-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HBMon/dqbTydBgCeQaoHwILPq8KpzT5okdPS7H8FO2douq4sdlHmEYtrqsluv2Pl Y1ZDzlmyImCuiXkEf23/LQ== 0000870762-98-000024.txt : 19980331 0000870762-98-000024.hdr.sgml : 19980331 ACCESSION NUMBER: 0000870762-98-000024 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CELLULAR COMMUNICATIONS INTERNATIONAL INC CENTRAL INDEX KEY: 0000870762 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 133221852 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-19363 FILM NUMBER: 98578922 BUSINESS ADDRESS: STREET 1: 110 E 59TH ST STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2129068480 MAIL ADDRESS: STREET 1: 110 EAST 59TH STREET STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 FORMER COMPANY: FORMER CONFORMED NAME: INTERNATIONAL CELLULAR INC DATE OF NAME CHANGE: 19600201 10-K 1 1997 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------- FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From _______ to _______ Commission File No. 0-19363 CELLULAR COMMUNICATIONS INTERNATIONAL, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-3221852 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 110 East 59th Street, New York, New York 10022 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (212) 906-8480 ---------------------------------------------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share -------------------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [ X ] Yes [ ] No Indicate by check mark whether disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[ ] The aggregate market value of the registrant's Common Stock held by non-affiliates at March 20, 1998, valued by reference to the closing sale price for the registrant's Common Stock on the Nasdaq Stock Market's National Market, was approximately $609,730,000. Number of shares of Common Stock outstanding as at March 20, 1998: 11,024,868 (16,537,302 as adjusted for the three-for-two stock split by way of stock dividend, to be paid on April 14, 1998) DOCUMENTS INCORPORATED BY REFERENCE Document Part of 10-K in which Incorporated Definitive proxy statement for the Part III 1998 Annual Meeting of the Stockholders of Cellular Communications International, Inc. "SAFE-HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: All statements other than statements of historical fact contained in this Form 10-K, including without limitation certain statements in Business, and Management's Discussion and Analysis of Financial Condition and Results of Operations concerning the company's financial position and liquidity, results of operations and other matters, are forward-looking statements. Forward-looking statements in this Form 10-K generally are accompanied by words such as "anticipate," "believe," "estimate" or "expect" or similar statements. Although the Registrant believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove correct. Factors that could cause the company's results to differ materially from the results discussed in such forward-looking statements include but are not limited to OPI's ability to continue to design network routes, install facilities, obtain and maintain any required governmental licenses or approvals and finance construction and development, all in a timely manner, at reasonable costs and on satisfactory terms and conditions, as well as assumptions about customer acceptance, churn rates, overall market penetration and competition from providers of alternative services. All forward-looking statements in this Form 10-K are expressly qualified in their entirety by the cautionary statements in this paragraph. In this Report on Form 10-K, references to "lire" or "lira" are to the lawful currency of Italy and references to "U.S. dollars," "dollars," or "$" are to the lawful currency of the United States. Solely for the convenience of the reader, this Report on Form 10-K contains translations of certain lire amounts into U.S. dollars. These translations should not be construed as representations that the lire amounts actually represent such U.S. dollar amounts or could have been or could be or will be converted into U.S. dollars at the rate indicated or at any other rate. Unless otherwise indicated, the translations of lire into U.S. dollars have been made at 1,805.00 lire per U.S. dollar, the noon buying rate in The City of New York for cable transfers in lire as certified for customs purposes by the Federal Reserve Bank of New York (the "Noon Buying Rate") on March 20, 1998. TABLE OF CONTENTS Page PART I - ------ Item 1 Business ......................................................... 1 Item 2 Properties ....................................................... 21 Item 3 Legal Proceedings ................................................ 21 Item 4 Submission of Matters to a Vote of Stockholders .................. 21 PART II - ------- Item 5 Market for the Registrant's Common Stock and Related Stockholder Matters ...................................... 22 Item 6 Selected Financial Data .......................................... 23 Item 7 Management's Discussion and Analysis of Results of Operations and Financial Condition ............................ 24 Item 7A Quantitative and Qualitative Disclosures About Market Risk ....... 28 Item 8 Financial Statements and Supplementary Data ...................... 28 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .............................. 28 PART III - -------- Items 10, 11, 12 and 13 .................................................. 28 PART IV - ------- Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K ...................................................... 28 Exhibit Index ............................................................ 29 Signatures ............................................................... 31 Index to Financial Statements ............................................ F-1 PART I ITEM 1. BUSINESS. - ---------------- GENERAL Cellular Communications International, Inc. ("CCII" or the "Company") was incorporated in Delaware in 1984 to own and operate cellular telephone systems in various markets. Beginning in 1988, the Company entered into joint ventures to pursue opportunities in wireless communications businesses outside of the United States. The Company currently holds a 14.667% interest in Omnitel Sistemi Radiocellulari Italiani S.p.A. ("Omnitel"), a strategic joint venture which holds a 70% interest in and directs the management of Omnitel-Pronto Italia ("OPI"), a strategic joint venture which has been awarded one of two national cellular telephone licenses for Italy using the GSM technology, the digital technology for cellular telephone systems that all European Union countries have agreed to adopt as a common standard. The Company through its 14.667% interest in Omnitel, holds an approximate 10.267% interest in OPI. In March 1994, the Italian Government announced that OPI was selected by the Italian Government as the licensee of Italy's second GSM cellular telephone license (the "License"). The other joint venturers in Omnitel are OliMan Holding B.V. ("OliMan"), a joint venture currently owned 75% by Ing. C. Olivetti & C., S.p.A. ("Olivetti") and 25% by Mannesmann A.G., Bell Atlantic International, Inc. ("Bell Atlantic") and Telia International AB ("Telia") (collectively, the "Omnitel Corporate Partners"). Pronto Italia, which holds a 30% interest in OPI, consists of AirTouch, Mannesmann and several smaller partners (together with the Omnitel Corporate Partners, the "Corporate Partners"). To date, several of the Corporate Partners have separately participated in the design, construction and operation of GSM cellular networks in over 10 countries and have built GSM networks which now serve several million subscribers. The Company believes that OPI's launch as Italy's second mobile telecommunications operator has been one of the most successful in wireless history. Since the start-up of its GSM system in December 1995, OPI has not only achieved comparable coverage with its much larger and longer established competitor, but has attracted over 2.5 million subscribers. As of December 31, 1997, the Company believes that OPI had approximately 30% of the GSM market and 21% of the total cellular market in Italy, with its cellular network covering over 95% of the Italian population. In the quarter ending June 30, 1997, OPI generated positive EBITDA for the first time. The Company continues to review telecommunications opportunities in Europe from time to time. OMNITEL AND OPI GENERAL. In February 1994, Omnitel and Pronto Italia entered into an agreement to jointly form OPI as their combined applicant for the second GSM license in Italy. The License is for a period of 15 years, ending January 2010. OPI and Telecom Italia Mobile ("TIM") are currently the only licensed GSM cellular network operators in Italy. A third mobile communications license will reportedly be awarded by May 1998, although it has not yet been decided whether the license will be exclusively DCS-1800 or whether it may include some GSM-900 spectrum. OPI has entered into a license agreement with the Ministry of Posts and Telecommunications (now known as the Ministry of Communications) (the "MOC") which defines the rights and obligations of OPI relating to the License. The License grants OPI access to 10.8 MHz, corresponding to 27 two-way 200 KHz radio channels, and authorizes OPI to provide digital cellular telephone service as well as other related value added services, such as voice mail, weather and sports reports. OPI subsequently received 14 more two-way 200 KHz channels (5.6 MHz of spectrum). Pursuant to the License, OPI was required to activate cellular telephone service to cover at least 40% of Italian territory and all Italian regional capitals within 18 months of the License grant, and 70% of Italian territory and 90% of the Italian population within five years of the License grant. The License also sets forth service quality standards, such as requiring that OPI's failure rate for attempted calls over its network be 5% or less, that OPI route its international traffic through the switching centers of the Italian PSTN (prior to January 1, 1998) and that OPI pay established fees for local and international wireline service. OPI paid a fee of 750 billion lire (approximately $415.5 million) to the Italian government following the grant of the License, although in response to EU pressure to encourage a fair and competitive communications market, OPI has since received 60 billion lire from TIM. See "Business--Government Regulation--European Union Telecommunications Law." Throughout the term of the License, OPI is required to pay a royalty fee to the Italian government equal to 3.5% of OPI's annual sales, net of amounts paid to public wireline telephone operators for their services. OPI agreed to pay royalties to the MOC in amounts that are not less than 1.7 billion lire for 1995 ($0.9 million); 8.2 billion lire for 1996 ($4.5 million); 25.4 billion lire for 1997 ($14.1 million); 51 billion lire for 1998 ($28.3 million) and 77.1 billion lire for 1999 ($42.7 million), subject in each year to reduction only due to any proportionate reduction of the royalty percentage to less than 3.5%, and has made such payments for 1995 and 1996. As a result of the License award, the Company has made capital contributions of 152.5 billion lire (an aggregate of $96.8 million at the exchange rates in effect at the time of each contribution) to Omnitel in order to fund the Company's 10.267% share of the capital requirements of OPI. It is expected that no further capital contributions will be required under the currently approved business plan, except for the subordinated credit facility of 70 billion lire that the Omnitel board of directors agreed to make available to OPI under certain circumstances. MARKET OVERVIEW. Italy is the largest and fastest growing cellular market in Europe with 11.7 million subscribers at year end 1997. The number of Italian cellular subscribers has grown rapidly since a predecessor to TIM commenced full 900 MHz analog cellular service in 1990. TIM commenced limited operation of a GSM system late in 1992 and launched full marketing of its GSM system in April 1995, with OPI following in December 1995. The growth in demand for cellular telecommunications, spurred by declining cellular telephone equipment and service prices, an increased awareness of the benefits of cellular communications, distribution through widespread channels and expanded network coverage and capacity, has been accompanied by transition to digital systems and development of advanced 2 wireless communications technologies. Complementing such technological developments, the Italian telecommunications market has undergone a process of deregulation and liberalization and has become an increasingly competitive market. OPI has capitalized on this rapid growth and developed and executed a business plan that resulted in one of the most rapid wireless start-ups in history. In developing its market plan, OPI viewed current market conditions in Italy as characterized by mediocre calling quality, relatively high access costs and poor customer service. OPI's business plan successfully addressed these major weaknesses. The Company believes Italy represents an attractive environment for the provision of wireless communications services due to the following factors: - Italy's population of 58 million, concentrated in over 13 metropolitan areas, is the fourth largest in Europe; - Italy has the third largest economy in Europe in terms of GDP, behind only Germany and France, while ahead of the U.K.; - Italy's favorable demographic characteristics which include a per capita income of over $18,000; - The Italian economy is characterized by large numbers of small and medium size businesses which, in the United States, have been heavy users of cellular services; - Cellular service currently being provided in Italy has been rapidly accepted by both business and residential customers; and - Favorable EU and Italian regulations and oversight resulting from the EU mandate to encourage a fair and competitive telecommunications market. The Company believes OPI is well-positioned versus TIM in providing wireless communications services due to the following factors: - The Corporate Partners' experience in the management of cellular systems; - The quality of OPI's network, which has been designed for handheld telephone coverage; and - OPI's business strategy, a core part of which is to provide superior levels of customer service. ITALIAN TELECOMMUNICATIONS INDUSTRY OVERVIEW. Until recent years, most telecommunications services in Italy were provided by the previously government-owned Telecom Italia and its predecessors. Telecom Italia, privatized in October 1997, continues to be the dominant provider of fixed telephony services in Italy. TIM, approximately 60% owned by Telecom Italia, manages and operates the cellular phone service as 3 well as the paging and public radio mobile communications formerly operated by Telecom Italia. ITALIAN CELLULAR TELEPHONE INDUSTRY. The cellular telephone industry in Italy initially developed at a slower pace than other European cellular markets. However, Italy was the fastest growing market in Europe in 1997 and mobile telephone penetration in Italy has now surpassed the European average, having exceeded the penetration levels in the United Kingdom, France and Germany. As of December 31, 1997, the Italian penetration rate for cellular telephones was approximately 20.6%, with approximately 11.7 million subscribers. Of these subscribers, approximately 3.4 million used analog-based cellular phones and approximately 8.3 million used GSM phones. The sole cellular operator in Italy for five years prior to OPI entry into the market in December 1995 was TIM. OPI launched commercial services in December 1995. As of December 31, 1997, OPI had approximately 2.5 million subscribers, representing 21% of the total cellular market. Italy again added the most cellular subscribers in Europe in 1997. The following table indicates the growth in the number of analog and GSM cellular subscribers in Italy from 1992 to 1997. TIM OPI YEAR ------------------------------ ---------- ENDED DEC. 31, ANALOG (EST.) GSM (EST.) GSM TOTAL 1992 780,800 0 0 780,800 1993 1,200,800 6,200 0 1,207,000 1994 2,164,400 75,300 0 2,239,700 1995 3,396,000 467,000 54,000 3,917,000 1996 3,795,300 1,910,000 713,000 6,418,300 1997 3,400,000 5,800,000 2,460,000 11,660,000 LOCAL TELEPHONE SERVICE. Telecom Italia is currently the dominant provider of local telephone service in Italy. Local telephone service provides the subscriber with a base dial tone and interconnections between local and long distance service. BUSINESS STRATEGY OPI's principal objective is to continue to capitalize on the opportunities it believes are available in the growing and evolving cellular market in Italy. To establish itself as a leading provider of high quality cellular services in Italy, OPI is pursuing the following business strategy: OFFER SERVICES TAILORED TO SPECIFIC MARKETS. OPI offers services tailored to the specific needs of several segments in the voice services market, including personal users, small and medium-sized businesses, and large corporations. The products offered to each segment contain various options, services and prices that are designed to meet the specific needs identified within each segment. By more effectively tailoring the package of services offered to customers' actual needs, OPI believes that customers perceive a higher value being delivered in relation to the cost, are more inclined to use cellular services and have higher levels of product satisfaction. CONSTRUCT A HIGH CAPACITY, FLEXIBLE NETWORK. By building a high capacity, technologically advanced cellular network, OPI commenced operations with an infrastructure that 4 was capable of handling rapid growth in activations and could readily accommodate the implementation of new voice and data products as they were developed. In designing the network, OPI utilized its Corporate Partners' significant experience in designing and building cellular networks to construct a network that can provide efficient and dependable service with a minimum of interruptions. The OPI network was built to take advantage of current digital technology and to provide high quality service. Compared to analog systems, GSM systems provide users with improved sound quality and enhanced security features, as well as Pan-European roaming. BUILD CUSTOMER LOYALTY THROUGH SUPERIOR CUSTOMER SERVICE. OPI offers subscribers access to 24-hour, seven days a week customer service providing information regarding territorial coverage, distribution channels, product features and technical troubleshooting. By employing the "best practices" used by OPI's Corporate Partners in their businesses, OPI has raised the quality of customer service offered to the highest levels found elsewhere in Europe and the United States and has differentiated itself from the competition and generated a high degree of customer loyalty. INTEGRATION OF TELECOMMUNICATIONS SERVICES. OPI's business plan anticipates the gradual integration in Italy of the wireless and wireline telecommunications markets. OPI has introduced new pricing plans for its GSM service that provide competitive rates with those provided by TIM. In addition, OPI anticipates that this convergence will also result in some integration of the wireless and wireline telecommunications networks that provide services to customers. SERVICES OFFERED BY OPI VOICE SERVICES. OPI offers various tariff plans and service packages targeting individual market segments and tailored to address different usage patterns. Each package includes certain standard functions and offers a variety of optional services. In addition, OPI may offer installment payment plans for purchasing cellular telephones for business customers. OPI is continually developing a wider range of value added service features, which management believes will stimulate subscriber usage and provide additional sources of revenue. Services currently offered to subscribers include international roaming, voice mail, call waiting, call on hold, call forwarding, and short-messaging services. Subscribers are charged, depending upon the plan, a one-time connection fee, a monthly basic charge and traffic fees per minute. The rates OPI may charge for cellular services are not subject to government tariffs establishing minimum or maximum prices. In October 1997, OPI introduced "Rete Aziendale Mobile" (RAM), a virtual private network service using its intelligent network platform, allowing it to offer corporate users special low rates for calls within predefined closed user groups, as well as quick four digit dialing within these groups (as on a PBX). TELEPHONE EQUIPMENT AND TERMINALS. OPI and its distribution channels offer customers GSM cellular telephones with a broad range of optional features. Business customers may purchase GSM telephones through OPI on an installment plan. 5 MARKETING STRATEGY OPI's marketing strategies are designed to build upon its competitive strengths in order to increase OPI's market share and revenues by expanding its subscriber base, maximizing usage and revenue per subscriber and minimizing churn. OPI's marketing objective continues to be to create demand for cellular voice and data transmission services and to attract subscribers by targeting the needs of various market segments and providing superior service and reliability, rather than competing principally on the basis of price. OPI generates demand through innovative pricing and features, distribution, advertising and marketing of cellular telephone service and by introducing significant improvements in the quality of customer service and the cellular telephone network. DISTRIBUTION. OPI's objective is to maintain a cost-effective distribution network that maximizes its ability to distribute products and services to each of the voice and data market segments it has identified. OPI uses both indirect channels (such as existing third-party sales or distributorship organizations) and direct channels (such as large account direct sales teams, proprietary stores under franchising agreements and cellular "promoters" who are independent agents affiliated with OPI). OPI has arrangements with over 2,000 independent dealers who target both small businesses and the personal market segment. OPI's large accounts teams target the top companies in Italy and contact the potential high usage customers within these organizations. OPI's cellular promoters target small to medium-sized businesses and, in certain circumstances, larger organizations. Cellular promoters include individuals and organizations that are already active in marketing business communications products. Finally OPI's network of 42 franchised stores serves both business and retail/consumer markets. ADVERTISING. OPI uses a combination of direct marketing, trade advertising and retail advertising, along with promotional campaigns aimed at OPI's distributors, to promote OPI's services. OPI advertises in newspapers and periodicals as well as on television and maintains retail points of presence in important shopping areas and in airports. Through its advertising efforts, OPI seeks to promote a recognizable image of OPI's services with consumers, emphasizing OPI's proximity to the customer in every aspect of the services provided and demonstrating the opportunities and advantages that GSM cellular service can offer in both their business and personal lives. CUSTOMER SERVICE The Company believes that superior customer service is vital to achieving its objective of becoming a leading cellular telephone and data transmission service provider in Italy. OPI attracts and retains customers by providing a high level of service in the key areas of customer assistance and maintenance, billing and fraud prevention. OPI's customer service operations utilize state of the art technology and are operated by well trained staff. OPI continually expands the capacity of its customer service operations to keep pace with subscriber growth. CUSTOMER ASSISTANCE AND MAINTENANCE. OPI provides a full range of customer services from the point of sale onward, including customer inquiry helplines, regional service centers and 6 on-line assistance to customers with respect to billing and technical difficulties, service inquiries, the use and repair of equipment and other aspects of OPI's network operations. OPI provides its customers with a universal number to permit dialing from any location in Italy to call a customer service center that provides 24-hour service. This provides customers with quick, "one-stop" service and a single contact point for help in solving their cellular telephone and data transmission problems. BILLING. OPI provides its subscription customers with easy to read bills that are sent out bi-monthly. For customers who require detailed bills, OPI offers several billing options. PREPAID SERVICES. The majority of OPI's subscribers do not receive bills because they are prepaid subscribers. These subscribers purchase "airtime" in advance in the form of cards with unique codes. These codes, when input into OPI's customer friendly user-interface, increase a subscriber's balance, which is then continuously displayed on the telephone's LCD screen. In 1997, OPI introduced the first rechargeable GSM card that can be used to make international calls from Italy and can be used abroad. CELLULAR TELEPHONE TECHNOLOGY GSM AND DCS-1800. GSM is a digital technology for cellular telephone systems that all European Union ("EU") countries (and many countries outside the EU) have agreed to adopt as a common standard. Commercial launch in several European countries commenced in 1992 and by the end of 1997 there were approximately 41.2 million GSM (900 MHz) subscribers in Western Europe, an increase of 100% over 20.6 million subscribers at the end of 1996. Because of the popularity of the GSM standard and the recent rapid growth in GSM subscribers, the Company believes that GSM telephones will continue to decline rapidly in price. The GSM system is designed to allow subscribers to use their cellular telephones and automatically receive calls throughout Europe and, in theory, wherever GSM technology has been adopted. Over 100 countries, including virtually all countries in Western Europe, have issued or propose to issue GSM licenses. The GSM standard has also been adapted to the 1,800 MHz range and many European countries have issued or will issue one or more of these so-called "DCS-1800" licenses. DCS-1800, because of its technical characteristics, is better suited for an urban setting. Because of the digital nature of the technology, GSM technology offers significantly increased capacity, better voice quality and improved privacy than existing analog systems. In addition, GSM data is contained on a subscriber identity module card ("SIM Card" or "Smart Card") which can be transferred from one cellular telephone to another. This feature greatly increases the possibilities for distributing GSM services by eliminating the need for all distribution points to stock telephones. GSM also provides for such advanced value-added features as short messaging service (which provides an alphanumeric display of short messages), caller ID (which displays the calling number) and other data services. An example of the innovative usage of these features to increase penetration has been OPI's use of the short messaging service to provide its prepaid subscribers with a real time account balance. GSM has also been designed to offer various technical solutions to prevent fraud and misuse, such as authentication, together with anonymity and encryption (the transformation of 7 information from a readily recognizable system of coding to an encoded or enciphered system of coding, or vice versa) of the signal so that conversations cannot be easily intercepted. OPERATING CHARACTERISTICS. The cellular telephone industry is typically characterized by high fixed costs and low variable costs. Until technological limitations on total capacity are approached, additional cellular telephone system capacity can normally be added in increments that closely match demand and at less than the proportionate cost of the initial capacity. The industry has also recently experienced decreasing equipment prices. The amount of profit, if any, under such circumstances is dependent on, among other things, prices and variable marketing costs, which in turn are affected by the amount and extent of competition. NETWORK DESIGN, CONSTRUCTION AND PERFORMANCE Quality and geographic coverage of the network are key factors in the distribution of cellular telephone service. OPI has constructed a high capacity, technologically advanced cellular network. The irregular topography, including many tunnels and mountains, near some of Italy's most important cities requires OPI to implement special network designs to avoid interruptions of calls. NETWORK DESIGN. The basic element of OPI's GSM network are its base stations, the interface between the user's telephone and the network. The base stations house radio transmission and reception equipment and perform signal processing activities when interfacing with the signal. Each base station has substantial fixed costs which include the cost of purchasing or leasing land, constructing the facility, installing adequate power supply, installing adequate security systems and constructing and maintaining the equipment, towers, cabling, antennae or other related equipment. As of December 31, 1997, approximately 2,400 base stations had been installed. OPI plans to install an additional 1,300 base stations in 1998. Cellular traffic is collected from a number of base stations and routed to a Base Station Controller ("BSC"). The BSCs allocate radio channels among base stations, manage intra-BSC handoffs among the base stations and interface with the Mobile Switching Centers ("MSC"). The MSCs will provide the connection between OPI's GSM network and Telecom Italia's fixed network. MSCs are located near Telecom Italia's switching centers to reduce the costs of accessing the PSTN. Interconnection of the various elements of OPI's network has generally been accomplished using lines leased from Telecom Italia. However, where appropriate and cost effective, OPI intends to develop its own transmission capabilities or utilize third party links. In 1997, OPI installed an Intelligent Network Platform, which allows for the rapid creation and implementation of advanced network features (such as closed user group four digit dialing). BASE STATION CONSTRUCTION. The process of obtaining appropriate sites requires that OPI personnel coordinate, among other things, site-specific requirements for engineering and design, leasing of the required space, obtaining all necessary governmental permits, construction of the facility and equipment installation. OPI has utilized software systems developed by its Corporate Partners to assess the feasibility of various new sites so that network design and site development are coordinated to the maximum extent possible. 8 PERFORMANCE OBJECTIVES. The network is designed to perform with less than 2% of calls interrupted during peak periods, including less than 1% of interruptions in the connection between MSCs and the fixed network, and with system availability of 99.94% during daytime hours. OPI selects appropriate cell sites and alternative cell sites so as to reduce voice alteration and call interruption resulting from signal attenuation or interference due to Italy's irregular topography. OPI awarded Nokia Telecommunications ("Nokia") a contract for the initial and secondary phases of construction of its GSM network. ROAMING AGREEMENTS. Roaming allows OPI's customers to receive and make international, local and long distance calls while traveling outside of Italy. OPI has negotiated roaming agreements with over 70 operators in more than 50 countries, enabling subscribers to make and receive calls abroad. PERFORMANCE BOND. OPI has provided an approximate 219 billion lire ($121.3 million) performance bond to the Italian government linked to OPI's meeting certain performance goals relating to territory coverage, investment, employment and payment of license fees. Specifically, OPI was required to (i) cover 50% of Italian territory with its cellular network by May 1996 and 98% by May 1998, (ii) invest 969 billion lire ($536.8 million) by May 1996 and 1,552 billion lire ($859.8 million) by May 1998, (iii) employ 1,163 people by May 1996 and 2,686 people by May 1998, (iv) pay royalties to the MOC in amounts that are not less than 1.7 billion lire for 1995 ($0.9 million); 8.2 billion lire for 1996 ($4.5 million); 25.4 billion lire for 1997 ($14.1 million); 51 billion lire for 1998 ($28.3 million) and 77.1 billion lire for 1999 ($42.7 million), subject in each year to reduction only due to any proportionate reduction of the royalty percentage to less than 3.5% and (v) maintain the declared stockholding majority of OPI until February 1, 2000. OPI is subject to monetary penalties for failing to achieve such goals. Performance goals have been achieved to date, and although no assurance can be given, the Company believes the future performance goals are achievable. The maximum liability of the Company under the performance bond would be approximately 22.5 billion lire ($12.5 million), reflecting its proportionate interest in OPI. In addition, the failure of OPI to meet the standards of service (meaning proper use of frequencies, meeting coverage goals, maintaining and interconnecting the networks, and prompt payment of license fees) prescribed in the License and the performance bond could result in loss of the License and have a material adverse effect on OPI and the Company. ARRANGEMENTS WITH TELECOM ITALIA FEES AND PRICING WITH TELECOM ITALIA. Pursuant to the License, OPI connects its mobile cellular telephone network to the PSTN. Although Telecom Italia grants OPI discounts on two Mbps leased lines, OPI is negotiating costs for 34 and 155 Mbps leased lines, which will further reduce OPI's interconnection expense. Telecom Italia charges equivalent access fees and provides equivalent access to and pricing of leased lines to each of OPI and TIM. Following a reduction in 1997, OPI's access charges when interconnecting to the PSTN (originally set at 200 lire per minute for all calls) are currently set at 200 lire per minute for inbound calls and 80 lire per minute for outbound calls. 9 OPI'S CORPORATE PARTNERS The Corporate Partners are on the leading edge of cellular technology worldwide. Certain Corporate Partners are involved in standardizing and revising technological specifications of cellular systems in their respective markets and also possess expertise in other international technological areas such as the European Telecommunications Standards Institute, the Universal Mobile Telecommunications System and the International Telecommunications Union. The Corporate Partners include OliMan (75% owned by Olivetti and 25% by Mannesman), Bell Atlantic, AirTouch, Mannesmann and Telia. Olivetti is one of Italy's largest companies and has been involved in the private voice and data communications network industry for over ten years. Bell Atlantic Mobile operates in more than fifteen U.S. states making it one of the largest suppliers of cellular services in the United States. AirTouch is one of the world's largest wireless telecommunications operators. Mannesmann is a subsidiary of Mannesmann AG, one of Germany's ten largest industrial conglomerates and owner of the largest interest in Germany's D2 Private GSM system. Telia was a pioneer in European cellular communications and an initiator of the GSM system. Telia is at present participating in the development of cellular systems in almost 20 different countries, either directly or in collaboration with national telephone operators. None of the Corporate Partners has any obligations with respect to the Notes or (except as otherwise set forth herein) to provide services or financial support to OPI. COMPETITION OPI competes with wireline telephone service offered by Telecom Italia, and the cellular telephone service offered by TIM, as well as with at least one additional wireless license to be granted in 1998 and at least partially with Telecom Italia's recently launched low mobility DECT service. TIM has a significant advantage over OPI in the Italian cellular telephone market, with approximately 9.2 million analog and GSM subscribers as of January 1, 1998. TIM has certain advantages over OPI such as a larger customer base, more operating spectrum and the use of the Telecom Italia name. Many high usage business customers were already TIM cellular customers by late 1995 and remain TIM subscribers. Moreover, OPI may also face significant potential competition from other communications technologies that are being or may be developed or perfected in the future. GOVERNMENT REGULATION OVERVIEW. The legal framework for the regulation of the telecommunications sector in Italy has been extensively revised in recent years. This revision has included the liberalization of substantially all telecommunications services, the formation of the Communications Authority, the independent agency to regulate the communications industry, the implementation of the Framework Law, and the adoption of the Telecommunications Regulations by the Italian Government pursuant to Law No. 650 of December 23, 1996 ("Law 650") and Law No. 189 of July 1, 1997 ("Law 189") to implement a number of EU directives in the telecommunications sector. Effective August 1, 1997, the former Ministry of Posts and Telecommunications changed its name to the Ministry of Communications. The Telecommunications Regulations became effective on October 7, 1997. 10 The Framework Law in general aims at (i) ensuring the improvement of competition and efficiency in the telecommunications sector; (ii) establishing adequate quality standards; (iii) ensuring access to telecommunications services in a homogeneous manner throughout Italy; (iv) defining a clear and transparent tariff system based on the "price cap" method which will apply to Telecom Italia's fixed public voice telephony services for up to two years from August 1, 1997 and (v) protecting consumers' and users' interests. The Telecommunications Regulations contain provisions concerning (i) the granting of general authorizations or individual licenses to provide telecommunications services; (ii) universal service obligations and their financing; (iii) access contributions; (iv) special obligations imposed on operators having significant market power, including the determination of interconnection charges using principles of cost orientation; (v) numbering and number portability; (vi) rights of way; and (vii) the essential requirements that must be complied with in the provision of services and when interconnecting between public telecommunications networks. The Communications Authority is expected to establish detailed regulations governing the telecommunications sector and will monitor their application, while the Ministry of Communications will retain the responsibility for defining telecommunications policy in Italy, and will have the power and authority to grant authorizations and licenses. The activities of OPI and TIM are also subject to the terms and conditions of their public operating concessions (the "Public Concessions"). Other significant telecommunications measures include Law No. 58 of January 29, 1992 ("Law 58"), implementing regulations and the Ministry of Communications decrees principally promulgated with respect to tariffs, and Regulation No. 197 of May 8, 1997, concerning telephone service and subscriptions contracts. THE COMMUNICATIONS AUTHORITY. The Communications Authority will consist of a President appointed by the Italian Government through a Presidential decree, a Committee for Infrastructures and Networks, a Committee for Products and Services and the Council. Each of the Committees' members will be selected by the Italian Parliament (four by the Senate and four by the Chamber of Deputies) and appointed through a Presidential decree. Each of the Committees and the Council will be responsible for establishing regulations for their specific areas. The Committee for Infrastructures and Networks will be responsible for, among other things, guidelines for allocating radio frequencies relating to telecommunications services; defining objective and transparent criteria for establishing tariffs for interconnection and network access; regulating relationships among telecommunications companies; settling disputes regarding interconnection; and defining the scope of the universal service obligation and the operators subject to it, together with criteria for calculating and sharing its costs. The Committee for Products and Services will be responsible for, among other things, issuing guidelines for regulating product quality and conformity with EU directives governing the relationship between companies controlling fixed or mobile telecommunications networks and telecommunications service providers. 11 The Council will be responsible for, among other things, adopting regulations establishing criteria for issuing licenses for the telecommunications sector and for TV and radio activities (including cable and satellite broadcasting) pursuant to Presidential Decree No. 318/97. The Communications Authority will have investigative powers, as well as the authority to impose sanctions on operators who do not comply with their directives and resolutions. In addition, the Communications Authority will be entitled to propose to the Ministry of Communications the revocation and/or suspension of general authorizations and individual licenses in the event of repeated violations by the holder. PUBLIC CONCESSIONS. The Public Concessions of OPI and TIM are embodied in conventions setting out their obligations relating to the provision of public services (the "Conventions"). Pursuant to these Public Concessions, OPI and TIM were each granted non-exclusive rights for the installation and operation of a mobile telecommunications network for the provision of telecommunications services. The Public Concessions will expire in 2010. OPI and TIM are subject to parallel rules and regulations concerning the provision of GSM services. The services must be rendered in accordance with the terms and conditions set forth in the Conventions, which address, among other matters, radio frequency allocation, commencement of operations, price controls and service requirements. TIM's GSM service commenced operations in April 1995. OPI's service commenced operations on December 7, 1995. Specifically, the GSM concessions require each of OPI and TIM: - to cover 70% of the Italian national territory and 90% of the population within five years and to provide service in major towns and cities in each of the 20 regions of Italy; - to meet certain technical requirements concerning the provision of GSM cellular services to end users; - to sign interconnection agreements with Telecom Italia, as the owner of the fixed public network, which were entered into in April 1995; - to pay access charges to Telecom Italia for the use of the connected wireline telephone network at an average of 200 lire per minute (reduced to 140 lire per minute for all calls as of June 6, 1997 and, as of August 1, 1997, 200 lire per minute for calls incoming to the mobile network from the fixed network and 80 lire per minute for calls incoming to the fixed network from the mobile network); and - to deliver to the MOC, upon request, data and information on their business operations, as well as copies of their audited financial statements and to observe certain criteria of accounting separation in relation to the GSM services performed. The duration of the GSM concessions is 15 years, commencing on February 1, 1995. 12 As set forth by the Conventions, each licensee's corporate purpose shall be exclusively the research, design, realization and operation of radiomobile networks and related services, including rental and sale of telephone software, equipment and appliances, provided that such ancillary activities do not interfere with the provision of GSM service and the sound management of the licensee. Each of the licensees is required by the relevant Convention to maintain its registered office, and technical and administrative headquarters in Italy. The OPI Convention further provides that at least 60% of the OPI share capital as declared at the time the license was granted be maintained in its entirety by the relevant shareholders for at least five years as from the date of granting of the License. The Conventions expressly state that the licenses cannot be transferred or assigned, in whole or in part, for any reason whatsoever, unless the MOC has granted its prior consent. Moreover, upon occurrence of certain material breaches by the licensees, the MOC may revoke the licenses. The settlement of any controversy arising from the construction, validity and performance of the Conventions, to the extent an amicable settlement cannot be reached within 30 days from the date on which one of the parties has invited the other to negotiate, shall be remitted to the exclusive jurisdiction of an arbitration tribunal consisting of five members, two of whom shall be appointed by the MOC, two of whom shall be appointed by the relevant licensee and the remaining member shall be appointed by the State Council. The arbitration tribunal shall sit in Rome and shall decide at law on the basis of Italian substantive and procedural laws. The OPI Convention calls for the issuance by OPI of a performance bond linked to OPI's meeting certain performance and investment goals. OPI would be subject to monetary penalties for falling to achieve such goals. OPI and TIM have licenses to provide mobile telecommunications services using the advanced DCS-1800 digital technology, subject to the MOC granting access rights to the required frequencies for the provision of such services. Pursuant to Law 189, the MOC is expected to grant such frequencies to the GSM operators during 1998 and to license a third operator to provide such service in 1998. At least two consortia, Picienne Italia S.p.A. (the joint venture among Mediaset S.p.A., British Telecommunications, Italgas S.p.A., ENI S.p.A., Banca Nazionale del Lavoro S.p.A. and Telenor) and Wind Telecomunicazioni S.p.A. (a consortium including Deutsche Telekom A.G., France Telecom and ENEL S.p.A.), have separately indicated their intention to bid for the third DCS-1800 license. The Telecommunications Regulations provide that by January 1, 1999 the existing Public Concessions will have to be modified in conformity with the new regulatory framework. TARIFF AND PRICING POLICY. GSM prices are established autonomously by each of OPI and TIM, taking into account, among other factors, structure and levels of prices/tariffs for interchangeable services (analog mobile services and basic telephony services) and the policies of the main European operators, subject only to the obligation to give the MOC or the Communications Authority, as applicable, 30 days' notice of changes in prices. The licensees may 13 not apply discriminatory contractual conditions to the various end consumers, except that the right to apply special conditions to particular categories of customers may be granted by the MOC. EUROPEAN UNION TELECOMMUNICATIONS LAW. Italy is a member of the EU and, as such, is required to implement the directives issued by the EU. Although directives must be incorporated into domestic legislation to be fully effective, a directive or certain provisions of a directive may take effect automatically in a member state (a "Member State") on the prescribed deadline if it is sufficiently clear and specific, even if it is not formally adopted by such member State by the prescribed deadline. If a directive is not formally implemented by the prescribed deadline, the only remedy available for an interested party is to seek damages against the Member State. Italy is also the addressee of various EU resolutions, recommendations and communications, which are not legally binding, although politically important. In June 1990, the European Commission adopted a Directive on Competition in the Markets for Telecommunications Services ("EU Directive 90/388"), which opened to competition telecommunications services other than fixed public voice telephony services. In particular, EU Directive 90/388 required the liberalization of circuit and packet switched data transmission, in accordance with regulations promulgated by each national regulatory authority. When initially issued, EU Directive 90/388 did not apply to radio mobile services or to satellite services. As discussed below, subsequent amendments to EU Directive 90/388 extended its terms to cover such services. EU Directive 90/388 was formally implemented in Italy by Decree 103. On January 16, 1996, the European Commission adopted EU Directive 96/2, liberalizing mobile telecommunications services within the EU (the "Mobile Telecommunications Directive"). The most important elements of the Mobile Telecommunications Directive implemented by Law 189 are the following: - Mobile telecommunications operators are authorized to construct their own infrastructure for the mobile network or to utilize infrastructure owned by third parties. - Direct interconnection among mobile networks is to be guaranteed. - The number of licenses for mobile telecommunications systems may only be limited on the basis of essential requirements and in case adequate frequencies are not available. - The conditions for granting licenses for access to frequencies and for interconnection to the fixed public telephony network shall be regulated with transparency, proportionality and non-discrimination. The EU competition rules have the force of law in the Member States and are therefore applicable to OPI's operations in the telecommunications market. The main principles of the EU competition rules are stipulated in Article 85 of the EC Treaty. Article 85 prohibits collusive behavior between competitors which may effect trade between Member States and which restricts, or is intended to restrict, competition within the EU. These rules are enforced by the European 14 Commission in cooperation with the national competition authorities, including the Italian Antitrust Authority. In addition, the national courts have jurisdiction to litigate violations of EU competition law. In a decision dated October 4, 1995, the European Commission antitrust bureau found that the fact that OPI was required to pay the 750 billion lire ($415.3 million) license fee was unfair and discriminatory and undermined the capability of OPI to effectively compete with Telecom Italia, which was not asked for any money contribution in connection to the granting of its license from the MOC. As a result, the European Commission antitrust bureau's 1995 decision stipulated that TIM must compensate OPI in the amount of 60 billion lire. In October 1997, following a letter by Mr. Karel Van Miert, the chief of the European Commission antitrust bureau, to the Italian Telecommunications Minister expressing concern over the delay in implementing the package of corrective measures regarding mobile telephony in Italy, TIM made a compensation payment to OPI of approximately 60 billion lire. However, TIM is disputing the basis for such payments and has recently filed an action seeking to have the 60 billion compensation payment nullified. THE OMNITEL AGREEMENT The Company, OliMan, Bell Atlantic and Telia have entered into an agreement (the "Omnitel Agreement"), that contains provisions governing the relationship between them, including, but not limited to, provisions relating to the governance and financing of Omnitel. CAPITALIZATION. Any new capital calls must be unanimously agreed to by the Omnitel board of directors. Unless a coventurer otherwise consents, its financial liability with respect to a capital call or any other commitment to provide funds to Omnitel shall be limited to its pro rata ownership interest therein. MANAGEMENT OF OMNITEL. The Omnitel board of directors consists of nine members, with one member designated by each of the Company and Telia, two members designated by Bell Atlantic and five members initially designated by OliMan, with OliMan designating the chairman of the board of directors. The presence and unanimous affirmative vote of at least two of the members of the board of directors designated by OliMan and of all the other members of the Board is required for any actions, decisions or determinations relating to the following, among others: (i) the formation of any subsidiary company or entering into any joint venture or other similar arrangement; (ii) the issuance or redemption of any shares, bonds or other securities of Omnitel; (iii) the acquisition of shares of or any interest in any corporation or the creation of any partnership, consortium or other legal entity of which Omnitel is or will be a partner, member or similar participant; (iv) the adoption or amendment of Omnitel's annual budget or future business plan; 15 (v) any merger, consolidation or amalgamation with or into any other company or corporation or the sale or disposition of certain franchises or licenses; (vi) the engagement in certain businesses outside the scope of Omnitel's "object"; (vii) the declaration or payment of dividends or the making of any other distribution to shareholders; (viii) the voluntary liquidation, dissolution or termination of Omnitel; (ix) the amendment of Omnitel's by-laws; (x) the initial appointment of the independent auditors, and of the outside counsel to Omnitel; and (xi) the increase or decrease of the number of members of the Omnitel Board. The presence of at least two members of the Board designated by OliMan and at least all but one of the other members of the Board and the affirmative vote of at least two of the members of the Board designated by OliMan and at least all but one of the other members of the Board are required for any actions, decisions, or determinations of the Omnitel Board (including, without limitation, a determination to present such matters or proposals to the shareholders of Omnitel) relating to any of the following matters or proposals: (i) except as specifically provided for in the annual budget and future business plan, the lease, acquisition or disposition of any assets in a transaction or in a series of related transactions having a value in excess of 300 million lire ($166,000); (ii) the appointment, granting of powers, dismissal and determination of the remuneration of the Chairman, the Managing Director or the principal executive officers of Omnitel; (iii) any change in the independent auditors, and of the outside counsel to Omnitel; (iv) subjection of the property or assets of Omnitel to any mortgage, lien, pledge, claim or judgment except in the ordinary course of business; (v) the extension of loans or guarantees to or on behalf of third parties except in the ordinary course of business in amounts not to exceed in the aggregate 300 million lire ($166,000) or individually 100 million lire ($55,000) annually, (vi) the incurring of indebtedness for borrowed money except in the ordinary course of business in amounts not to exceed in the aggregate 1.0 billion lire ($554,000), or individually 500 million lire ($277,000) annually; 16 (vii) enter into, amend or terminate any transaction with any venturer or affiliate of any venturer in Which the value of the goods and/or services to be purchased, sold or leased (including compensation or reimbursement for employees made available to the venturer) would exceed 25 million lire ($14,000) in a transaction or a series of related transactions; and (viii) the acceptance of any terms and conditions necessary to obtain and/or renew a license. For any actions, decisions or determinations of the Board which require the unanimous decision of the Board, the Omnitel venturers, as shareholders of Omnitel, agreed to vote in conformance with the Board's determination whenever a resolution of the Shareholders' Meeting is also required. The venturers also agreed, as shareholders of Omnitel, not to vote in support of any action or decision which requires a unanimous or supermajority decision of the Board as described above, unless the Board has first considered such action or decision and the required affirmative vote of the members of the Board for such action or decision has been obtained. The By-laws of Omnitel require only the affirmative vote of 75% of the members of the Board of Directors to approve the actions described above as unanimous actions. If such an action were approved by 75% of the Board of Directors, but not consented to by the Company as required by the Omnitel Agreement, the Company might not be able to obtain injunctive relief under Italian law. CERTAIN TRANSFER OF OMNITEL STOCK. A co-venturer may, without the consent of the other co-venturers, transfer its Omnitel stock to its affiliates, other co-venturers or the affiliates of other co-venturers. A co-venturer may not, however, sell, assign, transfer, pledge, encumber or otherwise dispose of any of its Omnitel stock to a party who is not an affiliate, a co-venturer or an affiliate of a co-venturer, without prior written consent of all the other co-venturers. All transfers of Omnitel stock other than to affiliates, other co-venturers or affiliates of other co-venturers are subject to a right of first refusal by the other co-venturers. If more than one co-venturer exercises the right of first refusal, each of the co-venturers may purchase a pro rata portion of such Omnitel stock (based upon the total number of shares owned by all co-venturers exercising the right of first refusal). Such rights of first refusal may be exercised at the price indicated by the transferring co-venturer in a notice that must be sent by the transferring co-venturer to the remaining co-venturers prior to effecting a transfer that gives rise to a right of first refusal. CHANGE IN CONTROL OF A CO-VENTURER; RIGHTS OF FIRST REFUSAL. If more than 50 percent of the shares of voting securities of a co-venturer (the "Selling Co-Venturer") are transferred to a third party (or parties) that is not an affiliate of the Selling Co-Venturer (an "Omnitel Change in Control"), each co-venturer (a "Buying Co-Venturer") shall have the non-assignable right to purchase all or a pro rata portion (based upon the total number of shares owned by co-venturers exercising such right to purchase) of the Selling Co-Venturer's shares of Omnitel stock at a price indicated by the Selling Co-Venturer. In the event a Buying Co-Venturer objects to the price so indicated, it shall be settled by arbitration. The acquisition of control of any parent company of a co-venturer which owns or operates substantial other businesses or entities in addition to the venture is not deemed to constitute an Omnitel Change in Control. 17 REQUIRED SALE UPON DEFAULT IN REQUIRED CAPITAL CONTRIBUTION. If a co-venturer willfully fails to make required capital contributions, the other co-venturers shall have the non-assignable option to purchase such co-venturer's Omnitel stock for a cash price equal to the paid-in-capital represented by such stock. ADDITIONAL REQUIRED SALES. The following may also give rise to the granting of a non-assignable option to purchase co-venturer's Omnitel stock at the cash price equal to the paid-in-capital represented by such stock: (i) the failure by a co-venturer to perform any material obligation under the Omnitel Agreement; (ii) the filing of a bankruptcy petition by a co-venturer, or (iii) a willful violation or breach by a co-venturer of any of the covenants in the Omnitel Agreement. If the non-assignable option to purchase a defaulting co-venturer's Omnitel stock were triggered and the defaulting party refused to sell its Omnitel stock, thereby breaching the relevant provisions of the Omnitel Agreement, under Italian law, the Company may face difficulty in becoming the record owner of the Omnitel stock and could thus be forced to bring an action for damages against the co-venturer refusing to comply with such provisions. COVENANT NOT TO COMPETE. The co-venturers have agreed that, at all times during which they own Omnitel stock and for two years following the disposition to an unaffiliated third party thereof, they will not engage in the business of building, owning or operating a cellular mobile telephone network or providing mobile telecommunications services (a "Competing Business") in Italy without the consent of Olivetti and at least all but one of the other co-venturers, which consent is not to be unreasonably withheld; provided, however, that a co-venturer may own less than 10 percent of a Competing Business if the co-venturer is not represented on the board and has no active role in the management of the Competing Business. Each of the co-venturers and their affiliates may, however, engage in or possess an interest in any other business in Italy or any Competing Business outside of Italy. THE OPI AGREEMENT Omnitel and Pronto Italia have entered into an agreement (the "OPI Agreement"), that contains provisions governing the relationship between them, including, but not limited to, provisions relating to the governance and financing of OPI. CAPITALIZATION. Each of Omnitel and Pronto Italia had originally committed to contribute, pro rata to its holdings, to the capital of OPI an aggregate total not exceeding l,000 billion lire ($554 million) (the "Mandatory Capital Calls"). Such amount has been subsequently increased to 1,450 billion lire ($803 million). In the event that the capital requirements of OPI exceed the Mandatory Capital Calls, Omnitel and Pronto Italia are entitled to subscribe to such additional capital calls but are not obligated to do so. SHARE TRANSFERS. Omnitel and Pronto Italia have agreed for a period of five years from the award of the License to be bound by the restrictions on share transfers as required by the License terms. Each of Omnitel and Pronto Italia has undertaken not to transfer any of the shares it holds at any time in OPI except to another party to the OPI Agreement. To the extent that under the terms of the License or any applicable law or regulation the sale of OPI shares is or becomes permitted only in part, the obligation not to transfer OPI shares shall terminate in the first instance in respect of the shares of Pronto Italia in OPI, and shall expire in respect of the 18 shares held by Omnitel only when the amount of shares that can be transferred exceeds 30% of the capital of OPI. Prior to the grant of the License, the shareholders of Omnitel have offered in a letter to the MOC to collectively maintain at least 86% of the share ownership of Omnitel for the first five years of the License. MANAGEMENT OF OPI. The OPI board of directors includes the non-executive Chairman designated by Pronto Italia, the Managing Director and Chief Financial Officer designated by Omnitel and the Chief Technical Officer designated jointly by Bell Atlantic and AirTouch or in the event of their failure to reach agreement in such designation by OliMan. A decision of a Special Majority (which requires the favorable vote of at least one director designated by Pronto Italia) of the Board of Directors is required for the following matters, among others: (i) certain agreements between OPI and any subsidiary of its shareholders or any company in which any shareholder has a direct or indirect voting interest of 25% or more; (ii) adoption by OPI of annual budgets and business plans and material amendments thereto; (iii) investments by OPI in assets in excess in the aggregate of 5 billion lire ($2.8 million); (iv) incurrence by OPI of indebtedness (excluding ordinary bank loans) exceeding 5 billion lire ($2.8 million); (v) granting of loans exceeding 5 billion lire ($2.8 million) to any single party; and (vi) recommendations in respect of the distribution of dividends. COVENANTS NOT TO COMPETE. Omnitel and Pronto Italia have agreed that, at all times the OPI Agreement remains in effect and for two years following the termination thereof or until any party ceases to be a party whenever such event may occur, they nor any company directly or indirectly controlled by either of them, or any company which directly or indirectly controls either of them, will not involve themselves or itself, as the case may be, in any way, through participation in excess of 15%, or of 5% as regards quoted companies, in wireless activities in Italy (other than the supply of goods and services to cellular telephone systems) regarding cellular telephony systems which fall within the "object" of OPI. Each of Omnitel and Pronto Italia and their shareholders may, however, engage in any activity (with the exception of PCN services) to which the parties decide not to extend OPI's mission, if their engaging in such activity will not distract resources and commitment from the mission of OPI. OTHER CONSIDERATIONS RISKS INHERENT IN FOREIGN INVESTMENT The Company has invested substantially all of its resources outside of the United States and intends to continue to review possible international investments in the future. Risks inherent in foreign operations include loss of revenue, property and equipment from expropriation, nationalization, war, insurrection, terrorism and other political risks, risks of increases in taxes and governmental royalties and fees and involuntary renegotiation of contracts with foreign governments. Only a portion of such risks may be insured. The Company currently does not have political risk insurance in Italy. The Company is also exposed to risks of change in foreign and domestic laws and policies that govern operations of foreign-based companies. There can be no assurance that the laws or administrative practice relating to taxation, foreign exchange or other matters in Italy will not change, and any such change could have a material 19 adverse effect on the financial affairs of OPI or the Company. The value of the Company's interest in OPI may also be affected by changes in tax and other laws and other political, economic, socioeconomic or diplomatic developments in or affecting Italy. PASSIVE FOREIGN INVESTMENT COMPANY Special U.S. tax rules apply to U.S. taxpayers that own stock in a passive foreign investment company (a "PFIC"). In general, a non-U.S. corporation will be treated as a PFIC if at least 75 percent of its income is "passive income" or if at least 50 percent of its assets are held for the production of "passive income." A non-U.S. corporation that owns 25 percent or more of the stock of a non-U.S. subsidiary is treated as receiving a proportionate share of the income of, and as owning a proportionate share of the assets of, such subsidiary. It is possible that Omnitel is a PFIC. Generally, except to the extent the Company makes an election to treat a PFIC in which it owns stock as a "qualified electing fund" (a "QEF") in the first taxable year in which the Company owns the PFIC's stock, (i) the Company would be required to allocate gain recognized upon the disposition of stock in the PFIC and income recognized upon receiving certain dividends ratably over the Company's holding period for the stock in the PFIC, (ii) the amount allocated to each year other than the year of the disposition or dividend payment would be taxable at the highest U.S. tax rate applicable to corporations, and an interest charge for the deemed deferral benefit would be imposed with respect to the tax attributable to each year, and (iii) gain recognized upon disposition of PFIC shares would be taxable as ordinary income. The Company acquired shares in Omnitel in 1990. The regular deadline for making a QEF election for 1990 was in 1991. In December 1997, new temporary regulations were issued by the Treasury Department, pursuant to which the Company intends to seek a ruling from the Internal Revenue Service that would allow the Company to retroactively make the QEF election as described above. No assurance can be given that the Internal Revenue Service will grant such ruling request. If the Company cannot make the QEF election retroactively, on a sale of its Omnitel shares or the receipt of certain dividends from Omnitel, the Company would be subject to U.S. federal income tax and to an interest charge on that tax over its holding period commencing in 1990, as described above. If the Company were to make the QEF election, as described above, the Company would be required in each year that the PFIC qualification tests are met to include its pro rata share of the QEF's earnings as ordinary income and its pro rata share of the QEF's net capital gain as long-term capital gain, whether or not such amounts are actually distributed. The Company has not made any QEF election with respect to Omnitel. EMPLOYEES CCII has 15 full and part time employees. PATENTS, COPYRIGHTS AND LICENSES Neither CCII, OPI nor Omnitel has any material patents or copyrights in their businesses. CCII does not believe patents or copyrights play a material role in its business or any potential business of OPI or Omnitel. OPI has a license to provide cellular service from the appropriate 20 governmental authorities. ITEM 2. PROPERTIES. - ------------------ CCII leases office space, which is adequate to meet its needs at present from one of its former affiliates, NTL Incorporated, and is charged for its share of the rent by NTL. ITEM 3. LEGAL PROCEEDINGS. - ------------------------- OPI is engaged in ordinary legal disputes and court proceedings that have arisen in the course of its operations, none of which is expected to have a material adverse effect on its operations. OPI and TIM have each filed lawsuits in Italy against each other involving various competitive matters. In addition, in a currently pending matter, TIM has claimed that OPI had not satisfied a requirement that its network cover at least 40% of the Italian territory at the time of the launch of its commercial services in December 1995, and OPI has counterclaimed seeking damages for TIM's delay in permitting national roaming. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS. - ------------------------------------------------------- There were no matters that were submitted to a vote of CCII's stockholders during the quarter ended December 31, 1997. 21 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS. - ------------------------------------------------------------------------ CCII's Common Stock trades on the Nasdaq Stock Market's National Market under the symbol "CCIL". The following table sets forth for the periods indicated the high and low last sales prices as reported on the Nasdaq Stock Market's National Market (before giving retroactive effect to the three-for-two stock split by way of stock dividend in April 1998). LAST SALE PRICE HIGH LOW -------------------------------------- 1996 ---- First Quarter $40.25 $31.25 Second Quarter 37.00 31.75 Third Quarter 35.75 24.75 Fourth Quarter 34.00 25.50 1997 ---- First Quarter 32.75 26.75 Second Quarter 34.25 24.13 Third Quarter 41.50 32.50 Fourth Quarter 47.50 39.13 1998 ---- First Quarter (through March 20) 59.75 45.88 On March 20, 1998, the closing price for the Common Stock, as reported on the Nasdaq Stock Market's National Market, was $59.75. As of March 20, 1998, there were approximately 320 record holders of the Common Stock. This figure does not reflect beneficial ownership of shares held in nominee names. CCII has never paid cash dividends on its Common Stock and does not intend to pay cash dividends in the foreseeable future on shares of its Common Stock. 22 ITEM 6. SELECTED FINANCIAL DATA. - ------------------------------- The following table sets forth certain financial data for the years ended December 31, 1997, 1996, 1995, 1994 and 1993. This information should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Form 10-K.
(IN THOUSANDS, EXCEPT PER SHARE DATA) YEAR ENDED DECEMBER 31, -------------------------------------------------------------------- 1997 1996 1995 (1) 1994 1993 -------------------------------------------------------------------- INCOME STATEMENT DATA: Operating revenue $ - $ - $ - $ - $ - Income (loss) before extraordinary item (31,349) (50,968) 6,815 (8,509) (875) Net income (loss) (31,349) (50,968) 5,341 (8,509) (875) Income (loss) before extraordinary item per common share: (2) Basic (1.94) (3.23) .45 (.56) (.06) Diluted (1.94) (3.23) .38 (.56) (.06) Net income (loss) per common share: (2) Basic (1.94) (3.23) .35 (.56) (.06) Diluted (1.94) (3.23) .30 (.56) (.06) Denominator for income (loss) per share calculation: Basic 16,177 15,764 15,346 15,141 14,984 Diluted 16,177 15,764 17,713 15,141 14,984
DECEMBER 31, -------------------------------------------------------------------- 1997 1996 1995 (3) 1994 1993 -------------------------------------------------------------------- BALANCE SHEET DATA: Working capital (deficiency) $ 81,992 $ 79,392 $ 75,840 $ (24,575) $ 11,417 Total assets 140,714 146,307 175,290 38,301 13,545 Bank loan payable - - - 29,980 - Long-term debt 197,327 172,052 149,869 - - Shareholders' (deficiency) equity (58,769) (28,561) 21,167 6,774 13,148
(1) 1995 includes a gain on sale of investment in joint venture of $25,286,000, net of tax of $13,615,000 ($1.43 per common share) and a charge of $1,474,000, net of income tax benefit of $794,000, from early extinguishment of debt (($.08) per common share). (2) After giving retroactive effect to the 3-for-2 stock split by way of a stock dividend, which was paid on May 13, 1994 and the 3-for-2 stock split by way of stock dividend, to be paid on April 14, 1998. (3) In 1995, CCII issued $281,571,000 aggregate principal amount of 13-1/4% Senior Discount Notes due 2000 at a price to the public of 52.783% or $148,622,000. CCII did not declare or pay any cash dividends during the years indicated. 23 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - ------------------------------------------------------------------------- RESULTS OF OPERATIONS Years Ended December 31, 1997 and 1996 - -------------------------------------- Equity in net loss of Omnitel decreased to $5,521,000 from $29,850,000 because of the decrease in the net loss of Omnitel. The decrease is due to a change in Omnitel's share of OPI's net loss to $37,071,000 from $201,622,000. OPI's net loss decreased to $54,004,000 from $284,557,000 as a result of a 144% increase in operating revenues with only a 42% increase in operating expenses (percentage changes are calculated based on the results of operations in Italian lire). General and administrative expenses decreased to $2,997,000 from $3,397,000 primarily because CCII reduced its efforts to obtain new licenses. Interest income and other, net decreased to $4,500,000 from $5,125,000 primarily because of a decrease in funds available for investment. Interest expense increased to $26,625,000 from $23,330,000 due to an increase in the accretion of original issue discount on the Senior Discount Notes. The income tax benefit in 1996 of $1,200,000 is the result of applying net operating loss carrybacks to 1995. Years Ended December 31, 1996 and 1995 - -------------------------------------- Equity in net loss of Omnitel increased to $29,850,000 from $14,636,000 because of the increase in the net loss of Omnitel. The increase is due to an increase in Omnitel's share of OPI's net loss to $201,622,000 from $98,428,000. OPI's net loss increased to $284,557,000 from $138,168,000 as a result of the increase in all costs due to the commencement of operations in December 1995. OPI began depreciation and amortization of certain previously capitalized costs in December 1995 upon the commencement of operations. General and administrative expenses decreased to $3,397,000 from $3,805,000 primarily because, as of December 1995, CCII no longer participated in an entity that owns one of the two GSM cellular licenses for Delhi, India, and CCII reduced its efforts to obtain new cellular licenses. Amortization of investments in joint ventures increased to $691,000 from $537,000 as a result of the amortization of additional costs capitalized in connection with the investment in Omnitel. Interest and other income increased to $5,125,000 from $1,963,000 primarily because of an increase in funds available for investment. 24 Interest expense increased to $23,330,000 from $7,230,000 primarily due to the interest on the Senior Discount Notes. Interest expense in 1995 does not include interest of $5,571,000 which was capitalized during the year ended December 31, 1995. The Company discontinued interest capitalization in December 1995 upon the commencement of OPI's operations. The fees to the Company's former parent company, Cellular Communications, Inc. ("CCI"), in connection with the bank loan decreased to zero from $101,000 as a result of the termination of the CCI guarantee in July 1995. This expense does not include fees to CCI of $1,220,000 which were capitalized during the year ended December 31, 1995. The income tax benefit in 1996 of $1,200,000 is the result of applying net operating loss carrybacks to 1995. LIQUIDITY AND CAPITAL RESOURCES The Company's capital requirements are primarily based upon the agreements and requirements of the joint ventures in which it is now or may become a participant. The Company also requires capital to pay for corporate overhead expenses, personnel costs, interest and taxes, as well as capital to explore other opportunities that may arise. The Company has no material commitments for capital expenditures, except as described below. The Company expects that cash, cash equivalents and marketable securities on hand will be sufficient to meet all obligations of the Company at least through the next twelve months. Italian lire have been translated solely for the convenience of the reader at an exchange rate of 1,805.00 lire per U.S. dollar, the Noon Buying Rate on March 20, 1998. As a result of the award of Italy's second GSM cellular license to OPI, OPI required capital to construct its cellular system and to fund its operations. OPI has received capital contributions of 1,450 billion lire ($803 million) from its partners - 1,015 billion lire ($562 million) from Omnitel and 435 billion lire ($241 million) from Pronto Italia. Omnitel funded its share of OPI capital contributions plus its own capital needs through capital contributions from its shareholders of 1,040 billion lire ($576 million). The Company's total cumulative contribution to Omnitel is approximately 152.5 billion lire ($96.8 million at the exchange rates in effect at the time of each contribution). In addition, OPI originally arranged a syndicated bank loan facility for 1,800 billion lire ($997 million). On August 29, 1997, OPI signed an Amended and Restated Facility Agreement which, among other things, provides for an increase in the facility of 1,000 billion lire ($554 million) from 1,800 billion lire to 2,800 billion lire ($1.6 billion). OPI also has a number of other credit and subordinated debt facilities totaling approximately 1,000 billion lire. As of December 31, 1997, OPI had approximately 1,600 billion lire ($886 million) available under its facilities. On October 2, 1997, the Board of Directors of Omnitel approved a proposal to make available to OPI a subordinated credit facility of 70 billion lire ($39 million) as soon as OPI's indebtedness amounts to 2,200 billion lire ($1.2 billion) or in the event of default by OPI under the facility. OPI has provided an approximate 219 billion lire ($121 million) performance bond that requires payments to the Italian government if OPI fails to meet certain operational targets. There 25 can be no assurance that OPI will be able to achieve all of its performance bond goals. The Company's maximum liability under the performance bond is approximately 22.5 billion lire ($12 million), reflecting its proportionate interest in OPI. The Company has not been successful in obtaining any new cellular licenses since there is more competition for licenses and the costs of obtaining them has increased. This has occurred because more companies recognize the potential value of cellular licenses and governments increasingly realize they can extract some part of this value from license applicants. There can be no assurance that the Company will be successful in obtaining new cellular licenses or in developing other opportunities in the future. In August 1995, the Company issued $281,571,000 aggregate principal amount at maturity of 13-1/4% Senior Discount Notes due 2000 (the "Old Notes") and 422,356 warrants to purchase 475,573 shares of common stock. The Old Notes were issued at a price to the public of 52.783% or $148,622,000. The original issue discount accretes at a rate of 13 1/4%, compounded semiannually, to an aggregate principal amount of $281,501,000 by August 15, 2000 (after reduction for the repurchase of $70,000 principal amount of Old Notes in January 1997.) In March 1998, the Company issued ECU 235,000,000 ($258,030,000) aggregate principal amount of 9-1/2% Senior Discount Notes due 2005 and $75,000,000 aggregate principal amount of 6% Convertible Subordinated Notes due 2005. The Senior Discount Notes were issued at a price to the public of 62.455% or ECU 146,769,000 ($161,152,000). The Company received net proceeds of ECU 142,366,000 ($156,318,000) and $72,563,000, after discounts and commissions, from the issuance of the Senior Discount Notes and the Convertible Subordinated Notes, respectively. In February 1998, the Company offered to purchase for cash all of the outstanding Old Notes at the accreted value of $869.12 per $1,000 principal amount. In March 1998, upon the expiration of the offer, $232,469,000 principal amount of Old Notes were tendered and the Company paid approximately $202,043,000 using the proceeds from the Senior Discount Notes and the Convertible Subordinated Notes. In March 1998, the Company recorded an extraordinary loss from the early extinguishment of debt of approximately $40,000,000 as a result of this transaction. To the extent that the Company obtains financing in U.S. dollars and the Company's future commitments to Omnitel are in Italian lire, it will encounter currency exchange rate risks. OPI's revenues are received in Italian lire and currently there are no foreign exchange controls in Italy. There can be no assurance that foreign exchange restrictions will not be introduced in the future. The Company is primarily a holding company with limited business operations of its own. The Company's assets consist primarily of cash, cash equivalents and marketable securities and its ownership interest in Omnitel. The Company does not hold, nor is it likely that the Company will hold, a majority interest in any operating systems. The Company's minority voting position in Omnitel currently precludes it from controlling Omnitel or OPI, even though the Company is involved in the management of Omnitel and intends to participate in the future only in operating companies in which it can be involved in management. Thus, the Company may be unable to cause the implementation of strategies that it favors and, in the event of a disagreement between the 26 Company and one or more of its partners, the strategies adopted and actions taken by an affiliated company may in some cases be contrary to the Company's preferred strategies and actions. In addition, the Company may be unable to access the cash flow of affiliated companies since (i) it does not have the requisite control to cause such entities to pay dividends, (ii) substantially all of such entities are expected to be parties to credit or other borrowing agreements that severely restrict or prohibit the payment of dividends, and such entities are likely to continue to be subject to such restrictions and prohibitions for the foreseeable future and (iii) some countries tax payment and repatriation of dividends. As a result, the Company does not expect to receive significant cash through dividends or other distributions from an affiliate in the foreseeable future. Because the Company does not currently have any cash flow and does not expect any cash flow for the foreseeable future, its ability to repay the remaining Old Notes, the Senior Discount Notes and the Convertible Subordinated Notes at maturity will be dependent on developing one or more sources of cash at or prior to maturity. The Company may (i) seek to refinance all or a portion of the Notes at maturity through sales of additional debt or equity securities of the Company, (ii) if possible and subject to the appropriate consents and approvals and certain other limitations set forth in the OPI Agreement and the Omnitel Agreement, seek to sell all or a portion of its interest in Omnitel, (iii) negotiate with its partners to permit any cash produced by OPI to be distributed to equity holders rather than invested in the business and/or (iv) seek to invest in companies that will make substantial cash distributions on or before the maturity of the Notes. There can be no assurance that (i) there will be a market for the debt or equity securities of the Company in the future, (ii) the Company will be permitted to sell particular assets or be able to sell assets in a timely manner or on commercially acceptable terms or in an amount that (giving effect to the substantial corporate income taxes which could be due in the event of such a sale) will be sufficient to repay the Notes when due, (iii) the Company will be able to persuade its partners that cash generated by the operations of its affiliated entities should be distributed to equity holders (in fact, the Company expects that Omnitel and OPI will utilize all of their respective cash flow for debt repayment or internal development opportunities for the foreseeable future) or (iv) the Company will be able to locate and invest in companies that will be mature enough to make substantial cash distributions to investors prior to the maturity of the Notes. Cash provided by operating activities was $34,000 in 1997 and cash used in operating activities was $2,282,000 in 1996. This change is primarily due to a decrease in income taxes paid to zero in 1997 from $1,242,000 in 1996 and the collection of a federal income tax refund of $868,000 in 1997. Cash provided by investing activities was $11,366,000 in 1997 as a result of proceeds from sales of marketable securities, net of purchases. Redemption of Old Notes of $44,000 in 1997 is the result of the Company's offer to repurchase up to $38,900,000 accreted value of the Old Notes using the excess proceeds from the waiver and release of the Company's claim to participate in an entity that owns one of the two GSM cellular licenses for Delhi, India in December 1995 in exchange for cash of approximately $40,000,000. 27 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - ------------------------------------------------------------------- CCII is required to provide these disclosures in its Annual Report on Form 10-K for the year ending December 31, 1998. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. - --------------------------------------------------- The financial statements are included herein commencing on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. - ----------------------------------------------------------------------- Not applicable. PART III -------- ITEMS 10, 11, 12, AND 13. - ------------------------ The information required by PART III (Items 10, 11, 12 and 13) is incorporated by reference from the Company's definitive proxy statement involving the election of directors which the Company expects to file, pursuant to Regulation 14A, within 120 days following the end of its fiscal year. PART IV ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. - ------------------------------------------------------------------------ (a)(1) Financial Statements - See list of Financial Statements on page F-1. (2) Financial Statement Schedules - See list of Financial Statements on page F-1. (3) Exhibits - See Exhibit Index on page 29. (b) During the quarter ended December 31, 1997, there were no Current Reports on Form 8-K filed by CCII. (c) Exhibits - The response to this portion of Item 14 is submitted as a separate section of this report. (d) Financial Statement Schedules - See list of Financial Statements on page F-1. 28 EXHIBIT INDEX Exhibit No. - ---------- 3.1 Restated Certificate of Incorporation (Incorporated by reference to Exhibit 3.1, 1991 Form 10-K, File No. 0-19363) 3.1(a) Certificate of Designation of Series A Junior Participating Preferred Stock (Incorporated by reference to Exhibit 3.1(a), 1991 Form 10-K, File No. 0-19363) 3.1(c) Certificate of Designation of Series B Preferred Stock (Incorporated by reference to Exhibit 3.1(c), File No. 33-90980) 3.2 Amended By-Laws (Incorporated by reference to Exhibit 3.2, File No. 33-38398) 4.1 Specimen of Common Stock Certificate (Incorporated by reference to Exhibit 4.1, 1991 Form 10-K, File No. 0-19363) 4.2 Rights Agreement, dated as of December 19, 1990, between CCII and Continental Stock Transfer Trust Company as the Rights Agent (Incorporated by reference to Exhibit 4.2, File No. 33-38398) 4.3 Warrant, dated July 25, 1994, between CCII and Cellular Communications, Inc. (Incorporated by reference to Exhibit 4.3, 1994 Form 10-K, File No. 0-19363) 4.4 Indenture, dated as of August 22, 1995, between CCII and Chemical Bank as Trustee (Incorporated by reference to Exhibit 4.2, File No.33-90980) 4.4(a) First Supplemental Indenture, dated as of February 23, 1998, to Indenture dated as of August 22, 1995 10.1 Description of Omnitel Joint Venture Agreement (Incorporated by reference to Exhibit 10.1, 1996 Form 10-K, File No. 0-19363) 10.2 Compensation Plan Agreements, as amended and restated effective June 3, 1997 10.3 Warrant Agreement between the Company and CCII Funding, Inc. (Incorporated by reference to Exhibit 10.10, File No. 33-90980). 11 Statement re computation of per share earnings 23 Consent of Ernst & Young LLP 27.1 Financial Data Schedule, for the year ended December 31, 1997 29 27.2 Restated Financial Data Schedule, for the quarter ended September 30, 1997 27.3 Restated Financial Data Schedule, for the quarter ended June 30, 1997 27.4 Restated Financial Data Schedule, for the quarter ended March 31, 1997 27.5 Restated Financial Data Schedule, for the year ended December 31, 1996 27.6 Restated Financial Data Schedule, for the quarter ended September 30, 1996 27.7 Restated Financial Data Schedule, for the quarter ended June 30, 1996 27.8 Restated Financial Data Schedule, for the quarter ended March 31, 1996 30 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CELLULAR COMMUNICATIONS INTERNATIONAL, INC. Dated: March 30, 1998 By: /s/ William B. Ginsberg ------------------------------------ William B. Ginsberg Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the date indicated.
Signature Title Date - --------- ----- ---- /s/William B. Ginsberg President, Chairman of the | - -------------------------- Board, Chief Executive Officer | William B. Ginsberg and Director (Principal Executive | Officer) | | | /s/ J. Barclay Knapp Executive Vice President | - -------------------------- and Director | J. Barclay Knapp | | | /s/ Gregg Gorelick Vice President-Controller | - -------------------------- (Principal Accounting Officer) | March 30, 1998 Gregg Gorelick | | | /s/ Stanton N. Williams Vice President and Chief Financial | - -------------------------- Officer (Principal Financial Officer) | Stanton N. Williams | | | /s/ Sidney R. Knafel Director | - -------------------------- | Sidney R. Knafel | 31 /s/ Del Mintz Director | - -------------------------- | Del Mintz | | | /s/ Alan J. Patricof Director | March 30, 1998 - -------------------------- | Alan J. Patricof | | | /s/ Warren Potash Director | - -------------------------- | Warren Potash |
32 Form 10-K - Item 14(a)(1) and (2) Cellular Communications International, Inc. and Subsidiaries Index to Consolidated Financial Statements The following consolidated financial statements of Cellular Communications International, Inc. and Subsidiaries are included in Item 8: Report of Independent Auditors............................................ F-2 Consolidated Balance Sheets - December 31, 1997 and 1996.................. F-4 Consolidated Statements of Operations - Years Ended December 31, 1997, 1996 and 1995....................................... F-5 Consolidated Statement of Shareholders' (Deficiency) - Years Ended December 31, 1997, 1996 and 1995....................................... F-6 Consolidated Statements of Cash Flows - Years Ended December 31, 1997, 1996 and 1995....................................... F-7 Notes to Consolidated Financial Statements................................ F-9 All schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. F-1 Report of Independent Auditors Shareholders and Board of Directors Cellular Communications International, Inc. We have audited the consolidated balance sheets of Cellular Communications International, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, shareholders' (deficiency) and cash flows for each of the three years in the period ended December 31, 1997. 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. The financial statements of Omnitel Sistemi Radiocellulari Italiani S.p.A. ("Omnitel") (a corporation in which the Company has a 14.667% interest) have been audited by other auditors whose report has been furnished to us; insofar as our opinion on the consolidated financial statements relates to data included for Omnitel, it is based solely on their report. 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 and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audit and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cellular Communications International, Inc. and Subsidiaries at December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP New York, New York March 25, 1998 F-2 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders of Omnitel Sistemi Radiocellulari Italiani S.p.A. We have audited the accompanying balance sheets of Omnitel Sistemi Radiocellulari Italiani S.p.A. (the "Company") as of December 31, 1997 and 1996 and the related statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. 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 auditing standards generally accepted in the United States of America. 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 Omnitel Sistemi Radiocellulari Italiani S.p.A. as of December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997 in conformity with accounting principles generally accepted in the United States of America. COOPERS & LYBRAND S.p.A. Milan, Italy March 25, 1998 F-3 Cellular Communications International, Inc. and Subsidiaries Consolidated Balance Sheets
DECEMBER 31 1997 1996 ----------------------------- ASSETS Current assets: Cash and cash equivalents $ 59,256,000 $ 46,759,000 Marketable securities 24,871,000 34,404,000 Other 21,000 1,045,000 ----------------------------- Total current assets 84,148,000 82,208,000 Investment in Omnitel 52,151,000 58,363,000 Equipment, net of accumulated depreciation of $40,000 (1997) and $50,000 (1996) 1,000 19,000 Deferred financing costs, net of accumulated amortization of $2,828,000 (1997) and $1,525,000 (1996) 4,414,000 5,717,000 ----------------------------- $ 140,714,000 $ 146,307,000 ============================= LIABILITIES AND SHAREHOLDERS' (DEFICIENCY) Current liabilities: Accounts payable 126,000 $ 156,000 Accrued expenses 509,000 630,000 Taxes payable 1,452,000 1,444,000 Due to NTL Incorporated 69,000 586,000 ----------------------------- Total current liabilities 2,156,000 2,816,000 Long-term debt, less unamortized discount of $3,768,000 (1997) and $4,881,000 (1996) 197,327,000 172,052,000 Commitments and contingent liabilities Shareholders' (deficiency): Series preferred stock - $.01 par value; authorized 2,500,000 shares, outstanding none - - Common stock - $.01 par value; authorized 25,000,000 shares; issued and outstanding 16,359,000 (1997) and 10,708,000 (1996) shares 164,000 107,000 Additional paid-in capital 29,821,000 28,737,000 (Deficit) (88,754,000) (57,405,000) ----------------------------- (58,769,000) (28,561,000) ----------------------------- $ 140,714,000 $ 146,307,000 =============================
See accompanying notes. F-4 Cellular Communications International, Inc. and Subsidiaries Consolidated Statements of Operations
YEAR ENDED DECEMBER 31 1997 1996 1995 ----------------------------------------------------- Equity in net loss of Omnitel $ 5,521,000 $ 29,850,000 $ 14,636,000 General and administrative expenses 2,997,000 3,397,000 3,805,000 Write-off of investments in joint venture - - 602,000 Write-off of deferred costs - - 1,167,000 Depreciation expense 15,000 25,000 28,000 Amortization of investments in joint ventures 691,000 691,000 537,000 ----------------------------------------------------- Operating (loss) (9,224,000) (33,963,000) (20,775,000) Other income (expense): Interest income and other, net 4,500,000 5,125,000 1,963,000 Interest expense (26,625,000) (23,330,000) (7,230,000) Cellular Communications, Inc. fees in connection with the bank loan - - (101,000) Gain on sale of investment in joint venture - - 38,901,000 ----------------------------------------------------- Income (loss) before income taxes and extraordinary item (31,349,000) (52,168,000) 12,758,000 Income tax benefit (provision) - 1,200,000 (5,943,000) ----------------------------------------------------- Income (loss) before extraordinary item (31,349,000) (50,968,000) 6,815,000 Loss from early extinguishment of debt, net of income tax benefit of $794,000 - - (1,474,000) ----------------------------------------------------- Net income (loss) $ (31,349,000) $ (50,968,000) $ 5,341,000 ===================================================== Net income (loss) per common share: Income (loss) before extraordinary item $(1.94) $ (3.23) $ .45 Extraordinary item - - (.10) ----------------------------------------------------- Net income (loss) $(1.94) $ (3.23) $ .35 ===================================================== Net income (loss) per common share - assuming dilution: Income (loss) before extraordinary item $(1.94) $ (3.23) $ .38 Extraordinary item - - (.08) ----------------------------------------------------- Net income (loss) $(1.94) $ (3.23) $ .30 =====================================================
See accompanying notes. F-5 Cellular Communications International, Inc. and Subsidiaries Consolidated Statement of Shareholders' (Deficiency)
COMMON STOCK ADDITIONAL --------------------------- PAID-IN SHARES AMOUNT CAPITAL (DEFICIT) ---------------------------------------------------------------- Balance at December 31, 1994 10,182,000 $ 102,000 $ 18,450,000 $ (11,778,000) Exercise of stock options 162,000 1,000 1,024,000 Issuance of warrants 6,182,000 Costs incurred in connection with the issuance of warrants (312,000) Income tax benefit from the exercise of stock options 2,157,000 Net income for the year ended December 31, 1995 5,341,000 ---------------------------------------------------------------- Balance at December 31, 1995 10,344,000 103,000 27,501,000 (6,437,000) Exercise of stock options 364,000 4,000 1,238,000 Costs incurred in connection with the 1995 issuance of warrants (2,000) Net (loss) for the year ended December 31, 1996 (50,968,000) ---------------------------------------------------------------- Balance at December 31, 1996 10,708,000 107,000 28,737,000 (57,405,000) Exercise of stock options 198,000 2,000 1,139,000 Stock split 5,453,000 55,000 (55,000) Net (loss) for the year ended December 31, 1997 (31,349,000) ---------------------------------------------------------------- Balance at December 31, 1997 16,359,000 $ 164,000 $ 29,821,000 $ (88,754,000) ================================================================
See accompanying notes. F-6 Cellular Communications International, Inc. and Subsidiaries Consolidated Statements of Cash Flows
YEAR ENDED DECEMBER 31 1997 1996 1995 ----------------------------------------------------- OPERATING ACTIVITIES Net income (loss) $ (31,349,000) $ (50,968,000) $ 5,341,000 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Equity in net loss of Omnitel 5,521,000 29,850,000 14,636,000 Depreciation and amortization expense 706,000 716,000 565,000 Write-off of deferred costs and investments in joint venture - - 1,769,000 Loss from early extinguishment of debt - - 2,268,000 Loss on disposal of equipment 3,000 7,000 - Gain on sale of investment in joint venture - - (38,901,000) Accretion of original issue discount 24,206,000 21,214,000 5,263,000 Accretion of interest on marketable securities (1,833,000) (2,224,000) - Interest on cash held in escrow - (562,000) (932,000) Amortization of deferred financing costs charged to interest expense 1,303,000 1,138,000 1,523,000 Amortization of debt discount 1,113,000 969,000 264,000 Changes in operating assets and liabilities: Other current assets 1,024,000 (984,000) (338,000) Accounts payable (30,000) (46,000) 39,000 Accrued expenses (121,000) (242,000) 468,000 Taxes payable 8,000 (1,632,000) 5,166,000 Interest payable - - (58,000) Due to Cellular Communications, Inc. - (81,000) (954,000) Due to NTL Incorporated (517,000) 563,000 23,000 ----------------------------------------------------- Net cash provided by (used in) operating activities 34,000 (2,282,000) (3,858,000) ----------------------------------------------------- INVESTING ACTIVITIES Purchase of equipment - - (52,000) Purchase of marketable securities (122,155,000) (140,222,000) (38,080,000) Proceeds from sale of marketable securities 133,521,000 125,110,000 23,503,000 Cash held in escrow - - (51,800,000) Proceeds from sale of investment in joint venture - - 40,097,000 Additional investments in joint ventures - - (19,779,000) Deferred costs incurred - - (981,000) ----------------------------------------------------- Net cash provided by (used in) investing activities 11,366,000 (15,112,000) (47,092,000) -----------------------------------------------------
F-7 Cellular Communications International, Inc. and Subsidiaries Consolidated Statements of Cash Flows (continued)
YEAR ENDED DECEMBER 31 1997 1996 1995 ----------------------------------------------------- FINANCING ACTIVITIES Proceeds from warrants and borrowings, net of financing costs $ - $ - $ 204,429,000 Redemption of Senior Discount Notes (44,000) - - Principal payments - - (95,911,000) Payment of financing costs - (54,000) - Exercise of stock options 1,141,000 1,242,000 1,025,000 ------------------------------------------------------------ Net cash provided by financing activities 1,097,000 1,188,000 109,543,000 ------------------------------------------------------------ Increase (decrease) in cash and cash equivalents 12,497,000 (16,206,000) 58,593,000 Cash and cash equivalents at beginning of year 46,759,000 62,965,000 4,372,000 ------------------------------------------------------------ Cash and cash equivalents at end of year $ 59,256,000 $ 46,759,000 $ 62,965,000 ============================================================ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for interest exclusive of $3,411,000 (1995) capitalized $ - $ - $ 1,112,000 Income taxes paid - 1,242,000 - SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES Cash held in escrow used for capital contributions to Omnitel $ - $ 44,178,000 $ 9,116,000 Interest expense capitalized as investment in Omnitel - - 3,380,000
See accompanying notes. F-8 Cellular Communications International, Inc. and Subsidiaries Notes to Consolidated Financial Statements 1. ORGANIZATION Cellular Communications International, Inc. ("CCII" or the "Company") was incorporated on May 30, 1984 to own and operate telephone systems in various markets. Prior to July 31, 1991, CCII was a wholly-owned subsidiary of Cellular Communications, Inc. ("CCI"). On July 25, 1990, CCI entered into a Merger and Joint Venture Agreement, as amended as of December 14, 1990 with AirTouch Communications, Inc. ("AirTouch") whereby CCII was distributed to CCI's shareholders on July 31, 1991 (the "Distribution"). CCII's principal line of business is its participation in Omnitel Sistemi Radiocellulari Italiani S.p.A ("Omnitel"), a joint venture that owns 70% of Omnitel Pronto Italia S.p.A. ("OPI"), the consortium that owns and operates one of the two national cellular telephone licenses for Italy using Global System for Mobile Communications ("GSM") technology, the digital technology for cellular telephone systems that European Union countries have agreed to adopt as a common standard. 2. SIGNIFICANT ACCOUNTING POLICIES USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of CCII and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. CASH EQUIVALENTS Cash equivalents are short-term highly liquid investments purchased with a maturity of three months or less. Cash equivalents were $58,908,000 and $46,418,000 at December 31, 1997 and 1996, respectively. At December 31, 1997 and 1996, cash equivalents consisted of money market instruments. MARKETABLE SECURITIES Marketable securities are classified as available-for-sale, which are carried at fair value. Unrealized holding gains and losses on securities, net of tax, are carried as a separate component of shareholders' (deficiency). The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. Realized gains and losses and declines in value judged to be other than temporary will be included in interest income. The cost of securities sold or matured is based on the specific identification method. Interest on securities is included in interest income. F-9 Cellular Communications International, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Marketable securities at December 31, 1997 consist of U.S. corporate debt securities. Marketable securities at December 31, 1996 consist of U.S. Treasury securities, obligations of U.S. government agencies and U.S. corporate debt securities. During the years ended December 31, 1997 and 1996, there were no realized gains or losses on sales of securities. All of the marketable securities as of December 31, 1997 had a contractual maturity of less than one year. INVESTMENTS IN JOINT VENTURES Capital contributions and costs directly incurred in connection with investments in joint ventures to acquire licenses are capitalized. Costs applicable to unsuccessful joint ventures are charged to expense at such time as CCII determines that the joint venture will be denied a license or the joint venture decides not to pursue its license application. Additional costs applicable to successful joint ventures, once a license is awarded or operations commence, are charged to expense. For joint ventures that are awarded a license, the difference between CCII's investment in the joint venture and CCII's underlying equity in the joint venture's net assets, which is primarily the capitalized costs directly incurred by CCII in connection with its participation in the joint venture, are amortized over the life of the license from the date of commencement of operations (OPI license - 15 years). Investments in joint ventures in which the Company exercises significant influence but does not have control through majority ownership are accounted for using the equity method of accounting. The Company reviews its investments in joint ventures for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. CAPITALIZED INTEREST Interest was capitalized as a component of the cost of the investment in Omnitel through the start of OPI's operations in December 1995. Interest of $5,571,000 and fees to CCI in connection with the bank loan of $1,220,000 were capitalized in 1995. EQUIPMENT Equipment is stated at cost. Depreciation is computed by the straight-line method over the estimated useful lives of the assets. Estimated useful lives range from three to five years. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. DEFERRED FINANCING COSTS Deferred financing costs represent costs incurred for the issuance of debt and are amortized over the term of the related debt. F-10 Cellular Communications International, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) DEFERRED COSTS Costs incurred in connection with potential new licenses are capitalized. Costs applicable to successful new licenses will be amortized over the estimated life of the license from the date of commencement of operations. When CCII determines that it will not be successful in obtaining a license, the related capitalized costs are charged to expense. NET INCOME (LOSS) PER SHARE In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS No. 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented, and where appropriate, restated to conform to the SFAS No. 128 requirements. STOCK-BASED COMPENSATION The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." The Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for its plans. 3. RECENT ACCOUNTING PRONOUNCEMENTS COMPREHENSIVE INCOME In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income". SFAS No. 130 requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. SFAS No. 130 is effective for fiscal years beginning after December 15, 1997. The Company will adopt SFAS No. 130 in the first interim period for its fiscal year ending December 31, 1998. SEGMENT REPORTING In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and F-11 Cellular Communications International, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 3. RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED) SEGMENT REPORTING (CONTINUED) requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. SFAS No. 131 is effective for financial statements for periods beginning after December 15, 1997. The Company will adopt SFAS No. 131 for its fiscal year ending December 31, 1998. 4. CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES RISKS INHERENT IN FOREIGN INVESTMENT There can be no assurance that the laws or administrative practice relating to taxation, foreign exchange or other matters in Italy will not change. The value of CCII's interest in Omnitel or Omnitel's interest in OPI may also be affected by changes in tax and other laws and other political, economic, socioeconomic or diplomatic developments in or affecting Italy. CURRENCY RISKS To the extent that CCII obtains financing in U.S. dollars and CCII's commitments to Omnitel and Omnitel's commitments to OPI are in Italian lire, a currency exchange rate risk exists. OPI's revenues are received in Italian lire and currently there are no foreign exchange controls in Italy. There can be no assurance that foreign exchange restrictions will not be introduced in the future. LICENSE CONDITIONS OPI must comply with the standards of service, territorial coverage goals and other conditions contained in its Italian cellular license. The failure to meet these requirements could result in the loss of the license. COMPETITION FOR CELLULAR LICENSES CCII has not recently been successful in obtaining any new cellular licenses since there is more competition for licenses and the costs of obtaining them has increased. There can be no assurance that CCII will be successful in obtaining new cellular licenses or in developing other opportunities in the future. F-12 Cellular Communications International, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 5. INVESTMENT IN OMNITEL The investment in Omnitel consists of the following: DECEMBER 31 1997 1996 ------------------------------- Capital contributions $ 96,805,000 $ 96,805,000 Capitalized costs including interest 9,725,000 9,725,000 Equity in accumulated net loss (52,428,000) (46,907,000) ------------------------------- 54,102,000 59,623,000 Accumulated amortization (1,951,000) (1,260,000) ------------------------------- $ 52,151,000 $ 58,363,000 =============================== In March 1994, the OPI consortium in which Omnitel holds a 70% interest was selected as the second GSM cellular telephone licensee in Italy. CCII, through its 14.667% ownership interest in Omnitel, holds an indirect 10.267% interest in OPI. The following financial information of Omnitel and OPI is prepared in accordance with U.S. generally accepted accounting principles and is reflected in U.S. dollars; the balance sheet information has been translated at the exchange rate on the balance sheet date and the statement of operations information has been translated at the average exchange rate for the period. The following summarizes the assets, liabilities and stockholders' equity of Omnitel: DECEMBER 31 1997 1996 -------------------------------- ASSETS Current assets $ 7,137,000 $ 9,542,000 Investment in OPI 257,971,000 341,842,000 -------------------------------- $ 265,108,000 $ 351,384,000 ================================ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities $ 677,000 $ 1,341,000 Other liabilities 51,000 59,000 Stockholders' equity 264,380,000 349,984,000 -------------------------------- $ 265,108,000 $ 351,384,000 ================================ F-13 Cellular Communications International, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 5. INVESTMENT IN OMNITEL (CONTINUED) The following summarizes the results of operations of Omnitel: YEAR ENDED DECEMBER 31 1997 1996 1995 ------------------------------------------------ Revenues $ - $ - $ - Costs and expenses (1,038,000) (784,000) (862,000) Equity in net loss of OPI (37,071,000) (201,622,000) (98,428,000) ------------------------------------------------ Operating loss (38,109,000) (202,406,000) (99,290,000) Interest income, net 460,000 543,000 859,000 ------------------------------------------------ Net loss $(37,649,000) $(201,863,000) $(98,431,000) ================================================ The following summarizes the assets, liabilities and stockholders' equity of OPI: DECEMBER 31 1997 1996 ---------------------------------- ASSETS Current assets $ 522,188,000 $ 299,576,000 Property, plant and equipment, net 782,129,000 697,069,000 Intangible assets, net 472,918,000 566,804,000 Deferred tax asset 32,088,000 129,644,000 Other 37,158,000 14,925,000 ---------------------------------- $ 1,846,481,000 $ 1,708,018,000 ================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities $ 605,919,000 $ 559,905,000 Long term debt 855,134,000 647,806,000 Other liabilities 16,898,000 11,961,000 Stockholders' equity 368,530,000 488,346,000 ---------------------------------- $ 1,846,481,000 $ 1,708,018,000 ================================== F-14 Cellular Communications International, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 5. INVESTMENT IN OMNITEL (CONTINUED) The following summarizes the results of operations of OPI:
YEAR ENDED DECEMBER 31 1997 1996 1995 -------------------------------------------------------- Revenues $ 1,077,665,000 $ 488,472,000 $ 30,092,000 Costs and expenses 901,144,000 707,098,000 150,550,000 Depreciation and amortization 179,241,000 131,888,000 22,020,000 -------------------------------------------------------- 1,080,385,000 838,986,000 172,570,000 -------------------------------------------------------- Operating loss (2,720,000) (350,514,000) (142,478,000) Interest income (expense), net (59,446,000) (61,616,000) 4,310,000 Income tax benefit 8,162,000 127,573,000 - -------------------------------------------------------- Net loss $ (54,004,000) $ (284,557,000) $ (138,168,000) ========================================================
OPI recorded an income tax benefit in 1997 and 1996, as management has determined that it is more likely than not that a portion of OPI's deferred tax assets will be realized. 6. GAIN ON SALE OF INVESTMENT IN JOINT VENTURE In March 1992, CCII entered into an agreement to create a joint venture called Sterling Cellular Ltd. ("Sterling") for the purpose of developing new wireless communication business opportunities in India. In 1993, Sterling was selected as one of the two GSM cellular licensees for the city of Delhi, India and was awarded the license in December 1994. In December 1995, CCII waived and released its claim to participate in Sterling in exchange for approximately $40,000,000 in cash. CCII recorded a gain on this transaction of $38,901,000. F-15 Cellular Communications International, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 7. NET INCOME (LOSS) PER COMMON SHARE The following table sets forth the computation of basic and diluted net income (loss) per share:
YEAR ENDED DECEMBER 31 1997 1996 1995 ----------------------------------------------------------- Numerator: Income (loss) before extraordinary item $ (31,349,000) $ (50,968,000) $ 6,815,000 Extraordinary item - - (1,474,000) ----------------------------------------------------------- Net income (loss) $ (31,349,000) $ (50,968,000) $ 5,341,000 ----------------------------------------------------------- Denominator for basic net income (loss) per common share 16,177,000 15,764,000 15,346,000 ----------------------------------------------------------- Effective of dilutive securities: Warrants - - 377,000 Stock options - - 1,990,000 ----------------------------------------------------------- Denominator for diluted net income (loss) per common share 16,177,000 15,764,000 17,713,000 ----------------------------------------------------------- Basic net income (loss) per common share: Income (loss) before extraordinary item $ (1.94) $ (3.23) $ .45 Extraordinary item - - (.10) ----------------------------------------------------------- Net income (loss) $ (1.94) $ (3.23) $ .35 =========================================================== Diluted net income (loss) per common share: Income (loss) before extraordinary item $ (1.94) $ (3.23) $ .38 Extraordinary item - - (.08) --------------------------------------------------------- Net income (loss) $ (1.94) $ (3.23) $ .30 ==========================================================
Stock options and warrants are excluded from the calculation of net loss per common share as their effect would be antidilutive. F-16 Cellular Communications International, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 8. BANK LOAN PAYABLE AND CREDIT AGREEMENT CCII obtained a $60,000,000 line of credit in July 1994. The terms of the line of credit included interest, at CCII's election, either at the bank's prime rate or LIBOR plus .75%. The terms also included an unused commitment fee of .25% per annum and a one-time facility fee of $120,000. This line of credit expired, and amounts borrowed plus unpaid interest and fees were paid on July 17, 1995. On June 9, 1995, the Company entered into an agreement (the "Bridge Agreement") with an affiliate of Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ Bridge"), which provided for the purchase of up to $80,000,000 in the aggregate principal amount of senior unsecured notes (the "Bridge Notes"). The Bridge Notes were scheduled to mature no later than June 12, 1996. DLJ Bridge purchased $50,000,000 of Bridge Notes on July 17, 1995, the proceeds of which were used to repay the bank loan and related fees to CCI (see Note 10) of approximately $48,750,000 and to pay fees incurred in connection with the Bridge Notes of approximately $1,250,000. The Company incurred costs of $1,293,000 in connection with the Bridge Agreement. 9. LONG-TERM DEBT In August 1995, the Company issued $281,571,000 aggregate principal amount of 13-1/4% Senior Discount Notes due 2000 (the "Notes") and 423,000 warrants to purchase 476,000 shares of common stock. The Notes were issued at a price to the public of 52.783% or $148,622,000. The Company incurred $7,554,000 in fees and expenses in connection with the issuance of the Notes and warrants, of which $7,242,000 is included in deferred financing costs and $312,000 reduced paid-in capital. Proceeds from the issuance of the Notes and warrants of $50,000,000 were used to repay the Bridge Notes. In connection with the repayment of the Bridge Notes, the Company recorded as an extraordinary loss the write-off of $2,268,000 ($1,474,000 net of income tax benefit) consisting of unamortized deferred financing costs and debt discount. The original issue discount accretes at a rate of 13-1/4%, compounded semiannually, to an aggregate principal amount of $281,571,000 by August 15, 2000. In 1997, 1996 and 1995, $24,206,000, $21,214,000 and $7,097,000, respectively, of the original issue discount was added to principal. The fair value of the Notes based on the quoted market price was $228,073,000 and $188,653,000 as of December 31, 1997 and 1996, respectively. The warrants were valued at $14.64 each, resulting in deferred debt discount and a corresponding addition to paid-in capital of $6,182,000. In 1997, 1996 and 1995, $1,113,000, $969,000 and $332,000, respectively, of the deferred discount was amortized. F-17 Cellular Communications International, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 9. LONG-TERM DEBT (CONTINUED) In February 1998, the Company offered to purchase for cash all of the outstanding Notes at the accreted value of $869.12 per $1,000 principal amount. In March 1998, upon the expiration of the offer, $232,469,000 principal amount of Notes were tendered and the Company paid approximately $202,043,000. In March 1998, the Company recorded an extraordinary loss from the early extinguishment of debt of approximately $40,000,000 as a result of this transaction. The Notes indenture required that $51,800,000 of the proceeds be placed in an escrow account until it was needed to finance the Company's additional capital contribution obligations to Omnitel. In 1996 and 1995, cash of $44,178,000 and $9,116,000, respectively, was used for additional contributions to Omnitel. The remaining $420,000 in the escrow account was released to the Company in 1996. Pursuant to the Notes indenture, any net proceeds from an asset sale that are not applied within 12 months after such asset sale to an investment in a related business will be deemed excess proceeds. When the aggregate amount of excess proceeds exceeds $5,000,000, the Company is required to make an offer to purchase the maximum principal amount of Notes that may be purchased using the excess proceeds, at an offer price in cash equal to 100% of the accreted value of the Notes. As a result of the Company's waiver and release of its claim to participate in Sterling in December 1995 in exchange for cash of approximately $40,000,000, the Company had approximately $38,900,000 of excess proceeds in December 1996. The Company made an offer to purchase Notes at the accreted value of $635.65 per $1,000 Note. In January 1997, upon the expiration of the offer, $70,000 principal amount of Notes were tendered and the Company paid approximately $44,000. In March 1998, the Company issued ECU 235,000,000 ($258,030,000) aggregate principal amount of 9-1/2% Senior Discount Notes due 2005 and $75,000,000 aggregate principal amount of 6% Convertible Subordinated Notes due 2005. The Senior Discount Notes were issued at a price to the public of 62.455% or ECU 146,769,000 ($161,152,000). The Company received net proceeds of ECU 142,366,000 ($156,318,000) and $72,563,000, after discounts and commissions, from the issuance of the Senior Discount Notes and the Convertible Subordinated Notes, respectively. The Company used most of the proceeds to repurchase approximately 82% of its 13-1/4% Senior Discount Notes. The original issue discount of the Senior Discount Notes accretes at a rate of 9-1/2% compounded semiannually, to an aggregate principal amount of ECU 235,000,000 ($258,030,000) by April 1, 2003. Interest will thereafter accrue at 9-1/2% per annum, payable semiannually beginning on October 1, 2003. The Senior Discount Notes are unsecured obligations of the Company and are effectively subordinated to all existing and future indebtedness and other liabilities of the Company and the Company's subsidiaries. The Senior Discount Notes may be redeemed at the Company's option, in whole or in part, at any time on or after April 1, 2002 at a redemption price of 104.75% that declines annually to 100% in 2005, F-18 Cellular Communications International, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 9. LONG-TERM DEBT (CONTINUED) plus accrued and unpaid interest to the date of redemption. The Indenture governing the Senior Discount Notes contains restrictions relating to, among other things: (i) incurrence of additional indebtedness and the issuance of preferred stock, (ii) dividend and other payment restrictions and (iii) mergers, consolidations and sales of assets. Interest payments on the Convertible Subordinated Notes begin on October 1, 1998 and interest is payable every six months thereafter. The Convertible Subordinated Notes mature on April 1, 2005. The Convertible Subordinated Notes are unsecured obligations convertible into shares of common stock prior to maturity at a conversion price of $39.95 per share, subject to adjustment. There are approximately 1,878,000 shares of common stock reserved for issuance upon conversion of the Convertible Subordinated Notes. The Convertible Subordinated Notes are redeemable, in whole or in part, at the option of the Company at any time on or after April 4, 2001 at a redemption price of 103.429% that declines annually to 100% in 2005, in each case together with accrued and unpaid interest to the redemption date. 10. RELATED PARTY TRANSACTIONS CCI provided management, financial, legal and technical services to CCII. Amounts charged to CCII consist of salaries directly attributable to CCII, and indirect costs allocated utilizing direct labor hours as reported by the common officers and employees of CCI and CCII. For the years ended December 31, 1996 and 1995, CCI charged CCII $232,000 and $896,000, respectively, which is included in general and administrative expenses. In August 1996, upon the merger of CCI with AirTouch, NTL Incorporated ("NTL") commenced providing management, financial, legal and technical services to CCII. Amounts charged to CCII consist of salaries directly attributable to CCII, and indirect costs allocated utilizing direct labor hours as reported by the common officers and employees of NTL and CCII. In 1996, NTL charged CCII $351,000, which is included in general and administrative expenses. In January 1997, CCII and NTL agreed to a change in NTL's fee for the provision of management, financial, legal and technical services to CCII. NTL charges CCII for direct costs where identifiable and a fixed percentage of its corporate overhead. In 1997, NTL charged CCII $871,000, which is included in general and administrative expenses. It is not practicable to determine the amounts of these expenses that would have been incurred had CCII operated as an unaffiliated entity. However, in the opinion of management of CCII, the allocation method is reasonable. F-19 Cellular Communications International, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 10. RELATED PARTY TRANSACTIONS (CONTINUED) In connection with the Distribution, CCI was obligated to guarantee certain CCII indebtedness through July 31, 1994 if requested by CCII. In June 1994, CCII reached an agreement with CCI for an extension of CCI's guarantee of up to $60,000,000 of CCII indebtedness until July 1995. This agreement provided for the payment of a guarantee fee to CCI on the amount drawn down under the guarantee, the reimbursement to CCI of a portion of the unused commitment fee that CCI paid to its banks, and the issuance to CCI of common stock warrants to purchase 200,000 shares of CCII common stock at fair market value on the effective date of the agreement. The fees to CCI of $2,094,000 were paid in July 1995. 11. INCOME TAXES The 1997 and 1996 income tax benefit differs from the statutory rate because no deferred tax benefit was recorded for the Company's net operating loss carryforwards and deductible temporary differences. The 1996 income tax benefit primarily represents the carryback of 1996 federal tax loss to 1995. The 1995 income tax provision differs from the statutory rate principally because no deferred tax benefit was recorded for the Company's deductible temporary differences. The provision for income taxes in 1995 consists of current federal income taxes. In 1995, the Company recorded an income tax benefit to additional paid-in capital of $2,157,000 attributable to the exercise of stock options including a portion of its income tax loss carryforward attributable to stock options. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of CCII's deferred tax assets and liabilities are as follows: DECEMBER 31 1997 1996 ------------------------------- Deferred tax assets: Equity in net loss of Omnitel $ 15,920,000 $ 13,650,000 Net operating loss carryforward 15,586,000 5,978,000 Other 390,000 122,000 ------------------------------- Total deferred tax assets 31,896,000 19,750,000 Valuation allowance for deferred tax assets (31,896,000) (19,750,000) ------------------------------- Net deferred tax assets - - Deferred tax liabilities - - ------------------------------- Net deferred taxes $ - $ - =============================== At December 31, 1997, the Company had a net operating loss carryforward of approximately $44,500,000 for U.S. federal income tax purposes that expires as follows: $25,100,000 in 2012 and $19,400,000 in 2011. F-20 Cellular Communications International, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 12. SHAREHOLDERS' (DEFICIENCY) STOCK SPLIT On March 19, 1998, the Company declared a 3-for-2 stock split by way of stock dividend, to be paid on April 14, 1998. All common stock data in the Consolidated Financial Statements gives retroactive effect to the stock split. SHAREHOLDER RIGHTS PLAN On November 8, 1990, the Board of Directors adopted a Rights Agreement which provides that one Right will be issued with each share of common stock. The Rights are not exercisable until the occurrence of certain potential takeover events and will expire on July 31, 2001 unless previously redeemed by CCII. When exercisable, each Right entitles the owner to purchase from CCII one one-hundredth of a share of Series A Junior Participating Preferred Stock ("Series A Preferred Stock") at a purchase price of $59. The Series A Preferred Stock will be entitled to a minimum preferential quarterly dividend payment of $.01 per share and will be entitled to an aggregate dividend of 100 times the dividend, if any, declared per share of common stock. In the event of liquidation, the holders of Series A Preferred Stock will be entitled to a minimum preferential liquidation payment of $1 per share and will be entitled to an aggregate payment of 100 times the payment made per share of common stock. Each share of Series A Preferred Stock will have 100 votes and will vote together with the common stock. In the event of any merger, consolidation or other transactions in which shares of common stock are changed or exchanged, each share of Series A Preferred Stock will be entitled to receive 100 times the amount received per share of common stock. The rights are protected by customary antidilution provisions. There are 1,000,000 shares of Series A Preferred Stock designated from the 2,500,000 authorized shares of Series Preferred Stock. No shares of Series A Preferred Stock are issued or outstanding. WARRANTS In August 1995, 423,000 warrants to purchase 476,000 shares of common stock at $24.67 per share were issued in connection with the 13-1/4% Senior Discount Notes. The warrants expire in August 2003. Warrants to purchase 200,000 shares of common stock at $20.17 per share were issued to CCI in July 1994 in connection with the bank loan. These warrants expire in July 1999. STOCK OPTIONS There are 3,592,000 shares of common stock reserved for issuance under the 1991 Stock Option Plan (the "Plan"). The Plan provides that incentive stock options be granted at fair market value of CCII's common stock on the date of grant, and nonqualified stock options be granted at not less than 85% of the fair market value of CCII's common stock on the date of grant. Options are F-21 Cellular Communications International, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 12. SHAREHOLDERS' (DEFICIENCY) (CONTINUED) exercisable as to 20% of the shares subject thereto on the date of grant and become exercisable as to an additional 20% of the shares subject thereto on each January 1 thereafter, while the optionee remains an employee of CCII. Options will expire ten years after the date of the grant. There are 225,000 shares of CCII common stock reserved for issuance to members of the Board of Directors who are not CCII employees under the Non-Employee Directors Stock Option Plan (the "Directors Plan"). The Directors Plan provides that all options be granted at the fair market value of CCII's common stock on the date of grant. Options are exercisable as to 20% of the shares subject thereto on the date of grant and become exercisable as to an additional 20% of the shares subject thereto on each anniversary of the grant date, while the optionee remains a director of CCII. Options will expire ten years after the date of the grant. Pro forma information regarding net income (loss) and net income (loss) per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for 1997, 1996 and 1995: risk-free interest rates of 5.89%, 6.56% and 6.61%, respectively, dividend yield of 0%, volatility factor of the expected market price of the Company's common stock of .363, .388 and .388, respectively, and a weighted-average expected life of the option of 10 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. Following is the Company's pro forma information:
1997 1996 1995 ----------------------------------------------- Pro forma net income (loss) $ (33,784,000) $ (52,933,000) $ 3,957,000 Pro forma net income (loss) per share: Basic $(2.09) $ (3.36) $.26 Diluted $(2.09) $ (3.36) $.22
F-22 Cellular Communications International, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 12. SHAREHOLDERS' DEFICIENCY (CONTINUED) A summary of the Company's stock option activity and related information for the years ended December 31, follows:
1997 1996 1995 ----------------------------------------------------------------------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE ----------------------------------------------------------------------------------- Outstanding-beginning of year 2,494,000 $10.21 2,831,000 $ 7.80 2,672,000 $ 4.52 Granted 215,000 18.46 209,000 22.17 401,000 27.48 Exercised (297,000) 3.83 (546,000) 2.28 (242,000) 4.23 Forfeited (16,000) 27.60 0 0.00 0 0.00 ========= ========= ========= Outstanding-end of year 2,396,000 $11.63 2,494,000 $10.21 2,831,000 $ 7.80 ========= ========= ========= Exercisable at end of year 1,807,000 $ 8.84 1,741,000 $ 6.66 1,921,000 $ 4.06 ========= ========= =========
Weighted-average fair value of options, calculated using the Black-Scholes option pricing model, granted during 1997, 1996 and 1995 is $10.95, $13.89 and $17.25, respectively. The following table summarizes the status of the stock options outstanding and exercisable at December 31, 1997:
STOCK OPTIONS OUTSTANDING STOCK OPTIONS EXERCISABLE - -------------------------------------------------------------------------------------------------- WEIGHTED- WEIGHTED- WEIGHTED- REMAINING AVERAGE AVERAGE RANGE OF NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE EXERCISE PRICES OPTIONS LIFE PRICE OPTIONS PRICE - -------------------------------------------------------------------------------------------------- $0.13 to $0.61 272,000 3.6 Years $ 0.363 272,000 $ 0.363 $0.69 to $1.28 335,000 3.6 Years $ 1.163 335,000 $ 1.163 $1.45 to $2.83 384,000 4.3 Years $ 2.027 384,000 $ 2.027 $8.95 to $11.55 549,000 6.2 Years $11.463 420,000 $11.459 $17.67 to $25.50 527,000 8.5 Years $21.152 198,000 $22.239 $27.83 329,000 7.4 Years $27.833 198,000 $27.833 - -------------------------------------------------------------------------------------------------- Total 2,396,000 1,807,000 ==================================================================================================
F-23 EX-4.4(A) 2 1ST SUPP INDENTURE (13-1/4% SENIOR DISCOUNT NOTES) EXHIBIT 4.4(a) - -------------------------------------------------------------------------------- CELLULAR COMMUNICATIONS INTERNATIONAL, INC., and THE CHASE MANHATTAN BANK (formerly known as Chemical Bank), as Trustee ------------------------------------ First Supplemental Indenture Dated as of February 23, 1998 to Indenture Dated as of August 22, 1995 ------------------------------------ 13-1/4% Senior Discount Notes due 2000 - -------------------------------------------------------------------------------- FIRST SUPPLEMENTAL INDENTURE, dated as of February 23, 1998 (the "First Supplemental Indenture"), to the Indenture, dated as of August 22, 1995 (as amended, modified or supplemented from time to time in accordance therewith, the "Indenture"), between CELLULAR COMMUNICATIONS INTERNATIONAL, INC., a Delaware corporation (the "Company"), and THE CHASE MANHATTAN BANK (formerly known as Chemical Bank)(the "Trustee"). RECITALS WHEREAS, the Company has heretofore executed and delivered to the Trustee the Indenture, providing for, among other things, the creation and issuance by the Company of its 13-1/4% Senior Discount Notes due 2000 (the "Securities"); and WHEREAS, Section 9.02 of the Indenture provides that the Company, when authorized by a Board Resolution, and the Trustee, with the written consent of the Holders of at least a majority in aggregate principal amount of the Securities outstanding, may amend the Indenture, subject to certain exceptions specified in Section 9.02 of the Indenture; and WHEREAS, the parties hereto are entering into this First Supplemental Indenture to eliminate or amend certain of the covenants and other provisions contained in Article 4, Article 5, Article 6 and Article 9 of the Indenture (collectively, the "Proposals"); and WHEREAS, the Holders of at least a majority in aggregate principal amount of the Securities outstanding have duly consented to the Proposals; and WHEREAS, the conditions set forth in the Indenture for the execution and delivery of this First Supplemental Indenture have been complied with; and WHEREAS, all things necessary to make this First Supplemental Indenture a valid agreement of the Company and the Trustee, in accordance with its terms, and a valid amendment of, and supplement to, the Indenture have been done; NOW THEREFORE: In consideration of the premises, the parties have executed and delivered this First Supplemental Indenture, and the Company hereby covenants and agrees with the Trustee, for the equal and proportionate benefit of all Holders of the Securities, that the Indenture is supplemented and amended, to the extent and for the purposes expressed herein, as follows: SECTION 1. Definitions. (a) For all purposes of this First Supplemental Indenture, except as otherwise expressly provided or unless the context otherwise requires, terms used herein shall have the meanings assigned to them in the Indenture. (b) Any defined terms and any references thereto which are used solely in the sections, subsections or provisions of the Indenture deleted by operation of Sections 2, 3, 4 and 5 of this First Supplemental Indenture are hereby deleted in their entireties from Section 1.01 of the Indenture. SECTION 2. Elimination of Certain Provisions of Article 4 and Article 6 of the Indenture. Sections 4.03, 4.04, 4.05, 4.07, 4.08 4.09, 4.11, 4.12, 4.13, 4.16, 4.19 and 4.20 and subsection 6.01(b) of the Indenture are hereby deleted in their entireties together with any references thereto in the Indenture. SECTION 3. Amendment of Section 4.18 of the Indenture. Section 4.18 of the Indenture is hereby amended to read in its entirety as follows: The Company shall not, and shall not permit any Restricted Subsidiary of the Company, Restricted Affiliate or Restricted Subsidiary of a Restricted Affiliate to, enter into any Sale/Leaseback Transaction with respect to any property unless the Company or such Restricted Subsidiary or Restricted Affiliate applies the proceeds of such transaction in compliance with Section 4.10 hereof. SECTION 4. Amendment of Section 5.01 of the Indenture. Section 5.01 of the Indenture is hereby amended to read in its entirety as follows: The Company shall not consolidate or merge with or into another corporation, Person or entity (whether or 2 not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of its assets as an entirety or virtually as an entirety in one or more related transactions, unless (i) the Company is the surviving corporation or the entity or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which a sale, assignment, transfer, lease conveyance or other disposition of the assets as an entirety or virtually as an entirety shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; and (ii) the entity or Person formed by or surviving any such consolidation or merger (if other than the Company) or the entity or Person to which a sale, assignment, transfer, lease, conveyance or other disposition of the assets as an entirety or virtually as an entirety shall have been made assumes all the obligations of the Company pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee, under this Indenture and the Notes. SECTION 5. Amendment of Section 9.04 of the Indenture. Section 9.04 of the Indenture is hereby amended to read in its entirety as follows: Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Security is a continuing consent by the Holder of a Security and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security. However, any such Holder of a Security or (subject to Section 2.12 hereof) subsequent Holder of a Security may revoke the consent as to its Security if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder. Notwithstanding anything to the contrary in this Section 9.04, no consent to any amendment, supplement or waiver delivered by a Holder of a Security (or any transferee or proxy thereof) in connection with the Offer to Purchase and Consent Solicitation of the Company, dated February 6, 1998, and the Solicitation (as defined therein) may be revoked by such Holder (or any transferee or proxy thereof). 3 SECTION 6. Operation of Proposed Amendments. Upon the execution and delivery of this First Supplemental Indenture by the Trustee and the Company, this First Supplemental Indenture will become operative but the Proposals will not become effective until the Securities validly tendered pursuant to the Company's offer to purchase and consent solicitation contained in the Company's Offer to Purchase and Consent Solicitation Statement dated February 6, 1998 and the related Consent and Letter of Transmittal (in each case, as the same may be amended, modified or supplemented from time to time in accordance therewith) are accepted for purchase by the Company in accordance with the terms and conditions set forth therein; provided, however, that the amendment of Section 9.04 of the Indenture pursuant to Section 5 hereof will be effective immediately upon execution of this First Supplemental Indenture. SECTION 7. Recitals. The recitals of fact contained herein shall be taken as the statements of the Company, and the Trustee assumes no responsibility for the correctness of the same. The Trustee makes no representations as to the validity or adequacy of this First Supplemental Indenture or the due execution hereof by the Company. SECTION 8. Ratification and Confirmation of Indenture. Except as hereby expressly amended, the Indenture is in all respects ratified and confirmed and all the terms, provisions and conditions thereof shall be and remain in full force and effect. SECTION 9. Governing Law. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS FIRST SUPPLEMENTAL INDENTURE. SECTION 10. Successors. All agreements of the Company in this First Supplemental Indenture and the Securities shall bind its successors. All agreements of the Trustee in this First Supplemental Indenture shall bind its successors. SECTION 11. Duplicate Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all such executed copies together represent the same agreement. 4 SECTION 12. Separability. In case any provision of this First Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby, and a Holder shall have no claim therefor against any party hereto. SECTION 13. Headings. The headings of the sections of this First Supplemental Indenture have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof. SECTION 14. Trust Indenture Act Controls. If any provision of this First Supplemental Indenture limits, qualifies or conflicts with the duties imposed by TIA Sections 310-317 by operation of TIA Section 318(c), the imposed duties shall control. 5 IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed as of the day and year first above written. CELLULAR COMMUNICATIONS INTERNATIONAL, INC. By: /s/ Richard J. Lubasch ----------------------------------- Name: Richard J. Lubasch Title: Senior Vice President- General Counsel THE CHASE MANHATTAN BANK, as Trustee By: /s/ Andrew M. Deck ----------------------------------- Name: Andrew M. Deck Title: Vice President 6 EX-10.2 3 COMPENSATION PLAN AGREEMENTS EXHIBIT 10.2 CELLULAR COMMUNICATIONS INTERNATIONAL, INC. 1991 STOCK OPTION PLAN (AS AMENDED AND RESTATED EFFECTIVE JUNE 3, 1997) 1. PURPOSE; CONSTRUCTION. This Cellular Communications International, Inc. 1991 Stock Option Plan, as amended and restated effective June 3, 1997 (the "Plan"), is intended to encourage stock ownership by employees of Cellular Communications International, Inc. (the "Corporation") and its divisions and subsidiary corporations, so that they may acquire or increase their proprietary interest in the Corporation, and to encourage such employees to remain in the employ of the Corporation and to put forth maximum efforts for the success of the business. It is further intended that options granted by the Committee pursuant to Section 6 of this Plan shall constitute "incentive stock options" ("Incentive Stock Options") within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and the regulations issued thereunder (the "Code") , and options granted by the Committee pursuant to Section 7 of this Plan shall constitute "nonqualified stock options" ("Nonqualified Stock Options") 2. DEFINITIONS. As used in this Plan, the following words and phrases shall have the meanings indicated: (a) "DISABILITY" shall mean an Optionee's inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of not less than twelve (12) months. (b) "FAIR MARKET VALUE" per share as of a particular date shall mean (i) if the shares of common stock, par value $.0l per share, of the Corporation ("Common Stock") are then traded on an over-the-counter market, the average of the closing bid and asked prices for the shares of Common Stock in such over-the-counter market for the last preceding date on which there was a sale of such Common Stock in such market, (ii) if the shares of Common Stock are then listed on the Nasdaq Stock Market's National Market or other national securities exchange, the closing sales price per share on the date of grant or on the last preceding dare on which there was a sale of such Common Stock on such exchange, or (iii) if the shares of Common Stock are not then traded in an over-the-counter market or listed on Nasdaq or a national securities exchange, such value as the Committee in its discretion may determine. (c) "PARENT CORPORATION" shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the employer corporation if, at the time of granting an Option, each of the corporations other than the employer corporation owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. (d) "SUBSIDIARY CORPORATION" shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the employer corporation if, at the time of granting an Option, each of the corporations other than the last corporation in the unbroken chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. (e) "TEN PERCENT STOCKHOLDER" shall mean an Optionee who, at the time an Incentive Stock Option is granted, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Corporation or of its Parent or Subsidiary Corporations. 3. ADMINISTRATION. The Plan shall be administered by the Compensation and Option Committee of the Corporation's Board of Directors or such other committee appointed either by the Board of Directors of the Corporation (the "Board") or by such Compensation and Option Committee (the "Committee") ; provided, however, to the extent determined necessary to satisfy the requirements for exemption from Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), with respect to the acquisition or disposition of securities hereunder, action by the Committee may be by a subcommittee of a committee of the Board composed solely of two or more "non-employee directors," within the meaning of Rule 16b-3 as promulgated under Section 16(b) of the Exchange Act, appointed by the Board or by the Compensation and Option Committee of the Board, or by a committee composed solely of two or more "non-employee directors," within the meaning of Rule 16b- 3, as a result of the recusal of those members who do not qualify as non-employee directors; and, provided further, to the extent determined necessary to satisfy the requirements for the exception for qualified performance-based compensation under Section 162(m) of the Code and the treasury regulations thereunder, action by the Committee may be by a committee comprised solely of two or more "outside directors," within the meaning of Section 162(m) of the Code and the treasury regulations thereunder, appointed by the Board or by the Compensation and Option Committee. Notwithstanding anything in the Plan to the contrary, and to the extent determined to be necessary to satisfy 2 an exemption under Rule 16b-3 with respect to a grant hereunder (and, as applicable, with respect to the disposition to the Corporation of a security hereunder), or as otherwise determined advisable by the Committee, the terms of such grant and disposition under the Plan shall be subject to the prior approval of the Board. Any prior approval of the Board, as provided in the preceding sentence, shall not otherwise limit or restrict the authority of the Committee to make grants under the Plan, including, but not limited to, the authority of the Committee to make grants qualifying for the performance-based compensation exception under Section 162(m) of the Code and the treasury regulations thereunder. The Committee shall have the authority in its discretion, subject to and not inconsistent with the express provisions of the Plan, to administer the Plan and to exercise all the powers and authorities either specifically granted to it under the Plan or necessary or advisable in the administration of the Plan, including, without limitation, the authority to grant Options; to determine which Options shall constitute Incentive Stock Options and which Options shall constitute Nonqualified Stock Options; to determine the purchase price of the shares of Common Stock covered by each Option (the "Option Price") ; to determine the persons to whom, and the time or times at which, Options shall be granted; to determine the number of shares to be covered by each Option; to interpret the Plan; to prescribe, amend and rescind rules and regulations relating to the Plan; to determine the terms and provisions of the Option Agreements (which need not be identical) entered into in connection with Options granted under the Plan; and to make all other determinations deemed necessary or advisable for the administration of the Plan. The Committee may delegate to one or more of its members or to one or more agents such administrative duties as it may deem advisable, and the Committee or any person to whom it has delegated duties as aforesaid may employ one or more persons to render advice with respect to any responsibility the Committee or such person may have under the Plan. The Board shall fill all vacancies, however caused, in the Committee. The Board may from time to time appoint additional members to the Committee, and may at any time remove one or more Committee members and substitute others. One member of the Committee may be selected by the Board as chairman. The Committee shall hold its meetings at such times and places as it shall deem advisable. All determinations of the Committee shall be made by a majority of its members either present in person or participating by conference telephone at any meeting or by written consent. The Committee may appoint a secretary and make such rules and regulations for the conduct of its business as it shall deem advisable, and shall keep minutes of its meetings. No member of the Board or Committee shall be liable for any 3 action taken or determination made in good faith with respect to the Plan or any Option granted hereunder. 4. ELIGIBILITY. Options may be granted (i) to employees (including, without limitation, officers and directors who are employees) of the Corporation, its present or future divisions and Subsidiary Corporations and Parent Corporations and (ii) in the case of Nonqualified Stock Options, also to employees of an affiliated entity of the Corporation (an "Affiliated Entity") which is designated by the Board to participate in the Plan. In determining the persons to whom Options shall be granted and the number of shares to be covered by each Option, the Committee shall take into account the duties of the respective persons, their present and potential contributions to the success of the Corporation and such other factors as the Committee shall deem relevant in connection with accomplishing the purpose of the Plan. A person to whom an option has been granted hereunder is sometimes referred to herein as an "Optionee." An Optionee shall be eligible to receive more than one grant of an Option during the term of the Plan, but only on the terms and subject to the restrictions hereinafter set forth. Effective with respect to grants made on or after June 2, 1994, no individual shall be eligible to receive, in any given calendar year (or in the case of 1994, the period beginning June 2, 1994 and ending December 31, 1994), an option or options to purchase an amount of shares of Common Stock in excess of 100,000, which number shall be subject to adjustment for transactions described in Section 8(i) in a manner consistent with Section 8(i). 5. STOCK. The stock subject to Options hereunder shall be shares of the Corporation's Common Stock. Such shares may, in whole or in part, be authorized but unissued shares or shares that shall have been or that may be reacquired by the Corporation. The aggregate number of shares of Common Stock as to which Options may be granted from time to time under the Plan shall not exceed 2,394,000. The limitation established by the preceding sentence shall be subject to adjustment as provided in Section 8(i) hereof. In the event that any outstanding Option under the Plan for any reason expires, or is canceled, surrendered or otherwise terminated without having been exercised in full, the shares of Common Stock allocable to such expired, canceled, surrendered or terminated portion of such Option shall (unless the Plan shall have been terminated) become available for subsequent grants of 4 Options under the Plan. Notwithstanding the foregoing, the expiration, cancellation, surrender or termination of an Option, to the extent consistent with Section 162(m) of the Code and the treasury regulations thereunder, shall not be disregarded for purposes of applying the individual limit on the maximum number of shares, as provided in Section 4, that may be purchased in connection with Options granted under the Plan with respect to any individual. 6. INCENTIVE STOCK OPTIONS. Options granted pursuant to this Section 6 are intended to constitute Incentive Stock Options and shall be subject to the following special terms and conditions, in addition to the general terms and conditions specified in Section 8 hereof. (a) VALUE OF SHARES. Any Options granted as Incentive Stock Options shall be treated as Nonqualified Stock Options to the extent that the aggregate Fair Market Value (determined as of the date the Incentive Stock Option is granted) of the shares of Common Stock with respect to which such Options granted under this Plan and all other option plans of the Corporation and any Subsidiary Corporation become exercisable for the first time by an Optionee during any calendar year exceeds $100,000. (b) TEN PERCENT STOCKHOLDER. In the case of an Incentive Stock Option granted to a Ten Percent Stockholder, (i) the Option Price shall not be less than one hundred ten percent (110%) of the Fair Market Value of the shares of Common Stock of the Corporation on the date of grant of such Incentive Stock Option, and (ii) the exercise period shall not exceed five (5) years from the date of grant of such Incentive Stock Option. 7. NONQUALIFIED STOCK OPTIONS. Options granted pursuant to this Section 7 are intended to constitute Nonqualified Stock Options and shall be subject only to the general terms and conditions specified in Section 8 hereof. 8. TERMS AND CONDITIONS OF OPTIONS. Each Option granted pursuant to the Plan shall be evidenced by a written Option Agreement (an "Option Agreement") between the Corporation and the Optionee, which agreement shall comply with and be subject to the following terms and conditions: (a) NUMBER OF SHARES. Each Option Agreement shall state the number of shares of Common Stock to which the Option relates. (b) TYPE OF OPTION. Each Option Agreement shall 5 specifically identify the portion, if any, of the Option which constitutes an Incentive Stock Option and the portion, if any, which constitutes a Nonqualified Stock Option. (c) OPTION PRICE. Each Option Agreement shall state the Option Price, which, in the case of Incentive Stock Options, shall be not less than one hundred percent (100%) of the Fair Market Value of the shares of Common Stock of the Corporation on the date of grant of the Option, and which, in the case of Nonqualified Stock Options, shall in no event be less than eighty-five percent (85%) of the Fair Market Value of the shares of Common Stock of the Corporation on the date of grant of the Option. The Option Price shall be subject to adjustment as provided in Section 8(i) hereof. The date on which the Committee adopts a resolution expressly granting an Option shall be considered the day on which such Option is granted. (d) MEDIUM AND TIME OF PAYMENT. Options may be exercised in whole or in part at any time during the option period by giving written notice of exercise to the Corporation specifying the number of shares to be purchased, accompanied by payment of the purchase price. Payment of the purchase price shall be made in such manner as the Committee may provide in the Option Agreement, which may include cash (including cash equivalents, such as by certified or bank check payable to the Corporation) delivery of unrestricted shares of Common Stock that have been owned by the Optionee or, as applicable, a permissible transferee (as provided in Section 8(h)) for at least six months, any other manner permitted by law as determined by the Committee, or any combination of the foregoing. (e) TERM AND EXERCISE OF OPTIONS. Options shall be exercisable over the exercise period as and at the times and upon the conditions that the Committee may determine, as reflected in the Option Agreement; provided, however, that the Committee shall have the authority to accelerate the exercisability of any outstanding Option at such time and under such circumstances as it, in its sole discretion, deems appropriate; and further provided, however, that such exercise period shall not exceed ten (10) years from the date of grant of such Option. The exercise period shall be subject to earlier termination as provided in Sections 8(f) and 8(g) hereof. An Option may be exercised, as to any or all full shares of Common Stock as to which the Option has become exercisable, by giving written notice of such exercise to the Committee or to such individual(s) as the Committee may from time to time designate. (f) TERMINATION. Except as provided in this Section 8(f) and in Section 8(g) hereof, an Option may not be exercised by the Optionee to whom it was granted or by a transferee to whom such Option was transferred (as provided in Section 8 (h)) unless the Optionee is then in the employ of the Corporation or a division 6 or any corporation which was, at the time of grant of such Option, a Subsidiary Corporation or Parent Corporation thereof (or a corporation or a Parent or Subsidiary Corporation of such corporation issuing or assuming the Option in a transaction to which Section 424(a) of the Code applies) or an Affiliated Entity, and unless the Optionee has remained continuously so employed since the date of grant of the Option. In the event that the employment of an Optionee shall terminate (other than by reason of death, Disability or, in the case of Nonqualified Stock Options, retirement) , all Options granted to such Optionee or transferred by such Optionee (as provided in Section 8 (h) ) that are exercisable at the time of such termination may, unless earlier terminated in accordance with their terms, be exercised by the Optionee or by a transferee within three (3) months after such termination; provided, however, that if the employment of an Optionee shall terminate for cause, all Options theretofore granted to such Optionee or transferred by such Optionee (as provided in Section 8 (h) ) shall, to the extent not theretofore exercised, terminate forthwith. Nothing in the Plan or in any Option granted pursuant hereto shall confer upon an individual any right to continue in the employ of the Corporation or any of its divisions, Subsidiary Corporations or Affiliated Entities or interfere in any way with the right of the Corporation or any such division, Subsidiary Corporation or Affiliated Entity to terminate such employment. (g) DEATH, DISABILITY OR RETIREMENT OF OPTIONEE. If an Optionee shall die while employed by the Corporation or a division or any corporation which was, at the time of grant of such Option, a Subsidiary Corporation or Parent Corporation thereof (or a corporation or a Parent or Subsidiary Corporation of such corporation issuing or assuming the Option in a transaction to which Section 424(a) of the Code applies) or an Affiliated Entity, or within three (3) months after the termination of such Optionee' s employment, other than for cause, or if the Optionee's employment shall terminate by reason of Disability or, in the case of Nonqualified Stock Options, retirement, all Options theretofore granted to such Optionee or transferred by such Optionee (as provided in Section 8 (h) ) , to the extent otherwise exercisable at the time of death or termination of employment, may, unless earlier terminated in accordance with their terms, be exercised by the Optionee or by the Optionee's estate or by a person who acquired the right to exercise such Option by bequest or inheritance or otherwise by reason of death or Disability of the Optionee, or by a transferee (as provided under Section 8 (h)) , at any time within one year after the date of death, Disability or retirement of the Optionee. (h) NONTRANSFERABILITY OF OPTIONS. Except as provided in this Section 8(h), no Option granted hereunder shall be transferable by the Optionee to whom granted, other than by will 7 or the laws of descent and distribution, and the Option may be exercised during the lifetime of such Optionee only by the Optionee or such Optionee's guardian or legal representative. To the extent the Option Agreement so provides, and subject to such conditions as the Committee may prescribe, an Optionee may, upon providing written notice to the General Counsel of the Corporation, elect to transfer the Nonqualified Stock Options granted to such Optionee pursuant to such agreement, without consideration therefor, to members of his or her "immediate family" (as defined below), to a trust or trusts maintained solely for the benefit of the Optionee and/or the members of his or her immediate family, or to a partnership or partnerships whose only partners are the Optionee and/or the members of his or her immediate family. Any purported assignment, alienation, pledge, attachment, sale, transfer, or encumbrance that does not qualify as a permissible transfer under this Section 8 (h) shall be void and unenforceable against the Plan and the Corporation. For purposes of this Section 8 (h) , the term "immediate family" shall mean, with respect to a particular Optionee, the Optionee's spouse, children or grandchildren, and such other persons as may be determined by the Committee. The terms of any such Option and the Plan shall be binding upon a permissible transferee, and the beneficiaries, executors, administrators, heirs and successors of the Optionee and, as applicable, a permissible transferee. (i) EFFECT OF CERTAIN CHANGES. (1) If there is any change in the number of shares of Common Stock through the declaration of stock or cash dividends, or recapitalization resulting in stock splits, or combinations or exchanges of such shares, the aggregate number of shares of Common Stock available for Options, the aggregate number of shares of Common Stock available for distribution under the Plan to any single individual with respect to Options granted hereunder, the number of such shares covered by outstanding Options, and the exercise price per share of such Options shall be proportionately adjusted by the Committee to reflect any increase or decrease in the number of issued shares of Common Stock; provided, however, that any fractional shares resulting from such adjustment shall be eliminated. In the event of any other extraordinary corporate transaction, including, but not limited to, distributions of cash or other property to the Corporation's shareholders, the Committee may equitably adjust outstanding Options as it deems appropriate. (2) In the event of the proposed dissolution or liquidation of the Corporation, in the event of any corporate separation or division, including, but not limited to, split-up, split-off or spin-off, or in the event of a merger or consolidation of the Corporation with another corporation, the Committee may provide that the holder of 8 each Option then exercisable shall have the right to exercise such Option (at its then Option Price) solely for the kind and amount of shares of stock and other securities, property, cash or any combination thereof receivable upon such dissolution, liquidation, or corporate separation or division, or merger or consolidation by a holder of the number of shares of Common Stock for which such Option might have been exercised immediately prior to such dissolution, liquidation, or corporate separation or division, or merger or consolidation; or the Committee may provide, in the alternative, that each Option granted under the Plan shall terminate as of a date to be fixed by the Committee; provided, however, that not less than thirty (30) days' written notice of the date so fixed shall be given to each Optionee, who shall have the right, during the period of thirty (30) days preceding such termination, to exercise the Options (unless earlier terminated in accordance with their terms) as to all or any part of the shares of Common Stock covered thereby, including shares as to which such Options would not otherwise be exercisable; provided, further, that failure to provide such notice shall not invalidate or affect the action with respect to which such notice was required. (3) If while unexercised Options remain outstanding under the Plan - (i) any corporation, person or other entity (other than the Corporation) makes a tender or exchange offer for shares of the Common Stock pursuant to which purchases are made ("Offer"), or (ii) the stockholders of the Corporation approve a definitive agreement to merge or consolidate the Corporation with or into another corporation or to sell or otherwise dispose of all or substantially all of its assets, or adopt a plan of liquidation, or (iii) the "beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act) of securities representing more than 15% of the combined voting power of the Corporation is acquired by any "person" as defined in Sections 13(d) and 14(d) of the Exchange Act, or (iv) during any period of two consecutive years, individuals who at the beginning of such period were members of the Board cease for any reason to constitute at least a majority thereof (unless the election, or the nomination for election by the Corporation's stockholders, of each new director was approved by a vote of at least two-thirds of the 9 directors then still in office who were directors at the beginning of such period), then from and after the date of the first purchase of Common Stock pursuant to such Offer, or the date of any such stockholder approval or adoption, or the date on which public announcement of the acquisition of such percentage shall have been made, or the date on which the change in the composition of the Board set forth above shall have occurred, whichever is applicable (the applicable date being referred to hereinafter as the "Acceleration Date") , all Options shall be exercisable in full, whether or not otherwise exercisable. Following the Acceleration Date, the Committee shall, in the case of a merger, consolidation or sale or disposition of assets, promptly make an appropriate adjustment to the number and class of shares of Common Stock available for Options, and to the amount and kind of shares or other securities or property receivable upon exercise of any outstanding Options after the effective date of such transaction, and the price thereof. (4) Paragraphs (2) and (3) of this Section 8(i) shall not apply to a merger or consolidation in which the Company is the surviving corporation and shares of Common Stock are not converted into or exchanged for stock, securities of any other corporation, cash or any other thing of value. Notwithstanding the preceding sentence, in case of any consolidation or merger of another corporation into the Corporation in which the Corporation is the surviving corporation and in which there is a reclassification or change (including a change to the right to receive cash or other property) of the shares of Common Stock (other than a change in par value, or from par value to no par value, or as a result of a subdivision or combination, but including any change in such shares into two or more classes or series of shares), the Committee may provide that the holder of each Option then exercisable shall have the right to exercise such Option solely for the kind and amount of shares of stock and other securities (including those of any new direct or indirect parent of the Corporation), property, cash or any combination thereof receivable upon such reclassification, change, consolidation or merger by the holder of the number of shares of Common Stock for which such Option might have been exercised. (5) In the event of a change in the Common Stock of the Corporation as presently constituted, which is limited to a change of all of its authorized shares with par value into the same number of shares with a different par value or without par value, the shares resulting from any such change shall be deemed to be the Common Stock within the meaning of the Plan. 10 (6) To the extent that the foregoing adjustments relate to stock or securities of the Corporation, such adjustments shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive, provided that each Incentive Stock Option granted pursuant to this Plan shall not be adjusted in a manner that causes such Option to fail to continue to qualify as an Incentive Stock Option within the meaning of Section 422 of the Code. (7) Except as hereinbefore expressly provided in this Section 8(i), the Optionee shall have no rights by reason of any subdivision or consolidation of shares of stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class or by reason of any dissolution, liquidation, merger, or consolidation or spin-off of assets or stock of another corporation; and any issue by the Corporation of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to the Option. The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Corporation to make adjustments, reclassifications, reorganizations or changes of its capital or business structures or to merge or to consolidate or to dissolve, liquidate or sell, or transfer all or part of its business or assets. (j) RIGHTS AS A STOCKHOLDER. An Optionee or a transferee of an Option shall have no rights as a stockholder with respect to any shares covered by the Option until the date of the issuance of a stock certificate to him for such shares. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distribution of other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Section 8(i) hereof. (k) OTHER PROVISIONS. The Option Agreements authorized under the Plan shall contain such other provisions, including, without limitation, (i) the imposition of restrictions upon the exercise of an Option, and (ii) in the case of an Incentive Stock Option, the inclusion of any condition not inconsistent with such Option qualifying as an Incentive Stock Option, as the Committee shall deem advisable. 9. AGREEMENT BY OPTIONEE REGARDING WITHHOLDING TAXES. If the Committee shall so require, as a condition of exercise, each Optionee shall agree that- 11 (a) no later than the date of exercise of any Option granted hereunder, the Optionee will pay to the Corporation or make arrangements satisfactory to the Committee regarding payment of any federal, state or local taxes of any kind required by law to be withheld upon the exercise of such Option, and (b) the Corporation shall, to the extent permitted or required by law, have the right to deduct federal, state and local taxes of any kind required by law to be withheld upon the exercise of such Option from any payment of any kind otherwise due to the Optionee. 10. TERM OF PLAN. Options may be granted pursuant to the Plan from time to time within a period of ten (10) years from the date the Plan is adopted by the Board, or the date the Plan is approved by the stockholders of the Corporation, whichever is earlier. 11. AMENDMENT AND TERMINATION OF THE PLAN. The Board at any time and from time to time may suspend, terminate, modify or amend the Plan; provided, however, that no amendment that requires stockholder approval under Delaware law, under the rules or regulations of any securities exchange or regulating agency, or in order for the Plan to continue to comply with Rule 16b-3 (as promulgated under Section 16(b) of the Exchange Act) or, if applicable, to comply with the exception for qualified performance-based compensation under Code Section 162 (in), or in order for Options intended to constitute Incentive Stock Options to satisfy the requirements of Section 422 of the Code shall be effective unless the same shall be approved by the requisite vote of the stockholders of the Corporation. Except as provided in Section 8 hereof, no suspension, termination, modification or amendment of the Plan may adversely affect any Option previously granted, unless the written consent of the Optionee or, as applicable, a permissible transferee (as provided in Section 8(h)) is obtained. 12. INTERPRETATION. The Plan is designed and intended to comply with Rule 16b-3 under the Exchange Act and, to the extent applicable, Sections 162(m) and 422 of the Code, and all provisions hereof shall be construed in a manner to so comply. 13. APPROVAL AND RATIFICATION BY STOCKHOLDERS. The Plan shall take effect as set forth in Section 16 hereof upon its adoption by the Board, but shall be subject to its approval and ratification by the holders of a majority of the 12 issued and outstanding shares of Common Stock of the Corporation, which approval and ratification must occur within twelve months after the date that the Plan is adopted by the Board. 14. EFFECT OF HEADINGS. The section and subsection headings contained herein are for convenience only and shall not affect the construction hereof. 15. GOVERNING LAW. The Plan shall be governed by the laws of the State of Delaware. 16. EFFECTIVE DATE OF PLAN. The effective date of the Plan is the date the Plan is adopted by the Board. 13 CELLULAR COMMUNICATIONS INTERNATIONAL, INC. NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN (AS AMENDED AND RESTATED EFFECTIVE MAY 1, 1997) 1. PURPOSE; CONSTRUCTION. The purpose of this Cellular Communications International, Inc. Non-Employee Directors Stock Option Plan, as amended and restated effective May 1, 1997 (the "Plan") , is to encourage stock ownership by non-employee directors of Cellular Communications International, Inc. (the "Corporation") in order to increase their identification with the interests of the Corporation's shareholders, and to encourage such directors to remain in the service of the Corporation and to put forth maximum efforts for the success of the business. 2. DEFINITIONS. As used in this Plan, the following words and phrases shall have the meanings indicated: (a) "BOARD" shall mean the Board of Directors of the Corporation. (b) "CODE" shall mean the Internal Revenue Code of 1986, as amended. (c) "COMMON STOCK" shall mean the common stock, par value ~.O1 per share, of the Corporation. (d) "DISABILITY" shall mean an Optionee's inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of not less than twelve (12) months. (e) "FAIR MARKET VALUE" per share as of a particular date shall mean (i) if the Common Stock is then traded on an over-the-counter market, the average of the closing bid and asked prices for the Common Stock in such over-the-counter market on such date or on the last preceding date on which there was a sale of such Common Stock in such market, (ii) if the Common Stock is then admitted to quotation on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") or other comparable quotation system and has been designated as a National Market System ("NMS") security, or if the Common Stock is then listed on a national securities exchange, the closing sales price per share on such date or on the last preceding date on which there was a sale of such Common Stock on such exchange, or (iii) if the Common Stock is not then traded in an over-the-counter market, admitted to quotation on NASDAQ or other comparable quotation system, or listed on a national securities exchange, such value as the Committee in its discretion may determine. (f) "OPTION" shall mean a stock option granted pursuant to the Plan. (g) "OPTIONEE" shall mean a person to whom an Option has been granted under the Plan. 3. ADMINISTRATION. The Plan shall be administered by the Compensation and Option Committee (the "Committee") established by the Board. The Committee shall have the powers vested in it by the terms of the Plan, such powers to include the authority to prescribe the form of the agreements embodying awards of Options made under the Plan. The Committee shall, subject to and not inconsistent with the express provisions of the Plan, have the authority to administer the Plan and to exercise all the powers and authorities either specifically granted to it under the Plan or necessary or advisable in the administration of the Plan, including, without limitation, the authority to prescribe, amend and rescind rules and regulations relating to the Plan; and to make all other determinations deemed necessary or advisable for the administration of the Plan. The Committee may delegate to one or more of its members or to one or more agents such administrative duties as it may deem advisable, and the Committee or any person to whom it has delegated duties as aforesaid may employ one or more persons to render advice with respect to any responsibility the Committee or such person may have under the Plan. The Board shall fill all vacancies, however caused, in the Committee. The Board may from time to time appoint additional members to the Committee, and may at any time remove one or more Committee members and substitute others. One member of the Committee may be selected by the Board as chairman. The Committee shall hold its meetings at such times and places as it shall deem advisable. All determinations of the Committee shall be made by a majority of its members either present or in person or participating by conference telephone at any meeting or by written consent. The Committee may appoint a secretary and make such rules and regulations for the conduct of its business as it shall deem advisable, and shall keep minutes of its meetings. 2 No member of the Board or Committee shall be liable for any action taken or determination made in good faith with respect to the Plan or any Option granted hereunder. 4. ELIGIBILITY. Each member of the Board who is not an employee of the Corporation or any of its affiliates (a "Non-Employee Director") shall be granted Options in accordance with Section 6 hereof. The adoption of this Plan shall not be deemed to give any director any right to be granted an Option to purchase shares of Common Stock, other than in accordance with the terms of this Plan. 5. STOCK. The stock subject to Options granted hereunder shall be shares of the Corporation's Common Stock. Such shares may, in whole or in part, be authorized but unissued shares or shares that shall have been or that may be reacquired by the Corporation. The aggregate number of shares of Common Stock as to which Options may be granted from time to time under the Plan shall not exceed 150,000. The limitation established by the preceding sentence shall be subject to adjustment as provided in Section 6(k) hereof. In the event that any outstanding Option under the Plan for any reason expires or is canceled, surrendered or otherwise terminated without having been exercised in full, the shares of Common Stock allocable to the unexercised portion of such Option shall (unless the Plan shall have been terminated) become available for subsequent grants of Options under the Plan. 6. TERMS AND CONDITIONS OF OPTIONS. Each Option granted pursuant to the Plan shall be evidenced by a written agreement between the Corporation and the Optionee in such form as the Committee shall prescribe from time to time, which agreement shall comply with and be subject to the following terms and conditions: (a) INITIAL GRANTS. On the first business day in February 1993 (the "Initial Grant Date") , each Non-Employee Director as of such date (a "Current Director") shall be granted automatically, without action by the Committee, an Option to purchase 1,500 shares of Common Stock. (b) GRANTS TO NEW NON-EMPLOYEE DIRECTORS. Each Non-Employee Director (a "New Director") who, after the Initial Grant Date, is elected to the Board for the first time by the stockholders of the Corporation at any special or annual 3 meeting of stockholders, will, at the time such director is elected and duly qualified, be granted automatically, without any action by the Committee, an Option to purchase 1,500 shares of Common Stock. (c) GRANTS TO CONTINUING DIRECTORS. On the first business day in February 1994, each continuing Current Director will be granted automatically, without action by the Committee, an Option to purchase 1,500 shares of Common Stock and on the date of the annual meeting of stockholders in 1995, 1996 and 1997, each Current Director will be granted automatically, without action by the Committee, an Option to purchase 7,500 shares of Common Stock. In addition, on the first business day in February subsequent to the election of any New Director, such New Director will, if he or she is a continuing director on such date, be granted automatically, without action by the Committee, an Option to purchase 1,500 shares of Common Stock and on the date of the second, third and fourth annual meetings of stockholders subsequent to the election of any New Director, such New Director will, if he or she is a continuing director on such date, be granted automatically, without action by the Committee, an Option to purchase 7,500 shares of Common Stock. (d) TYPE OF OPTION. Each Option granted under the Plan shall be a stock option which is not intended to qualify as an "incentive stock option" under Section 422 of the Code. (e) OPTION PRICE. The Option Price of each Option granted under the Plan shall be equal to one hundred percent (100%) of the Fair Market Value of the shares of Common Stock subject to such Option on the date of grant thereof. The Option Price shall be subject to adjustment as provided in Section 6(k) hereof. (f) MEDIUM AND TIME OF PAYMENT. Options may be exercised in whole or in part at any time during the option period by giving written notice of exercise specifying the number of shares to be purchased, accompanied by payment of the purchase price. Payment of the purchase price may be made in cash (including cash equivalents, such as by certified or bank check payable to the Corporation) , by delivery of unrestricted shares of Common Stock that have been owned by the Optionee or, as applicable, a permissible transferee (as provided in Section 6(j)) for at least six months, or in any combination of the foregoing. (g) TERM AND EXERCISE OF OPTIONS. Options granted under the Plan shall be exercisable as to twenty percent 4 (20%) of the shares subject thereto on the date of grant thereof and shall become exercisable as to an additional twenty percent (20%) of the shares subject thereto on each of the first, second, third and fourth anniversaries of the date of grant thereof. An option shall be exercisable for a period of ten (10) years from the date of grant of such Option; provided, however, that, except as provided in this Section 6(g), the exercise period shall be subject to earlier termination as provided in Sections 6(h) and 6(i) hereof. An Option may be exercised, as to any or all full shares of Common Stock as to which the Option has become exercisable, by giving written notice of such exercise to the Committee or to such individual(s) as the Committee may from time to time designate. Notwithstanding anything in the Plan to the contrary, in the case of the termination of service of an Optionee as a director, the Committee or, to the extent determined necessary to satisfy the requirements for an exemption from Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") , the Board, in its sole discretion, may determine that all or a portion of the Options that are then held by the Optionee (or, as applicable, by a permissible transferee of such Options (as provided in Section 6(j)) shall, to the extent not then exercisable, become exercisable in accordance with the first sentence of this Section 6(g) or as provided in Section 6(k) and that all or a portion of the Options held by the Optionee or by a transferee at the time of the Optionee's termination of service may be exercised by the Optionee or, as applicable, by a transferee (or, as applicable, by their beneficiaries, executors, administrators, heirs and successors) during such period as determined by the Committee (or, as applicable, the Board) provided that such period shall terminate no earlier than the end of the exercise period that otherwise would apply under Section 6(h) or Section 6(i) following such termination of service under the Plan and no later than the end of the applicable Option term. (h) TERMINATION. Except as provided in this Section 6(h) and in Section 6(i) hereof, an Option may not be exercised by the Optionee to whom it was granted or by a transferee to whom such Option was transferred (as provided in Section 6(j)) unless the Optionee is then in service as a director of the Corporation and unless the Optionee has remained continuously in the Corporation's service as a director since the date of grant of the Option. In the event that the service of an Optionee as a director shall terminate (other than by reason of death, disability or retirement) , all Options granted to such Optionee or transferred by such Optionee (as provided in Section 6(j)) that are exercisable at the time of such termination may, 5 unless earlier terminated in accordance with their terms, be exercised by the Optionee or by a transferee within three (3) months after such termination; provided, however, that if the service of an Optionee as a director of the Corporation shall terminate for cause, all Options theretofore granted to such Optionee or transferred by such Optionee (as provided in Section 6(j)), shall, to the extent not theretofore exercised, terminate forthwith. Nothing in the Plan or in any Option granted pursuant hereto shall confer upon an individual any right to continue in service as a director of the Corporation or interfere in any way with the right of the Corporation to terminate such service. (i) DEATH, DISABILITY OR RETIREMENT OF OPTIONEE. If an Optionee shall die while in service as a director of the Corporation or within three (3) months after the termination of such Optionee's service, other than for cause, or if the Optionee s service as a director shall terminate by reason of Disability or retirement, all Options theretofore granted to such Optionee or transferred by such Optionee (as provided in Section 6(j)), to the extent otherwise exercisable at the time of death or termination of service, may, unless earlier terminated in accordance with their terms, be exercised by the Optionee or by the Optionee's estate or by a person who acquired the right to exercise such Option by bequest or inheritance or otherwise by reason of the death or Disability of the Optionee or by a transferee at any time within one year after the date of death, Disability or retirement of the Optionee. (j) NONTRANSFERABILITY OF OPTIONS. Except as provided in this Section 6(j), no Option granted hereunder shall be transferable by the Optionee to whom granted, other than by will or the laws of descent and distribution, and the Option may be exercised during the lifetime of such Optionee only by the Optionee or such Optionee's guardian or legal representative. Subject to such conditions as the Committee may prescribe (provided such prescription of conditions does not cause the acquisition or disposition of securities hereunder to fail to qualify for an exemption under Section 16(b) of the Exchange Act), an Optionee may, upon providing written notice to the General Counsel of the Corporation, elect to transfer the stock options granted to such Optionee pursuant to such agreement, without consideration therefor, to members of his or her "immediate family" (as defined below), to a trust or trusts maintained solely for the benefit of the Optionee and/or the members of his or her immediate family, or to a partnership or partnerships whose only partners are the Optionee and/or the members of his or her immediate family. Any purported assignment, alienation, 6 pledge, attachment, sale, transfer, or encumbrance that does not qualify as a permissible transfer under this Section 6(j), shall be void and unenforceable against the Plan and the Corporation. For purposes of this Section 6(j), the term "immediate family" shall mean, with respect to a particular Optionee, the Optionee's spouse, children or grandchildren, and such other persons as may be determined by the Committee. The terms of any such Option and the Plan shall be binding upon a permissible transferee, and the beneficiaries, executors, administrators, heirs and successors of the Optionee and, as applicable, a permissible transferee. (k) EFFECT OF CERTAIN CHANGES. (1) If there is any change in the number of shares of Common Stock through the declaration of stock or cash dividends, or recapitalization resulting in stock splits, or combinations or exchanges of such shares, the aggregate number of shares of Common Stock available for Options, the number of such shares covered by outstanding Options, and the exercise price per share of such Options shall be proportionately adjusted by the Committee to reflect any increase or decrease in the number of issued shares of Common Stock; provided, however, that any fractional shares resulting from such adjustment shall be eliminated. In the event of any other extraordinary corporate transaction, including, but not limited to, distributions of cash or other property to the Corporation's shareholders, the Committee shall equitably adjust outstanding Options to preserve, but not increase, the benefits of such Options. (2) In the event of the proposed dissolution or liquidation of the Corporation, in the event of any corporate separation or division, including, but not limited to, split-up or spin-off, or in the event of a merger or consolidation of the Corporation with another corporation, the Committee shall provide that the holder of each Option then exercisable shall have the right to exercise such Option (at its then Option price) solely for the kind and amount of shares of stock and other securities, property, cash or any combination thereof receivable upon such dissolution, liquidation, or corporate separation or division, or merger or consolidation by a holder of the number of shares of Common Stock for which such Option might have been exercised immediately prior to such dissolution, liquidation, or corporate separation or division, or merger or consolidation. 7 (3) If while unexercised Options remain outstanding under the Plan -- (i) any corporation, person or other entity (other than the Corporation) makes a tender or exchange offer for shares of Common Stock pursuant to which purchases are made ("Offer"), or (ii) the stockholders of the Corporation approve a definitive agreement to merge or consolidate the Corporation with or into another corporation or to sell or otherwise dispose of all or substantially all of its assets, or adopt a plan of liquidation, or (iii) the "beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act) of securities representing more than 15% of the combined voting power of the Corporation is acquired by any "person" as defined in sections 13(d) and 14(d) of the Exchange Act, or (iv) during any period of two consecutive years, individuals who at the beginning of such period were members of the Board cease for any reason to constitute at least a majority thereof (unless the election, or the nomination for election by the Corporation's stockholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period), then from and after the date of the first purchase of Common Stock pursuant to such Offer, or the date of any such stockholder approval or adoption, or the date on which public announcement of the acquisition of such percentage shall have been made, or the date on which the change in the composition of the Board set forth above shall have occurred, whichever is applicable (the applicable date being referred to hereinafter as the "Acceleration Date"), all Options shall be exercisable in full, whether or not otherwise exercisable. Following the Acceleration Date, the Committee shall, in the case of a merger, consolidation or sale or disposition of assets, promptly make an appropriate adjustment to the number and class of shares of Common Stock available for Options, and to the amount and kind of shares or other securities or property receivable upon exercise of any outstanding Options after the effective date of such transaction, and the price thereof. (4) Paragraphs (2) and (3) of this Section 6(k) shall not apply to a merger or consolidation in which the Company 8 is the surviving corporation and shares of Common Stock are not converted into or exchanged for stock, securities of any other corporation, cash or any other thing of value. Notwithstanding the preceding sentence, in case of any consolidation or merger of another corporation into the Corporation in which the Corporation is the surviving corporation and in which there is a reclassification or change (including a change to the right to receive cash or other property) of the shares of Common Stock (other than a change in par value, or from par value to no par value, or as a result of a subdivision or combination, but including any change in such shares into two or more classes or series of shares), the Committee shall provide that the holder of each Option then exercisable shall have the right to exercise such Option solely for the kind and amount of shares of stock and other securities (including those of any new direct or indirect parent of the Corporation), property, cash or any combination thereof receivable upon such reclassification, change, consolidation or merger by the holder of the number of shares of Common Stock for which such Option might have been exercised. (5) In the event of a change in the Common Stock of the Corporation as presently constituted, which is limited to a change of all of its authorized shares with par value into the same number of shares with a different par value or without par value, the shares resulting from any such change shall be deemed to be the Common Stock within the meaning of the Plan. (6) To the extent that the foregoing adjustments relate to stock or securities of the Corporation, such adjustments shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive. (7) Except as hereinbefore expressly provided in this Section 6(k), the Optionee shall have no rights by reason of any subdivision or consolidation of shares of stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class or by reason of any dissolution, liquidation, merger, or consolidation or spin-off of assets or stock of another corporation; and any issue by the Corporation of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to the Option. The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Corporation to make adjustments, reclassifications, reorganizations or changes 9 of its capital or business structures or to merge or to consolidate or to dissolve, liquidate or sell, or transfer all of part of its business or assets. (l) RIGHTS AS A STOCKHOLDER. An Optionee or a transferee of an Option shall have no rights as a stockholder with respect to any shares covered by the Option until the date of the issuance of a stock certificate to him or her for such shares. No adjustment shall be made for the dividends (ordinary or extraordinary, whether in cash, securities or other property) or distribution of other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Section 6(k) hereof. (m) OTHER PROVISIONS. The Option Agreements authorized under the Plan shall contain such other provisions, including, without limitation, the imposition of restrictions upon the exercise of an Option, unless the inclusion of such provisions would cause the acquisition or disposition of shares of Common Stock in connection with such Option Agreements to fail to qualify for an exemption from Section 16(b) of the Exchange Act. 7. TERM OF PLAN. Options may be granted pursuant to the Plan from time to time within a period of ten (10) years from the date the Plan is adopted by the Board, or the date the Plan is approved by the stockholders of the Corporation, whichever is earlier. 8. AMENDMENT AND TERMINATION OF THE PLAN. The Board at any time and from time to time may suspend, terminate, modify or amend the Plan; provided, however, that no amendment that requires stockholder approval under applicable Delaware law, under the rules or regulations of any securities exchange or regulatory agency, or in order for the Plan to continue to comply with Rule 16b-3 (as promulgated under Section 16(b) of the Exchange Act) shall be effective unless the same shall be approved by the requisite vote of the stockholders of the Corporation. Except as provided in Section 6 hereof, no suspension, termination, modification or amendment of the Plan may adversely affect any Option previously granted, unless the written consent of the Optionee or, as applicable, a permissible transferee (as provided in Section 6(j)) is obtained. 9. APPROVAL AND RATIFICATION BY STOCKHOLDERS. The Plan shall take effect as set forth in Section 12 upon its adoption by the Board, but shall be subject to its 10 approval and ratification by the holders of a majority of the issued and outstanding shares of Common Stock of the Corporation, which approval and ratification must occur within twelve months after the date that the Plan is adopted by the Board. 10. EFFECT OF HEADINGS. The section and subsection headings contained herein are for convenience only and shall not affect the construction hereof. 11. GOVERNING LAW. The Plan shall be governed by the laws of the State of Delaware 12. EFFECTIVE DATE OF PLAN. The effective date of the Plan is the date the Plan is adopted by the Committee. 11 EX-11 4 COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 CELLULAR COMMUNICATIONS INTERNATIONAL, INC. CALCULATION OF NET INCOME (LOSS) PER SHARE
Weighted Average Number of Shares ---------------------------------------------------------- Date Total Year Ended Year Ended Year Ended Issued Description of Issuance Outstanding 31-Dec-97 31-Dec-96 31-Dec-95 - -------------------------------------------------------------------------------------------------------- 12/31/94 Common Stock 15,273,932 15,273,932 15,273,932 15,273,932 01/06/95 Common Stock 1,125 1,125 1,125 1,107 01/12/95 Common Stock 338 338 338 327 01/30/95 Common Stock 939 939 939 863 02/02/95 Common Stock 3,501 3,501 3,501 3,185 02/23/95 Common Stock 939 939 939 800 04/17/95 Common Stock 2,100 2,100 2,100 1,485 08/04/95 Common Stock 338 338 338 138 08/07/95 Common Stock 2,250 2,250 2,250 900 08/21/95 Common Stock 624 624 624 225 08/23/95 Common Stock 10,125 10,125 10,125 3,606 09/12/95 Common Stock 158,400 158,400 158,400 47,738 09/28/95 Common Stock 11,250 11,250 11,250 2,898 10/10/95 Common Stock 31,500 31,500 31,500 7,077 11/07/95 Common Stock 1,950 1,950 1,950 288 11/22/95 Common Stock 1,688 1,688 1,688 180 12/06/95 Common Stock 150 150 150 11 12/11/95 Common Stock 6,750 6,750 6,750 1,476 12/13/95 Common Stock 2,550 2,550 2,550 126 12/18/95 Common Stock 1,313 1,313 1,313 47 12/29/95 Common Stock 4,500 4,500 4,500 24 01/11/96 Common Stock 900 900 873 02/13/96 Common Stock 3,752 3,752 3,300 03/06/96 Common Stock 564 564 462 03/08/96 Common Stock 3,000 3,000 2,442 03/12/96 Common Stock 10,001 10,001 8,033 05/16/96 Common Stock 6,563 6,563 4,106 06/13/96 Common Stock 182,250 182,250 100,088 06/14/96 Common Stock 169,875 169,875 92,828 06/17/96 Common Stock 64,796 64,796 34,877 11/06/96 Common Stock 75 75 12 11/25/96 Common Stock 2,252 2,252 222 11/26/96 Common Stock 3,750 3,750 359 12/31/96 Common Stock 97,875 97,875 01/15/97 Common Stock 1,800 1,727 01/17/97 Common Stock 1,502 1,431 01/21/97 Common Stock 2,250 2,121 01/24/97 Common Stock 900 842 05/05/97 Common Stock 31,500 20,712 06/30/97 Common Stock 4,500 2,268 08/01/97 Common Stock 23,252 9,683 08/05/97 Common Stock 7,500 3,041 08/06/97 Common Stock 90,000 36,246 08/18/97 Common Stock 91,316 33,774 10/15/97 Common Stock 13,908 2,934 12/10/97 Common Stock 2,739 158 12/18/97 Common Stock 450 17 12/19/97 Common Stock 4,500 149 12/26/97 Common Stock 3,377 47 12/30/97 Common Stock 6,750 18 01/02/98 Common Stock 11,250 0 ---------------------------------------------------------- Weighted average number of common shares 16,359,402 16,177,074 15,763,859 15,346,430 ---------------------------------------------------------- Net effect of dilutive stock options 1,990,088 Net effect of dilutive stock warrants 376,700 ---------------------------------------------------------- Total 16,359,402 16,177,074 15,763,859 17,713,217 ==========================================================
CELLULAR COMMUNICATIONS INTERNATIONAL, INC. CALCULATION OF NET INCOME (LOSS) PER SHARE
Year Ended Year Ended Year Ended 31-Dec-97 31-Dec-96 31-Dec-95 -------------------------------------------- Income (loss) before extraordinary item ($31,349,000) ($50,968,000) $6,815,000 Loss from early extinguishment of debt 0 0 (1,474,000) -------------------------------------------- Net income (loss) ($31,349,000) ($50,968,000) $5,341,000 ============================================ Net income (loss) per common share: Income (loss) before extraordinary item ($1.94) ($3.23) $0.44 Extraordinary item 0.00 0.00 (0.10) -------------------------------------------- Net income (loss) ($1.94) ($3.23) $0.34 ============================================ Net income (loss) per common share-assuming dilution: Income (loss) before extraordinary item ($1.94) ($3.23) $0.38 Extraordinary item 0.00 0.00 (0.08) -------------------------------------------- Net income (loss) ($1.94) ($3.23) $0.30 ============================================
- ---------------------------------------------------------------------------- Note: Adjusted to give retroactive effect to the 3-for-2 stock split by way of a stock dividend paid on April 14, 1998. EX-23 5 CONSENT OF ERNST & YOUNG LLP EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the (i) Registration Statements (Forms S-8 No. 33-41528, No. 33-78846, No. 33-55442, No. 33-89368, No. 33-55440, No. 333-44761, No. 33-78840, No. 33-89370 and No. 33-89366) of Cellular Communications International, Inc. (the "Company") and (ii) Registration Statements (Forms S-3 No. 33-90980 and 33-97396) of the Company and in the related Prospectus of our report dated March 25, 1998, with respect to the consolidated financial statements of the Company included in the Annual Report (Form 10-K) for the year ended December 31, 1997. ERNST & YOUNG LLP New York, New York March 26, 1998 EX-27.1 6 FINANCIAL DATA SCHEDULE -- 12/31/97
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM APPLICABLE 1997 ANNUAL FINANCIAL STATEMENTS OF CELLULAR COMMUNICATIONS INTERNATIONAL, INC. THE SCHEDULE IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 59,256,000 24,871,000 0 0 0 21,000 41,000 (40,000) 140,714,000 2,156,000 197,327,000 0 0 164,000 (58,605,000) 140,714,000 0 0 0 5,521,000 2,997,000 0 26,625,000 (31,349,000) 0 (31,349,000) 0 0 0 (31,349,000) (1.94) (1.94) TAKES INTO ACCOUNT A 3-FOR-2 STOCK SPLIT BY WAY OF STOCK DIVIDEND TO BE PAID ON APRIL 14, 1998.
EX-27.2 7 RESTATED FINANCIAL DATA SCHEDULE - 9/30/97
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM APPLICABLE 1997 INTERIM FINANCIAL STATEMENTS OF CELLULAR COMMUNICATIONS INTERNATIONAL, INC. THE SCHEDULE IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 59,971,000 23,083,000 0 0 0 103,000 41,000 (39,000) 138,133,000 2,053,000 190,690,000 0 0 109,000 (54,719,000) 138,133,000 0 0 0 7,628,000 2,473,000 0 19,644,000 (26,970,000) 0 (26,970,000) 0 0 0 (26,970,000) (1.67) (1.67) RESTATED FOR A 3-FOR-2 STOCK SPLIT BY WAY OF STOCK DIVIDEND TO BE PAID ON APRIL 14, 1998. RESTATED TO REFLECT THE ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO.128, "EARNINGS PER SHARE"
EX-27.3 8 RESTATED FINANCIAL DATA SCHEDULE - 6/30/97
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM APPLICABLE 1997 INTERIM FINANCIAL STATEMENTS OF CELLULAR COMMUNICATIONS INTERNATIONAL, INC. THE SCHEDULE IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 65,818,000 15,732,000 0 0 0 206,000 69,000 (60,000) 136,259,000 1,990,000 184,259,000 0 0 107,000 (50,097,000) 136,259,000 0 0 0 8,612,000 1,847,000 0 12,881,000 (21,511,000) 0 (21,511,000) 0 0 0 (21,511,000) (1.34) (1.34) RESTATED FOR A 3-FOR-2 STOCK SPLIT BY WAY OF STOCK DIVIDEND TO BE PAID ON APRIL 14, 1998. RESTATED TO REFLECT THE ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO.128, "EARNINGS PER SHARE"
EX-27.4 9 RESTATED FINANCIAL DATA SCHEDULE - 3/31/97
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM APPLICABLE 1997 INTERIM FINANCIAL STATEMENTS OF CELLULAR COMMUNICATIONS INTERNATIONAL, INC. THE SCHEDULE IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 28,365,000 52,678,000 0 0 0 1,255,000 69,000 (55,000) 138,774,000 3,005,000 178,034,000 0 0 107,000 (42,372,000) 138,774,000 0 0 0 7,137,000 1,094,000 0 6,336,000 (13,734,000) 0 (13,734,000) 0 0 0 (13,734,000) (0.85) (0.85) RESTATED FOR A 3-FOR-2 STOCK SPLIT BY WAY OF STOCK DIVIDEND TO BE PAID ON APRIL 14, 1998. RESTATED TO REFLECT THE ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO.128, "EARNINGS PER SHARE"
EX-27.5 10 RESTATED FINANCIAL DATA SCHEDULE - 12/31/96
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM APPLICABLE 1996 ANNUAL FINANCIAL STATEMENTS OF CELLULAR COMMUNICATIONS INTERNATIONAL, INC. THE SCHEDULE IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 46,759,000 34,404,000 0 0 0 1,045,000 69,000 (50,000) 146,307,000 2,816,000 172,052,000 0 0 107,000 (28,668,000) 146,307,000 0 0 0 29,850,000 3,397,000 0 23,330,000 (52,168,000) 1,200,000 (50,968,000) 0 0 0 (50,968,000) (3.23) (3.23) RESTATED FOR A 3-FOR-2 STOCK SPLIT BY WAY OF STOCK DIVIDEND TO BE PAID ON APRIL 14, 1998. RESTATED TO REFLECT THE ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO.128, "EARNINGS PER SHARE"
EX-27.6 11 RESTATED FINANCIAL DATA SCHEDULE - 9/30/96
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM APPLICABLE 1996 INTERIM FINANCIAL STATEMENTS OF CELLULAR COMMUNICATIONS INTERNATIONAL, INC. THE SCHEDULE IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 20,697,000 58,178,000 0 0 0 2,311,000 69,000 (45,000) 141,939,000 2,150,000 166,214,000 0 0 106,000 (26,531,000) 141,939,000 0 0 0 33,673,000 2,382,000 0 17,191,000 (49,777,000) 1,200,000 (48,577,000) 0 0 0 (48,577,000) (3.09) (3.09) RESTATED FOR A 3-FOR-2 STOCK SPLIT BY WAY OF STOCK DIVIDEND TO BE PAID ON APRIL 14, 1998. RESTATED TO REFLECT THE ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO.128, "EARNINGS PER SHARE"
EX-27.7 12 RESTATED FINANCIAL DATA SCHEDULE - 6/30/96
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM APPLICABLE 1996 INTERIM FINANCIAL STATEMENTS OF CELLULAR COMMUNICATIONS INTERNATIONAL, INC. THE SCHEDULE IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 13,555,000 64,576,000 0 0 0 440,000 94,000 (57,000) 152,930,000 1,459,000 160,558,000 0 0 106,000 (9,193,000) 152,930,000 0 0 0 20,785,000 1,562,000 0 11,242,000 (31,239,000) 0 (31,239,000) 0 0 0 (31,239,000) (2.01) (2.01) RESTATED FOR A 3-FOR-2 STOCK SPLIT BY WAY OF STOCK DIVIDEND TO BE PAID ON APRIL 14, 1998. RESTATED TO REFLECT THE ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO.128, "EARNINGS PER SHARE"
EX-27.8 13 RESTATED FINANCIAL DATA SCHEDULE - 3/31/96
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM APPLICABLE 1996 INTERIM FINANCIAL STATEMENTS OF CELLULAR COMMUNICATIONS INTERNATIONAL, INC. THE SCHEDULE IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 20,437,000 57,307,000 0 0 0 304,000 94,000 (50,000) 164,401,000 2,044,000 155,083,000 0 0 104,000 7,170,000 164,401,000 0 0 0 8,929,000 737,000 0 5,486,000 (13,920,000) 0 (13,920,000) 0 0 0 (13,920,000) (0.90) (0.90) RESTATED FOR A 3-FOR-2 STOCK SPLIT BY WAY OF STOCK DIVIDEND TO BE PAID ON APRIL 14, 1998. RESTATED TO REFLECT THE ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO.128, "EARNINGS PER SHARE"
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