action by the stockholders.
F-10
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995
AND 1996 IS UNAUDITED)
Revenue Recognition
Income from contracts is recognized on the percentage-of-completion basis.
Percentage of completion is determined by relating the actual cost of work
performed to date for each contract to its current estimated final cost. When
current contract estimates indicate a loss, provision is made for the total
anticipated loss. Revenue from license fees or equipment sales and related
support services is recognized when hardware or software has been delivered,
providing other obligations are no longer significant, customer acceptance is
reasonably assured and collectibility is deemed probable.
Research and Development
Expenditures for research and development are charged to operations as
incurred. Research and development expenses include costs for both new product
development and ongoing efforts to improve existing technologies. Costs of
internally developed software which qualify for capitalization are immaterial.
Income Taxes
Deferred income taxes reflect the tax consequences on future years of
differences between the tax bases of assets and liabilities and their bases
for financial reporting purposes, including the recognition of future tax
benefits, such as net operating loss carryforwards to the extent that
realization of such benefits are more likely than not.
Accounting for Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," which is effective for fiscal year 1996. The Company is
evaluating the impact of this pronouncement but currently expects to elect the
disclosure alternative. As a result, the adoption of this pronouncement is not
expected to have a material impact on the Company's financial statements.
Reclassifications
Certain prior year amounts have been reclassified to conform with six month
presentation.
2. RELATED PARTY TRANSACTIONS:
Employee notes receivable included a demand note of $158,315 as of December
31, 1993 due from an employee of the Company with a stated interest rate of
5%. In accordance with an agreement, the note receivable was forgiven on April
14, 1994 and recorded as compensation expense. During 1994 and 1995, two
employees executed five-year promissory notes payable to the Company in the
original principal amount of $250,000 and $75,000, respectively, with interest
at the rate of 8.5% per year as consideration for the purchase of Common
Stock. The annual payments due under these notes may be forgiven pursuant to a
special bonus provision contained in the employment agreements. In accordance
with this provision, $54,250 of the $250,000 note was forgiven during 1995
representing $50,000 principal and $4,250 of interest.
On September 19, 1995, an employee executed a three-year promissory note
payable to the Company in the original principal amount of $87,100, plus
interest on the unpaid principal balance from time to time at the rate of
8.5%. The annual payment due under the note may be forgiven pursuant to a
special bonus provision contained in an amendment to the employee's employment
agreement.
On October 1, 1995, an employee executed a five-year balloon promissory note
payable to the Company in the original principal amount of $750,000, plus
interest on the unpaid principal balance from time to time outstanding at the
rate of 8% per year, as consideration for the purchase of 125,000 shares of
restricted Common
F-11
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995
AND 1996 IS UNAUDITED)
Stock at $6.00 per share. The payment due under the note may be forgiven
pursuant to a special bonus provision contained in the employee's employment
agreement.
Interest earned under all employee notes was $2,259 and $29,579 for the
years ended December 31, 1994 and 1995, respectively.
Included in contract revenues is $300,000 for the year ended December 31,
1993 received from a customer that, in an unrelated transaction, became a
stockholder in 1994.
3. PREPAID EXPENSES AND OTHER ASSETS:
Prepaid expenses and other assets consist of the following at December 31,
1994 and 1995 and June 30, 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1994 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Advance payment for pilot system equipment
financed through financing agreement............ $ -- $4,840 $1,100
Insurance........................................ -- -- 204
Deposits......................................... 128 83 220
Other............................................ 72 117 89
------ ------ ------
$ 200 $5,040 $1,613
====== ====== ======
</TABLE>
4. FIXED ASSETS:
Fixed assets including equipment under capital leases consist of the
following at December 31, 1994 and 1995 and June 30, 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1994 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Building......................................... $ -- $ 1,190 $ 1,768
Office equipment................................. 369 649 1,104
Lab equipment.................................... 2,491 3,693 7,429
Network infrastructure equipment................. -- 12,634 48,543
Cell sites....................................... -- -- 3,344
Furniture and fixtures........................... 107 265 310
Purchased software............................... 786 1,453 2,637
Leasehold improvements........................... 281 1,325 4,001
Vehicles......................................... -- 214 431
------- ------- -------
4,034 21,423 69,567
Less: accumulated depreciation................... (1,018) (2,466) (4,241)
------- ------- -------
$ 3,016 $18,957 $65,326
======= ======= =======
</TABLE>
Network infrastructure equipment includes $543,182 of capitalized interest
at June 30, 1996.
F-12
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995
AND 1996 IS UNAUDITED)
Depreciation expense for the years ended December 31, 1993, 1994 and 1995
was $241,875, $628,747 and $1,448,751, respectively. Network infrastructure
equipment consists of equipment which has not been placed into service at this
time. Accordingly, no depreciation was recorded.
5. ACCRUED EXPENSES:
Accrued expenses consist of the following at December 31, 1994 and 1995 and
June 30, 1996:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------
1994 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Salaries and benefits................................. $ 425 $ 724 $1,139
Bonuses............................................... -- 350 130
Relocation............................................ 147 539 579
Professional fees..................................... 1,181 464 447
Dividends............................................. -- 1,839 --
Initial public offering/secondary offering costs...... -- 593 292
Other................................................. 343 84 168
------ ------ ------
$2,096 $4,593 $2,755
====== ====== ======
</TABLE>
Amounts accrued for dividends as of December 31, 1995 include $338,722
payable in 33,872 shares of Series B Preferred Stock and Series B and C
dividends of $1,500,310 to be paid in cash.
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK:
The Company authorized 3,000,000 shares of Redeemable Convertible Preferred
Stock in 1991 and an additional 1,000,000 shares in 1993. The Company
authorized an additional 1,750,000 shares of convertible stock in 1995. During
1991, the Company sold 666,667 shares of Series A Convertible Preferred Stock
("Series A Preferred Stock") for $1.5 million. In August 1993, the Company
sold 1,500,000 shares of Series B Convertible Preferred Stock ("Series B
Preferred Stock") for $15.0 million. During 1995, the Company sold 1,866,338
shares of Series C Convertible Preferred Stock ("Series C Preferred Stock")
resulting in gross proceeds of $27,995,070, including 666,667 shares issued in
satisfaction of a $10.0 million outstanding balance under a line of credit
loan agreement (see Note 7). Issuance costs of the Series C Preferred Stock
included a $600,000 brokerage commission, transaction fees of $559,861 to
certain investors and $127,276 of other related issuance costs.
Shares of Common Stock reserved for conversion of the Company's outstanding
Series A, B and C Preferred Stock were 1,666,667, 7,550,000 and 4,665,842 at
December 31, 1995, respectively.
The Series A Preferred Stock was convertible at any time into Common Stock
of the Company at a conversion rate of one share of Common Stock for each
share of Series A Preferred Stock, subject to adjustment in the event of any
stock dividend, stock split or other recapitalization. The Company at its
option could require each share of the Series A Preferred Stock to be
converted into shares of Common Stock at any time on or after the closing of
the sale of shares of Common Stock at an initial public offering meeting
certain defined criteria. The holders of the Series A Preferred Stock were
entitled to receive, when and only if declared by the Board of Directors,
dividends in an amount per share equal to the per share amount to be declared
for the Common Stock.
F-13
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995
AND 1996 IS UNAUDITED)
No dividends were declared. Each holder of outstanding shares of the Series A
Preferred Stock was entitled to the number of votes equal to the number of
whole shares of Common Stock into which such shares are convertible at that
time. Upon the closing of the initial public offering on January 31, 1996, the
Series A Preferred Stock was converted into 1,666,667 shares of Common Stock.
The holders of the Series B Preferred Stock had the right to convert such
stock at any time into shares of Common Stock at a one for one conversion
rate, subject to, and automatically convert into Common Stock in the event of
a public offering meeting certain defined criteria. The holders of the Series
B Preferred Stock had the right to vote that number of shares equal to the
number of shares of Common Stock issuable upon conversion. The Series B
Preferred Stock accrued a cumulative dividend on a daily basis, whether
declared or not, at the rate of 1.467% of the original purchase price per
quarter, compounded quarterly on principal investment plus accrued dividends
not paid in cash, payable on the last day of each quarter either in cash or
original shares of Series B Preferred Stock and valued at the original
purchase price. In the event of equity offerings or qualified fundraisings
meeting certain criteria, the dividend rate would have been reduced to zero.
Under an amendment to the Series B Stock Purchase Agreement, unpaid and
previously undeclared cumulative dividends, through April 4, 1995 were paid by
the issuance of 151,714 shares of Series B Preferred Stock. As of December 31,
1995, Series B accrued dividends were $728,197. Upon the closing of the
initial public offering, the Series B Preferred Stock and certain accrued
dividends were converted into 4,273,082 shares of Common Stock. Additionally,
accrued dividends of $236,892 through such date were paid in cash.
The holders of Series C Preferred Stock had the right to convert the Series
C Preferred Stock at any time into shares of Common Stock at a one for one
conversion rate, and could be required by the Company to be converted into
Common Stock in the event of a public offering meeting certain defined
criteria. The holders of the Series C Preferred Stock had the right to vote
that number of shares equal to the number of shares of Common Stock issuable
upon conversion. The Series C Preferred Stock accrued a cumulative dividend,
whether declared or not, at the rate of 1.9427% per quarter, compounded
quarterly on the stated value (plus cumulative dividends which were accrued
but which were not paid). As of December 31, 1995, Series C accrued dividends
of $1,110,835 were payable in cash. Upon the closing of the initial public
offering, the Series C Preferred Stock was converted into 4,665,842 shares of
Common Stock and accrued dividends of $1,299,326 through such date were paid
in cash.
7. NOTES PAYABLE AND FINANCING AGREEMENTS:
On January 29, 1993, the Company received $3.0 million from an investor in
exchange for a $3.0 million face value convertible subordinated note and
warrants to purchase 972,223 shares of Common Stock. The convertible
subordinated note accrued interest at one percent over prime and principal and
interest were payable on January 29, 1994. Interest expense accrued for the
period from January 29, 1993 through December 31, 1993 was $199,698 at an
interest rate of 7%. On January 29, 1994, the $3.0 million face value
convertible subordinated note plus accrued interest of $217,493 was converted
into 382,307 shares of Common Stock of the Company at approximately $8.40 per
share.
On January 31, 1995, the Company entered into a $10.0 million Line of Credit
Loan Agreement with the holder of the Series B Preferred Stock of the Company,
bearing interest at 12%. On March 10, 1995 and April 4, 1995, the Company was
advanced $3.0 million and $7.0 million under the line, respectively. The
Company's shares of OCI stock were pledged as collateral for the Line of
Credit. The Line of Credit expired upon the closing of the Series C Preferred
Stock equity financing on June 29, 1995. The Company issued warrants to
purchase 50,000 shares of Common Stock at $.004 per share at the initial
closing, and issued additional warrants to
F-14
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995
AND 1996 IS UNAUDITED)
purchase 179,168 shares of Common Stock at $6.00 per share, which expire on
March 10, 2002. In connection with the warrants, the Company recorded interest
expense and an increase to additional paid-in capital of $299,800 in 1995.
On June 29, 1995, the $10.0 million outstanding balance under the Line of
Credit expired, and was exchanged for 666,667 shares of Series C Convertible
Preferred Stock.
Northern Telecom Financing Agreement
On July 21, 1995 OCI entered into a $382.5 million credit facility with
Northern Telecom to finance future purchases and installations of
telecommunications equipment, engineering services, certain related
construction costs, third-party equipment and other expenses.
A portion of the financing agreement, which may be used for working capital
purposes including interest payments on the amounts outstanding on the
financing agreement, matures June 30, 1997. Any amounts repaid can be
subsequently borrowed for other purposes allowed under the financing
agreement. The principal amount on the other portions of the financing
agreement are payable in twenty consecutive quarterly installments beginning
in 2000, with the final payment due on December 31, 2004. Interest on the
unpaid principal balance on all loans payable quarterly in arrears at varying
interest rates at a base or LIBOR rate at the Company's election. On each
interest payment date which occurs prior to June 30, 1997, unless otherwise
paid by the Company, all accrued and payable interest on the outstanding
balance of the facility will be paid in kind by increasing the principal
balance under a portion of the financing agreement, provided that no default
or event of default has occurred and is continuing.
The Company, at its election, can prepay the outstanding amount of loans at
any time without penalty or premium.
The financing agreement is collateralized by a pledge of stock of OCI owned
by a wholly-owned subsidiary of the Company and by substantially all of OCI's
assets. Under the terms of the financing agreement, the Company is subject to
certain financial and operational covenants including restrictions on the
payment of dividends by OCI, restrictions on additional indebtedness and
financial maintenance obligations. Additionally, the financing agreement
provides that, among other things, the failure to pay when due amounts owed to
the FCC shall constitute an event of default. As of December 31, 1995 and June
30, 1996, OCI had an outstanding balance (principal and payment in kind
interest) of approximately $31.8 million and $84.5 million, respectively. Of
the outstanding balance at June 30, 1996, approximately $13.1 million is due
June 30, 1997, with the remaining balance due in consecutive installments
beginning March 31, 2000.
Credit Agreement
On November 21, 1995, the Company, through its subsidiary Omnipoint PCS
Entrepreneurs, Inc. ("OPCSE"), signed a credit agreement and a term note with
a bank in the original principal amount of $40.0 million. This note was used
to fund the deposit with the Federal Communications Commission in connection
with the C Block Auction.
Interest periods on the term note ranged from one to fourteen days with
interest rates set by the bank based on wholesale money market rates available
to the bank which at December 31, 1995 was 6.375%. The agreement and term note
was collateralized by all assets of OPCSE. Interest accrued as of December 31,
1995 was $58,172. The Company's outstanding balance at December 31, 1995 was
$36.5 million. Subsequent to year end, the Company repaid the outstanding
balance with the proceeds from the convertible subordinated and senior notes
and initial public offering proceeds.
F-15
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995
AND 1996 IS UNAUDITED)
Senior Notes
On November 22, 1995, the Company issued to two institutional investors both
warrants to purchase an aggregate of 625,000 shares of Common Stock at $.004
per share and two five year term Senior Notes in the aggregate principal
amount of $25.0 million. The Senior Notes contain sinking fund provisions
requiring the Company to redeem in the aggregate $5.0 million in principal
amount at the third and fourth anniversary dates of the date of issuance. The
Company is subject to certain restrictions and requirements regarding the
issuance of indebtedness senior or pari passu to the Senior Notes. Under the
terms of the notes the Company is subject to certain covenants which, among
other things, restrict the ability of the Company and certain of its
subsidiaries to incur additional indebtedness; pay dividends or make
distributions in respect of its capital stock or make certain restricted
payments; create liens; or merge or sell all or substantially all of its
assets. In the event that the employment of a senior officer of the Company is
terminated prior to June 30, 1998, the Company must either pay the Senior
Notes in full or pay a one time fee in an amount equal to 5% of the then
outstanding principal of the Senior Notes. The Company may prepay the Senior
Notes at any time. Interest is payable at 6% for the period November 22, 1995
to November 22, 1996, and thereafter is payable at 12% semiannually for the
period from November 22, 1996 to November 22, 2000. Interest accrued as of
December 31, 1995 and June 30, 1996 was $162,500 and $125,000, respectively.
Associated with the valuation of the warrants, the Company recorded a debt
discount and increase in additional paid-in capital of $8,747,500. The
discount will be amortized over the five-year life of the notes and resulted
in $232,739 and $1,066,962 of amortization included in interest expense as of
December 31, 1995 and June 30, 1996, respectively.
10% Convertible Subordinated Notes
On November 29, 1995, the Company issued Convertible Subordinated Notes in
the aggregate amount of $15.0 million, together with warrants to purchase
375,000 shares of Common Stock at an exercise price of $.004 per share. On
December 18, 1995, the Company issued Convertible Subordinated Notes in the
aggregate amount of $10.0 million, together with warrants to purchase 250,000
shares of Common Stock at an exercise price of $.004 per share. These notes
are together known as the "Convertible Subordinated Notes". The Convertible
Subordinated Notes have a stated interest rate of 10%, payable semiannually on
March 31 and September 30, commencing on March 31, 1996. Interest accrued as
of December 31, 1995 was $166,982. The Convertible Subordinated Notes were
converted upon the closing of the initial public offering into an aggregate of
1,562,500 shares of Common Stock at $16.00 per share. Associated with the
valuation of the warrants, the Company recorded a debt discount and an
increase in additional paid-in capital of $8,747,500.
The Company paid $1.0 million for investment banking services rendered in
connection with the issuance of the Senior Notes and $15.0 million of the
Convertible Subordinated Notes. The unamortized amounts are included in
deferred financing costs and other intangible assets.
Total interest expense associated with the notes payable and financing
agreements was $1,931,693 and $3,314,291 for the year ended December 31, 1995
and for the six months ended June 30, 1996, respectively.
8. NEW YORK MTA LICENSE OBLIGATION:
In December 1993, OCI was awarded a final Pioneer's Preference for a license
that required no payment from OCI. Subsequent legislation mandated a
methodology for charging for the New York MTA License. In accordance with
terms defined in that legislation, OCI is obligated to pay a license fee to
the FCC for the New York MTA License awarded in December 1994. The license fee
was derived from 85% of the average per population price (based on the 1990
population) paid by the winning MTA auction bidders of the top 23 MTAs
excluding the three MTA areas awarded by Pioneer's Preference. This derived
number of $13.158 is multiplied by the 1990 New York MTA population of
26,411,597 to arrive at the total obligation of $347.5 million.
F-16
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995
AND 1996 IS UNAUDITED)
Prior to December 31, 1995, the FCC had not implemented the exact terms for
principal and interest payments on the New York MTA License. The initial terms
generally allow for installment payments over the first five years of the New
York MTA License; with interest-only for at least the first two years. Since
payments did not begin until after the New York MTA License and Pioneer's
Preference orders were no longer subject to judicial review, the FCC had not
yet determined the interest rate to be charged, the timing and nature of the
installment payments and related issues. Therefore, OCI estimated and accrued
interest at the prime rate (8.5% at December 31, 1994 and 1995) from the date
the New York MTA License obligation was awarded, and had recorded as of
December 31, 1995 accrued interest on the New York MTA License of $33.5
million.
On March 8, 1996, the FCC adopted an Order which specifies the license
payment terms, such as the interest rate and timetable for payment of the
principal obligations for recipients of the Pioneer's Preference license. The
Order provides for the Pioneers to make their payments in installments over
five years. Based on this Order, the payments will be interest only for the
first two years and the unpaid principal balance and interest will be paid
over the remaining three years. The FCC adopted an interest rate of 7.75%.
Payments commence 30 days from the Order date or April 8, 1996, and thereafter
will be due on the last day of each financial quarter over the next five
years. The five year payment period will run and interest will accrue from the
adoption date of March 8, 1996.
Based on the Order, the Company has revised its estimate and accrual of
interest. Pursuant to Accounting Principles Board Opinion No. 20, "Accounting
Changes," this change in accounting estimate was recorded in the Company's
financial statements during December 1995, resulting in a decrease in 1995
interest expense of $33.5 million. Had this adjustment not been made, the
historical net loss and loss per common share for the year ended December 31,
1995 would have been $74.6 million and $2.37, respectively, after giving
effect to the dividends on Redeemable Convertible Preferred Stock.
In addition, the license is conditioned upon the full and timely performance
of payment obligations under the Company's installment plan. If the Company is
more than ninety days delinquent in any payment, it will be deemed to be in
default.
9. AGREEMENTS WITH NORTHERN TELECOM:
Northern Telecom and the Company have signed a series of OEM equipment and
supply agreements, as well as a vendor financing agreement (see Note 7).
Northern Telecom will make varying payments as it purchases core electronics
(primarily radio and digital cards for base stations) and software from the
Company. Northern Telecom made an initial $3.0 million license payment in 1994
(part of up to $12.0 million in license and OEM fees to be paid to the Company
under certain circumstances) and may make additional royalty payments based on
shipments of the Company's products. Northern Telecom will then sell
Omnipoint/Northern Telecom integrated systems to PCS operators, including the
Company. The Company's purchases to build out the New York network will be
financed by Northern Telecom under a financing agreement. The Company has
agreed to make certain product upgrades and warranties available to Northern
Telecom's customers. No equipment, hardware or software sales were made to
Northern Telecom under the OEM Agreement during 1994 or 1995.
During 1994, the Company entered into an agreement to purchase $100.0
million of equipment and services over the next five years with Northern
Telecom. Under the terms of the Supply Agreement, if the conditions of OCI's
purchase obligation are satisfied and OCI fails to purchase $100.0 million of
equipment and services, it may have to pay a penalty of 10% of the unsatisfied
portion of the $100.0 million which may be waived under certain conditions. On
July 21, 1995, the Company entered into an amendment to this supply agreement
to increase the purchase commitment from $100.0 million to $250.0 million. The
Company has purchased approximately $19.0 and $57.3 million under this
purchase commitment as of December 31, 1995 and June 30, 1996, respectively.
F-17
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995
AND 1996 IS UNAUDITED)
Manufacturing License Agreement
On February 28, 1995, the Company entered into an agreement (the
"Manufacturing License Agreement") with Northern Telecom in conjunction with
the OEM Supply Agreement. Under the terms of the Manufacturing License
Agreement, the Company will give Northern Telecom an option to receive the
non-exclusive worldwide right to use, modify, manufacture or have manufactured
all of the products supplied by the Company under the OEM Supply Agreement,
subject to certain terms and restrictions. This option can be exercised if:
(i) there is a breach of the OEM Supply Agreement by the Company, (ii) a
termination of supply of licensed product under the OEM Supply Agreement by
the Company, or (iii) mutual agreement to terminate the OEM Supply Agreement
by the Company and Northern Telecom. Additionally, if Northern Telecom meets
certain purchasing thresholds from the Company, Northern Telecom may also
elect to exercise this option. If the option is exercised under this
circumstance, Northern Telecom has agreed to pay the Company a one-time
license fee. In addition, in all cases, certain royalties on the products
licensed are to be paid. The Manufacturing License Agreement has an initial
five-year term unless terminated earlier in accordance with terms and
conditions specified in the agreement. The agreement may extend for additional
one-year terms.
Collaborative Development Agreement
On March 4, 1995, the Company entered into a five-year agreement (the
"Collaborative Development Agreement") with Northern Telecom to collaborate
with Northern Telecom on their mutual planning and development activities for
PCS products. Under the terms of the Collaborative Development Agreement,
Northern Telecom and the Company have agreed to commit resources to joint
projects. The Collaborative Development Agreement may be renewed for
successive one-year periods, and is subject to earlier termination by mutual
agreement of the parties or by either party upon written notice to the other
party thirty days prior to the end of the initial term or a renewal term.
10. COMMITMENTS AND CONTINGENCIES:
Commitments
The Company has entered into various leases for its office, facilities and
for equipment used in the development of its products. The leases are
typically three to five years in length and payable monthly. The Company also
has acquired the rights to approximately 4,500 sites in the New York MTA as
possible locations for cell sites. Future minimum rentals under these
noncancelable operating and capital leases as of December 31, 1995 are as
follows, in thousands:
<TABLE>
<CAPTION>
PERIOD OPERATING LEASES CAPITAL LEASES
<S> <C> <C>
1996........................................ $ 907 $ 210
1997........................................ 760 108
1998........................................ 277 13
1999........................................ 280 --
2000........................................ 217 --
------ -----
Total..................................... $2,441 331
======
Less amount representing interest........... 43
-----
Present value of minimum lease payments..... 288
Less current portion........................ 182
-----
Long-term portion of capital lease obliga-
tions...................................... $ 106
=====
</TABLE>
F-18
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995
AND 1996 IS UNAUDITED)
Total rental expense for the years ended December 31, 1993, 1994 and 1995
was $201,670, $398,978 and $957,167, respectively. Capital leases in the
amount of $551,139, $591,191, net of $116,068 and $234,867 accumulated
depreciation, respectively, are included in fixed assets at December 31, 1994
and 1995, respectively.
On December 12, 1995, the Company and Hansol Paper Co., Ltd. ("Hansol") and
its telecom affiliates entered into a strategic alliance for the promotion of
the Omnipoint System in the Republic of Korea and other parts of Asia, and the
grant of a license to Hansol to manufacture Omnipoint System handsets. The
agreement provides that Omnipoint will enter into a purchase order, subject to
certain preconditions, including competitive pricing, to acquire from Hansol
handsets for sale to subscribers in areas covered by licenses, if any,
purchased by the Company in the Entrepreneurs' Band auction.
Litigation
The Company is not currently aware of any pending or threatened litigation
that could have a material adverse effect on the Company's financial
condition, results of operations or cash flows.
11. STOCK OPTIONS AND WARRANTS:
During 1991, the Company granted a warrant to purchase 915,000 shares of
Common Stock at an exercise price of $0.008 per share, a price below market
value, exercisable for a period of 10 years in exchange for investment banking
services over five years. In connection with the warrants, the Company
recorded a charge to operations and an increase to paid-in-capital of $0.8
million in 1991. The Company also issued a warrant to purchase 750,000 shares
of Common Stock originally exercisable for a period of five years from the
date of issuance. The warrants are exercisable for a price of $1.00 per share
for the first 250,000 shares exercised, $1.10 per share for the next 250,000
shares exercised and $1.20 per share for the remaining 250,000 shares
exercised. Subsequent to December 31, 1994, the Company and the warrant holder
agreed that the warrant holder could loan to the Company an amount equal to
the aggregate exercise price of the warrant on or before the original
expiration date. In such event the expiration date of the warrant would be
extended for an additional five years.
In connection with the Senior Notes and Convertible Subordinated Notes
issued in 1995, the Company granted to the holders of the notes warrants to
purchase 1,250,000 shares of Common Stock at an exercise price of $.004 per
share, a price below market value, exercisable for a period of five years from
the date of issuance. In connection with the warrants, the Company recorded a
discount on the notes and an increase to paid-in capital of $17.5 million.
The 1990 stock option plan authorizes the grant of options exercisable for a
maximum of 6,250,000 shares of Common Stock to key employees, consultants,
officers and directors of the Company. Options under the plan expire 10 years
from the date of the grant for incentive stock options and 10 years plus 30
days for nonstatutory options. Prior to the approval of the 1990 stock option
plan, the Company granted a total of 890,000 nonstatutory stock options at an
exercise price below the fair value of the stock. The Company recorded $91,024
of compensation expense in 1993, associated with these options. During 1995,
the Company granted 5,044 additional stock options at an exercise price below
the fair value of the stock. The Company recorded $24,255 of compensation
expense during 1995 associated with these options.
In June 1994, an unrelated party acquired 1,125,000 shares of Common Stock
of the Company in exchange for an option held by such unrelated party an
option to purchase a 9.85% interest in OCI. The estimated fair value of the
Common Stock of $4.5 million at the time of the exercise of the option has
been recorded as an
F-19
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995
AND 1996 IS UNAUDITED)
additional investment in the subsidiary, with a corresponding intangible
asset. Also in June 1994, an unrelated party exercised its option to purchase
549 shares (4.42%) of Omnipoint's stock in OCI for $3.2 million resulting in a
gain of the same amount. The Company issued the options in 1992 to other
Pioneer's Preference applicants, who were ultimately unsuccessful in obtaining
a preference award.
Information regarding the Company's stock option plans and warrants are
summarized below:
<TABLE>
<CAPTION>
INCENTIVE STOCK NONSTATUTORY STOCK
OPTION PLAN OPTION PLAN WARRANTS
----------------------- ------------------------ -----------------------
NUMBER OF PRICE NUMBER OF PRICE NUMBER OF PRICE
SHARES PER SHARE SHARES PER SHARE SHARES PER SHARE
<S> <C> <C> <C> <C> <C> <C>
Outstanding at December
31, 1992............... 462,483 $0.44-$0.90 2,407,741 $0.008-$0.90 1,665,000 $0.008-$1.20
-------- ------------ --------- ------------- --------- ------------
Granted during 1993..... 107,633 4.00 55,000 4.00 972,223 7.20
Expired during 1993..... (29,430) 0.90 (17,778) 0.90 (972,223) 7.20
Exercised during 1993... (13,343) 0.90 -- -- -- --
-------- ------------ --------- ------------- --------- ------------
Outstanding at December
31, 1993............... 527,343 0.44-4.00 2,444,963 0.008-4.00 1,665,000 0.008-1.20
-------- ------------ --------- ------------- --------- ------------
Exercisable at December
31, 1993............... 272,650 0.44-0.90 2,165,888 0.008-0.90 1,665,000 0.008-1.20
-------- ------------ --------- ------------- --------- ------------
Granted during 1994..... 243,458 10.00 86,668 10.00 -- --
Expired during 1994..... (285) 0.90 (1,110) 0.90 -- --
Exercised during 1994... (16,828) 0.44-0.90 (40,733) 0.008-0.90 -- --
-------- ------------ --------- ------------- --------- ------------
Outstanding at December
31, 1994............... 753,688 0.44-10.00 2,489,788 0.008-10.00 1,665,000 0.008-1.20
-------- ------------ --------- ------------- --------- ------------
Exercisable at December
31, 1994............... 377,815 0.44-4.00 2,304,198 0.008-4.00 1,665,000 0.008-1.20
-------- ------------ --------- ------------- --------- ------------
Granted during 1995..... 402,834 6.00-14.00 1,149,636 0.004-24.00 1,479,168 0.004-6.00
Expired during 1995..... (104,033) 0.90-10.00 -- -- -- --
Exercised during 1995... (83,992) 0.90-4.00 -- -- -- --
-------- ------------ --------- ------------- --------- ------------
Outstanding at December
31, 1995............... 968,497 0.90-14.00 3,639,424 0.004-24.00 3,144,168 0.004-6.00
-------- ------------ --------- ------------- --------- ------------
Exercisable at December
31, 1995............... 390,491 0.44-14.00 2,423,133 0.004-24.00 3,144,168 0.004-6.00
-------- ------------ --------- ------------- --------- ------------
Granted during 1996..... 200,927 14.00-32.00 59,395 6.00-16.00 -- --
Expired during 1996..... (4,419) 6.00-25.00 -- -- -- --
Exercised during 1996... (312,087) 0.44-10.00 (297,840) 0.004-4.00 (312,500) 0.004
-------- ------------ --------- ------------- --------- ------------
Outstanding at June 30,
1996................... 852,918 $0.44-$32.00 3,387,104 $0.004-$24.00 2,831,668 $0.004-$6.00
======== ============ ========= ============= ========= ============
Exercisable at June 30,
1996................... 131,965 $0.44-$32.00 2,148,760 $0.004-$24.00 2,831,668 $0.004-$6.00
</TABLE>
At December 31, 1995, 7,140,000 shares of Common Stock are reserved for the
exercise of stock options, and 3,144,168 shares are reserved for the exercise
of warrants.
In July 1995, the Board of Directors repriced the stock options granted at
$10.00 per share to $6.00 per share to reflect the adjusted fair market value
of the Common Stock.
12. INCOME TAXES:
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $64.2 million to be used to offset future taxable income; these
carryforwards expire during the years through 2010, subject to certain
limitations. Under the Tax Reform Act of 1986, the amount of and benefits from
net operating losses that can be carried forward may be impaired or limited in
certain circumstances. Due to the losses, the Company has not recorded income
tax expense.
F-20
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995
AND 1996 IS UNAUDITED)
Deferred tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Inventory............................................. $ 112 $ 244
Compensation related.................................. -- 361
Deferred revenue...................................... -- 1,720
Other................................................. -- 144
Net operating loss carryforwards...................... 7,585 25,680
Valuation allowance................................... (7,056) (21,611)
Deferred tax liabilities:
FCC License........................................... (601) (6,393)
Fixed assets.......................................... (40) (145)
------- --------
Net deferred tax assets............................... $ -- $ --
======= ========
</TABLE>
Due to the uncertainty surrounding the realization of the favorable tax
attributes on future tax returns, the Company has placed a valuation allowance
against its otherwise recognizable net deferred tax assets.
13. MAJOR CUSTOMERS:
In 1993, three customers each accounted for approximately 53%, 19% and 18%
of total revenues. In fiscal year 1994, one customer accounted for 100% of
total revenues. The customers included in these percentages vary from period
to period.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107, "Disclosure About Fair Value of
Financial Instruments." The estimated fair value amounts have been determined
by the Company, using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting
market data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that the
Company could realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a material effect
on the estimated fair value amounts.
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1995
-------------------- --------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Credit Agreement..................... $ -- $ -- $ 36,500 $ 36,500
Convertible Subordinated Notes....... -- -- 16,250 25,000
Loan payable under financing
agreement........................... -- -- 19,479 19,479
Senior Notes......................... -- -- 16,485 25,000
New York MTA License Obligation...... 347,518 347,518 347,518 347,518
</TABLE>
Cash and Cash Equivalents, Prepaid Expenses and Other Assets, Accounts
Payable and Accrued Expenses
The carrying amounts of these items are a reasonable estimate of their fair
value.
Long-Term and Short-Term Debt
The fair value of these securities are estimated based on recent
transactions. The value of these transactions are based on interest rates that
are available to the Company for issuance of debt with similar terms and
maturities because there are no public market quotes available for these
securities.
F-21
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995
AND 1996 IS UNAUDITED)
New York MTA License Obligation
The fair value of this obligation on the prevailing terms the United States
Government offers other Pioneer Preference license holders. The terms and
conditions for this obligation are set by the FCC based on authority granted
by the Congress of the United States of America.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1994 and December 31, 1995.
Although management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since
those dates, and current estimates of fair value may differ significantly from
the amounts presented herein.
15. SUPPLEMENTAL CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER SIX MONTHS
31, ENDED JUNE 30,
--------------------- ---------------
1993 1994 1995 1995 1996
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Non cash investing and financing
activities:
Liability incurred for acquisition of
the license........................... $-- $347,518 $ -- $ -- $ --
Capital lease obligations incurred and
notes payable issued in exchange for
fixed assets.......................... 278 233 88 -- --
Common Stock issued upon conversion of
subordinated note..................... -- 3,217 -- -- 16,250
Common Stock issued in exchange for an
option held by a third-party to
purchase shares of subsidiary......... -- 4,500 -- -- --
Common Stock issued in exchange for
employee notes receivable............. -- 250 825 75 --
Issuance of Series B preferred stock in
payment of Series B dividend.......... -- -- 1,517 1,517 576
Issuance of Series C preferred stock in
exchange for amounts due under line of
credit................................ -- -- 10,000 10,000 --
Dividends accrued on Series B and
Series C preferred stock.............. -- -- 1,839 231 --
Proceeds from financing agreement used
to pay origination fee................ -- -- 7,500 -- --
Common Stock issued in exchange for
services.............................. -- -- 59 -- --
Fixed assets and capitalized interest
funded by the financing agreement..... -- -- 13,312 -- 37,636
Advance payment of pilot system
equipment financed through financing
agreement............................. -- -- 4,840 -- --
Pilot system equipment funded by
financing agreement................... -- -- 1,053 -- 1,321
Issuance of options as form of advanced
compensation.......................... -- -- 112 -- 982
Conversion of preferred stock in
connection with offering.............. -- -- -- -- 44,703
</TABLE>
F-22
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND
1996 IS UNAUDITED)
16. INDUSTRY SEGMENT INFORMATION, IN THOUSANDS:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
-----------------------------------
EQUIPMENT SERVICE
DIVISION DIVISION TOTAL
<S> <C> <C> <C>
Revenues................................... $ -- $ -- $ --
Income (loss) from operations.............. (15,166) (14,886) (30,052)
Identifiable assets........................ 181,294 386,463 567,757
Depreciation and amortization.............. 1,054 5,541 6,595
Interest income (expense), net............. 869 (8,230) (7,361)
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------
EQUIPMENT SERVICE
DIVISION DIVISION TOTAL
<S> <C> <C> <C>
Revenues................................... $ -- $ -- $ --
Income (loss) from operations.............. (23,839) (14,163) (38,002)
Identifiable assets........................ 108,684 366,306 474,990
Depreciation and amortization.............. 1,900 9,138 11,038
Interest income (expense), net............. 57 175 232
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
-----------------------------------
EQUIPMENT SERVICE
DIVISION DIVISION TOTAL
<S> <C> <C> <C>
Revenues................................... $ 3,000 $ -- $ 3,000
Income (loss) from operations.............. 3,217 (14,650) (11,433)
Identifiable assets........................ 13,810 347,136 360,946
Depreciation and amortization.............. 688 437 1,125
Interest income (expense), net............. 301 (1,457) (1,156)
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
-----------------------------------
EQUIPMENT SERVICE
DIVISION DIVISION TOTAL
<S> <C> <C> <C>
Revenues................................... $ 1,618 $ -- $ 1,618
Income (loss) from operations.............. 3,589 (9,784) (6,195)
Identifiable assets........................ 14,465 -- 14,465
Depreciation and amortization.............. 246 -- 246
Interest income (expense), net............. (32) -- (32)
</TABLE>
F-23
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND
1996 IS UNAUDITED)
17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
The following table provides quarterly data for the fiscal years ended
December 31, 1995 and 1994.
<TABLE>
<CAPTION>
1995
--------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues.......................... $ -- $ -- $ -- $ --
Operating expenses:
Research and development........ 2,317 2,860 3,643 5,525
Sales, general, and
administrative................. 1,785 2,639 3,649 4,546
Depreciation and amortization... 2,690 2,690 2,907 2,751
-------- -------- -------- --------
Total operating expenses...... 6,792 8,189 10,199 12,822
-------- -------- -------- --------
Loss from operations............ (6,792) (8,189) (10,199) (12,822)
Other income (expense):
Interest income................. 50 102 400 197
Interest expense (Note 8)....... (7,982) (8,352) (8,270) 24,087
-------- -------- -------- --------
Net income (loss)............. $(14,724) $(16,439) $(18,069) $ 11,462
======== ======== ======== ========
Net income (loss) per common
share........................ $(0.47) $(0.52) $(0.58) $0.36
======== ======== ======== ========
Weighted average number of common
shares outstanding............... 31,345 31,870 31,397 31,529
<CAPTION>
1994
--------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues.......................... $ -- $ -- $ 3,000 $ --
Operating expenses:
Research and development........ 1,102 1,575 1,952 2,389
Sales, general, and
administrative................. 990 1,298 1,715 2,287
Depreciation and amortization... 94 115 182 734
-------- -------- -------- --------
Total operating expenses...... 2,186 2,988 3,849 5,410
-------- -------- -------- --------
Loss from operations............ (2,186) (2,988) (849) (5,410)
Other income (expense):
Interest income................. 94 84 95 90
Interest expense................ (25) (11) (11) (1,472)
Miscellaneous income............ -- 65 -- --
Gain on sale of subsidiary
stock.......................... -- 3,194 -- --
-------- -------- -------- --------
Net income (loss)............. $ (2,117) $ 344 $ (765) $ (6,792)
======== ======== ======== ========
Net income (loss) per common
share........................ $(0.07) $0.01 $(0.02) $(0.22)
======== ======== ======== ========
Weighted average number of common
shares outstanding............... 29,969 30,488 31,266 31,274
</TABLE>
F-24
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995
AND 1996 IS UNAUDITED)
18. SUBSEQUENT EVENTS (UNAUDITED):
ERICSSON AGREEMENTS
On April 16, 1996, Ericsson, Inc. ("Ericsson") and the Company entered into
definitive agreements governing (i) the licensing and supply arrangement
related to the Omnipoint System, (ii) the purchase by OCI or other Omnipoint
affiliates of GSM handsets, (iii) the sale by Ericsson of IS-661 and GSM
infrastructure equipment, and (iv) cooperation on marketing, standards and
technical activities.
Under the terms of the licensing and supply agreements, Ericsson will pay
license fees and royalties, including an initial $4.5 million license fee.
In addition, under the agreement for the sale of Ericsson infrastructure
equipment, the Company and its affiliates will purchase $250.0 million of a
mix of IS-661 and PCS 1900 infrastructure equipment. Under the handset
agreement, the Company will purchase GSM handsets. These commitments are to be
fulfilled within five years of the date upon which the definitive agreement
was executed.
In April 1996, the Company entered into a non-binding memorandum of
understanding with Orbitel Mobile Communications Ltd., ("Orbitel"), a wholly-
owned subsidiary of Ericsson, which contemplates agreements pursuant to which
Orbitel will develop, manufacture and supply to the Company IS-661 and dual
mode IS-661/PCS 1900 handsets in a mutually agreeable timetable upon OCI
agreeing to a minimum purchase commitment to be determined when the parties
have ascertained the resources necessary for the development and manufacture
of such handsets.
The Company has a credit facility with Ericsson to provide financing to the
Company for up to $132.0 million for the purposes of financing the purchase of
equipment and services from Ericsson for the New York MTA market. A portion of
the Ericsson Credit Facility, which may be used for interest payments accruing
under such facility, matures on June 30, 1998. The principal amount on other
portions of the facility are payable in twenty consecutive quarterly
installments beginning in 2000, with the final payment due on December 31,
2004. Amounts borrowed and repaid are not available for reborrowing. Interest
on the Ericsson Credit Facility is payable quarterly at varying interest rates
at a base or LIBOR rate at the Company's election.
Under the terms of the Ericsson Credit Facility, OCI is subject to certain
financial and operational covenants including restrictions on OCI's ability to
pay dividends, restrictions on indebtedness and certain financial maintenance
requirements. Additionally, the Ericsson Credit Facility provides that, among
other events, the failure of OCI to pay when due amounts owing the FCC shall
constitute an event of default.
The Ericsson Credit Facility is secured by substantially all of the assets
of OCI, including a pledge of all capital stock of OCI owned by a wholly-owned
subsidiary of the Company (which constitutes a 95.58% ownership interest). All
collateral is held by a collateral agent and is shared on a pari passu basis
with Northern Telecom.
F-25
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995
AND 1996 IS UNAUDITED)
ENTREPRENEURS' BAND AUCTION
The Company bid successfully for Entrepreneurs' Band licenses with an
aggregate license fee of approximately $509.1 million (net of the 25% small
business discount). On September 17, 1996, the FCC granted the Company's 18
Entrepreneurs' Band C Block PCS licenses. The Company has made a 10% down
payment, or approximately $51.0 million, to the FCC for these licenses. The
Company will pay interest only until 2003 and will pay the balance of $458.2
million and remaining interest in the period 2003 to 2006. This obligation
will bear interest until paid at the 10-year Treasury note rate to be
specified by the FCC. The Entrepreneurs' Band BTA licenses and any other
licenses the Company purchases in the future will be accounted for in
accordance with the recently agreed upon industry practices. Accordingly,
interest incurred for such licenses will be capitalized during the buildout
phase and amortization of such license costs will begin with the commencement
of service to customers.
EQUITY OFFERING
On July 3, 1996, the Company completed a public offering of 4,500,000
primary shares of common stock. Net proceeds to the Company totaled
approximately $110.8 million after underwriters' commissions and associated
offering costs. The net proceeds are expected to be used principally for the
second required principal payment and subsequent interest payments for the
Entrepreneurs' Band licenses, for working capital and capital expenditures
related to the Entrepreneurs' Band networks and for the New York MTA
operations.
D, E AND F BLOCK AUCTION
In August 1996, the Company made a $60.0 million deposit with the FCC to
participate in the D, E and F Block auction. The deposit qualifies the Company
to participate in the D, E and F Block auction and will be used to satisfy any
commitments arising from the Company's successful bidding in the D, E and F
Block auction. Winning bidders for the D and E Block licenses must submit
sufficient funds to bring the total amount of money on deposit with the FCC to
20% of their net winning bids within five business days of the auction closing
notice and pay the remaining 80% within five business days of the license
grant. F Block winning bidders will receive 15% or 25% bidding credit if their
annual gross revenues averaged over the preceding three calendar years is less
than $40.0 million or $15.0 million, respectively. Within five business days
after release of the D, E and F Block auction closing notices, F Block winning
bidders must submit sufficient funds to bring the total amount of money on
deposit with the FCC to 10% of their net winning bids. Within five business
days of the license grant, F Block winners must bring the total amount on
deposit with the FCC up to 20% of their net winning bids, and may execute a
10-year promissory note for the balance.
SENIOR NOTES
On August 22, 1996, the Company received net proceeds of approximately
$241.1 million from the private placement of $250 million aggregate principal
amount of 11 5/8% Senior Notes Due 2006. The Company has deposited in the
Escrow Account approximately $53.3 million of the net proceeds realized from
the sale of such Notes (which amount, together with the proceeds from the
investment thereto, will be sufficient to pay two years' interest on the
Notes).
LINE OF CREDIT
In August 1996, the Company, through its subsidiary, Omnipoint PCS
Entrepreneurs Two, Inc. ("OPCSE Two"), entered into a credit facility with a
bank. The agreement provides for up to $100.0 million in revolving
F-26
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1995
AND 1996 IS UNAUDITED)
credit for general working capital purposes with a draw down termination date
and final repayment date of May 8, 1997. The initial funding took place on
August 12, 1996, at which time the Company drew down $60.0 million (which
amount was repaid on August 13, 1996). Subsequent to the initial drawing, the
committed amount of the credit facility may not exceed the initial drawing and
is subject to mandatory reduction under the terms of the credit agreement.
Under the terms of the agreement, the Company paid a portion of the upfront
fee and will pay additional fees based in part on amounts outstanding from
time to time. Interest periods range from one to fourteen days, with interest
rates set by the bank based on wholesale money market rates available to the
bank. The facility is secured by all assets of OPCSE Two and a pledge of all
capital stock of OPCSE Two owned by a wholly-owned subsidiary of the Company.
The Company has also guaranteed the payment and performance of OPCSE Two's
obligations.
F-27
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law ("Section 145") permits
indemnification of directors, officers, agents and controlling persons of a
corporation under certain conditions and subject to certain limitations. The
Registrant's Bylaws include provisions to require the Registrant to indemnify
its directors and officers to the fullest extent permitted by Section 145,
including circumstances in which indemnification is otherwise discretionary.
Section 145 also empowers the Registrant to purchase and maintain insurance
that protects its officers, directors, employees and agents against any
liabilities incurred in connection with their service in such positions.
At present, there is no pending litigation or proceeding involving a
director or officer of the Registrant as to which indemnification is being
sought nor is the Registrant aware of any threatened litigation that may
result in claims for indemnification by any officer or director.
21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<C> <S>
3.1* Amended and Restated Certificate of Incorporation of the Registrant.
3.2@ Amended and Restated Bylaws of the Registrant.
4.1 Specimen certificate for the new 11 5/8% Senior Note due 2006 of the
Registrant.
4.2*** Indenture by and between the Registrant and Marine Midland Bank, as
trustee, dated August 27, 1996.
5.1 Opinion of Piper & Marbury L.L.P. regarding legality of securities
being registered.
10.1@ Registrant's Amended and Restated 1990 Stock Option Plan.
10.2@ Form of Incentive Stock Option Agreement under Registrant's 1990
Stock Option Plan.
10.3@ Form of Stock Option Agreement under Registrant's 1990 Stock Option
Plan for non-qualified options.
10.4@ Form of Stock Option Agreement outside scope of Registrant's 1990
Stock Option Plan for non-qualified options.
10.5@ Warrant Certificate, dated August 2, 1991, by and between the
Registrant and Allen
& Company Incorporated.
10.6@ Warrant Certificate, dated August 2, 1991, by and between the
Registrant and Allen
& Company Incorporated.
10.7@ Letter agreement, dated June 29, 1995, by and between the Registrant
and Allen
& Company Incorporated (relating to Exhibit 10.6).
10.8@ Common Stock Purchase Warrant issued March 10, 1995, granted to
Madison Dearborn Capital Partners, L.P.
10.9@ Common Stock Purchase Warrant issued March 10, 1995, granted to
Madison Dearborn Capital Partners, L.P.
10.10@ Proprietary Information, Development and Non-Compete Agreement,
dated December 6, 1990, by and between the Registrant and Douglas
G. Smith.
10.11@ Employment Agreement, effective October 1, 1995, by and between the
Registrant, Omnipoint Communications Inc. and George F. Schmitt.
10.12@ Promissory Note, dated October 1, 1995, by George F. Schmitt.
10.13@ Stock Restriction Agreement, dated October 1, 1995, by and between
the Registrant and George F. Schmitt.
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
10.14@ Employment Agreement, dated April 17, 1995, by and between the
Registrant and Bradley E. Sparks.
10.15@ Promissory Note, dated April 17, 1995, by Bradley E. Sparks.
10.16@ Stock Restriction Agreement, dated April 17, 1995, by and between the
Registrant and Bradley E. Sparks.
10.17@ Employment Agreement, dated December 5, 1994, by and between the
Registrant and Randall Meals.
10.18@ Promissory Note, dated December 5, 1994, by Randall Meals.
10.19@ Promissory Note, dated September 19, 1995, by Randall Meals.
10.20@ Stock Restriction Agreement, dated December 5, 1995, by and between
the Registrant and Randall Meals.
10.21@ Employment Agreement, dated June 21, 1994, by and between Omnipoint
Communications Inc. and Harry Plonskier.
10.22@ Stock Restriction Agreement, dated July 5, 1994, by and between the
Registrant and Harry Plonskier.
10.23@ Employment Agreement, dated June 16, 1991, by and between the
Registrant and Evelyn Goldfine.
10.24@ Employment Agreement, dated April 15, 1994, by and between the
Registrant and Robert Dixon.
10.25 [Intentionally left blank]
10.26@ Form of Employment Agreement by and between the Registrant and its
employees.
10.27@ Form of Non-Disclosure Agreement.
10.28@ Form of Stock Restriction Agreement by and between the Registrant and
certain stockholders.
10.29@ Series A Convertible Preferred Stock Purchase Agreement, dated August
2, 1991, by and between the Registrant and Allen & Company
Incorporated.
10.30@ Series B Convertible Preferred Stock Purchase Agreement, dated August
9, 1993, by and among the Registrant and Madison Dearborn Capital
Partners, L.P.
10.31@ Amendment No. 1 to Series B Convertible Preferred Stock Purchase
Agreement, dated June 29, 1995, by and between the Registrant and
Madison Dearborn Capital Partners, L.P.
10.32@ Series C Convertible Preferred Stock Purchase Agreement, dated June
29, 1995, by and among the Registrant and the other parties named
therein.
10.33@ Stock Purchase Agreement, dated January 29, 1994, by and between the
Registrant and Ameritech Development Corporation.
10.34@ Stock Purchase Agreement, dated June 29, 1994, by and between the
Registrant and Associated PCN Company.
10.35@ Common Stock Purchase Agreement, dated June 1, 1994, by and between
the Registrant and the parties named therein.
10.36@ Amended and Restated Registration Rights Agreement, dated June 29,
1995, by and among the Registrant and the parties named therein.
10.37@ First Amended and Restated Voting Agreement, dated June 29, 1995, by
and among the Registrant and the other parties named therein.
10.38@ OEM Supply Agreement for Omnipoint PCS (Personal Communication
Systems) Products, dated September 22, 1994, by and between the
Registrant and Northern Telecom Inc.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.39@ Letter agreement dated December 9, 1994, by and between the
Registrant and Northern Telecom Inc. (relating to Exhibit 10.38).
10.40@ Manufacturing License and Escrow Agreement for Personal
Communication Service Products, dated February 28, 1995, by and
between the Registrant and Northern
Telecom Inc.
10.41@ Collaborative Development Agreement, dated March 1, 1995, by and
between the Registrant and Northern Telecom Inc.
10.42@ Reciprocal OEM Agreement Memorandum of Understanding, dated March
30, 1995, by and between the Registrant and Northern Telecom Inc.
10.43@ Supply Agreement, dated September 22, 1994, by and between Omnipoint
Communications Inc. and Northern Telecom Inc.
10.44@ Amendment No. 1 to Supply Agreement, dated July 21, 1995, by and
between Omnipoint Communications Inc. and Northern Telecom Inc.
10.45@ Loan Agreement, dated as of July 21, 1995, by and between Omnipoint
Communications Inc. and Northern Telecom Inc.
10.46 [Intentionally left blank]
10.47@ Engineering Services Agreement, dated as of August 31, 1995, by and
between the Registrant and JRC International Inc.
10.48@ Memorandum of Understanding, dated April 21, 1995, by and between
the Registrant and Pacific Bell Mobile Services.
10.49@ Office Sublease Agreement by and between the Registrant and United
Technologies Microelectronics Center, Inc., commencing August 1,
1994 or upon earlier occupation by the Registrant.
10.50@ Amendment to Office Sublease Agreement, signed August 17, 1994, by
and between the Registrant and United Technologies Microelectronics
Center, Inc.
10.51@ Office Building Lease for Courthouse Plaza Office Building, dated
January 18, 1994, by and between the Registrant and Eastrich No.
130 Corporation.
10.52@ First Lease Amendment, dated January 20, 1995, by and between the
Registrant and Eastrich No. 130 Corporation.
10.53@ Pioneer's Preference License granted by the FCC to Omnipoint
Communications Inc. on December 14, 1994.
10.54@ Note and Warrant Purchase Agreement dated November 22, 1995, between
the Registrant and the purchasers named therein.
10.55@ Senior Note Due 2000 issued by the Registrant on November 22, 1995
to the holder identified therein.
10.56@ Senior Note Due 2000 issued by the Registrant on November 22, 1995
to the holder identified therein.
10.57@ Common Stock Warrant issued by the Registrant on November 22, 1995
to the holder identified therein.
10.58@ Common Stock Warrant issued by the Registrant on November 22, 1995
to the holder identified therein.
10.59@+ Credit Agreement, dated as of November 21, 1995, by and among OPCS
Corp., Omnipoint PCS Entrepreneurs, Inc. and Bank of America
National Trust and Savings Association.
10.60@+ Memorandum of Understanding, dated November 22, 1995, by and between
the Registrant and Ericsson Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S> <C>
10.61@ Letter Agreement, dated January 24, 1996, by and between the
Registrant and between Ericsson Inc.
10.62@ Convertible Subordinated Note and Warrant Purchase
Agreement, dated December 12, 1995, by and between the
Registrant and Hansol Paper Co., Ltd.
10.63@ Convertible Subordinated Note and Warrant Purchase
Agreement, dated as of November 29, 1995, by and among the
Registrant and the entities identified therein.
10.64@ Letter of Intent, dated October 26, 1995, by and between the
Registrant and BellSouth Personal Communications, Inc.
10.65@ Waiver of Registration Rights and Confirmation of 180-Day
Lockup, dated as of October 31, 1995, by and between the
Registrant and Ameritech Development Corporation.
10.66@ Registration Rights Agreement dated as of April 26, 1994, by
and among the Registrant and the parties thereto.
10.67@ Contract for Sale of Real Estate, dated August 30, 1995, by
and between F&R Bari Realty, Ltd., Inc. and Omnipoint
Communications Inc.
10.68@ Lease Agreement, dated October 15, 1995, by and between the
Registrant and Baetis Properties, Inc.
10.69**++ Acquisition Agreement for Ericsson CMS 40 Personal
Communications Systems (PCS) Infrastructure Equipment,
dated as of April 16, 1996, by and between Ericsson Inc.
and Omnipoint Communications.
10.70**++ Acquisition Supply and License Agreement for Omnipoint
Personal Communications Systems (PCS) Infrastructure
Equipment, dated as of April 16, 1996, by and between
Ericsson Inc. and the Registrant.
10.71**++ Agreement for Purchase and Sale of Ericsson Inc. Masko
Terminal Units, dated as of April 16, 1996, by and between
Ericsson, Inc. and Omnipoint Communications, Inc.
10.72**++ Memorandum of Understanding, dated April 2, 1996, by and
between Orbitel Mobile Communications Inc. and the
Registrant
10.73@@ Letter of Intent, dated November 20, 1995, by and between
the Registrant and Western Wireless Corporation
10.74@@ Letter of Intent, dated February 26, 1996, by and between
Omnipoint Communications Inc. and American Portable
Telecom, Inc.
10.75@@ Letter of Intent, dated March 22, 1996, by and between
Omnipoint Communications Inc. and American Personal
Communications.
10.76@@ Letter of Intent, dated May 13, 1996, by and between the
Registrant and InterCel, Inc.
10.77@@ License Agreement, dated March 22, 1996, by and between the
Registrant and Bender & Company, Inc.
10.78@@ Second License Agreement, dated April 17, 1996, by and
between Registrant and Bender & Company, Inc.
10.79@@ Lease Agreement, dated March 1, 1996, by and between Omniset
Corporation and Roots Stone Limited Partnership.
10.80*** Escrow Agreement by and among the Registrant, the Chase
Manhattan Bank and Marine Midland Bank, dated August 27,
1996.
13.1# Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.
13.2## Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1996.
13.3### Amended Quarterly Report on Form 10-Q/A for the fiscal
quarter ended March 31, 1996.
13.4#### Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 1996.
22.1@ Subsidiaries of the Registrant.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Piper & Marbury L.L.P. (to be included as part of
Exhibit 5.1 hereto).
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
24.1 Power of Attorney (included in signature pages).
25.1 Statement of Eligibility and Qualification on Form T-1 of Marine
Midland Bank, as Trustee, dated September 11, 1996.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and Other Nominees.
99.4 Form of Letter to Clients.
</TABLE>
- ---------------------
@ Incorporated herein by reference to the Company's Registration Statement
on Form S-1, No. 33-98360.
@@ Incorporated herein by reference to the Company's Registration Statement
on Form S-1, No. 33-03739.
* Incorporated herein by reference to Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995.
** Incorporated by reference from the Company's Current Report on Form 8-K,
filed May 3, 1996.
*** Incorporated by reference from the Company's Current Report on Form 8-K,
filed September 10, 1996.
# Incorporated by reference from the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995.
## Incorporated by reference from the Company's Quarterly Report on Form 10-
Q for the fiscal quarter ended March 31, 1996.
### Incorporated by reference from the Company's Amended Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 1996.
#### Incorporated by reference from the Company's Quarterly Report on Form 10-
Q for the fiscal quarterly ended June 30, 1996.
+ Portions of this Exhibit were omitted and have been filed separately with
the Secretary of the Commission pursuant to the Registrant's Application
Requesting Confidential Treatment under Rule 406 of the Act, which
application was granted by the Commission.
++ Portions of this Exhibit were omitted and filed separately with the
Secretary of the Commission pursuant to the Registrant's Application
Requesting Confidential Treatment under Rule 24b-2 under the Exchange Act
of 1934, filed May 3,1996.
22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware General Corporate Law, the Certificate of
Incorporation and the Bylaws, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore unenforceable. In the event that a claim for indemnification is
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
this Registration Statement when it became effective.
For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be a part of this Registration
Statement as of the time it was declared effective.
For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
COMPANY HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF ARLINGTON,
COUNTY OF ARLINGTON, COMMONWEALTH OF VIRGINIA, ON THE DAY OF SEPTEMBER,
1996.
OMNIPOINT CORPORATION
By: _________________________________
DOUGLAS G. SMITH PRESIDENT AND
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED.
Each person whose signature appears below in so signing also makes,
constitutes and appoints Douglas G. Smith and Edwin M. Martin, Jr. and each of
them acting alone, his true and lawful attorney-in-fact, with full power of
substitution, for him in any and all capacities, to execute and cause to be
filed with the Securities and Exchange Commission any and all amendments and
post-effective amendments to this Registration Statement, with exhibits
thereto and other documents in connection therewith, and hereby ratifies and
confirms all that said attorney-in-fact or his substitute or substitutes may
do or cause to be done by virtue hereof.
SIGNATURE TITLE DATE
President, Chief , 1996
- ------------------------------------- Executive Officer
DOUGLAS G. SMITH Chairman of the
Board and Director
Executive Vice , 1996
- ------------------------------------- President and
GEORGE F. SCHMITT Director; President
of Omnipoint
Communication, Inc.
Chief Financial , 1996
- ------------------------------------- Officer
BRADLEY E. SPARKS
Director and Vice , 1996
- ------------------------------------- Chairman of the
JAMES J. ROSS Board
II-6
<PAGE>
SIGNATURE TITLE DATE
Director , 1996
- -------------------------------------
EVELYN GOLDFINE
Director , 1996
- -------------------------------------
RICHARD L. FIELDS
Director , 1996
- -------------------------------------
PAUL J. FINNEGAN
Director , 1996
- -------------------------------------
JAMES N. PERRY, JR.
Name Director , 1996
- -------------------------------------
ARJUN GUPTA
By: _________________________________
EDWIN M. MARTIN, JR. ATTORNEY-IN-
FACT
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
<C> <S> <C>
3.1* Amended and Restated Certificate of Incorporation of the
Registrant.
3.2@ Amended and Restated Bylaws of the Registrant.
4.1 Specimen certificate for the new 11 5/8% Senior Note due
2006 of the Registrant.
4.2*** Indenture by and between the Registrant and Marine Midland
Bank, as trustee, dated August 27, 1996.
5.1 Opinion of Piper & Marbury L.L.P. regarding legality of
securities being registered.
10.1@ Registrant's Amended and Restated 1990 Stock Option Plan.
10.2@ Form of Incentive Stock Option Agreement under Registrant's
1990 Stock Option Plan.
10.3@ Form of Stock Option Agreement under Registrant's 1990
Stock Option Plan for non-qualified options.
10.4@ Form of Stock Option Agreement outside scope of
Registrant's 1990 Stock Option Plan for non-qualified
options.
10.5@ Warrant Certificate, dated August 2, 1991, by and between
the Registrant and Allen & Company Incorporated.
10.6@ Warrant Certificate, dated August 2, 1991, by and between
the Registrant and Allen & Company Incorporated.
10.7@ Letter agreement, dated June 29, 1995, by and between the
Registrant and Allen & Company Incorporated (relating to
Exhibit 10.6).
10.8@ Common Stock Purchase Warrant issued March 10, 1995,
granted to Madison Dearborn Capital Partners, L.P.
10.9@ Common Stock Purchase Warrant issued March 10, 1995,
granted to Madison Dearborn Capital Partners, L.P.
10.10@ Proprietary Information, Development and Non-Compete
Agreement, dated December 6, 1990, by and between the
Registrant and Douglas G. Smith.
10.11@ Employment Agreement, effective October 1, 1995, by and
between the Registrant, Omnipoint Communications Inc. and
George F. Schmitt.
10.12@ Promissory Note, dated October 1, 1995, by George F.
Schmitt.
10.13@ Stock Restriction Agreement, dated October 1, 1995, by and
between the Registrant and George F. Schmitt.
10.14@ Employment Agreement, dated April 17, 1995, by and between
the Registrant and Bradley E. Sparks.
10.15@ Promissory Note, dated April 17, 1995, by Bradley E.
Sparks.
10.16@ Stock Restriction Agreement, dated April 17, 1995, by and
between the Registrant and Bradley E. Sparks.
10.17@ Employment Agreement, dated December 5, 1994, by and
between the Registrant and Randall Meals.
10.18@ Promissory Note, dated December 5, 1994, by Randall Meals.
10.19@ Promissory Note, dated September 19, 1995, by Randall
Meals.
10.20@ Stock Restriction Agreement, dated December 5, 1995, by and
between the Registrant and Randall Meals.
10.21@ Employment Agreement, dated June 21, 1994, by and between
Omnipoint Communications Inc. and Harry Plonskier.
10.22@ Stock Restriction Agreement, dated July 5, 1994, by and
between the Registrant and Harry Plonskier.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
<C> <S> <C>
10.23@ Employment Agreement, dated June 16, 1991, by and between
the Registrant and Evelyn Goldfine.
10.24@ Employment Agreement, dated April 15, 1994, by and between
the Registrant and Robert Dixon.
10.25 [Intentionally left blank]
10.26@ Form of Employment Agreement by and between the Registrant
and its employees.
10.27@ Form of Non-Disclosure Agreement.
10.28@ Form of Stock Restriction Agreement by and between the
Registrant and certain stockholders.
10.29@ Series A Convertible Preferred Stock Purchase Agreement,
dated August 2, 1991, by and between the Registrant and
Allen & Company Incorporated.
10.30@ Series B Convertible Preferred Stock Purchase Agreement,
dated August 9, 1993, by and among the Registrant and
Madison Dearborn Capital Partners, L.P.
10.31@ Amendment No. 1 to Series B Convertible Preferred Stock
Purchase Agreement, dated June 29, 1995, by and between
the Registrant and Madison Dearborn Capital Partners, L.P.
10.32@ Series C Convertible Preferred Stock Purchase Agreement,
dated June 29, 1995, by and among the Registrant and the
other parties named therein.
10.33@ Stock Purchase Agreement, dated January 29, 1994, by and
between the Registrant and Ameritech Development
Corporation.
10.34@ Stock Purchase Agreement, dated June 29, 1994, by and
between the Registrant and Associated PCN Company.
10.35@ Common Stock Purchase Agreement, dated June 1, 1994, by and
between the Registrant and the parties named therein.
10.36@ Amended and Restated Registration Rights Agreement, dated
June 29, 1995, by and among the Registrant and the parties
named therein.
10.37@ First Amended and Restated Voting Agreement, dated June 29,
1995, by and among the Registrant and the other parties
named therein.
10.38@ OEM Supply Agreement for Omnipoint PCS (Personal
Communication Systems) Products, dated September 22, 1994,
by and between the Registrant and Northern Telecom Inc.
10.39@ Letter agreement dated December 9, 1994, by and between the
Registrant and Northern Telecom Inc. (relating to Exhibit
10.38).
10.40@ Manufacturing License and Escrow Agreement for Personal
Communication Service Products, dated February 28, 1995,
by and between the Registrant and Northern Telecom Inc.
10.41@ Collaborative Development Agreement, dated March 1, 1995,
by and between the Registrant and Northern Telecom Inc.
10.42@ Reciprocal OEM Agreement Memorandum of Understanding, dated
March 30, 1995, by and between the Registrant and Northern
Telecom Inc.
10.43@ Supply Agreement, dated September 22, 1994, by and between
Omnipoint Communications Inc. and Northern Telecom Inc.
10.44@ Amendment No. 1 to Supply Agreement, dated July 21, 1995,
by and between Omnipoint Communications Inc. and Northern
Telecom Inc.
10.45@ Loan Agreement, dated as of July 21, 1995, by and between
Omnipoint Communications Inc. and Northern Telecom Inc.
10.46 [Intentionally left blank]
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
<C> <S> <C>
10.47@ Engineering Services Agreement, dated as of August 31,
1995, by and between the Registrant and JRC International
Inc.
10.48@ Memorandum of Understanding, dated April 21, 1995, by and
between the Registrant and Pacific Bell Mobile Services.
10.49@ Office Sublease Agreement by and between the Registrant and
United Technologies Microelec-tronics Center, Inc.,
commencing August 1, 1994 or upon earlier occupation by
the Registrant.
10.50@ Amendment to Office Sublease Agreement, signed August 17,
1994, by and between the Registrant and United
Technologies Microelectronics Center, Inc.
10.51@ Office Building Lease for Courthouse Plaza Office Building,
dated January 18, 1994, by and between the Registrant and
Eastrich No. 130 Corporation.
10.52@ First Lease Amendment, dated January 20, 1995, by and
between the Registrant and Eastrich No. 130 Corporation.
10.53@ Pioneer's Preference License granted by the FCC to
Omnipoint Communications Inc. on December 14, 1994.
10.54@ Note and Warrant Purchase Agreement dated November 22,
1995, between the Registrant and the purchasers named
therein.
10.55@ Senior Note Due 2000 issued by the Registrant on November
22, 1995 to the holder identified therein.
10.56@ Senior Note Due 2000 issued by the Registrant on November
22, 1995 to the holder identified therein.
10.57@ Common Stock Warrant issued by the Registrant on November
22, 1995 to the holder identified therein.
10.58@ Common Stock Warrant issued by the Registrant on November
22, 1995 to the holder identified therein.
10.59@+ Credit Agreement, dated as of November 21, 1995, by and
among OPCS Corp., Omnipoint PCS Entrepreneurs, Inc. and
Bank of America National Trust and Savings Association.
10.60@+ Memorandum of Understanding, dated November 22, 1995, by
and between the Registrant and Ericsson Inc.
10.61@ Letter Agreement, dated January 24, 1996, by and between
the Registrant and between Ericsson Inc.
10.62@ Convertible Subordinated Note and Warrant Purchase
Agreement, dated December 12, 1995, by and between the
Registrant and Hansol Paper Co., Ltd.
10.63@ Convertible Subordinated Note and Warrant Purchase
Agreement, dated as of November 29, 1995, by and among the
Registrant and the entities identified therein.
10.64@ Letter of Intent, dated October 26, 1995, by and between
the Registrant and BellSouth Personal Communications, Inc.
10.65@ Waiver of Registration Rights and Confirmation of 180-Day
Lockup, dated as of October 31, 1995, by and between the
Registrant and Ameritech Development Corporation.
10.66@ Registration Rights Agreement dated as of April 26, 1994,
by and among the Registrant and the parties thereto.
10.67@ Contract for Sale of Real Estate, dated August 30, 1995, by
and between F&R Bari Realty, Ltd., Inc. and Omnipoint
Communications Inc.
10.68@ Lease Agreement, dated October 15, 1995, by and between the
Registrant and Baetis Properties, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
<C> <S> <C>
10.69**++ Acquisition Agreement for Ericsson CMS 40 Personal
Communications Systems (PCS) Infrastructure Equipment,
dated as of April 16, 1996, by and between Ericsson Inc.
and Omnipoint Communications.
10.70**++ Acquisition Supply and License Agreement for Omnipoint
Personal Communications Systems (PCS) Infrastructure
Equipment, dated as of April 16, 1996, by and between
Ericsson Inc. and the Registrant.
10.71**++ Agreement for Purchase and Sale of Ericsson Inc. Masko
Terminal Units, dated as of April 16, 1996, by and between
Ericsson, Inc. and Omnipoint Communications, Inc.
10.72**++ Memorandum of Understanding, dated April 2, 1996, by and
between Orbitel Mobile Communications Inc. and the
Registrant.
10.73@@ Letter of Intent, dated November 20, 1995, by and between
the Registrant and Western Wireless Corporation.
10.74@@ Letter of Intent, dated February 26, 1996, by and between
Omnipoint Communications Inc. and American Portable
Telecom, Inc.
10.75@@ Letter of Intent, dated March 22, 1996, by and between
Omnipoint Communications Inc. and American Personal
Communications.
10.76@@ Letter of Intent, dated May 13, 1996, by and between the
Registrant and InterCel, Inc.
10.77@@ License Agreement, dated March 22, 1996, by and between the
Registrant and Bender & Company, Inc.
10.78@@ Second License Agreement, dated April 17, 1996, by and
between Registrant and Bender & Company, Inc.
10.79@@ Lease Agreement, dated March 1, 1996, by and between
Omniset Corporation and Roots Stone Limited Partnership.
10.80*** Escrow Agreement by and among the Registrant, the Chase
Manhattan Bank and Marine Midland Bank, dated August 27,
1996.
13.1# Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.
13.2## Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1996.
13.3### Amended Quarterly Report on Form 10-Q/A for the fiscal
quarter ended March 31, 1996.
13.4#### Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 1996.
22.1@ Subsidiaries of the Registrant.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Piper & Marbury L.L.P. (to be included as part
of Exhibit 5.1 hereto).
24.1 Power of Attorney (included in signature pages).
25.1 Statement of Eligibility and Qualification on Form T-1 of
Marine Midland Bank, as Trustee, dated September 11, 1996.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
99.4 Form of Letter to Clients.
</TABLE>
- ---------------------
@ Incorporated herein by reference to the Company's Registration Statement on
Form S-1, No. 33-98360.
@@ Incorporated herein by reference to the Company's Registration Statement on
Form S-1, No. 33-03739.
<PAGE>
* Incorporated herein by reference to Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995.
** Incorporated by reference from the Company's Current Report on Form 8-K,
filed May 3, 1996.
***Incorporated by reference from the Company's Current Report on Form 8-K,
filed September 10, 1996.
# Incorporated by reference from the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995.
## Incorporated by reference from the Company's Quarterly Report on Form 10-
Q for the fiscal quarter ended March 31, 1996.
### Incorporated by reference from the Company's Amended Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 1996.
#### Incorporated by reference from the Company's Quarterly Report on Form 10-
Q for the fiscal quarterly ended June 30, 1996.
+ Portions of this Exhibit were omitted and have been filed separately with
the Secretary of the Commission pursuant to the Registrant's Application
Requesting Confidential Treatment under Rule 406 of the Act, which
application was granted by the Commission.
++ Portions of this Exhibit were omitted and filed separately with the
Secretary of the Commission pursuant to the Registrant's Application
Requesting Confidential Treatment under Rule 24b-2 under the Exchange Act
of 1934, filed May 3, 1996.
<PAGE>
[FACE OF NOTE]
[Unless this certificate is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to the Company
(as defined below) or its agent for registration of transfer, exchange or
payment, and any certificate issued is registered in the name of Cede & Co. or
such other name as is requested by an authorized representative of DTC (and any
payment is made to Cede & Co. or to such other entity as is requested by an
authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered
owner hereof, Cede & Co., has an interest herein.
Unless and until it is exchanged in whole or in part for Notes in
definitive registered form, this certificate may not be transferred except as a
whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or another
nominee of DTC or by DTC or any such nominee to a successor Depositary or a
nominee of such successor Depositary.]1
Omnipoint Corporation
11 5/8% Senior Notes due 2006
CUSIP ______
$-------
OMNIPOINT CORPORATION, a Delaware corporation (the "Company", which
term includes any successor under the Indenture hereinafter referred to), for
value received, promises to pay to ________, or its registered assigns, the
principal sum of ________________ ($______) on August 15, 2006.
- ------------------------
1 To be included in Global Notes registered in the name of DTC or its nominee.
<PAGE>
Interest Payment Dates: February 15 and August 15, commencing February
15, 1997.
Regular Record Dates: February 1 and August 1.
Reference is hereby made to the further provisions of this Note set forth
on the reverse hereof, which further provisions shall for all purposes have the
same effect as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers.
Date: OMNIPOINT CORPORATION,
as Issuer
By
----------------------------
Name:
Title:
By
----------------------------
Name:
Title:
- 2 -
<PAGE>
(Form of Trustee's Certificate of Authentication)
This is one of 11 5/8% Senior Notes due 2006 described in the within-mentioned
Indenture.
MARINE MIDLAND BANK,
as Trustee
By
-----------------------------
Authorized Signatory
- 3 -
<PAGE>
[REVERSE SIDE OF NOTE]
OMNIPOINT CORPORATION
11 5/8% Senior Note due 2006
(1) Principal and Interest. The Company will pay the principal of this
----------------------
Note on August 15, 2006.
The Company promises to pay interest on the principal amount of this
Note on each Interest Payment Date, as set forth below, at the rate per annum
shown above.
Interest will be payable semiannually in arrears (to the holders of
record of the Notes, as reflected in the Security Register at the close of
business on the February 1 or August 1 immediately preceding the Interest
Payment Date) on each Interest Payment Date, commencing February 15, 1997.
Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from ____________,
1996; provided that, if there is no existing default in the payment of interest
and if this Note is authenticated between a Regular Record Date referred to on
the face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such Interest Payment Date. Interest will be computed on the basis
of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal and premium and
Liquidated Damages, if any, and interest on overdue installments of interest, to
the extent lawful, at the rate borne by the Notes.
(2) Method of Payment. The Company will pay interest (except defaulted
-----------------
interest) on the principal amount of the Notes as provided above and Liquidated
Damages on each February 15 and August 15 to the persons who are Holders (as
- 4 -
<PAGE>
reflected in the Security Register at the close of business on the February 1
and August 1 immediately preceding the Interest Payment Date), in each case,
even if the Note is canceled on registration of transfer, registration of
exchange, redemption or repurchase after such Regular Record Date. With respect
to the payment of principal, the Company will make payment to the Holder that
surrenders this Note to a Paying Agent on or after August 15, 2006.
The Company will pay principal, premium and Liquidated Damages, if any,
and interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts at the office or agency of the
Company maintained for such purposes in the Borough of Manhattan, City of New
York. The Company, at its option, may pay principal, premium and Liquidated
Damages, if any, and interest by its check payable in such money mailed to a
Holder's registered address (as reflected in the Security Register), provided
that payment by wire transfer of immediately available funds will be required
with respect to principal, premium and Liquidated Damages, if any, and interest
on all Global Notes and all other Notes the Holders of which shall have provided
wire transfer instructions to the Company or the Paying Agent. If an Interest
Payment Date is a date other than a Business Day at a place of payment, payment
may be made on the next succeeding day that is a Business Day with the same
force and effect as if made on the day such payment was due and in the case of
such payment no interest shall accrue for the intervening period.
(3) Paying Agent and Registrar. Initially, the Trustee will act as
--------------------------
authenticating agent, Paying Agent and Registrar. The Company may change any
authenticating agent, Paying Agent or Registrar without notice. The Company, any
Subsidiary or any Affiliate of any of them may act as Paying Agent, Registrar or
co-Registrar.
(4) Indenture; Limitations. The Company issued the Notes under an
----------------------
Indenture dated as of August 27, 1996 (the "Indenture"), between the Company and
Marine Midland Bank, as trustee (the "Trustee"). Capitalized terms herein are
used as defined in the Indenture unless otherwise indicated. Reference is made
to the Indenture and the Trust Indenture Act for a full, complete and detailed
statement of the purposes for which the Notes are issued, the terms on which the
Notes are issued, a description of the security pledged and assigned for payment
of the Notes and the terms, provisions and conditions governing payment of the
Notes and the provisions,
- 5 -
<PAGE>
among others, with respect to the nature and extent of the rights, duties and
obligations of the Trustee, the Paying Agent, the Registrar, the authenticating
agent, Holders and the Company. The holder of this Note, by acceptance of this
Note, is deemed to have agreed and consented to the terms and provisions of the
Indenture. The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act. The
Notes are subject to all such terms, and Holders are referred to the Indenture
and the Trust Indenture Act for a statement of all such terms. If any provision
of this Note conflicts with the Indenture, the terms of the Indenture control.
The Notes are general unsecured obligations of the Company. The
Indenture limits the original aggregate principal amount of the Notes to
$250,000,000.
(5) Optional Redemption. The Notes will be redeemable, at the Company's
-------------------
option, in whole or in part, at any time or from time to time, on or after
August 15, 2001 and prior to maturity, upon not less than 30 nor more than 60
days' prior notice mailed by first class mail to each Holder's last address as
it appears in the Security Register, at the Redemption Prices (expressed in
percentages of principal amount) set forth below, plus accrued and unpaid
interest and Liquidated Damages, if any, to the Redemption Date (subject to the
right of Holders of record on the relevant Regular Record Date that is prior to
the Redemption Date to receive interest due on an Interest Payment Date), if
redeemed during the 12-month period commencing August 15, of the years set forth
below:
Redemption Year Price
--------------- -------
2001 105.81%
2002 103.88%
2003 101.94%
2004 and thereafter 100.00%
In addition, at any time prior to August 15, 1999, the Company may
redeem up to one-third of the Notes originally issued, at any time as a whole or
from time to time in part, with the proceeds of one or more Public Equity
Offerings or sales of Capital Stock (other than Redeemable Stock) to one or more
Strategic Equity Investors, each such Public Equity Offering or sale to
Strategic Equity Investors resulting in Net Cash Proceeds of $50 million or
more, at a redemption price (expressed as a percentage of principal amount) of
111.625%, plus accrued and
- 6 -
<PAGE>
unpaid interest and Liquidated Damages, if any, to the Redemption Date, provided
that after any such redemption at least two-thirds of the aggregate principal
amount of Notes originally outstanding remains outstanding and each such
redemption is effected not more than 60 days after the consummation of such
Public Equity Offering or sale to Strategic Equity Investors.
If less than all of the Notes are to be redeemed at any time, the
Trustee will select the Notes, or portions thereof, for redemption in compliance
with the requirements of the principal national securities exchange, if any, on
which the Notes are listed or, if the Notes are not listed on a national
securities exchange, on a pro rata basis, by lot or by such other method as the
Trustee in its sole discretion shall deem to be fair and appropriate. Notes in
denominations larger than $1,000 may be redeemed in part. Any notice mailed as
provided herein and in the Indenture will be conclusively presumed to have been
given whether or not actually received by any Holder. On and after the
Redemption Date, interest ceases to accrue on Notes or portions of Notes called
for redemption, unless the Company defaults in the payment of the Redemption
Price. A new Note in original amount equal to the unredeemed portion thereof
will be issued in the name of the Holder thereof upon cancellation of the
original Note.
(6) Repurchase upon Change of Control and Asset Sale. The Company shall
------------------------------------------------
commence within 30 days of the occurrence of a Change of Control and consummate
an Offer to Purchase for all Notes then outstanding at a purchase price equal to
101% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, to the Payment Date. The Notes may also be subject
to an Offer to Purchase in connection with an Asset Sale. Any Note delivered for
payment of a purchase price shall be accompanied by an instrument in the form of
the Option of the Holder to Elect Purchase below.
(7) Denominations; Transfer; Exchange. The Notes are in registered form
---------------------------------
without coupons in denominations of $1,000 of principal amount and multiples of
$1,000 in excess thereof. A Holder may register the transfer or exchange of
Notes in accordance with the Indenture. The Registrar may require a Holder,
among other things, to furnish appropriate endorsements and transfer documents
(including a certificate in the form of the Certificate to be Delivered upon
Exchange or Registration of Transfer of Securities below) and to pay any taxes,
fees and/or other governmental charges required by law or permitted by the
Indenture. The Registrar
- 7 -
<PAGE>
need not register the transfer or exchange of any Notes selected for redemption.
Also, it need not register the transfer or exchange of any Notes for a period of
15 days before the day of the mailing of a notice of redemption of Notes
selected for redemption.
(8) Persons Deemed Owners. A Holder shall be treated as the owner of
---------------------
a Note for all purposes.
(9) Unclaimed Money. If money for the payment of principal, premium and
---------------
Liquidated Damages, if any, or interest remains unclaimed for two years, the
Trustee and the Paying Agent will pay the money back to the Company at its
written request. After that, Holders entitled to the money must look to the
Company for payment, unless applicable law designates another Person, and all
liability of the Trustee and such Paying Agent with respect to such money shall
cease.
(10) Defeasance and Discharge Prior to Redemption or Maturity. If the
--------------------------------------------------------
Company deposits with the Trustee money or U.S. Government Obligations
sufficient to pay the then outstanding principal of, premium and Liquidated
Damages, if any, and accrued interest on the Notes to redemption or maturity,
and complies with certain other provisions of the Indenture relating thereto,
(i) the Company will be deemed to have paid and will be discharged from any and
all obligations in respect of the Notes or (ii) certain provisions set forth in
the Indenture will no longer be in effect with respect to the Notes.
(11) Amendment; Supplement; Waiver. Subject to certain exceptions, the
-----------------------------
Indenture or the Notes may be amended or supplemented with the consent of the
Holders of at least a majority in aggregate principal amount of the Notes then
outstanding, and any existing default or compliance with any provision may be
waived with the consent of the Holders of at least a majority in principal
amount of the Notes then outstanding. Without notice to or the consent of any
Holder, the parties thereto may amend or supplement the Indenture or the Notes
to, among other things, cure any ambiguity, defect or inconsistency and make any
change that does not adversely affect the rights of any Holder.
(12) Restrictive Covenants. The Indenture imposes certain limitations
---------------------
on the ability of the Company and its Restricted Subsidiaries, among other
things, to (a) Incur additional Indebtedness, (b) make Restricted Payments, (c)
use the proceeds
- 8 -
<PAGE>
from Asset Sales, (d) suffer to exist restrictions on the ability of Restricted
Subsidiaries to make certain payments to the Company, (e) issue Capital Stock of
Restricted Subsidiaries, (f) engage in transactions with certain stockholders
and Affiliates, (g) suffer to exist or incur Liens, (h) Guarantee Indebtedness
of the Company or (i) merge, consolidate or transfer substantially all of its
assets. Within 90 days after the end of the last fiscal quarter of each year,
the Company shall deliver to the Trustee an Officers' Certificate stating
whether or not the signers know of any Default or Event of Default under such
restrictive covenants.
(13) Successor Persons. When a successor person or other entity assumes
-----------------
all the obligations of its predecessor under the Notes and the Indenture, the
predecessor person will be released from those obligations.
(14) Defaults and Remedies. An Event of Default is: (a) a default in
---------------------
payment of principal or premium, if any, on the Notes; (b) default in the
payment of interest or Liquidated Damages, if any, on the Notes for 30 days; (c)
failure by the Company for 30 days after notice to it to comply with any of its
other agreements in the Indenture; (d) certain events of bankruptcy or
insolvency as described in the Indenture; (e) certain final judgments which
remain undischarged as described in the Indenture; and (f) certain events of
default on other Indebtedness of the Company and/or one or more of its
Significant Subsidiaries as described in the Indenture.
If an Event of Default, as defined in the Indenture, occurs and is
continuing, the Trustee or the Holders of at least 25% in aggregate principal
amount of the Notes then outstanding may, and the Trustee at the request of such
Holders shall, declare all the Notes to be due and payable. If a bankruptcy or
insolvency default with respect to the Company occurs and is continuing, the
Notes automatically become due and payable. Holders may not enforce the
Indenture or the Notes, or take any action with respect to any Event of Default
under the Indenture, or to institute, appear in or defend any suit or other
proceeding with respect thereto, except as provided in the Indenture. The
Trustee may require indemnity satisfactory to it before it enforces the
Indenture or the Notes. Subject to certain limitations under the Indenture,
Holders of at least a majority in principal amount of the Notes then outstanding
may direct in accordance with the provisions of the Indenture the Trustee in its
exercise of any trust or power, including waiver of all past defaults,
rescission and annulment of a declaration of acceleration and its consequences
and exercise of any right, remedy or power available to the Trustee.
- 9 -
<PAGE>
(15) Trustee Dealings with Company. The Trustee under the Indenture, in
-----------------------------
its individual or any other capacity, may make loans to, accept deposits from
and perform services for the Company or its Affiliates and may otherwise deal
with the Company or its Affiliates as if it were not the Trustee.
(16) No Recourse Against Others. No incorporator or any past, present
--------------------------
or future partner, shareholder, other equity holder, officer, director, employee
or controlling person as such, of the Company or of any successor Person shall
have any liability for any obligations of the Company under the Notes or the
Indenture or for any claim based on, in respect of or by reason of, such
obligations or their creation. Each Holder by accepting a Note expressly waives
and releases all such liability. The waiver and release are a condition of, and
part of the consideration for the issuance of the Notes.
(17) Authentication. This Note shall not be entitled to any right or
--------------
benefit under the Indenture, or be valid, or become obligatory for any purpose,
until the Trustee or authenticating agent signs the certificate of
authentication on the other side of this Note.
(18) Abbreviations. Customary abbreviations may be used in the name of
-------------
a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts
to Minors Act).
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture. Requests may be made to Omnipoint Corporation,
2000 North 14th Street, Suite 550, Arlington, VA 22201, Attention: Bradley E.
Sparks.
- 10 -
<PAGE>
ASSIGNMENT
I or we assign and transfer this Note to
---------------------------------------
- -------------------------------------------------------------------------------
Print or type name, address and zip code of Assignee
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
- -----------------------------------------------
| |
- -----------------------------------------------
and irrevocably appoint
--------------------------------------------------------
, as agent,
- --------------------------------------------------------------------
to transfer this Note on the books of the Company.
The agent may substitute another to act for him/her.
Date
----------------------------
Signature Guarantee:
- ------------------------------------------------------------------------------
The Holder's signature must be guaranteed by a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" as
defined by Rule 17Ad-15 under the Exchange Act.
Signed
- -------------------------------------------------------------------------------
(Sign here exactly as name appears on the other side of this Note)
- 11 -
<PAGE>
===============================================================================
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to Section
4.11 or Section 4.12 of the Indenture, as applicable, check the box: [_].
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 4.11 or Section 4.12 of the Indenture, as applicable, state
the principal amount to be purchased:
$------------.
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 4.11 or Section 4.12 of the Indenture, as applicable, please
provide instructions regarding delivery of and the Persons in whose name(s) the
unredeemed portion of such surrendered Note(s) should be registered, the address
of such Person(s) and appropriate delivery instructions.
Date:
--------------------------------------------------------------------------
Your Signature:
----------------------------------------------------------------
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee:
- -------------------------------------------------------------------------------
The Holder's signature must be guaranteed by a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" as
defined by Rule 17Ad-15 under the Exchange Act.
===============================================================================
===============================================================================
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION
OF TRANSFER OF SECURITIES
Re: 11 5/8% SENIOR NOTES DUE 2006 OF OMNIPOINT CORPORATION
This certificate relates to $______ principal amount of Notes held in
definitive form by ________________________________ (the "Transferor").
The Transferor has requested the Trustee by written order to exchange or
register the transfer of a Note or Notes.
In connection with such request and in respect of each such Note, the
Transferor does hereby certify that Transferor is familiar with the Indenture
relating to the above-captioned Notes.
- -------------------------------------------------------------------------------
[INSERT NAME OF TRANSFEROR]
By:
----------------------------------------------------------------------------
===============================================================================
- 12 -
<PAGE>
PIPER & MARBURY
L.L.P.
1200 NINETEENTH STREET, N.W.
WASHINGTON, D.C. 20036-2430
202-861-3900
WRITER'S DIRECT NUMBER FAX: 202-223-2085 BALTIMORE
202-861-3900 NEW YORK
FAX: 202-223-2085 PHILADELPHIA
EASTON
LONDON
October 9, 1996
Omnipoint Corporation
2000 North 14th Street
Suite 550
Arlington, VA 22201
Gentlemen:
We have assisted in the preparation and filing with the Securities and
Exchange Commission of a Registration Statement on Form S-4, File No. 333-_____
(the "Registration Statement"), relating to the registration of an aggregate
principal amount of $250,000,000 of 11 5/8% Senior Notes due 2006 of Omnipoint
Corporation, a Delaware corporation (the "Company"), to exchange for an equal
principal amount of its currently outstanding 11 5/8% Senior Notes due 2006.
We have examined the Certificate of Incorporation and By-laws of the
Company, and all amendments thereto, and have examined and relied upon the
originals, or copies certified to our satisfaction, of such records of meetings
of the directors and stockholders of the Company, documents and other
instruments as in our judgment are necessary or appropriate to enable us to
render the opinions expressed below.
In examining the foregoing documents, we have assumed the genuineness of
all signatures and the authenticity of all documents submitted to us as
originals, the conformity to original documents of all documents submitted to us
as certified or photostatic copies, and the authenticity of the originals of
such latter documents.
Based on the foregoing, we are of the opinion that (i) the 11 5/8% Senior
Notes due 2006 have been duly authorized for issuance; and (ii) upon payment of
the consideration therefor, the 11 5/8% Senior Notes will be duly and validly
issued by, and will become binding obligations of, the Company.
<PAGE>
Omnipoint Corporation
October 9, 1996
Page 2
We hereby consent to the use of our name in the Registration Statement and
under the caption "Legal Matters" in the related Prospectus and consent to the
filing of this opinion as an exhibit to the Registration Statement.
Very truly yours,
Piper & Marbury L.L.P.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the registraton statement on Form S-4
(File No. 333- ) of our report dated March 15, 1996, on our audits of the
consolidated financial statements of Omnipoint Corporation as of December 31,
1995 and 1994, and for the years ended December 31, 1995, 1994 and 1993. We also
consent to the reference to our Firm under the captions "Selected Consolidated
Financial Date" and "Experts".
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
October 9, 1996
<PAGE>
Conformed Copy
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST
INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
-----------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
-----------
Marine Midland Bank
(Exact name of trustee as specified in its charter)
New York 16-1057879
(Jurisdiction of incorporation (I.R.S. Employer
or organization if not a U.S. Identification No.)
national bank)
140 Broadway, New York, N.Y. 10005-1180
(212) 658-1000 (Zip Code)
(Address of principal executive offices)
Eric Parets
Senior Vice President
Marine Midland Bank
140 Broadway
New York, New York 10005-1180
Tel: (212) 658-6560
(Name, address and telephone number of agent for service)
OMNIPOINT CORPORATION
(Exact name of obligor as specified in its charter)
Delaware 04-2969720
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2000 North 14th Street, Suite 550
Arlington, VA 22201
(703) 522-7778 (Zip Code)
(Address of principal executive offices)
11 5/8% Senior Notes due 2006
(Title of Indenture Securities)
<PAGE>
General
Item 1. General Information.
-------------------
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory
authority to which it is subject.
State of New York Banking Department.
Federal Deposit Insurance Corporation, Washington, D.C.
Board of Governors of the Federal Reserve System,
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with Obligor.
-------------------------
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
<PAGE>
Item 16. List of Exhibits.
----------------
<TABLE>
<S> <C> <C> <C>
Exhibit
- -------
T1A(i) * - Copy of the Organization Certificate of
Marine Midland Bank.
T1A(ii) * - Certificate of the State of New York
Banking Department dated December
31, 1993 as to the authority of Marine
Midland Bank to commence business.
T1A(iii) - Not applicable.
T1A(iv) * - Copy of the existing By-Laws of Marine
Midland Bank as adopted on January
20, 1994.
T1A(v) - Not applicable.
T1A(vi) * - Consent of Marine Midland Bank
required by Section 321(b) of the Trust
Indenture Act of 1939.
T1A(vii) - Copy of the latest report of condition
of the trustee (June 30, 1996),
published pursuant to law or the
requirement of its supervisory or
examining authority.
T1A(viii) - Not applicable.
T1A(ix) - Not applicable.
</TABLE>
* Exhibits previously filed with the Securities and Exchange Commission
with Registration No. 33-53693 and incorporated herein by reference
thereto.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
Marine Midland Bank, a banking corporation and trust company organized under the
laws of the State of New York, has duly caused this statement of eligibility to
be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of New York and State of New York on the 11th day of September 1996.
MARINE MIDLAND BANK
By: /s/ Frank J. Godino
------------------------------------
Frank J. Godino
Corporate Trust Officer
<PAGE>
Exhibit T1A (vii)
<TABLE>
<S> <C>
Board of Governors of the Federal Reserve System
OMB Number: 7100-0036
Federal Deposit Insurance Corporation
OMB Number: 3064-0052
Office of the Comptroller of the Currency
OMB Number: 1557-0081
Federal Financial Institutions Examination Council Expires March 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
This financial information has not been reviewed, or confirmed [1]
for accuracy or relevance, by the Federal Reserve System. Please refer to page i,
Table of Contents,
the required disclosure
of estimated burden.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Consolidated Reports of Condition and Income for A Bank With Domestic and
Foreign Offices--FFIEC 031
Report at the close of business June 30, 1996
This report is required by law; 12 U.S.C. (S)(S).324 (State member banks); 12
U.S.C. (S)(S). 1817 (State nonmember banks); and 12 U.S.C. (S)(S).161 (National
banks).
(950630)
-------------
(RCRI 9999)
This report form is to be filed by banks with branches and consolidated
subsidiaries in U.S. territories and possessions, Edge or Agreement
subsidiaries, foreign branches, consolidated foreign subsidiaries, or
International Banking Facilities.
- --------------------------------------------------------------------------------
NOTE: The Reports of Condition and Income must be signed by an authorized
officer and the Report of Condition must be attested to by not less than two
directors (trustees) for State nonmember banks and three directors for State
member and National Banks.
I, Gerald A. Ronning, Executive VP & Controller
----------------------------------------------------
Name and Title of Officer Authorized to Sign Report
of the named bank do hereby declare that these Reports of Condition and Income
(including the supporting schedules) have been prepared in conformance with the
instructions issued by the appropriate Federal regulatory authority and are true
to the best of my knowledge and believe.
/s/ Gerald A. Ronning
------------------------------------------------------
Signature of Officer Authorized to Sign Report
7/25/96
- --------------------------------------------------
Date of Signature
The Reports of Condition and Income are to be prepared in accordance with
Federal regulatory authority instructions. NOTE: These instructions may in some
cases differ from generally accepted accounting principles.
We, the undersigned directors (trustees), attest to the correctness of this
Report of Condition (including the supporting schedules) and declare that it has
been examined by us and to the best of our knowledge and belief has been
prepared in conformance with the instructions issued by the appropriate Federal
regulatory authority and is true and correct.
/s/ Henry J. Nowak
- --------------------------------------------------------
Director (Trustee)
/s/ Bernard J. Kennedy
- --------------------------------------------------------
Director (Trustee)
/s/ Northrup R. Knox
- --------------------------------------------------------
Director (Trustee)
- --------------------------------------------------------------------------------
For Banks Submitting Hard Copy Report Forms:
State Member Bank: Return the original and one copy to the appropriate Federal
Reserve District Bank.
State Nonmember Banks: Return the original only in the special return address
envelope provided. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Suite 204, Crofton, MD 21114.
National Banks: Return the original only in the special return address envelope
provided. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Suite 204, Crofton, MD 21114.
- --------------------------------------------------------------------------------
FDIC Certificate Number | 0 | 0 | 5 | 8 | 9 |
---------------------
(RCRI 9030)
<PAGE>
NOTICE
This form is intended to assist institutions with state publication
requirements. It has not been approved by any state banking authorities. Refer
to your appropriate state banking authorities for your state publication
requirements.
REPORT OF CONDITION
Consolidating domestic and foreign subsidiaries of the
Marine Midland Bank of Buffalo
Name of Bank City
In the state of New York, at the close of business June 30, 1996
<TABLE>
<CAPTION>
ASSETS
Thousands
of dollars
<S> <C> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances
currency and coin..................................... $1,133,237
Interest-bearing balances ............................ 1,117,267
Held-to-maturity securities........................... 0
Available-for-sale securities......................... 3,312,291
Federal Funds sold and securities purchased
under agreements to resell in domestic
offices of the bank and of its Edge and
Agreement subsidiaries, and in IBFs:
Federal funds sold.................................... 555,000
Securities purchased under
agreements to resell.................................. 421,771
Loans and lease financing receivables:
Loans and leases net of unearned
income................................................ 14,765,000
LESS: Allowance for loan and lease
losses................................................ 456,646
LESS: Allocated transfer risk reserve................. 0
Loans and lease, net of unearned
income, allowance, and reserve........................ 14,308,354
Trading assets........................................ 871,466
Premises and fixed assets (including
capitalized leases)................................... 181,721
Other real estate owned.................................. 4,643
Investments in unconsolidated
subsidiaries and associated companies.................... 0
Customers' liability to this bank on
acceptances outstanding.................................. 23,253
Intangible assets........................................ 164,521
Other assets............................................. 460,618
Total assets............................................. 22,554,142
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES
<S> <C> <C>
Deposits:
In domestic offices .................................. 14,788,828
Noninterest-bearing................................... 3,061,906
Interest-bearing...................................... 11,726,922
In foreign offices, Edge, and Agreement
subsidiaries, and IBFs .................................. 3,485,266
Noninterest-bearing................................... 0
Interest-bearing...................................... 3,485,266
Federal funds purchased and securities sold
under agreements to repurchase in domestic
offices of the bank and its Edge and
Agreement subsidiaries, and in IBFs:
Federal funds purchased .............................. 859,455
Securities sold under agreements to
repurchase ........................................... 324,584
Demand notes issued to the U.S. Treasury ................ 246,051
Trading Liabilities ..................................... 415,593
Other borrowed money:
With original maturity of one year
or less .............................................. 32,459
With original maturity of more than
one year ............................................. 0
Mortgage indebtedness and obligations
under capitalized leases ................................ 34,193
Bank's liability on acceptances
executed and outstanding ................................ 23,253
Subordinated notes and debentures ....................... 225,000
Other liabilities ....................................... 326,680
Total liabilities ....................................... 20,761,362
Limited-life preferred stock and
related surplus ......................................... 0
EQUITY CAPITAL
Perpetual preferred stock and related
surplus ................................................. 0
Common Stock ............................................ 185,000
Surplus ................................................. 1,633,098
Undivided profits and capital reserves .................. (23,953)
Net unrealized holding gains (losses)
on available-for-sale securities ........................ (1,365)
Cumulative foreign currency translation
adjustments ............................................. 0
Total equity capital .................................... 1,792,780
Total liabilities, limited-life
preferred stock, and equity capital ..................... 22,554,142
</TABLE>
<PAGE>
LETTER OF TRANSMITTAL
OMNIPOINT CORPORATION
OFFER TO EXCHANGE ITS REGISTERED
11 5/8% SENIOR NOTES DUE 2006
FOR ANY AND ALL OF ITS OUTSTANDING
11 5/8% SENIOR NOTES DUE 2006
PURSUANT TO THE PROSPECTUS, DATED , 1996.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. ON , 1996, UNLESS EXTENDED
(THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M. ON THE
EXPIRATION DATE.
By Registered or Certified Mail;
By Overnight Courier; or By Hand:
Marine Midland Bank
140 Broadway--Level A
New York, New York 10005-1180
Attention: Corporation Trust Operations
By Facsimile: (212) 658-2292
Attention: Corporate Trust Operations
Telephone: (212) 658-5931
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE
ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS
ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
The undersigned acknowledges that he or she has received the Prospectus,
dated , 1996 (the "Prospectus"), of Omnipoint Corporation, a Delaware
corporation (the "Company"), and this Letter of Transmittal (this "Letter")
which, together with the Prospectus, constitute the Company's offer (the
"Exchange Offer") to exchange an aggregate principal amount of $250,000,000 of
11 5/8% Senior Notes due 2006 (the "New Notes") which have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), pursuant
to a Registration Statement of which the Prospectus is a part, for an equal
principal amount of the Company's outstanding 11 5/8% Senior Notes due 2006
(the "Old Notes").
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount at maturity equal to that of the
surrendered Old Note. The Company reserves the right, at anytime or from time
to time, to extend the Exchange Offer at its discretion, in which event the
term "Expiration Date" shall mean the latest time and date to which the
Exchange Offer is extended. In order to extend the Expiration Date, the
Company will notify the Exchange Agent of any extension by oral or written
notice and will mail to the record holders of Old Notes an announcement
thereof, each prior to 9:00 a.m., Eastern Standard Time, on the next business
day after the previously scheduled Expiration Date. Such announcement may
state that the Company is extending the Exchange Offer for a specified period
of time.
This Letter is to be completed by holders of Old Notes if (i) certificates
of the Old Notes are to be forwarded herewith or (ii) delivery of Old Notes is
to be made by book-entry transfer to the account maintained by the Exchange
Agent at The Depository Trust Company (the "Book-Entry Transfer Facility")
pursuant to the procedures set forth in "The Exchange Offer" section of the
Prospectus. Holders of Old Notes whose certificates are not immediately
available, or who are unable to deliver their certificates or confirmation of
the book-entry tender of their Old Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility (a "Book-Entry Confirmation") and all other
documents required by this Letter to the Exchange Agent on or prior to the
Expiration Date, must tender their Old Notes in accordance with the guaranteed
delivery procedures set forth in "The Exchange Offer--Guaranteed Delivery
Procedures" section of the Prospectus. See Instruction 1. DELIVERY OF
DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO
THE EXCHANGE AGENT.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer. Holders who wish to tender their Old Notes must complete
this Letter of Transmittal in its entirety.
<PAGE>
List below the Old Notes to which this Letter relates. If the space provided
below is inadequate, the certificate numbers and principal amount of Old Notes
should be listed on a separate signed schedule affixed hereto.
DESCRIPTION OF OLD NOTES
<TABLE>
<CAPTION>
- -------------------------------------------------------
NAME(S) AND
ADDRESS(ES)
OF
REGISTERED
HOLDER(S) AGGREGATE
(PLEASE PRINCIPAL PRINCIPAL
FILL IN, IF CERTIFICATE AMOUNT AMOUNT
BLANK) NUMBER(S)(1) OF OLD NOTE(S) TENDERED(2)
<S> <C> <C> <C>
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
TOTAL
</TABLE>
- -------------------------------------------------------------------------------
(1) Need not be completed if Old Notes are being tendered by book-entry
transfer.
(2) Unless otherwise indicated in this column, a holder will be deemed to
have tendered ALL of the Old Notes represented by the Old Notes
indicated in column 2. See Instruction 2. Old Notes tendered hereby
must be in denominations of principal amount of $1,000 and any
integral multiple thereof. See Instruction 1.
[_] CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH.
[_] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution _________________________________________________
Account Number ______________________ Transaction Code Number _____________
[_] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING (FOR
USE BY ELIGIBLE INSTITUTIONS ONLY):
Name(s) of Registered Old Note Holder(s) ______________________________________
Window Ticket Number (if any) _________________________________________________
Date of Execution of Notice of Guaranteed Delivery ____________________________
Name of Institution which guaranteed delivery _________________________________
IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Account Number ______________________ Transaction Code Number _____________
[_] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENT OR SUPPLEMENTS
THERETO:
Name: _________________________________________________________________________
Address: ______________________________________________________________________
________________________________________________________________________
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and conditions of the Exchange Offer, the undersigned hereby
tenders to the Company the aggregate principal amount of Old Notes indicated
above. Subject to, and effective upon, the acceptance for exchange of the Old
Notes tendered in accordance with this Letter of Transmittal, the undersigned
sells, assigns and transfers to, or upon the order of, the Company all right,
title and interest in and to the Old Notes tendered hereby.
The undersigned hereby represents and warrants that (i) the undersigned is
the owner of the Old Notes tendered hereby, (ii) the undersigned has full
power and authority to tender, exchange, sell, assign and transfer the Old
Notes tendered hereby and (iii) the Company will acquire good and unencumbered
title thereto, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim when the same are accepted
by the Company. The undersigned hereby further represents to the Company that
(i) any New Notes acquired in exchange for Old Notes tendered hereby will have
been acquired in the ordinary course of business of the undersigned or such
other person receiving such New Notes, (ii) neither the holder of such Old
Notes nor any such other person is engaged in, or intends to engage in a
distribution of such New Notes, or has an arrangement or understanding with
any person to participate in the distribution of such New Notes, and (iii)
neither the holder of such Old Notes nor any such other person is an
"affiliate," as defined in Rule 405 under the Securities Act of 1933, as
amended (the "Securities Act"), of the Company.
The undersigned also acknowledges that this Exchange Offer is being made by
the Company based upon the Company's understanding of an interpretation by the
staff of the Securities and Exchange Commission (the "Commission") as set
forth in no-action letters issued to third parties, that the New Notes issued
in exchange for the Old Notes pursuant to the Exchange Offer may be offered
for resale, resold and otherwise transferred by holders thereof (other than
any such holder that is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act), without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that: (1)
such holders are not affiliates of the Company within the meaning of Rule 405
under the Securities Act; (2) such New Notes are acquired in the ordinary
course of such holders' business; and (3) such holders are not engaged in, and
do not intend to engage in, a distribution of such New Notes and have no
arrangement or understanding with any person to participate in the
distribution of such New Notes. However, the staff of the Commission has not
considered the Exchange Offer in the context of a no-action letter and there
can be no assurance that the staff of the Commission would make a similar
determination with respect to the Exchange Offer as in other circumstances. If
a holder of Old Notes is an affiliate of the Company, and is engaged in or
intends to engage in a distribution of the New Notes or has any arrangement or
understanding with respect to the distribution of the New Notes to be acquired
pursuant to the Exchange Offer, such holder could not rely on the applicable
interpretations of the staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction. If the undersigned is a
broker-dealer that will receive New Notes for its own account in exchange for
Old Notes, it represents that the Old Notes to be exchanged for the New Notes
were acquired by it as a result of market-making activities or other trading
activities and acknowledges that it will deliver a prospectus in connection
with any resale of such New Notes; however, by so acknowledging and by
delivering a prospectus, the undersigned will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may be withdrawn only in accordance
with the procedures set forth in "The Exchange Offer--Withdrawal of Tenders"
section of the Prospectus.
<PAGE>
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not
exchanged) in the name of the undersigned or, in the case of a book-entry
delivery of Old Notes, please credit the account indicated above maintained at
the Book-Entry Transfer Facility. Similarly, unless otherwise indicated under
the box entitled "Special Delivery Instructions" below, please send the New
Notes (and, if applicable, substitute certificates representing Old Notes for
any Old Notes not exchanged) to the undersigned at the address shown above in
the box entitled "Description of Old Notes."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
ABOVE AND SIGNING THIS LETTER OF TRANSMITTAL, WILL BE DEEMED TO HAVE TENDERED
THE OLD NOTES AS SET FORTH IN SUCH BOX ABOVE.
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4) (SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if To be completed ONLY if
certificates for Old Notes not certificates for Old Notes not
exchanged and/or New Notes are exchanged and/or New Notes are
to be issued in the name of and to be sent to someone other than
sent to someone other than the the person(s) whose signature(s)
person(s) whose signature(s) appear(s) on this Letter above,
appear(s) on this Letter above, or to such person(s) at an
or if Old Notes delivered by address other than shown in the
book-entry transfer which are box entitled "Description of Old
not accepted for exchange are to Notes" on this Letter above.
be returned by credit to an
account maintained at the Book-
Entry Transfer Facility other
than the account indicated
above.
Mail New Notes and/or Old Notes
to:
Name(s) _________________________
(Please Type or Print)
Issue New Notes and/or Old Notes
to:
_________________________________
(Please Type or Print)
Name(s) _________________________
(Please Type or Print) Address: ________________________
_________________________________ _________________________________
(Please Type or Print) (Including Zip Code)
Address: ________________________
(Including Zip Code)
(Complete accompanying
Substitute Form W-9)*
[_]Credit unexchanged Old Notes
delivered by book-entry
transfer to the Book-Entry
Transfer Facility account set
forth below.
_________________________________
(Book-Entry Transfer Facility
Account Number, if applicable)
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES
FOR OLD NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR
THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT
PRIOR TO 5:00 P.M., EASTERN STANDARD TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
<PAGE>
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 ON REVERSE SIDE)
Dated: ______________________________________________________________, 1996
______________________________ _____________________________, 1996
______________________________ _____________________________, 1996
(Signature of Owner) (Date)
Area Code and Telephone Number: ___________________________________________
If a holder is tendering any Old Notes, this Letter of Transmittal must
be signed by the registered holder(s) as the name(s) appear(s) on the
certificate(s) for the Old Notes or by any person(s) authorized to become
registered holder(s) by endorsements and documents transmitted herewith.
If signature is by a trustee, executor, administrator, guardian, officer
or other person acting in a fiduciary or representative capacity, please
set forth full title. See Instruction 3.
Name(s): __________________________________________________________________
____________________________________________________________________
(Please Type or Print)
Capacity: _________________________________________________________________
Address: _________________________________________________________________
____________________________________________________________________
(Including Zip Code)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by
an Eligible Institution: __________________________________________________
(Authorized Signature)
___________________________________________________________________________
(Title)
___________________________________________________________________________
(Name and Firm)
Dated: ______________________________________________________________, 1996
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER TO EXCHANGE REGISTERED
11 5/8 SENIOR NOTES DUE 2006 FOR ANY AND ALL OUTSTANDING 11 5/8% SENIOR NOTES
DUE 2006 OF OMNIPOINT CORPORATION
1. DELIVERY OF THIS LETTER AND OLD NOTES; GUARANTEED DELIVERY PROCEDURES.
This Letter is to be completed by holders of Old Notes either if
certificates are to be forwarded herewith or if tenders are to be made
pursuant to the procedures for delivery by book-entry transfer set forth in
"The Exchange Offer--Book-Entry Transfer" section of the Prospectus.
Certificates for all physically tendered Old Notes, or Book-Entry
Confirmation, as the case may be, as well as a properly completed and duly
executed Letter of Transmittal (or facsimile thereof) and any other documents
required by this Letter, must be received by the Exchange Agent at the address
set forth herein on or prior to the Expiration Date, or the tendering holder
must comply with the guaranteed delivery procedures set forth below. Old Notes
tendered hereby must be in denominations of principal amount of maturity of
$1,000 and any integral multiple thereof.
Holders of Old Notes whose certificates for Old Notes are not immediately
available or who cannot deliver their certificates and all other required
documents to the Exchange Agent on or prior to the Expiration Date, or who
cannot complete the procedure for book-entry transfer on a timely basis, may
tender their Old Notes pursuant to the guaranteed delivery procedures set
forth in "The Exchange Offer--Guaranteed Delivery Procedures" section of the
Prospectus. Pursuant to such procedures, (i) such tender must be made through
an Eligible Institution (as defined below), (ii) prior to the Expiration Date,
the Exchange Agent must receive from such Eligible Institution a properly
completed and duly executed Letter of Transmittal (or facsimile thereof) and
Notice of Guaranteed Delivery, substantially in the form provided by the
Company (by facsimile transmission, mail or hand delivery), setting forth the
name and address of the holder of Old Notes and the amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing that
within five business days after the date of execution of the Notice of
Guaranteed Delivery, the certificates for all physically tendered Old Notes,
or a Book-Entry Confirmation, as the case may be, and any other documents
required by this Letter will be deposited by the Eligible Institution with the
Exchange Agent, and (iii) the certificates for all physically tendered Old
Notes, in proper form for transfer, or Book-Entry Confirmation, as the case
may be, and all other documents required by this Letter, are received by the
Exchange Agent within five business days after the date of execution of the
Notice of Guaranteed Delivery.
The method of delivery of this Letter, the Old Notes and all other required
documents is at the election and risk of the tendering holders, but the
delivery will be deemed made only when actually received or confirmed by the
Exchange Agent. If Old Notes are sent by mail, it is suggested that the
mailing be made sufficiently in advance of the Expiration Date to permit
delivery to the Exchange Agent prior to 5:00 p.m., Eastern Standard Time, on
the Expiration Date.
See "The Exchange Offer" section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO HOLDERS OF OLD NOTES WHO TENDER BY BOOK-
ENTRY TRANSFER).
If less than all of the Old Notes evidenced by a submitted certificate are
to be tendered, the tendering holder(s) should fill in the aggregate principal
amount of Old Notes to be tendered in the box above entitled "Description of
Old Notes--Principal Amount Tendered." A reissued certificate representing the
balance of nontendered Old Notes will be sent to such tendering holder, unless
otherwise provided in the appropriate box on this Letter, promptly after the
Expiration Date. ALL OF THE OLD NOTES DELIVERED TO THE EXCHANGE AGENT WILL BE
DEEMED TO HAVE BEEN TENDERED UNLESS OTHERWISE INDICATED.
3. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES.
If this Letter is signed by the registered holder of the Old Notes tendered
hereby, the signature must correspond exactly with the name as written on the
face of the certificates without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all such owners must sign this Letter.
<PAGE>
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter as there are different registrations of
certificates.
When this Letter is signed by the registered holder of the Old Notes
specified herein and tendered hereby, no endorsements of certificates or
separate bond powers are required. If, however, the New Notes are to be
issued, or any untendered Old Notes are to be reissued, to a person other than
the registered holder, then endorsements of any certificates transmitted
hereby or separate bond powers are required. Signatures on such certificates
must be guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered holder of any
certificates specified herein, such certificates must be endorsed or
accompanied by appropriate bond powers, in either case signed exactly as the
name of the registered holder appears on the certificates and the signatures
on such certificates must be guaranteed by an Eligible Institution.
If this Letter or any certificates or bond powers are signed by trustees,
executors, administrators, guardians, attorney-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must
be submitted.
ENDORSEMENTS ON CERTIFICATES FOR OLD NOTES OR SIGNATURES ON BOND POWERS
REQUIRED BY THIS INSTRUCTION 3 MUST BE GUARANTEED BY A FIRM WHICH IS A MEMBER
OF A REGISTERED NATIONAL SECURITIES EXCHANGE OR A MEMBER OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC. OR BY A COMMERCIAL BANK OR TRUST
COMPANY HAVING AN OFFICE OR CORRESPONDENT IN THE UNITED STATES (AN "ELIGIBLE
INSTITUTION").
SIGNATURES ON THIS LETTER NEED NOT BE GUARANTEED BY AN ELIGIBLE INSTITUTION,
PROVIDED THE OLD NOTES ARE TENDERED: (I) BY A REGISTERED HOLDER OF OLD NOTES
(WHICH TERM, FOR PURPOSES OF THE EXCHANGE OFFER, INCLUDES ANY PARTICIPANT IN
THE BOOK-ENTRY TRANSFER FACILITY SYSTEM WHOSE NAME APPEARS ON A SECURITY
POSITION LISTING AS THE HOLDER OF SUCH OLD NOTES) TENDERED WHO HAS NOT
COMPLETED THE BOX ENTITLED "SPECIAL ISSUANCE INSTRUCTIONS" OR "SPECIAL
DELIVERY INSTRUCTIONS" ON THIS LETTER, OR (II) FOR THE ACCOUNT OF AN ELIGIBLE
INSTITUTION.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders of Old Notes should indicate in the applicable box the
name and address to which New Notes issued pursuant to the Exchange Offer
and/or substitute certificates evidencing Old Notes not exchanged are to be
issued or sent, if different from the name or address of the person signing
this Letter. In the case of issuance in a different name, the employer
identification or social security number of the person named must also be
indicated. A holder of Old Notes tendering Old Notes by book-entry transfer
may request that Old Notes not exchanged be credited to such account
maintained at the Book-Entry Transfer Facility as such holder of Old Notes may
designate hereon. If no such instructions are given, such Old Notes not
exchanged will be returned to the name or address of the person signing this
Letter.
5. TAX IDENTIFICATION NUMBER.
Federal income tax law generally requires that a tendering holder whose Old
Notes are accepted for exchange must provide the Company (as payor) with such
holder's correct Taxpayer Identification Number ("TIN") on Substitute Form W-9
below, which, in the case of a tendering holder who is an individual, is his
or her social security number. If the Company is not provided with the current
TIN or an adequate basis for as exemption, such tendering holder may be
subject to a $50 penalty imposed by the Internal Revenue Service. In addition,
delivery of New Notes to such tendering holder may be subject to backup
withholding in an amount equal to 31% of all reportable payments made after
the exchange. If withholding results in an overpayment of taxes, a refund may
be obtained.
Exempt holders of Old Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. See the enclosed Guidelines of Certification of
Taxpayer Identification Number on Substitute Form W-9 (the "W-9 Guidelines")
for additional instructions.
<PAGE>
To prevent backup withholding, each tendering holder of Old Notes must
provide its correct TIN by completing the "Substitute Form W-9" set forth
below, certifying that the TIN provided is correct (or that such holder is
awaiting a TIN) and that (i) the holder is exempt from backup withholding,
(ii) the holder has not been notified by the Internal Revenue Service that
such holder is subject to a backup withholding as a result of a failure to
report all interest or dividends or (iii) the Internal Revenue Service has
notified the holder that such holder is no longer subject to backup
withholding. If the tendering holder of Old Notes is a nonresident, alien or
foreign entity not subject to backup withholding, such holder must give the
Company a completed Form W-8, Certificate of Foreign Status. These forms may
be obtained from the Exchange Agent. If the Old Notes are in more than one
name or are not in the name of the actual owner, such holder should consult
the W-9 Guidelines for information on which TIN to report. If such holder does
not have a TIN, such holder should consult the W-9 Guidelines for instructions
on applying for a TIN, check the box in Part 2 of the Substitute Form W-9 and
write "applied for" in lieu of its TIN. Note: checking this box and writing
"applied for" on the form means that such holder has already applied for a TIN
or that such holder intends to apply for one in the near future. If such
holder does not provide its TIN to the Company within 60 days, backup
withholding will begin and continue until such holder furnishes its TIN to the
Company.
6. TRANSFER TAXES.
The Company will pay all transfer taxes, if any, applicable to the transfer
of Old Notes to it or its order pursuant to the Exchange Offer. If, however,
New Notes and/or substitute Old Notes not exchanged are to be delivered to, or
are to be registered or issued in the name of, any person other than the
registered holder of the Old Notes tendered hereby, or if tendered Old Notes
are registered in the name of any person other than the person signing this
Letter, or if a transfer tax is imposed for any reason other than the transfer
of Old Notes to the Company or its order pursuant to the Exchange Offer, the
amount of any such transfer taxes (whether imposed on the registered holder or
any other persons) will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted
herewith, the amount of such transfer taxes will be billed directly to such
tendering holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT NOT BE NECESSARY FOR TRANSFER
TAX STAMPS TO BE AFFIXED TO THE OLD NOTES SPECIFIED IN THIS LETTER.
7. WAIVER OF CONDITIONS.
The Company reserves the absolute right to waive satisfaction of any or all
conditions enumerated in the Prospectus.
8. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tending holders of Old Notes, by execution of this Letter, shall
waive any right to receive notice of the acceptance of their Old Notes for
exchange.
Neither the Company, the Exchange Agent nor any other person is obligated to
give notice of any defect or irregularity with respect to any tender of Old
Notes nor shall any of them incur any liability for failure to give any such
notice.
9. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES.
Any holder whose Old Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter, may be directed to the
Exchange Agent, at the address and telephone number indicated above.
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYOR'S NAME: OMNIPOINT CORPORATION
PART 1--PLEASE PROVIDE YOUR TIN:
TIN IN THE BOX AT RIGHT AND -----------------
CERTIFY BY SIGNING AND Social security
DATING BELOW. number or Employer
identification
number
SUBSTITUTE
FORM W-9 PART 2--TIN Applied For [_]
DEPARTMENT OF -----------------------------------------------------
THE TREASURY
INTERNAL CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I
REVENUE SERVICE CERTIFY THAT:
-----------------------------------------------------
(1) the number shown on this form is my correct
Taxpayer Identification Number (or I am
waiting for a number to be issued to me);
PAYER'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER (TIN) AND CERTIFICATION
(2) I am not subject to backup withholding either
because: (a) I am exempt from backup
withholding, (b) I have not been notified by
the Internal Revenue Service (the "IRS") that
I am subject to backup withholding as a result
of a failure to report all interests or
dividends, or (c) the IRS has notified me that
I am no longer subject to backup withholding;
and
(3) any other information provided on this form is
true and correct.
SIGNATURE DATE
--------------- ------------------
- --------------------------------------------------------------------------------
You must cross out item (2) of the above certification if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting of interest or dividends on your tax return and you have
not been notified by the IRS that you are no longer subject to backup
withholding.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 2 OF
SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(b) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by the
time of the exchange, 31 percent of all reportable payments made to me
thereafter will be withheld until I provide a number.
Signature Date
-------------------------- -------------------------------
<PAGE>
NOTICE OF GUARANTEED DELIVERY FOR
OMNIPOINT CORPORATION
This form or one substantially equivalent hereto must be used to accept the
Exchange Offer of Omnipoint Corporation (the "Company") made pursuant to the
Prospectus, dated , 1996 (the "Prospectus"), and the enclosed Letter of
Transmittal (the "Letter of Transmittal") if certificates for Old Notes of the
Company are not immediately available or if the procedure for book-entry
transfer cannot be completed on a timely basis or time will not permit all
required documents to reach the Company prior to 5:00 P.M., Eastern Standard
Time, on the Expiration Date of the Exchange Offer. Such form may be delivered
or transmitted by facsimile transmission, mail or hand delivery to Marine
Midland Bank (the "Exchange Agent") as set forth below. In addition, in order
to utilize the guaranteed delivery procedure to tender Old Notes pursuant to
the Exchange Offer, a completed, signed and dated Letter of Transmittal (or
facsimile thereof) must also be received by the Exchange Agent prior to 5:00
P.M., Eastern Standard Time, on the Expiration Date. Capitalized terms not
defined herein are defined in the Prospectus.
Delivery To: Marine Midland Bank, Exchange Agent
By Registered or Certified Mail;
By Overnight Courier; or By Hand:
Marine Midland Bank
140 Broadway--Level A
New York, New York 10005-1180
Attention: Corporation Trust Operations
By Facsimile: (212) 658-2292
Attention: Corporate Trust Operations
Telephone: (212) 658-5931
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the
Company the principal amount of Old Notes set forth below, pursuant to the
guaranteed delivery procedure described in "The Exchange Offer--Guaranteed
Delivery Procedures" section of the Prospectus.
Principal Amount of Old Notes Tendered:
$ ___________________________________ If Old Notes will be delivered by
book entry transfer to The
Depository Trust Company, provide
account number.
Certificate Nos. (if available):
_____________________________________
Account Number ______________________
Total Principal Amount Represented
by Old Notes Certificates(s):
$ ___________________________________
<PAGE>
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All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned any every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned.
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PLEASE SIGN HERE
X
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X
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Signature(s) of Owner(s) Date
or Authorized Signatory
Area Code and Telephone Number:
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Must be signed by the holder(s) of Old Notes as the name(s) of such
holder(s) appear(s) on the Old Notes certificate(s) or on a security position
listing, or by person(s) authorized to become registered holder(s) by
endorsement and documents transmitted with this Notice of Guaranteed Delivery.
If any signature is by a trustee, executor, administrator, guardian, attorney-
in-fact, officer or other person acting in a fiduciary or representative
capacity, such person must set forth his or her full title below.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s):
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Capacity:
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Address(es):
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<PAGE>
GUARANTEE
The undersigned, a member of a registered national securities exchange, or a
member of the National Association of Securities Dealers, Inc., or a
commercial bank or trust company having an office or correspondent in the
United States, hereby guarantees that the certificates representing the
principal amount of Old Notes tendered hereby in proper form for transfer, or
timely confirmation of the book-entry transfer of such Old Notes into the
Exchange Agent's account at The Depository Trust Company pursuant to the
procedures set forth in "The Exchange Offer--Guaranteed Delivery Procedures"
section of the Prospectus, together with a properly completed and duly
executed Letter of Transmittal (or facsimile thereof) with any required
signature guarantee and any other documents required by the Letter of
Transmittal, will be received by the Exchange Agent at the address set forth
above, no later than five business days after the date of execution hereof.
_____________________________________ _____________________________________
Name of Firm Authorized Signature
_____________________________________ _____________________________________
Address Title
_____________________________________ Name: _______________________________
Zip Code (Please Type or Print)
Area Code and Tel. No.: _____________ Dated: ______________________________
NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM. CERTIFICATES FOR
OLD NOTES SHOULD ONLY BE SENT WITH YOUR LETTER OF TRANSMITTAL.
<PAGE>
OMNIPOINT CORPORATION
OFFER TO EXCHANGE ITS REGISTERED
11 5/8% SENIOR NOTES DUE 2006
FOR ANY AND ALL OF ITS OUTSTANDING
11 5/8% SENIOR NOTES DUE 2006
TO:BROKERS, DEALERS, COMMERCIAL BANKS,
TRUST COMPANIES AND OTHER NOMINEES:
OMNIPOINT CORPORATION (THE "COMPANY") IS OFFERING TO EXCHANGE (THE "EXCHANGE
OFFER"), UPON AND SUBJECT TO THE TERMS AND CONDITIONS SET FORTH IN THE
PROSPECTUS, DATED , 1996 (THE "PROSPECTUS"), AND THE ENCLOSED LETTER OF
TRANSMITTAL (THE "LETTER OF TRANSMITTAL"), ITS REGISTERED 11 5/8% SENIOR NOTES
DUE 2006 (THE "NEW NOTES") FOR ANY AND ALL OF ITS OUTSTANDING 11 5/8% SENIOR
NOTES DUE 2006 (THE "OLD NOTES"). THE EXCHANGE OFFER IS BEING MADE IN ORDER TO
SATISFY CERTAIN OBLIGATIONS OF THE COMPANY CONTAINED IN THE REGISTRATION
RIGHTS AGREEMENT DATED AS OF AUGUST 27, 1996, BETWEEN THE COMPANY AND THE
INITIAL PURCHASERS.
We are requesting that you contact your clients for whom you hold Old Notes
regarding the Exchange Offer. For your information and for forwarding to your
clients for whom you hold Old Notes registered in your name or in the name of
your nominee, or who hold Old Notes registered in their own names, we are
enclosing the following documents:
1. Prospectus dated , 1996;
2. The Letter of Transmittal for your use and for the information of your
clients;
3. A Notice of Guaranteed Delivery to be used to accept the Exchange
Offer if certificates for Old Notes are not immediately available or time
will not permit all required documents to reach the Exchange Agent prior to
the Expiration Date (as defined below) or if the procedure for book-entry
transfer cannot be completed on a timely basis;
4. A form of letter which may be sent to your clients for whose account
you hold Old Notes registered in your name or the name of your nominee,
with space provided for obtaining such clients' instructions with regard to
the Exchange Offer;
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
6. Return envelopes addressed to Marine Midland Bank, the Exchange Agent
for the Old Notes.
YOUR PROMPT ACTION IS REQUESTED. THE EXCHANGE OFFER WILL EXPIRE AT 5:00
P.M., EASTERN STANDARD TIME, ON , 1996 (THE "EXPIRATION DATE") (20
BUSINESS DAYS FOLLOWING THE COMMENCEMENT OF THE EXCHANGE OFFER), UNLESS
EXTENDED BY THE COMPANY. THE OLD NOTES TENDERED PURSUANT TO THE EXCHANGE OFFER
MAY BE WITHDRAWN AT ANY TIME BEFORE 5:00 P.M., EASTERN STANDARD TIME, ON THE
EXPIRATION DATE.
To participate in the Exchange Offer, a duly executed and properly completed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees and any other required documents, should be sent to the Exchange
Agent and certificates representing the Old Notes should be delivered to the
Exchange Agent, all in accordance with the instructions set forth in the
Letter or Transmittal and the Prospectus.
If holders of Old Notes wish to tender, but it is impracticable for them to
forward their certificates for Old Notes prior to the expiration of the
Exchange Offer or to comply with the book-entry transfer procedures on a
timely basis, a tender may be effected by following the guaranteed delivery
procedures described in the Prospectus under "The Exchange Offer--Guaranteed
Delivery Procedures."
The Company will, upon request, reimburse brokers, dealers, commercial banks
and trust companies for reasonable and necessary costs and expenses incurred
by them in forwarding the Prospectus and the related
<PAGE>
documents to the beneficial owners of Old Notes held by them as nominee or in
a fiduciary capacity. The Company will pay or cause to be paid all stock
transfer taxes applicable to the exchange of Old Notes pursuant to the
Exchange Offer, except as set forth in Instruction 6 of the Letter of
Transmittal.
Any inquiries you may have with respect to the Exchange Offer, or requests
for additional copies of the enclosed materials, should be directed to the
Exchange Agent for the Old Notes, at its address and telephone number set
forth on the front of the Letter of Transmittal.
Very truly yours,
Omnipoint Corporation
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
OTHER PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE
YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF
OF EITHER OF THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS
EXPRESSLY MADE IN THE PROSPECTUS OR THE LETTER OF TRANSMITTAL.
<PAGE>
OMNIPOINT CORPORATION
OFFER TO EXCHANGE ITS REGISTERED
11 5/8% SENIOR NOTES DUE 2006
FOR ANY AND ALL OF ITS OUTSTANDING
11 5/8% SENIOR NOTES DUE 2006
TO: OUR CLIENTS
Enclosed for your consideration is a Prospectus, dated , 1996 (the
"Prospectus"), and the enclosed Letter of Transmittal (the "Letter of
Transmittal"), relating to the offer (the "Exchange Offer") of Omnipoint
Corporation (the "Company") to exchange its registered 11 5/8% Senior Notes
due 2006 (the "New Notes") for any and all of its outstanding 11/ 5/8% Senior
Notes due 2006 (the "Old Notes"), upon the terms and subject to the conditions
described in the Prospectus. The Exchange Offer is being made in order to
satisfy certain obligations of the Company contained in the Registration
Rights Agreement dated as of August 27, 1996, between the Company and the
Initial Purchasers thereto.
This material is being forwarded to you as the beneficial owner of the Old
Notes carried by us in your account but not registered in your name. A TENDER
OF SUCH OLD NOTES MAY ONLY BE MADE BY US AS THE HOLDER OF RECORD AND PURSUANT
TO YOUR INSTRUCTIONS.
Accordingly, we request instructions as to whether you wish us to tender on
your behalf the Old Notes held by us for your account, pursuant to the terms
and conditions set forth in the enclosed Prospectus and Letter of Transmittal.
Your instructions should be forwarded to us as promptly as possible in order
to permit us to tender the Old Notes on your behalf in accordance with the
provisions of the Exchange Offer. The Exchange Offer will expire at 5:00 p.m.,
Eastern Standard Time, on , 1996, (the "Expiration Date") (20 business
days following the commencement of the Exchange Offer) unless extended by the
Company. Any Old Notes tendered pursuant to the Exchange Offer may be
withdrawn at any time before 5:00 p.m., Eastern Standard Time, on the
Expiration Date.
Your attention is directed to the following:
1. The Exchange Offer is for any and all Old Notes.
2. The Exchange Offer is subject to certain conditions set forth in the
Prospectus in the section captioned "The Exchange Offer--Conditions."
3. Any transfer taxes incident to the transfer of Old Notes from the
holder to the Company will be paid by the Company, except as otherwise
provided in the Instructions in the Letter of Transmittal.
4. The Exchange Offer expires at 5:00 p.m., Eastern Standard Time, on the
Expiration Date, unless extended by the Company.
If you wish to have us tender your Old Notes, please so instruct us by
completing, executing and returning to us the instruction form on the back of
this letter. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR INFORMATION
ONLY AND MAY NOT BE USED DIRECTLY BY YOU TO TENDER OLD NOTES.
<PAGE>
INSTRUCTIONS WITH RESPECT TO
THE EXCHANGE OFFER
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer made by Omnipoint
Corporation with respect to its Old Notes.
This will instruct you to tender the Old Notes held by you for the account
of the undersigned, upon and subject to the terms and conditions set forth in
the Prospectus and the related Letter of Transmittal.
Please tender the Old Notes held by you for my account as indicated below:
AGGREGATE PRINCIPAL AMOUNT OF OLD
11 5/8% Senior Notes due 2006........ NOTES
[_]Please do not tender any Old _____________________________________
Notes held by you for my account.
_____________________________________
Dated: , 1996
_____________________________________
Signature(s)
_____________________________________
_____________________________________
_____________________________________
Please print name(s) here
_____________________________________
_____________________________________
Address(es)
_____________________________________
Area Code(s) and Telephone Number(s)
_____________________________________
Tax Identification or Social
Security No(s).
None of the Old Notes held by us for your account will be tendered unless we
receive written instructions from you to do so. Unless a specific contrary
instruction is given in the space provided, your signature(s) hereon shall
constitute an instruction to us to tender all the Old Notes held by us for
your account.
