<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 28, 1996.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
GENERAL WIRELESS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 4812 75-2550006
(PRIMARY STANDARD (I.R.S. EMPLOYER
(STATE OR OTHER INDUSTRIAL IDENTIFICATION NUMBER)
JURISDICTION OF CLASSIFICATION CODE
INCORPORATION OR NUMBER)
ORGANIZATION)
----------------
6688 N. CENTRAL EXPRESSWAY
DALLAS, TEXAS 75206
(214) 373-0494
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
THE REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
ROGER D. LINQUIST
PRESIDENT AND CHIEF EXECUTIVE OFFICER
GENERAL WIRELESS, INC.
6688 N. CENTRAL EXPRESSWAY
DALLAS, TEXAS 75206
(214) 373-0494
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
COPIES TO:
EDWARD M. LEONARD, ESQ. JOHN D. WATSON, JR., ESQ.
BROBECK, PHLEGER & HARRISON LLP LATHAM & WATKINS
TWO EMBARCADERO PLACE 1001 PENNSYLVANIA AVE., N.W.
PALO ALTO, CALIFORNIA 94303 WASHINGTON, D.C. 20004-2505
(415) 424-0160 (202) 637-2200
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Senior Discount Notes due 2006.............. $220,000,000 $75,863
</TABLE>
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(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a).
----------------
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 THAT 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 SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE.
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<PAGE>
GENERAL WIRELESS, INC.
CROSS-REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF FORM S-1
<TABLE>
<CAPTION>
FORM S-1 REGISTRATION STATEMENT
ITEM AND HEADING HEADING OR LOCATION IN PROSPECTUS
------------------------------- ---------------------------------
<S> <C>
1.Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus....... Outside Front Cover Page
2.Inside Front and Outside Back
Cover Pages of Prospectus...... Inside Front Cover Page
3.Summary Information, Risk Factors
and Ratio of Earnings to Fixed Prospectus Summary; The Company; Risk
Charges........................ Factors
4.Use of Proceeds.................. Prospectus Summary; Use of Proceeds
5.Determination of Offering Price.. Not Applicable
6.Dilution......................... Not Applicable
7.Plan of Distribution............. Outside Front Cover Page; Underwriting
8.Description of Securities to be Prospectus Summary; Capitalization;
Registered..................... Description of Senior Discount Notes;
Certain Federal Income Tax Considerations
9.Interests of Named Experts and Experts; Legal Matters
Counsel........................
10.Information with Respect to the Outside and Inside Front Cover Pages;
Registrant..................... Prospectus Summary; The Company; Risk
Factors; Use of Proceeds; Capitalization;
Selected Consolidated Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management; Certain
Transactions; Principal Stockholders;
Description of Senior Discount Notes;
Description of Certain Indebtedness;
Experts; Financial Statements
11.Disclosure of Commission Position
on Indemnification for
Securities Act Liabilities..... Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 28, 1996
PROSPECTUS
$220,000,000 GROSS PROCEEDS
GENERAL WIRELESS, INC.
% SENIOR DISCOUNT NOTES DUE 2006
The Senior Discount Notes due 2006 (the "Senior Discount Notes") are being
offered (the "Senior Discount Notes Offering") by General Wireless, Inc.
("General Wireless" or the "Company"). The issue price of each of the Senior
Discount Notes will be $ per $1,000 principal amount at maturity of the
Senior Discount Notes. The Senior Discount Notes will mature on , 2006.
The Senior Discount Notes will be issued at a substantial discount from their
principal amount. Cash interest will not accrue on the Senior Discount Notes
prior to , 2001. Commencing , 2001, cash interest on the Senior
Discount Notes will be payable semi-annually in arrears on and at a
rate of % per annum. Holders of the Senior Discount Notes will be required to
report income for tax purposes in advance of the receipt of cash payments to
which such income is attributable. See "Certain Federal Income Tax
Considerations."
The Senior Discount Notes will be redeemable at the option of the Company at
any time, in whole or in part, on or after , 2001, at the redemption prices
set forth herein, plus accrued and unpaid interest, if any, to the date of
redemption. In addition, at any time prior to , 1999, the Company may
redeem up to 35% of the aggregate principal amount at maturity of Senior
Discount Notes with the Net Cash Proceeds (as defined herein) of (i) one or
more public offerings for the Company's Common Stock or (ii) a sale of the
Company's Common Stock to a Strategic Equity Investor (as defined herein), in
either case for gross proceeds of at least $ million, at a price equal to
% of the Accreted Value (as defined herein) of the Senior Discount Notes
(determined at the redemption date) provided that not less than 65% of the
Senior Discount Notes originally issued remain outstanding immediately after
giving effect to such redemption. In addition, in the event of a Change of
Control (as defined herein) prior to , 2001, each holder of the Senior
Discount Notes will have the right to require the Company to repurchase all or
any part of such holder's Senior Discount Notes at a repurchase price equal to
101% of the Accreted Value thereof or, in the case of any such purchase on or
after , 2001, at 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of any such purchase.
The Company also is offering (the "Stock Offering" and together with the
Senior Discount Notes Offering, the "Offerings") shares of its Class C
Common Stock (the "Class C Common Stock"). The consummation of the Senior
Discount Notes Offering is conditioned on the closing of the Stock Offering.
The Company is applying for quotation of the Class C Common Stock on the Nasdaq
National Market under the symbol GWIR.
The Company is a holding company with limited assets of its own that conducts
substantially all of its business through its subsidiaries. The Senior Discount
Notes will represent general senior unsecured obligations of the Company and
will be effectively subordinated to all liabilities of the Company's
subsidiaries including trade payables and indebtedness that may be incurred by
the Company's subsidiaries under certain vendor financing arrangements. As of
, 1996, after giving pro forma effect to the Senior Discount Notes
Offering, the Stock Offering and the incurrence of indebtedness to the federal
government in respect of certain licenses and the application of the net
proceeds therefrom, but without giving effect to the indebtedness expected to
be incurred by the Company's subsidiaries under certain vendor and other
financing arrangements, the Company's subsidiaries would have had approximately
$ of indebtedness outstanding, to which holders of the Senior Discount Notes
would have been effectively subordinated in right of payment. Such subsidiaries
are expected to incur substantial additional indebtedness in the next several
years.
The Company is applying for quotation of the Senior Discount Notes on an
exchange under the symbol .
----------
INVESTMENT IN THE SENIOR DISCOUNT NOTES OFFERED HEREBY CONSTITUTES A HIGH
DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF
CERTAIN RISKS ASSOCIATED WITH AN INVESTMENT IN THE SENIOR DISCOUNT NOTES.
----------
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.
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<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PRICE TO DISCOUNTS AND PROCEEDS TO
AT MATURITY THE PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Senior Discount
Note..................
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Total.................. $ $ $ $
</TABLE>
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(1) Plus the amount of accrued original issue discount, if any, from ,
1996.
(2) The Company has agreed to indemnify the Underwriters (as defined herein)
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(3) Before deducting offering expenses payable by the Company estimated at
$ .
----------
The Senior Discount Notes are offered subject to prior sale, when, as and if
delivered to and accepted by the Underwriters, and subject to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Senior Discount Notes will be made on or about at the office
of Bear, Stearns & Co. Inc., New York, N.Y.
BEAR, STEARNS & CO. INC.
LEHMAN BROTHERS
SALOMON BROTHERS INC
DILLON, READ & CO. INC.
, 1996
<PAGE>
GENERAL WIRELESS PCS MARKETS
19.8 MILLION POPS
[GRAPHIC OF MAP OF UNITED STATES WITH ENLARGEMENTS DEPICTING
THE COMPANY'S MARKETS IN THE SAN FRANCISCO-NORTHERN CALIFORNIA REGION,
THE MIAMI-SOUTHERN FLORIDA REGION AND
THE ATLANTA-NORTHERN GEORGIA REGION APPEARS HERE.]
<TABLE>
<CAPTION>
SAN FRANCISCO CLUSTER MIAMI CLUSTER ATLANTA CLUSTER
- --------------------------------- ------------------------ -----------------
<S> <C> <C>
(10.0 million POPs) (5.6 million POPs) (4.1 million POPs)
.San Francisco--Oakland--San Jose .Miami--Fort Lauderdale .Atlanta
.Sacramento .West Palm Beach .Gainesville
.Monterey--Salinas .Fort Myers .Athens
.Stockton .Naples
.Chico--Oroville .Fort Pierce--Vero Beach
.Yuba City--Marysville
</TABLE>
IN CONNECTION WITH THE STOCK OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS
C COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
General Wireless, Inc. and the General Wireless logo are trademarks of the
Company. This Prospectus also includes trademarks of companies other than the
Company.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and consolidated financial
statements and notes thereto appearing elsewhere in this Prospectus. Unless
otherwise indicated, the information in this Prospectus, other than the
historical financial information, (i) assumes and gives effect to the
completion of the Offerings, (ii) does not give effect to the exercise of the
Underwriters' over-allotment option in the Stock Offering, (iii) assumes that
the Company will be granted the personal communications services ("PCS")
licenses for which the Company was the high bidder in the recently completed 30
MHz C-Block auction (the "C-Block Auction") conducted by the Federal
Communications Commission ("FCC") and (iv) reflects a 20-for-1 stock split to
be effected prior to the effective date of the Stock Offering. As used in this
Prospectus with respect to a given area, the term "POPs" refers to the
aggregate number of persons located in such area, based on the 1995 estimated
U. S. population data in the 1995 PCS Atlas and Data Book published by Paul
Kagan Associates, Inc. ("Kagan Associates"). See the "Glossary" beginning on
page 95 for a definition of certain terms used herein. Certain of the
information contained in this summary and elsewhere in this Prospectus,
including information with regard to the Company's business, are forward-
looking statements. For a discussion of important factors that could affect
such matters, see "Risk Factors" beginning on page 10.
THE COMPANY
General Wireless intends to become a leading provider of affordable wireless
communications services. The Company holds PCS licenses to serve the rapidly
growing metropolitan areas of San Francisco, Atlanta and Miami (the
"Metropolitan Areas"), as well as 11 selected high-growth contiguous markets.
In total, the Company's markets contain 19.8 million POPs, approximately 71% of
which are located in the Metropolitan Areas. The Company believes that this is
the highest percentage of total POPs located in densely populated urban markets
(markets having at least three million POPs) of any PCS or cellular operator in
the United States. Additionally, the Company believes its markets are
particularly attractive because of their high historical and projected
population growth rates, as well as other desirable demographic
characteristics, such as high population densities, favorable business
climates, high median household income levels and long commute times. From 1990
through 1995, the aggregate population of the Company's markets has grown at
over 150% of the national rate and is expected to continue to grow at a rate
above the national average. The Company plans to initiate service on its PCS
networks by the end of 1997.
The demand for wireless communications services in the United States has
grown dramatically during the last five years, notwithstanding the technical
limitations of existing analog cellular technology. The number of cellular
subscribers has grown from 5.3 million at December 31, 1990 to 33.8 million at
December 31, 1995, representing a compound annual growth rate of 45%. Over the
same time period, the wireless telephony penetration rate has grown from
approximately 3% to approximately 13%, and is forecasted by Kagan Associates to
reach approximately 48% by 2006.
The Company believes that, due to relatively high per minute airtime charges
and unpredictable monthly bills, there is a price-sensitive mass consumer
market that refrains from subscribing to or extensively using cellular
services. The Company believes that if the mass consumer market were offered
significantly lower per minute airtime charges and more predictable and
affordable pricing plans, mass consumers would increase their use of wireless
communications services, contributing to a new phase of growth in the industry.
The Company also believes that business customers who are high-volume users of
wireless communications services will be attracted to lower priced airtime
service, as such high-volume users would realize substantial aggregate savings.
3
<PAGE>
STRATEGY
The Company intends to become a leading provider of affordable wireless
communications services. The Company's strategy to achieve this objective is
based upon the following:
OPERATE IN LARGE, RAPIDLY GROWING MARKETS WITH ATTRACTIVE DEMOGRAPHIC
PROFILES. The Company believes there are significant advantages created by
focusing on densely populated major metropolitan markets. First, cell site
efficiencies can be maximized in densely populated areas, thereby reducing
network build-out costs per subscriber and providing greater pricing
flexibility. Accordingly, the Company can achieve a higher ratio of population
coverage to geographic coverage relative to PCS and cellular operators in less
densely populated markets. Second, these markets have multiple business centers
and residential areas that generally have a high demand for mobile
communications services. Third, analog cellular operators typically face
significant capacity constraints in high traffic areas. Fourth, major markets
have numerous local, regional and national retailers as well as agents and
resellers that can facilitate rapid growth by new wireless entrants.
USE A FOCUSED NETWORK BUILD-OUT TO ACHIEVE LOW COSTS. General Wireless
intends to achieve lower operating costs and capital requirements relative to
its PCS and cellular competitors by concentrating its network build-out in
"high-usage areas" rather than building out wide-area cellular-like networks.
The Company defines "high-usage areas" as those areas where the majority of the
population lives, commutes, works and shops. These areas primarily include
densely populated urban areas, commuting corridors and high-growth suburban
areas. The Company plans to limit the construction of its networks outside of
these high-usage areas because it believes the incremental cost of building out
such network coverage is substantial and is inconsistent with the Company's
objective to be the low cost provider of wireless communications services.
Based on network design analysis completed to date, the Company plans to spend
approximately $13 per POP through the end of 1998 for the build-out of its PCS
networks, which would provide coverage to approximately 80% of the aggregate
population of its markets. The Company believes its per POP network build-out
costs will be significantly less than its competitors. The Company believes its
focused build-out strategy differs from the strategy of many existing cellular
operators and from the expected strategy of many PCS operators that are
expected to compete by placing greater emphasis on coverage area rather than on
airtime prices. The Company's strategy parallels those used by certain
competitive local exchange carriers ("CLECs") and interexchange carriers
("IXCs") that have targeted specific coverage areas of major markets and are
interconnected to other carriers' facilities for expanded coverage.
Additionally, the Company intends to use the most cost-effective digital
technology and outsource selected technical and administrative functions.
IMPLEMENT AN INNOVATIVE AND AFFORDABLE PRICING STRUCTURE. General Wireless
plans to implement an innovative and affordable pricing structure to capitalize
on wireless customers' demand sensitivity to price. The Company believes that a
substantial market opportunity exists to narrow the pricing gap between
cellular airtime and wireline telephone rates, which today approximate 45 cents
and 5 cents per minute of use, respectively. Relative to current cellular
service packages, General Wireless expects to offer service packages that
include larger blocks of prepaid minutes consisting of both peak and off-peak
airtime at significantly lower effective prices per minute. Based on this
pricing strategy, General Wireless expects to realize average revenue per unit
("ARPU") similar to that currently achieved by cellular operators without
negatively impacting its operating margins. Additionally, the Company believes
that its cost structure will better support more affordable pricing relative to
PCS competitors that provide wide-area cellular-like coverage.
MAXIMIZE CUSTOMER REACH THROUGH EXTENSIVE USE OF INDIRECT DISTRIBUTION
CHANNELS. The Company's distribution strategy will emphasize indirect channels
in general, and retailers in particular. The Company believes it will realize
several important advantages from this distribution strategy. First, the
Company believes that the use of multiple indirect channels will enable the
Company to achieve a fast ramp-up of subscribers through representation at
numerous points of purchase. Second, the Company believes that indirect
distribution channels will cost-effectively focus the Company's sales and
marketing resources directly on customer creation,
4
<PAGE>
as opposed to investment in Company stores and related infrastructure. Third,
the focus on retailers and agents, rather than resellers, will better allow the
Company to maintain a direct relationship with its customer base through
billing and customer service. The Company believes that direct contact with its
customers will allow it to realize better customer satisfaction and achieve
lower churn.
FINANCING PLAN
The Company expects its financing plan to fund the Company's business through
at least the end of 1998. In the recently completed C-Block Auction, the
Company bid in the aggregate approximately $1.1 billion for its PCS licenses.
By the terms of the C-Block Auction, the Company will receive financing from
the U.S. government (the "Government Financing") for 90% of the purchase price
of the licenses (approximately $954 million) for a 10-year period commencing on
the date of license grant (the "License Grant Date") at a fixed interest rate
equal to the yield on the 10-year U.S. Treasury Note at the License Grant Date.
As of June , 1996 the yield on the 10-year U.S. Treasury Note was %.
Under the terms of the Government Financing, the Company is required to make
installment payments of interest only for the first six years of the license
and payments of interest and principal amortized over the remaining four years
of the license term. The Company raised the remaining 10% of the purchase price
of its PCS licenses from private equity and debt investors. See "Risk Factors--
Government Regulation" and "Description of Certain Indebtedness."
In aggregate, the Company estimates that it will require $553 million of
financing to fund its business plan from the effective date of the Offerings
through the end of 1998. The Company will require funding for capital
expenditures, interest expense payments, operating losses, working capital and
other general corporate purposes. To the extent unexpected expenditures arise
or the Company's estimates prove to be inaccurate, the Company may require
additional financing. See "Risk Factors--Significant Capital Requirements;
Financing Risks" and "Certain Transactions."
In aggregate, the Company intends to have raised or have available $639
million to fund the Company's business plan from the effective date of the
Offerings through the end of 1998. The Company expects sources of funding to
include the Senior Discount Notes Offering, the Stock Offering and drawdowns on
financing to be provided by equipment vendors (the "Vendor Financing"). The
Company is currently in negotiations with manufacturers of infrastructure
equipment for Vendor Financing, which is intended to fund a significant portion
of the Company's required capital expenditures including network design, site
selection, purchase of equipment, network construction and microwave
relocation. See "Risk Factors--PCS Network Construction and Implementation
Risks" and "--Dependence on Third Parties."
The following table sets forth the Company's estimated sources and uses of
funds on an aggregate basis from the effective date of the Offerings through
the end of 1998:
<TABLE>
<S> <C>
AMOUNTS
-------------
(IN MILLIONS)
SOURCES OF FUNDS:
Senior Discount Notes Offering net proceeds.............. $211
Stock Offering net proceeds.............................. 153
Vendor Financing......................................... 275
----
Total................................................... $639
====
USES OF FUNDS:
Capital expenditures..................................... $259
Interest expense payments on Government Financing and
Vendor Financing........................................ 192
Operating losses and working capital..................... 102
Other, including general corporate purposes.............. 86
----
Total................................................... $639
====
</TABLE>
5
<PAGE>
The Company was incorporated in Delaware in June 1994. Unless the context
otherwise requires, references to "the Company" or "General Wireless" herein
refer to General Wireless, Inc. and its consolidated subsidiaries. Such
subsidiaries will hold the Company's PCS licenses. The Company's principal
executive offices are located at 6688 N. Central Expressway, Dallas, Texas
75206, and its telephone number is (214) 373-0494.
6
<PAGE>
THE SENIOR DISCOUNT NOTES OFFERING
<TABLE>
<C> <S>
Securities Offered.......... $ principal amount at maturity of % Senior
Discount Notes due , 2006. The Senior
Discount Notes will be issued at a discount from
their principal amount to generate gross
proceeds of $220,000,000.
Issue Price................. $ per $1,000 principal amount at maturity of
Senior Discount Notes.
Maturity Date............... , 2006.
Yield and Interest.......... % per annum (computed on a semi-annual bond
equivalent basis) calculated from , 1996.
Cash interest will not accrue on the Senior
Discount Notes prior to , 2001.
Thereafter, cash interest on the Senior Discount
Notes will be payable, at a rate of % per
annum, semi-annually on each and ,
commencing , 2002. For U.S. federal income
tax purposes, purchasers of the Senior Discount
Notes will be required to include amounts in
gross income in advance of the receipt of the
cash payments to which the income is
attributable. See "Certain Federal Income Tax
Considerations."
Optional Redemption......... The Senior Discount Notes will be redeemable, in
whole or in part, at the option of the Company
at any time on or after , 2001 at the
redemption prices set forth herein, plus accrued
and unpaid interest, if any, to the date of
redemption. In addition, at any time prior to
, 1999, the Company may redeem up to 35% of
the aggregate principal amount at maturity of
Senior Discount Notes with the Net Cash Proceeds
of (i) one or more public offerings for the
Company's Common Stock or (ii) a sale of the
Company's Common Stock to a Strategic Equity
Investor, in either case for gross proceeds of
at least $ million, at a price equal to %
of the Accreted Value of the Senior Discount
Notes (determined at the redemption date)
provided that not less than 65% of the Senior
Discount Notes originally issued remain
outstanding immediately after giving effect to
such redemption. See "Description of the Senior
Discount Notes--Optional Redemption."
Change of Control........... In the event of a Change of Control prior to
, 2001, each holder of the Senior Discount
Notes will have the right to require the Company
to repurchase such holder's Senior Discount
Notes at 101% of the Accreted Value thereof or,
in the case of any such repurchase on or after
, 2001, at 101% of the principal amount
thereof, plus accrued and unpaid interest, if
any, to the date of any such repurchase. There
can be no assurance that the Company will have
the financial resources necessary to repurchase
the Senior Discount Notes upon a Change of
Control. See "Description of the Senior Discount
Notes--Repurchase of Senior Discount Notes Upon
a Change of Control."
Ranking..................... The Senior Discount Notes will represent general
unsecured senior obligations of the Company. The
Company is a holding company with limited assets
of its own that conducts substantially all of
its business through its subsidiaries. The
Senior Discount Notes will be effectively
subordinated to all liabilities of the Company's
subsidiaries, including indebtedness and trade
payables. As of , 1996, after giving
</TABLE>
7
<PAGE>
<TABLE>
<C> <S>
pro forma effect to the Senior Discount Notes
Offering, the Stock Offering, the Government
Financing and the Vendor Financing, the Company
would have had approximately $ indebtedness
outstanding to which holders of the Senior
Discount Notes would have been effectively
subordinated in right of payment. See
"Description of the Senior Discount Notes--
General" and "Risk Factors--Holding Company
Structure; Structural Subordination of the
Senior Discount Notes; Asset Encumbrances."
Original Issue Discount..... The Senior Discount Notes are being offered at
an original issue discount for U.S. federal
income tax purposes. Thus, although cash
interest will not accrue on the Senior Discount
Notes prior to , 2001 and interest will not
be payable on the Senior Discount Notes prior to
, 2002. The original issue discount (i.e.,
the difference between the principal and
interest payable on the Senior Discount Notes
and their issue price) will accrue from the
issue date of the Senior Discount Notes and will
be included as interest income periodically
(including for periods ending prior to ,
2001) in a holder's gross income for United
States federal income tax purposes, generally in
advance of receipt of the cash payments to which
the income is attributable. See "Certain Federal
Income Tax Considerations--Original Issue
Discount."
Certain Covenants........... The indenture governing the Senior Discount
Notes (the "Indenture") will contain certain
covenants which, among other things, will
restrict the ability of the Company and its
Restricted Subsidiaries (as defined herein) to
(i) incur additional indebtedness; (ii) pay
dividends or make distributions in respect of
its capital stock or make certain other
restricted payments; (iii) create liens; (iv)
enter into certain transactions with affiliates
or related persons; (v) sell certain assets; or
(vi) consolidate, merge or sell all or
substantially all of its assets. These covenants
are subject to important exceptions and
qualifications. See "Description of the Senior
Discount Notes--Covenants."
Use of Proceeds............. The net proceeds of the Offerings will be used
to finance interest expense payments on the
Government Financing and the Vendor Financing,
operating losses, working capital requirements,
capital expenditures not funded by the Vendor
Financing and for general corporate purposes.
See "Use of Proceeds."
Stock Offering.............. Concurrently with the Senior Discount Notes
Offering and pursuant to a separate prospectus,
the Company will make a public offering of
million shares of its Class C Common Stock,
which will result in approximately $165,000,000
in gross proceeds to the Company. The closing of
the Senior Discount Notes Offering is
conditioned upon the closing of the Stock
Offering, but the closing of the Stock Offering
is not conditioned upon the closing of the
Senior Discount Notes Offering.
</TABLE>
For additional information concerning the Senior Discount Notes and the
definitions of certain capitalized terms used above, see "Description of the
Senior Discount Notes." In addition, the Company's capital structure has been
designed to meet FCC and other governmental rules and requirements.
RISK FACTORS
An investment in the Senior Discount Notes involves certain risks that a
potential investor should carefully evaluate prior to making an investment in
the Senior Discount Notes. See "Risk Factors."
8
<PAGE>
SUMMARY AND PRO FORMA 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>
THREE MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
------------------- --------------------------
1994 1995 1995 1996
--------- --------- ----------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues................... $ -- $ -- $ -- $ --
Gross profits.............. -- -- -- --
Loss from operations....... (448) (791) (178) (185)
Net loss................... $ (433) $ (744) $ (170) $ (157)
Pro forma net loss per
share(1)..................
Pro forma weighted average
number of shares
outstanding(1)............
OTHER DATA:
Deficiency of Earnings to
Fixed Charges(2).......... $(433) $ (744) $ (170) $ (157)
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31, 1996
------------------- --------------------------
PRO FORMA AS
1994 1995 HISTORICAL ADJUSTED (3)
--------- --------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA:
Cash and cash equivalents.. $ 918 $ 2,688 $ 2,415 $ 366,791
PCS license deposits ...... -- 53,982 53,982 --
PCS licenses............... -- -- --
Total assets............... 937 56,693 56,463
Government Financing(4).... -- -- --
Senior Discount Notes...... -- -- -- 220,000
Total stockholders' equi-
ty........................ 868 54,977 54,820 259,880
</TABLE>
- --------
(1) See Note 3 of Notes to Consolidated Financial Statements.
(2) For the purpose of calculating the ratio of earnings to fixed charges as
prescribed by the rules and regulations of the Securities and Exchange
Commission, earnings represent pre-tax income (loss) from continuing
operations plus fixed charges, less interest capitalized. Fixed charges
represent interest (including amounts capitalized), the portion of rent
expense deemed to be interest and amortization of deferred financing costs.
For the periods presented, the Company had net losses and no fixed charges.
(3) The pro forma as adjusted column gives effect to certain events that
occurred or are expected to occur subsequent to March 31, 1996, including:
(i) the issuance of Class C Common Stock and Class C Common Stock warrants
for an aggregate purchase price of $5.3 million, (ii) the grant of the
Company's PCS licenses, (iii) the payment to the FCC of $105.9 million
representing 10% of the purchase price of the PCS licenses, (iv) the
drawdown of $50.0 million of debt (the "Hyundai Loan") from Hyundai and (v)
the incurrence of $953.7 million of Government Financing. The pro forma as
adjusted column also reflects the following events expected to occur upon
consummation of the Offerings: (i) net proceeds received by the Company of
$152.9 million from the sale of shares of Class C Common Stock offered
in the Stock Offering at an assumed offering price of $ per share, (ii)
net proceeds received by the Company of $211.3 million from the issuance of
the Senior Discount Notes offered hereby, (iii) the purchase by Hyundai of
$50.0 million of equity securities (the "Hyundai Stock Purchase"), net of
$2.5 million in fees and expenses related to this purchase, and (iv) the
satisfaction of the Hyundai Loan. See "Use of Proceeds" and "Certain
Transactions."
(4) The Government Financing has been recorded at its estimated fair market
value of $ based on an estimated fair market borrowing rate of %, as
estimated by management. The actual obligation under the Government
Financing is $953.7 million. See "Risk Factors--Substantial Debt
Obligations to the U.S. Government; Implications of Accounting Treatment."
9
<PAGE>
RISK FACTORS
This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Actual results could differ materially from
those projected in the forward-looking statements as a result of certain of
the risk factors set forth below and elsewhere in this Prospectus. In addition
to the other information contained in this Prospectus, investors should
carefully consider the following risk factors:
DEVELOPMENT STAGE COMPANY; HISTORICAL AND EXPECTED FUTURE OPERATING LOSSES
The Company was incorporated in 1994, is at an early stage of development
and has no operating history. Consequently, the Company does not have any
meaningful historical financial information upon which a prospective investor
could evaluate an investment in the Senior Discount Notes offered hereby. The
Company is subject to all risks typically associated with a start-up entity.
These risks include the Company's ability to implement its business plan in
the manner set forth herein, which include attracting and retaining qualified
individuals as managers and employees and raising appropriate financing as
necessary. As such, no assurance can be given as to the timing and extent of
revenues and expenses or the Company's ability to successfully manage all the
tasks associated with developing and maintaining a successful enterprise. Any
failure by management to guide and control growth effectively, which includes
implementing adequate systems, procedures and controls in a timely manner,
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company has incurred cumulative net losses through March 31, 1996 of
approximately $1.3 million. These losses resulted primarily from expenditures
associated with organizational and start-up activities and the Company's
pursuit of PCS licenses in the C-Block Auction. The Company expects to launch
wireless communications services by the end of 1997 and does not expect to
generate any revenues until such time or later. The Company will incur
significant operating losses and generate negative cash flow from operating
activities during the next several years, while it seeks to develop and
construct its PCS networks and build a customer base. These losses and
negative cash flow are expected to be substantial and to increase during the
initial years of the build-out and operation of its PCS networks. There can be
no assurance that the Company will successfully launch its services, or that
it will achieve or sustain profitability or positive cash flow from operating
activities in the future. If the Company cannot achieve operating
profitability or positive cash flow from operating activities, it may not be
able to meet its debt service or working capital requirements. See "--
Potential Fluctuations in Future Results" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
SUBSTANTIAL DEBT OBLIGATIONS TO THE U.S. GOVERNMENT; IMPLICATIONS OF
ACCOUNTING TREATMENT
The Company's debt obligations to the U.S. Government pursuant to the
Government Financing will be approximately $954 million. Although the
Company's obligation under the Government Financing will be recorded on the
Company's financial statements at its estimated fair market value of $ ,
based on an estimated fair market borrowing rate of %, the amount that would
be owed to the U.S. Government if the Government Financing were declared
immediately due and payable would be $954 million plus accrued interest. The
Company will be required to make quarterly interest expense payments based on
the 10-year Treasury Note rate at the License Grant Date. The Company will be
required to make installment payments of interest only for the first six years
of the license and payments of interest and principal amortized over the
remaining four years of the license term. In the event that the Company
becomes unable to meet its obligations under the Government Financing or
otherwise violates regulations applicable to holders of FCC licenses, the FCC
could take a variety of actions, including requiring immediate repayment of
all amounts due under the Government Financing, repayment of certain bidding
credits, revoking the Company's PCS licenses and fining the Company an amount
equal to the difference between the price at which the Company acquired the
licenses and the amount of the winning bid at their reauction, plus an
additional penalty of three percent of the lesser of the subsequent winning
10
<PAGE>
bid and the Company's bid amount. There can be no assurance that the Company
will be able to meet its obligations under the Government Financing or that if
it fails to meet such obligations, the FCC will not require immediate
repayment of all amounts due under the Government Financing or revoke the
Company's PCS licenses. In either such event the Company may be unable to meet
its obligations to other creditors, including holders of the Senior Discount
Notes.
In addition, there can be no assurance that if the Government Financing were
reflected at its face value of $954 million, the Company's pro forma total
debt (as adjusted for the Offerings) would not exceed the total "enterprise
value" of the Company implied by the initial public offering price of the
Class C Common Stock (as determined by adding the market value of the Common
Stock, the market value of the Government Financing and the gross proceeds
from the Senior Discount Notes Offering). See "--Ability to Service Debt;
Substantial Leverage; Restrictive Covenants," "--Government Regulation" and
"Legislation and Government Regulation."
ABILITY TO SERVICE DEBT; SUBSTANTIAL LEVERAGE; RESTRICTIVE COVENANTS
The Company's leverage is substantial in relation to its equity. As of ,
1996, on a pro forma basis after giving effect to the Senior Discount Notes
Offering, the Stock Offering and the Government Financing, the Company's total
indebtedness would have been $ billion ($ billion on a face-amount basis)
and its stockholders' equity would have been $ million. In addition, the
Company will be entitled to draw down up to $ under the Vendor Financing
and, subject to the restrictions in the Indenture, to incur substantial
additional indebtedness. On a pro forma basis after giving effect to the
Offerings, the Company's deficiency of earnings before fixed charges to cover
fixed charges for the months ended , 1996 and the year ended December 31,
1995 would have been $ million and $ million, respectively.
Furthermore, the Indenture and the agreements related to the Vendor
Financing (the "Vendor Financing Agreements") will contain, and any additional
financing agreements are likely to contain, certain restrictive covenants. The
restrictions contained in the Indenture and the Vendor Financing Agreements
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, engage
in transactions with stockholders and affiliates, issue capital stock, create
liens, sell assets and engage in mergers and consolidations. If the Company
fails to comply with the restrictive covenants in the Indenture, the Company's
obligation to repay such obligations may be accelerated. In addition to the
restrictive covenants described above, the Vendor Financing Agreements will
require the Company to maintain certain financial ratios. The failure of the
Company and its subsidiaries to maintain such ratios would constitute events
of default under the Vendor Financing Agreements, notwithstanding the ability
of the Company to meet its debt service obligations. An event of default under
the Vendor Financing Agreements would allow the lenders thereunder to
accelerate the maturity of such indebtedness. In such event, a significant
portion of the Company's other indebtedness (including the Senior Discount
Notes) may become immediately due and payable.
The successful implementation of the Company's strategy, among other things,
is necessary for the Company to be able to meet its debt service and
significant capital requirements. In addition, the Company's ability to
satisfy its debt service obligations once its PCS networks are operational
will be dependent upon the Company's future performance, which is subject to a
number of factors that are beyond the Company's control. There can be no
assurance that the Company's PCS networks can be completed or that, once
completed, the Company will generate sufficient cash flow from operating
activities to meet its debt service and working capital requirements. Any
failure or delay in meeting these debt service requirements, and in
particular, the requirements of the Government Financing, could have a
material adverse effect upon the Company's business, results of operations and
financial condition. See "--Substantial Debt Obligations to the U.S.
Government; Implications of Accounting Treatment" and "--Significant Capital
Requirements; Financing Risks."
11
<PAGE>
HOLDING COMPANY STRUCTURE; STRUCTURAL SUBORDINATION OF THE SENIOR DISCOUNT
NOTES; ASSET ENCUMBRANCES
The Company is a holding company with limited assets of its own, and upon
commencement of its operations, the Company will conduct its business through
its various subsidiaries. The ability of the Company's creditors, including
holders of the Senior Discount Notes, to participate in the distribution of
assets of any of the Company's subsidiaries upon any liquidation or
administration of any such subsidiary will be subject to the prior claims of
the subsidiaries' creditors, including the FCC, tax authorities, lenders and
trade creditors. In addition, the ability of the Company's creditors,
including the holders of the Senior Discount Notes, to participate in
distributions of assets of the Company's subsidiaries will be limited to the
extent the outstanding shares of any of the Company's subsidiaries are pledged
to secure other creditors of the Company or its subsidiaries.
The Senior Discount Notes will be obligations solely of the Company. The
ability of the Company to pay interest on the Senior Discount Notes or to
repay the Senior Discount Notes at maturity or otherwise is dependent upon the
cash flow 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 on the Senior Discount Notes or to make funds available therefor.
Because such subsidiaries will not be required to pay amounts due on the
Senior Discount Notes, any right of the Company to receive assets of its
subsidiaries upon their liquidation or reorganization (and the consequent
right of the holders of the Senior Discount Notes to participate in the
distribution of proceeds from those assets) will be structurally subordinated
to the claims of the subsidiaries' creditors. Furthermore, holders of
indebtedness of the Company's subsidiaries may materially limit dividends and
payments on intercompany indebtedness to the Company, including payments
necessary to fund amounts owing under the Senior Discount Notes.
A substantial portion of the assets of the Company's subsidiaries consists
of the PCS licenses, which are intangible assets that the FCC could revoke
under certain circumstances. The principal fixed assets of the Company and its
subsidiaries will consist of infrastructure equipment in which the Company
expects to grant security interests in connection with the Vendor Financing.
The value of these assets is derived from the deployment of these assets in
the PCS business. These assets are highly specialized and, taken individually,
can be expected to have limited marketability. Consequently, in the event of a
realization by the Company's secured creditors on the collateral securing the
Company's secured debt, creditors would likely seek to sell the assets as an
entirety in order to maximize proceeds realized. The prices obtained upon any
such sale and the amounts available to satisfy the Company's obligations on
the Senior Discount Notes could be adversely affected by the necessity of
obtaining FCC approval and by compliance with other applicable governmental
regulations.
SIGNIFICANT CAPITAL REQUIREMENTS; FINANCING RISKS
The development, construction and implementation of the Company's PCS
networks will require substantial capital. The Company currently estimates
that the funds required for capital expenditures, including capital
expenditures relating to the construction of its PCS networks, will total
approximately $259 million through the end of 1998. Although the Company
expects that, as a result of the Offerings and the Vendor Financing, it will
have sufficient funding through at least the end of 1998, there can be no
assurance that the Company's financing plan will be adequately achieved or
that no additional capital requirements will emerge.
The Company's ability to obtain any necessary financing or refinancing will
depend on, among other things, its financial condition, any restrictions
governing its indebtedness and other factors, including market conditions,
that are beyond the control of the Company. In addition, in the event the
implementation of its PCS networks is delayed or the Company does not generate
sufficient cash flow to meet its debt service or capital requirements, the
Company may need to seek additional financing. There can be no assurance that
any such financing or refinancing could be obtained on terms that are
favorable to the Company, or at all. In the absence of such financing or
refinancing, the Company could be forced to dispose of assets in order to make
up for any shortfall in the payments due on its indebtedness under
circumstances that might not be favorable to realizing the highest price for
such assets. A substantial portion of the Company's assets consist of
intangible assets, principally PCS
12
<PAGE>
licenses granted by the FCC, the value of which will depend upon a variety of
factors. Such licenses may only be transferred to other entities that meet the
FCC requirements for C-Block license applicants during the first five years of
the term, which will significantly impact the ability of the Company to
realize the value of such licenses. Further, transfers to entities not meeting
such requirements in years six through 10 of the initial license term will
subject the Company to substantial unjust enrichment penalties. There can be
no assurance that the Company's assets could be sold, or sold quickly enough,
or for a sufficient amount, to enable the Company to meet its obligations. See
"--Ability to Service Debt; Substantial Leverage; Restrictive Covenants," "--
C-Block License Requirements" and "--Foreign Ownership Limitations."
MANAGEMENT OF GROWTH; NEED TO ESTABLISH INFRASTRUCTURE
Implementation of the Company's business plan will place substantial demands
on the Company's managerial, operational and financial resources. As of June
25, 1996, the Company had nine employees and will need to hire a significant
number of new employees in the near future. In addition, the Company will need
to expand its headquarters, establish regional facilities and establish
management information and financial control systems adequate to support its
operations and expected growth. There can be no assurance that the Company
will be able to manage effectively the expansion of its operations and
facilities, that the Company will be able to attract and retain qualified
personnel, that its management team augmented by new management hires will
work together effectively, that the Company's systems, procedures or controls
will be adequate to support the Company's operations or that Company
management will be able to achieve the rapid execution necessary to exploit
fully the market opportunity for the Company's wireless communications
services. Any inability to manage growth effectively could have a material
adverse effect on the Company's business, results of operations and financial
condition. See "--Dependence on Key Personnel," "Business--Employees" and
"Management."
PCS NETWORK CONSTRUCTION AND IMPLEMENTATION RISKS
The Company's proposed construction and implementation of its PCS networks
involve a high degree of risk including, but not limited to, network design,
site selection and acquisition, equipment availability and microwave
relocation. See "--Relocation of Incumbent Fixed Microwave Licenses." The
Company intends to rely on third parties to undertake substantially all of the
construction and implementation of its PCS networks. In particular, the
Company expects to engage a single specialized third party to provide a
substantial portion of these services. Furthermore, the Company will rely on
such third party or other third parties to supply network construction and
subscriber equipment. There can be no assurance that the Company will be able
to locate or engage such third parties, or that if engaged, such third parties
will successfully develop and implement the Company's PCS networks. Any
failure to do so will have a material adverse effect upon the Company.
The Company expects to complete substantially the build-out of its PCS
networks and to launch commercial service by the end of 1997. Each phase of
the construction and implemention process involves various risks and
contingencies, most of which are not within the control of the Company and
many of which are not within the control of the primary network vendor to be
engaged by the Company to construct and implement the Company's PCS networks.
Any of these risks or contingencies could adversely affect the construction of
the Company's PCS networks. There can be no assurance that the Company and, in
particular, the primary network vendor, will be able to construct the
Company's PCS networks in any of the Company's markets in accordance with the
Company's current construction plan and schedule. If the Company's
construction plan is not properly implemented on a timely basis, the Company
may not be able to provide services competitive with those provided by the
cellular and other PCS operators in its markets. In such event, the Company's
PCS subscriber growth would be limited and the Company's business, results of
operations and financial condition would be materially adversely affected.
In addition, each of the Company's PCS licenses is subject to an FCC
requirement that the Company construct PCS networks that offer coverage to at
least one-third of the population in each such PCS market within five years of
the License Grant Date of the applicable license and to at least two-thirds of
the population within 10 years of such date. There can be no assurance that
this required coverage will be achieved by the Company
13
<PAGE>
or its primary network vendor in accordance with the FCC requirements, and
failure to comply with these requirements in any market could cause revocation
of the Company's PCS licenses or the imposition of fines or other sanctions by
the FCC. See "--Government Regulation" and "Legislation and Government
Regulation." In addition, winners of A-Block and B-Block PCS licenses, which
were granted in June 1995, have a significant head-start in constructing their
networks. Likewise, the incumbent cellular licensees in each market have been
operating their networks for five- to 10-years, and are upgrading their
networks to use digital technology. Thus, the construction and implementation
of the Company's PCS networks must be completed on a timely basis, and any
delays could have a material adverse effect on the Company.
Network Design. The Company will rely upon its primary network vendor to
design its PCS networks. Although the Company will be actively involved in the
design process, there can be no assurance that the primary network vendor, or
any other parties that the Company may engage, will provide a design on a
timely basis, or that such design can be achieved. Furthermore, the Company
has selected Code Division Multiple Access ("CDMA") technology, which has not
been implemented on a wide commercial scale in the United States and has been
used internationally on a limited basis. Accordingly, like many new or
developing technologies, the design of the Company's networks may have
undetected flaws. Such design flaws, if any, may result in delay of
commencement of service or in problems in the delivery of service, and could
have a material adverse effect upon the Company.
Site Selection and Acquisition. The successful construction of the Company's
PCS networks will depend, to a significant degree, on the lease or acquisition
of sites for the location of its base station transmitter equipment. The site
selection process will initially require the negotiation of lease or
acquisition agreements for approximately 500 sites for the Company's PCS
networks, and will likely require the Company to obtain zoning variances or
other state and local governmental approvals or permits for certain of these
sites. The Company will engage its primary network vendor and possibly other
third parties to provide site identification and acquisition services in each
of its markets. There can be no assurance that lease or acquisition agreements
will be negotiated on terms favorable to the Company or that necessary
approvals or permits will be obtained.
Equipment Availability. The implementation of the construction plan is
subject to the availability from suppliers of the infrastructure equipment and
subscriber equipment the Company plans to use. There is considerable demand
for PCS infrastructure equipment. Manufacturers of such equipment have
substantial backlogs of orders and lead times for delivery of such equipment
may be long. The Company plans to enter into definitive agreements for the
supply of infrastructure and/or subscriber equipment. However, there can be no
assurance that any such suppliers will be able to supply equipment on a timely
basis that meets the requirements of the Company, that the Company will be
able to purchase equipment from other vendors on terms favorable to the
Company or that any equipment purchased will perform in accordance with the
Company's needs or will otherwise be acceptable to the Company or its
customers. There can be no assurance that the Company will be able to deploy
successfully its networks to achieve optimal population coverage in its
targeted markets within the expected time frame and an acceptable construction
budget. See "--Dependence on Third Parties," --Risks Relating to Selection of
Digital Technology; Availability of Handsets" and "--Limited Territorial
Coverage."
DEPENDENCE ON THIRD PARTIES
As part of the Company's strategy to build out rapidly its PCS networks, the
Company will rely significantly upon third parties to provide equipment and
services, to distribute the Company's products and services and to provide
certain nonstrategic functions such as customer billing. In addition, the
Company intends to engage a primary network vendor and other third parties for
a significant portion of the build-out of the Company's PCS networks. There
can be no assurance that such third parties will provide acceptable equipment
and services on a timely basis and any failure to do so will have a material
adverse effect upon the Company's business, results of operations and
financial condition. See "--PCS Network Construction and Implementation
Risks," "Business--Strategy" and "--Marketing and Distribution."
14
<PAGE>
RISKS RELATING TO SELECTION OF DIGITAL TECHNOLOGY; AVAILABILITY OF HANDSETS
CDMA technology has not been implemented on a wide commercial scale in the
United States and has been used internationally only on a limited basis. The
first commercial use of CDMA began in October 1995 in Hong Kong. As of June
1996, the Hong Kong network had 24,000 subscribers. There can be no assurance
that CDMA technology will be successful in other markets. In addition, certain
networks implementing CDMA have experienced problems in their early trials,
including poor hand-offs (the transfer of a subscriber from one cell to
another as the subscriber travels through geographic areas) and problems with
analog interference with dual-mode CDMA handsets for 800 MHz cellular
operations. While the Company believes that some of the problems, such as
analog interference, are unique to 800 MHz cellular operations, and that
solutions for other problems have been identified and are in the process of
being resolved, there can be no assurance that the Company will not encounter
the same or other technological problems. See "Wireless Communications
Industry."
A risk associated with the Company's selection of CDMA technology is the
ability of the Company to offer PCS roaming service to its subscribers when
they are in other markets or in the Company's markets outside of the Company's
coverage area. In order for the Company's subscribers to roam outside of the
Company's network coverage area, another PCS licensee with network coverage in
the other market or in the Company's market outside of the Company's coverage
area must utilize CDMA technology and enter into a roaming agreement with the
Company, or the subscriber must use a dual-band/dual-mode phone that would
permit use of analog cellular networks when roaming. While the Company
believes that dual-band/dual-mode handsets that allow a user to access both
PCS networks and analog cellular networks will be commercially available in
1997, there can be no assurance that such handsets can be successfully
manufactured or that consumers can obtain such handsets at competitive prices.
In addition, the Company expects dual-band/dual-mode full digital handsets to
be larger and more expensive than single-mode handsets.
Based on public announcements by A-Block and B-Block licensees and winning
bidders in the C-Block Auction, the Company believes that CDMA will be widely
deployed in the United States. Nevertheless, such PCS licensees are under no
regulatory obligation to use any particular digital technology. There can be
no assurance that PCS licensees planning to use CDMA technology will not
instead elect to use other available digital technology, such as Time Division
Multiple Access ("TDMA") or Groupe Speciale Mobile ("GSM"), or other
technologies in the future.
Currently there are few suppliers of CDMA handsets. Additional suppliers are
scheduled to deliver CDMA handsets commencing in 1997. There can be no
assurance, however, that those suppliers will commence production or, if they
do commence production, that they will be able to deliver quality handsets in
sufficient quantities and at desirable prices. Handsets used for PCS networks
cannot currently be used with analog cellular networks and vice versa. The
lack of interoperability or the comparatively higher cost of dual-band/dual-
mode handsets may impede the Company's ability to attract certain customers.
See "Business--Digital Technology Selection."
RELOCATION OF INCUMBENT FIXED MICROWAVE LICENSEES
For a period of up to five years after the grant of a PCS license, PCS
licensees may be required to share spectrum with existing fixed microwave
licensees operating on the C-Block spectrum. To secure a sufficient amount of
unencumbered spectrum to operate its PCS networks efficiently, the Company may
need to pay to relocate as many as approximately 85 existing licensees to
alternate spectrum locations or transmission technologies. In an effort to
balance the competing interests of existing microwave users and newly
authorized PCS licensees, the FCC has adopted (i) a transition plan to
relocate such microwave incumbents and (ii) a cost sharing plan so that if the
relocation of an incumbent benefits more than one PCS licensee, the benefiting
PCS licensees will share the costs of the relocation. The transition and cost
sharing plans expire on April 4, 2005, at which time remaining microwave
incumbents in the PCS spectrum will be responsible for their costs to relocate
to alternate spectrum locations. There can be no assurance that the Company
will be able to reach timely
15
<PAGE>
agreements to relocate these incumbents on terms acceptable to the Company.
Any delay in the relocation of such licensees may adversely affect the
Company's ability to commence timely commercial operation of its PCS networks.
Furthermore, depending on the terms of such agreements, if any, the Company's
ability to operate its PCS networks profitably may be adversely affected. See
"Legislation and Government Regulation."
COMPETITION
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 the 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 service offerings. Many of the
Company's PCS and cellular telephone competitors, including joint ventures
involving the nation's largest local and long distance telephone carriers,
have substantially greater access to capital than the Company, substantially
greater financial, technical, marketing, sales and distribution resources than
those of the Company, and significantly more experience than the Company in
providing wireless services. Several of the Company's competitors are expected
to market other services, such as cable television service, landline telephone
service and Internet access with their wireless communications service
offerings. In addition, several competitors are operating, or planning to
operate, through joint ventures and affiliation arrangements, wireless
communications networks that cover most of the United States.
The Company will compete directly with up to five other PCS providers in
each of its markets. The FCC recently announced that on August 26, 1996, it
will begin the D-, E- and F-Block auctions. Each of these licenses is for 10
MHz of spectrum. Furthermore, the winners of the PCS A- and B-Block licenses
will have an advantage over the winners of the C-Block licenses because the A-
and B-Block licenses were granted on June 23, 1995. Principal PCS competitors
in the Company's markets are PrimeCo Personal Communications, Pacific Telesis
Mobile Services, Sprint Spectrum L.P., Intercel, Inc. and AT&T Wireless
Services, Inc. Additionally, the Company will compete with existing cellular
providers in its markets, most of which have infrastructure in place, have an
established brand identity, have generated positive cash flow and have been
operational for as many as 10 years or more. The Company expects that many
cellular operators will upgrade their networks to provide comparable digital
services in competition with the Company. The Company also expects that many
cellular licensees will attempt to acquire one or two additional 10 MHz PCS
licenses in the D- or E-Block auctions in areas in which they currently
provide cellular telephone services, as permitted by the FCC under its PCS
licensing rules. This would provide the cellular operators additional capacity
and potentially allow them to add additional customers and to offer digital
services in their markets in the near term. Principal cellular providers in
the Company's PCS markets are AT&T Wireless Services, Inc., BellSouth
Mobility, Inc., GTE Mobile Communications Inc., AirTouch Communications Inc.,
Centennial Cellular Corp., Horizon Cellular Telephone Company, L.P., U.S.
Cellular Corp., Independent Cellular Network Inc. and Palmer Wireless, Inc.
The success of the Company's PCS service business will depend upon its
ability to compete, especially with respect to pricing, service, reliability
and availability of features, such as data and voice transmission, call
waiting, call forwarding and short messaging capability. In addition to PCS
and cellular operators, the Company may also face competition from other
existing communications technologies, such as conventional mobile telephone
services, specialized mobile radio ("SMR") service, enhanced SMR ("ESMR")
service, paging services (including two-way digital paging), and domestic and
global mobile satellite service ("MSS"). In the future, cellular and PCS
service will also compete more directly with traditional landline telephone
service operators, energy utilities, local multipoint distribution service
("LMDS") providers, and cable and wireless cable operators seeking to offer
communications services by leveraging their existing infrastructure. The
Company may also face competition from new technologies. See "Business--
Competition."
POTENTIAL FLUCTUATIONS IN FUTURE RESULTS
The Company has no significant operating history and expects to incur
significant operating losses and to generate negative cash flow from operating
activities during the next several years. The Company believes that
16
<PAGE>
its future operating results will be subject to annual and quarterly
fluctuations due to several factors, some of which are beyond the Company's
control. These factors include the cost of constructing the Company's PCS
networks (including any unanticipated costs associated therewith), the cost of
relocating microwave licensees, the establishment of a market for PCS, pricing
strategies for competitive services, new offerings of competitive services,
changes in the regulatory environment, changes in technology, the cost and
availability of PCS infrastructure and subscriber equipment, delays in the
introduction of the Company's services resulting from any of such factors and
general and local economic conditions. In addition, the extent of the
potential demand for PCS cannot be estimated with any degree of certainty. Due
to the foregoing factors, it is likely that in some future period, the
Company's operating results may be below the expectations of public market
analysts and investors. In such event, the market for the Company's Senior
Discount Notes would likely be materially adversely affected. See "--
Development Stage Company; Historical and Expected Future Operating Losses,"
"--Significant Capital Requirements; Financing Risks," "--PCS Network
Construction and Implementation Risks," "--Risks Relating to Selection of
Digital Technology; Availability of Handsets," "--Relocation of Incumbent
Fixed Microwave Licensees," "--Competition" and "--Government Regulation."
LIMITED OPERATING HISTORY FOR PCS NETWORKS
PCS networks have an extremely limited operating history in the United
States and there can be no assurance that operation of these networks will
become profitable. In addition, the extent of potential demand for PCS in the
Company's markets cannot be estimated with any degree of certainty. The
wireless communications industry is experiencing significant technological
changes, as evidenced by the increasing pace of digital upgrades in existing
analog wireless systems, evolving industry standards, ongoing improvements in
the capacity and quality of digital technology, shorter development cycles for
new products and enhancements, and changes in end-user requirements and
preferences. There is also uncertainty as to the extent of customer demand. As
a result, the future prospects of the industry and the Company and the success
of PCS and other competitive services remain uncertain.
GOVERNMENT REGULATION
The spectrum licensing, construction, operation, sale and interconnection
arrangements of wireless communications networks are regulated to varying
degrees by state regulatory agencies, the FCC, Congress, the courts and other
governmental bodies. There can be no assurance that any of these governmental
bodies having jurisdiction over the Company will not adopt or change
regulations or take other actions that would adversely affect the Company's
business, financial condition or results of operations. Although the FCC has
issued rules regarding the C-Block Auction and numerous other matters relevant
to the PCS industry, these rules are ambiguous on certain key matters and not
all of them have been subject to FCC or judicial interpretation. Accordingly,
for certain matters, the Company is relying on public and private informal
interpretation of the rules from the staff of the FCC. The FCC is not bound by
such informal interpretation of FCC staff and there can be no assurance that
the FCC or the courts will agree with the staff's interpretation. Many of
these rules also require ongoing compliance that the Company may not be able
to satisfy despite diligent efforts. A failure to comply with FCC rules could
subject the Company to serious penalties and have a material adverse effect
upon the Company's business, results of operations and financial condition. In
addition, although the Company's PCS licenses are renewable after the
expiration of their 10-year terms, there can be no assurance that the
Company's licenses will be renewed.
The Telecommunications Act of 1996 (the "1996 Act") mandates significant
changes in existing regulation of the telecommunications industry that are
intended by Congress to promote competitive development of new service
offerings, to expand public availability of telecommunications services and to
streamline regulation of the industry. Included in these mandates are
requirements that local exchange carriers ("LECs") must: (i) permit other
competitive carriers, which may include PCS licensees, to interconnect to
their networks; (ii) establish reciprocal compensation agreements with
competitive carriers to terminate traffic on each other's networks and (iii)
offer resale of its local loop facilities. The implementation of these
mandates by the FCC and state authorities
17
<PAGE>
potentially involves numerous changes in established rules and policies that
could adversely affect the Company's business, financial condition and results
of operations.
The FCC has proceedings in process that could open up other frequency bands
for wireless telecommunications and PCS-like services. The FCC also is
presently considering the eligibility of PCS licensees to offer a variety of
fixed services. There can be no assurance that these proceedings will not
adversely affect the Company and the Company's ability to offer a full range
of PCS services. See "--Substantial Debt Obligations to the U.S. Government;
Implications of Accounting Treatment," "--C-Block License Requirements," "--
Foreign Ownership Limitations," "--Effect of Control by Certain Stockholders"
and "Legislation and Government Regulation."
C-BLOCK LICENSE REQUIREMENTS
When the FCC allocated spectrum to public auction for PCS, it designated the
C-Block as an "Entrepreneurs' Block." FCC rules require C-Block applicants and
licensees (collectively, "Entrepreneurs") to meet various qualifications. The
FCC also determined that Entrepreneurs that qualify as a Small Business would
be eligible to receive a loan from the federal government for 90% of the
dollar amount of their winning bids in the C-Block Auction (a "C-Block Loan").
The Company's Government Financing is a C-Block Loan. See "Description of
Certain Indebtedness." In order to ensure continued compliance with the FCC
rules, the FCC has announced its intention to conduct random audits during the
initial 10-year PCS license terms. There can be no assurance that the Company
will continue to satisfy any of the C-Block license requirements, and the
failure to do so would have a material adverse effect on the Company.
Entrepreneurs Requirements. In order to hold a C-Block license, an entity
must have: (i) less than $125 million in gross revenues (the "Entrepreneurs
Revenues Limit") and (ii) less than $500 million in total assets (the
"Entrepreneurs Asset Limit" and, together with the Entrepreneurs Revenues
Limit, the "Entrepreneurs Requirements"). To qualify for the C-Block Auction,
an entity had to have met the Entrepreneurs Revenues Limit for each of the two
years prior to the auction and the Entrepreneurs Asset Limit at the time it
filed its application to qualify for the C-Block Auction on FCC Form 175 (the
"Short Form"). For at least five years after winning a C-Block license, a
licensee must continue to meet the Entrepreneurs Requirements, which are
modified for such five-year period to exclude certain assets and revenues from
being counted toward the Entrepreneurs Asset Limit and the Entrepreneurs
Revenues Limit, respectively. Additional amounts are excluded if the licensee
maintains an organizational structure that satisfies the Control Group
Requirements described below. In calculating a licensee's gross revenues for
purposes of the Entrepreneurs Requirements, the FCC includes the gross
revenues of the licensee's affiliates, those persons or entities that hold
interests in the licensee, and the affiliates of such persons or entities.
By claiming status as an Entrepreneur, the Company qualified for the C-Block
Auction. If the FCC were to determine that the Company did not satisfy the
Entrepreneurs Requirements at the time it participated in the C-Block Auction
or that the Company fails to meet the ongoing Entrepreneurs Requirements, the
FCC could revoke the Company's PCS licenses, fine the Company or take other
enforcement actions, including imposing the Unjust Enrichment Penalties (as
defined herein). See "Legislation and Government Regulation--C-Block License
Requirements--License Transfer Restrictions--Unjust Enrichment." Although the
Company believes it has met the Entrepreneurs Requirements, there can be no
assurance that it will continue to meet such requirements or that, if it fails
to continue to meet such requirements, the FCC will not take action against
the Company, which could include revocation of its PCS licenses.
Small Business Requirements. An entity that meets the Entrepreneurs
Requirements may also apply to receive certain preferential financing terms if
it meets certain requirements to qualify as a Small Business (the "Small
Business Requirements"). These preferential financing terms include a 25%
bidding credit (the "Bidding Credit") and the ability to make interest-only
installment payments on its C-Block Loan for the first seven years of the
license term. To meet the Small Business Requirements, a licensee must have
had annual average gross
18
<PAGE>
revenues of not more than $40 million for the three calendar years preceding
the date it filed its Short Form. In calculating a licensee's gross revenues
for purposes of the Small Business Requirements, the FCC includes the gross
revenues of the licensee's affiliates, those persons or entities that hold
interests in the licensee, and the affiliates of such persons or entities.
By claiming status as a Small Business, the Company qualified for the
Bidding Credit. If the FCC were to determine that the Company does not qualify
as a Small Business, the Company would, at a minimum, be forced to repay the
full value of the Bidding Credit. Further, the FCC could revoke the Company's
PCS licenses, fine the Company or take other enforcement actions, including
imposing the Unjust Enrichment Penalties. Although the Company has structured
itself to meet the Small Business Requirements, there can be no assurance that
it will remain in compliance with these requirements or that, if it fails to
continue to meet such requirements, the FCC will not take action against the
Company, which could include revocation of its PCS licenses.
Control Group Requirements. If a C-Block licensee maintains an
organizational structure in which at least 25% of its total equity on a fully
diluted basis is held by a control group (the "Control Group") that meets
certain requirements (the "Control Group Requirements"), the FCC excludes
certain assets and revenues from such licensee's total revenues and assets,
making it easier for the licensee to meet the Entrepreneurs Requirements and
the Small Business Requirements. The Control Group Requirements mandate that
the Control Group, among other things, have both actual and legal control of
the licensee. Further, the FCC permits licensees to qualify under the Control
Group Requirements pursuant to an alternative structural option (the
"Qualifying Investor Option"), in which: (i) an established group of investors
meeting certain financial qualifications (the "Qualifying Investors") that own
at least 15% of the equity interest on a fully diluted basis and 50.1% of the
voting power in the C-Block licensee and (ii) additional members ("Additional
Control Group Members") that hold at least 10%, on a fully diluted basis, of
the equity interest in the C-Block licensee. Additional Control Group Members
must be either: (a) the same Qualifying Investors in the Control Group, (b)
members of the licensee's management or (c) non-controlling institutional
investors, including venture capital firms. To take advantage of the FCC's
Qualifying Investor Option, a C-Block licensee must have met the Qualifying
Investor Option requirements at the time it filed its Short Form and must
continue to meet the Qualifying Investor Option requirements for three years
following the License Grant Date. Commencing the fourth year of the license
term, the FCC rules (i) eliminate the requirement that the Additional Control
Group Members hold any of the licensee's equity interest and (ii) allow the
licensee to reduce the minimum required equity interest held by the Qualifying
Investors from 15% to 10%.
In order to meet the Control Group Requirements, the Company's Certificate
of Incorporation provides that the Company's Class A Common Stock, as a class,
must constitute 50.1% of the voting power of the Company. Further, the
Company's Certificate of Incorporation limits the ability of the Company's
Class B Common Stock to be converted into Class C Common Stock of the Company.
See "Description of Capital Stock." There can be no assurance that the Company
will remain in compliance with the Control Group Requirements or, if it fails
to continue to meet such requirements, that the FCC will not take action
against the Company, which could include revocation of its PCS licenses.
Although the Company has taken these and other steps to meet the Control Group
Requirements, there can be no assurance that the Company has or will continue
to meet the Control Group Requirements, and the failure to meet such
requirements would have a material adverse effect on the Company.
Asset and Revenue Calculation. In determining whether an entity qualifies as
an Entrepreneur and/or as a Small Business, the FCC counts the gross revenues
and assets of the entity's "financial affiliates" toward the entity's total
gross revenues and total assets. Financial affiliation can arise from common
investments, familial or spousal relationships, contractual relationships,
voting trusts, joint venture agreements, stock ownership, stock options,
convertible debentures and agreements to merge. Affiliates of noncontrolling
investors with ownership interests that do not exceed the applicable FCC
"passive" investor ownership thresholds are not attributed to C-Block
licensees for purposes of determining whether such licensees financially
qualify for the applicable C-Block Auction preferences. The Entrepreneurs
Requirements and the Small Business Requirements provide that, to
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<PAGE>
qualify as passive investor, an entity may not own more than 25% of the
Company's total equity on a fully diluted basis. There can be no assurance
that the Company will not exceed these passive investor limits or otherwise
violate the Entrepreneur Requirements and/or the Small Business Requirements.
In addition, if an entity makes bona fide loans to a C-Block licensee, the
assets and revenues of the creditor would not be attributed to the licensee
unless the creditor is otherwise deemed an affiliate of the licensee, or the
loan is treated by the FCC as an equity investment and such treatment would
cause the creditor/investor to exceed the applicable ownership interest
thresholds (for purposes of both the financial affiliation and foreign
ownership rules). Although the FCC permits a creditor/investor to use standard
terms to protect its investment in C-Block licensees, such as covenants,
rights of first refusal and super-majority voting rights on specified issues
(such as those for which the holders of the Company's Class C Common Stock
have voting rights), the FCC has stated that it will be guided but not bound
by criteria used by the Internal Revenue Service to determine whether a debt
investment is bona fide debt. The FCC's application of its financial
affiliation rules is largely untested and there can be no assurance that the
FCC or the courts will not treat certain of the Company's lenders or investors
as financial affiliates of the Company.
Transfer Restrictions. In addition, the FCC prohibits C-Block licensees from
assigning or transferring control of any of their C-Block licenses for a
period of at least five years from the License Grant Date to any entity that
fails to satisfy the Entrepreneurs Requirements during such period. After the
fifth year, all transfers and assignments remain subject to the Unjust
Enrichment Penalties. See "Legislation and Government Regulation--C-Block
License Requirements--License Transfer Restrictions--Unjust Enrichment."
The Company (i) believes that it has structured itself to satisfy the
Entrepreneurs Requirements, (ii) intends to diligently pursue and maintain its
qualification as a Small Business and (iii) has structured the securities
being offered, including certain restrictions on ownership and transfer, in a
manner intended to ensure compliance with the applicable FCC Rules. The
Company has relied on representations of its investors to determine its
compliance with the FCC's rules applicable to C-Block licensees. There can be
no assurance, however, that the Company's investors or the Company itself will
continue to satisfy these requirements during the term of any PCS license
granted to the Company or that the Company will be able to successfully
implement divestiture or other mechanisms included in the Company's
Certificate of Incorporation that are designed to ensure compliance with FCC
rules. Any non-compliance with FCC rules could subject the Company to serious
penalties, including revocation of its PCS licenses. See "--Effect of Control
by Certain Stockholders," "--Substantial Debt Obligations to the U.S.
Government; Implications of Accounting Treatment," "--Foreign Ownership
Limitations" and "Legislation and Government Regulation."
FOREIGN OWNERSHIP LIMITATIONS
The FCC can revoke PCS licenses if it finds that it would not be in the
public interest for more than 25% of the capital contribution to the parent of
a PCS licensee to 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 (and such licenses are so held).
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. entities. The FCC Form 600 (the "Long Form") filed
by the Company with the FCC after the completion of the C-Block Auction
indicates that the Company's foreign ownership does not exceed 25%. However,
if the foreign ownership of the Company were to exceed 25% in the future, the
FCC could revoke the Company's PCS licenses. Further, the Company's
Certificate of Incorporation enables the Company to redeem shares from holders
of the Common Stock whose acquisition of shares results in a violation of such
limitation. The restrictions on foreign ownership could adversely affect the
Company's ability to attract additional equity financing from entities that
are, or are owned by, non-U.S. entities. See "Description of Capital Stock--
Redemption by the Company" and "Legislation and Government Regulation."
20
<PAGE>
EFFECT OF CONTROL BY CERTAIN STOCKHOLDERS
In accordance with the Control Group Requirements, the Qualifying Investors
of the Company currently own at least 15% of the outstanding equity of the
Company on a fully diluted basis and 50.1% of the total voting power and will
continue to do so following the Stock Offering. In particular, Mr. Roger
Linquist holds 40 of the 60 shares of Class A Common Stock outstanding, and
Mr. Frederic Hamilton holds the remaining 20 shares. Accordingly, Messrs.
Linquist and Hamilton together have the right to vote 50.1% of the voting
power of the outstanding equity of the Company and will be entitled to elect
four members to the Company's Board of Directors, each with one full vote. The
remaining members of the Board of Directors, as elected by the holders of
Class C Common Stock, will have fractional votes comprising a total of three
full votes. Other investors that meet the requirements of the Additional
Control Group Members collectively hold in excess of 50% of the total equity
of the Company currently and, following the Stock Offering, will hold at least
10% of the total equity of the Company. There can be no assurance that the
Company has met or will continue to meet the Control Group Requirements. See
"--C-Block License Requirements."
LIMITED TERRITORIAL COVERAGE
A core element to the Company's strategy is to concentrate its network
build-out on "high-usage areas" rather than building out wide-area cellular-
like networks. The Company defines "high-usage areas" as those areas where the
majority of the population lives, commutes, works and shops. These areas
primarily include densely populated urban areas, commuting corridors and high-
growth suburban areas. The Company plans to limit the construction of its
networks outside of these high-usage areas because it believes the incremental
cost of building out such network coverage is substantial and is inconsistent
with the Company's objective to be the low-cost provider of wireless
communications services. Based on network design analysis completed to date,
the Company plans to spend approximately $13 per POP through the end of 1998
for the build-out of its PCS networks, which would provide coverage to
approximately 80% of the aggregate population of its markets. Subscribers to
the Company's service will not obtain direct service from the Company when
traveling outside of the Company's network coverage area. There can be no
assurance that this strategy as applied to the Company's industry and markets
will be successful or that the Company will achieve a significant penetration
of its markets. Any failure to do so will materially adversely affect the
Company's business, results of operations and financial condition. See "--
Risks Relating to Selection of Digital Technology; Availability of Handsets"
and "Business--Strategy."
DEPENDENCE ON KEY PERSONNEL
The Company's future performance depends in substantial part upon the
continued contributions of its key senior management personnel, in particular,
Mr. Roger D. Linquist, a founder, director and the Company's President and
Chief Executive Officer, and Mr. Malcolm M. Lorang, a founder and the
Company's Vice President of Engineering and Chief Technical Officer. Neither
Mr. Linquist nor Mr. Lorang is bound by an employment agreement and the loss
of the services of Mr. Linquist or Mr. Lorang would have a material adverse
effect upon the Company's business, results of operations and financial
condition. The Company's future success also depends substantially upon its
ability to attract and retain highly qualified technical and management
personnel. The Company believes there is and will continue to be intense
competition for personnel with experience in the wireless industry as the
emerging PCS market develops. There can be no assurance that the Company can
retain its key personnel or that it can attract, assimilate or retain other
highly qualified technical and management personnel in the future. See "Risk
Factors--Management of Growth; Need to Establish Infrastructure."
HEALTH RISKS
Allegations have been raised that the use of hand-held cellular/PCS phones
may pose health risks to humans due to radio frequency ("RF") emissions from
the handsets. Studies performed by wireless telephone equipment manufacturers
dispute these allegations, and a major industry trade association and certain
governmental agencies
21
<PAGE>
have stated publicly that the use of such phones poses no undue health risk.
Regardless of the truth of these allegations, they could have an adverse
effect on the Company. In addition, digital wireless telephones have been
shown to cause interference to some electronic devices, such as hearing aids
and pacemakers.
Concerns over RF emissions also may have the effect of discouraging the use
of wireless communications devices, such as the PCS phones to be used with the
Company's networks. The FCC currently is conducting a rulemaking proceeding to
update the guidelines and methods used for evaluating RF emissions from radio
equipment, including wireless telephones. The FCC's proposal, if adopted,
would impose more restrictive standards on RF emissions from devices such as
hand-held PCS telephones. Although CDMA handsets operate at lower power than
other wireless handsets and therefore would comply with the proposed
standards, if adopted, the same concerns about RF emissions could remain
present with CDMA handsets. These concerns could have an adverse effect on the
Company's financial condition and the results of its operations.
UNCERTAINTY OF C-BLOCK LICENSE AWARDS AT LICENSE GRANT DATE
A C-Block license grant by the FCC will not become final until after a 30-
or 40-day reconsideration period expires following the License Grant Date
where such order of license grant is not subject to any FCC staff
reconsideration or any petition for reconsideration or application for review
or judicial appeal, in cases where petitions to deny were filed. Any
preparation for PCS network construction prior to the final grant (e.g.,
negotiation with incumbent microwave licensees, site acquisition activities
and equipment procurement and construction) will be performed at the Company's
risk and expense. If any PCS licenses are subsequently not finally granted to
the Company, the Company would have to attempt to sell the benefits of such
activities, to the extent possible, to the entity that ultimately wins a PCS
license for that service area. At the License Grant Date, the Company will
have authorization to commence construction of its PCS network for the
licensed service area. However, parties can file for reconsideration or review
of the FCC's license grant or the FCC can reconsider the grant on its own
motion. Parties can also petition a federal court to overturn a license grant.
CONSEQUENCES OF ORIGINAL ISSUE DISCOUNT
The Senior Discount Notes will be issued at a substantial discount from
their principal amount at maturity. Consequently, purchasers of the Senior
Discount Notes generally will be required to include amounts in their gross
income for federal income tax purposes in advance of their receipt of the cash
payments to which the income is attributable.
If a bankruptcy case is commenced by or against the Company under the U.S.
Bankruptcy Code after the issuance of the Senior Discount Notes, the claim of
a holder of Senior Discount Notes with respect to the principal amount thereof
may be limited to an amount equal to the sum of (i) the issue price and (ii)
that portion of the original issue discount which is not deemed to constitute
"unmatured interest" for purposes of the U.S. Bankruptcy Code. Any original
issue discount that was not amortized as of any such bankruptcy filing would
constitute "unmatured interest."
See "Certain Federal Income Tax Considerations" for a more detailed
discussion of the United States federal income tax considerations to the
holders of the Senior Discount Notes resulting from the purchase, ownership
and disposition of the Senior Discount Notes.
ABSENCE OF PRIOR PUBLIC MARKET FOR THE SENIOR DISCOUNT NOTES
The Senior Discount Notes are new securities for which there is currently no
market, although the Company intends to apply for listing of the Senior
Discount Notes on an exchange. The Underwriters have advised the Company that
they currently intend to make a market in the Senior Discount Notes. However,
the Underwriters are not obligated to do so and any market making may be
discontinued at any time without notice. No assurance
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<PAGE>
can be given as to the liquidity of any trading market for the Senior Discount
Notes or that any such trading market will develop. If an active public market
for the Senior Discount Notes does not develop, their market price and
liquidity may be adversely affected. See "Underwriting."
USE OF PROCEEDS
In total, net proceeds to the Company from the Offerings are estimated to be
$364.2 million. The net proceeds to the Company from the Senior Discount Notes
Offering are estimated to be approximately $211.3 million after deducting
estimated underwriting discounts and commissions and the offering expenses.
The net proceeds to the Company from the Stock Offering are estimated to be
approximately $152.9 million ($ if the Underwriters' over-allotment option
is exercised in full), at an assumed initial public offering price of $ per
share to the public and after deducting estimated underwriting discounts and
commissions and the offering expenses.
The Company intends to use the net proceeds of the Offerings to fund
interest expense payments on the Government Financing and the Vendor
Financing, operating losses, working capital requirements, capital
expenditures not funded by the Vendor Financing and for general corporate
purposes. The closing of the Senior Discount Notes Offering is conditioned
upon the closing of the Stock Offering, but the Stock Offering is not
conditioned upon the closing of the Senior Discount Notes Offering. Pending
use of the net proceeds, the Company intends to invest the funds in short-
term, interest-bearing, U.S. government and other highly rated securities. See
"Financing Plan," "Certain Transactions" and "Description of Certain
Indebtedness."
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<PAGE>
CAPITALIZATION
The following table sets forth the historical and pro forma as adjusted
capitalization of the Company at March 31, 1996. This table should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
---------------------------------
PRO FORMA AS
HISTORICAL ADJUSTED(1)(2)
-------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents.................... $ 2,415 $366,791
======= ========
Indebtedness:
Government Financing(3).................... $ -- $
Senior Discount Notes...................... -- 220,000
------- --------
Total debt............................... -- 220,000
Stockholders' equity:
Class A Common Stock; 0.0001 par value; 100
shares authorized; 60 shares issued and
outstanding; actual and pro forma, as ad-
justed.................................... -- --
Class B Common Stock; 0.0001 par value;
20,000,000 shares authorized; 2,109,440
shares issued and outstanding, actual and
pro forma, as adjusted.................... -- --
Class C Common Stock; 0.0001 par value;
79,999,900 shares authorized; 11,126,660
shares issued and outstanding actual;
shares issued and outstanding pro forma,
as adjusted............................... 1 1
Additional paid-in capital................. 59,078 264,429
Less subscriptions receivable.............. (2,925) (3,216)
Losses accumulated during the development
stage..................................... (1,334) (1,334)
------- --------
Total stockholders' equity............... 54,820 259,880
------- --------
Total capitalization.................... $54,820 $
======= ========
</TABLE>
- --------
(1) Does not include commitments for $ in Vendor Financing obtained by the
Company, which it has not yet drawn down.
(2) The pro forma as adjusted column gives effect to certain events that
occurred or are expected to occur subsequent to March 31, 1996, including:
(i) the issuance of Class C Common Stock and Class C Common Stock warrants
for an aggregate purchase price of $5.3 million, (ii) the grant of the
Company's PCS licenses, (iii) the payment to the FCC of $105.9 million
representing 10% of the purchase price of the PCS licenses, (iv) the
drawdown of $50.0 million of debt from Hyundai and (v) the incurrence of
$953.7 million of Government Financing. The pro forma as adjusted column
also reflects the following events expected to occur upon consummation of
the Offerings: (i) net proceeds received by the Company of $152.9 million
from the sale of shares of Class C Common Stock offered in the Stock
Offering at an assumed offering price of $ per share, (ii) net proceeds
received by the Company of $211.3 million from the issuance of the Senior
Discount Notes offered hereby, (iii) the purchase by Hyundai of $50.0
million of equity securities, net of $2.5 million in fees and expenses
related to this purchase, and (iv) the satisfaction of the Hyundai Loan.
See "Use of Proceeds" and "Certain Transactions."
(3) The Government Financing has been recorded at its estimated fair market
value of $ based on an estimated fair market borrowing rate of %, as
estimated by management. The actual obligation under the Government
Financing is $953.7 million. See "Risk Factors--Substantial Debt
Obligations to the U.S. Government; Implications of Accounting Treatment."
24
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's Consolidated Financial Statements and related
notes thereto and Management's Discussion and Analysis of Financial Condition
and Results of Operations included elsewhere in this Prospectus. The
Consolidated Statements of Operations Data for the years ended December 31,
1994 and 1995 and the consolidated balance sheet data as of December 31, 1994
and 1995, have been derived from, and should be read in conjunction with, the
consolidated financial statements of the Company, which have been audited by
Arthur Andersen LLP, independent public accountants, and are included herein.
The consolidated statements of operations data for the three month periods
ended March 31, 1995 and 1996 and the consolidated balance sheet data as of
March 31, 1996 have been derived from the unaudited consolidated financial
statements of the Company included elsewhere herein and, in management's
opinion, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the information. The results
for the three months ended March 31, 1996, are not indicative of the results
that may be expected for the year ending December 31, 1996.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
-------------------- -------------------------
1994 1995 1995 1996
--------- ---------- ---------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues.................. $ -- $ -- $ -- $ --
Gross profits............. -- -- -- --
Loss from operations...... (448) (791) (178) (185)
Net loss.................. $ (433) $ (744) $ (170) $ (157)
Pro forma net loss per
share(1).................
Pro forma weighted average
number of shares out-
standing(1)..............
OTHER DATA:
Deficiency of Earnings to
Fixed Charges(2)......... $ (433) $ (744) $ (170) $ (157)
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31, 1996
-------------------- -----------------------------
PRO FORMA
1994 1995 HISTORICAL AS ADJUSTED(3)
--------- ---------- ---------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA:
Cash and cash equiva-
lents.................... $ 918 $ 2,688 $ 2,415 $ 366,791
PCS license deposits...... -- 53,982 53,982 --
PCS licenses ............. -- -- --
Total assets.............. 937 56,693 56,463
Government Financ-
ing(4)................... -- -- --
Senior Discount Notes..... -- -- -- 220,000
Total stockholders' equi-
ty....................... 868 54,977 54,820 259,880
</TABLE>
- --------
(1) See Note 3 of Notes to Consolidated Financial Statements.
(2) For the purpose of calculating the ratio of earnings to fixed charges as
prescribed by the rules and regulations of the Securities and Exchange
Commission, earnings represent pre-tax income (loss) from continuing
operations plus fixed charges, less interest capitalized. Fixed charges
represent interest (including amounts capitalized), the portion of rent
expense deemed to be interest and amortization of deferred financing
costs. For the periods presented, the Company had net losses and no fixed
charges.
(3) The pro forma as adjusted column gives effect to certain events that
occurred or are expected to occur subsequent to March 31, 1996, including:
(i) the issuance of Class C Common Stock and Class C Common Stock warrants
for an aggregate purchase price of $5.3 million, (ii) the grant of the
Company's PCS licenses, (iii) the payment to the FCC of $105.9 million
representing 10% of the purchase price of the PCS licenses, (iv) the
drawdown of $50.0 million of debt from Hyundai and (v) the incurrence of
$953.7 million of Government Financing. The pro forma as adjusted column
also reflects the following events expected to occur upon consummation of
the Offerings: (i) net proceeds received by the Company of $152.9 million
from the sale of shares of Class C Common Stock offered in the Stock
Offering at an assumed offering price of $ per share, (ii) net proceeds
received by the Company of $211.3 million from the issuance of the Senior
Discount Notes offered hereby, (iii) the purchase by Hyundai of $50.0
million of equity securities, net of $2.5 million in fees and expenses
related to this purchase, and (iv) the satisfaction of the Hyundai Loan.
See "Use of Proceeds" and "Certain Transactions."
(4) The Government Financing has been recorded at its estimated fair market
value of $ based on an estimated fair market borrowing rate of %, as
estimated by management. The actual obligation under the Government
Financing is $953.7 million. See "Risk Factors--Substantial Debt
Obligations to the U.S. Government; Implications of Accounting Treatment."
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Prospectus, including the following discussion, contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual
results could differ materially from those projected in the forward-looking
statements as a result of certain of the risk factors commencing on page as
well as other factors described below and elsewhere in this Prospectus.
General Wireless intends to become a leading provider of affordable wireless
communications services. The Company holds PCS licenses to serve the rapidly
growing metropolitan areas of San Francisco, Atlanta and Miami, as well as 11
selected high-growth contiguous markets. In total, the Company's markets
contain 19.8 million POPs, approximately 71% of which are located in the
Metropolitan Areas. The Company believes that this is the highest percentage
of total POPs located in densely populated urban markets (markets having at
least three million POPs) of any PCS or cellular operator in the United
States. Additionally, the Company believes its markets are particularly
attractive because of their high historical and projected population growth
rates, as well as other desirable demographic characteristics, such as high
population densities, favorable business climates, high median household
income levels and long commute times. From 1990 through 1995, the aggregate
population of the Company's markets has grown at over 150% of the national
rate and is expected to continue to grow at a rate significantly above the
national average. The Company plans to initiate service on its PCS networks by
the end of 1997.
The Company was incorporated in 1994, is at an early stage of development
and has no operating history. Consequently, the Company does not have any
meaningful historical financial information upon which a prospective investor
could evaluate an investment in the Senior Discount Notes offered hereby. The
Company is subject to all risks typically associated with a start-up entity.
The Company has incurred cumulative net losses through March 31, 1996 of
approximately $1.3 million. These losses resulted primarily from expenditures
associated with organizational and start-up activities and the Company's
pursuit of PCS licenses in the C-Block Auction. The Company expects to launch
wireless communication services by the end of 1997 and does not expect to
generate any revenues until such time or later. The Company will incur
significant operating losses and generate negative cash flow from operating
activities during the next several years, while it seeks to develop and
construct its PCS networks and build a PCS customer base. These losses and
negative cash flow are expected to be substantial and to increase during the
initial years of the PCS networks build-out and operation. The Company is
substantially leveraged in relation to its equity and it has significant debt
service obligations. In addition, the Company believes that its future
operating results will be subject to annual and quarterly fluctuations due to
several factors, some of which are beyond the control of the Company. These
factors include the cost of constructing the Company's PCS networks (including
any unanticipated costs associated therewith), the cost of relocating
microwave licensees, the establishment of a market for PCS, pricing strategies
for competitive services, new offerings of competitive services, changes in
the regulatory environment, changes in technology, the cost and availability
of PCS infrastructure and subscriber equipment, delays in the introduction of
the Company's services resulting from any of such factors and general and
local economic conditions. In addition, the extent of the potential demand for
PCS cannot be estimated with any degree of certainty. See "Risk Factors--
Development Stage Company; Historical and Expected Future Operating Losses."
LIQUIDITY AND CAPITAL RESOURCES
From inception through June 1, 1996, the Company has raised approximately
$68 million from the sale of equity securities. Further, the Company entered
into the Hyundai Loan, pursuant to which Hyundai agreed to loan up to $50
million to the Company upon the satisfaction of certain conditions. The
Company expects to draw down the full amount of the Hyundai Loan subsequent to
the License Grant Date. The term of any note issued under the Hyundai Loan
will be for one year, with a fixed interest rate of 6.5% during the term of
the note. Based on the sale of equity and amounts outstanding to be drawn
under the Hyundai Loan, the Company has raised a total of approximately $118
million, which will be used primarily to fund the payment of 10% of the
purchase price of the Company's PCS licenses. See "Certain Transactions."
26
<PAGE>
Upon completion of the C-Block Auction, the Company had bid approximately
$1.1 billion to qualify as the high bidder for its PCS licenses. As of May 15,
1996, the Company had paid $53.0 million to the FCC representing the first
five percent payment of the purchase price of its PCS licenses. Five business
days subsequent to the granting of its PCS licenses, a second five percent
payment of the purchase price of its PCS licenses, also equal to $53.0
million, will be payable to the FCC. The remaining 90% of the purchase price
of the licenses, or $953.7 million will be financed with the Government
Financing, and will be carried on the Company's financial statements at $ .
The Company will be required to make quarterly interest expense payments based
on the 10-year U.S. Treasury Note rate at the License Grant Date. The Company
will be required to make installment payments of interest only for the first
six years of the license and payments of interest and principal amortized over
the remaining four years of the license term.
In aggregate, the Company estimates that it will require $553 million of
financing to fund its business plan from the effective date of the Offerings
through the end of 1998. The Company will require funding for capital
expenditures, interest expense payments, operating losses, working capital and
other general corporate purposes. To the extent unexpected expenditures arise
or the Company's estimates prove to be inaccurate, the Company may require
additional financing. See "Risk Factors--Significant Capital Requirements;
Financing Risks" and "Certain Transactions."
In aggregate, the Company intends to have raised or have available $639
million to fund the Company's business plan from the effective date of the
Offerings through the end of 1998. The Company expects sources of funding to
include the Senior Discount Notes Offering, the Stock Offering and drawdowns
on the Vendor Financing. The Company is currently in negotiations with
manufacturers of infrastructure equipment for Vendor Financing, which is
intended to fund a significant portion of the Company's required capital
expenditures including network design, site selection, purchase of equipment,
network construction and microwave relocation. See "Risk Factors--PCS Network
Construction and Implementation Risks" and "--Dependence on Third Parties."
The following table sets forth the Company's estimated sources and uses of
funds on an aggregate basis from the effective date of the Offerings through
the end of 1998:
<TABLE>
<CAPTION>
AMOUNTS
-------------
(IN MILLIONS)
<S> <C>
SOURCES OF FUNDS:
Senior Discount Notes Offering net proceeds............... $211
Stock Offering net proceeds............................... 153
Vendor Financing.......................................... 275
----
Total................................................... $639
====
USES OF FUNDS:
Capital expenditures...................................... $259
Interest expense payments on Government Financing and Ven-
dor Financing............................................ 192
Operating losses and working capital...................... 102
Others, including general corporate purposes.............. 86
----
Total................................................... $639
====
</TABLE>
27
<PAGE>
THE WIRELESS COMMUNICATIONS INDUSTRY
GROWING DEMAND FOR WIRELESS SERVICES
Demand for wireless communications has grown rapidly over the past decade
and has been driven by technological advancements and increased competition.
Wireless communication products and services have evolved from basic tone-only
paging services to mass-market cellular technology services and are now
entering the next generation of development with the evolution of PCS wireless
communication technology. Each new generation of wireless communication
products and services has generally been characterized by improved product
quality, broader service offerings and enhanced features.
The Company believes that the demand for wireless communications will
continue to grow dramatically and that PCS will capture a significant share of
the wireless market. Currently, wireless telephony penetration in the United
States is estimated to be 13% and, according to Kagan Associates, is expected
to grow to 48% by 2006. As reported by the Cellular Telecommunications
Industry Association ("CTIA"), the compound annual growth rate of cellular
subscribers exceeded 45% from 1990 through 1995. Despite this rapid growth in
the number of cellular subscribers, wireless minutes of use only represent
approximately one percent of total telecommunications switched minutes of
traffic, due in part to capacity constraints which discourage cellular
operators from aggressively pricing their services.
INDUSTRY OVERVIEW
General. Wireless communications networks use a variety of radio frequencies
to transmit voice and data signals. Wireless communications technologies
include one-way radio applications, such as paging or beeper services, and
two-way radio applications, such as cellular telephone, SMR networks and
emerging PCS services. Each application operates on a distinct portion of
radio frequency spectrum. Although the principal wireless voice application to
date has been cellular telephony, PCS is expected to develop rapidly.
Cellular. The cellular telephone industry commenced in 1983 when the FCC
began granting two 20 MHz licenses per market throughout the United States. In
1986, the FCC granted an additional 5 MHz of spectrum per cellular license to
provide a total of 25 MHz for each cellular operator. Today, there are two
cellular operators in each market.
PCS. In order to increase competition in wireless communications, promote
improved quality and service, and make available the widest possible range of
wireless services to U.S. consumers, Federal legislation was enacted in 1993
directing the FCC to allocate radio frequency spectrum for PCS by competitive
bidding. The FCC established PCS service areas in the United States based upon
Rand McNally & Co.'s market definition of 51 major trading areas ("MTAs") and
493 basic trading areas ("BTAs"), which are the geographic territories for
which PCS licenses have been or will be auctioned.
PCS licenses differ from existing cellular licenses in three basic ways:
location of the licensed frequencies on the radio spectrum, amount of spectrum
allocated per license and geographic area licensed. PCS networks will operate
at higher frequencies (140 MHz in the 1850-1990 MHz frequency band) compared
to cellular frequencies (50 MHz in the 800-900 MHz frequency band). Also, PCS
licenses will permit the use of spectrum blocks of 30 MHz (like those of the
Company) or 10 MHz versus spectrum blocks of 25 MHz for cellular licenses.
Finally, the geographic areas for PCS licenses are divided differently than
for cellular licenses. PCS is segmented among 51 MTAs for A- and B-Block
licenses and 493 BTAs for other PCS licenses, including C-Block licenses, as
opposed to cellular's 306 metropolitan statistical areas and 428 rural service
areas.
In March 1995, the FCC completed the A- and B-Block PCS auction, resulting
in the award of two 30 MHz licenses in each of the MTAs. In May 1996, the FCC
completed the C-Block Auction, resulting in the award of
28
<PAGE>
one license for 30 MHz of spectrum in each of the BTAs. Beginning on July 3,
1996, the FCC plans to reauction 18 C-Block licenses for which the high
bidders failed to make initial post-auction down payments. The Company has
made a deposit of $2.6 million with the FCC for the purpose of reserving the
right to participate in such reauction. The FCC has announced that it will
auction the D-, E- and F-Block licenses in a single auction commencing on
August 26, 1996, which will be for licenses of only 10 MHz of spectrum in each
of the BTAs. Although the F-Block licenses are reserved for Entrepreneurs, the
D- and E-Block licenses are not reserved for any specific class of applicants.
LIMITATIONS OF CELLULAR TELEPHONE INDUSTRY
Despite its widespread availability and growth to date, cellular services
have 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
accommodating one conversation. In contrast, digital networks, including PCS
networks, convert voice or data signals into a stream of digits and typically
use voice compression techniques to allow a single radio channel to carry
multiple simultaneous signal transmissions. This enhanced capacity, along with
improvements in digital protocols, allows PCS and other digital wireless
technologies to offer greater call privacy and single number service, and more
robust data transmission features.
The Company believes that due to relatively high per minute airtime charges
and unpredictable monthly bills, there is a price-sensitive mass consumer
market that refrains from subscribing to or extensively using cellular
services. The Company believes that if the mass consumer market were offered
significantly lower per minute airtime charges and more predictable and
affordable pricing plans, mass consumers would increase their use of wireless
communications services, contributing to a new phase of growth in the
industry. The Company also believes that business customers who are high-
volume users of wireless communications will be attracted to lower priced
airtime service as they would realize substantial aggregate savings. The
Company believes that PCS operators have the opportunity to capture a
substantial market share due to technical and other advantages that they will
have relative to incumbent cellular operators, including (i) greater
flexibility to reduce per minute airtime usage charges, (ii) increased network
capacity, (iii) enhanced voice quality and (iv) the ability to include
enhanced capabilities such as advanced calling features, data transmissions to
and from portable computers, and short messaging and facsimile services
without need of a modem.
THE PCS SOLUTION
PCS operators plan to construct all-digital wireless telephony networks and
will compete primarily with existing cellular telephone operators. PCS
operators using digital technology will have several technical and capacity
related advantages relative to analog cellular providers. The Company believes
that the enhanced capacity of PCS networks will allow PCS operators to offer
wireless communications services at per minute airtime prices significantly
below the per minute airtime prices currently being charged by cellular
operators. As a result PCS subscribers are expected to use more airtime
minutes per month than cellular subscribers due to both lower effective
airtime pricing and enhanced features. The Company believes that PCS operators
will realize substantial revenue growth from broad penetration and greater
levels of usage.
PCS was introduced in the United States in the Washington, D.C. MTA in late
1995. Despite the PCS network having a much smaller geographic coverage area
than existing cellular competitors and no current roaming capability,
approximately 90,000 customers subscribed for PCS services in the first seven
months of commercial availability. The Company believes that the experience in
international markets where PCS has already been introduced provides
additional support for the potential growth of PCS in the United States. For
example, in approximately 30 months, the two PCS operators in the United
Kingdom have gained over 900,000 subscribers, representing approximately 16%
of the market share of the total wireless market. In Japan, approximately
600,000 new PCS subscriptions were activated during the first year of
operations.
29
<PAGE>
INDUSTRY OUTLOOK
Industry sources expect the wireless telecommunications market in general
and the PCS market in particular to grow at a rapid rate in the United States.
Kagan Associates forecasts wireless telephony penetration at approximately 48%
by 2006. Wireless communication technology developments are expected to evolve
and continue to drive mass consumer growth as users demand more sophisticated
services and products. The Company believes that wireless communications
penetration rates will increase as prices fall and greater emphasis is placed
on the development and use of mass retail distribution channels.
30
<PAGE>
BUSINESS
THE COMPANY
General Wireless intends to become a leading provider of affordable wireless
communications services. The Company holds PCS licenses to serve the rapidly
growing metropolitan areas of San Francisco, Atlanta and Miami, as well as 11
selected high-growth contiguous markets. In total, the Company's markets
contain 19.8 million POPs, approximately 71% of which are located in the
Metropolitan Areas. The Company believes that this is the highest percentage
of total POPs located in densely populated urban markets (markets having at
least three million POPs) of any PCS or cellular operator in the United
States. Additionally, the Company believes its markets are particularly
attractive because of their high historical and projected population growth
rates, as well as other desirable demographic characteristics, such as high
population densities, favorable business climates, high median household
income levels and long commute times. From 1990 through 1995, the aggregate
population of the Company's markets has grown at over 150% of the national
rate and is expected to continue to grow at a rate above the national average.
The Company plans to initiate service on its PCS networks by the end of 1997.
The demand for wireless communications services in the United States has
grown dramatically during the last five years, notwithstanding the technical
limitations of existing analog cellular technology. The number of cellular
subscribers has grown from 5.3 million at December 31, 1990 to 33.8 million at
December 31, 1995, representing a compound annual growth rate of 45%. Over the
same time period, the wireless telephony penetration rate has grown from
approximately 3% to approximately 13%, and is forecasted by Kagan Associates
to reach approximately 48% by the year 2006.
The Company believes that due to relatively high per minute airtime charges
and unpredictable monthly bills, there is a price-sensitive mass consumer
market that refrains from subscribing to or extensively using cellular
services. The Company believes that if the mass consumer market were offered
significantly lower per minute airtime charges and more predictable and
affordable pricing plans, mass consumers would increase their use of wireless
communications services, contributing to a new phase of growth in the
industry. The Company also believes that business customers who are high-
volume users of wireless communications services will be attracted to lower
priced airtime service, as such high-volume users would realize substantial
aggregate savings.
STRATEGY
The Company intends to become a leading provider of affordable wireless
communications services. The Company's strategy to achieve this objective is
based upon the following:
Operate in large, rapidly growing markets with attractive demographic
profiles. The Company has acquired PCS licenses in densely populated, high
growth major metropolitan areas. These licenses will enable the Company to
provide wireless communications services in the San Francisco, Atlanta, and
Miami BTAs, all of which are among the 12 largest BTAs in the United States,
Sacramento, which is the 26th largest BTA, and 10 selected BTAs that are
contiguous to these major cities. Approximately 71% of the Company's 19.8
million POPs are located in the Metropolitan Areas, which the Company believes
is the highest concentration of POPs located in densely populated urban
markets (markets having at least three million POPs) of any PCS or cellular
operator in the United States. The remaining 29% of the Company's POPs are
located in selected contiguous markets that represent commuting corridors and
rapidly growing suburban areas that have a high level of commerce and
interaction with the Metropolitan Areas.
The Company believes there are significant advantages created by focusing on
densely populated major metropolitan markets. First, cell site efficiencies
can be maximized in densely populated areas, thereby reducing network build-
out costs per subscriber and providing greater pricing flexibility.
Accordingly, the Company can achieve a higher ratio of population coverage to
geographic coverage relative to PCS and cellular operators in less densely
populated markets. Second, these markets have multiple business centers and
residential areas that generally have a high demand for mobile communications
services. Third, analog cellular operators typically face
31
<PAGE>
significant capacity constraints in high traffic areas. Fourth, major markets
have numerous local, regional and national retailers as well as agents and
resellers that can facilitate rapid growth by new wireless entrants.
The Company also believes it will benefit from the continued population
growth of its markets. The aggregate population of the Company's markets has
grown at over 150% of the national rate over the last five years and is
projected to continue to grow at rates significantly above the national
average. This rapid growth will provide the Company with an expanding base of
potential customers, which the Company believes will allow the Company to
leverage significantly its infrastructure and reduce per POP operating and
network build-out costs.
Furthermore, the Company's markets have attractive demographic
characteristics. Relative to national averages, the Company's markets have
above-average population densities, favorable business climates, high median
household income levels and long commute times. The Company's Metropolitan
Areas were all ranked in the top 10 U.S. markets in terms of the number of
cellular subscribers as of December 31, 1995. The Company believes that these
attractive demographic characteristics will enable it to achieve higher-than-
average penetration rates.
Use a focused network build-out to achieve low costs. General Wireless
intends to achieve lower operating costs and capital requirements relative to
its PCS and cellular competitors by concentrating its network build-out in
"high-usage" areas rather than building out wide-area cellular-like networks.
Additionally, the Company intends to use the most cost-effective digital
technology and outsource selected technical and administrative functions.
The Company plans to offer high quality network coverage in the "high-usage"
areas of its markets, which the Company defines as those areas where the
majority of the population lives, commutes, works and shops. These areas
primarily include densely populated urban areas, commuting corridors and high-
growth suburban areas. The Company plans to limit the construction of its
networks outside of these high-usage areas because it believes the incremental
cost of building out such network coverage is substantial and is inconsistent
with the Company's objective to be the low cost provider of wireless
communications services. Based on network design analysis completed to date,
the Company plans to spend approximately $13 per POP through the end of 1998
for the build-out of its PCS networks, which would provide coverage to
approximately 80% of the aggregate population of its markets. The Company
believes its per POP network build-out costs will be significantly less than
its competitors. The Company believes its focused build-out strategy differs
from the strategy of many existing cellular operators and from the expected
strategy of many PCS operators that are expected to compete by placing greater
emphasis on coverage area rather than on airtime prices. The Company's
strategy parallels those used by certain CLECs and IXCs that have targeted
specific coverage areas of major markets and are interconnected to other
carriers' facilities for expanded coverage.
The Company believes it will further reduce network build-out and operating
costs by using CDMA digital technology. The Company believes that CDMA is the
most efficient and cost-effective network technology that is capable of
delivering high-quality network service. CDMA is expected to enable greater
privacy and fraud prevention, as well as fewer dropped calls than competing
technologies. CDMA technology allows increased capacity within the allocated
frequency by reusing the entire frequency in each cell rather than using only
a fraction of the frequency in each cell as is typically the case with analog
cellular, TDMA and GSM technologies. In addition, CDMA technology requires
fewer cells than these other technologies in order to provide coverage over
the same geographic area, thereby reducing the overall infrastructure, and
operating costs of the Company's networks. See "--Digital Technology
Selection."
The Company intends to maintain a low level of corporate overhead while
maintaining high quality standards and a rapid build-out schedule by
outsourcing certain engineering and non-strategic administrative functions.
The Company plans to contract with its primary network vendor for project
management of a turnkey network solution including network design, site
selection, microwave relocation, construction and installation. In addition,
the Company plans to take advantage of existing third-party vendors of such
administrative services as billing, collection and customer service. The
Company believes that specialized third-party vendors can deliver such non-
strategic services at high quality and low costs, and that outsourcing will
enable management to focus
32
<PAGE>
on the implementation of its core business strategy. The Company may, in the
future, internalize these non-strategic services to the extent that increased
operating scale allows it to do so on a cost-effective basis.
Implement an innovative and affordable pricing structure. General Wireless
plans to implement an innovative and affordable pricing structure to
capitalize on wireless customers' demand sensitivity to price. The Company
believes that a substantial market opportunity exists to narrow the pricing
gap between cellular airtime and wireline telephone rates, which today
approximate 45 cents and 5 cents per minute of use, respectively. Relative to
current cellular service packages, General Wireless expects to offer service
packages that include larger blocks of prepaid minutes consisting of both peak
and off-peak airtime at significantly lower effective prices per minute. Based
on this pricing strategy, General Wireless expects to realize ARPU similar to
that currently achieved by cellular operators without negatively impacting
operating margins. Additionally, the Company believes that its cost structure
will better support more affordable pricing relative to PCS competitors that
provide wide-area cellular-like coverage.
The Company believes that its service packages will provide enhanced value
to both business customers and the mass consumer market. Business customers
who are heavy-volume users and account for a disproportionate amount of
current cellular usage and airtime revenue would realize substantial aggregate
savings from airtime price reductions. Also, the Company believes that the
mass consumer market will be attracted by the prospect of an affordable and
predictable monthly bill at high usage levels.
Maximize customer reach through extensive use of indirect distribution
channels. The Company's distribution strategy will emphasize indirect channels
in general, and retailers in particular. The Company believes it will realize
several important advantages from this distribution strategy. First, the
Company believes that the use of multiple indirect channels will enable the
Company to achieve a fast ramp-up of subscribers through representation at
numerous points of purchase. Second, the Company believes that indirect
distribution channels will cost-effectively focus the Company's sales and
marketing resources directly on customer creation, as opposed to investment in
Company stores and related infrastructure. Third, the focus on retailers and
agents, rather than resellers, will better allow the Company to maintain a
direct relationship with its customer base through billing and customer
service. The Company believes that direct contact with its customers will
allow it to realize better customer satisfaction and achieve lower churn.
33
<PAGE>
MARKETS
As part of its bidding strategy in the C-Block Auction, the Company has
selectively acquired PCS licenses serving the Metropolitan Areas and other
contiguous BTAs, creating three market clusters: the San Francisco cluster,
the Miami cluster and the Atlanta cluster. Each of these clusters consists of
an anchor market containing a major urban center and two to five contiguous
BTAs. The Company believes that these market clusters represent densely
populated urban areas, commuting corridors and high growth communities that
have a high level of intercity commerce with the Metropolitan Areas. The
Company believes its markets are particularly attractive because of their high
historical and projected population growth rates, as well as other desirable
demographic characteristics, such as favorable business climates, high median
household income levels and long commute times. Over the past five years, the
aggregate population of the Company's markets has grown at over 150% of the
national rate and is expected to continue to grow at a rate significantly
above the national average.
<TABLE>
<CAPTION>
1995 POPULATION
POPS GROWTH RATE(1)
----------- --------------
(THOUSANDS)
<S> <C> <C>
SAN FRANCISCO CLUSTER:
San Francisco--Oakland--San Jose............... 6,840 1.3%
Sacramento..................................... 1,879 2.5%
Stockton....................................... 575 2.3%
Monterey--Salinas.............................. 383 1.5%
Chico--Oroville................................ 230 2.1%
Yuba City--Marysville.......................... 141 2.8%
------ ----
Subtotal POPs/Weighted Average Growth Rate.... 10,048 1.6%
MIAMI CLUSTER:
Miami--Fort Lauderdale......................... 3,495 1.3%
West Palm Beach................................ 1,012 2.5%
Fort Meyers.................................... 554 3.0%
Fort Pierce--Vero Beach........................ 385 2.5%
Naples......................................... 185 4.0%
------ ----
Subtotal POPs/Weighted Average Growth Rate.... 5,631 1.9%
ATLANTA CLUSTER:
Atlanta........................................ 3,712 3.0%
Gainesville.................................... 193 2.6%
Athens......................................... 179 1.5%
------ ----
Subtotal POPs/Weighted Average Growth Rate.... 4,084 2.9%
------ ----
Total POPs/Weighted Average Growth Rate........... 19,763 1.9%
U.S. Average...................................... -- 1.3%
</TABLE>
- --------
(1) Average compound annual growth rates in population between 1990 through
1995, based upon the 1990 U.S. Census and the 1995 PCS Atlas and Databook.
MARKETING AND DISTRIBUTION
The Company will use a wide range of indirect distribution channels,
including mass retailers, agents and resellers, to market and sell its service
offerings. The Company believes that a focus on indirect channels for the
majority of its sales and customer activations will provide it with the most
cost effective distribution reaching the largest percentage of potential
customers. In particular, the Company intends to target those indirect
channels, such as retailers and agents, that allow the Company to maintain a
direct relationship with customers. In addition to indirect distribution
channels, the Company will also employ direct marketing targeted to specific
customer segments using its own sales force, telemarketing and direct mail.
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<PAGE>
The Company believes that the mass consumer and business segments can be
best accessed through retailers and other non-exclusive indirect distribution
channels. Currently, many cellular operators distribute their products and
services through direct sales channels and exclusive agents. General Wireless
believes that wireless products and services will be purchased increasingly
from retailers, which will sell such products on a non-exclusive basis where
consumers and businesses are accustomed to purchasing other electronic
products such as wireline telephones, pagers, personal computers and
televisions. In addition to its differentiation based on affordable prices for
large amounts of monthly minutes of use, General Wireless intends to provide
incentives to retailers to insure that its brands are prominently displayed
and effectively promoted at the point of purchase. These incentives include
traditional upfront commission payments and airtime revenue sharing
arrangements.
In addition to retailers, the Company plans to use agents that can cost-
effectively penetrate important segments of the target market. These agents
include direct marketing organizations that represent third-party products and
services and ethnic marketing companies focused on particular nationalities in
major cities. In addition, the Company believes that resellers of other
telecommunications services such as long distance and paging services will
find the Company's agent program attractive. As with retailers, General
Wireless plans to compensate agents through upfront commission payments and
airtime revenue sharing arrangements.
To a lesser extent than retailers and agents, the Company will also use
resellers to distribute its wireless products and services. Resellers
typically purchase wholesale airtime and consequently perform all services
otherwise performed by the operator. As a result, resellers are typically able
to negotiate substantial retail airtime discounts as their sole compensation.
Many wireless service providers employ resellers to distribute their products
and services. General Wireless believes that undue reliance on resellers can
lead to their gaining bargaining power over rates that can limit the
operators' flexibility and impair margins. Further, General Wireless believes
that the value of directly billing, servicing and maintaining its own customer
base can be a source of competitive advantage. As a result, the Company does
not intend to rely heavily on resellers.
In addition to its indirect distribution channels, the Company plans to
utilize a direct sales force to target existing high-volume cellular
subscribers. The Company expects such subscribers to be the most attracted to
lower airtime rates, higher quality and additional features that digital
technology provides and that are most likely to purchase digital telephones
from the service operator. The Company may also market directly to potential
customers through Company-owned kiosks, direct mail, the Internet and other
forms of direct marketing.
PRODUCTS AND SERVICES
The Company expects to offer a variety of commercialized wireless services
through state-of-the-art wireless CDMA technology, which the Company intends
to support with Advanced Intelligent Network ("AIN") capability. The Company's
planned services and features are designed to increase usage and provide
consumers with greater capabilities in call management, including the
following:
High Quality Voice Service. CDMA networks have more powerful error
correction, less susceptibility to fading and reduced interference relative
to competing digital technologies. CDMA networks achieve voice quality that
is comparable to the typical wireline telephone. CDMA technology also
employs adaptive equalization which filters out background noise more
effectively than existing wireline or analog cellular phones.
Advanced Handsets. In addition to supporting high-quality voice
transmissions, the Company expects that CDMA handsets will allow digital
data transmission without a phone line modem and will have advanced power
management to maximize handset battery life.
Short Messaging Services. This allows alphanumeric incoming messages to
the handset to be received, stored and displayed on demand.
Caller ID. This displays the telephone number and directory name of the
incoming call on the customer's handset, allowing the customer to decide
whether or not to accept the call.
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<PAGE>
Allowable Called Number Table. This limits the outgoing calls to the
phone numbers on the allowable call number table in order to limit
unauthorized use.
Over-the-Air Activation. This allows the subscriber to initiate and
obtain feature changes in services by over-the-air activation or
deactivation via handset entry.
Message Waiting Notification. This initiates a voice message waiting
indicator on the handset that notifies the subscriber of a new message.
Custom Calling Features. Additional features that the Company anticipates
offering include call waiting, call forwarding, distinctive ringing and
call blocking.
The Company believes that new features and services will be developed to
take advantage of CDMA's expected position as the most widely deployed digital
wireless protocol in the United States. The Company intends to offer a
portfolio of products to accommodate the growth in data and image transmission
as well as other new applications for wireless data services that are
currently envisioned (e.g., facsimile, wireless local area network and point
of sale terminal connections).
DIGITAL TECHNOLOGY SELECTION
There are three prominent network technologies that provide digital service
in the 1850-1990 MHz frequency band: CDMA, TDMA and GSM. The Company has
selected CDMA as the digital technology for its PCS networks based on several
key advantages relative to other digital protocols:
Broader availability of CDMA to facilitate roaming. Numerous cellular
operators and PCS licensees have announced that they plan to use CDMA
technology in their market areas, which cover more than 90% of the U.S.
population. Conversely, GSM and TDMA have been chosen by other wireless
service providers whose markets cover only 54% and 45%, respectively, of the
U.S. population. The Company believes the widespread selection of the CDMA
standard by wireless telephony operators will facilitate roaming outside of
its service areas by its subscribers, and also roaming in its service areas by
other companies' subscribers. The table below lists certain major cellular
operators and PCS licensees who have selected CDMA technology.
<TABLE>
<CAPTION>
CELLULAR PCS A- AND B-BLOCK PCS C-BLOCK
--------------------------- --------------------- ---------------------
<S> <C> <C>
AirTouch Communications Ameritech General Wireless
ALLTEL Mobile Centennial Cellular Chase
Communications Inc. Corp. Telecommunications,
Ameritech Cellular GTE MobilNet Inc.
Communications Inc. PrimeCo Personal Mercury PCS, LLC
Bell Atlantic NYNEX Communications NextWave Telecom
Mobile Inc. Sprint Spectrum L.P. Inc.
Comcast Cellular Corp. Urban Communications
GTE MobilNet
360(degrees) Communications
Southern New England
Telephone Company
U S WEST NewVector Group,
Inc.
</TABLE>
Higher network capacity. CDMA technology allows increased capacity within
the allocated frequency by reusing the entire frequency in each cell rather
than using only a fraction of the frequency in each cell as is typically the
case with analog cellular, TDMA and GSM technologies. The Company believes
that the use of CDMA technology will increase capacity with fewer cells
relative to other digital technologies.
Lower infrastructure costs. Cells using CDMA technology can achieve a
greater range of coverage or subscriber density per base station because of
the more efficient modulation of CDMA technology. As a result, CDMA networks
can achieve the same level of coverage as the current analog, TDMA or GSM
networks with fewer cells, which is expected to reduce the overall
infrastructure and operational costs of CDMA networks.
36
<PAGE>
Greater privacy and fraud prevention. One of the benefits of CDMA technology
is that it combines a constantly changing coding scheme with a low power
signal to enhance security and privacy. Vendors are currently developing
additional encryption capabilities to enhance further overall network
security. Partly because of its security and privacy features, spread spectrum
technology (upon which CDMA is based) has been used by government, military
and intelligence agencies for over 30 years.
Longer handset battery life. Power control characteristics of CDMA reduce
interference levels. The power regulating nature of CDMA establishes a
communication link with a subscriber handset at the lowest possible power
level suitable for high quality voice transmission. Average power output from
subscriber handsets for CDMA is 200 milliwatts compared to 600 milliwatts for
analog cellular and TDMA and 1,000 milliwatts for GSM. Not only is co-channel
and adjacent channel interface minimized, but battery life in subscriber
handsets can be proportionately extended to provide longer periods between
recharge.
Fewer dropped calls. CDMA technology is designed, unlike other technologies,
so that the mobile telephone will generally not switch frequencies during
hand-off from one cell to another. Therefore, CDMA networks are able to use
the "soft hand-off" where the original cell site of a mobile user does not
discontinue handling a call until the mobile user has established connection
in a new cell, resulting in a decreased number of dropped calls relative to
other technologies. See "Risk Factors--Risks Relating to Selection of Digital
Technology; Availability of Handsets."
Simplified frequency planning. Frequency planning is the process by which
wireless service providers analyze and test alternative patterns of frequency
use within their systems to minimize interference and maximize capacity.
Currently, cellular service providers spend considerable time and money on
frequency planning. Because TDMA and GSM networks have frequency reuse
constraints similar to present analog systems, frequency reuse planning for
TDMA and GSM networks is expected to be comparable to planning for the current
analog systems. With CDMA technology, however, the same subset of allocated
frequencies can be reused in every cell, substantially reducing the need for
costly frequency reuse patterning and constant frequency plan management.
NETWORK BUILD-OUT
The Company will outsource its network build-out in all of its markets to a
primary network vendor under a "turnkey" services agreement that will
capitalize on such vendor's expertise in broadly managing highly skilled
professional personnel in RF engineering, network design and construction.
This turnkey services agreement will be structured to enable management to
monitor and control the major activities of the network build-out, which will
include (i) program management, (ii) RF engineering, (iii) site acquisition,
(iv) network design, (v) microwave removal, and (vi) site construction
engineering.
Program Management. Day-to-day management of the network build-out process
will be performed by the primary network vendor under the monitoring and
control of the Company. The Company's management will define the economic
limits and network coverage requirements within which the primary network
vendor will operate, and will also monitor and manage progress in order to
anticipate potential delays and exceptional cost variances.
RF Engineering. The RF engineering process utilizes advanced computer models
containing topographic, demographic and building structure data for the
Company's markets, along with the Company's specific design criteria and
coverage plan, to develop optimal solutions for cell site locations. To
facilitate this process and to reduce site acquisition costs, the RF engineers
will incorporate information on pre-identified potential cell sites, such as
existing rental sites and sites whose owners are willing to co-locate with
other wireless operators. The Company intends to work closely with the primary
network vendor to insure that the most cost effective RF engineering plan is
developed, and to manage directly the process of balancing geographic
coverage, population coverage and system activation schedules.
37
<PAGE>
Site Acquisition. The Company's site selection process will require the
negotiation of lease or acquisition agreements for approximately 500 sites for
the Company's PCS networks. The Company intends to utilize cell sites that are
a part of the large inventory of potential cell sites that have been pre-
identified by companies that acquire and manage cell sites and those offered
by existing operators willing to co-locate. The Company anticipates that a
number of these sites may fulfill its needs, and that by utilizing them it may
significantly reduce its network build-out costs.
Network Design. The Company intends to leverage the primary network vendor's
extensive expertise in optimizing network design to minimize the investment
and operating costs of its "backhaul" network. The Company believes that
microwave links can form the backbone of its backhaul network for each market
cluster and that the use of microwave links will provide significant savings
over utilizing landline networks. A preliminary investigation by potential
vendors of microwave equipment indicates that suitable spectrum will be
available to construct these microwave links.
Microwave Removal. Approximately 85 microwave paths exist in the Company's
target coverage area that must be removed to clear its entire C-Block
frequency band. The Company believes that as many as 57 of these microwave
paths are eligible for cost sharing between the Company and other affected
licensees, which will reduce the Company's cost of relocating these microwave
paths. The primary network vendor will subcontract with others to assist the
Company in negotiating compensation, timing and location of microwave
relocation.
Site Construction and Engineering. The primary network vendor will outsource
site construction and engineering activities once sites are acquired and
network design has been completed. In addition, the Company will work closely
with the primary network vendor to identify and select certain key system
elements that affect system performance, such as antennas, to insure that both
cost and performance objectives are met. See "Risk Factors--PCS Network
Construction and Implementation Risks" and "--Relocation of Incumbent Fixed
Microwaves Licenses."
COMPETITION
The wireless communications market in the United States is expected to
become increasingly competitive. Cellular operators and other wireless
services providers are already exploiting existing wireless technology and
have established and continue to augment wireless telecommunications networks
that will directly compete with many of the services to be offered by the
Company. Additionally, other PCS operators are expected to compete with the
Company in each market. The success of the Company will depend largely upon
its ability to satisfy the mass consumer and business markets, which the
Company believes have not been adequately served by existing cellular service
operators. The Company plans to compete with cellular and other PCS operators
on the basis of affordable pricing, predictable monthly bills and voice
transmission quality.
Cellular Operators. The Company will compete with established cellular
telephone service operators in the markets it intends to enter. Principal
cellular providers in the Company's markets are AT&T Wireless Services, Inc.,
BellSouth Mobility, Inc., GTE Mobile Communications Inc., AirTouch
Communications, Inc., Centennial Cellular Corp., Horizon Cellular Telephone
Company, L.P., U.S. Cellular Corp., Independent Cellular Network Inc. and
Palmer Wireless, Inc. Under FCC rules, cellular telephone service licensees
have enjoyed a duopoly because the FCC only permits two licensees in each
market. Cellular licensees to date have faced limited competition from
businesses that "resell" cellular telephone service to customers, but the
Company could face additional competition from resellers of cellular and PCS
networks.
The introduction of digital transmission technologies to supplant
traditional analog cellular systems will increase the capacity and quality of
existing cellular telephone systems once deployed. However, the Company
believes that upgrading from analog to digital is expensive and that it will
likely be several years before cellular networks are fully converted to
digital technology. The Company expects the analog infrastructure to continue
to be used for the foreseeable future due in part to a lack of a national
digital technology standard. The Company
38
<PAGE>
further expects that many cellular licensees will also attempt to acquire an
additional 10 MHz PCS license in the D- and E-Block auctions in areas in which
they currently provide cellular telephone services, as permitted by the FCC
under its PCS licensing rules. This would provide the cellular operators with
greater capacity and potentially allow them to add additional customers and
offer more advanced services in their markets in the near term. The Company
believes that by providing low-priced services and new wireless features on
its digital PCS networks, it will be competitive with cellular services.
Other PCS Operators. The Company will compete with A- and B-Block licensees,
many of whom are cellular-affiliated companies that will utilize PCS spectrum
in new markets to expand their national or regional coverage. Principal A- and
B-Block licensees in the Company's markets are PrimeCo Personal
Communications, Pacific Telesis Mobile Services, Sprint Spectrum L.P.,
InterCel, Inc. and AT&T Wireless Services, Inc. These parties, whose licenses
were granted on June 23, 1995, have all had substantial lead-time to develop
their networks and have significantly greater financial, technical, marketing
and other resources than the Company.
In addition, the Company will compete with the D-, E- and F-Block license
winners to the extent that such licenses are not acquired by existing cellular
or A- or B-Block PCS licenses. Although the D-, E- and F-Block licenses are
for only 10 MHz, entities can, subject to the Entrepreneur Requirements and
the FCC's rules limiting entities to 45 MHz of cellular, broadband PCS and SMR
spectrum in a given market, acquire two or three of the 10 MHz licenses and
consolidate them so as to design a 20 MHz or 30 MHz PCS system similar to that
of the Company.
SMR and "Enhanced" SMR Services. As a result of advances in digital
technology, some service providers have begun to design and deploy digital
mobile networks, which are referred to as "Enhanced SMR" or "ESMR." ESMR
networks increase the capacity of SMR system frequencies to a level that may
be competitive with that of analog cellular networks. SMR service providers
offer or plan to offer fleet dispatch services, short messaging, data services
and interconnected voice telephony services over wide geographic service
areas. Given similar developments in the deployment of digital technology in
the cellular operators' networks, it is unclear at this time whether the
quality and capacity of SMR-based digital mobile networks will be able to
compete effectively with analog and digital cellular and PCS networks.
Other Competition. The FCC has proposed or adopted final rules to authorize
additional wireless mobile services. First, the FCC has proposed to authorize
the use of the 37 and 39 GHz bands for the provision of fixed and mobile
communications services. Second, in May 1996 the FCC adopted final rules to
permit Interactive Video and Data Service ("IVDS") licensees to provide mobile
two-way data services. Because of the limited amount of spectrum allocated for
IVDS, however, it is expected to be technically infeasible to provide voice
services to IVDS customers for the foreseeable future. Third, the FCC
authorized the use of LMDS licenses to provide certain fixed and mobile
services. Finally, the FCC has proposed to reallocate former federal
government spectrum located at 4 GHz for a broad range of wireless fixed and
mobile services, and is expected to reallocate additional former federal
government spectrum for wireless mobile services in the future. The Company
may also face competition from MSS.
In addition, as a result of the enactment of the 1996 Act, regional energy
utility companies are expected to enter the wireless and wireline
telecommunications markets by leveraging their significant capital assets,
brand-name value, existing customer base and infrastructure advantages in
their geographical areas of operation. Similarly, the 1996 Act also eliminates
barriers for cable television system operators to provide wireline local loop
services over their existing wireline infrastructure. See "Risk Factors--
Competition."
EMPLOYEES
As of June 25, 1996, the Company had a total of nine employees. The
Company's future success depends in substantial part upon its ability to
attract and retain highly qualified technical and managerial personnel, and
upon the continued service of Mr. Roger D. Linquist and Mr. Malcolm M. Lorang.
Prior to the conclusion of the C-Block Auction and the grant of its PCS
licenses, the Company has maintained a small management group to
39
<PAGE>
make the most efficient use of resources. Going forward, the Company plans to
expand the senior management team and other corporate staff significantly. In
addition, following the grant of its PCS licenses and as the Company
approaches the commercial launch of its services, the Company expects to hire
field personnel in its markets including operations management, field
technicians, administration staff, customer service representatives and sales
and marketing personnel. Competition for such personnel is intense, and there
can be no assurance that the Company can retain its key technical, managerial
or other employees or that it can attract, assimilate or retain other highly
qualified technical, managerial or other personnel in the future. See "Risk
Factors--Management of Growth; Need to Establish Infrastructure" and "--
Dependence on Key Personnel."
FACILITIES
The Company's principal administrative facility is located in Dallas, Texas.
In connection with the Company's expansion, the Company intends to relocate to
larger facilities for its corporate headquarters functions. In addition, the
Company intends to establish regional facilities in each of the Metropolitan
Areas. There can be no assurance that the Company will be able to locate
adequate facilities on terms favorable to the Company. See "Risk Factors--
Management of Growth; Need to Establish Infrastructure."
40
<PAGE>
LEGISLATION AND GOVERNMENT REGULATION
As a recipient of licenses acquired through the C-Block Auction, the
Company's ownership structure and operations are and will be subject to
substantial FCC regulation.
OVERVIEW
FCC Authority. The Communications Act of 1934, as amended (the
"Communications Act") grants the FCC the authority to regulate the licensing
and operation of all non-federal government radio-based services in the United
States. The scope of the FCC's authority includes (i) allocating radio
frequencies, or spectrum, for specific services, (ii) establishing
qualifications for applicants seeking authority to operate such services,
including PCS applicants, (iii) approving initial licenses, modifications
thereto, license renewals, and the transfer or assignment of such licenses,
(iv) promulgating and enforcing rules and policies that govern the operation
of spectrum licensees, (v) the technical operation of wireless services,
interconnection responsibilities between and among PCS, other wireless
services such as cellular, and landline carriers, and (vi) imposition of fines
and forfeitures for any violations of those rules and regulations. Under its
broad oversight authority with respect to market entry and the promotion of a
competitive marketplace for wireless providers, the FCC regularly conducts
rulemaking and adjudicatory of proceedings to determine and enforce rules and
policies potentially affecting broadband PCS operations.
Regulatory Parity. The FCC has adopted rules designed to create symmetry in
the manner in which it and the states regulate similar types of mobile service
providers. According to these rules, all "commercial mobile radio service"
("CMRS") providers that provide substantially similar services will be subject
to similar regulation. A CMRS service is one in which the mobile radio service
is provided for a profit, interconnected to the public switched telephone
networks, and made available to the public. Under these rules, providers of
PCS, SMR, and ESMR services are subject to regulations similar to those
governing cellular carriers if they offer an interconnected commercial mobile
service. The FCC announced that it would forbear from applying several
regulations to these services, including its rules concerning the filing of
tariffs for the provision of interstate services. Congress specifically
authorized the FCC to forbear from applying such regulation in the Omnibus
Budget Reconciliation Act of 1993. With respect to PCS, the FCC has stated its
intent to continue monitoring competition in the PCS service marketplace. The
FCC also concluded that Congress intended to preempt state and local rate and
entry regulation of all CMRS providers, including PCS, but established
procedures for state and local governments to petition the FCC for authority
to continue or initiate such regulation.
Commercial Mobile Radio Source Spectrum Ownership Limit. The FCC has limited
the amount of broadband CMRS spectrum (including cellular, broadband PCS and
SMR) in which an entity may hold an attributable interest in a given
geographic area to 45 MHz. For these purposes only PCS and other CMRS licenses
are attributed to an entity where its investments exceed certain thresholds or
the entity is an officer or director of a broadband PCS, cellular or SMR
licensee. Thus, entities with attributable interests in cellular licenses
(which are for 25 MHz) in certain markets cannot hold more than 20 MHz of PCS
spectrum in the same markets. The Company's ability to raise capital from
entities with attributable broadband CMRS interests in certain geographic
areas is likely to be limited by this restriction.
Interconnection Requirements. The FCC has pending proceedings to address
various forms of interconnection obligations which could affect broadband PCS
and other wireless service providers. In its mutual compensation proceedings,
the FCC is examining its policies regarding the compensation arrangements
which apply when CMRS providers, including broadband PCS providers,
interconnect with an LEC. In addition, the FCC is considering whether to rely
upon private negotiations between wireless providers to determine whether
direct interconnections between wireless networks should occur or whether such
direct interconnect should be obligatory. The FCC also is considering whether
private negotiations should be the preferred basis for wireless providers to
permit the customers of one such provider to obtain service while roaming in
the service area of the other.
41
<PAGE>
In related parts of the foregoing proceedings, the FCC is considering
whether to require all wireless providers to provide capacity to non-
facilities based resellers, whether wireless licensees should be permitted to
resell capacity acquired from other wireless providers in the markets where
they hold licenses at least during the initial startup period and whether
wireless providers should be required to offer unbundled communications
capacity to resellers who intend to operate their own switching facilities.
Other FCC Requirements. The FCC also has pending proceedings regarding the
scope of permissible uses of broadband PCS networks to provide fixed local
loop and other fixed services in competition with the wireline offerings of
the LEC.
Other Federal Regulations. Wireless networks are subject to certain Federal
Aviation Administration and FCC guidelines regarding the location, lighting
and construction of transmitter towers and antennas. In addition, the FCC has
authority to enforce certain provisions of the National Environmental Policy
Act as they would apply to the Company's facilities. The Company intends to
use common carrier point-to-point microwave and traditional landline
facilities to connect base station sites and to link them to their respective
main switching offices. These microwave facilities have historically been
separately licensed by the FCC on a first-come, first-served basis (although
the FCC has proposed to auction certain such licenses) and are subject to
specific service rules.
Wireless providers also must satisfy a variety of FCC requirements relating
to technical and reporting matters. One such requirement is the coordination
of proposed frequency usage with adjacent wireless users, permittees and
licensees in order to avoid electrical interference between adjacent networks.
In addition, the height and power of base station transmitting facilities and
the type of signals they emit must fall within specified parameters.
State and Local Regulation. The scope of state regulatory authority covers
such matters as the terms and conditions of interconnection between LECs and
wireless carriers under FCC oversight, customer billing information and
practices, billing disputes, other consumer protection matters, certain
facilities construction issues, transfers of control, the bundling of services
and equipment and requirements relating to making capacity available to third
party carriers on a wholesale basis. In these areas, particularly the terms
and conditions of interconnection between LECs and wireless providers, the FCC
and state regulatory authorities share regulatory responsibilities with
respect to interstate and intrastate issues, respectively.
The FCC and a number of state regulatory authorities have initiated
proceedings or indicated their intention to examine access charge obligations,
mutual compensation arrangements for interconnections between LECs and
wireless providers, the pricing of transport and switching facilities provided
by LECs to wireless providers, the implementation of "number portability"
rules to permit telephone customers to retain their telephone numbers when
they change telephone service providers, and alterations in the structure of
universal service funding, among other matters.
The Company and its subsidiaries have been and intend to remain active
participants in rulemaking and other administrative policy proceedings before
the FCC and before state regulatory authorities. Proceedings with respect to
the foregoing policy issues before the FCC and state regulatory authorities
could have a significant impact on the competitive market structure among
wireless providers and the relationships between wireless providers and other
carriers.
GENERAL PCS REGULATIONS
In June 1994 the FCC allocated spectrum for broadband PCS services between
the 1850 to 1990 MHz bands. Of the 140 MHz available for PCS services, the FCC
created six separate blocks of spectrum identified as the A-, B-, C-, D-, E-
and F-Blocks. The A-Block, B-Block and C-Block are each allocated 30 MHz of
spectrum, the D-Block, E-Block and F-Block are allocated 10 MHz each. For each
block, the FCC adopted a 10-year PCS license term with an opportunity to
renew. 20 MHz of spectrum is unallocated.
42
<PAGE>
The FCC adopted a "rebuttable presumption" that all PCS licensees are common
carriers, subject to Title II of the Communications Act. Accordingly, each PCS
licensee deemed to be a common carrier must provide services upon reasonable
request and the rates, terms and conditions of service must not be unjustly or
unreasonably discriminatory.
Structure of PCS Block Allocations. The FCC defines the geographic contours
of the licenses within each PCS block based on the MTAs and BTAs developed by
Rand McNally & Co. The FCC awarded A-Block and B-Block licenses in 51 MTAS.
The C-Block, D-Block, E-Block and F-Block spectrum were allocated on the basis
of 493 smaller BTAS. In addition, there are spectrum aggregation caps on PCS
licensees limiting them to 45 MHz of broadband CMRS spectrum (e.g., no more
than one 30 MHz PCS license and one 10 MHz license) in any given market.
All but three of the 102 total A-Block licenses and all B-Block licenses
were auctioned in 1995. The three A-Block licenses were awarded separately
pursuant to the FCC's "pioneer's preference" program. The auctioned A-Block
and B-Block licenses were awarded in June 1995. The C-Block and F-Block
spectrums are reserved for Entrepreneurs. See "--C-Block License
Requirements." The FCC has proposed extending certain auction preferences to
the D-Block and E-Block licenses in a pending rulemaking proceeding and has
also proposed to auction the D-, E- and F-Block licenses in a single auction,
which would make it easier for entities to aggregate two or three of these 10
MHz licenses and offer services competitive with 30 MHz licenses. The outcome
of these proceedings cannot be determined.
PCS Licensing Auctions. Before granting licenses won by a successful bidder,
the FCC requires that such bidder submit a Long Form for each market in which
it has submitted a winning bid. The Company filed its Long Form on May 22,
1996. This submission began an administrative process in which parties have an
opportunity to challenge the winning bidders' qualifications to be FCC
licensees. The Company may receive challenges to its license applications
("Petitions to Deny"). The Company has an opportunity to respond to the
Petitions to Deny to demonstrate its compliance with the FCC's rules including
the eligibility requirements. Based on the Petitions to Deny and the responses
thereto, the FCC will determine whether to grant such licenses. In addition,
if the FCC determines that the Company violated FCC rules, then the Company
could be subject to substantial financial and regulatory penalties, including
refusal to grant the PCS licenses.
RECENTLY ADOPTED FCC REGULATIONS
On June 12, 1996, the FCC announced the adoption of rules prohibiting all
cellular and broadband PCS providers, and providers of SMR services licensed
in the 800 MHz and 900 MHz bands to provide real time, two-way switched,
interconnected voice service, from unreasonably restricting the resale of
their services. In adopting these rules, the Commission concluded that the
availability of resale will increase competition at a faster pace by allowing
new entrants to enter the wireless market quickly by reselling the services of
their competitors while they build out their own facilities. The prohibition
on resale restrictions will expire five years after the Commission concludes
its initial licensing of existing broadband PCS spectrum, which is expected to
conclude in 1997. The Commission has not yet released the full text of the
decision and rules, thus the full extent of the rules and their effect on the
Company cannot be determined.
On June 12, 1996, the FCC also announced the adoption of rules governing the
implementation of enhanced 911 for wireless services. Within 12 months after
the effective date of the rules, cellular, broadband PCS and geographic area
SMR licensees will be required to transmit 911 emergency calls, without any
credit checks or validation, to a Public Safety Answering Point ("PSAP") from
a handset that transmits a mobile identification number. Between 12 and 18
months after the effective date of the rules, such licensees will be required
to offer certain 911 enhancements, such as the ability to relay to the PSAP a
caller's telephone number and the location of the base station or cell site
receiving the 911 call. Within five years after the effective date of the
rules, such licensees will be required to provide to the PSAP the location of
the mobile station in two dimensions, with an accuracy within a radius of 125
meters in 67% of all cases. The Commission has not yet released the full text
of the decision and rules; thus the full extent of the rules and their effect
on the Company cannot be determined.
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1996 ACT
On February 8, 1996, Congress enacted the 1996 Act, which effected a
sweeping overhaul of the Communications Act. In particular, the 1996 Act
substantially amended Title II of the Communications Act, which governs
telecommunications common carriers. The policy underlying this legislative
reform was the opening of the telephone exchange service markets to full
competition. The 1996 Act makes all state and local barriers to competition
unlawful, whether they are direct or indirect. It directs the FCC to initiate
rulemaking proceedings on local competition matters and to preempt all
inconsistent state and local laws and regulations. The 1996 Act requires
incumbent wireline LECs to open their networks to competition through
interconnection and access to unbundled network elements and prohibits state
and local barriers to the provision of interstate and intrastate
telecommunications services.
The 1996 Act prohibits state and local governments from enforcing any law,
rule or legal requirement that prohibits or has the effect of prohibiting any
person from providing interstate or intrastate telecommunications services.
States retain jurisdiction under the 1996 Act to adopt laws necessary to
preserve universal service, protect public safety and welfare, ensure the
continued quality of telecommunications services and safeguard the rights of
consumers.
Implementation of the provisions of the 1996 Act will be the task of the
FCC, the state public utility commissions and a joint federal-state board.
Much of the implementation of the 1996 Act must be completed in numerous
rulemaking proceedings with short statutory deadlines. These proceedings are
expected to address issues and proposals already before the FCC in pending
rulemaking proceedings affecting the wireless industry as well as additional
areas of telecommunications regulation not previously addressed by the FCC and
the states.
Some specific provisions of the 1996 Act which are expected to affect
wireless providers are summarized below:
Expanded Interconnection Obligations: The 1996 Act establishes a general
duty of all telecommunications carriers, including C-Block PCS licensees, to
interconnect with other carriers, directly or indirectly. The 1996 Act also
contains a detailed list of requirements with respect to the interconnection
obligations of LECs. These "interconnect" obligations include resale, number
portability, dialing parity, access to rights-of-way and reciprocal
compensation.
LECs designated as "incumbents" (i.e., those providing landline local
exchange telephone service at the time the 1996 Act was adopted) have
additional obligations including: to negotiate in good faith; to interconnect
on terms that are reasonable and non-discriminatory; to provide non-
discriminatory access to facilities, equipment, features, functions and
capabilities; to offer for resale at wholesale rates any service that LECs
provide on a retail basis; and to provide actual co-location of equipment
necessary for interconnection or access.
The 1996 Act establishes a framework for state commissions to mediate and
arbitrate negotiations between incumbent LECs and carriers requesting
interconnection, services or network elements. The 1996 Act establishes
deadlines, policy guidelines for state commission decision making and federal
preemption in the event a state commission fails to act. The FCC is in the
process of promulgating rules to implement these provisions of the 1996 Act,
as well as the provision discussed immediately below and the outcome of such
proceedings or the effect of the Company cannot be determined.
Review of Universal Service Requirements. The 1996 Act contemplates that
interstate telecommunications providers, including CMRS providers, will "make
an equitable and non-discriminatory contribution" to support the cost of
providing universal service, although the FCC can grant exemptions in certain
circumstances.
Prohibition Against Subsidized Telemessaging Services. The 1996 Act
prohibits incumbent LECs from subsidizing telemessaging services (i.e., voice
mail, voice storage/retrieval, live operator services and related ancillary
services) from their telephone exchange service or exchange access and from
discriminating in favor of its own telemessaging operations.
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<PAGE>
Conditions on RBOC Provision of In-Region InterLATA Services. The 1996 Act
generally requires that before engaging in landline long distance services in
the states in which they provide landline local exchange service referred to
as in-region interLATA services, the Regional Bell Operating Companies
("RBOCs") must (1) provide access and interconnection to one or more
unaffiliated competing facilities-based providers of telephone exchange
service, or after 10 months after enactment of the 1996 Act, no such provider
requested such access and interconnection more than three months before the
RBOCs has applied for authority and (2) demonstrate to the FCC its
satisfaction of the 1996 Act's "competitive checklist."
The specific interconnection requirements contained in the competitive
checklist, which the RBOCs must offer on a non-discriminatory basis, include
interconnection and unbundled access; access to poles, ducts, conduits and
rights-of-way owned or controlled by the RBOCs; unbundled local loops,
unbundled transport and unbundled switching; access to emergency 911,
directory assistance, operator call completion and white pages; access to
telephone numbers, databases and signaling for call routing and completion;
number portability; local dialing parity; reciprocal compensation; and resale.
The 1996 Act eliminates the previous prohibition on RBOC provision of out-
of-region, interLATA services and all interLATA services associated with the
provison of CMRS service, including in-region CMRS service.
RBOC Commercial Mobile Joint Marketing. The RBOCs are permitted to market
jointly and sell wireless services in conjunction with telephone exchange
service, exchange access, intraLATA and interLATA telecommunications and
information services.
CMRS Facilities Siting. The 1996 Act limits the rights of states and
localities to regulate placement of CMRS facilities so as to "prohibit" or
prohibit effectively the provision of wireless services or to "discriminate"
among providers of such services. It also eliminates environmental effects
from RF emissions (provided the wireless system complies with FCC rules) as a
basis for states and localities to regulate the placement, construction or
operation of wireless facilities. The FCC's implementation of these provisions
and the scope thereof have neither been adopted by the agency nor reviewed by
the courts.
Equal Access. The 1996 Act provides that wireless providers are not required
to provide equal access to common carriers for toll services. The FCC is
authorized to require unblocked access subject to certain conditions.
Deregulation. The FCC is required to forebear from applying any statutory or
regulatory provision that is not necessary to keep telecommunications rates
and terms reasonable or to protect consumers. A state may not apply a
statutory or regulatory provision that the FCC decides to forebear from
applying. In addition, the FCC must review its telecommunications regulations
every two years and change any that are no longer necessary.
RELOCATION OF INCUMBENT FIXED MICROWAVE LICENSEES
In an effort to balance the competing interests of existing microwave users
and newly authorized PCS licensees in the spectrum allocated for PCS use, the
FCC has adopted (i) a transition plan to relocate fixed microwave operators
that currently are operating in the PCS spectrum, and (ii) a cost sharing plan
so that if the relocation of an incumbent benefits more than one PCS licensee,
the benefiting PCS licensees will help defray the costs of the relocation. PCS
licensees will only be required to relocate fixed microwave incumbents if they
cannot share the same spectrum. The transition and cost sharing plans expire
on April 4, 2005, at which time remaining incumbents in the PCS spectrum will
be responsible for their costs to relocate to alternate spectrum locations.
Relocation generally involves a PCS operator compensating an incumbent for
costs associated with system modifications and new equipment required to move
to alternate, readily available spectrum. This transition plan allows most
microwave users to operate in the PCS spectrum for a two-year voluntary
negotiation period and an additional one-year mandatory negotiation period.
For public safety entities dedicating a majority of their system
communications for police, fire, or emergency medical service operations, the
voluntary negotiation period is
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<PAGE>
three years. The FCC currently is considering whether to shorten the voluntary
negotiation period by one year. Parties unable to reach agreement within these
time periods may refer the matter to the FCC for resolution, but the existing
microwave user is permitted to continue its operations until final FCC
resolution of the matter.
The FCC's cost-sharing plan allows PCS licensees that relocate fixed
microwave links outside of their license areas to receive reimbursements from
later-entrant PCS licensees that benefit from the clearing of their spectrum.
A non-profit clearinghouse will be established to administer the FCC's cost-
sharing plan.
C-BLOCK LICENSE REQUIREMENTS
When the FCC allocated spectrum to PCS, it designated the C-Block as an
"Entrepreneurs' Block." FCC rules require C-Block Entrepreneurs to meet
various qualifications to hold C-Block licenses or to receive certain
financing preferences. Among these are: (i) the various structural
requirements governing equity investments, including the Entrepreneurs
Requirements, Small Business Requirements and Control Group Requirements, all
of which apply specifically to Entrepreneurs, and the Foreign Ownership
Limitations, which apply to all communications entities governed by the FCC;
(ii) transfer restrictions limiting, among other things, the sale of C-Block
licenses; and (iii) other ongoing requirements that mandate network build-out
schedules and limit cross-ownership of cellular and other wireless
investments. The Company was the winning bidder for 14 licenses in the C-Block
Auction. The FCC also determined that Entrepreneurs that qualify as a Small
Business would be eligible to receive a C-Block Loan from the federal
government for 90% of the dollar amount of their winning bids in the C-Block
Auction. The Company's Government Financing is a C-Block Loan. See
"Description of Certain Indebtedness." In order to ensure continued compliance
with the FCC rules, the FCC has announced its intention to conduct random
audits during the initial 10-year PCS license terms. There can be no assurance
that the Company will continue to satisfy any of the FCC's qualifications or
requirements, and the failure to do so would have a material adverse effect on
the Company. See "Risk Factors--C-Block Requirements" and "--Foreign Ownership
Limitations."
Structural Requirements
Entrepreneurs Requirements. In order to hold a C-Block license, an entity
must: (i) meet the Entrepreneurs Revenues Limit by having less than $125
million in gross revenues and (ii) meet the Entrepreneurs Asset Limit by
having less than $500 million in total assets. To qualify for the C-Block
Auction, an entity had to have met the Entrepreneurs Revenues Limit for each
of the two years prior to the auction and the Entrepreneurs Asset Limit at the
time it filed its Short Form. For at least five years after winning a C-Block
license, a licensee must continue to meet the Entrepreneurs Requirements,
which are modified for such five-year period to exclude certain assets and
revenues from being counted toward the Entrepreneurs Asset Limit and the
Entrepreneurs Revenues Limit, respectively. Additional amounts are excluded if
the licensee maintains an organizational structure that satisfies the Control
Group Requirements described below. In calculating a licensee's gross revenues
for purposes of the Entrepreneurs Requirements, the FCC includes the gross
revenues of the licensee's affiliates, those persons or entities that hold
interests in the licensee and the affiliates of such persons or entities.
By claiming status as an Entrepreneur, the Company qualified to enter the C-
Block Auction. If the FCC were to determine that the Company did not satisfy
the Entrepreneur Requirements at the time it participated in the C-Block
Auction or that the Company fails to meet the ongoing Entrepreneurs
Requirements, the FCC could revoke the Company's PCS licenses, fine the
Company or take other enforcement actions, including imposing the Unjust
Enrichment Penalties. Although the Company believes it has met the
Entrepreneurs Requirements, there can be no assurance that it will continue to
meet such requirements or that, if it fails to continue to meet such
requirements, the FCC will not take action against the Company, which could
include revocation of its PCS licenses. See "Risk Factors--C-Block License
Requirements--Entrepreneurs Requirements."
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Small Business Requirements. An entity that meets the Entrepreneurs
Requirements may also receive certain preferential financing terms if it meets
the Small Business Requirements. These preferential financing terms include
the 25% Bidding Credit and the ability to make interest-only installment
payments on its C-Block Loan for the first six years of the license term. To
meet the Small Business Requirements, a licensee must have had annual average
gross revenues of not more than $40 million for the three calendar years
preceding the date it filed its Short Form. In calculating a licensee's gross
revenues for purposes of the Small Business Requirements, the FCC includes the
gross revenues of the licensee's affiliates, those persons or entities that
hold interests in the licensee, and the affiliates of such persons or
entities.
By claiming status as a Small Business, the Company qualified for the
Bidding Credit. If the FCC were to determine that the Company does not qualify
as a Small Business, the Company would, at a minimum, be forced to repay the
full value of the Bidding Credit. Further, the FCC could revoke the Company's
PCS licenses, fine the Company or take other enforcement actions, including
imposing the Unjust Enrichment Penalties. Although the Company has structured
itself to meet the Small Business Requirements, there can be no assurance that
it will remain in compliance with these requirements or that, if it fails to
continue to meet such requirements, the FCC will not take action against the
Company, which could include revocation of its PCS licenses. See "Risk
Factors--C-Block Requirements--Small Business Requirements."
Control Group Requirements. If a C-Block licensee meets the Control Group
Requirements, the FCC excludes certain assets and revenues from such
licensee's total revenues and assets, making it easier for the licensee to
meet the Entrepreneurs Requirements and the Small Business Requirements. The
Control Group Requirements mandate that the Control Group, among other things,
have both actual and legal control of the licensee. Further, the FCC permits
licensees to qualify under the Control Group Requirements pursuant to the
Qualifying Investor Option if its Control Group is comprised of the following:
(i) Qualifying Investors that own at least 15% of the equity interest on a
fully diluted basis and 50.1% of the voting power in the C-Block licensee and
(ii) Additional Control Group Members that hold at least 10% of the equity
interest in the C-Block licensee. Additional Control Group Members must be
either: (a) the same Qualifying Investors in the Control Group, (b) members of
the licensee's management or (c) non-controlling institutional investors,
including venture capital firms. To take advantage of the FCC's Qualifying
Investor Option, a C-Block licensee must have met the Qualifying Investor
Option requirements at the time it filed its Short Form and must continue to
meet the Qualifying Investor Option requirements for three years following the
License Grant Date. Commencing the fourth year of the license term, the FCC
rules (i) eliminate the requirement that the Additional Control Group Members
hold any of the licensee's equity interest and (ii) allow the licensee to
reduce the minimum required equity interest held by the Qualifying Investors
from 15% to 10%.
In order to meet the Control Group Requirements, the Company's Certificate
of Incorporation provides that the Company's Class A Common Stock, as a class,
must constitute 50.1% of the voting power of the Company. Further, the
Company's Certificate of Incorporation limits the ability of the Company's
Class B Common Stock to be converted into Class C Common Stock of the Company.
See "Description of Capital Stock." There can be no assurance that the Company
will remain in compliance with the Control Group Requirements or, if it fails
to continue to meet such requirements, that the FCC will not take action
against the Company, which could include revocation of its PCS licenses.
Although the Company has taken these and other steps to meet the Control Group
Requirements, there can be no assurance that the Company has or will continue
to meet the Control Group Requirements, and the failure to meet such
requirements would have a material adverse effect on the Company. See "Risk
Factors--C-Block Requirements--Control Group Requirements."
Asset and Revenue Calculation. In determining whether an entity qualifies as
an Entrepreneur and/or as a Small Business, the FCC counts the gross revenues
and assets of the entity's "financial affiliates" toward the entity's total
gross revenues and total assets. Financial affiliation can arise from common
investments, familial or spousal relationships, contractual relationships,
voting trusts, joint venture agreements, stock ownership, stock options,
convertible debentures and agreements to merge. Affiliates of noncontrolling
investors with ownership interests that do not exceed the applicable FCC
"passive" investor ownership thresholds are not attributed to C-Block
licensees for purposes of determining whether such licensees financially
qualify for the applicable C-Block
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<PAGE>
Auction preferences. The Entrepreneurs Requirements and the Small Business
Requirements provide that, to qualify as a passive investor, an entity may not
own more than 25% of the Company's total equity on a fully diluted basis.
There can be no assurance that the Company will not exceed these passive
investor limits or otherwise violate the Entrepreneur Requirements and/or the
Small Business Requirements.
In addition, if an entity makes bona fide loans to a C-Block licensee, the
assets and revenues of the creditor would not be attributed to the licensee
unless the creditor is otherwise deemed an affiliate of the licensee, or the
loan is treated by the FCC as an equity investment and such treatment would
cause the creditor/investor to exceed the applicable ownership interest
thresholds (for purposes of both the financial affiliation and foreign
ownership rules). Although the FCC permits a creditor/investor to use standard
terms to protect its investment in C-Block licensees, such as covenants,
rights of first refusal and super-majority voting rights on specified issues
(such as those for which the holders of the Company's Class C Common Stock
have voting rights), the FCC has stated that it will be guided but not bound
by criteria used by the Internal Revenue Service to determine whether a debt
investment is bona fide debt. The FCC's application of its financial
affiliation rules is largely untested and there can be no assurance that the
FCC or the courts will not treat certain of the Company's lenders or investors
as financial affiliates of the Company.
Foreign Ownership Limitations. The Communications Act requires that non-U.S.
citizens, their representatives, foreign governments or corporations otherwise
subject to domination and control by non-U.S. citizens may not own of record
or vote (i) more than 20% of the capital contribution to a common carrier
directly, or (ii) more than 25% of the capital contribution to the parent
corporation of a common carrier licensee if the FCC determines such holding
are not within the public interest. Because the FCC classifies PCS as a common
carrier offering, PCS licensees are subject to the foreign ownership limits.
Congress recently eliminated restrictions on non-U.S. citizens serving as
members on the board of directors and officers of a common carrier radio
licensee or its parent. The FCC also recently adopted rules that, subject to a
public interest finding by the FCC, could allow additional indirect foreign
ownership of CMRS companies to the extent that the relevant foreign states
extend reciprocal treatment to U.S. investors. The Company's Long Form filed
by the Company with the FCC after the completion of the C-Block Auction
indicates that the Company is in compliance with the FCC foreign-ownership
rules. However, if the foreign ownership of the Company were to exceed 25% in
the future, the FCC could refuse to grant or subsequently revoke the Company's
PCS licenses or other penalties. Further, the Company's Certificate of
Incorporation enables the Company to redeem shares from holders of Common
Stock whose acquisition of such shares results in a violation of such
limitation. The restrictions on foreign ownership could adversely affect the
Company's ability to attract additional equity financing from entities that
are, or are owned by, non-U.S. entities. See "Risk Factors--Foreign Ownership
Limitations."
Transfer Restrictions
License Transfer Restrictions. During the first five years after the License
Grant Date, transfer or assignment of a C-Block license is prohibited to any
entity that fails to satisfy the Entrepreneurs Requirements. If such a
transfer occurs to an entity that does not qualify for bidding credits, such a
sale would be subject to full payment of the bidding credit and the license
must adjust its installment payments to the FCC to effect the payment plan
applicable to the new entity (e.g., an enterprise that is not a Small Business
or an Entrepreneur). After five years, all such transfers and assignments of
the licenses remain subject to the Unjust Enrichment Penalties.
Unjust Enrichment. Any transfer during the full license term (10 years) may
require certain costs and reimbursements to the government of bidding credits
and/or outstanding principal and interest payments (the "Unjust Enrichment
Penalties"). In addition, if the Company wishes to make any change in
ownership structure during the initial license term involving the de facto and
de jure control of the Company, it must seek FCC approval and may be subject
to the same costs and reimbursement conditions indicated above.
The Company (i) believes that it has structured itself to satisfy the
Entrepreneurs Requirements, (ii) intends to diligently pursue and maintain its
qualification as a Small Business and (iii) has structured the securities
being offered, including certain restrictions on ownership and transfer, in a
matter intended to ensure compliance with
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<PAGE>
the applicable FCC Rules. The Company has relied on representations of its
investors to determine its compliance with the FCC's rules applicable to C-
Block licenses. There can be no assurance, however, that the Company's
investors or the Company itself will continue to satisfy these requirements
during the term of any PCS license granted to the Company or that the Company
will be able to successfully implement divestiture or other mechanisms
included in the Company's Certificate of Incorporation that are designed to
ensure compliance with FCC rules. Any non-compliance with FCC rules could
subject the Company to serious penalties, including revocation of its PCS
licenses. See "Risk Factors--C-Block License Requirements," "--Effect of
Control by Certain Stockholders," "--Substantial Debt Obligations to the U.S.
Government; Implications of Accounting Treatment," "--Foreign Ownership
Limitations" and "Legislation and Government Regulation."
OTHER ONGOING REQUIREMENTS
Build-Out Requirements. The FCC has mandated that recipients of PCS licenses
adhere to five year and 10-year build-out requirements. Under both five- and
10-year build-out requirements, all 30 MHz PCS licensees (such as C-Block
licensees) must construct facilities provide offer coverage to at least one-
third of the population in their service area within five years from the date
of initial license grants. Service must be provided to two-thirds of the
population within 10 years. Violations of these regulations could result in
license revocations or forfeitures on fines.
Additional Requirements. As a C-Block licensee, the Company will be subject
to certain restrictions that limit, among other things, the number of PCS
licenses it may hold as well as certain cross-ownership restrictions
pertaining to cellular and other wireless investments.
Penalties for Payment Default. In the event that the Company becomes unable
to meet its obligations under the Government Financing, the FCC could reclaim
the Company's PCS licenses, reauction them, and subject the Company to a
penalty comprised of the difference between the price at which it acquired its
license and the amount of the winning bid at reauction, plus an additional
penalty of three percent of the lesser of the subsequent winning bid and the
defaulting bidders bid amount. See "Risk Factors--Government Regulation" and
"--Substantial Debt Obligations to the U.S. Government; Implications of
Accounting Treatment."
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, and their ages as of
June 1, 1996, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Roger D. Linquist................ 57 President and Chief Executive Officer,
Chairman of the Board of Directors and
Secretary
Malcolm M. Lorang................ 61 Vice President of Engineering
Robert Fugate.................... 35 Vice President of Corporate Development
and Chief Financial Officer
John R. Lister................... 57 Vice President and General Manager (San
Francisco)
Albert S. Loverde................ 56 Vice President and General Manager
(Atlanta)
Robert G. Barrett................ 51 Director
Ralph M. Baruch.................. 72 Director
Frederic C. Hamilton............. 68 Director
Joseph T. McCullen, Jr. ......... 61 Director
Arthur Patterson................. 51 Director
John Sculley..................... 56 Director
Toshihiro Soejima................ 49 Director
</TABLE>
Roger D. Linquist founded the Company and has served as President, Chief
Executive Officer and a director since its inception. Prior to working at the
Company, Mr. Linquist was President and Chief Executive Officer of PacTel
Personal Communications, a subsidiary of Pacific Telesis, and Communications
Industries Inc. from 1982 through 1988. In 1989, Mr. Linquist founded PageMart
Wireless, Inc. ("PageMart"), a major U.S. paging company. Mr. Linquist served
as PageMart's Chief Executive Officer from 1989 to 1993, and as Chairman
through March 1994, when he resigned to form General Wireless. Mr. Linquist
presently serves as a director of PageMart. Mr. Linquist has experience in
management consulting with McKinsey & Company and has held various management
positions at Texas Instruments Research Laboratories. Mr. Linquist was a
founding director of the CTIA.
Malcolm M. Lorang has served as the Vice President of Engineering since the
Company's inception. Mr. Lorang has a broad background in RF communications
systems and systems engineering, most recently serving as Vice President of
Engineering for PageMart from 1989 to 1994. Previously, Mr. Lorang served as a
senior engineer at PacTel Teletrac, Inc. ("PacTel Teletrac") from 1988 to
1989, Texas Instruments Research Laboratories from 1972 to 1988 and Magnavox
Research Laboratories from 1958 to 1972. Mr. Lorang has authored numerous
patents, including patents in the RF communication systems area, and was
heavily involved in the military applications for spread spectrum, upon which
CDMA is based.
Robert Fugate has served as the Vice President of Corporate Development
since June 1996. In addition, Mr. Fugate currently serves as acting Chief
Financial Officer of the Company and was employed as a consultant to the
Company from March 1996 to June 1996. From 1988 to 1996 Mr. Fugate was
employed at Mobile Telecommunication Technologies Corp. where he served as
Senior Vice President, Finance and Chief Financial Officer.
John R. Lister joined the Company as Vice President and General Manager (San
Francisco) in June 1996. Prior to joining the Company, from 1992 through 1995,
Mr. Lister served as President and Co-Chief Executive Officer of PacTel
Teletrac, which later became AirTouch Teletrac, Inc. ("AirTouch"). Prior to
joining PacTel Teletrac, Mr. Lister served in various management positions for
PacTel Personal Communications ("PacTel"), including President and Chief
Operating Officer from 1990 to 1992 and Vice President and General Manager of
its Los Angeles cellular market from 1988 through 1990. Mr. Lister joined
PacTel in 1988 as Vice President of Corporate Development.
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Albert S. Loverde joined the Company as Vice President and General Manager
(Atlanta) in June 1996. Prior to joining the Company, from 1995 to June 1996,
Mr. Loverde served as Director of Engineering for PriCellular Wireless. From
1990 to 1995, Mr. Loverde served as Vice President and General Manager for
Sterling Cellular, Inc. ("Sterling"). Prior to joining Sterling, Mr. Loverde
served as Executive Director of Mobile Systems for Bell South International,
Inc. from 1989 to 1990, Vice President and General Manager for PacTel
Cellular, Inc. (AirTouch) operations in Atlanta and Athens, Georgia from 1987
to 1989, and President and CEO of BBL Industries, Inc. from 1985 to 1987. From
1961 to 1985, Mr. Loverde designed and developed various telecommunications
systems at Bell Telephone Laboratories, Incorporated.
Robert G. Barrett, a director of the Company since December 1995, has been a
Managing Partner of Battery Ventures, a venture capital firm specializing in
communications and software investment. Mr. Barrett serves on the Board of
Directors of Brooktrout Technology, Inc., Marcam Corporation and several
privately held high technology companies.
Ralph M. Baruch, a director of the Company since December 1995, was a
founder of Viacom International, Inc. ("Viacom") and served as its President
and Chief Executive Officer from 1971 to 1983, and as Chairman and a member of
the Office of the Chief Executive Officer from 1983 until July 1987. Mr.
Baruch currently serves as a consultant to Viacom. Mr. Baruch also is a
director of Orange & Rockland Utilities, Inc., and several privately held and
not-for-profit organizations.
Frederic C. Hamilton, a director of the Company since December 1995, is
Chairman, President and Chief Executive Officer of the Hamilton Companies. Mr.
Hamilton currently serves on the Boards of Directors of Tejas Gas Corporation
(as its Chairman), the American Petroleum Institute and the United States
Trust Corp. Mr. Hamilton has also served as a director of several other
companies, including BHP Petroleum (Americas) Inc., Celanese Corporation, ITT
Corp., Volvo International and Norwest Corporation.
Joseph T. McCullen, Jr., a director of the Company since December 1995, has
been a General Partner of OneLiberty Ventures, a venture capital firm
specializing in developing early stage technology companies, since September
1986. Mr. McCullen is also a director of several privately held companies.
Arthur Patterson, a director of the Company since its inception, is a
founder and Managing Partner of Accel Partners, a venture capital firm
specializing in developing telecommunications companies. Mr. Patterson is also
a director of several other telecommunication services companies including
PageMart and UUNet Technologies, Inc., and software companies including
Axtent, Unify Corp. and VIASOFT.
John Sculley, a director of the Company since December 1995, is Chief
Executive Officer and Founder of Sculley Associates, Inc., a high technology
and marketing consulting and investment firm, specializing in new companies
and emerging markets. From November 1993 to February 1994, Mr. Sculley served
as Chief Executive Officer of Spectrum Information Technologies Inc. From
April 1983 to October 1993, Mr. Sculley served as Chairman and Chief Executive
Officer of Apple Computer Inc. ("Apple"). Prior to joining Apple, Mr. Sculley
served in various marketing and management positions for Pepsico Inc. for 16
years, including serving as President and Chief Executive Officer for five
years. Mr. Sculley is a director of NFO, Inc., Professional Sports Care
Management, Inc. and several privately held companies.
Toshihiro Soejima, a director of the Company since December 1995, is
President and Chief Executive Officer of Mitsui Comtek Corp. as well as Senior
Vice President and General Manager of the Electronics & Information Business
Division of Mitsui & Co. (U.S.A.), Inc. Both companies are wholly-owned
subsidiaries of Mitsui & Co., Ltd. of Japan. Mr Soejima joined Mitsui Comtek
Corp. in Tokyo in 1970.
The Company currently has authorized 11 directors, with the current number
set at eight. Each director holds office until the next annual meeting of
stockholders or until his or her successor is duly elected and qualified. The
Company's Board of Directors is divided into two classes, the Class A Common
Stock directors and the Class C Common Stock directors. Pursuant to the
Stockholders Agreement among the Company and the holders of Class A Common
Stock and Class C Common Stock (the "Stockholders Agreement"), there are four
Class A Common Stock directors, each with one vote and all of whom are elected
by the holders of the Class A
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Common Stock, and seven Class C Common Stock directors who collectively have
three votes, all of whom are elected by the holders of the Class C Common
Stock and each of whom have a fractional vote. All of the Company's directors
have been elected pursuant to the terms of the Stockholders Agreement. Under
the terms of the Hyundai Loan and the Hyundai stock purchase agreement between
Hyundai and the Company (the "Hyundai Stock Purchase Agreement"), the Company
has agreed to amend the Stockholders Agreement so that Hyundai may appoint a
designee as a Class C Common Stock director to the Board of Directors. There
are no family relationships among any of the directors and executive officers
of the Company. See "Certain Transactions" and "Description of Capital Stock."
COMPENSATION OF DIRECTORS
Members of the Company's Board of Directors who are neither employees of the
Company nor representatives of investors will receive stock options as
compensation for serving on the Board of Directors. Other directors receive no
compensation for serving on the Board of Directors, but are reimbursed for
expenses incurred to attend Board and committee meetings. Messrs. Baruch,
Hamilton and Sculley have each received options to purchase 47,780 shares of
Class B Common Stock, each with an exercise price of $2.50 per share.
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and the other executive officer (collectively, the
"Named Officers") whose salary and bonus for fiscal 1995 were in excess of
$100,000 for services rendered in all capacities to the Company and its
subsidiaries for that fiscal year:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
NAME AND PRESENT ----------------------- AWARDS
PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#)
------------------ ---- --------- -------- ------------
<S> <C> <C> <C> <C>
Roger D. Linquist
President and Chief Executive Officer..... 1995 $240,000 $ -- 2,063,800
Malcolm M. Lorang
Vice President of Engineering............. 1995 $110,000 -- 230,700
</TABLE>
- --------
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning stock option grants made
to each of the Named Officers during fiscal 1995. No stock appreciation rights
were granted any persons in fiscal 1995.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
---------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF
SECURITIES STOCK
UNDERLYING % OF TOTAL PRICE APPRECIATION
OPTIONS OPTIONS GRANTED EXERCISE FOR OPTION TERM(3)
GRANTED TO EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME (#) FISCAL YEAR ($/SH)(2) DATE 5%($) 10%($)
---- ---------- --------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Roger D. Linquist....... 2,063,800 78.4% $2.50 12/1/2010 $5,566,730 $6,557,205
Malcolm M. Lorang....... 230,700 8.7% $2.50 12/1/2010 $ 622,272 $ 732,991
</TABLE>
- --------
(1) Each of the options listed in the table is fully vested and immediately
exercisable for shares of Class B Common Stock.
(2) The exercise price may be paid in cash, in shares of the Company's Class B
Common Stock valued at fair market value on the exercise date or through a
cashless exercise procedure involving a same-day sale of the purchased
shares. The Company may also finance the option exercise by loaning the
optionee sufficient funds to pay the exercise price for the purchased
shares, together with any federal and state income tax liability incurred
by the optionee in connection with such exercise.
52
<PAGE>
(3) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission. There is
no assurance that the actual stock price appreciation over the 15-year
option term will be at the assumed 5% and 10% levels or at any other
defined level. Unless the market price of the Class B Common Stock
appreciates over the option term, no value will be realized from the
option grants made to the executive officers.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information concerning option holdings as of
the end of fiscal 1995 with respect to each of the Named Officers. No options
were exercised by any option holder as of such date. No stock appreciation
rights were exercised during fiscal 1995 and no stock appreciation rights were
outstanding as of the end of fiscal 1995.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS
AT FY-END(#) AT FY-END($)(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Roger D. Linquist.......... 2,063,800 -- $ 0 --
Malcolm M. Lorang.......... 230,700 -- $ 0 --
</TABLE>
- --------
(1) Based on the fair market value of the Company's Class B Common Stock at
December 31, 1995, $2.50 per share (as determined by the Company's Board
of Directors), less the exercise price payable for such shares.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board is currently comprised of
. None of these individuals has been at any time an officer or employee
of the Company. No member of the Compensation Committee of the Company serves
as a member of the Board of Directors or compensation committee of any entity
that has one or more executive officers serving as a member of the Company's
Board of Directors or Compensation Committee.
1995 STOCK OPTION PLAN
The Company has adopted a 1995 Stock Option Plan (the "Plan") pursuant to
which, 3,914,780 shares of Class B Common Stock were available for issuance as
of June 1, 1996. The individuals who will be eligible to receive option grants
under the Plan are employees (including officers and directors), consultants
of the Company or any parent or subsidiary corporations and non-employee
members of the Board. All eligible participants will become members of the
Control Group of the Company.
The Plan will be administered by a committee of two or more non-employee
Board members (the "Option Committee") appointed by the Board. Eligible
individuals may, at the discretion of the Option Committee, be granted
incentive stock options to purchase shares of Class B Common Stock at not less
than the fair market value of such shares on the grant date or non-statutory
options to purchase shares of Class B Common Stock at not less than 85% of the
fair market value of such shares on the grant date. The Option Committee will
determine the vesting or exercise schedule for each granted option; however,
the Option Committee may accelerate the vesting and/or exercisability of any
outstanding option in whole or in part at any time.
Each granted option will have a maximum term of 15 years, subject to earlier
termination following the optionee's cessation of service with the Company.
Options are not assignable or transferable by the optionee except by will or
the laws of inheritance following the optionee's death. An optionee will have
no rights with respect to the shares subject to his or her outstanding options
until such options are exercised and the purchase price is paid for the
shares.
53
<PAGE>
One or more officers of the Company may be granted a limited cash-out right
which will become exercisable should the Company's stock be publicly traded
and the officer become subject to the short-swing trading restrictions of
federal securities laws upon the acquisition of more than 50% of the Company's
outstanding voting stock pursuant to a hostile tender offer. Each option with
such a limited right outstanding for at least six months would automatically
be canceled in return for a cash distribution from the Company based upon the
tender offer price payable per share of Common Stock subject to the canceled
option.
The Option Committee has the authority to effect, from time to time, the
cancellation of outstanding options under the Plan in return for the grant of
new options for the same or different number of options shares with an
exercise price per share based upon the lower fair market value of the Common
Stock on the new grant date.
The Board may amend or modify the Plan at any time. The Plan will terminate
January 1, 2004, unless sooner terminated by the Board.
1996 STOCK OPTION PLAN
The Company's 1996 Stock Option Plan (the "1996 Plan") was adopted by the
Board of Directors on , 1996 and approved by the stockholders on ,
1996. shares of Class B Common Stock have been authorized for issuance
under the 1996 Plan. The share reserve under the 1996 Plan is equal to
approximately 18% of the shares of Class C Common Stock to be sold in the
Stock Offering. The share reserve under the 1996 Plan will automatically
increase from time to time so that there is a sufficient reserve available for
issuance upon exercise of options granted to the trust as described below.
On , 1996, the Company established the General Wireless, Inc. Employee
Trust (the "Trust") for the benefit of the employees, non-employee Board
members and consultants and other independent advisors who provide services to
the Company (collectively, the "Beneficiaries"). On , 1996, the Company
granted a fully-vested immediately exercisable and assignable option (the
"Trust Option") to purchase shares of Class B Common Stock to the Trust.
The Trust has been structured to meet the requirements of a Qualifying
Investor; the purpose of this grant is to ensure that the Small Business
Requirements are maintained. All Trustees and Beneficiaries of the Trust shall
meet the requirements of a Qualifying Investor.
The exercise price per shares of Class B Common Stock subject to the Trust
Option shall be no greater than the fair market value of such shares on the
date of grant, which amount is currently $ per share. As the Trust assigns
portions of the Trust Option to the beneficiaries, the exercise price per
share of Class B Common Stock subject to the assigned portion will be adjusted
to be equal to the fair market value per share of Class B Common Stock on the
date of such assignment.
The Company will from time to time grant additional options to the Trust so
that the Small Business Requirements are at all times satisfied. Such
additional options will have terms similar to those described with respect to
the Trust Option.
The Trust will, from time to time, assign a portion of the Trust Option (and
all other options granted to it under the 1996 Plan) by granting options to
purchase shares of Class B Common Stock pursuant to the provisions of the 1996
Plan to one or more Beneficiaries of the Trust.
The Plan will be administered by the Trustees. The Trustees as Plan
Administrator will have complete discretion to determine which eligible
individuals are to receive option grants, the time or times when such option
grants are to be made, the number of shares subject to each such grant, the
vesting schedule to be in effect for the option grant and the maximum term for
which any granted option is to remain outstanding.
Upon an acquisition of the Company by merger or asset sale, each outstanding
option granted by the Trustees will be subject to accelerated vesting under
certain circumstances.
54
<PAGE>
Stock appreciation rights are authorized for issuance under the Plan which
provide the holders with the election to surrender their outstanding options
for an appreciation distribution from the Company equal to the excess of (i)
the fair market value of the vested shares of Common Stock subject to the
surrendered option over (ii) the aggregate exercise price payable for such
shares. Such appreciation distribution may be made in cash or in shares of
Common Stock.
The Plan Administrator has the authority to effect the cancellation of
outstanding options under the Plan in return for the grant of new options for
the same or different number of option shares with an exercise price per share
based upon the fair market value of the Common Stock on the new grant date.
The 1996 Plan will terminate on , 2016, unless sooner terminated by the
Board.
EMPLOYEE STOCK PURCHASE PLAN
The Company's Employee Stock Purchase Plan (the "Purchase Plan") was adopted
by the Board of Directors on , 1996 and approved by the stockholders on
, 1996. The Purchase Plan is designed to allow eligible employees of the
Company and participating subsidiaries to purchase shares of Class C Common
Stock, at semi-annual intervals, through their periodic payroll deductions
under the Purchase Plan, and a reserve of shares of Class C Common Stock
has been established for this purpose.
The Purchase Plan will be implemented in a series of successive offering
periods, each with a maximum duration of 24 months. The initial offering
period will begin on the day the Underwriting Agreement is executed and priced
in connection with this Offering and will end on the last business day in
, 1998. Each offering period will be comprised of consecutive purchase
intervals, each of a duration of six months. Shares of Class C Common Stock
will be purchased for each participant at the end of each purchase interval
during the offering period.
Payroll deductions may not exceed 15% of base salary for each purchase
interval. The purchase price per share will be 85% of the lower of (i) the
fair market value of the Common Stock on the participant's entry date into the
offering period or (ii) the fair market value on the semi-annual purchase
date.
The Board may terminate the Purchase Plan at any time. The Purchase Plan
will terminate in all events on the last business day in , 2016.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
The Company does not presently have any employment contracts in effect with
the Chief Executive Officer or the other executive officer named in the
Summary Compensation Table.
The Trustees as Plan Administrator of the 1996 Plan will have the authority
to provide for the accelerated vesting of the shares of Common Stock subject
to outstanding options held by the Chief Executive Officer and any other
executive officer in connection with certain changes in control of the Company
or the subsequent termination of the officer's employment following the change
in control event.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law ("Delaware Law"),
the Company has broad powers to indemnify its directors and officers against
liabilities they may incur in such capacities, including liabilities under the
Securities Act. The Company's Certificate of Incorporation provides that
directors and officers of the Company shall be indemnified to the fullest
extent of Delaware law.
The Delaware Law provides that a corporation may limit the liability of each
director to the corporation or its stockholders for monetary damages except
for liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith
or that involve intentional
55
<PAGE>
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 which the director derives an improper personal benefit. The
Certificate of Incorporation provides for the elimination and limitation of
the personal liability of directors of the Company for monetary damages to the
fullest extent permitted by Delaware Law. In addition, the Certificate of
Incorporation provides that if Delaware Law is amended to authorize the
further elimination or limitation of the liability of a director, then the
liability of the directors shall be eliminated or limited to the fullest
extent permitted by Delaware Law, as so amended. The effect of this provision
is to 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 the situations described in clauses (i) through (iv)
above. This provision does not limit or eliminate the rights of the Company or
any stockholder to seek non-monetary relief such as an injunction or recision
in the event of a breach of a director's duty of care. The Company's
Certificate of Incorporation also provides that the Company shall, to the full
extent permitted by Delaware Law, as amended from time to time, indemnify and
advance expenses to each of its currently acting and former directors,
officers, employees and agents.
The Company has and intends to expand its directors and officers liability
insurance to insure each person who was, is, or will be a director or officer
of the Company against specified losses and wrongful acts of such director or
officer in his or her capacity as such, including breaches of duty, trust,
neglect, error and misstatement. In accordance with the directors and officers
insurance policy, each insured party will be entitled to receive advances of
specified defense costs.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened
litigation or proceeding that might result in a claim for such
indemnification.
CERTAIN TRANSACTIONS
Initial Equity Capital
The Company has raised approximately $67.6 million (net of repurchases)
through private sales of equity securities. From inception to December 1995,
the Company raised approximately $2.3 million (net of repurchases) through the
sale of equity securities to Mr. Roger Linquist, Mr. Malcolm Lorang and the
Accel Entities (consisting of Accel IV, L.P., Accel Investors '94, L.P., Accel
Keiretsu L.P., Ellmore C. Patterson Partners and Prosper Partners). In June
1994, such parties acquired (after adjusting for stock splits,
reclassifications and exchanges), respectively, 144,540, 15,100 and 369,660
shares of Class B Common Stock at a purchase price of $1.37 per share. In
September 1994, Mr. Linquist, Mr. Lorang and the Accel Entities acquired
(after adjusting for stock splits, reclassifications and exchanges) 243,440,
24,340 and 730,340 shares of Class B Common Stock at the same price. In
addition, the Accel Entities received warrants to purchase an aggregate of
1,149,980 shares of Class C Common Stock in connection with the exchanges and
the private placement effected in December 1995 described below. In June 1995,
Battery Ventures III, L.P. acquired 550,000 (after adjusting for stock splits
and reclassifications) shares of Class B Common Stock at the same price. Mr.
Arthur Patterson and Mr. Robert Barrett, both directors of the Company, are
affiliated with the Accel Entities and Battery Ventures III, L.P.,
respectively. Messrs. Linquist and Lorang purchased a portion of their stock
through the issuance of promissory notes to the Company as follows: in June
1994, five year notes in the principal amounts of $166,750 and $16,675 at an
interest rate of seven percent issued by Messrs. Linquist and Lorang,
respectively; and in September 1994, five year notes in the principal amounts
of $333,400 and $33,340 at an interest rate of 7.05%. In December 1995, the
Company repurchased all 387,980 shares sold to Mr. Linquist at a purchase
price equal to the price paid by Mr. Linquist plus any interest due under the
promissory notes issued by Mr. Linquist to the Company. Also on December 12,
1995, Mr. Lorang refinanced his notes with a new promissory note having a
principal amount of $54,415, term of 12 years and an interest rate of 6.36%.
56
<PAGE>
Since December 1995, the Company has raised approximately $65.3 million
through the sale of Common Stock and warrants to purchase Common Stock. The
following table summarizes the securities purchased by directors, officers and
five percent stockholders of the Company and persons associated with them in
connection with the private placements of the Company's Class B and Class C
Common Stock effected in December 1995 and May 1996. Except as otherwise
noted, Class B units consisting of two shares of Class B Common Stock and a
warrant to purchase one share of Class B Common Stock with an exercise price
of $2.50 per share were sold at a price of $5.00 per unit and Class C units
consisting of two shares of Class C Common Stock and a warrant to purchase one
share of Class C Common Stock with an exercise price of $5.00 per share were
sold at a price of $10.00 per unit.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS B CLASS C CLASS C
INVESTOR(1) STOCK STOCK WARRANTS STOCK WARRANTS
- -------------------------------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Roger D. Linquist(2)............ 40 -- -- 620,000 310,000
Frederic Hamilton/The Hamilton
Companies (3).................. 20 200,000 100,000 4,680 2,340
Ralph M. Baruch Revocable Trust
dated January 26, 1996......... -- -- -- 104,680 52,340
John Sculley.................... -- 100,000 50,000 -- --
Accel Entities(4)............... -- -- -- 1,910,680 955,340
Battery Ventures III, L.P. (5).. -- -- -- 1,050,000 525,000
Mitsui Entities(6).............. -- -- -- 2,000,000 100,000
Chancellor Capital Management
Entities(7).................... -- -- -- 1,800,000 900,000
Mellon Bank, N.A., as Trustee
for First Plaza Group Trust.... -- -- -- 1,200,000 1,800,000
OneLiberty Ventures Enti-
ties(8)........................ -- -- -- 628,000 314,000
Primus Capital Fund III Limited
Partnership(9)................. -- -- -- 600,000 300,000
Trailhead Ventures, L.P.(10).... -- -- -- 500,000 250,000
</TABLE>
- --------
(1) Shares held by affiliated persons and entities have been aggregated. See
"Principal Stockholders."
(2) Mr. Linquist paid for the Class C units by issuing a 12 year promissory
note in the principal amount of $2,809,375 with an interest rate of 6.36%,
secured by shares of PageMart common stock.
(3) The shares of Class A Common Stock are held by Mr. Hamilton in his name.
All other shares are held by The Hamilton Companies, LLC.
(4) Mr. Patterson is affiliated with and is the Board designee of the Accel
Entities. Includes 66,920 shares of Class C Common Stock owned by and
33,460 shares subject to warrants to purchase Class C Common Stock issued
to Accel Investors '94 L.P.; 1,750,160 shares of Class C Common Stock
owned by and 875,080 shares subject to warrants to purchase Class C Common
Stock issued to Accel IV, L.P.; 40,120 shares of Class C Common Stock
owned by and 20,060 shares subject to warrants to purchase Class C Common
Stock issued to Accel Keiretsu L.P.; 42,040 shares of Class C Common Stock
owned by and 21,020 shares subject to warrants to purchase Class C Common
Stock issued to Ellmore C. Patterson Partners; and 11,440 shares of Class
C Common Stock owned by and 5,720 shares subject to warrants to purchase
Class C Common Stock issued to Prosper Partners.
(5) Mr. Barrett is affiliated with and is the Board designee of Battery
Ventures III, L.P.
(6) Toshihiro Soejima is affiliated with and is the Board designee of the
Mitsui Entities. The 1,000,000 units purchased by Mitsui consist of two
shares of Class C Common Stock and 1/10 of a warrant per unit. Includes
1,500,000 shares of Class C Common Stock owned by and 75,000 shares
subject to warrants to purchase Class C Common Stock issued to Mitsui &
Co., Ltd.; 50,000 shares of Class C Common Stock owned by and 2,500 shares
subject to warrant to purchase Class C Common Stock issued to Mitsui & Co.
(U.S.A.), Inc.; and 450,000 shares of Class C Common Stock owned by and
22,500 shares subject to warrants to purchase Class C Common Stock issued
to Mitsui Comtek Corp. In March 1996, Mitsui & Co., Inc. sold 400,000
shares of Class C Common Stock, and a warrant to purchase 20,000 shares of
Class C Common Stock to Kenwood Corporation.
(7) Chancellor Capital Management from December 1995 to June 1996. Includes
1,000,000 shares of Class C Common Stock owned by and 500,000 shares
subject to warrants to purchase Class C Common Stock issued to Los Angeles
County Employees Retirement Association; 626,900 shares of Class C Common
Stock
57
<PAGE>
owned by and 313,400 shares subject to warrants to purchase Class C Common
Stock issued to Drake & Co., for the account of Citiventure III; and
173,100 shares of Class C Common Stock owned by and 86,560 shares subject
to warrants to purchase Class C Common Stock issued to other Chancellor
Capital Management entities.
(8) Joseph McCullen is affiliated with and is the Board designee of the
OneLiberty Ventures Entities. Includes 622,000 shares of Class C Common
Stock owned by and 311,000 shares subject to warrants to purchase Class C
Common Stock issued to OneLiberty Fund III, L.P.; and 6,000 shares of
Class C Common Stock owned by and 3,000 shares subject to warrants to
purchase Class C Common Stock issued to Gilde Investment Fund, B.V.
(9) Primus Capital Fund III Limited Partnership designated a member of the
Board of Directors from December 1995 to June 1996.
(10) Trailhead Ventures, L.P. designated a member of the Board of Directors
from December 1995 to June 1996.
Also, effective the date of the December 1995 private placement, the Company
and Mitsui entered into (i) a Procurement Agreement pursuant to which Mitsui
would act as a procurement consultant to the Company for five years, receiving
fees based on the extent of Mitsui's involvement in the negotiation or
financing of a particular equipment purchase plus an annual retainer fee of
$350,000 and (ii) a Personnel Agreement pursuant to which a representative of
Mitsui would serve as a purchasing consultant within the Company for five
years, receiving an annual fee of $150,000.
Hyundai Relationship
On March 15, 1996, the Company and Hyundai entered into the Hyundai Loan,
pursuant to which Hyundai agreed to loan up to $50 million to the Company upon
the satisfaction of certain conditions. Such conditions include (i) the grant
of PCS licenses for at least 10 million POPs within the top 50 BTAs and (ii)
approval of any required U.S. and/or foreign governmental agencies. The
closing for any amounts borrowed under the Hyundai Loan is scheduled to occur
no later than three business days prior to the second five percent down
payment to the FCC. The Hyundai Loan and any promissory note to be issued
thereunder contain certain restrictive covenants, including, among other
things, restrictions on the issuance of additional debt, the declaration of
dividends and the redemption or repurchase of any capital stock and liens. The
term of any note issued under the Hyundai Loan is for one year, with fixed
interest rate of 6.5% during the term of the note. However, if the note is not
paid at maturity, interest will accrue at a fixed rate of 9.0% thereafter. The
Company expects that it will draw down $50.0 million under the Hyundai Loan to
finance a portion of the Company's second five percent payment for the
purchase price of its PCS licenses, which will be due on the fifth business
day following the License Grant Date.
Also on March 15, 1996, the Company and Hyundai entered into a Stock
Purchase Agreement under which HEA agreed to purchase and the Company agreed
to sell, subject to FCC restrictions and limitations, up to 10 million units
of the Company's securities, each unit consisting of one share of Class C
Common Stock and a warrant to purchase 0.05 shares of Class C Common Stock
("Hyundai Units"), at a price of $5.00 per unit. The total number of Hyundai
Units saleable under the Stock Purchase Agreement will be determined at the
time of closing of the Offerings, but will not be less than 1.0 million
Hyundai Units. Currently, FCC regulations and rules provide that, in general,
if more than 25% of the capital contribution to companies acquiring licenses
in the C-Block Auction is from foreign entities, then the FCC can revoke such
licenses if warranted in the public interest. Based upon the Company's
capitalization as of March 31, 1996, approximately 24% of the capital
contribution to the Company has been from foreign sources. Thereafter, the
Hyundai Units will automatically be purchased by Hyundai to the extent
permissible under such FCC restrictions. To the extent additional foreign
capital contribution to the Company is permissible under FCC restrictions, the
Company has agreed that any such amounts would be sold first to Hyundai under
the Stock Purchase Agreement, until all the Hyundai Units saleable under the
Stock Purchase Agreement (as determined on the Closing Date) are sold to
Hyundai (or until the Stock Purchase Agreement is terminated). Further,
Hyundai will be granted certain rights to register the shares of Class C
Common Stock issuable as part of the Hyundai Units and will become a party to
the Stockholders Agreement. See "Description of Capital Stock--Registration
Rights" and "Certain Transactions."
58
<PAGE>
In connection with the Stock Purchase Agreement, Hyundai, its parent,
Hyundai Electronics Industries Co. Ltd. (the "Parent") and the Company entered
into an Equipment Purchase Agreement and an Employee Training Agreement, which
will become effective upon the closing of the Loan Agreement and the Stock
Purchase Agreement, respectively. The Equipment Purchase Agreement has a term
of 10 years from the date of effectiveness. Under the Equipment Purchase
Agreement, the Company agreed to purchase certain of its infrastructure
equipment requirements in product categories where Hyundai and the Parent
offer products that meet the Company's specifications and are compatible with
equipment supplied by the Company's primary vendor. In addition, the Company
agreed to purchase certain of its handset requirements sold through the
Company's direct sales channels in handset categories where Hyundai and the
Parent offer products that meet the Company's specifications. Although the
Company acknowledged to Hyundai and its Parent in each of the Loan Agreement,
the Stock Purchase Agreement and the Equipment Purchase Agreement that it had
adopted the CDMA technology, the Company retains the discretion to alter such
decision if CDMA technology is determined to be commercially or technically
impracticable in the U.S. PCS industry. Under the Employee Training Agreement,
the Company agreed to provide certain training services to employees of
Hyundai and its Parent for a period of two years.
Other
The holders of shares of Class C Common Stock are entitled to certain
registration rights and rights of first offer. In addition, the existing
stockholders of the Company have entered into a voting arrangement under the
terms of the Stockholders Agreement. See "Description of Capital Stock--
Registration Rights" and "--Voting Rights."
The Company has granted options to certain of its directors. See "Principal
Stockholders."
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
the Company and its officers, directors, principal stockholders and their
affiliates will be approved by a majority of the Board of Directors, including
a majority of the independent and disinterested outside directors on the Board
of Directors.
59
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of June 1, 1996 and as adjusted to
reflect the sale of shares offered hereby, by (i) each person who is known by
the Company to own beneficially more than five percent of the Company's Common
Stock, (ii) each of the Company's directors, (iii) each of the Named Officers
and (iv) all current executive officers and directors as a group.
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY
OWNED(1)(2)(3)
DIRECTORS, NAMED OFFICERS SHARES -------------------------
5% STOCKHOLDERS AND DIRECTORS AND BENEFICIALLY BEFORE AFTER
EXECUTIVE OFFICERS AS A GROUP OWNED(1)(2) OFFERINGS OFFERINGS
--------------------------------- ------------ ----------- ----------
<S> <C> <C> <C>
Accel Entities(4)................... 5,116,000 31.2% %
Battery Ventures III, L.P.(5)....... 2,125,000 14.3% %
Entities affiliated with Chancellor
Capital Management(6).............. 2,700,000 17.8% %
Mellon Bank, N.A., as Trustee for
First Plaza Group Trust(7)......... 3,000,000 19.4% %
Mitsui & Co. Ltd. and affiliated en-
tities(8).......................... 1,680,000 11.7% %
One Liberty Fund III, L.P.(9)....... 942,000 6.5% *
Roger D. Linquist(10)............... 3,094,540 18.5% %
Malcolm M. Lorang(11)............... 286,740 2.0% *
Robert G. Barrett(5)................ 2,125,000 14.3% *
Ralph M. Baruch(12)................. 204,800 1.4% *
Frederic C. Hamilton(13)............ 354,820 2.5% *
Joseph T. McCullen, Jr.(9).......... 942,000 6.5% *
Arthur Patterson(4)................. 5,116,000 31.2% *
John Sculley(14).................... 197,780 1.4% *
Toshihiro Soejima(8)................ 1,680,000 11.7% *
All directors and executive officers
as a group
(10
persons)(8)(9)(10)(11)(12)(13)(14).. 14,001,680 68.67% %
</TABLE>
- --------
* Less than 1%.
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock.
(2) The number of shares of Common Stock beneficially owned includes the
shares issuable pursuant to stock options that may be exercised within 60
days after June 1, 1996. Shares issuable pursuant to such options are
deemed outstanding for computing the percentage of the person holding such
options but are not deemed outstanding for computing the percentage of any
other person. The number of shares of Common Stock outstanding after the
Stock Offering includes the shares of Class C Common Stock being
offered for sale by the Company in the Stock Offering.
(3) Assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting."
(4) The address for this stockholder is One Palmer Square, Princeton, N.J.
08542, Attn: Carter Sednaoui. Includes 66,920 shares beneficially owned by
and 76,000 shares subject to warrants to purchase shares of Class C Common
Stock issued to Accel Investors '94 L.P., 40,700 shares of Class B Common
Stock beneficially owned by Accel Investors '94 L.P., 1,750,160 shares
beneficially owned by and 1,928,480 shares subject to warrants to purchase
shares of Class C Common Stock issued to Accel IV, L.P., 1,007,600 shares
of Class B Common Stock beneficially owned by Accel IV L.P., 40,120 shares
beneficially owned by and 41,900 shares subject to warrants to purchase
shares of Class C Common Stock issued to Accel
60
<PAGE>
Keiretsu L.P., 20,900 shares of Class B Common Stock beneficially owned by
Accel Keiretsu L.P., 42,040 shares beneficially owned by and 46,320 shares
subject to warrants to purchase shares of Class C Common Stock issued to
Ellmore C. Patterson Partners, 24,200 shares of Class B Common Stock
beneficially owned by Ellmore C. Patterson Partners, 11,440 shares
beneficially owned by and 12,620 shares subject to warrants to purchase
shares of Class C Common Stock issued to Prosper Partners and 6,600 shares
of Class B Common Stock beneficially owned by Prosper Partners. Mr.
Patterson, a director of the Company, is affiliated with the Accel Partners
Entities, and may be deemed to share voting and investment power with
respect to such shares. Mr. Patterson disclaims beneficial ownership of
such shares, except to the extent of his interest in such shares arising
from his interests in the entities referred to above.
(5) The address for this stockholder is 200 Portland Street, Boston, MA 02114,
Attn: Robert Barrett. Includes 1,050,000 shares beneficially owned by and
525,000 shares subject to a warrant to purchase shares of Class C Common
Stock. Mr. Barrett, a director of the Company, is affiliated with Battery
Ventures III, L.P., and may be deemed to share voting and investment power
with respect to such shares. Mr. Barrett disclaims beneficial ownership of
such shares, except to the extent of his interest in such shares arising
from his interests in the entities referred to above.
(6) The address for this stockholder is 1166 Avenue of the Americas, New York,
NY 10036, Attn: Parag Saxena. Includes 1,000,000 shares beneficially owned
by and 500,000 shares subject to a warrant to purchase shares of Class C
Common Stock issued to the Los Angeles County Employees Retirement
Association, 626,920 shares beneficially owned by and 313,440 shares
subject to a warrant to purchase shares of Class C Common Stock issued to
Drake & Co., for the account of Citiventure III, 30,000 shares beneficially
owned by Evermore Corporation, 60,000 shares beneficially owned by Mellon
Bank, N.A., for the account of Michael A. Wall, 49,660 shares beneficially
owned by Northpass & Co., for the account of KME Ventures III, L.P., 30,000
shares beneficially owned by Carol Wong Chiu Yee, 30,000 shares
beneficially owned by Shirley Wong Shun Yee, 30,000 shares beneficially
owned by Sophia Wong Wai Yee, and 30,000 shares beneficially owned by
Claire Wong Yuk Yee.
(7) The address for this stockholder is One Mellon Bank Center, Pittsburg, PA
15258-0001, Attn: Bernadette Rist. Represents shares held as Trustee for
the First Plaza Group Trust.
(8) The address for this stockholder is 12980 Saratoga Avenue, Saratoga, CA
95070, Attn: Toshihiro Soejima. Includes 50,000 shares beneficially owned
by and 2,500 shares subject to a warrant to purchase shares of Class C
Common Stock issued to Mitsui & Co. (U.S.A.), Inc., 1,100,000 shares
beneficially owned by and 55,000 shares subject to a warrant to purchase
shares of Class C Common Stock issued to Mitsui & Co., Ltd., and 450,000
shares beneficially owned by and 22,500 shares subject to a warrant to
purchase shares of Class C Common Stock issued to Mitsui Comtek Corp. Mr.
Soejima, a director of the Company, is affiliated with the Mitsui Entities,
and may be deemed to share voting and investment power with respect to such
shares. Mr. Soejima disclaims beneficial ownership of such shares, except
to the extent of his interest in such shares arising from his interests in
the entities referred to above.
(9) The address for this stockholder is One Liberty Square, 2nd Floor, Boston,
MA 02109, Attn: Joseph T. McCullen, Jr. Includes 622,000 shares
beneficially owned by and 311,000 shares subject to a warrant to purchase
shares of Class C Common Stock issued to OneLiberty Fund III, L.P. and
6,000 shares beneficially owned by and 3,000 shares subject to a warrant to
purchase shares of Class C Common Stock issued to Gilde Investment Fund,
B.V. Mr. McCullen, a director of the Company, is affiliated with the
foregoing entities and may be deemed to share voting and investment power
with respect to such shares. Mr. McCullen disclaims beneficial ownership of
such shares, except to the extent of his interest in such shares arising
from his interests in the entities referred to above.
(10) Includes 40 shares of Class A Common Stock, 620,000 shares beneficially
owned by and 310,000 shares subject to a warrant to purchase shares of
Class C Common Stock, and options exercisable for 2,164,500 shares of
nonvoting Class B Common Stock.
(11) Includes 39,440 shares of nonvoting Class B Common Stock and options
exercisable for 247,300 shares of Class B Common Stock.
(12) Includes 104,680 shares of Class C Common Stock beneficially owned by
and 52,340 shares subject to a warrant to purchase Class C Common Stock
issued to Ralph M. Baruch Revocable Trust dated January 26, 1996, and
options exercisable for 47,780 shares of Class B Common Stock granted to
Mr. Baruch.
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<PAGE>
(13) Includes 20 shares of Class A Common Stock, 200,000 shares of Class B
Common Stock and 4,680 shares of Class C Common Stock beneficially owned
by, and 100,000 and 2,340 shares subject to warrants to purchase Class B
Common Stock and Class C Common Stock, respectively, issued to, The
Hamilton Companies LLC, and options exercisable for 47,780 shares of
Class B Common Stock granted to Mr. Hamilton.
(14) Includes 100,000 shares of nonvoting Class B Common Stock, options
exercisable for 47,780 shares of nonvoting Class B Common Stock and
50,000 shares subject to a warrant to purchase shares of nonvoting Class
B Common Stock.
62
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
Government Financing
The Company's debt obligations to the U.S. Government pursuant to the
Government Financing will be approximately $954 million. Although the
Company's obligation under the Government Financing will be recorded on the
Company's financial statements at its estimated fair market value of $ ,
based on an estimated fair market borrowing rate of %, the amount that would
be owed to the U.S. Government if the Government Financing were declared
immediately due and payable would be $954 million plus accrued interest. The
Company will be required to make quarterly interest expense payments based on
the 10-year Treasury Note rate at the License Grant Date. The Company will be
required to make installment payments of interest only for the first six years
of the license and payments of interest and principal amortized over the
remaining four years of the license term. In the event that the Company
becomes unable to meet its obligations under the Government Financing or
otherwise violates regulations applicable to holders of FCC licenses, the FCC
could take a variety of actions, including requiring immediate repayment of
all amounts due under the Government Financing, repayment of certain bidding
credits, revoking the Company's PCS licenses and fining the Company an amount
equal to the difference between the price at which the Company acquired the
licenses and the amount of the winning bid at their reauction, plus an
additional penalty of three percent of the lesser of the subsequent winning
bid and the Company's bid amount. There can be no assurance that the Company
will be able to meet its obligations under the Government Financing or that if
it fails to meet such obligations, the FCC will not require immediate
repayment of all amounts due under the Government Financing or revoke the
Company's PCS licenses. In either such event the Company may be unable to meet
its obligations to other creditors, including holders of the Senior Discount
Notes.
In addition, there can be no assurance that if the Government Financing were
reflected at its face value of $954 million, the Company's pro forma total
debt (as adjusted for the Offerings) would not exceed the total "enterprise
value" of the Company implied by the initial public offering price of the
Class C Common Stock (as determined by adding the market value of the Common
Stock to the discounted value of the Government Financing). See "--Ability to
Service Debt; Substantial Leverage; Restrictive Covenants," "--Ability to
Service Debt," "--Government Regulation" and "Legislation and Government
Regulation."
Vendor Financing
The Company is in the process of negotiating financing for its purchase of
network equipment and build-out services with vendors. Management believes
that terms and conditions acceptable to the Company will be arranged with the
other vendor who will become the prime network supplier.
63
<PAGE>
DESCRIPTION OF THE SENIOR DISCOUNT NOTES
The Senior Discount Notes are to be issued under an Indenture, to be dated
as of the Issue Date (the "Indenture"), between the Company and First Trust of
California, National Association, as trustee (the "Trustee"). The terms of the
Senior Discount Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act as in effect on
the date of the Indenture. The Senior Discount Notes are subject to all such
terms, and Holders of Senior Discount Notes are referred to the Indenture and
the Trust Indenture Act for a statement thereof. The following summary of
certain provisions of the Senior Discount Notes and the Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all the provisions of the Senior Discount Notes and the
Indenture (including the definitions of certain terms therein and those terms
made a part thereof by the Trust Indenture Act) copies of which have been
filed as exhibits to the Registration Statement of which this Prospectus is a
part. Whenever particular defined terms of the Indenture not otherwise defined
herein are referred to, such defined terms are incorporated herein by
reference.
GENERAL
The Senior Discount Notes will be senior unsecured obligations of the
Company, limited to $ in aggregate principal amount at maturity, and
will mature on , 2006. The Senior Discount Notes will rank pari
passu in right of payment with all existing and future unsecured,
unsubordinated indebtedness of the Company and will be senior in right of
payment to all existing and future subordinated indebtedness of the Company.
The Company is a holding company with limited assets of its own that conducts
substantially all of its business through its subsidiaries. The Senior
Discount Notes will represent general senior unsecured obligations of the
Company and will be effectively subordinated to all liabilities of the
Company's subsidiaries, including trade payables and indebtedness that may be
incurred by the Company's subsidiaries under the Vendor Financing Arrangements
and other financing arrangements. As of , 1996, after giving pro
forma effect to the Senior Discount Notes Offering, the Stock Offering, the
incurrence of the Government Debt and the application of the net proceeds from
the Offerings, but without giving effect to the indebtedness expected to be
incurred by the Company's subsidiaries under the Vendor Financing
Arrangements, the Company's subsidiaries would have had approximately $
of indebtedness outstanding to which Holders of the Senior Discount Notes
would have been effectively subordinated in right of payment. Such
subsidiaries are expected to incur substantial additional indebtedness in the
next several years. See "Risk Factors-Substantial Leverage; Ability to Service
Debt," "Holding Company Structure; Structural Subordination of the Senior
Discount Notes; Asset Encumbrances." The operations of the Company are and
will be conducted through its subsidiaries, and the Company is therefore
ultimately dependent on the cash flow of such subsidiaries to meet its
obligations, including its obligations under the Senior Discount Notes.
Although for U.S. federal income tax purposes a significant amount of
original issue discount, taxable as ordinary income, will be recognized by a
Holder of Senior Discount Notes as such discount is amortized from the date of
issuance of the Senior Discount Notes, Holders of Senior Discount Notes will
not receive any cash payments of interest on the Senior Discount Notes until
, 2002. See "Certain Federal Income Tax Considerations." From and
after , 2001, interest on the Senior Discount Notes will accrue at
the rate shown on the front cover of this Prospectus from , 2001 or
from the most recent Interest Payment Date to which interest has been paid or
provided for, payable semiannually (to Holders of record at the close of
business on the or immediately preceding the Interest
Payment Date) on and of each year, commencing ,
2002. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months.
Principal of, premium, if any, and interest on the Senior Discount Notes
will be payable, and the Senior Discount Notes may be exchanged or
transferred, at the office or agency of the Company which initially will be
the corporate trust office of the Trustee.
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<PAGE>
The Senior Discount Notes will be issued only in fully registered form,
without coupons, in denominations of $1,000 of principal amount at maturity
and any integral multiple thereof.
OPTIONAL REDEMPTION
The Senior Discount Notes will be redeemable, at the Company's option, in
whole or in part, at any time or from time to time, on or after , 2001
and prior to maturity, upon not less than 30 nor more than 60 days' prior
notice mailed by first class mail to each Holder's last address as it appears
in the Security Register, at the following Redemption Prices (expressed in
percentages of principal amount), plus accrued and unpaid interest (if any) to
the Redemption Date (subject to the right of Holders of record on the relevant
Regular Record Date that is on or prior to the Redemption Date to receive
interest due on an Interest Payment Date), if redeemed during the 12-month
period commencing of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2001........................................................... %
2002...........................................................
2003...........................................................
2004 and thereafter............................................ 100.000
</TABLE>
In addition, at any time prior to , 1999, the Company may redeem up
to 35% of the aggregate principal amount at maturity of Senior Discount Notes
originally issued with the Net Cash Proceeds of (i) one or more public
offerings for the Company's Common Stock registered under the Securities Act
(a "Public Equity Offering") or (ii) a sale of the Company's Common Stock to a
Strategic Equity Investor in a single transaction or series of related
transactions, in either case for gross proceeds of at least $ million, at a
Redemption Price equal to % of the Accreted Value of the Senior Discount
Notes (determined at the Redemption Date), upon not less than 30 nor more than
60 days' notice by first class mail given within 30 days after (and not
before) such sale, provided that not less than 65% of the aggregate principal
amount at maturity of the Senior Discount Notes originally issued remain
outstanding following any such redemption.
In the case of any partial redemption, selection of the Senior Discount
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the Senior Discount Notes are listed or, if the Senior Discount Notes are not
listed on a national securities exchange, on a pro rata basis or by lot
provided that no Senior Discount Note of $1,000 in principal amount or less
shall be redeemed in part. If any Senior Discount Note is to be redeemed in
part only, the notice of redemption relating to such Senior Discount Note
shall state the portion of the principal amount thereof to be redeemed. A new
Senior Discount Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Senior Discount Note.
The Senior Discount Notes will not have the benefit of any sinking fund.
COVENANTS
The Indenture will contain, among others, the following covenants:
Limitation on Indebtedness
Under the terms of the Indenture, the Company will not, and will not permit
any of its Restricted Subsidiaries to, Incur any Indebtedness, other than
Permitted Indebtedness; provided that the Company may Incur Indebtedness if,
after giving effect to the Incurrence of such Indebtedness and the receipt and
application of the proceeds therefrom, the Consolidated Indebtedness to EBITDA
Ratio would be to 1, with respect to an Incurrence prior to ,
1999, or to 1, with respect to an Incurrence on or after , 1999.
65
<PAGE>
For purposes of determining any particular amount of Indebtedness under this
"Limitation on Indebtedness" covenant, Guarantees, Liens or obligations with
respect to letters of credit supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included. For purposes of
determining compliance with this "Limitation on Indebtedness" covenant, in the
event that an item of Indebtedness meets the criteria of more than one of the
types of Indebtedness described in the clauses contained in the definition of
Permitted Indebtedness, the Company, in its sole discretion, shall classify
such item of Indebtedness and only be required to include the amount and type
of such Indebtedness in one of such clauses.
The Indenture further provides that, notwithstanding any other provision of
this "Limitation on Indebtedness" covenant, the Company will not, and will not
permit any Restricted Subsidiary to, Incur any Guarantee of Indebtedness of
any Unrestricted Subsidiary, unless permitted pursuant to the "Limitation on
Issuances of Guarantees by Restricted Subsidiaries" covenant.
Limitation on Restricted Payments
So long as any of the Senior Discount Notes are outstanding, the Company
will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, (i) declare or pay any dividend or make any distribution on
account of the Company's Capital Stock (other than dividends or distributions
payable solely in shares of its Capital Stock (other than Redeemable Stock) or
in options, warrants or other rights to acquire such shares of Capital Stock);
(ii) purchase, redeem, retire or otherwise acquire for value any shares of
Capital Stock of the Company (including options, warrants or other rights to
acquire such shares of Capital Stock); (iii) make any voluntary or optional
principal payment, or voluntary or optional redemption, repurchase, defeasance
or other acquisition or retirement for value, of Indebtedness of the Company
that is subordinated in right of payment to the Senior Discount Notes; or (iv)
make any Investment, other than a Permitted Investment, in any Person (such
payments or any other actions described in clauses (i) through (iv) being
collectively "Restricted Payments") if, at the time of, and after giving
effect to, the proposed Restricted Payment: (A) a Default or Event of Default
shall have occurred and be continuing, (B) the Company could not Incur at
least $1.00 of Indebtedness (other than Permitted Indebtedness) under the
first paragraph of the "Limitation on Indebtedness" covenant or (C) the
aggregate amount expended for all Restricted Payments (the amount so expended,
if other than in cash, to be determined in good faith by the Board of
Directors, whose determination shall be conclusive and evidenced by a Board
Resolution) after the date of the Indenture shall exceed the sum of (1)
Cumulative EBITDA less times Cumulative Interest Expense plus (2) the
aggregate Net Cash Proceeds received by the Company after the Issue Date from
the issuance and sale permitted by the Indenture of its Capital Stock of the
Company (other than Redeemable Stock) or Indebtedness of the Company that has
been converted into Capital Stock of the Company (other than Redeemable
Stock), in either case to a Person who is not a Subsidiary of the Company, or
from the issuance to a Person who is not a Subsidiary of the Company of any
options, warrants or other rights to acquire Capital Stock of the Company (in
each case, exclusive of any Redeemable Stock or any options, warrants or other
rights that are redeemable at the option of the Holder, or are required to be
redeemed, prior to the Stated Maturity of the Senior Discount Notes) plus (3)
an amount equal to the net reduction in Investments (other than reductions in
Permitted Investments) in any Unrestricted Subsidiary resulting from payments
of interest on Indebtedness, dividends, repayments of loans or advances, or
other transfers of assets, in each case to the Company or any Restricted
Subsidiary from such Unrestricted Subsidiary (except to the extent any such
payment is included in the calculation of Adjusted Consolidated Net Income),
or from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries
(valued in each case as provided in the definition of "Investments"), not to
exceed the amount of Investments previously made by the Company and its
Restricted Subsidiaries in such Unrestricted Subsidiary.
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 Senior Discount Notes, including premium, if any, and accrued and
unpaid interest, with the proceeds of, or in exchange for, Indebtedness
Incurred under clause (iii) of the
66
<PAGE>
definition of Permitted Indebtedness; (iii) the repurchase, redemption or
other acquisition of Capital Stock of the Company in exchange for, or out of
the proceeds of a substantially concurrent issuance or sale of, shares of
Capital Stock (other than Redeemable Stock) of the Company; (iv) the
acquisition of Indebtedness of the Company that is subordinated in right of
payment to the Senior Discount Notes, in exchange for, or out of the proceeds
of, a substantially concurrent offering of, shares of the Capital Stock (other
than Redeemable Stock) of the Company; (v) payments or distributions, in the
nature of satisfaction of dissenters' rights, pursuant to or in connection
with a consolidation, merger or transfer of assets that complies with the
provisions of the Indenture applicable to consolidations, mergers and
transfers of all or substantially all of the property and assets of the
Company; (vi) the purchase, redemption, acquisition, cancellation or other
retirement for value of shares of Capital Stock of the Company to the extent
necessary, in the judgment of the Board of Directors of the Company based on
an Opinion of Counsel, to prevent the loss or secure the removal or
reinstatement of any license held by the Company or any Restricted Subsidiary
from any governmental agency as a result of laws limiting foreign ownership of
the Company's Capital Stock or to retain the financial benefits of the
Company's status as a "Small Business" as such term is defined by the FCC;
(vii) the repurchase of Capital Stock of the Company (including options,
warrants or other rights to acquire such Capital Stock) from departing or
deceased directors, officers or employees of the Company or its Subsidiaries
in an aggregate amount not to exceed $ million in any fiscal year, provided
that the Company may carry forward the unused portion of the $ million in
any fiscal year to the next fiscal year, and provided further, that the
Company may not carry forward more than $ million to any subsequent fiscal
year; and (viii) Asset Swaps; provided that except in the case of clause (i)
no Default or Event of Default shall have occurred and be continuing as a
consequence of the payment set forth therein.
Each Restricted Payment permitted pursuant to the preceding paragraph (other
than the Restricted Payments referred to in clause (ii) thereof), and the Net
Cash Proceeds from any issuance of Capital Stock referred to in clauses (iii)
or (iv) shall be included in calculating whether the conditions of clause (C)
of the first paragraph of this "Limitation on Restricted Payments" covenant
have been met with respect to any subsequent Restricted Payments.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
So long as any of the Senior Discount Notes are outstanding, the Company
will not, and will not permit any Restricted Subsidiary to, create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions permitted by
applicable law on any Capital Stock of such Restricted Subsidiary owned by the
Company or any other Restricted Subsidiary; (ii) pay any Indebtedness owed to
the Company or any other Restricted Subsidiary; (iii) make loans or advances
to the Company or any other Restricted Subsidiary; 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 Issue Date in the Indenture or any other
agreement in effect on the Issue 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,
existing at the time of such acquisition and not incurred in contemplation
thereof, which encumbrances or restrictions are not applicable to any Person
or the property or assets of any Person other than such Person or the property
or assets of such Person so acquired; (iv) in the case of clause (iv) of the
first paragraph of this "Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries" covenant, (A) that restrict in a customary
manner the subletting, assignment or transfer of any property or asset that is
a lease, license, conveyance or contract or similar property or asset, (B)
existing by virtue of any transfer of, agreement to transfer, option or right
with respect to, or Lien on, any property or assets of the Company or any
Restricted Subsidiary not otherwise prohibited by the Indenture or (C) arising
or agreed to in the ordinary course of business, not relating to any
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<PAGE>
Indebtedness, and that do not, individually or in the aggregate, detract from
the value of property or assets of the Company or any Restricted Subsidiary in
any manner material to the Company or any Restricted Subsidiary; (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; or (vi) pursuant to the Vendor Financing Arrangements entered into
on or prior to the Issue Date relating to any Indebtedness that is permitted
to be Incurred under clause (vi) of the definition of Permitted Indebtedness
and any subsequent agreement, provided that such terms are no more restrictive
with respect to such dividend and other payment and transfer restrictions
contained in such Vendor Financing Arrangements. Nothing contained in this
"Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant shall prevent the Company or any Restricted Subsidiary
from (1) creating, incurring, assuming or suffering to exist any Liens
otherwise permitted in the "Limitation on Liens" covenant or (2) restricting
the sale or other disposition of property or assets of the Company or any of
its Restricted Subsidiaries that secure Indebtedness of the Company or any of
its Restricted Subsidiaries.
Limitation on Issuances of Guarantees by Restricted Subsidiaries
The Company will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee any Indebtedness of the Company ("Guaranteed
Indebtedness"), unless such Restricted Subsidiary simultaneously executes and
delivers a supplemental indenture to the Indenture providing for a Guarantee
(a "Subsidiary Guarantee") of payment of the Senior Discount Notes by such
Restricted Subsidiary; provided that this paragraph shall not be applicable to
any Guarantee of any Restricted Subsidiary that (x) existed at the time such
Person became a Restricted Subsidiary and (y) was not Incurred in connection
with, or in contemplation of, such Person becoming a Restricted Subsidiary. If
the Guaranteed Indebtedness is (A) pari passu in right of payment with the
Senior Discount Notes, then the Guarantee of such Guaranteed Indebtedness
shall be pari passu in right of payment with, or subordinated to, the
Subsidiary Guarantee or (B) subordinated to the Senior Discount Notes, then
the Guarantee of such Guaranteed Indebtedness shall be subordinated to the
Subsidiary Guarantee at least to the extent that the Guaranteed Indebtedness
is subordinated to the Senior Discount Notes. The form of such Subsidiary
Guarantee will be attached to the Indenture.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary shall provide by its terms that it shall be automatically and
unconditionally released and discharged upon any sale, exchange or transfer,
to any Person not an Affiliate of the Company of all of the Company's and each
Restricted Subsidiary's Capital Stock in, or all or substantially all the
assets of, such Restricted Subsidiary (which sale, exchange or transfer is not
prohibited by the Indenture). The release or discharge of the Guarantee that
resulted in the creation of such Subsidiary Guarantee will not release or
discharge such Subsidiary Guarantee.
Limitation of Transactions with Shareholders and Affiliates
Under the terms of the Indenture, the Company will not, and will not permit
any Restricted Subsidiary to, directly or indirectly, enter into, renew or
extend any transaction or series of related transactions (including, without
limitation, the purchase, sale, lease or exchange of property or assets, or
the rendering of any service) with any holder (or any Affiliate of such
holder) of 10% or more of any class of Capital Stock of the Company or with
any Affiliate of the Company or any Restricted Subsidiary (in each case, an
"Interested Person"), unless (a) such transaction or series of related
transactions is on 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
an Interested Person, as evidenced by an Officers' Certificate delivered to
the Trustee, (b) with respect to a transaction or series of related
transactions involving aggregate payments or value equal to or greater than
$1.0 million but less than $10.0 million, such transaction must have been
approved in good faith by a majority of the Company's Board of Directors and a
majority of its Independent Directors (if any), as evidenced by an Officers'
Certificate delivered to the Trustee, and (c) with respect to transactions or
series of related transactions involving aggregate payments or value equal to
or greater than $10.0 million, the Company has obtained and delivered to the
Trustee a written opinion stating that the transaction is fair to the Company
or such Restricted Subsidiary
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<PAGE>
from a financial point of view, which opinion shall be from a nationally
recognized investment banking, accounting or appraisal firm that is a type of
firm customarily relied upon to give fairness opinions on such issues.
The foregoing limitation does not limit, and shall not apply, to (i)
transactions involving aggregate payments and other consideration having a
fair market value at the time of the transaction or series of transactions of
$1.0 million or less; (ii) any transaction between the Company and any of its
Wholly Owned Restricted Subsidiaries or between Wholly Owned Restricted
Subsidiaries; (iii) any transaction in the ordinary course of business between
the Company or any Restricted Subsidiary and any vendor or vendors of assets
or services used in the Permitted Businesses that is an Interested Person, so
long as such transaction is (a) on 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 and (b) is
approved by a majority of the Board of Directors of the Company and a majority
of the Independent Directors of the Company; (iv) the payment of reasonable
and customary regular fees to directors of the Company who are not employees
of the Company; or (v) any Restricted Payments not prohibited by the
"Limitation on Restricted Payments" covenant.
Limitation on Liens
Under the terms of the Indenture, the Company will not, and will not permit
any Restricted Subsidiary to, create, incur, assume or suffer to exist any
Lien on any of its assets or properties of any character, or any shares of
Capital Stock or Indebtedness of any Restricted Subsidiary, without making
effective provision for all of the Senior Discount Notes and all other amounts
due 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 Senior Discount Notes, prior to) the obligation or
liability secured by such Lien for so long as such obligation or liability is
so secured.
The foregoing limitation does not apply to (i) Liens created pursuant to
agreements existing on the Issue Date; (ii) Liens granted after the Issue Date
on any assets or Capital Stock of the Company or its Restricted Subsidiaries
created in favor of the Holders of Senior Discount Notes; (iii) Liens with
respect to the assets of a Restricted Subsidiary granted by such Restricted
Subsidiary to the Company or a Wholly Owned Restricted Subsidiary to secure
Indebtedness owing to the Company or such other Restricted Subsidiary; (iv)
Liens securing Indebtedness which is Incurred to refinance secured
Indebtedness which is permitted to be Incurred under clause (iii) of the
definition of Permitted Indebtedness; provided that such Liens do not extend
to or cover any property or assets of the Company or any Restricted Subsidiary
other than the property or assets securing the Indebtedness being refinanced;
(v) Liens with respect to assets or properties of any Person that becomes a
Restricted Subsidiary after the Issue Date; provided that such Liens do not
extend to or cover any assets or properties of the Company or any of its
Restricted Subsidiaries other than the assets or properties of such Person
subject to such Liens on the date such Person becomes a Restricted Subsidiary,
and provided further that such Liens are not incurred in contemplation of, or
in connection with, such Person becoming a Restricted Subsidiary; (vi) Liens
securing Indebtedness which is permitted to be Incurred under clauses (vi),
(vii) and (x) of the definition of Permitted Indebtedness; or (vii) Permitted
Liens.
Limitation on Asset Sales
Under the terms of the Indenture, the Company will not, and will not permit
any Restricted Subsidiary to, consummate any Asset Sale, unless (i) the
consideration received by the Company or such Restricted Subsidiary is at
least equal to the fair market value of the assets sold or disposed of; and
(ii) at least 75% of the consideration received consists of cash or Temporary
Cash Investments, provided, however, that the amount of (x) any liabilities
(as shown on the Company's or such Restricted Subsidiary's most recent balance
sheet or in the notes thereto, excluding contingent liabilities and trade
payables) of the Company or any such Restricted Subsidiary that are not
subordinated by their terms to the Senior Notes and that are assumed by the
transferee of any such assets or are otherwise no longer the Company's or any
of its Restricted Subsidiaries' liability and (y) any notes or other
obligations received by the Company or any such Restricted Subsidiary in
connection with such Asset Sale that are converted by the Company or such
Restricted Subsidiary into cash within 60 days of receipt, shall be deemed to
be cash for purposes of this provision. In the event and to the extent that
the Net Cash Proceeds
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received by the Company or its Restricted Subsidiaries from one or more Asset
Sales occurring on or after the Issue Date in any period of 12 consecutive
months exceed $5.0 million, then the Company shall or shall cause the relevant
Restricted Subsidiary to (i) within 365 days after the date Net Cash Proceeds
so received (A) apply an amount equal to such excess Net Cash Proceeds to
permanently repay senior secured Indebtedness of the Company, or Indebtedness
of any Restricted Subsidiary, and to permanently reduce the amount of such
Indebtedness outstanding on the Issue Date or permitted to be incurred
pursuant to the covenant "Limitation on Indebtedness" under clauses (v), (vii)
and (ix) in the definition of "Permitted Indebtedness," in each case owing to
a Person other than the Company or any of its Restricted Subsidiaries or (B)
invest an equal amount, or the amount not so applied pursuant to clause (A),
in property or assets (other than current assets) that are used or useful in
one or more Permitted Businesses (as determined in good faith by the Board of
Directors, whose determination shall be conclusive and evidenced by a Board
Resolution); and (ii) apply such excess Net Cash Proceeds (to the extent not
applied pursuant to clause (i)) as provided in the following paragraph of this
"Limitation on Asset Sales" covenant. The amount of such excess Net Cash
Proceeds required to be applied during such 365 day period as set forth in
clause (i) 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 totals at least $10.0 million, the
Company must commence, not later than the fifteenth Business Day of such
month, and consummate an Offer to Purchase from the Holders on a pro rata
basis an aggregate Accreted Value of Senior Discount Notes equal to the Excess
Proceeds on such date, at a purchase price equal to the Accreted Value of the
Senior Discount Notes, plus accrued and unpaid interest (if any) to the date
of purchase.
Activities of the Company and Restricted Subsidiaries
The Indenture will provide that the Company will not, and will not permit
any Restricted Subsidiary to, engage in any material respect in any business
other than Permitted Businesses.
REPURCHASE OF SENIOR DISCOUNT NOTES UPON A CHANGE OF CONTROL
The Company must commence, within 60 days of the occurrence of a Change of
Control, and consummate an Offer to Purchase for all Senior Discount Notes
then outstanding, at a purchase price equal to 101% of the Accreted Value of
the Senior Discount Notes, plus accrued and unpaid interest (if any) to any
date of purchase.
The failure by the Company to make or consummate an Offer to Purchase will
constitute an Event of Default without any waiting period or notice
requirements.
There can be no assurance that the Company will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Senior Discount 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). The above covenant requiring the Company to
repurchase the Senior Discount Notes will, unless the consents referred to
above are obtained, require the Company to repay all indebtedness then
outstanding which by its terms would prohibit such Senior Discount Note
repurchase, either prior to or concurrently with such Senior Discount Note
repurchase.
The Company will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that the Company is required to
repurchase Senior Discount Notes pursuant to an Offer to Purchase.
COMMISSION REPORTS AND REPORTS TO HOLDERS
Under the terms of the Indenture, the Company will file with the Trustee and
provide Holders, within 15 days after the filing thereof with the Commission,
copies of its annual report and of the information, documents and other
reports (or copies of such portions of any of the foregoing as the Commission
may by rule and regulation prescribe) that the Company is required to file
with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act.
Notwithstanding that the Company may not be required to remain subject to the
reporting requirements of Section 13 (a) or 15 (d) of the Exchange Act or any
successor provision thereto, so long as any of the Senior Discount Notes are
outstanding, the Company will be required to continue to file with the
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Commission and to provide the Trustee and Holders the annual reports,
quarterly reports and other documents which the Company would have been
required to file with the Commission pursuant to such Section 13 (a) or 15(d)
or any successor provision thereto if the Company were subject thereto.
PAYMENTS FOR CONSENT
The Indenture will provide that neither the Company nor any of its
Subsidiaries will, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder of
any Senior Discount Notes for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of the Indenture or the Senior
Discount Notes unless such consideration is offered to be paid or is paid to
all Holders of the Senior Discount Notes that consent, waive or agree to amend
in the time frame set forth in the solicitation documents relating to such
consent, waiver or agreement.
EVENTS OF DEFAULT
The following events will be defined as "Events of Default" in the
Indenture: (a) default in the payment of principal of (or premium, if any, on)
any Senior Discount Note when the same becomes due and payable at maturity,
upon acceleration, redemption or otherwise; (b) default in the payment of
interest on any Senior Discount 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 Senior Discount Notes upon a
Change of Control" covenant; (d) default in the performance of or breaches any
other covenant or agreement of the Company in the Indenture or under the
Senior Discount 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 Senior Discount Notes; (e) failure to pay
when due (subject to any applicable grace period) the principal of, or
acceleration of, any Indebtedness for money borrowed by the Company or any
Restricted Subsidiary having an outstanding principal amount of at least $5.0
million; (f) the rendering of any final judgment or judgments against the
Company or any Restricted Subsidiary in an amount in excess of $5.0 million
that remains undischarged or unstayed for a period of 60 days after the date
on which the right to appeal has expired; (g) a court having jurisdiction
enters a decree or order for (A) relief in respect of the Company or any
Restricted Subsidiary in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, (B) appointment of
a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Company or any Restricted Subsidiary or for all or
substantially all of the property and assets of the Company or any Restricted
Subsidiary or (C) the winding up or liquidation of the affairs of the Company
or any Restricted Subsidiary and, in each case, such decree or order shall
remain unstayed and in effect for a period of 60 consecutive days; (h) the
Company or any Restricted Subsidiary (A) commences a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or consents to the entry of an order for relief in an involuntary case
under any such law, (B) consents to the appointment of or taking possession by
a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Company or any Restricted Subsidiary or for all or
substantially all of the property and assets of the Company or any Restricted
Subsidiary or (C) effects any general assignment for the benefit of creditors;
or (i) the final determination of the FCC to revoke any or all of the FCC
licenses held by the Company or any Subsidiary.
If an Event of Default (other than an Event of Default specified in clause
(g) or (h) above that occurs and is continuing under the Indenture, the
Trustee or the Holders of at least 25% in aggregate Accreted Value of the
Senior Discount 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 Accreted Value of, premium,
if any, and accrued interest, if any, on the Senior Discount Notes to be
immediately due and payable. Upon a declaration of acceleration, such Accreted
Value, premium, if any, and accrued interest, if any, shall be immediately due
and payable. In the event of a declaration of acceleration because an Event of
Default set forth in clause (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
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remedied or cured by the Company or the relevant Restricted 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, the Accreted Value of, premium,
if any, and accrued interest, if any, on the Senior Discount 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 Accreted Value of the outstanding Senior
Discount Notes, by written notice to the Company and to the Trustee, may waive
all past defaults and rescind and annul a declaration of acceleration and its
consequences if (i) all existing Events of Default, other than the nonpayment
of the principal of, premium, if any, and interest on the Senior Discount
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 Accreted Value of the
outstanding Senior Discount 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
Senior Discount 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 Senior Discount Notes. A Holder may not
pursue any remedy with respect to the Indenture or the Senior Discount 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 Accreted Value of
outstanding Senior Discount 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 Senior
Discount 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 Senior Discount Note to receive payment of the principal of, premium, if
any, or interest on, such Senior Discount Note or to bring suit for the
enforcement of any such payment, on or after the due date expressed in the
Senior Discount 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.
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 (other than a
consolidation or merger with or into a Wholly Owned Restricted Subsidiary with
a positive net worth) 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 in respect of all of the
Senior Discount 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; (iii) immediately after giving effect to such transaction
on a pro forma basis, the Company, or any Person becoming the successor
obligor of the Senior Discount Notes, as the case may be, could incur at least
$1.00 of Indebtedness under the
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first paragraph of the "Limitation on Indebtedness" covenant; and (iv) the
Company delivers to the Trustee an Officers' Certificate (attaching the
arithmetic computations to demonstrate compliance with clause (iii)) and an
Opinion of Counsel, in each case stating that such consolidation, merger or
transfer and such supplemental indenture complies with this provision and that
all conditions precedent provided for herein relating to such transaction have
been complied with.
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 Senior Discount 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 Senior Discount Notes (except for, among other
matters, certain obligations to register the transfer or exchange of the
Senior Discount Notes, to replace stolen, lost or mutilated Senior Discount
Notes, to maintain paying agencies and to hold monies for payment in trust)
if, among other things, (A) the Company has deposited with the Trustee, in
trust, money and/or U.S. Government Obligations that through the payment of
interest and principal in respect thereof in accordance with their terms will
provide money in an amount sufficient to pay the principal of, premium, if
any, and accrued interest on the Senior Discount Notes on the Stated Maturity
of such payments in accordance with the terms of the Indenture and the Senior
Discount 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, as amended, and after the passage
of 123 days following the deposit, the trust fund will not be subject to the
effect of Section 547 of the United States Bankruptcy Code or Section 15 of
the New York Debtor and Creditor Law, (C) immediately after giving effect to
such deposit on a pro forma basis, no Event of Default, or event that after
the giving of notice or lapse of time or both would become an Event of
Default, shall have occurred and be continuing on the date of such deposit or
during the period ending on the 123rd day after the date of such deposit, and
such deposit shall not result in a breach or violation of, or constitute a
default under, any other agreement or instrument to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound and (D) if at such time the Senior Discount Notes are
listed on a national securities exchange, the Company has delivered to the
Trustee an Opinion of Counsel to the effect that the Senior Discount Notes
will not be delisted as a result of such deposit, defeasance and discharge.
Defeasance of Certain Covenants and Certain Events of Default. The Indenture
further will provide that the provisions of the Indenture will no longer be in
effect with respect to clauses (iii) and (iv) under "--Consolidation, Merger
and Sale of Assets" and all the covenants described herein under "--
Covenants," clause (c) under "--Events of Default" with respect to such
covenants and clause (iii) under "--Consolidation, Merger and Sale of Assets,"
and clauses (d) and (e) under "Events of Default" shall be deemed not to be
Events of Default, upon, among other things, the deposit with the Trustee, in
trust, of money and/or U.S. Government Obligations that through the payment of
interest and principal in respect thereof in accordance with their terms will
provide money in an amount sufficient to pay the principal of, premium, if
any, and accrued interest on the Senior Discount Notes at the Stated Maturity
of such payments in accordance with the terms of the Indenture and the Senior
Discount 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.
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Defeasance and Certain Other Events of Default. In the event the Company
exercises its option to omit compliance with certain covenants and provisions
of the Indenture with respect to the Senior Discount Notes as described in the
immediately preceding paragraph and the Senior Discount Notes are declared due
and payable because of the occurrence of an Event of Default that remains
applicable, the amount of money and/or U.S. Government Obligations on deposit
with the Trustee will be sufficient to pay amounts due on the Senior Discount
Notes at the time of their Stated Maturity but may not be sufficient to pay
amounts due on the Senior Discount Notes at the time of the acceleration
resulting from such Event of Default. However, the Company will remain liable
for such payments.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company and
the Trustee with the consent of the Holders of not less than a majority in
aggregate principal amount of the outstanding Senior Discount Notes (including
consents obtained in connection with an Offer to Purchase or tender or
exchange offer for the Senior Discount 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 Senior Discount Note; (ii) reduce the
principal amount of, or premium, if any, or interest on, any Senior Discount
Note; (iii) change the place or currency of payment of principal of, or
premium, if any, or interest on, any Senior Discount 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 Senior Discount Note; (v) reduce the above-stated percentage of
outstanding Senior Discount Notes the consent of whose Holders is necessary to
modify or amend the Indenture; (vi) waive a default in the payment of
principal of, premium, if any, or interest on the Senior Discount Notes; or
(vii) reduce the percentage or aggregate principal amount of outstanding
Senior Discount Notes the consent of whose Holders is necessary for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults.
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of a Default, the
Trustee will not be liable, except for the performance of such duties as are
specifically set forth in such Indenture. If an Event of Default has occurred
and is continuing, the Trustee will use the same degree of care and skill in
its exercise as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
The Indenture and provisions of the Trust Indenture Act, incorporated by
reference therein, contain limitations on the rights of the Trustee, should it
become a creditor of the Company, to obtain payment of claims in certain cases
or to realize on certain property received by it in respect of any such
claims, as security or otherwise. The Trustee is permitted to engage in other
transactions; provided, however, that if it acquires any conflicting interest,
it must eliminate such conflict or resign.
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DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definition of all terms set forth below as well as the
definition of any other capitalized term used herein for which no definition
is provided.
"Accreted Value" is defined to mean, for any Specified Date, the amount
provided for each $1,000 principal amount at maturity of Senior Discount
Notes:
(i) if the Specified Date occurs on one of the following dates (each a
"Semi-Annual Accrual Date"), the Accreted Value will equal the amount set
forth below for such Semi-Annual Accrual Date:
<TABLE>
<CAPTION>
Accreted
Semi-Annual Accrual Date Value
- ------------------------ --------
<S> <C>
, 1997............................................................. $
, 1997............................................................. $
, 1998............................................................. $
, 1998............................................................. $
, 1999............................................................. $
, 1999............................................................. $
, 2000............................................................. $
, 2000............................................................. $
, 2001............................................................. $
, 2001............................................................. $1,000
</TABLE>
(ii) if the Specified Date occurs before the first Semi-Annual Accrual
Date, the Accreted Value will equal the sum of (a) the issue price (as
determined for U.S. federal income tax purposes) and (b) an amount equal to
the product of (1) the Accreted Value for the first Semi-Annual Accrual
Date less the original issue price multiplied by (2) a fraction, the
numerator of which is the number of days from the issue date of the Senior
Discount Notes to the Specified Date, using a 360-day year of twelve 30-day
months, and the denominator of which is the number of days elapsed from the
issue date of the Senior Discount Notes to the first Semi-Annual Accrual
Date, using a 360-day year of twelve 30-day months;
(iii) if the Specified Date occurs between two Semi-Annual Accrual Dates,
the Accreted Value will equal the sum of (a) the Accreted Value for the
Semi-Annual Accrual Date immediately preceding such Specified Date and (b)
an amount equal to the product of (1) the Accreted Value for the
immediately following Semi-Annual Accrual Date less the Accreted Value for
the immediately preceding Semi-Annual Accrual Date multiplied by (2) a
fraction, the numerator of which is the number of days from the immediately
preceding Semi-Annual Accrual Date to the Specified Date, using a 360-day
year of twelve 30-day months, and the denominator of which is 180; or
(iv) if the Specified Date occurs after the last Semi-Annual Accrual Date,
the Accreted Value will equal $1,000.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or assumed in connection with an
Asset Acquisition by the Company or a Restricted Subsidiary and not incurred
in connection with, or in anticipation of, such Person becoming a Restricted
Subsidiary or such Asset Acquisition, as the case may be; provided that
Indebtedness of such Person which is redeemed, defeased, retired or otherwise
repaid at the time of or immediately upon consummation of the transactions by
which such Person becomes a Restricted Subsidiary or such Asset Acquisition
shall not be Acquired Indebtedness.
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"Adjusted Consolidated Net Income" means, with respect to any period, the
net income (loss) of the Company and its Restricted Subsidiaries for such
period as determined on a consolidated basis in accordance with GAAP,
adjusted, to the extent included in calculating such net income, by excluding,
without duplication, (i) all extraordinary gains or losses; (ii) the portion
of net income (but not losses) of such person allocable to minority interests
in such persons, except to the extent that cash dividends or distributions
have actually been received by the Company or any Restricted Subsidiary; (iii)
net income (or loss) of any person combined with the Company or a Restricted
Subsidiary on a "pooling of interests" basis attributable to any period prior
to the date of combination; (iv) gains in respect of any Asset Sales; and (v)
the net income of any Unrestricted Subsidiary, except to the extent that cash
dividends or distributions have actually been received by the Company or a
Restricted Subsidiary.
"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 (a) direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise, or (b) designate a
member of the Board of Directors of such Person.
"Asset Acquisition" means (i) an investment by the Company or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person
shall become a Restricted Subsidiary or shall be merged into or consolidated
or amalgamated with the Company or any Restricted Subsidiary; or (ii) an
acquisition by the Company or any of its Restricted Subsidiaries of the
property and assets of any Person other than the Company or any of its
Restricted Subsidiaries that constitute substantially all of a division or
line of business of such Person.
"Asset Sale" means any sale, transfer or other disposition (including by way
of merger, consolidation or sale-leaseback transactions) in one transaction or
a series of related transactions by the Company or any of its Restricted
Subsidiaries to any Person other than the Company or any of its Restricted
Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary; (ii) all or substantially all of the property and assets of an
operating unit or business of the Company or any of its Restricted
Subsidiaries; or (iii) any other property and assets of the Company or any of
its Restricted Subsidiaries and, in each case, that is not governed by the
provisions of the Indenture applicable to mergers, consolidations and sales of
assets of the Company; provided that "Asset Sale" shall not include (i) sales
or other dispositions of inventory, receivables and other assets in the
ordinary course of business; (ii) sales or other dispositions of assets with a
fair market value (as certified in an Officers' Certificate) not in excess of
$ million; or (iii) Asset Swaps.
"Asset Swap" means a substantially concurrent purchase and sale, or
exchange, of Productive Assets between the Company or any of its Restricted
Subsidiaries and another person or group of Affiliated persons; provided that
prior to consummating an Asset Swap involving assets of the Company or any
Restricted Subsidiary with a fair market value in excess of $ (as
determined by the Board of Directors in good faith) the Company shall obtain
and deliver to the Trustee a written opinion from a nationally recognized
investment banking, accounting or appraisal firm stating that the transaction
is fair to the Company or such Restricted Subsidiary from a financial point of
view.
"Average Life" means, when applied to any Indebtedness at any date, 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 win elapse between such date and the making of
such payment, by (ii) the then outstanding principal amount of such
Indebtedness.
"Bank Credit Facility" means one or more credit facilities (whether a term
or a revolving facility) of the type customarily entered into with commercial
banks, between the Company or any of its Restricted Subsidiaries, on the one
hand, and any commercial banks or other lenders, on the other hand (and any
renewals, refundings, extensions or replacements or any such credit
facilities), which credit facilities are by their terms designated as a "Bank
Credit Facility" for purposes of the Indenture.
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"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in the equity of such Person, whether now outstanding or
issued after the date of the Indenture, including, without limitation, all
Equity Shares.
"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 the occurrence of any of the following events: (i)
for so long as the Series A Common Stock remains outstanding and the Series A
Common Stock constitutes 50.1% or more of the combined voting power of all
classes of the Company's outstanding Voting Stock pursuant to the Restated
Certificate of Incorporation of the Company, a "person" or "group" (within the
meaning of Sections 13 (d) and 14 (d) (2) of the Exchange Act), other than an
Excluded Person, becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act) of shares of Series A Common Stock having more than
50% of the total voting power of such shares of Series A Common Stock (ii) if
there are no shares of Series A Common Stock outstanding or the Series A
Common Stock no longer constitutes 50.1% or more of the combined voting power
of all classes of the Company's outstanding Voting Stock pursuant to the
Restated Certificate of Incorporation of the Company, a "person" or "group,"
other than an Excluded Person, becomes the "beneficial owner" of Voting Stock
having more than 50% of the voting power of the total Voting Stock of the
Company; (iii) individuals who, on the later of the Issue Date and the date
occurring two years prior to the date of determination, constitute the Board
of Directors of the Company (together with any new directors whose election by
the Board of Directors or by the Company's shareholders was approved by the
nominating committee of the Board of Directors, a majority of the members of
which were members of the Board of Directors at the later of the Issue Date
and the beginning of such period and directors whose election was previously
so approved) cease for any reason to constitute a majority of the members of
the Board of Directors then in office; or (iv) the Company consolidates with,
or merges with or into, another Person or sells, assigns, conveys, transfers,
leases or otherwise disposes of all or substantially all of its assets to any
Person, or any Person consolidates with, or merges with or into, the Company,
in any such event pursuant to a transaction in which any of the outstanding
Voting Stock of the Company is converted into or exchanged for cash,
securities or other property, other than any such transaction where the
outstanding Voting Stock of the Company is converted into or exchanged for
Voting Stock (other than Redeemable Stock) of the surviving or transferee
Person constituting a majority of the outstanding shares of such Voting Stock
(giving effect to such issuance).
"Closing Price" on any Trading Day with respect to the per share price of
any shares of Capital Stock means the last reported sale price regular way or,
in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices regular way, in either case on the New
York Stock Exchange or, if such shares of Capital Stock are not listed or
admitted to trading on such exchange, on the principal national securities
exchange on which such shares are listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, on the
National Association of Securities Dealers Automated Quotations National
Market System or, if such shares are not listed or admitted to trading on any
national securities exchange or quoted on such automated quotation system but
the issuer is a Foreign Issuer (as defined in Rule 3b-4(b) under the Exchange
Act) and the principal securities exchange on which such shares are listed or
admitted to trading is a Designated Offshore Securities Market (as defined in
Rule 902(a) under the Securities Act), the average of the reported closing bid
and asked prices regular way on such principal exchange, or, if such shares
are not listed or admitted to trading on any national securities exchange or
quoted on such automated quotation system and the issuer and principal
securities exchange do not meet such requirements, the average of the closing
bid and asked prices in the over-the-counter market as furnished by any New
York Stock Exchange member firm that is selected from time to time by the
Company for that purpose and is reasonably acceptable to the Trustee.
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"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 (either
positive or negative) attributable to extraordinary and non-recurring gains or
losses or sales of assets); (iv) depreciation expense, to the extent such
amount was deducted in calculating Adjusted Consolidated Net Income; (v)
amortization expense, to the extent such amount was deducted in calculating
Adjusted Consolidated Net Income; and (vi) all other non-cash 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.
"Consolidated Indebtedness to EBITDA Ratio" means, as at any date of
determination (the "Determination Date"), the ratio of (i) the aggregate
amount of Indebtedness of the Company and its Restricted Subsidiaries on a
consolidated basis ("Consolidated Indebtedness") as at the Determination Date
to (ii) the Consolidated EBITDA of the Company for the then most recent four
full fiscal quarters for which reports have been filed pursuant to the
"Commission Reports and Reports to Holders" covenant described above (such
four full fiscal quarter period being referred to herein as the "Four Quarter
Period"); provided that (x) pro forma effect shall be given to (A) any
Indebtedness Incurred during the period commencing on the first day of the
Four Quarter Period through the Determination Date (the "Reference Period"),
including any Indebtedness Incurred on the Determination Date, to the extent
outstanding on the Determination Date, and (B) the discharge of any other
Indebtedness permanently retired, repaid, repurchased, defeased or otherwise
discharged with the proceeds of such new Indebtedness, in each case as if the
Incurrence or retirement of such Indebtedness had occurred on the first date
of such Reference Period, (y) if during the Reference Period, the Company or
any of its Restricted Subsidiaries shall have engaged in any Asset Sale,
Consolidated EBITDA for such period shall be reduced by an amount equal to the
portion thereof (if positive), or increased by an amount equal to the portion
thereof (if negative), directly attributable to the assets which are the
subject of such Asset Sale and any related retirement of Indebtedness as if
such Asset Sale and related retirement of Indebtedness had occurred on the
first day of such Reference Period or (z) if during such Reference Period the
Company or any of its Restricted Subsidiaries shall have made any Asset
Acquisition, the Consolidated EBITDA of the Company shall be calculated on a
pro forma basis as if such Asset Acquisition and any related financing had
occurred on the first day of such Reference Period.
"Consolidated Interest Expense" means, for any period, the aggregate of the
following amounts for such period determined on a consolidated basis (without
taking into account Unrestricted Subsidiaries) in accordance with GAAP: the
amount of interest in respect of Indebtedness (including amortization of
original issue discount on any Indebtedness 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 Lease Obligations paid, accrued or scheduled to be paid
or to be accrued by the Company and its Restricted Subsidiaries during such
period.
"Cumulative EBITDA" means Consolidated EBITDA of the Company and its
Restricted Subsidiaries for the period beginning on the first day of the
fiscal quarter immediately following the Issue Date, through and including the
end of the last fiscal quarter (for which reports have been filed pursuant to
the "Commission Reports and Reports to Holders" covenant) preceding the date
of any proposed Restricted Payment.
"Cumulative Interest Expense" means the total amount of Consolidated
Interest Expense of the Company and its Restricted Subsidiaries for the period
beginning on the first day of the fiscal quarter immediately following the
Issue Date, through and including the end of the last fiscal quarter (for
which reports have been filed pursuant to the "Commission Reports and Reports
to Holders" covenant) preceding the date of any proposed Restricted Payment.
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"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any of its Restricted Subsidiaries against fluctuations in currency
values to or under which the Company or any of its Restricted Subsidiaries is
a party or a beneficiary on the Issue Date or becomes a party or a beneficiary
thereafter.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Excluded Person" means Mr. Roger D. Linquist and any Related Person.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time.
"Government Indebtedness" means, with respect to a Person, all obligations
of such Person to the U.S. Government in respect of the PCS Licenses.
"Guarantee" means, with respect to any Person, any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Indebtedness
or other obligation of any other Person and, without limiting the generality
of the foregoing, any obligation, direct or indirect, contingent or otherwise,
of such Person (i) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness or other obligation of such other
Person (whether arising by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise); or
(ii) entered into for purposes of assuring in any other manner the obligee of
such Indebtedness or other obligation of the payment thereof or to protect
such obligee against loss in respect thereof (in whole or in part); provided
that the term "Guarantee" shall not include endorsements for collection or
deposit in the ordinary course of business. The term "Guarantee" used as a
verb has a corresponding meaning.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including Acquired Indebtedness (and "Incurrence," "Incurred," "Incurrable,"
and "Incurring" shall have meanings correlative to the foregoing); 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,
which purchase price is due more than six months after the date of placing
such property in service or taking delivery and title thereto or the
completion of such services, except Trade Payables; (v) all obligations of
such Person as lessee under Capitalized Leases; (vi) all obligations of such
Person pursuant to the Government Indebtedness, provided, however, that in all
events the calculation of Government Indebtedness will be reported on the face
value thereof; (vii) 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; (viii) all Indebtedness of other Persons
Guaranteed by such Person to the extent such Indebtedness is Guaranteed by
such Person; and (ix) to the extent not otherwise included in this definition,
the amount appearing on a balance sheet of such Person prepared in accordance
with GAAP with respect to obligations under Currency Agreements and Interest
Rate Agreements. The amount of Indebtedness of any Person at any date shall be
the outstanding balance at such date of all unconditional obligations as
described above and, with respect to contingent obligations, the maximum
liability upon the occurrence of the contingency giving rise to the
obligation, provided (i) that the amount outstanding at any time of any
Indebtedness issued with original issue discount is the face amount of such
Indebtedness; and (ii) that Indebtedness shall not include any liability for
federal, provincial, local or other taxes.
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"Independent Director" means, with respect to any proposed transaction
between the Company and an Interested Person thereof, a member of the
Company's Board of Directors who is not an officer or employee of the Company,
would not be a party to, or have a financial interest in, such transaction and
is not an officer, director or employee of, and does not have a financial
interest in such Interested Person.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement designed to protect the Company or any of its
Subsidiaries against fluctuations in interest rates.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee
or similar arrangement; but excluding advances to customers in the ordinary
course of business that are, in conformity with GAAP, recorded as accounts
receivable on the balance sheet of the Company or its Restricted Subsidiaries)
to, capital contribution (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of
others) to, or any purchase or acquisition of Capital Stock, bonds, notes,
debentures or other similar instruments issued by, such Person and shall
include the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary. For purposes of the definition of "Unrestricted Subsidiary" and
the "Limitation on Restricted Payments" covenant described above, (i)
"Investment" shall include the fair market value of the assets (net of
liabilities) of any Restricted Subsidiary of the Company at the time that such
Restricted Subsidiary of the Company is designated an Unrestricted Subsidiary
and shall exclude the fair market value of the assets (net of liabilities) of
any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is
designated a Restricted Subsidiary of the Company; and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer, in each case as determined by the
Board of Directors in good faith.
"Issue Date" means the date on which the Senior Discount Notes are
originally issued under the Indenture.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or
other title retention agreement or lease in the nature thereof, any sale with
recourse against the seller or any Affiliate of the seller, or any agreement
to give any security interest).
"Moody's" means Moody's Investors Service, Inc. or if Moody's Investors
Service, Inc. shall cease rating debt securities having a maturity at original
issuance of at least seven years and such ratings business shall have been
transferred to a successor Person, such successor Person; provided, however,
that if Moody's Investors Service, Inc. ceases rating debt securities having a
maturity at original issuance of at least seven years and its ratings business
with respect thereto shall not have been transferred to any successor Person,
then "Moody's" shall mean any other nationally recognized rating agency (other
than S&P) that rates debt securities having a maturity at original issuance of
at least seven years and that shall have been designated by the Company by a
written notice given to the Trustee.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the proceeds
of such Asset Sale in the form of cash or cash equivalents, including payments
in respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed
or sold with recourse to the Company or any Restricted Subsidiary of the
Company) and proceeds from the conversion of other property received when
converted to cash or cash equivalents, net of (i) brokerage commissions and
other fees and expenses (including fees and expenses of counsel and investment
bankers) related to such Asset Sale, (ii) provisions for all taxes (whether or
not such taxes will actually be paid or are payable) as a result of such Asset
Sale without regard to the consolidated results of operations of the Company
and its Restricted Subsidiaries, taken as a whole, (iii) payments made to
repay Indebtedness or any other obligation outstanding at the time of such
Asset Sale that either (A) is secured by a Lien on the property or assets sold
or (B) is required to be paid as a result of such sale; and (iv) appropriate
amounts to be provided by the Company or any Restricted Subsidiary of the
Company as a reserve against any liabilities associated with such Asset Sale,
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities
under any
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indemnification obligations associated with such Asset Sale, all as determined
in conformity with GAAP and (b) with respect to any issuance or sale of
Capital Stock, the proceeds of such issuance or sale in the form of cash or
cash equivalents, including payments in respect of deferred payment
obligations (to the extent corresponding to the principal, but not interest,
component thereof) when received in the form of cash or cash equivalents
(except to the extent such obligations are financed or sold with recourse to
the Company or any Restricted Subsidiary of the Company) and proceeds from the
conversion of other property received when converted to cash or cash
equivalents, net of attorneys' fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees incurred in connection with such issuance or sale and net of taxes
paid or payable as a result thereof.
"Offer to Purchase" means an offer to purchase Senior Discount Notes by the
Company from the Holders commenced by mailing a notice to the Trustee and each
Holder stating: (i) the covenant pursuant to which the offer is being made and
that all Senior Discount 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 Senior
Discount 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 Senior Discount 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 Senior Discount Note purchased pursuant to the
Offer to Purchase will be required to surrender the Senior Discount Note,
together with the form entitled "Option of the Holder to Elect Purchase" on
the reverse side of the Senior Discount 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 Senior Discount Notes delivered
for purchase and a statement that such Holder is withdrawing his election to
have such Senior Discount Notes purchased; and (vii) that Holders whose Senior
Discount Notes are being purchased only in part will be issued new Senior
Discount Notes equal in principal amount to the unpurchased portion of the
Senior Discount Notes surrendered; provided that each Senior Discount Note
purchased and each new Senior Discount Note issued shall be in a principal
amount of $1,000 or integral multiples thereof. On the Payment Date, the
Company shall (i) accept for payment on a pro rata basis Senior Discount 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 Senior
Discount Notes or portions thereof so accepted; and (iii) deliver, or cause to
be delivered, to the Trustee all Senior Discount Notes or portions thereof so
accepted together with an Officers' Certificate specifying the Senior Discount
Notes or portions thereof accepted for payment by the Company. The Paying
Agent shall promptly mail to the Holders of Senior Discount 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 Senior Discount Note
equal in principal amount to any unpurchased portion of the Senior Discount
Note surrendered, provided that each Senior Discount Note purchased and each
new Senior Discount 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.
"PCS Licenses" means the PCS licenses for which the Company has filed a
long-form FCC application prior to the Issue Date.
"Permitted Businesses" means the provision of wireless communications
services and activities and services that are complimentary, ancillary or
related thereto.
"Permitted Indebtedness" of the Company and any Restricted Subsidiary shall
mean each and all of the following: (i) the Senior Discount Notes; (ii)
Indebtedness to the Company of any of its Wholly Owned Restricted
Subsidiaries; provided that any subsequent issuance or transfer of any Capital
Stock which results in any such Wholly Owned Restricted Subsidiary ceasing to
be a Wholly Owned Restricted Subsidiary or any subsequent transfer of such
Indebtedness (other than to the Company or another Wholly Owned Restricted
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Subsidiary) shall be deemed, in each case, to constitute an Incurrence of such
Indebtedness not permitted by this clause (ii); (iii) 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
(ii) or (iv) 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 Indebtedness the proceeds of which
are used to refinance or refund the Senior Discount Notes or Indebtedness that
is pari passu in right of payment with, or subordinated in right of payment
to, the Senior Discount Notes shall only be permitted under this clause (iii)
if (A) in case the Senior Discount Notes are refinanced in part or the
Indebtedness to be refinanced, including Vendor Financing Arrangements, is
pari passu in right of payment with the Senior Discount Notes, such new
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such new Indebtedness is outstanding, is expressly made pari
passu in right of payment with, or subordinate in right of payment to, the
remaining Senior Discount Notes, (B) in case the Indebtedness to be
refinanced, including Vendor Financing Arrangements, is subordinated in right
of payment to the Senior Discount Notes, such new Indebtedness, by its terms
or by the terms of any agreement or instrument pursuant to which such new
Indebtedness is issued or remains outstanding, is expressly made subordinate
in right of payment to the Senior Discount Notes at least to the extent that
the Indebtedness to be refinanced is subordinated to the Senior Discount Notes
and (C) such new Indebtedness, determined as of the date of Incurrence of such
new Indebtedness, does not mature prior to the Stated Maturity of the
Indebtedness to be refinanced or refunded, and the Average Life of such new
Indebtedness is at least equal to the remaining Average Life of the
Indebtedness to be refinanced or refunded; and provided further that in no
event may Indebtedness of the Company be refinanced by means of any
Indebtedness of any Restricted Subsidiary pursuant to this clause (iii); (iv)
Indebtedness (A) in respect of performance, surety or appeal bonds provided in
the ordinary course of business, and (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
fluctuations in foreign currency exchange rates or interest rates or by reason
of fees, indemnities and compensation payable thereunder; (v) Indebtedness of
the Company or any Restricted Subsidiary to the U.S. Government in respect of
the PCS Licenses; (vi) Indebtedness of the Company or any Restricted
Subsidiary under the Vendor Financing Arrangements; (vii) Indebtedness of the
Company and any Restricted Subsidiary under a Bank Credit Facility in a
principal amount not the exceed $ million at any one time outstanding;
(viii) Indebtedness of the Company in a principal amount not to exceed 2.0
times the Net Cash Proceeds received by the Company from a substantially
concurrent sale of its Capital Stock (other than Redeemable Stock or other
preferred stock of the Company that provides for the payment of cash dividends
at any time during the first five years following the Redemption Date); (ix)
Indebtedness of the Company at any time in an aggregate amount not to exceed
$ million; and (x) Indebtedness existing on the Issue Date.
"Permitted Investment" means (i) an Investment in a Restricted Subsidiary or
a Person which will, upon the making of such Investment, become a Restricted
Subsidiary or be merged or consolidated with or into or transfer or convey all
or substantially all its assets to, the Company or a Restricted Subsidiary;
provided that, such person's primary business is related, ancillary or
complementary to the Permitted Businesses of the Company and its Restricted
Subsidiaries on the date of such Investment; (ii) a Temporary Cash Investment;
(iii) payroll, travel and similar advances to cover matters that are expected
at the time of such advances ultimately to be treated as expenses in
accordance with GAAP; (iv) loans or advances to employees made in the ordinary
course of business that do not in the aggregate exceed $ million at any time
outstanding; and (v) Investments in an aggregate amount not to exceed $
million in any Person the primary business of which is related, ancillary or
complementary to the Permitted Businesses of the Company and its Restricted
Subsidiaries on the date of such Investments.
"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
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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) leases or subleases granted to others that do
not materially interfere with the ordinary course of business of the Company
and its Restricted Subsidiaries, taken as a whole; (vii) 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; (viii) any interest or title of a lessor in the
property subject to any Capitalized Lease or operating lease; (ix) Liens
arising from filing Uniform Commercial Code financing statements regarding
leases; (x) Liens on property of, or on shares of stock or Indebtedness of,
any corporation existing at the time such corporation becomes, or becomes a
part of, any Restricted Subsidiary; provided that such Liens do not extend to
or cover any property or assets of the Company or any Restricted Subsidiary
other than the property or assets acquired; (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 to
protect the Company or any of its Restricted Subsidiaries from fluctuations in
the price of commodities; (xvi) Liens arising out of conditional sale, title
retention, consignment or similar arrangements for the sale of goods entered
into by the Company or any of its Restricted Subsidiaries in the ordinary
course of business in accordance with the past practices of the Company and
its Restricted Subsidiaries prior to the Issue Date; and (xvii) Liens on or
sales of receivables in the ordinary course of business.
"Productive Assets" means assets of a kind used or usable by the Company and
its Restricted Subsidiaries in Permitted Businesses.
"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 Senior Discount 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 Senior Discount 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
Senior Discount 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 Senior Discount 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 Senior Discount 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 Senior Discount Notes as are required to
be repurchased pursuant to the "Limitation on Asset Sales" and "Repurchase of
Senior Discount Notes Upon a Change of Control" covenants described above.
"Related Person" means any person who controls, is controlled by or is under
common control with an Excluded Person; provided that for purposes of this
definition "control" means the beneficial ownership of more than 50% of the
total voting power of a person normally entitled to vote in the election of
directors, managers or trustees, as applicable of a person.
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"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"S&P" means Standard & Poor's Ratings Group or, if Standard & Poor's Ratings
Group shall cease rating debt securities having a maturity at original
issuance of at least seven years and such ratings business shall have been
transferred to a successor Person, such successor Person; provided, however,
that if Standard & Poor's Ratings Group ceases rating debt securities having a
maturity at original issuance of at least seven years and its ratings business
with respect thereto shall not have been transferred to any successor Person,
then "S&P" shall mean any other nationally recognized rating agency (other
than Moody's) that rates debt securities having a maturity at original
issuance of at least seven years and that shall have been designated by the
Company by a written notice given to the Trustee.
"Specified Date" means any redemption date, any date of purchase for any
purchase of Senior Discount Notes pursuant to the covenants described under
"Limitation on Asset Sales" or "Repurchase of Senior Discount Notes upon a
Change of Control" above or any date on which the Senior Discount Notes first
become due and payable after an Event of Default.
"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, with respect to any sale of the Company's
Capital Stock, any Person engaged in the telecommunications business that,
both as of the Trading Day immediately before the day of such sale and the
Trading Day immediately after the day of such sale, has a Total Equity Market
Capitalization of at least $1.0 billion. In calculating Total Equity Market
Capitalization for the purpose of this definition, the average Closing Price
of the common stock of such Person, solely when calculated as of the Trading
Day immediately after the day of such sale, will be deemed to be the Closing
Price of such common stock on such succeeding Trading Day, subject to the last
sentence of the definition of "Total Equity Market Capitalization."
"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.
"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; (ii) time deposit accounts, certificates of
deposit and money market deposits maturing within 270 days of the date of
acquisition thereof, bankers' acceptances with maturities not exceeding 270
days, and overnight bank deposits, in each case issued by or with a bank or
trust company that is organized under the laws of the United States of
America, any state thereof or any foreign country recognized by the United
States of America, and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $100.0 million (or the foreign
currency equivalent thereof) and has outstanding debt which is rated "A" (or
such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act), or any money market fund sponsored by a registered broker
dealer or mutual fund distributor; (iii) repurchase obligations with a term of
not more than 30 days for underlying securities of the types described in
clause (i) above entered into with a bank meeting the qualifications described
in clause (ii) above; (iv) commercial paper, maturing not more than 270 days
after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America, any state thereof or any foreign country recognized
by the United States with a rating at the time as of which any investment
therein is made of "P-1" (or higher) according to Moody's or "A-1" (or higher)
according to S&P; and (v) securities with maturities of 270 days or less from
the date of acquisition issued or fully and unconditionally guaranteed by any
state, commonwealth or territory of the United States, or by any political
subdivision or taxing authority thereof, and rated at least "A" by S&P or
Moody's.
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"Telecommunications Assets" means (i) any entity or business that holds
licenses, authorizations or otherwise operates pursuant to the rules and
policies administered by the FCC to provide communications services, or a
substantial portion of the revenues of which are derived from (a) providing
transmission or reception of signs, signals, writing, images, sound, data or
video by aid of radio or wire cable or like connection between points of
origin and reception to such transmission; (b) the sale, resale, lease,
operation or provision of SMR or ESMR services, cellular services, PCS,
dispatch services, paging services, telephone services and other landline and
Commercial Radio Services; (c) the provision of telecommunications or radio
communications facilities or equipment; or (d) any business ancillary or
directly related to the businesses referred in clauses (a), (b), or (c) above;
and (ii) any assets used primarily to provide such products or services or to
conduct such businesses.
"Telecommunications Subsidiary" means (i) , and any
successor; (ii) the [three] operating subsidiaries contemplated by the
Prospectus; and (iii) any other Subsidiary of the Company that holds more than
a de minimis amount of Telecommunications Assets.
"Total Equity Market Capitalization" of any Person means, as of any day of
determination, the sum of (1) the product of (i) the aggregate number of
outstanding primary shares of common stock of such Person on such day (which
shall not include any options or warrants on, or securities convertible or
exchangeable into, shares of common stock of such Person); and (ii) the
average Closing Price of such common stock over the 20 consecutive Trading
Days immediately preceding such day, plus (2) the liquidation value of any
outstanding shares of preferred stock of such Person on such day. If no such
Closing Price exists with respect to shares of any such class, the value of
such shares for purposes of clause (1) of the preceding sentence shall be
determined by the Company's Board of Directors in good faith and evidenced by
a resolution of the Board of Directors filed with the Trustee.
"Trading Day" means, with respect to a securities exchange or automated
quotation system, a day on which such exchange or system is open for a full
day of trading.
"Transaction Date" means, with respect to the Incurrence of any Indebtedness
by the Company or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment,
the date such Restricted Payment is to be made.
"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 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 "Limitation on Restricted Payments" covenant
described above. The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary of the Company; provided that
immediately after giving effect to such designation (x) the Company could
Incur $1.00 of additional Indebtedness under the first paragraph of the
"Limitation on Indebtedness" covenant described above and (y) no Default or
Event of Default shall have occurred and be continuing; and provided further
that no Telecommunications Subsidiary shall be an Unrestricted Subsidiary. Any
such designation by the Board of Directors shall be evidenced to the Trustee
by promptly filing with the Trustee a copy of the Board Resolution giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions.
"Vendor Financing Arrangements" means any Indebtedness including any credit
facility entered into with any vendor or supplier (or any financial
institution acting on behalf of such a vendor or supplier); provided that such
Indebtedness is incurred solely for the purpose of financing the cost
(including the cost of design, development, construction, integration, handset
construction or microwave relocation) of wireless telecommunications networks
or systems or for which the Company or any Restricted Subsidiary has obtained
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the applicable licenses or authorization to utilize the radio frequencies
necessary for the operation of such systems or networks; provided further,
that such Indebtedness shall be secured by the equipment or other assets
purchased pursuant to such financing.
"Voting Stock" means, with respect to any Person, Capital Stock of any class
or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person, such
Subsidiary if all of the outstanding Capital Stock in such Subsidiary (other
than any director's qualifying shares or Investments by foreign nationals
mandated by applicable law) is owned by such Person or one or more Wholly
Owned Subsidiaries of such Person.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the material United States federal
income tax considerations relevant to the purchase, ownership and disposition
of the Senior Discount Notes by holders acquiring Senior Discount Notes on
original issue for cash, but does not purport to be a complete analysis of all
potential tax effects. The discussion is based upon the Internal Revenue code
of 1986, as amended (the "Code"), Treasury regulations, Internal Revenue
Service ("IRS") rulings and pronouncements and judicial decisions in effect as
of the date hereof, all of which are subject to change at any time, which
change or changes may be applied retroactively in a manner that could
adversely affect a holder of the Senior Discount Notes. The discussion does
not address all of the federal income tax consequences that may be relevant to
a holder in light of such holder's particular circumstances or to holders
subject to special rules, such as certain financial institutions, insurance
companies, dealers in securities, foreign corporations, nonresident alien
individuals and persons holding the Senior Discount Notes as part of a
"straddle," "hedge" or "conversion transaction." Moreover, the effect of any
applicable state, local or foreign tax laws is not discussed. The discussion
deals only with Senior Discount Notes held as "capital assets" within the
meaning of section 1221 of the Code.
The Company has not sought and will not seek any rulings from the IRS with
respect to the position of the Company discussed below. There can be no
assurance that the IRS will not take a different position concerning the tax
consequences of the purchase, ownership or disposition of the Senior Discount
Notes or that any such position would not be sustained.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO
THE TAX CONSEQUENCES OF AN INVESTMENT IN THE SENIOR DISCOUNT NOTES IN THEIR
PARTICULAR SITUATIONS AS WELL AS THE APPLICATION OF ANY STATE, LOCAL, FOREIGN
OR OTHER TAX LAWS.
ORIGINAL ISSUE DISCOUNT
In General. The Senior Discount Notes will be issued with "original issue
discount" for federal income tax purposes. A holder generally is required to
include original issue discount in gross income as it accrues, regardless of
the holder's method of accounting for federal income tax purposes.
Accordingly, each holder will be required to include amounts in gross income
in advance of the receipt of the cash to which such income is attributable.
The amount of original issue discount with respect to each Senior Discount
Note is an amount equal to the excess of the "stated redemption price at
maturity" of such Senior Discount Note over its "issue price." The stated
redemption price at maturity of each Senior Discount Note will include all
cash payments, including principal and interest, required to be made
thereunder until maturity. The issue price of a Senior Discount Note will be
equal to the first price at which a substantial amount of Senior Discount
Notes are sold to the public for money (excluding sales to bond houses,
brokers or similar persons acting in the capacity of underwriter, placement
agent or wholesaler). Accordingly, each Senior Discount Note will be issued
with a substantial amount of original issue discount.
Taxation of Original Issue Discount. Each holder of a Senior Discount Note
will be required to include in gross income an amount equal to the sum of the
"daily portions" of the original issue discount of the Senior Discount Note
for all days during each taxable year in which the holder holds the Senior
Discount Note. The daily portions of original issue discount will be
determined on a constant interest rate basis by allocating to each day during
the taxable year in which the holder holds the Senior Discount Note a pro rata
portion of the original issue discount thereon that is attributable to the
"accrual period" in which such day is included. The amount of the original
issue discount attributable to each full accrual period will be the product of
the "adjusted issue price" of the Senior Discount Note at the beginning of
such accrual period and the "yield to maturity" of the Senior Discount Note
(adjusted to reflect the length of the accrual period). The adjusted issue
price of a Senior Discount Note at the beginning of an accrual period is the
original issue price of the Senior Discount Note plus the aggregate amount of
original issue discount that has accrued in all prior accrual periods, less
any cash
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payments on the Senior Discount Note on or before the first day of such
accrual period. The yield to maturity is the discount rate that, when used in
computing the present value of all principal and interest payments to be made
on the Senior Discount Note, produces an amount equal to the issue price of
the Senior Discount Note.
The accrual period generally is the six-month period ending on the day in
each calendar year corresponding to the day before the maturity date of the
Senior Discount Note or the date six months before such date. The initial
accrual period of a Senior Discount Note is the short period beginning on the
issue date and ending on the day before the first day of the first full
accrual period. The amount of original issue discount attributable to an
initial short accrual period may be computed under any reasonable method.
The Company is required to furnish to the IRS, and will furnish annually to
record holders of a Senior Discount Note, certain information with respect to
original issue discount accruing during the calendar year. That information
will be based upon six month accrual periods and treating the adjusted issue
price of the Senior Discount Note as if the holder were the original holder of
the Senior Discount Note.
A holder who purchases a Senior Discount Note for an amount other than the
adjusted issue price and/or on a date other than the end of an accrual period
will be required to determine for himself the amount of original issue
discount, if any, he is required to include in gross income for federal income
tax purposes.
SALE OR RETIREMENT OF A SENIOR DISCOUNT NOTE
In general, a holder of a Senior Discount Note will recognize gain or loss
upon the sale, retirement or other taxable disposition of such Senior Discount
Note in an amount equal to the difference between (a) the amount of cash and
the fair market value of property received in exchange therefor (except to the
extent attributable to the payment of accrued interest or original issue
discount, which generally will be taxable to a holder as ordinary income) and
(b) the holder's adjusted tax basis in such Senior Discount Note.
A holder's tax basis in a Senior Discount Note generally will be equal to
the price paid for such Senior Discount Note, increased by the amount of
original issue discount, if any, included in gross income prior to the date of
disposition, and decreased by the amount of any payments on such Senior
Discount Note prior to disposition.
Any gain or loss recognized on the sale, retirement or other taxable
disposition of a Senior Discount Note generally will be capital gain or loss.
Such capital gain or loss generally will be long-term capital gain or loss if
the Senior Discount Note had been held for more than one year.
Holders should be aware that the resale value of a Senior Discount Note may
be affected by the "market discount" rules of the Code under which a
subsequent purchaser of a Senior Discount Note acquiring the Senior Discount
Note at a market discount generally would be required to include as ordinary
income a portion of the gain realized upon the disposition or retirement of
such Senior Discount Note to the extent of the market discount that has
accrued while the debt instrument was held by such holder.
BACKUP WITHHOLDING
A holder of a Senior Discount Note may be subject to backup withholding at a
rate of 31% with respect to the payment of interest and original issue
discount on, and gross proceeds upon sale or retirement of, a Senior Discount
Note unless such holder (i) is a corporation or other exempt recipient and,
when required demonstrates that fact, or (ii) provides, when required, a
correct taxpayer identification number, certifies that backup withholding is
not in effect and otherwise complies with applicable requirements of the
backup withholding rules. Backup withholding is not an additional tax, any
amounts so withheld are creditable against the holder's federal income tax,
provided the required information is provided to the IRS.
DEDUCTIBILITY OF ORIGINAL ISSUE DISCOUNT AND INTEREST
The deduction by the Company in respect of interest (including original
issue discount) accrued with respect to the Senior Discount Notes will be
limited in part and deferred in part if the Senior Discount Notes are
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"applicable high yield discount obligations." The Company anticipates that the
Senior Discount Notes will be applicable high yield discount obligations
because, among other things, it is expected that the yield to maturity of the
Senior Discount Notes will exceed the sum of the applicable federal long-term
rate (a rate published by the IRS each month for application during the
following calendar month) in effect at the time of issuance of the Notes (the
"AFR") plus five percentage points. If so, the Company will not be permitted
to deduct original issue discount on the Senior Discount Notes until such
original issue discount is paid in cash. Moreover, if the Senior Discount
Notes are applicable high yield discount obligations, then (i) if the yield to
maturity of the Senior Discount Notes exceeds the sum of the AFR plus six
percentage points (such excess referred to as the "Disqualified Yield"), the
deduction for interest (including original issue discount) accrued on the
Senior Discount Notes will be permanently disallowed to the extent such
interest or original issue discount is attributable to the Disqualified Yield,
and such interest (including original issue discount) would be treated as
dividends to corporate holders of the Senior Discount Notes for purposes of
the dividends-received deduction (to the extent that such amounts would have
been treated as dividends had they been distributions made by the Company with
respect to its stock) and (ii) the remainder of the original issue discount on
the Senior Discount Notes would not be deductible by the Company until paid in
cash.
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DESCRIPTION OF CAPITAL STOCK
The Company has three classes of Common Stock: Class A Common Stock, Class B
Common Stock and Class C Common Stock. The authorized capital stock of the
Company upon the closing of the Offerings will consist of 100 shares of Class
A Common Stock, 20,000,000 shares of Class B Common Stock, and 79,999,900
shares of Class C Common Stock. As of June 1, 1996, there were 60 shares of
Class A Common Stock outstanding held of record by two stockholders (40 shares
held by Mr. Roger D. Linquist and 20 shares held by Mr. Frederic Hamilton),
2,109,440 shares of Class B Common Stock outstanding held of record by 14
stockholders and 12,184,780 shares of Class C Common Stock outstanding held of
record by approximately 70 stockholders. The holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from
time to time by the Board of Directors out of funds legally available
therefor. In the event of the liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities, if any, then outstanding. The
Class C Common Stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are
fully paid and nonassessable, and the shares of Class C Common Stock to be
issued upon completion of the Stock Offering will be fully paid and
nonassessable.
OPTIONS AND WARRANTS
As of June 1, 1996, options to purchase 2,762,240 shares of Class B Common
Stock, each at an exercise price of $2.50 per share, were outstanding, all of
which are vested. The Company also had outstanding warrants to purchase
210,000 shares of Class B Common Stock, each at an exercise price of $2.50 per
share, and warrants to purchase 6,773,500 shares of Class C Common Stock, each
at an exercise price of $5.00 per share. In addition, the Company has
outstanding warrants to purchase 800,000 shares of Class C Common Stock, each
at an exercise price of $0.0005 per share. Such warrants expire on various
dates, the latest of which is 10 years from May 20, 1996. See "Certain
Transactions."
CONVERSION RIGHTS
Each share of Class A Common Stock and Class B Common Stock is automatically
converted into one share of Class C Common Stock upon the tenth anniversary of
the date of grant of license(s) to the Company by the FCC. In addition, at any
time following the consummation of the Stock Offering, the Board of Directors
may approve the conversion of shares of Class B Common Stock into shares of
Class C Common Stock, at which point, each share of Class B Common Stock shall
be convertible, at the option of the holder thereof, at the office of the
Company or any transfer agent for such stock, into one share of Class C Common
Stock. Any conversion will not be permitted to the extent such conversion
would cause the Company to be in violation of any requirement, rule or
regulation of the FCC.
VOTING RIGHTS
Each share of Class A Common Stock has one vote and together, as a class,
represents 50.1% of the votes on all matters except the election of directors.
With respect to the election of directors, the Class A Common Stock voting
together, as a class, elects four members of the Board of Directors (the
"Class A Directors"). Each Class A Director shall have one vote on each matter
submitted to a vote of the Board of Directors, and collectively represent four
of the seven votes of the Company's Board of Directors.
Class B Common Stock carries no voting rights, except as otherwise required
by law.
Each share of Class C Common Stock has one vote and together, as a class,
represents 49.9% of the votes on all matters except the election of directors.
The holders of the Class C Common Stock as a class will be entitled to elect
members to the Company's Board of Directors (the "Class C Directors") who
collectively will represent three of the seven votes of the Company's Board of
Directors.
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REDEMPTION BY THE COMPANY
If a holder of Class C Common Stock acquires additional shares of Class C
Common Stock or otherwise is attributed with ownership of such shares that
would cause the Company to violate the Entrepreneurs Requirements or the
Foreign Ownership Restrictions (collectively, "FCC Violations"), the Company,
at its option, may redeem such shares at a redemption price equal to (i) 75%
of the fair market value of such shares where such holder caused the FCC
Violation or (ii) 100% of the fair market value where the FCC Violation was
caused by no fault of the holder.
REGISTRATION RIGHTS
After the Stock Offering, the holders of 12,184,780 shares of Class C Common
Stock and holders of warrants to purchase 7,573,500 shares of Class C Common
Stock will be entitled to certain rights with respect to the registration of
such shares under the Securities Act. Under the terms of the agreement between
the Company and the holders of such registrable securities, if the Company
proposes to register any of its securities under the Securities Act, either
for its own account or for the account of other security holders exercising
registration rights, such holders are entitled to notice of such registration
and are entitled to include shares of such Class C Common Stock therein.
Certain of such stockholders benefiting from these rights may also require the
Company to file a registration statement under the Securities Act at the
Company's expense with respect to their shares of Class C Common Stock, and
the Company is required to use its diligent reasonable efforts to effect such
registration. Further, holders may require the Company to file additional
registration statements on Form S-3 at the Company's expense. These rights are
subject to certain conditions and limitations, among them the right of the
underwriters of an offering to limit the number of shares included in such
registration in certain circumstances.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW
Certificate of Incorporation and Bylaws
The Bylaws provide that stockholder action may be effected either at a duly
called meeting or by a consent in writing. The Bylaws provide that the
Company's stockholders may call a special meeting of stockholders only upon a
request of stockholders owning at least a majority of the Company's capital
stock. These provisions of the Certificate of Incorporation and Bylaws could
discourage potential acquisition proposals and could delay or prevent a change
in control of the Company. These provisions are intended to enhance the
likelihood of continuity and stability in the composition of the Board of
Directors and in the policies formulated by the Board of Directors and to
discourage certain types of transactions that may involve an actual or
threatened change of control of the Company. These provisions are designed to
reduce the vulnerability of the Company to an unsolicited acquisition
proposal. These provisions are also intended to discourage certain tactics
that may be used in proxy fights. However, such provisions could have the
effect of discouraging others from making tender offers for the Company's
shares and, as a consequence, they also may inhibit fluctuations in the market
price of the Company's shares that could result from actual or rumored
takeover attempts. Such provisions also may have the effect of preventing
changes in the management of the Company.
Delaware Takeover Statute
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which, subject to certain exceptions, prohibits a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years following the date that
such stockholder became an interested stockholder, unless: (i) prior to such
date, the board of directors of the corporation approved either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder; (ii) upon consummation of the transaction that
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares
91
<PAGE>
owned (a) by persons who are directors and also officers and (b) by employee
stock plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer; or (iii) on or subsequent to such date, the business
combination is approved by the board of directors and authorized at an annual
or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock that is
not owned by the interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii)
any sale, transfer, pledge or other disposition of 10% or more of the assets
of the corporation involving the interested stockholder; (iii) subject to
certain exceptions, any transaction that results in the issuance or transfer
by the corporation of any stock of the corporation to the interested
stockholder; (iv) any transaction involving the corporation that has the
effect of increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested stockholder; or
(v) the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation. In general, Section 203 defines an interested
stockholder as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or person
affiliated with or controlling or controlled by such entity or person.
92
<PAGE>
UNDERWRITING
The Underwriters named below, for whom Bear, Stearns & Co. Inc., Lehman
Brothers Inc., Salomon Brothers Inc and Dillon, Read & Co. Inc. have severally
agreed, subject to the terms and conditions of the Underwriting Agreement (the
form of which is filed as an exhibit to the Registration Statement, of which
this Prospectus is a part), to purchase from the Company the aggregate
principal amount of Senior Discount Notes set forth opposite their names:
<TABLE>
<CAPTION>
UNDERWRITERS AMOUNT
------------ ------
<S> <C>
Bear, Stearns & Co. Inc............................................
Lehman Brothers Inc................................................
Salomon Brothers Inc...............................................
Dillon, Read & Co. Inc. ...........................................
---
Total..........................................................
===
</TABLE>
The purchase price for the Senior Discount Notes will be approximately %.
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that, if any of the foregoing
Senior Discount Notes are purchased by the Underwriters pursuant to the
Underwriting Agreement, all Senior Discount Notes must be so purchased. The
Company has agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments
that the Underwriters may be required to make in respect thereof.
The Company has been advised by the Underwriters that they propose initially
to offer the Senior Discount Notes to the public at the public offering price
set forth on the cover page of this Prospectus and to certain dealers at such
price less a concession not in excess of % of the principal amount of the
Senior Discount Notes. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of % of the purchase price of the Senior
Discount Notes on sales to certain other dealers. After the initial public
offering of the Senior Discount Notes, the public offering price and other
selling terms may be changed by the Underwriters.
The Senior Discount Notes are a new issue of securities with no established
trading market. The Company is applying for quotation of the Senior Discount
Notes on an exchange under the symbol . The Company has been advised by the
Underwriters that, subject to applicable laws and regulations, each of them
presently intends to make a market in the Senior Discount Notes; however, the
Underwriters are not obliged to do so. Any such market-making activity may be
discontinued at any time for any reason without notice. There can be no
assurance that an active market for the Senior Discount Notes will develop or
as to their liquidity or, if a market does develop, at what price the Senior
Discount Notes will trade. If such a market were to develop, the Senior
Discount Notes could trade at prices that may be higher or lower than the
initial offering price thereof, depending on many factors including prevailing
interest rates, general economic conditions, the Company's operating results
and the market for similar debt securities. To the extent that an active
trading market for the Senior Discount Notes does not develop, the liquidity
and trading prices of the Senior Discount Notes may be adversely affected. See
"Risk Factors--Absence of Prior Public Market for the Senior Discount Notes."
Bear, Stearns & Co. Inc. acted as the placement agent in connection with the
private placements of the Company's equity and debt securities that closed in
1995 and 1996. In addition, Bear, Stearns & Co. Inc. has from time to time,
provided, and may in the future provide, financial advisory services to the
Company for which it has received, and may in the future receive, customary
compensation.
93
<PAGE>
LEGAL MATTERS
The validity of the issuance of the Senior Discount Notes offered hereby
will be passed upon for the Company by Brobeck, Phleger & Harrison LLP, Palo
Alto, California. Federal communications matters will be passed upon for the
Company by Skadden, Arps, Slate, Meagher & Flom, Washington, D.C. Certain
legal matters in connection with the Senior Discount Notes will be passed upon
for the Underwriters by Latham & Watkins, Washington, D.C.
EXPERTS
The Consolidated Financial Statements of the Company at December 31, 1994
and 1995 and for the period from inception (June 24, 1994) to December 31,
1994, the year ended December 31, 1995, and the period from inception (June
24, 1994) to December 31, 1995 included in this Prospectus have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement on Form S-1 under the
Securities Act with respect to the Senior Discount Notes offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules to the Registration
Statement. For further information with respect to the Company and such Senior
Discount Notes offered hereby, reference is made to the Registration Statement
and the exhibits and schedules filed as a part of the Registration Statement.
Statements contained in this Prospectus concerning the contents of any
contract or any other document referred to are not necessarily complete;
reference is made in each instance to the copy of such contract or document
filed as an exhibit to the Registration Statement. Each such statement is
qualified in all respects by such reference to such exhibit. The Registration
Statement, including exhibits and schedules thereto, may be inspected without
charge at the Securities and Exchange Commission's principal office in
Washington, D.C. 20549, and copies of all or any part thereof may be obtained
from such office after payment of fees prescribed by the Securities and
Exchange Commission.
94
<PAGE>
GLOSSARY
1996 Act..................... Telecommunications Act of 1996.
AIN.......................... Advanced Intelligent Network. The means by
which a telecommunications network will provide
call control. Database structure and signal
transfer points facilitate call management
maintenance and control.
Analog....................... A method of storing, processing and
transmitting information through the use of a
continuous (rather than pulsed or digital)
electrical signal that varies in amplitude or
frequency.
Applicant.................... An "applicant" generally refers to an entity
that submits an application to the FCC for a
license and also generally includes parties to
the application, including holders of
partnership and other ownership interests and
any stock interest amounting to 5 percent or
more of the equity, outstanding stock, or
outstanding voting stock of such an entity, and
all officers and directors of that entity.
ARPU......................... Average Revenue Per Unit.
Base Station................. Transmitter, receiver, signaling and related
equipment located at each cell site.
Broadband PCS................ An allocation of 120 MHz spectrum at 2 GHz
authorized for advanced wireless communications
services, including voice, data, paging,
facsimile and other innovative broadband
applications.
BTA.......................... Basic Trading Area, as set forth in the Rand
McNally Commercial Atlas & Marketing Guide
(123d ed. 1992).
C-Block Auction.............. The FCC Auction of 493 30 MHz BTA licenses,
restricted to entities meeting certain
financial and other criteria.
Carrier...................... A third party provider of communications
services by wire or radio.
Cellular..................... The domestic public cellular radio
telecommunications service authorized by the
FCC in the 824-893 MHz band, in which each of
two licenses per market employs 25 MHz of
spectrum to provide service to the public.
Cellular systems are based on multiple base
stations, or "cells," that permit efficient
frequency reuse and on software that permits
the system to hand mobile calls from cell to
cell as subscribers move through the cellular
service area.
CDMA......................... Code Division Multiple Access. One of the three
leading PCS and digital cellular technology
platforms.
CDPD......................... Cellular Digital Packet Data.
CLEC......................... Competitive Local Exchange Carrier.
CMRS......................... Commercial Mobile Radio Service. A provider of
mobile telecom-munications services that
provides communications services (1) to the
public (2) for profit, that are
(3) interconnected to the public switched
telephone network. The FCC has adopted rules to
regulate all similarly situated CMRS providers
under similar regulations.
95
<PAGE>
Common Carriers..............
Companies which own or operate transmission
facilities and offer telecommunication services
to the general public on a non-discriminatory
basis.
CTIA......................... The Cellular Telecommunications Industry
Association. A trade association in North
America comprised primarily of cellular and PCS
telephone service providers and some mobile
satellite service providers.
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. Digital
PCS networks will utilize digital transmission.
ESMR......................... Enhanced Specialized Mobile Radio Service, an
SMR service that contemplates expanded digital
telephony service offerings to the public in
general rather than local dispatch services to
specialized business subscribers.
FCC.......................... The Federal Communications Commission.
GHz.......................... Gigahertz. A unit of frequency equal to one
billion cycles (or hertz) per second.
GSM.......................... Groupe Speciale Mobile. One of the three
leading PCS and digital cellular technology
platforms, currently widely deployed in Europe.
Handsets..................... Portable, fixed, mobile, wireless or
transportable devices used for the reception
and transmission of voice communications.
IVDS......................... Interactive video and data service.
IXC.......................... Interexchange Carrier.
LATA......................... Local Access and Transport Areas.
LEC.......................... Local Exchange Carrier.
LMDS......................... Local Multipoint Distribution Service.
MHz.......................... Megahertz. A unit of frequency equal to one
million cycles (or hertz) per second.
MSS.......................... Mobile Satellite Service.
MTA.......................... Major Trading Area, as set forth in the Rand
McNally Commercial Atlas & Marketing Guide
(123d ed. 1992).
PCS.......................... Personal Communications Services.
POPs......................... Persons in the U.S. population based upon the
1995 PCS Atlas & Databook, Paul Kagan
Associates, Inc., unless stated otherwise.
PSAP......................... Public Safety Answering Point.
RBOC......................... Regional Bell Operating Company.
RF........................... Radio Frequency.
Roaming...................... A service offered by wireless communications
network carriers which allows subscribers to
use their radio or phone while outside their
carrier's service area. Roaming usually entails
an agreement between participating carriers.
SMR..........................
Specialized Mobile Radio, a two-way mobile
radio telephone system used traditionally
mostly for local dispatch services.
96
<PAGE>
Soft Hand-Off................
Cell transfer method which establishes a new
cell communications channel prior to
disconnecting the existing cell channel.
Spectrum..................... The electromagnetic radio spectrum. The FCC
grants authorizations and licenses to private
and governmental entities to use specified
portions under certain conditions.
TDMA......................... Time Division Multiple Access. One of the three
leading PCS and digital cellular technology
platforms.
97
<PAGE>
GENERAL WIRELESS, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and March 31,
1996..................................................................... F-3
Consolidated Statements of Operations for the period from inception (June
24, 1994) to December 31, 1994, the year ended December 31, 1995, the pe-
riod from inception (June 24, 1994) to December 31, 1995, and for the
three months ended March 31, 1995 and 1996............................... F-4
Consolidated Statements of Stockholders' Equity for the period from incep-
tion (June 24, 1994) to
December 31, 1994, the year ended December 31, 1995, and the three months
ended March 31, 1996..................................................... F-5
Consolidated Statements of Cash Flows for the period from inception (June
24, 1994) to December 31, 1994, the year ended December 31, 1995, the pe-
riod from inception (June 24, 1994) to December 31, 1995, and for the
three months ended March 31, 1995 and 1996............................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
After the 20 for 1 stock split discussed in Note 11 to the Company's
Consolidated Financial Statements is effected, we expect to be in a position
to render the following audit report.
Arthur Andersen llp
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
General Wireless, Inc.:
We have audited the accompanying consolidated balance sheets of General
Wireless, Inc. (a Delaware corporation in the development stage) and
subsidiary as of December 31, 1994 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the period
from inception (June 24, 1994) to December 31, 1994, for the year ended
December 31, 1995, and for the period from inception (June 24, 1994) to
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of General Wireless, Inc. and
subsidiary as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for the period from inception (June 24, 1994)
to December 31, 1994, for the year ended December 31, 1995, and for the period
from inception (June 24, 1994) to December 31, 1995, in conformity with
generally accepted accounting principles.
Dallas, Texas,
April 26, 1996 (except with
respect to the matters
discussed in Notes 10 and 11,
as to which the dates are May
20, 1996 and , 1996,
respectively)
F-2
<PAGE>
GENERAL WIRELESS, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- MARCH 31,
1994 1995 1996
------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... $ 918 $ 2,688 $ 2,415
------ ------- -------
Total current assets........................ 918 2,688 2,415
------ ------- -------
OFFICE EQUIPMENT, net............................. 19 23 20
------ ------- -------
OTHER ASSETS
PCS license deposits............................ -- 53,982 53,982
Deferred Debt Issue Costs....................... -- -- 46
------ ------- -------
Total other assets.......................... -- 53,982 54,028
------ ------- -------
Total assets.............................. $ 937 $56,693 $56,463
====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses........... $ 69 $ 1,716 $ 1,643
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Convertible preferred stock, par value $.0001,
per share, 10,000,000 shares authorized--
Series A, 102,500 shares authorized, issued,
and outstanding, with aggregate liquidation
preference of $933,800 at December 31, 1994;
none authorized or outstanding at December
31, 1995, and March 31, 1996................. -- -- --
Series B, 205,000 shares authorized, issued,
and outstanding, with aggregate liquidation
preference of $1,867,040 at December 31,
1994; none authorized or outstanding at
December 31, 1995, and March 31, 1996........ -- -- --
Common stock, par value $.0001 per share;
20,000,000 shares authorized 1,030,000 shares
issued and outstanding at December 31, 1994.... -- -- --
Common stock, par value $.0001 per share--
Class A, 100 shares authorized, 60 shares
issued and outstanding at December 31, 1995
and March 31, 1996........................... -- -- --
Class B, 20,000,000 shares authorized,
2,109,440 shares issued and outstanding at
December 31, 1995 and March 31, 1996......... -- -- --
Class C, 79,999,900 shares authorized,
11,126,660 shares issued and outstanding at
December 31, 1995 and March 31, 1996......... -- 1 1
Additional paid-in capital...................... 1,864 59,032 59,078
Less--Subscriptions receivable.................. (563) (2,879) (2,925)
Losses accumulated during the development
stage.......................................... (433) (1,177) (1,334)
------ ------- -------
Total stockholders' equity.................. 868 54,977 54,820
------ ------- -------
Total liabilities and stockholders'
equity................................... $ 937 $56,693 $56,463
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
GENERAL WIRELESS, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM THREE MONTHS
INCEPTION INCEPTION ENDED
(JUNE 24, 1994) TO YEAR ENDED (JUNE 24, 1994) TO MARCH 31,
DECEMBER 31, DECEMBER 31, DECEMBER 31, --------------
1994 1995 1995 1995 1996
------------------ ------------ ------------------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES................ $ -- $ -- $ -- $ -- $ --
----- ----- ------- ------ ------
OPERATING EXPENSES:
General and adminis-
trative.............. 448 791 1,239 178 185
----- ----- ------- ------ ------
Total operating ex-
penses............. 448 791 1,239 178 185
----- ----- ------- ------ ------
LOSS FROM OPERATIONS.... 448 791 1,239 178 185
OTHER INCOME:
Interest income....... (18) (54) (72) (9) (32)
----- ----- ------- ------ ------
Total other income.. (18) (54) (72) (9) (32)
----- ----- ------- ------ ------
NET LOSS BEFORE INCOME
TAXES.................. (430) (737) (1,167) (169) (153)
----- ----- ------- ------ ------
PROVISION FOR INCOME
TAXES.................. 3 7 10 1 4
----- ----- ------- ------ ------
NET LOSS................ $(433) $(744) $(1,177) $ (170) $ (157)
===== ===== ======= ====== ======
PRO FORMA NET
LOSS PER SHARE--
Primary and Fully Di-
luted................
PRO FORMA WEIGHTED
AVERAGE NUMBER OF
SHARES OUTSTANDING--
Primary and Fully Di-
luted................
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
GENERAL WIRELESS, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK LOSSES
---------------- ------------------ ACCUMULATED
NUMBER NUMBER ADDITIONAL DURING THE
OF OF PAID-IN SUBSCRIPTIONS DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE STAGE TOTAL
-------- ------ ---------- ------ ---------- ------------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, June 24, 1994
(date of inception).... -- $ -- -- $ -- $ -- $ -- $ -- $ --
Issuance of common
stock at $.04 per
share on July 18,
1994.................. -- -- 1,030,000 -- 41 -- -- 41
Issuance of Series A
Preferred Stock at
$6.67 per share on
July 18, 1994, net of
issuance costs........ 102,500 -- -- -- 680 (184) -- 496
Issuance of Series B
Preferred Stock at
$6.67 per share on
September 30, 1994,
net of issuance
costs................. 205,000 -- -- -- 1,360 (367) -- 993
Accrued interest on
subscriptions
receivable............ -- -- -- -- 12 (12) -- --
Costs incurred to raise
additional capital.... -- -- -- -- (229) -- -- (229)
Net loss............... -- -- -- -- -- -- (433) (433)
-------- ----- ---------- ----- ------- ------- ------- -------
BALANCE, December 31,
1994 .................. 307,500 -- 1,030,000 -- 1,864 (563) (433) 868
Issuance of common
stock at $.04 per
share on June 2,
1995.................. -- -- 75,000 -- 3 -- -- 3
Issuance of Series A
Preferred Stock at
$6.67 per share on
June 2, 1995.......... 37,500 -- -- -- 250 -- -- 250
Issuance of Series B
Preferred Stock at
$6.67 per share on
June 2, 1995.......... 75,000 -- -- -- 500 -- -- 500
Purchase of common
stock at $0.04 per
share on December 1,
1995.................. -- -- (780,000) -- (31) -- -- (31)
Purchase of Series A
Preferred Stock at
$7.32 per share on
December 1, 1995...... (25,000) -- -- -- (183) 183 -- --
Purchase of Series B
Preferred Stock at
$7.22 per share on
December 1, 1995...... (50,000) -- -- -- (362) 362 -- --
Recapitalization....... (345,000) -- 1,364,440 -- -- -- -- --
Issuance of Class A
Common Stock at $5.00
per share on December
1, 1995, net of
issuance costs........ -- -- 60 -- -- -- -- --
Issuance of Class B
Common Stock and
210,000 Class B Common
Stock Warrants at
$2.50 per share of
stock on December 1
and December 28, 1995,
net of issuance
costs................. -- -- 420,000 -- 990 -- -- 990
Issuance of Class C
Common Stock and
4,594,440 Class C
Common Stock Warrants
at $5.00 per share of
stock on December 1
and December 28, 1995,
net of issuance
costs................. -- -- 11,126,660 1 52,195 (2,809) -- 49,387
Issuance of Class C
Common Stock
Warrants.............. -- -- -- -- 3,754 -- -- 3,754
Accrued interest on
subscriptions
receivable............ -- -- -- -- 52 (52) -- --
Net loss............... -- -- -- -- -- -- (744) (744)
-------- ----- ---------- ----- ------- ------- ------- -------
BALANCE, December 31,
1995................... -- -- 13,236,160 1 59,032 (2,879) (1,177) 54,977
Accrued interest on
subscriptions
receivable............ -- -- -- -- 46 (46) -- --
Net loss............... -- -- -- -- -- -- (157) (157)
-------- ----- ---------- ----- ------- ------- ------- -------
BALANCE, March 31, 1996
(unaudited)............ -- $ -- 13,236,160 $ 1 $59,078 $(2,925) $(1,334) $54,820
======== ===== ========== ===== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
GENERAL WIRELESS, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM THREE MONTHS
INCEPTION INCEPTION ENDED
(JUNE 24, 1994) TO YEAR ENDED (JUNE 24, 1994) TO MARCH 31,
DECEMBER 31, DECEMBER 31, DECEMBER 31, -------------
1994 1995 1995 1995 1996
------------------ ------------ ------------------ ----- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss............... $ (433) $ (744) $ (1,177) $(170) $ (157)
Adjustments to
reconcile net loss to
net cash used by
operating activities--
Depreciation.......... 2 8 10 2 3
Changes in assets and
liabilities--
Accounts payable and
accrued expenses.... 69 250 319 28 (73)
------ -------- -------- ----- ------
Net cash used in
operating
activities.......... (362) (486) (848) (140) (227)
------ -------- -------- ----- ------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Payment for PCS license
deposits.............. -- (53,982) (53,982) -- --
Purchase of office
equipment............. (21) (12) (33) (10) --
------ -------- -------- ----- ------
Net cash used in
investing
activities.......... (21) (53,994) (54,015) (10) --
------ -------- -------- ----- ------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from sale of
common stock.......... 41 51,452 51,493 -- --
Proceeds from issuance
of warrants........... -- 3,850 3,850 -- --
Proceeds from sale of
preferred stock....... 1,489 750 2,239 -- --
Payment for repurchase
of common stock....... -- (31) (31) -- --
Debt issuance costs.... -- -- -- -- (46)
Costs incurred to raise
additional capital.... (229) 229 -- (159) --
------ -------- -------- ----- ------
Net cash provided by
(used in) financing
activities.......... 1,301 56,250 57,551 (159) (46)
------ -------- -------- ----- ------
INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS............ 918 1,770 2,688 (309) (273)
CASH AND CASH
EQUIVALENTS, beginning
of period.............. -- 918 -- 918 2,688
------ -------- -------- ----- ------
CASH AND CASH
EQUIVALENTS, end of
period................. $ 918 $ 2,688 $ 2,688 $ 609 $2,415
====== ======== ======== ===== ======
SUPPLEMENTAL CASH FLOW
DISCLOSURES:
Cash paid for
interest.............. $ -- $ -- $ -- $ -- $ --
====== ======== ======== ===== ======
Cash paid for income
taxes................. $ -- $ 3 $ 3 $ -- $ 7
====== ======== ======== ===== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
GENERAL WIRELESS, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION:
General Wireless, Inc. was incorporated on June 24, 1994, as a Delaware
corporation for the purpose of securing broadband Personal Communications
Services (PCS) licenses and becoming a leading provider of affordable wireless
communications services. The consolidated financial statements include the
accounts of General Wireless, Inc. and its wholly owned subsidiary GWI PCS,
Inc., which was formed to hold any PCS licenses secured. GWI PCS, Inc.,
currently has no assets or operations of its own. General Wireless, Inc. and
its subsidiary are herein referred to as the Company. The Company is in the
development stage and, to date, has devoted substantially all of its efforts
to developing its business strategy and raising capital. Accordingly, the
Company has recognized no operating revenues and has incurred, and continues
to incur, monthly operating losses and operating cash flow deficits.
The Company is targeting the acquisition of PCS licenses in densely
populated urban markets with high population growth rates as well as other
desirable demographic characteristics, such as favorable business climates,
high median household income levels, and long commute times. The Federal
Communications Commission (FCC) is offering PCS licenses through a competitive
bidding process. Winning bidders are subject to FCC approval and continuing
FCC regulations. Management can provide no assurance that the Company will
raise adequate capital to execute its business strategy or obtain PCS licenses
in its target markets (see Note 7). In the event the development efforts
referred to above are successful, management can provide no assurance the
Company will be able to successfully finance and build out the wireless
communications infrastructure needed to provide service, market its product,
or operate at a profit.
2. CAPITALIZATION:
Preferred Stock
On July 25, 1995, the Company effected a reverse stock split of 1 to 10 for
Series A Preferred Stock and 1 to 4 for Series B Preferred Stock. The
financial statements and accompanying notes thereto give retroactive effect to
the reverse stock split as though it had occurred at the beginning of all
periods presented.
On July 18, 1994, 102,500 shares of Series A Preferred Stock were issued at
$6.67 per share for $500,250 in cash and $183,425 in subscriptions receivable
(see Note 3) from certain officers and employees, less issuance costs of
$3,573. On September 30, 1994, 205,000 shares of Series B Preferred Stock were
issued at $6.67 per share for $1,000,200 in cash and $366,740 in subscriptions
receivable (see Note 3) from certain officers and employees, less issuance
costs of $7,157.
On June 2, 1995, 37,500 shares of Series A Preferred Stock were issued at
$6.67 per share for $250,125 in cash and 75,000 shares of Series B Preferred
Stock were issued at $6.67 per share for $500,100 in cash.
On December 1, 1995, in connection with a recapitalization (see below), the
Company repurchased 25,000 shares of Series A Preferred Stock for $7.32 and
50,000 shares of Series B Preferred Stock for $7.22 from an officer of the
Company. The officer used the proceeds of such repurchase to repay
subscription notes receivable. Also, on December 1, 1995, all outstanding
preferred stock was converted to Class B Common Stock. As of December 31,
1995, no shares of preferred stock were authorized or outstanding.
Common Stock
As of December 31, 1994, the Company had authorized 20,000,000 shares of
$0.0001 par value common stock. On July 18, 1994, 1,030,000 shares of common
stock were issued at $0.04 per share for $41,200 in cash. On June 2, 1995,
75,000 shares of common stock were issued at $0.04 per share for $3,000 in
cash. On December 1, 1995, in connection with a recapitalization (see below),
the Company repurchased 780,000 shares of common stock from an officer at
$0.04 per share for $31,200.
F-7
<PAGE>
GENERAL WIRELESS, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On December 1, 1995, in connection with a recapitalization (see below), all
outstanding common stock was converted to Class B Common Stock. At December
31, 1995, the Company has authorized 100,000,000 shares of $0.0001 par value
common stock, of which 100 shares are designated as Class A Common Stock,
20,000,000 shares are designated Class B Common Stock and 79,999,900 shares
are designated as Class C Common Stock. The Company has reserved 3,914,780
shares of Class B Common Stock for issuance under the Company's stock option
plan (see Note 6).
Recapitalization--On December 1, 1995, the Company effected a
recapitalization (the "Recapitalization") in order to enable it to raise
additional equity financing yet remain in compliance with certain FCC
ownership restrictions applicable to the Company. Pursuant to the
Recapitalization, 115,000 shares of then outstanding Series A Preferred Stock
were converted to 560,100 shares of Class B Common Stock, 230,000 shares of
then outstanding Series B Preferred Stock were converted to 1,119,840 shares
of Class B Common Stock, and 325,000 shares of outstanding common stock were
converted to 9,500 shares of Class B Common Stock. In order to effect the
Recapitalization, the Company issued warrants to purchase 1,150,000 shares of
Class C Common Stock at $5.00 per share to an existing investor.
In two closings dated December 1, 1995 and December 28, 1995, the Company
issued an aggregate of 420,000 shares of Class B Common Stock and warrants to
purchase 210,000 shares of Class B Common Stock (the "Class B Warrants") for
an aggregate of $1,050,000 in cash, less issuance costs of $59,903. The
warrants to purchase Class B Common Stock are exercisable at a price of $2.50
per share. Also, in two closings dated December 1, 1995 and December 28, 1995,
the Company issued an aggregate of 11,126,660 shares of Class C Common Stock
and warrants to purchase 4,594,440 shares of Class C Common Stock (the "Class
C Warrants") for an aggregate of $55,633,300 consisting of $52,823,925 in cash
and $2,809,375 in subscriptions receivable (see Note 3), less issuance costs
of $3,436,961. The Class C Warrants are exercisable at a price of $5.00 per
share. On December 1, 1995, the Company sold warrants to purchase 800,000
shares and 400,000 shares of Class C Common Stock, exercisable at prices of
$.0005 and $5.00 per share, respectively, for an aggregate of $4,000,000, less
issuance costs of $246,102. Also on December 1, 1995, the Company issued to a
consultant warrants to purchase 100,000 shares of Class C Common Stock,
exercisable at a price of $5.00 per share in exchange for consultation and
assistance on the Recapitalization.
Redemption--If, at any time, ownership of shares of Class C Common Stock by
a holder would cause the Company to violate any FCC ownership requirements or
restrictions, the Company may, at the option of the Board of Directors, redeem
a number of shares of Class C Common Stock sufficient to eliminate such
violation.
Conversion Rights--Each share of Class A and B Common Stock shall
automatically be converted into one share of Class C Common Stock upon the
tenth anniversary of the date of grant of licenses to the Company by the FCC
or such earlier date as may be determined by the Board of Directors. The Board
of Directors may approve the conversion of shares of Class B Common Stock into
shares of Class C Common Stock at any time following the consummation of an
initial public offering of the Company's capital stock.
Voting Rights--The holders of Class A Common Stock, as a class, shall have
the right to (i) vote 50.1% of the Company's voting interests on all matters
and (ii) elect four (of seven) members of the Board of Directors. The holders
of Class B Common Stock, as a class, shall have no voting rights. The holders
of Class C Common Stock, as a class, shall have the right to (i) vote 49.9% of
the Company's voting interests on all matters and (ii) elect that remaining
number of members of the Board of Directors (collectively, three of seven) as
are from time-to-time set forth in the Company's bylaws.
F-8
<PAGE>
GENERAL WIRELESS, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company prepares its financial statements in accordance with generally
accepted accounting principles ("GAAP"). Significant accounting policies are
as follows:
Consolidation
The accompanying financial statements include the accounts of General
Wireless, Inc. and its majority owned subsidiaries. All significant
intercompany balances and transactions are eliminated.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company includes as cash and cash
equivalents (i) cash on hand, (ii) cash in bank accounts, (iii) investments in
money market funds, and (iv) highly liquid investments in debt securities with
original maturities of three months or less.
Office Equipment
Office equipment is stated at cost and depreciated using the straight-line
method over an estimated useful life of three years. Maintenance and repair
costs are charged to expense as incurred. Office equipment consisted of the
following at December 31, 1994 and 1995 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Office equipment, at cost......................... $21 $ 33
Less--Accumulated depreciation.................... (2) (10)
--- ----
Office equipment, net........................... $19 $ 23
=== ====
</TABLE>
PCS License Deposits
PCS license deposits include deposits made in connection with the FCC
license bidding process. After license grant, such deposits will be included
as a cost of the PCS licenses.
Subscriptions Receivable
Subscriptions receivable represent promissory notes from certain officers of
the Company in connection with the officers' purchases of the Company's
capital stock. The Company's capital stock issued in connection with such
promissory notes is reported as issued and outstanding in the accompanying
financial statements in the amount of the related promissory note plus accrued
interest. The promissory notes and related accrued interest receivable are
classified as subscriptions receivable and included as a reduction of
stockholders' equity in the accompanying financial statements.
F-9
<PAGE>
GENERAL WIRELESS, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Subscriptions receivable consisted of the following at December 31, 1994 and
1995 (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Promissory Notes from officers of the Company bear-
ing interest at 7% per annum, compounded annually;
principal and accrued interest due July 18, 1999,
with accelerated payment required under certain
conditions; 4,765 and 52,408 shares of stock of an-
other corporation are pledged to secure certain of
these notes at December 31, 1995 and 1994, respec-
tively............................................. $184 $ 18
Promissory Notes from officers of the Company bear-
ing interest at 7.05% per annum, compounded annual-
ly; principal and accrued interest due September
30, 1999, with accelerated payment required under
certain conditions; 9,526 and 104,784 shares of
stock of another corporation are pledged to secure
certain of these notes at December 31, 1995 and
1994, respectively................................. 367 36
Promissory Note from officer of the Company bearing
interest at 6.36% per annum, compounded annually;
principal and accrued interest due November 30,
2007; 906,250 shares of stock of another corpora-
tion are pledged to secure this note............... -- 2,809
Accrued interest receivable related to these promis-
sory notes......................................... 12 16
---- ------
Total subscriptions receivable.................... $563 $2,879
==== ======
</TABLE>
Fair Value of Financial Instruments
Pending use of cash balances for development activities, the Company enters
into various short-term financial instruments. The carrying values of the
Company's short-term financial instruments, including cash and short-term
investments, approximate their fair value.
Use of Estimates in Financial Statements
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts
of certain assets and liabilities and disclosure of contingent liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results may differ from those
estimates.
Pro Forma Net Loss Per Share
Pro forma net loss per share is based upon the pro forma weighted average
number of shares outstanding. The pro forma weighted average number of shares
outstanding includes common shares and common share equivalents. The pro forma
weighted average number of shares outstanding also gives effect to the
Recapitalization (see Note 2) as if such Recapitalization had occurred at
inception (June 24, 1994) as amounts outstanding prior to the Recapitalization
are not deemed meaningful. Additionally, as required by the Securities and
Exchange Commission rules, all warrants, options, and shares issued during the
year immediately preceding the initial public offering are assumed to be
outstanding for all periods presented.
New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" (SFAS No. 121),
which establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill. This statement becomes
effective for the Company in fiscal year 1996. The Company has evaluated the
rules set forth in this pronouncement and does not believe that adoption of
SFAS No. 121 will have a material effect on its financial position or results
of operations.
In November 1995, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation: (SFAS No. 123). This statement becomes
F-10
<PAGE>
GENERAL WIRELESS, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
effective for the Company in fiscal year 1996. This statement requires
companies to provide additional disclosures related to employee stock-based
compensation plans, or allows companies to change the accounting for
compensation expense associated with its stock-based compensation. The Company
expects to maintain its current accounting for stock-based compensation and
include the additional disclosures required by SFAS No. 123.
Interim Financial Presentation
The accompanying unaudited financial statements have been prepared by the
Company in accordance with GAAP for interim financial information and
substantially in the form prescribed by the Securities and Exchange Commission
in instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the financial information and footnotes required by
GAAP for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. Operating results for the three
month period ended March 31, 1996, are not indicative of the results that may
be expected for the year ending December 31, 1996.
4. COMMITMENTS AND CONTINGENCIES:
Lease Commitments
The Company has entered into various operating lease agreements for office
space and equipment. Future minimum lease obligations related to the Company's
operating leases are not material at December 31, 1995. Total rent expense for
the period from inception (June 24, 1994) to December 31, 1994, and for the
year ended December 31, 1995, was approximately $16,305 and $35,332,
respectively.
Effective December 1995, the Company entered into agreements with Mitsui
Comtek and Mitsui & Co. (U.S.A.), Inc. (together "Mitsui") pursuant to which
(i) Mitsui would act as a procurement consultant to the Company for five
years, receiving fees based on the extent of Mitsui's involvement in the
negotiation or financing of a particular equipment purchase plus an annual
retainer fee of $350,000 and (ii) a representative of Mitsui would serve as a
purchasing consultant within the Company for five years, receiving an annual
fee of $150,000.
5. INCOME TAXES:
The Company has certain net deferred tax assets related primarily to net
losses incurred during the development stage. The Company has recorded a
valuation allowance equal to the net deferred tax asset at December 31, 1994
and 1995, due to the uncertainty of future operating results. The valuation
allowance will be reduced at such time as management believes it is more
likely than not that the related net deferred tax assets will be realized. Any
reductions in the valuation allowance will reduce future income tax
provisions.
The Company's significant deferred tax assets and liabilities and the
changes in those assets and liabilities, were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 CHANGE 1995
------------ ------ ------------
<S> <C> <C> <C>
Start-up costs capitalized for tax pur-
poses................................. $ 146 $ 106 $ 252
Valuation allowance.................... (146) (106) (252)
----- ----- -----
$ -- $ -- $ --
===== ===== =====
</TABLE>
F-11
<PAGE>
GENERAL WIRELESS, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Under existing tax law, all expenses incurred by a company prior to the
company earning any revenues, are capitalizable for tax purposes. Accordingly,
for tax purposes, the Company had taxable income of $17,649 and $45,811 for
the years ended December 31, 1994 and 1995, respectively, which represents
interest income earned on the Company's cash and cash equivalents, and results
in income tax expense of $2,647 and $7,000, respectively.
6. STOCK OPTION PLAN:
The Company has a stock option plan (the "Plan") under which it grants
options to purchase Class B Common Stock. As of December 31, 1995, the maximum
number of shares issuable under the Plan may not exceed 3,914,780 shares. The
Plan is administered by the Board of Directors. Vesting periods and terms for
stock option grants are determined by the plan administrator. No option
granted shall have a term in excess of ten years. All options outstanding as
of December 31, 1995, were vested. As of December 31, 1995, 3,914,780 shares
of Class B Common Stock are reserved for the Plan (see Note 2). The stock
option activity was as follows:
<TABLE>
<CAPTION>
SHARES PRICE PER SHARE
--------- ---------------
<S> <C> <C>
Options outstanding at December 31, 1994......... -- --
Options granted................................ 2,494,500 $2.50
---------
Options outstanding at December 31, 1995......... 2,494,500 $2.50
=========
</TABLE>
7. UNCERTAINTIES REGARDING FUTURE OPERATIONS:
The Company's success will be affected by, among other things, the problems,
expenses, difficulties, complications, and delays encountered in connection
with the formation of any new business, the introduction of a new range of
service offerings on a commercial basis, the need for additional equity and
debt financing, and the competitive environment in which the Company intends
to operate.
To address these risks, the Company must, among other things, be granted PCS
licenses following a competitive bidding process held by the FCC, obtain
substantial additional capital to support the construction and initial
operation of its PCS networks and the relocation of incumbent microwave
licensees to clear spectrum for its PCS networks, establish technical
feasibility and acceptance of its products and services, develop a market for
its PCS services and exploit that market, respond to competitive and
technological developments, and continue to attract, retain, and motivate
qualified personnel. Although management believes that the Company will be
able to successfully mitigate these risks, management can provide no assurance
that the Company will be able to do so or that the Company will ever operate
profitably.
Expenses are expected to exceed revenues in each location in which the
Company offers service until a sufficient customer base is established. It is
anticipated that this will take a number of years, and positive cash flows
from operations are not expected in the near future. Although management
believes that the Company will generate cash flows in excess of its start-up
costs and the cost of its PCS licenses, management can provide no assurance
that the Company will be able to do so.
PCS licensees are subject to an FCC-mandated minimum build-out schedule
which will generate a significant need for additional capital resources for
several years after the FCC auctions. The Company will be required to offer
service to at least one-third of the population within five years and at least
two-thirds of the population within ten years. The Company plans to build out
its system to cover over 80% of the population of most major market service
areas within five years, which exceeds the FCC-mandated minimum build-out
schedule. To provide service within the required time frame, the Company must
secure adequate and reliable sources of supply and the requisite financing to
provide the funding necessary to build the infrastructure needed
F-12
<PAGE>
GENERAL WIRELESS, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
to provide services. Although management believes that sufficient sources of
capital will be available to the Company to complete its build-out plans,
management can provide no assurance that such sources of capital will be
available.
8. RELATED-PARTY:
The President and Chief Executive Officer of the Company is a stockholder
and member of the Board of Directors of the company from which GWI subleases
its office space. During 1994 and 1995, the Company paid $10,763 and $22,157,
respectively, pursuant to this lease.
9. FINANCING AGREEMENT:
On March 15, 1996, the Company and Hyundai Electronics America ("Hyundai")
entered into a loan agreement (the "Loan Agreement") pursuant to which Hyundai
agreed to loan $50 million to the Company upon the grant of PCS Licenses
covering a population of at least 10 million subject to approval of the Korean
government. The loan will be used to make the second five percent up front
payment to the FCC. Under the Loan Agreement, Hyundai is entitled to designate
one person to the Company's board of directors, so long as at least $10
million of the loan amount is outstanding. The Loan Agreement and any
promissory note to be issued thereunder contain certain restrictive covenants
which will restrict the Company's ability to issue debt senior to the
promissory note, make dividends, or create liens. The note term is one year,
with a fixed interest rate of 6.5% during the term of the note, increasing to
nine percent for any unpaid portion after the maturity date. The Company may
elect, with Hyundai's approval, to make payment in the form of Class C
Warrants with fair market value (as determined by investment bankers) equal to
the prepayment or maturity amount.
10. SUBSEQUENT EVENTS:
On May 6, 1996, the FCC competitive bidding auctions, in which the Company
was a participant, concluded. The Company's winning bids totalled
approximately $1,059,658,000. License grants for which winning bids were
submitted are subject to an approval process. Should such approval be granted,
the Company will be required to construct a system in each of its markets that
offers coverage to at least one-third of the population within five years and
at least two-thirds of the population within ten years. As a result of being
the winning bidder, the Company's PCS License Deposits were retained by the
FCC to cover a five percent up front payment on the licenses. Approximately
$999,000, representing deposit amounts in excess of the required five percent
up front payment, was returned to the Company by the FCC. The Company will be
required to make a second five percent up front payment five business days
subsequent to the date of license grant. Management believes that the cash on
hand, combined with the proceeds from the Loan Agreement (See Note 9), will be
sufficient to cover the second five percent down payment due. The remaining
90% of the purchase price will be financed by the U.S. government for a 10-
year period at a fixed rate of interest equal to the yield on a 10-year U.S.
Treasury Note at the date of license grant (the "Government Debt"). Under the
terms of the Government Debt, the Company will be required to make installment
payments of interest only for the first six years of the license and payments
of interest and principal amortized over the remaining four years of the
license term. The Company anticipates that it will record the debt based upon
its estimated fair value at the date of license grant.
Grant of the licenses by the FCC will subject the Company to certain FCC
ownership restrictions. Should the Company fail to qualify under such
ownership restrictions, the PCS license may be subject to FCC revocation
provisions. Management believes that the Company currently complies and will
continue to comply with such restrictions. All licenses granted will expire
ten years from the date of grant; however, FCC rules provide for renewal
provisions.
F-13
<PAGE>
GENERAL WIRELESS, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On May 20, 1996, the Company issued an aggregate of 1,058,120 shares of
Class C Common Stock and warrants to purchase 529,060 shares of Class C Common
Stock for an aggregate of $5,290,600 consisting of $5,000,000 in cash and
$290,600 in subscriptions receivable, less issuance costs of $253,000. The
Class C Warrants are exercisable at a price of $5.00 per share.
11. SUBSEQUENT OFFERINGS AND STOCK SPLIT:
The Company is currently in the process of an initial public offering of its
Class C Common Stock (the "Stock Offering") and a public offering of senior
discount notes (the "Notes Offering"). The Company plans to use the proceeds
of these offerings to finance capital expenditures, to finance debt service on
the Government Debt and any other debt incurred, to fund operating losses and
working capital requirements, and other general corporate purposes.
Immediately prior to the effectiveness of the Stock Offering, the Company
will effect a 20 for 1 stock split. The historical consolidated financial
statements have been adjusted to give retroactive effect to such split.
12. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET INFORMATION:
The following schedule sets forth the Company's unaudited historical and pro
forma consolidated balance sheets as of March 31, 1996. The unaudited pro
forma consolidated balance sheet as of March 31, 1996, is based on the
historical balance sheet as of March 31, 1996, adjusted to give pro forma
effect to certain financing activities of the Company occurring subsequent to
March 31, 1996, as described below, as if these events occurred as of March
31, 1996.
The unaudited pro forma consolidated balance sheet information is not
necessarily indicative of the financial position of the Company as of March
31, 1996, that would have actually have existed if the events described above
had occurred on March 31, 1996, nor are they necessarily indicative of the
financial position which may be obtained in the future.
F-14
<PAGE>
GENERAL WIRELESS, INC. AND SUBSIDIARY
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
MARCH 31, ADJUST- MARCH 31,
1996 MENTS 1996
---------- --------- ---------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..... $ 2,415 $5,746(/1/)(/2/) $ 8,161
------- ------ -------
Total current assets...... 2,415 5,746 8,161
------- ------ -------
OFFICE EQUIPMENT, net........... 20 -- 20
OTHER ASSETS:
PCS license deposits.......... 53,982 (999)(/2/) 52,983
Deferred debt issue costs..... 46 -- 46
------- ------ -------
Total other assets........ 54,028 (999) 53,029
------- ------ -------
Total assets............ $56,463 $4,747 $61,210
======= ====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses..................... $ 1,643 $ -- $ 1,643
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $.0001
per share--
Class A, 100 shares
authorized, 60 shares
issued and outstanding at
March 31, 1996, historical
and pro forma.............. -- -- --
Class B, 20,000,000 shares
authorized, 2,109,440
shares issued and
outstanding at March 31,
1996, historical and pro
forma...................... -- -- --
Class C, 79,999,900 shares
authorized, 11,126,660
shares issued and
outstanding at March 31,
1996, and 12,184,780 shares
issued and outstanding pro
forma...................... 1 -- 1
Additional paid-in capital.... 59,078 5,038 (/1/) 64,116
Less--Subscriptions receiv-
able......................... (2,925) (291)(/1/) (3,216)
Losses accumulated during the
development stage............ (1,334) -- (1,334)
------- ------ -------
Total stockholders' equi-
ty....................... 54,820 4,747 59,567
------- ------ -------
Total liabilities and
stockholders' equity... $56,463 $4,747 $61,210
======= ====== =======
</TABLE>
- --------
(1) To reflect issuance by the Company of 1,058,120 shares of Class C Common
Stock and 529,060 Class C Common Stock Warrants at $5.00 per share of stock
for aggregate proceeds of $5,290,600 less issuance costs of $253,000.
(2) To reflect a return to the Company of approximately $999,000 of funds on
deposit with the FCC after application of the PCS license deposits to cover
the five percent up front payment (see Note 10).
F-15
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OF-
FERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SENIOR DISCOUNT NOTES TO WHICH IT RELATES OR AN OFFER TO, OR A
SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICI-
TATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 10
Use of Proceeds........................................................... 23
Capitalization............................................................ 24
Selected Consolidated Financial Data...................................... 25
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 26
The Wireless Communications Industry...................................... 28
Business.................................................................. 31
Legislation and Government Regulation..................................... 41
Management................................................................ 50
Certain Transactions...................................................... 56
Principal Stockholders.................................................... 60
Description of Certain Indebtedness....................................... 63
Description of the Senior Discount Notes.................................. 64
Certain Federal Income Tax Considerations................................. 87
Description of Capital Stock.............................................. 90
Underwriting.............................................................. 93
Legal Matters............................................................. 94
Experts................................................................... 94
Additional Information.................................................... 94
Glossary.................................................................. 95
Index to Financial Statements............................................. F-1
</TABLE>
----------------
UNTIL (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$220,000,000 GROSS PROCEEDS
GENERAL WIRELESS, INC.
% SENIOR DISCOUNT NOTES DUE 2006
----------------
PROSPECTUS
----------------
BEAR, STEARNS & CO. INC.
LEHMAN BROTHERS
SALOMON BROTHERS INC
DILLON, READ & CO. INC.
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Senior Discount Notes being registered. All amounts are
estimates except the SEC registration fee and the NASD filing fees.
<TABLE>
<S> <C>
SEC Registration fee............................................. $75,863
NASD fee......................................................... 22,500
Printing and engraving........................................... *
Legal fees and expenses of the Company........................... *
Accounting fees and expenses..................................... *
Blue sky fees and expenses....................................... *
Transfer agent fees.............................................. *
Miscellaneous.................................................... *
-------
Total.......................................................... $ *
=======
</TABLE>
- --------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law, as amended ("Delaware
Law"), provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding,
if he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Section 145 further provides that a corporation similarly may
indemnify any such person serving in any such capacity who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor, against expenses actually and reasonably incurred in connection
with the defense or settlement of such action or suit if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the Delaware Court of Chancery or such other court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
Section 102(b)(7) of Delaware Law permits a corporation to include in its
certificate of incorporation a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of Delaware Law (relating to unlawful payment of dividends and unlawful stock
purchase and redemption) or (iv) for any transaction from which the director
derived an improper personal benefit.
II-1
<PAGE>
The Registrant's Restated Certificate of Incorporation provides that the
Registrant's directors shall not be liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent that exculpation from liabilities is not permitted under
Delaware Law as in effect at the time such liability is determined. The
Registrant has entered into indemnification agreements with all of its
officers and directors, as permitted by Delaware Law. Reference is also made
to Section 6 of the Underwriting Agreement contained in Exhibit 1.1 hereto,
indemnifying officers and directors of the Registrant against certain
liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(a) Since inception, the Registrant has issued and sold the following
securities (as adjusted to reflect the stock conversions and exchanges
effected to date, as well as the proposed 20-for-1 split to be effected prior
to the effectiveness of this Registration Statement):
1. On July 18, 1994, September 30, 1994 and June 2, 1995, the Registrant
issued and sold an aggregate of 2,077,420 shares of Class B Common Stock
at a price of $1.37 per share to its founding members consisting of
Messrs. Roger Linquist, Malcolm Lorang, entities affiliated with Accel
Partners and Battery Ventures III, L.P. (387,980 of which were
repurchased by the Company in December 1995). In addition, on December
1, 1995, entities affiliated with Accel Partners received warrants to
purchase 1,149,980 shares of Class C Common Stock at an exercise price
of $5.00 per share in connection with the exchange of securities
effected in November 1995.
2. On December 1, 1995, December 28, 1995 and May 20, 1996, the Registrant
issued and sold to several private placement investors the following:
(a) 420,000 shares of Class B Common Stock and warrants to purchase
210,000 shares of Class B Common Stock with an exercise price of
$2.50 per share for an aggregate price of $1,050,000 ($5.00 for
each unit consisting of two shares of Class B Common Stock and a
warrant to purchase one share of Class B Common Stock);
(b) 10,047,040 shares of Class C Common Stock and warrants to purchase
5,023,520 shares of Class C Common Stock with an exercise price of
$5.00 per share for an aggregate purchase price of $50,235,200
($10.00 for each unit consisting of two shares of Class C Common
Stock and warrant to purchase one share of Class C Common Stock);
(c) 2,000,000 shares of Class C Common Stock and warrants to purchase
100,000 shares of Class C Common Stock with an exercise price of
$5.00 per share for an aggregate price of $10,000,000 ($10.00 for
each unit consisting of two shares of Class C Common Stock and a
warrant to purchase 0.1 shares of Class C Common Stock);
(d) Warrants to purchase 400,000 shares of Class C Common Stock at an
exercise price of $5.00 per share and warrants to purchase 800,000
shares of Class C Common Stock at an exercise price of $0.0005 per
share for an aggregate price of $3,999,600 ($9.999 for each unit
consisting of one warrant to purchase one share with an exercise
price of $5.00 per share and one warrant to purchase two shares
with an exercise price of $0.0005 per share);
In addition, on February 20, 1996, the Registrant issued 137,740 shares
of Class C Common Stock to its placement agent in connection with the
placements effected in December 1995, pursuant to the terms of the
Registrant's Engagement Letter with the agent. See Exhibit 10.2.
3. On December 1, 1995, the Company issued warrants to purchase 100,000
shares of Class C Common Stock with an exercise price of $5.00 per share
to an advisor to the Company for advisory services rendered.
4. On March 15, 1996, the Registrant and Hyundai Electronics America
("Hyundai") entered into a Stock Purchase Agreement (Exhibit 10.8) under
which the Registrant is obligated to purchase and Hyundai is obligated
to purchase up to 10,000,000 units at a price of $5 per unit, each unit
consisting of one share of Class C Common Stock and one warrant to
purchase 0.05 shares of Class C Common Stock with an exercise price of
$5 per share. This transaction is conditioned upon and subject to (a)
governmental approval (including approval by the Republic of Korea), (b)
the Registrant obtaining certain number of PCS licenses and (c)
restrictions under the rules and regulations promulgated by the Federal
II-2
<PAGE>
Communications Commission and under telecommunications laws, in
particular, regarding the amount of foreign investment in the Registrant.
5. The Registrant granted stock options to purchase 2,759,480 shares of
Class B Common Stock with an exercise price of $2.50 per share to
employees, directors and consultants under its 1995 Stock Option Plan.
The issuances described in Item 15(a)(1) were deemed exempt from
registration under the Securities Act in reliance upon Rule 701 promulgated
under the Securities Act. The issuances of the securities described in item
15(a)(2) were deemed to be exempt from registration under the Act in reliance
on Section 4(2) of the Act as transactions by an issuer not involving any
public offering. In addition, the recipients of securities in each such
transaction represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates issued in such transactions. All recipients had adequate access,
through their relationships with the Registrant, to information about the
Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1(2) Form of Underwriting Agreement (preliminary form).
3.1(1) Certificate of Incorporation of the Registrant, as amended to
date.
3.2(1) Bylaws of the Registrant, as amended.
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2(2) Form of Indenture.
4.3(1) Registration Rights Agreement dated December 1, 1995, among the
Registrant and the investors named therein, as amended.
4.4(1) Stockholders Agreement dated December 1, 1995, among the
Registrant and the stockholders named therein, as amended.
4.5(1) Form of Subscription Agreements entered into between the
Registrant and its existing Class B and Class C Common Stock
investors.
4.6(1) Form of Class B Common Stock Warrant.
4.7(1) Form of Class C Common Stock Warrant.
5.1(2) Opinion of Brobeck, Phleger & Harrison LLP.
10.1(2) Form of Indemnification Agreement entered into between the
Registrant and its directors and officers.
10.2(1) Engagement Letter dated December 9, 1994, Agency Agreement, dated
November 20, 1995, Placement Certificate, dated December 1, 1995,
by and between the Registrant and Bear, Stearns & Co. Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.3(2) Procurement Agreement, effective December 1, 1995, among the
Registrant, Mitsui Comtek Corp. and Mitsui & Co. (U.S.A.), Inc.
10.4(2) Loan Agreement, dated March 15, 1996, among the Registrant and
Hyundai Electronics America ("Hyundai"), including form of
promissory note.
10.5(2) Stock Purchase Agreement, dated March 15, 1996, among the
Registrant and Hyundai.
10.6(2) Equipment Purchase Agreement, dated March 15, 1996, among the
Registrant and Hyundai Electronics Industries Co., Ltd. ("HEI").
10.7(1) Employee Training Agreement, dated March 15, 1996, among the
Registrant and HEI.
11.1(2) Computation of Earnings/(Loss) Per Share.
21.1(1) Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP, Independent Public Accountants
(see page II-8).
23.2 Consent of Counsel. Reference is made to Exhibit 5.1.
24.1 Power of Attorney (see page II-6).
25.1(2) Statement of Eligibility of Trustee.
27.1(1) Financial Data Schedule.
</TABLE>
- --------
(1) Incorporated by reference from the Registration Statement on Form S-1
filed June 28, 1996 (SEC File No. 333- ).
(2) To be supplied by amendment.
(B) FINANCIAL STATEMENT SCHEDULES--All required information is set forth in
the consolidated financial statements included in the Prospectus constituting
part of this Registration Statement.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware Corporations Law, the Certificate of
Incorporation or the Bylaws of the Registrant, Indemnification Agreements
entered into between the Registrant and its officers and directors, the
Underwriting Agreement, 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 Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered hereunder, 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 Securities Act and will be
governed by the final adjudication of such issue.
II-4
<PAGE>
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
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 part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, 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
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF DALLAS,
STATE OF TEXAS, ON THIS 28TH DAY OF JUNE, 1996.
General Wireless, Inc.
By: _________________________________
Roger D. Linquist
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints jointly and severally, Roger D. Linquist and
Robert Fugate, and each one of them, his attorneys-in-fact, each with the
power of substitution, for him in any and all capacities, to sign any and all
amendments to this Registration Statement (including post effective
amendments), and to sign any registration statement for the same offering
covered by this Registration Statement that is to be effective upon filing
pursuant to Rule 462(b) promulgated under the Securities Act of 1933, and all
post-effective amendments thereto, and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-
in-fact, or his substitute or substitutes, may do or cause to be done by
virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE DATE
- ------------------------------------- President and Chief June 28, 1996
(ROGER D. LINQUIST) Executive Officer
(Principal
Executive Officer),
Chairman of the
Board of Directors
and Secretary
- ------------------------------------- Vice President of June 28, 1996
(ROBERT FUGATE) Corporate
Development and
Chief Financial
Officer (Principal
Financial and
Accounting Officer)
Director June 28, 1996
- -------------------------------------
(ROBERT G. BARRETT)
- ------------------------------------- Director June 28, 1996
(RALPH M. BARUCH)
II-6
<PAGE>
SIGNATURE TITLE DATE
- ------------------------------------- Director June 28, 1996
(FREDERIC C. HAMILTON)
Director June 28, 1996
- -------------------------------------
(JOSEPH T. MCCULLEN)
- ------------------------------------- Director June 28, 1996
(ARTHUR PATTERSON)
Director June 28, 1996
- -------------------------------------
(JOHN SCULLEY)
Director June 28, 1996
- -------------------------------------
(TOSHIHIRO SOEJIMA)
II-7
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
Registration Statement on Form S-1.
Arthur Andersen LLP
Dallas, Texas June 25, 1996
II-8
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- ----------- --------
<C> <S> <C>
1.1(2) Form of Underwriting Agreement (preliminary form).
3.1(1) Certificate of Incorporation of the Registrant, as
amended to date.
3.2(1) Bylaws of the Registrant, as amended.
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2(2) Form of Indenture.
4.3(1) Registration Rights Agreement dated December 1, 1995,
among the Registrant and the investors named therein,
as amended.
4.4(1) Stockholders Agreement dated December 1, 1995, among
the Registrant and the stockholders named therein, as
amended.
4.5(1) Form of Subscription Agreements entered into between
the Registrant and its existing Class B and Class C
Common Stock investors.
4.6(1) Form of Class B Common Stock Warrant.
4.7(1) Form of Class C Common Stock Warrant.
5.1(2) Opinion of Brobeck, Phleger & Harrison LLP.
10.1(2) Form of Indemnification Agreement entered into between
the Registrant and its directors and officers.
10.2(1) Engagement Letter dated December 9, 1994, Agency
Agreement, dated November 20, 1995, Placement
Certificate, dated December 1, 1995, by and between
the Registrant and Bear, Stearns & Co. Inc.
10.3(2) Procurement Agreement, effective December 1, 1995,
among the Registrant, Mitsui Comtek Corp. and Mitsui &
Co. (U.S.A.), Inc.
10.4(2) Loan Agreement, dated March 15, 1996, among the
Registrant and Hyundai Electronics America
("Hyundai"), including form of promissory note.
10.5(2) Stock Purchase Agreement, dated March 15, 1996, among
the Registrant and Hyundai.
10.6(2) Equipment Purchase Agreement, dated March 15, 1996,
among the Registrant and Hyundai Electronics
Industries Co., Ltd. ("HEI").
10.7(1) Employee Training Agreement, dated March 15, 1996,
among the Registrant and HEI.
11.1(2) Computation of Earnings/(Loss) Per Share.
21.1(1) Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP, Independent Public
Accountants (see page II- ).
23.2(2) Consent of Counsel. Reference is made to Exhibit 5.1.
24.1 Power of Attorney (see page II- ).
25.1(2) Statement of Eligibility of Trustee.
27.1(1) Financial Data Schedule.
</TABLE>
- --------
(1) Incorporated by reference from the Registration Statement on Form S-1 filed
June 28, 1996 (SEC File No. 333- ).
(2)To be supplied by amendment.
