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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(MARK ONE)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
_______
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
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 NUMBER: 0-27442
____________
OMNIPOINT CORPORATION
(Exact Name of Registrant as specified in its charter)
DELAWARE 04-2969720
(State or other jurisdiction of (IRS employer
incorporation or organization) identification No.)
2000 NORTH 14TH STREET, SUITE 550 22201
ARLINGTON, VA (Zip Code)
(Address of principal executive office)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (703) 522-7778
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of Each Exchange
Title of Each Class: on which Registered:
_________________________ ______________________
COMMON STOCK, PAR VALUE NASDAQ NATIONAL MARKET
$0.01 PER SHARE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
______ _____
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Documents incorporated by reference: Specified portions of the Definitive
Proxy Statement to be filed with the Commission pursuant to Regulation 14A in
connection with the 1996 Annual Meeting are incorporated herein by reference
into Part III of this Report. Such proxy statement will be filed with the
Securities and Exchange Commission not later than 120 days after the
Registrant's fiscal year ended December 31, 1995.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will 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 [ ].
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of March 22, 1996 was approximately $481,014,186.
The number of shares outstanding of the Registrant's Common Stock, as of
March 22, 1996 was 45,009,039 shares of Common Stock.
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OMNIPOINT CORPORATION
FORM 10-K
TABLE OF CONTENTS
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PART I
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Item 1. Business................................................................. 1
Overview
Strategy
Industry Background
Service Business
Technology Business
Strategic Relationships
Regulatory Environment
Patents and Other Intellectual Property Rights
Employees
Item 2. Properties............................................................... 16
Item 3. Legal Proceedings........................................................ 16
Item 4. Submission of Matters to a Vote of Security Holders...................... 16
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder Matters... 18
Item 6. Selected Financial Data.................................................. 19
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 20
Item 8. Financial Statements and Supplementary Data.............................. 23
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..................................................... 23
PART III
Item 10. Directors and Executive Officers of the Registrant....................... 24
Item 11. Executive Compensation................................................... 24
Item 12. Security Ownership of Certain Beneficial Owners and Management........... 24
Item 13. Certain Relationships and Related Transactions........................... 24
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PART IV
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Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K....... 25
Exhibit Index..................................................................... 25
Signatures........................................................................ 29
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PART I
ITEM 1. BUSINESS.
OVERVIEW
Omnipoint is a leader in commercializing personal communications services
("PCS") both as a holder of a license for the New York Major Trading Area
("MTA"), the largest MTA in the U.S. with a population of nearly 26.8 million,
and as a developer of technology and equipment for PCS. The Company's
proprietary technology is suitable for a variety of digital wireless
applications including mobile network systems and wireless local loop ("WLL").
Omnipoint's technology is being integrated with wireless Global System for
Mobile Communications ("GSM") networks and local telephone switching platforms.
Omnipoint has spent several years developing and refining its core
technology based on spread spectrum since the Company's incorporation in 1987.
Prior to 1992, the Company developed several working prototypes embodying its
technology for various wireless voice, data and digitized compressed video
transmission projects. The Company's success in developing its technology for
the first digital PCS system at 1.9 GHz during 1991 and 1992 was instrumental in
the Federal Communications Commission ("FCC") awarding the Company a Pioneer's
Preference in 1993. As a result of the Pioneer's Preference, the FCC issued to
the Company a 30 MHz license to provide PCS services for the New York MTA (the
"New York MTA License") in December 1994.
The Company believes that existing cellular systems within the New York
City metropolitan area provide inadequate capacity and service during peak hours
for current cellular users and that the anticipated growth in wireless
subscribers will add to this problem. The Company intends to use a combination
of Omnipoint's proprietary technology system (the "Omnipoint System") and GSM to
provide superior wireless services to customers in the New York MTA. The Company
plans to offer a variety of services to PCS subscribers, including voice and
data transmission, call forwarding, call waiting and paging capability.
The Joint Technical Committee on Wireless Access has designated the
Omnipoint System as IS-661. The Omnipoint System is one of four competing common
air interface ("CAI") standards that have been selected by PCS license holders
to serve the mobile PCS market. The Omnipoint System is designed to provide
enhanced voice quality, higher speed data rates, increased capacity and
increased reliability relative to analog systems and other digital wireless
systems. Additionally, the Omnipoint System is designed to have lower
infrastructure costs than traditional cellular and other PCS systems.
The Omnipoint System is also particularly well suited for fixed WLL
applications. Initially, the Company plans to focus its domestic WLL activities
on providing wireless competitive access provider ("CAP") services in the New
York MTA for businesses in small and medium sized locations, whose capacity
requirements do not justify the expense of alternative bypass technologies, such
as leased line, fiber or microwave technologies. In addition, the Company will
seek to exploit international markets, both (i) through sales of equipment to
service providers for WLL applications as an alternative to expanding fixed
wireline services in countries where telephone services have not been well
developed and (ii) as an upgrade to GSM networks in the more than 85 countries
where GSM has been deployed or selected for deployment.
The Company has established strategic relationships with Northern Telecom,
Inc. ("Northern Telecom"), Ericsson, Inc., ("Ericsson"), Pacific Bell Mobile
Services ("PacBell"), BellSouth Personal Communications, Inc. ("BellSouth"),
Western Wireless Corporation ("Western Wireless"), American Portable Telecom,
Inc. ("APT") and Hansol Paper Co., Ltd. and its telecom affiliates ("Hansol").
Northern Telecom and Omnipoint are integrating the Omnipoint System with
Northern Telecom's GSM digital switch, with the first integrated system to be
deployed in the New York MTA. A substantial portion of Omnipoint's equipment
purchases for the buildout of the New York MTA network will be financed by
Northern Telecom under a $382.5 million vendor financing arrangement (the
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"NT Credit Facility"). Omnipoint and Northern Telecom are jointly marketing an
integrated Omnipoint/GSM system throughout North America to prospective PCS
license holders and to existing PCS license holders which deploy GSM systems,
including PCS 1900 systems. The Company and Ericsson have signed a non-binding
memorandum of understanding involving (i) a licensing and OEM arrangement
relating to the Omnipoint System, (ii) the development of IS-661 and dual mode
IS-661/PCS 1900 handsets, and the purchase by Omnipoint and Omnipoint affiliates
of IS-661, dual mode IS-661/PCS 1900 and PCS 1900 handsets, (iii) an agreement
for Ericsson to sell, and provide vendor financing for Omnipoint and Omnipoint
affiliates to buy, infrastructure equipment and handsets, and (iv) cooperation
on marketing, standards and technical activities. Each of PacBell, BellSouth,
Western Wireless and APT has signed a separate non-binding memorandum of
understanding with the Company to provide subscribers with roaming capabilities
in the areas where each has PCS licenses. The Company has entered into a
strategic alliance with Hansol under which it will have a license to manufacture
handsets and to cooperate on promoting the Omnipoint System in the Republic of
Korea and other parts of Asia. The Company is in discussions with other
equipment vendors and service providers regarding additional strategic
relationships.
Omnipoint Corporation consists of a technology division and several
subsidiaries. Omnipoint PCS, Inc. ("OPI"), a wholly owned subsidiary of the
Company, has as its sole asset a 95.58% ownership interest in Omnipoint
Communications Inc. ("OCI"). OCI is the holder of the New York MTA License and
will operate the service business in New York. OPCS Corp., a wholly owned
subsidiary of Omnipoint Corporation, has as its sole asset 100% of the stock of
Omnipoint PCS Entrepreneurs, Inc. ("OPCSE"). Through OPCSE, the Company is
participating in the auction by the FCC of C and F Block licenses, consisting of
30 MHz and 10 MHz of spectrum (the "Entrepreneurs' Band"), to bidders consisting
of small businesses. The Company may also participate in the auctions of D and E
Block licenses, each consisting of 10MHz of spectrum.
The Company was incorporated in 1987 in the State of Delaware.
STRATEGY
Omnipoint's strategy is to become a leading provider of services and
products to the PCS industry by deploying and operating a PCS network in the New
York MTA, providing wireless CAP services, expanding its PCS service area
through participation in the Entrepreneurs' Band auction, establishing the
Omnipoint System as a leading PCS standard and capitalizing on opportunities in
developing international markets for wireless applications.
Service to the New York MTA
The Company intends to build and operate a PCS network in the New York MTA
initially focusing service in the New York City metropolitan area and its major
commuting corridors and then expanding service throughout the MTA. The Company
intends to deploy a pilot system in Manhattan using the Omnipoint System in the
first half of 1996. The Company plans to build its network integrated with a GSM
system in order to provide mobile and fixed telephone services, to provide
roaming capability with other GSM based networks and to facilitate being first
to market. The Company will concentrate its marketing efforts on cellular users
who the Company believes have experienced inadequate service and on the
expanding market of new users.
Wireless CAP Services
Omnipoint plans to introduce a wireless CAP service to businesses in small
and medium sized locations whose capacity requirements do not justify the
expense of alternative bypass technologies, such as leased line, fiber or
microwave technologies. Omnipoint's CAP service would allow customers to bypass
the local telephone exchange to complete calls with wireline quality at
discounts to prices such customers pay to the local telephone exchange. The
Company's wireless CAP service will operate through radio units installed by the
Company on customers' premises which will communicate wirelessly with the
Company's base stations.
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Expanded PCS Service Areas
The Company plans to pursue licenses in the Entrepreneurs' Band auction and
is eligible for the discount and installment payment terms available under the
auction rules. The Company intends to deploy the Omnipoint System in any areas
where it obtains such licenses in conjunction with either wireless GSM or
telephone company central office switching platforms.
Leading PCS Standard
The Company intends to establish the Omnipoint System as a leading PCS
standard through sales to other PCS service providers. The Company has an
agreement with Northern Telecom for the two companies to market an integrated
Omnipoint/GSM system throughout North America to prospective license holders and
to existing PCS license holders who deploy PCS 1900 systems. The Company has
entered into a non-binding memorandum of understanding with Ericsson for the two
companies to develop IS-661 and dual mode IS-661/PCS 1900 phones and to sell
Omnipoint base stations for a variety of applications. The Company intends to
enter similar arrangements with other manufacturers.
International Markets
The Company is also developing international markets for its equipment for
WLL telephone service, for mobile networks and as an enhancement to GSM, which
has been deployed or chosen for deployment in over 85 countries. Many developing
countries have a very limited wireline telephone infrastructure, and the cost
and time required to expand or upgrade a traditional telephone infrastructure is
often prohibitive. The Company will offer the Omnipoint System in such countries
on a cost-efficient, easily deployable basis to provide basic telephone service
wirelessly. The Company is also marketing the Omnipoint System for mobile
wireless networks and intends to sell its CAI access equipment to augment GSM
networks in order both to offer greater flexibility and higher speeds for data
users and to increase capacity in urban areas.
INDUSTRY BACKGROUND
Since 1983, the demand for wireless telecommunications services has grown
dramatically as cellular, paging and other emerging wireless personal
communications services have become widely available and increasingly
affordable. This growth in wireless services has been driven by technological
advances and changes in both telecommunications regulations and consumer
preferences.
Mobile cellular telephone service has been one of the fastest growing
market segments within the telecommunications industry. According to the
Cellular Telecommunications Industry Association, the number of cellular users
in the U.S. grew from 340,000 at the beginning of 1985 to over 30.0 million at
September 1995, and at a compound annual rate of 46.7% over the three year
period ending September 1995. Industry publications estimate that there are now
approximately 71.0 million cellular users worldwide. Most industry analysts
forecast that U.S. penetration rates for mobile wireless service will reach
between 40% and 50% of the population by 2005.
Although analog cellular is the most widely deployed wireless service
available today, it has several limitations, including inconsistent service
quality, lack of privacy, limited capacity and, currently, the inability to
transfer data without a modem. Most current cellular services transmit voice and
data signals over analog-based systems, which use one continuous electronic
signal that varies in amplitude or frequency over a single radio channel.
Digital systems, on the other hand, convert voice or data signals into a stream
of digits and typically use voice compression and other techniques to allow a
single radio channel to carry multiple simultaneous signal transmissions.
Digital technologies are expected to offer new services, improved system
flexibility, efficiency and increased capacity.
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PCS, thought of as a second generation comprehensive wireless
communications service, was introduced in the Baltimore/Washington, D.C. MTA in
late 1995 at 1.9 GHz, offering initial service generally comparable to or
exceeding existing digital cellular services. As PCS becomes more widely
available, it is expected that PCS systems will provide enhanced services
including high speed data transmission and extensive network intelligence,
allowing a user to possess a single handset and telephone number that can be
used in commercial, office, mobile and home environments. PCS providers will be
the first mass market, direct wireless competitors to cellular providers and the
first to offer mass market all-digital mobile networks. In addition, PCS
providers will be the first to be able to offer mass market WLL applications, in
competition with switched and direct access local telecommunications services.
In order to advance the development of, and promote competition in,
wireless telecommunications, the FCC began a Notice of Inquiry regarding PCS in
1990. In April 1991, the FCC announced that it would provide preferential awards
of licenses, or Pioneer's Preferences, to innovators of wireless technology and
services. In June 1994, the FCC finalized the allocations of the 1.85 to 1.99
GHz bands for broadband PCS. In December 1994, the FCC began auctioning radio
spectrum for PCS and issued Pioneer's Preference PCS licenses to three
companies, including the Company, in recognition of their innovative PCS
efforts.
SERVICE BUSINESS
Overview
The Company's service business, operating through its subsidiary, OCI, will
provide mobile and fixed communications service in the New York MTA and in other
markets in which the Company may acquire licenses. The wireless service is
intended to provide private, secure, enhanced voice, high-speed data, and
digitized compressed video and imaging capabilities for both the office
environment and outdoor mobile coverage. The Company plans to provide a service
with enhanced features including voice mail, call forwarding and call waiting.
The Company plans to deploy a pilot system in Manhattan comprised of a limited
number of Omnipoint base stations in the first half of 1996 and to build its
network integrated with a GSM system. Additionally, the Company intends to
introduce the first wireless CAP service in New York.
Since securing the Pioneer's Preference award, the Company has been
actively designing and planning its network system to be built in the New York
MTA. During the next 12 to 24 months, the Company plans to install equipment,
establish marketing and distribution channels and commence commercial service.
During this period, the Company plans to continue its network design, acquire
sites, negotiate with incumbent microwave users and expand its coverage area.
The Company believes it will be the first to offer commercial PCS services in
the New York City area beginning in the fourth quarter of 1996.
The Company's buildout schedule may be revised from time to time as a
result of changing circumstances. The Company's ability to proceed with the
buildout of the network for the New York City area and the rest of the New York
MTA is subject to continued successful completion of site acquisitions or
leases, the availability of equipment and financing, and the receipt of
necessary local governmental approvals.
One of the Company's objectives is to reduce the risk of cell site related
delays during the buildout of the New York MTA network. The Company is locating
sites for its base stations and antennas where zoning approvals and other
necessary permits are not needed or are likely to be obtained more easily than
for traditional cellular equipment. Where high antenna sites are required, the
Company intends to facilitate the buildout through the use of existing towers
and structures occupied by telecommunications service providers, utility
companies and others. The Company has entered into several use agreements
covering more than 5,000 locations in the New York MTA, more than 1,000 of which
are within the Company's initial deployment area. The Company is currently
conducting an engineering analysis to evaluate the feasibility of such sites for
buildout purposes. The Company is in negotiations with several other parties
regarding other such agreements. If all these negotiations are successfully
completed, management estimates that the Company will have secured over 23% of
the sites needed for the Company's deployment plans through 1997.
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Marketing Strategy
The Company's marketing objective is to create demand for PCS voice and
data service and attract subscribers in the New York MTA by providing superior
service and reliability and by offering attractive prices. Omnipoint intends to
generate demand by introducing a better alternative to cellular service. The
Company intends to concentrate its PCS marketing efforts on the following key
customer segments: (i) large, communications-intensive corporate accounts,
currently using or considering cellular or private radio systems, that would
value the improved quality and security and would benefit from the Company's
enhanced products and services; (ii) high-mobility customers using or
considering cellular telephones who would benefit from fewer dropped or blocked
calls; and (iii) low-mobility customers attracted to PCS as a more convenient
alternative to their landline telephones, particularly those who have multiple
telephone lines to their home or business and who have a need for high speed
data transmission.
In marketing its service, the Company intends to offer competitively priced
service that emphasizes voice clarity, reliability and a low probability of
blocked calls. The Company intends to include certain enhanced features
including call waiting, call forwarding, voice mail and paging as part of its
product offerings. The Company also will promote the improved call security
resulting from the use of digital technology which should encourage users to
make confidential professional and personal calls that they might otherwise make
only on landline telephones. In addition, the convenience of a single telephone
number for mobile, home and office use available to the customer throughout the
Omnipoint service area and the use of menu-driven subscriber functions should
enhance the convenience and usage of the Company's PCS network.
The Company's strategy is to pursue multiple distribution channels through
which to market its services, generally on a non-exclusive basis, including a
direct sales force, retail stores and third party distributors or agents. In
addition to these traditional distribution channels, the Company will
continuously evaluate other, less traditional methods of distributing the
Company's services such as telemarketing and direct mail.
The New York MTA Wireless Market
The New York MTA is an attractive wireless market due to its size, density
and demographics. New York is the largest MTA in the U.S. with a population of
nearly 26.8 million people, approximately 10.2% of the nation's population.
Nearly 40% of the households in the New York Basic Trading Area ("BTA") have
annual incomes of over $50,000. In addition, the New York MTA is the country's
largest telecommunications market and has a disproportionately high share of all
voice and data traffic relative to its population, particularly with respect to
international calls placed to or from the U.S.
The two cellular systems operating in the New York area are capacity
constrained over the most densely populated traffic areas during peak hours.
Management believes, based on direct testing as well as information from a
number of sources, that a significant number of the call attempts during peak
hours in certain areas of Manhattan fail to gain access to the cellular networks
due to capacity constraints in the networks. In addition, a large percentage of
calls that initially connect are dropped because of hand-off failures between
base stations due to the same capacity issues. The Company believes that
inherent capacity limits of existing cellular architectures may allow new PCS
entrants in New York to attract a large share of high-end wireless users.
Moreover, due to nationwide churn rates of the existing installed cellular
subscriber base of approximately 25% per year, the market shares of the new PCS
competitors are likely to rise significantly over time.
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Competition in the New York MTA
The success of Omnipoint's PCS service business in the New York MTA will
depend upon its ability to compete with the two cellular operators, at least one
other PCS operator and potential future wireless communications providers. The
Bell Atlantic Corporation ("Bell Atlantic")/NYNEX Corporation ("NYNEX")
consortium and AT&T Corp.'s wireless service operations, including McCaw
Cellular Communications, Inc. ("AT&T Wireless") currently provide cellular
services in the New York Metropolitan Statistical Area (MSA) and surrounding
areas. Sprint Telecommunications Venture is the winner of the B Block New York
MTA PCS license. Each of the four existing operators (including the Company)
will be eligible to own one of the three 10 MHz licenses still to be auctioned.
The Entrepreneurs' Band auction is intended to introduce a fifth competitor. The
Company believes that Enhanced Specialized Mobile Radio ("ESMR"), originally
considered a PCS competitor, will have a limited competitive impact because
technical limitations have caused the ESMR operators to target only vertical
market niches such as dispatch services.
Wireless Competitive Access Provider Service
Omnipoint plans to introduce a wireless CAP service to small to medium
sized business locations allowing customers to bypass the local telephone
exchange to complete certain calls at lower prices than such customers currently
pay. The wireless CAP service will operate through radio units installed by the
Company on customers' premises which will communicate wirelessly with the
Company's base stations. The Company plans to initially target business
locations for which alternative bypass facilities are not as economical.
Historically, regulations have prohibited switched local exchange
competition to the regulated telephone monopolies. In the past 12 months, many
states, including New York and Connecticut, have begun permitting local loop
competition by operators other than the local exchange carrier. Other states,
such as New Jersey, have initiated proceedings to do the same.
Previously, local telephone companies generally charged wireless carriers
for calls initiated on the wireless network and terminated on the local
telephone company's network, while wireless carriers could not charge local
telephone companies for calls initiated on the local telephone company's network
and transported to and terminated on the wireless network. As a result of recent
court settlements and announcements made by NYNEX, Omnipoint believes it, as
well as other wireless carriers, can now obtain co-carrier status to provide
wireless telephone service at least within the NYNEX service area. Co-carrier
status would put Omnipoint's wireless CAP service on the same access cost basis
as the local telephone companies with respect to calls that are originated and
terminated with the customer. Providers with co-carrier status do not pay access
charges to the local telephone company as long as the telecommunications traffic
between the co-carrier's customers and the local telephone company is roughly
equivalent with respect to the direction of the traffic. Thus, even with co-
carrier status, the Company may incur actual access charges if Omnipoint
terminates less traffic received from the local telephone company than the local
telephone company terminates from Omnipoint.
Expanding Service Opportunities
The Company is participating as a small business "entrepreneur" in the
Entrepreneurs' Band auction, which began on December 18, 1995, to purchase BTA
licenses in other markets across the country. The Company intends to employ in
any such license areas a service strategy similar to that planned for the New
York MTA. In the Entrepreneurs' Band auction, the Company's goal is to acquire
licenses in economically attractive markets at prices which are at or below the
Company's perceived value for such licenses. The Company views the
Entrepreneurs' Band auction as an opportunity to expand its planned PCS services
to additional markets.
The Entrepreneurs' Band includes the C and F Blocks of licenses, set aside
by the FCC for ownership only by smaller businesses for at least five years. The
C Block and F Block were allocated 30 MHz and 10 MHz of spectrum, respectively,
in each of the 493 BTAs. The FCC has also established certain financial benefits
for such
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bidders. FCC regulations require a winning bidder to pay (i) 3.75% (after
application of the 25% small business discount) of the winning bid within five
days after the auction, (ii) 3.75% of the winning bid within five days after the
FCC's grant of the license (the "License Grant Date") (estimated at
approximately 90 days after the auction), (iii) interest only on the balance of
the winning bid (68%) at the 10-year treasury note interest rate on the License
Grant Date for a period of six years, and (iv) interest and the remaining
principal in the seventh through tenth years.
The Entrepreneurs' Band auction for the C Block licenses began on December
18, 1995. A subsidiary of the Company, OPCSE, made a deposit of $40.0 million on
December 1, 1995 and is a participant in the auction.
Roaming Arrangements
The Company has signed memoranda of understanding with a number of
different GSM-based PCS providers, including PacBell, BellSouth, Western
Wireless and APT, to provide Omnipoint, PacBell, BellSouth, Western Wireless and
APT subscribers with roaming capability in the MTAs where these parties operate
PCS services. The memoranda of understanding are not binding unless incorporated
in definitive agreements. While roaming across the companies' GSM-based
networks, Omnipoint, PacBell, BellSouth, Western Wireless and APT subscribers
will be able to place and receive calls and maintain their customized profiles
and features without specific customer prior request. Additionally, PacBell and
the Company will conduct joint tests of the Omnipoint System and have agreed to
work together on PCS infrastructure and handset standards and to establish
complementary marketing programs. BellSouth has a similar arrangement with the
Company. The memoranda of understanding also contemplate adding other PCS
operators to the roaming consortium.
TECHNOLOGY BUSINESS
Overview
Manufacturers of PCS equipment compete in a high-growth, cost-competitive
market in which they must offer a compact, cost-effective solution providing
fully functional PCS-full coverage, vehicular high-speed mobility, wireline
quality voice, data, multimedia, digitized compressed video, images and
broadcast data at capital costs per subscriber that are significantly lower than
conventional cellular technologies. Due to evolving industry standards and the
rapid introduction of new services, the success of PCS equipment manufacturers
will also depend on their ability to bring new products to market quickly.
Customer acceptance and usage rates will drive PCS equipment revenues.
Based on projections estimated by EMCI, Inc., cumulative PCS equipment sales for
infrastructure and handsets in the U.S. are anticipated to reach approximately
$25.4 billion through 2000. The international market for WLL equipment is
estimated by Herschel Shosteck Associates, LTD. to reach $86 billion by the end
of 2000.
The Omnipoint System, officially designated as IS-661 by the Joint
Technical Committee on Wireless Access, is a proprietary CAI system using spread
spectrum, a technology originally developed for military applications. The
Omnipoint System is one of four competing CAI standards that have been selected
by PCS license holders to serve the mobile PCS market. The Company designed its
technology so that its costs will be lower than those of other PCS and cellular
technologies. Furthermore, because of the Omnipoint System's design features,
voice quality, data rates, low cost, small cell size and greater capacity, the
Omnipoint System will be particularly well suited for WLL services. The
Omnipoint System will offer the ability to deliver both wireline voice quality
and the enhanced services being sought by customers.
The Company designs and tests its equipment and software at its engineering
facilities in Colorado Springs, Colorado. Manufacturing and assembly will be
subcontracted to third parties whenever possible. Currently, the Company and
Northern Telecom are integrating Omnipoint's Radio frequency ("RF") access
system and equipment which provides communication between handsets and base
stations, primarily radio and digital cards for base
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stations, with Northern Telecom's switches. This integrated system will be used
in the New York MTA and marketed to other domestic and international operators.
The Company has operated trial networks during the past two years in both
Colorado Springs and New York City. Through these trials, as well as independent
system tests, the Company has verified the central features of the Omnipoint
System, including its miniaturized base stations, vehicular speed mobility,
wireline quality voice transmission, mobile directed hand-off and improved data
transmission capabilities.
The Company believes that its proprietary technology will provide a number
of advantages over cellular and other PCS technologies, including:
. Lower infrastructure costs resulting in reductions in per minute costs
and facilitating competition with wireline telephone systems for certain
market segments.
. Compatibility with GSM and central office switch infrastructures.
. Wireless services that provide wireline quality voice and enhanced data,
multimedia and digitized compressed video and imaging capabilities.
. A variable bandwidth on-demand protocol allowing future applications to
be written by end users and service operators instead of equipment
vendors.
The Company's technology is flexible enough to be deployed in both large,
developed, metropolitan centers and less developed, rural areas, both
domestically and internationally. The Company believes that the technical
characteristics and low cost of the Omnipoint System allows for the widespread
deployment of telecommunications services while avoiding the high cost of wire-
based infrastructure, making the Omnipoint technology particularly well suited
for many countries which are currently upgrading or developing their
telecommunications infrastructure. The Company has entered discussions with
telecommunications services providers from several countries including
Argentina, India, Mexico and South Korea.
Omnipoint System Architecture
The Omnipoint System is the commercial result of technology developed by
the Company, particularly in the areas of protocol design and spread spectrum.
The Company's research and field testing of the Omnipoint System has provided an
understanding of the technical and business challenges facing PCS providers. As
a result, the Company has designed a system that it believes overcomes several
of the architectural weaknesses of existing wireless networks.
The Omnipoint System provides an architecture that utilizes the benefits of
Code Division Multiple Access ("CDMA"), Time Division Multiple Access ("TDMA")
and Frequency Division Multiple Access ("FDMA") technologies for multiple-user
access to PCS networks, without incurring many of the problems inherent in these
techniques as used in traditional wireless systems. Omnipoint's unique approach
combines the major advantages of these technologies in a hybrid solution that
should provide significant price and performance advantages over systems that
rely upon only one technology for separating users and cells. In particular, the
cost of radio hardware, especially infrastructure hardware, should be
significantly reduced. Omnipoint's use of wide band spread spectrum will
minimize the effects of interference, extend cell area and allow for the use of
a high data rate. Instead of implementing spread spectrum for classic CDMA
reasons, i.e., to separate simultaneous users within a cell by using different
codes, the Omnipoint System uses spread spectrum to reduce the cost of enhancing
capacity using TDMA within a cell, while using CDMA between cells that use the
same frequencies.
The Omnipoint System has an expected cell radius ranging from seven miles
to 250 feet. The Base Station in each cell is connected by microwave, fiber
optic cable or telephone wires to the Base Station Controller ("BSC").
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The BSC in turn connects to the PCS Switching System ("PCSS") which uses adjunct
computers to control the operation of the wireless telephone system for its
entire service area. The BSC and PCSS (i) control the transfer of calls from
cell to cell as a subscriber's handset travels, (ii) manage call delivery to
handsets, (iii) allocate calls among the cells within the Omnipoint System, (iv)
connect calls to local landline telephone system or to a long distance telephone
carrier, and (v) provide most of the features such as call waiting and three way
calling.
Omnipoint System Advantages
The Company designed the Omnipoint System to be used for either fixed or
mobile PCS applications. The key differentiating features of the Omnipoint
System, as evidenced by the Company's field testing, are:
. Lower Infrastructure Costs
Lower Deployment Costs. The Company designed the Omnipoint System to
provide both fully functional, fully mobile PCS as well as fixed WLL
services at per subscriber capital costs substantially below those of
cellular and other wireless systems that could be used for either
application. The Company believes that it can deploy the radio access
portion of the Omnipoint System, which accounts for 75% to 85% of the costs
of typical cellular systems, for approximately $300 per subscriber based on
typical cellular usage rates. These infrastructure costs can be achieved at
subscriber penetration levels as low as two to three percent in most
cities. The Company estimates that initial capital costs for cellular
technology-based systems are as much as $800 to $1,000 per subscriber at
similar penetration levels. The Company expects that wholesale,
unsubsidized Omnipoint System handset prices will start at approximately
$350 to $450 per unit and decline with increased volumes.
Lower Incremental Capital Costs. Omnipoint expects that a PCS provider
deploying the Omnipoint System will experience marginal capital
expenditures, excluding incremental switching costs, that will reach less
than $150 per subscriber based on typical cellular usage rates. Omnipoint
achieves these cost savings as a result of its hybrid solution. The cost of
FDMA-only and CDMA-only systems increases on a linear basis because (i)
channels are expensive and are built and priced on a per channel basis,
(ii) the equipment is large and requires extensive cell site planning,
building permits, site acquisition and preparation, and zoning approval and
(iii) each cell must be able to independently handle localized peak loads,
although such peak loads can occur for less than one hour per day. In
contrast, because each Omnipoint base station needs only one set of core
electronics for up to 32 simultaneous users, the implicit cost per voice
channel declines as the number of voice channels used simultaneously
increases (up to the capacity limit of each base station). The primary
benefit of this capability is reduced expenditures on a per-call basis.
Even when new cell sites are required, the lower cost of individual
Omnipoint cell sites causes the marginal cost per new subscriber to remain
low relative to alternative systems.
Rapid Deployment. The compact size of the Omnipoint base station, as small
as 13" x 14.5" x 27", will ease zoning and installation concerns and reduce
their associated costs. The Omnipoint System can provide additional
capacity wherever it is needed while maintaining economic advantages. These
base stations can support the same 32 voice channels typically provided by
the larger, bulkier cellular equipment. With these traditional cellular
systems, increasing the number of cell sites requires relocation of their
large, current cells and the acquisition of additional large sites.
Omnipoint base stations and antennas are easily attached to existing
telephone poles, light poles or other available structures. Omnipoint's
cell sites on an installed basis are expected to be less than 30% of the
cost, on a per channel basis, of the cell sites of systems that use
traditional cellular or PCS technologies.
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. Improved Performance Characteristics
Increased System Capacity. With all wireless technologies, the minimum cell
radius determines the maximum number of cells per area and thus a wireless
system's geographic capacity. For example, the capacity of existing
cellular systems is ultimately constrained by its minimum cell radii, which
is typically approximately one half mile. The Omnipoint System can be
deployed for cells with 14 mile diameters (for rural and highway coverage)
as well as much smaller cells for traffic "hot spots" with a range, for
example, of 250 feet (a much shorter range than the capability of other
mobile systems). The Omnipoint System can thus provide more localized
capacity than other mobile systems, in some cases as much as 100 times more
capacity per geographic area.
Wireline-Quality Voice. The Omnipoint System can support wireline quality
voice service which is currently unavailable from other mobile systems.
This quality is particularly important for both PCS and WLL applications.
High-Speed Data Services. The Omnipoint System offers superior data
transmission characteristics and supports transmission of multimedia images
and digitized compressed video. The Omnipoint System design is capable of
wirelessly supporting Integrated Services Digital Network (ISDN) rates. In
contrast, other existing mobile systems generally are architecturally
limited to less than 19.2 kbps data transmission capabilities and are ill-
suited for wireless office applications.
. Compatibility with Existing Infrastructure
Compatibility and Flexibility With Existing Network Architectures. The
Omnipoint System architecture provides compatibility and flexibility in
telecommunications network design. It can be integrated into either GSM
networks, AIN networks or Local Exchange Carrier ("LEC") central office
switching networks. Omnipoint is initially integrating its base stations
with GSM systems, which enhances the Company's ability to sell its
equipment in the over 85 countries where GSM has been deployed or selected
for deployment. The Omnipoint System can be integrated with a variety of
existing interconnection networks, including those of the LEC, community
access (cable) television (CATV) and other wireless systems. Additionally,
private systems can be designed using the equivalent of Omnipoint's base
station controller, whereas smaller systems can connect a Private Branch
Exchange (PBX) or Centrex directly to a base station using standard analog
lines.
Software Architecture. The Omnipoint System is designed around a software
architecture that provides the flexibility to interconnect to a number of
different network infrastructures. Moreover, end users and service
operators can develop their own application to take advantage of the
Omnipoint System's flexible protocol.
Given the advantages of the Omnipoint System and its ability to interface
with different network standards, PCS service operators may choose to deploy
networks that combine systems based on the Company's technology with those from
other manufacturers. The Company also intends to license its technology to
manufacturers of competing systems. There can be no assurance, however, that the
Company will be successful in selling the Omnipoint System to PCS service
operators or to license its technology.
Competition
The competition in the wireless telecommunications equipment industry is
intense. The industry consists of major domestic and international companies,
including those companies currently providing equipment to cellular providers,
most of which have substantially greater financial, technical, marketing, sales,
manufacturing, distribution and other resources than those of the Company. The
Company will compete with these other companies primarily by selling equipment
that provides enhanced features, including call forwarding, call waiting and
paging
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capabilities, at a lower cost. Given the rapid advances in the wireless
telecommunications industry, there can be no assurances that new technologies
will not evolve that will compete with the Company's products.
In addition to the Company's technology standard, three competing
technology standards have emerged in the mobile PCS industry.
PCS 1900 is a modified version of the European RF technology used to access
the standard GSM network for digital 900 MHz cellular telephones. PCS 1900 is a
TDMA-based technology supported by Ericsson, Motorola, NOKIA Mobile Phones and
Northern Telecom. Five U.S. service operators with licenses covering
approximately 125.0 million POPs have committed to this technology, and it is
widely believed to be a leading contender for further deployment, particularly
for operators without U.S. cellular properties. The PCS operator for the
Baltimore/Washington, D.C. MTA brought the first PCS system on line in November
1995 using PCS 1900 equipment. The system is based on well-established
technology and faces no major hurdles in upbanding for PCS deployment in the
U.S. Limited quantities of PCS 1900 equipment were available in 1995, and it is
widely believed that significant quantities of equipment will not be available
until 1996. Because Omnipoint is integrating its system with GSM, Omnipoint
System equipment can be combined with PCS 1900 equipment in a single network.
Accordingly, operators that select PCS 1900 represent additional potential
customers for Omnipoint System equipment.
IS-95 CDMA is the CDMA standard proposed as an upgrade for existing analog
cellular service to digital. Qualcomm is the primary proponent of IS-95 CDMA for
PCS service. IS-95 has also received support from Motorola, AT&T Wireless and
Northern Telecom. IS-95's service supporters include Bell Atlantic, NYNEX, US
West and AirTouch Communications Inc., who have announced their intention to
deploy a modified version of this technology at 1.9 GHz, through their
consortium, PCS PrimeCo, L.P. Sprint Telecommunications Venture has also stated
it intends to negotiate only with CDMA vendors at this time.
IS-54 TDMA is the TDMA standard that several cellular carriers are
implementing as they upgrade to digital. Primary network suppliers are AT&T,
Ericsson and Hughes. AT&T Wireless, SBC Communications, Inc. ("SBC"), Bell
Atlantic, BellSouth and Bell Telephone Co. of Canada are the primary 800 MHz
service supporters. AT&T Wireless and SBC have declared that they will deploy
systems based on IS-54 at 1.9 GHz, defined as IS-136 TDMA. IS-54 TDMA, like PCS
1900, faces no major technological hurdles in upbanding to 1.9 GHz PCS. Upbanded
IS-54 TDMA equipment is expected to become generally available in 1996.
STRATEGIC RELATIONSHIPS
Northern Telecom Relationship
In 1994, the Company entered into a non-exclusive agreement to integrate
its technology with Northern Telecom's established network architectures.
Pursuant to the agreement, the parties will integrate the Omnipoint System with
Northern Telecom's digital GSM and Advanced Intelligent Network ("AIN") central
office switches. Omnipoint will deploy the Omnipoint/GSM integrated system in
Omnipoint's New York MTA service area and has also agreed to jointly market
integrated systems throughout North America.
The integrated system will offer wireless voice services including mobile
coverage at prices which the Company believes will be competitive with the
cellular operators and other PCS operators. The system will initially use a GSM
interface between Omnipoint's RF access technology and the digital switches. Use
of an available network interface such as GSM should ensure the timely
deployment of PCS systems utilizing Omnipoint's technology. Omnipoint and
Northern Telecom also plan to integrate Omnipoint's technology with Northern
Telecom's AIN Class 5 switches, which today are primarily sold to Regional Bell
Operating Companies for their central office switching.
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Northern Telecom and the Company have signed a series of equipment OEM and
supply agreements, as well as the NT Credit Facility. Northern Telecom will make
varying payments as it purchases core electronics (primarily radio and digital
cards for base stations) and software from the Company. Northern Telecom has
made an initial $3.0 million license payment (part of up to $12.0 million in
licensing and OEM fees to be paid to the Company under certain circumstances)
and may make additional royalty payments based upon shipments of Omnipoint
products. Northern Telecom will then sell Omnipoint/Northern Telecom integrated
systems to PCS operators, including the Company. A substantial portion of the
Company's purchases to build out the New York network will be financed by
Northern Telecom under the NT Credit Facility. Northern Telecom has executed a
commitment letter to extend the NT Credit Facility from $382.5 million to $612.0
million on substantially the same terms. Such extension is subject to approval
by the Board of Directors of Northern Telecom. If a definitive agreement is
reached, the Company expects to use these funds in the New York MTA or other
markets which the Company may acquire in the Entrepreneurs' Band auction.
The initial pilot network is scheduled to be delivered and installed in
Manhattan in the first half of 1996. Omnipoint and Northern Telecom have
announced that their integrated systems will be introduced commercially for sale
to other PCS operators in 1997.
Ericsson Relationship
In November 1995, Ericsson and the Company entered into a memorandum of
understanding regarding (i) the development of IS-661 and dual mode IS-661/PCS
1900 handsets by Ericsson, Orbitel, a joint venture of Ericsson and Vodafone,
Ltd., and/or other parties designated by Ericsson, (ii) a supply agreement and
vendor financing for the purchase by OCI or Omnipoint affiliates of
infrastructure and handsets, (iii) License and OEM Agreements for the Omnipoint
System, and (iv) cooperation between Ericsson and the Company on marketing,
standards and certain technical activities. The memorandum of understanding is
not binding on the parties unless incorporated in definitive agreements.
Under the non-exclusive License and OEM Agreements contemplated by the
memorandum of understanding, Ericsson will purchase from the Company (i) base
stations for resale worldwide as part of Ericsson wireless systems in the 1850-
1990 MHz frequency band and (ii) application-specific integrated circuits for
use in handsets designed, manufactured, marketed and sold by Ericsson or Orbitel
in the 1850-1990 MHz frequency band. For these rights, Ericsson will pay license
fees and royalties, including an initial license fee upon completion of the
definitive agreements and initial purchase order. Ericsson, Orbitel and/or third
parties designated by Ericsson will develop, manufacture and provide dual mode
IS-661/PCS 1900 handsets in a mutually-agreed timetable upon OCI agreeing to a
minimum purchase commitment to be determined when the parties have ascertained
the resources necessary for the development and manufacture of such handsets.
In addition, the Company and its affiliates will purchase $250.0 million of
a mix of IS-661 and PCS 1900 infrastructure equipment, with a portion of such
commitment being dependent on the licenses, if any, that affiliates of the
Company may acquire through the Entrepreneurs' Band auction. The Company will
also purchase IS-661, dual mode IS-661/PCS 1900 and PCS 1900 handsets. These
commitments are to be fulfilled within five years of definitive documentation in
the case of infrastructure and initial commercial development in the case of
handsets.
The memorandum of understanding also contemplates and sets forth the terms
for vendor financing to be provided by Ericsson to OCI or Omnipoint affiliates
holding licenses purchased in the Entrepreneurs' Band auction. The $375.0
million vendor financing commitment is for (i) amounts paid to Ericsson under
the supply agreement and (ii) amounts paid for goods and services purchased from
others for use with the goods and services purchased under the supply agreement
so long as these latter amounts do not exceed 50% of the amounts paid to
Ericsson. Other cooperation between the parties provided for in the memorandum
of understanding include assistance on IS-661 integration with the GSM interface
and related systems, cooperation on new applications for the Omnipoint System,
including data services, developmental efforts relating to handsets, technical
trials of IS-661 technology and activities related to standards. In addition,
the memorandum of understanding contemplates an option for Ericsson
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to purchase up to 9.9% of a subsidiary created by Omnipoint to separately pursue
the Company's technology business.
Hansol Relationship
On December 12, 1995, the Company granted a non-exclusive license to Hansol
to manufacture Omnipoint System handsets and entered into a strategic alliance
with Hansol for the promotion of the Omnipoint System in the Republic of Korea
and other parts of Asia. The agreement provides that Omnipoint will enter into a
purchase order, subject to certain preconditions such as competitive pricing, to
acquire from Hansol handsets for sale to subscribers in areas covered by
licenses, if any, purchased by the Company in the C Block Entrepreneurs' Band
auction. Hansol has the right to designate management representatives, and may
have engineers and other personnel working with Omnipoint to develop license
areas held by OCI or acquired in the Entrepreneurs' Band auction.
Roaming Arrangements
The Company has signed memoranda of understanding with a number of
different GSM-based PCS providers, including PacBell, BellSouth, Western
Wireless and APT, to provide Omnipoint, PacBell, BellSouth Western Wireless and
APT subscribers with roaming capability in the MTAs where these parties operate
PCS services. The memoranda of understanding are not binding unless incorporated
in definitive agreements. Additionally, the Company and each of PacBell and
BellSouth will conduct joint tests of Omnipoint's technology and plan to work
together to establish PCS infrastructure and handset standards and conduct joint
marketing efforts.
REGULATORY ENVIRONMENT
The FCC regulates the licensing, construction, operation and acquisition of
wireless telecommunications systems in the U.S. pursuant to the Communications
Act of 1934, as amended, and the rules, regulations and policies promulgated by
the FCC thereunder (the "Communications Act"). Under the Communications Act, the
FCC is authorized to allocate, grant and deny licenses for PCS frequencies,
establish regulations governing the interconnection of PCS systems with wireline
and other wireless carriers, grant or deny license renewals and applications for
transfer of control or assignment of PCS licenses, and impose fines and
forfeitures for any violations of FCC regulations.
PCS Licensing
The FCC established PCS service areas in the U.S. based upon Rand McNally's
market definition of 51 MTAs comprised of 493 smaller BTAs. In June 1994, the
FCC finalized the allocations of the 1.85 to 1.99 GHz bands for broadband PCS
services. The Commission distinguished the licenses along four dimensions,
including (i) amount of RF spectrum-30 MHz vs. 10 MHz, (ii) size of geographic
area-MTA vs. BTA, (iii) eligibility to own the license and participate in the
specific auction for each type of license and (iv) the timing of the auctions
regarding each of the above categories.
The FCC decided that two 30 MHz licenses, designated as Blocks A and B,
would be allocated geographically to MTAs (these include the Block A licenses
granted to the Pioneers in their respective MTAs). The 30 MHz MTA auction ended
in March 1995, and the FCC granted those licenses in June 1995. Four licenses
designated as Blocks C, D, E and F were allocated as BTAs. The C and F Block
licenses were allocated 30 MHz and 10 MHz of spectrum, respectively, and
reserved for "Entrepreneurs." The D and E Blocks are each 10 MHz and will be
available for all auction participants. The auction for Block C is presently
ongoing and Omnipoint is participating. Blocks D, E and F have not yet been
auctioned. There is pending at the FCC a rulemaking proceeding seeking public
comment on the procedure to be followed in auctioning Blocks D, E and F. The
remaining 20 MHz of the 140 MHz of PCS spectrum available was allocated for
unlicensed PCS applications such as wireless PBX adjuncts, Local Area Networks
(LANs) and home cordless phones. All PCS licenses will be granted for a 10-year
period, at the end of which they must be renewed. Licenses may be revoked at any
time for cause.
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The Company's New York MTA network will operate in the spectrum now
partially occupied by private and common carrier fixed microwave users. Many of
these microwave incumbents provide services that may interfere with or receive
interference from the operation of PCS networks and, as a result, will have to
be negotiated with or relocated. In an effort to balance the competing interests
of existing microwave users and newly authorized PCS licensees, the FCC has
adopted a transition plan to relocate such microwave operators to other spectrum
blocks. In the event the Company displaces a microwave incumbent, the Company
must pay the microwave incumbent's relocation expenses and take actions
necessary to put the microwave incumbent's new facility into operation. The
Company expects to implement a frequency plan that will minimize to the extent
possible the number of existing microwave users that need to be relocated.
Pioneer's Preference Program
Omnipoint is one of only three recipients of a broadband PCS Pioneer's
Preference license. Under the terms of the FCC's Pioneer's Preference program
and pursuant to an FCC order, Omnipoint was awarded a preference to apply for a
license not subject to competing applications to provide service in the New York
MTA. The Company received the New York MTA License consisting of 30 MHz of PCS
spectrum (1850 to 1865 MHz and 1930 to 1945 MHz) in December 1994. The final
terms of the Pioneer's Preference awards are contained in the General Agreement
on Tariffs and Trade ("GATT") legislation.
Pursuant to the terms of the GATT legislation, each of the Pioneers is
required to pay for its license a sum equal to 85% of the product of (i) the
average per POP price paid in the auctions for the licenses in the top 20 MTAs
based on population, not including the three MTAs in which only one 30 MHz
license was to be auctioned due to the Pioneers' Preferences (i.e., the average
is based on the per POP prices for 40 licenses), times (ii) the number of 1990
POPs in each of the Pioneer's MTAs. Based on the final round of the A and B
Block auctions, the Company will pay $13.16 per (1990) POP or $347.5 million for
the New York MTA License. This discounted price is 78.5% of the winning bid in
the auction for the B Block 30 MHz New York MTA license.
The GATT legislation prohibits the FCC from reconsidering its December 1993
Report and Order granting final preference awards to the three Pioneers. The
legislation also mandates that the decisions are not subject to further
administrative or judicial review. The Pioneers are allowed to pay for their
licenses in installments over five years with interest only for at least the
first two years (and possibly all five years) with the interest rate and the
timing of the principal and cash interest payments to be established by the FCC.
On March 8, 1996, the FCC adopted such an order, the terms and conditions
of which are as follows: (1) the five-year payment period will run and interest
will begin to accrue from the adoption date; (2) the payments will be interest
only for the first two years; (3) the unpaid principal balance and interest will
be amortized over the remaining three years; (4) the interest rate imposed on
the payments will be equal to 7.75%; and (5) payments will commence 30 days from
the adoption of the order and thereafter be due on the last day of each
financial quarter.
Conditions on License
The FCC has placed three conditions on the licenses with which the Pioneers
must comply. The conditions include the requirement that the Company construct
network facilities that offer coverage to at least one-third of the population
in the New York MTA within five years of the grant of the New York MTA License,
December 1999 (the "Five Year Buildout Requirement") and to at least two-thirds
of the population within 10 years (the "10-Year Buildout Requirement"),
assignment and change of control restrictions and substantial use requirements.
Violations of any of these conditions could result in license revocations,
forfeitures or fines.
Under the Five Year Buildout Requirement and the 10-Year Buildout
Requirement, the Pioneers and all other 30 MHz broadband PCS licensees must
construct facilities that offer coverage to at least one-third of the
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population in their service area within five years of their initial license
grants and to two-thirds of the population within 10 years. Licensees that fail
to meet the coverage requirements may be subject to forfeiture of the license.
The Company believes it can achieve these requirements because over 7.3
million people, or 27.2% of the MTA's population, reside in New York City's five
boroughs alone. Planned coverage of just one of Omnipoint's 20 BTAs, the New
York BTA, which includes the five boroughs of New York City, northern New
Jersey, Long Island, Westchester County and Fairfield County, will cover 18.1
million people, or 67.5% of the MTA's population, thus satisfying the 10-Year
Buildout Requirement.
The Pioneer Preference PCS licenses contain a provision prohibiting an
assignment of the license or a transfer of control of the licensee until the
earlier of three years after the license grant (i.e., not before December 1997)
or the date on which the Company has provided coverage for one-third of the
license area's population. In addition, the Communications Act requires the
FCC's prior approval of the assignment or transfer of control of a PCS license.
In addition, the FCC has established transfer disclosure requirements that
require licensees who transfer control of or assign a PCS license within the
first three years to file associated contracts for sale, option agreements,
management agreements or other documents disclosing the total consideration that
the applicant would receive in return for the transfer or assignment of its
license. Non-controlling interests in an entity that holds a PCS license or PCS
system generally may be bought or sold without prior FCC approval.
The New York MTA License contains a condition that requires the Company to
construct a PCS system that "substantially uses" the design and technology upon
which the Pioneer's Preference award was based. The condition expires upon the
system providing coverage for one-third of the population of the MTA. The FCC
has never specifically defined the phrase "substantial use" and there is pending
before the FCC a petition filed by Wireless Communications Council, a trade
association consisting of proponents of CDMA Technology, that asks the FCC to do
so. While there can be no assurance as to how the FCC will construe such
phrase, the Company believes, on the basis of prior FCC pronouncements, that its
present plan to use the Omnipoint/GSM System to build out the New York MTA
network will satisfy the "substantial use" condition.
Citizenship Requirements
Under the Communications Act, non-U.S. citizens or their representatives,
foreign governments, or corporations otherwise subject to domination or control
by non-U.S. citizens may not own more than 20% of a common carrier licensee
directly, or, if the FCC finds it consistent with the public interest, more than
25% of the parent of a common carrier licensee. Non-U.S. citizens may not serve
as officers of a common carrier licensee or as members of a common carrier
licensee's board of directors, although up to one-fourth of the board of
directors of a common carrier licensee's parent may be non-U.S. citizens.
Failure to comply with these requirements may result in the FCC issuing an
order to the entity requiring divestiture of alien ownership to bring the entity
into compliance with the Communications Act. In addition, fines, a denial of
renewal or revocation of the license are possible. The Company has no knowledge
of any present foreign ownership in violation of the Communications Act.
PATENTS AND OTHER INTELLECTUAL PROPERTY RIGHTS
As of December 31, 1995, Omnipoint has received 12 patents on its
technology and has 52 U.S. and 46 foreign patent applications pending. The
issued patents will expire between May 2008 and November 2013. The Company will
continue to file patent applications as engineering developments occur. The
policy of the Company is to apply for patents or other appropriate or statutory
protection when it develops valuable new or improved technology. The Company
believes, however, that the successful development of its technology generally
depends more upon the experience, technical know-how and creative ability of its
personnel rather than on ownership of patents.
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The status of patents involves complex legal and factual questions and the
breadth of claims allowed is uncertain. Accordingly, there can be no assurance
that patent applications filed by the Company will result in patents being
issued or that its patents, and any patents that may be issued to it in the
future, will afford protection against competitors with similar technology; nor
can there be any assurance that patents issued to the Company will not be
infringed upon or designed around by others or that others will not obtain
patents that the Company would need to license or design around. If existing or
future patents containing broad claims are upheld by the courts, the holders of
such patents might be in a position to require companies to obtain licenses.
There can be no assurances that licenses that might be required for the
Company's products would be available on reasonable terms, if at all. To the
extent that licenses are unavailable, or are not available on acceptable terms,
no assurance can be made that the failure to obtain a license would not
adversely impact the Company.
In addition to seeking patent protection, the Company relies on trade
secrets to protect its proprietary rights. The Company attempts to protect its
trade secrets and other proprietary information through agreements with
customers and suppliers, non-disclosure and non-competition agreements with
employees and consultants and other security measures. Although the Company
intends to protect its rights vigorously, there can be no assurance that these
measures will be successful.
EMPLOYEES
As of December 31, 1995, the Company had a total of 174 employees,
including 128 in engineering, 13 in sales, marketing and product management and
33 in administration and finance. The Company's future success will depend in
significant part on the continued service of its key technical, sales and senior
management personnel. Competition for such personnel is intense and there can be
no assurance that the Company can retain its key managerial, sales and technical
employees, or that it can attract, assimilate or retain other highly qualified
technical, sales and managerial personnel in the future. None of the Company's
employees is represented by a labor union. The Company has not experienced any
work stoppages and considers its relations with its employees to be good.
ITEM 2. PROPERTIES.
The Company's principal administrative offices are located in leased space
in Arlington, Virginia and its sales, marketing, support, research and
development personnel occupy two facilities in Colorado Springs, Colorado. The
largest facility is located in approximately 51,384 square feet of subleased
space (increasing to approximately 68,512 square feet in August 1996). Another
facility is located in approximately 35,000 square feet of leased space
(increasing to approximately 54,850 square feet in October 1996). The Virginia
lease and the Colorado sublease and lease are pursuant to agreements which
expire in February 1998, August 1997 and September 2000, respectively.
In November 1995, the Company acquired a building with approximately 24,000
square feet in Wayne, New Jersey to house OCI's network control center. The
Company also has acquired the rights to more than 5,000 sites in the New York
MTA as possible locations for cell sites.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not currently aware of any pending or threatened litigation
that could have a material adverse effect on the Company's financial condition,
results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
As of December 21, 1995, the Company solicited and obtained the written
consent of the holders of a majority of the shares of Common Stock, the holders
of a majority of the shares of Series A Convertible Preferred Stock, the holders
of a majority of the shares of Series B Convertible Preferred Stock and the
holders of a majority of the shares of Series C Convertible Preferred Stock of
the Company approving (1) the Amended and Restated
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<PAGE>
Bylaws of the Company, (2) a Certificate of Amendment to Certificate of
Incorporation of the Company, including an increase in the number of shares of
Common Stock the Company has authority to issue to 75,000,000 and including
indemnification provisions for directors, officers, employees and agents of the
Company, and (3) an Amended and Restated Certificate of Incorporation of the
Company, which was filed upon the completion of the Company's initial public
offering of Common Stock.
As of January 21, 1996, the Company solicited and obtained the written
consent of the holders of a majority of the shares of Common Stock, the holders
of a majority of the shares of Series A Convertible Preferred Stock, the holders
of a majority of the shares of Series B Convertible Preferred Stock and the
holders of a majority of the shares of Series C Convertible Preferred Stock of
the Company approving a Certificate of Amendment to Certificate of Incorporation
of the Company to make mandatory the conversion of the Company's Series A
Convertible Preferred Stock, Series B Convertible Preferred Stock and Series C
Convertible Preferred Stock upon the closing of the initial public offering of
the Common Stock of the Company.
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<PAGE>
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Common Stock of Omnipoint is traded on the Nasdaq National Market under
the symbol "OMPT." Prior to January 26, 1996, there was no established public
trading market for any of the Company's securities.
The high and low prices for the Common Stock for the period beginning
January 26, 1996, and ending March 22, 1996 were $28 and $19 1/2, respectively.
The last sales price for Omnipoint's Common Stock, as reported by the Nasdaq
National Market on March 27, 1996, was $25 3/4.
The Company had approximately 230 shareholders of record as of March 22,
1996.
The Company has never paid or declared any cash dividends on its Common
Stock and does not expect to pay cash dividends in the foreseeable future.
Further, the Company's Note and Warrant Purchase Agreement, dated November 22,
1995 (the "Senior Note Agreement"), prohibits the Company from paying dividends
of any kind on the Common Stock while the senior notes representing a $25.0
million aggregate principal amount debt obligation (the "Senior Notes") are
outstanding. The NT Credit Facility contains a restriction on OCI's ability to
declare and pay dividends.
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<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The following selected consolidated financial data should be read in
conjunction with the Company's Consolidated Financial Statements and notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Form 10-K. The selected
consolidated financial data as of December 31, 1994 and 1995, and for each of
the three years in the period ended December 31, 1995, have been derived from
the Company's consolidated financial statements included elsewhere in this Form
10-K which have been audited by Coopers & Lybrand L.L.P., independent
accountants, whose report thereon is also included in this Form 10-K. The
selected consolidated financial data as of December 31, 1991, 1992 and 1993 and
for each of the years ended December 31, 1991 and 1992 have been derived from
audited financial statements of the Company not included in this Form 10-K.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------
1991 1992 1993 1994 1995
(in thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Revenue................................. $ 2,075 $ 3,399 $ 1,618 $ 3,000 $ --
Operating expenses:
Research and development........ 1,826 3,700 4,593 7,018 14,345
Sales, general and administrative 2,054 2,475 2,974 6,290 12,619
Depreciation and amortization... 38 101 245 1,125 11,037
------- ------- -------- -------- --------
Total operating expenses. 3,918 6,276 7,812 14,433 38,001
------- ------- -------- -------- --------
Loss from operations............... (1,843) (2,877) (6,194) (11,433) (38,001)
Interest income (expense), net..... 61 82 (32) (1,156) 231
Miscellaneous income............... -- -- -- 65 --
Gain on sale of subsidiary stock... -- -- -- 3,194 --
------- ------- -------- -------- --------
Net loss........................... $(1,782) $(2,795) $ (6,226) $ (9,330) $(37,770)
======= ======= ======== ======== ========
Pro forma net loss per common share(1) $(0.96)
Pro forma weighted average number of common
shares outstanding(1)............. 39,529
Supplemental net loss per common share(1)(3) $(0.93)
Supplemental weighted average number of
common shares outstanding(1)(3)... 40,084
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
----------------------------------------------------------------------------
1991 1992 1993 1994 1995
(in thousands)
BALANCE SHEET DATA: Actual Pro Forma(1)(2)
-------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Working capital (deficit)........... $4,339 $ 1,340 $ 9,055 $ 3,095 $(13,689) $122,630
Total assets........................ 4,991 2,540 14,465 360,946 474,990 555,945
New York MTA License obligation..... -- -- -- 347,518 347,518 347,518
Other long-term debt................ -- -- -- 1,687 36,070 36,070
Preferred stock..................... 1,500 1,500 15,902 15,902 44,127 --
Total stockholders' equity (deficit) 2,813 101 (6,031) (7,416) (30,548) 149,019
</TABLE>
___________________
(1) Gives effect to the conversion of the Convertible Subordinated Notes into
1,562,500 shares of Common Stock and the conversion of all outstanding
shares of Preferred Stock and certain accrued dividends thereon into
10,605,591 shares of Common Stock.
(2) Gives effect to the sale of 8,050,000 shares of Common Stock at the
closing of the initial public offering on January 31, 1996.
(3) Gives effect to the issuance of the number of shares necessary to retire
the amounts outstanding under a $40 million credit agreement as of the
borrowing thereunder on November 10, 1995.
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<PAGE>
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Overview
The Company was incorporated in Delaware in June 1987 to design, develop,
manufacture and market wireless digital communications products. From inception
to 1991, the Company focused primarily on developing its core technology. The
Company used its core technology to generate revenues from the production of
prototype equipment pursuant to agreements with companies in the
telecommunications industry. In 1992, the principal focus of the Company shifted
from performing such activities to the development of its PCS business.
Since 1992, the Company has generated limited revenues primarily from
license fees, research and development services and prototype equipment sales
related to its proprietary technology. As the principal focus of the Company has
been the development of its PCS business, there has been minimal contract and
license fee activity. The Company expects to continue this focus and anticipates
that revenues in 1996 will be minimal. The Company believes that period-to-
period revenue comparisons are not necessarily meaningful as an indication of
future performance. In the future, the Company expects to derive additional
revenues from the sale of its equipment and the provision of PCS service in the
New York MTA.
Results of Operations
Year ended December 31, 1995 compared with Year ended December 31, 1994
There were no revenues during the year ended December 31, 1995 as compared
with $3.0 million for the year ended December 31, 1994, representing a license
fee from Northern Telecom.
Research and development expenses increased by 104.3%, or approximately
$7.3 million, to $14.3 million for the year ended December 31, 1995 compared to
$7.0 million for the year ended December 31, 1994. The increase was primarily
due to an increase of $3.1 million in the purchase of research and development
components and an increase of $3.3 million in payroll and related payroll taxes
and employee benefits, associated with the Company's continued growth and its
development of the IS-661 technology. The Company expects that research and
development expenses will continue to increase significantly during 1996.
Sales, general and administrative expenses increased by 100%, or
approximately $6.3 million, to $12.6 million for the year ended December 31,
1995 compared to $6.3 million for the year ended December 31, 1994. Of this
increase, $2.5 million was due to increases in management headcount resulting
from the expansion of the Company's operations. The remaining increase consists
primarily of increases of $1.1 million in legal fees, $300,000 in accounting
fees, $402,000 in rent expense and utilities, $664,000 in consulting service
fees and $530,000 in travel expenses. The Company expects that such expenses
will continue to increase significantly during 1996, as the Company continues to
expand its operations.
Depreciation and amortization increased approximately $9.9 million to $11.0
million for the year ended December 31, 1995 compared to $1.1 million for the
year ended December 31, 1994. The increase in the 1995 period was due primarily
to twelve months of the amortization of the New York MTA License, which is being
amortized using the straight-line method over a period of 40 years.
Net interest income was $231,000 for the year ended December 31, 1995
compared to $1.2 million of net interest expense for the year ended December 31,
1994. The net interest expense for the year ended December 31, 1994 included
$1.5 million of interest expense related to the New York MTA License. On March
8, 1996, the FCC adopted an order that sets the interest rate for the License at
7.75% per annum accruing from March 8, 1996. As a result, the Company reversed
all accrued interest related to the License during December 1995.
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<PAGE>
Net loss increased approximately $28.5 million to $37.8 million for the
year ended December 31, 1995 compared to $9.3 million for the year ended
December 31, 1994. This increase was primarily due to an increase of $8.7
million in amortization associated with the New York MTA License and a general
increase in operating expenses.
Year ended December 31, 1994 compared to Year ended December 31, 1993
Revenues increased by 87.5%, or approximately $1.4 million, to $3.0 million
in 1994 from $1.6 million in 1993. Northern Telecom accounted for 100% of the
Company's revenues in 1994, which represented a nonrefundable license fee
received upon entering into an OEM agreement. Three customers accounted for
90.2% of the revenues in 1993. The 1993 revenues were derived from contracts
related to research and development, prototype equipment sales and related
services in the field of wireless digital communications.
Research and development expenses increased by 52.2%, or approximately $2.4
million, to $7.0 million in 1994 from $4.6 million in 1993. These expenses
consisted primarily of payroll and related payroll taxes and employee benefits
of employees engaged in ongoing research, design and development activities and
the Company's continued growth and developing and testing of prototypes. The
increases in 1994 were primarily due to an increase of $1.6 million in payroll
and related payroll taxes and employee benefits, specifically in the digital and
software engineering departments, and an increase of $474,000 in the purchases
of research and development components. The Company expects that research and
development expenses will continue to increase significantly during 1995 as
compared to 1994, as the Company incurs significant research and development
expenditures to launch products.
Sales, general and administrative expenses increased by 110.0%, or
approximately $3.3 million, to $6.3 million in 1994 from $3.0 million in 1993.
These expenses consisted primarily of salaries and related payroll taxes and
employee benefits for management, finance and accounting, legal and other
professional services. The increase in 1994 is due to an increase of $800,000 in
legal costs, primarily in connection with the New York MTA License, an increase
of $480,000 in office related expenses including utilities, office supplies,
postage and rent, an increase of $822,000 in payroll and related payroll taxes
and employee benefits and an increase of $276,000 in sales and marketing costs
due to increases in headcount combined with higher involvement and attendance at
tradeshows.
Depreciation and amortization increased by 359.2%, or approximately
$880,000, to $1.1 million in 1994 from $245,000 in 1993. The increase in 1994
was due primarily to amortization of the New York MTA License of $428,000.
Interest income (expense), net includes $1.5 million of interest expense in
1994 related to the New York MTA License, which was partially offset by interest
income of $360,000.
Net loss increased by 50%, or approximately $3.1 million, to $9.3 million
in 1994 from $6.2 million in 1993. The increase in net loss in 1994 was
primarily due to the $1.5 million of interest expense associated with the New
York MTA License and $428,000 of amortization of the New York MTA License. The
net loss was partially offset by $3.2 million of gain on the sale of stock of
its subsidiary during 1994.
Liquidity and Capital Resources
Since its formation, the Company has financed its operations and met its
capital requirements primarily through three Preferred Stock offerings, as well
as borrowings under a bridge loan, sale of stock of its subsidiary, vendor
financing and, to a lesser extent, equipment lease arrangements. These financing
activities provided net cash of $4.7 million in 1991, $17.4 million in 1993, and
$116.0 million in 1995. The Company received gross proceeds of $50.0 million
through the sale of the Senior Notes, the Convertible Subordinated Notes and
associated warrants in November and December 1995.
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<PAGE>
Operating activities used net cash of $5.0 million in 1993, $7.9 million in
1994 and $19.7 million in 1995. These increases resulted from the Company's
increased activity and corresponding growth to support product development and
to commence the buildout of the New York MTA network. Investing activities used
net cash of $480,000 in 1993, provided net cash of $720,000 in 1994, and used
net cash of $44.0 million in 1995, consisting of capital expenditures for office
equipment, computers and related equipment used in engineering and manufacturing
and the $40.0 million FCC deposit for the Entrepreneurs' Band auction made
during December 1995.
As of December 31, 1995, the Company had a working capital deficit of
approximately $13.7 million. In January 1996, on a pro forma basis, working
capital increased by $135.4 million to $121.7 million upon receiving $118.6
million of proceeds, net of expenses, from the issuance of 8,050,000 shares of
Common Stock in the Company's initial public offering and the reduction of
current liabilities of $36.5 million and $16.3 million related to the repayment
of a certain credit agreement and the conversion of the Convertible Subordinated
Notes at the initial public offering. This increase was offset by the use of
cash to repay the credit agreement.
In 1993, the Company, through its subsidiary, OCI, was awarded a final
Pioneer's Preference for the New York MTA License that required no payment from
the Company. Subsequent legislation mandated a methodology for charging for the
license. In accordance with terms defined in that legislation, the Company is
obligated to pay a license fee of $347.5 million to the FCC for the New York MTA
License awarded in December 1994. On March 8, 1996, the FCC adopted such an
order, the terms and conditions of which are as follows: (1) the five-year
payment period will run and interest will begin to accrue from the adoption date
(2) the payments will be interest only for the first two years; (3) the unpaid
principal balance and interest will be amortized over the remaining three years;
(4) the interest rate imposed on the payments will be 7.75%; and (5) payments
will commence 30 days from the adoption of the order and thereafter be due on
the last day of each financial quarter. The Company will be required to pay one
month of interest of $2.2 million on April 7, 1996. The second payment of $4.5
million, representing interest from April 8 through June 30, 1996, will be paid
on June 30, 1996.
During 1994, the Company entered into an agreement to purchase $100.0 million
of equipment and services over the next five years from Northern Telecom. Such
agreement was amended to increase the purchase obligations to $250.0 million of
equipment and services. The Company has purchased approximately $19.0 million
of equipment and services under such agreement. During 1995, the Company
entered into a $382.5 million credit facility with Northern Telecom to finance
future purchases and installations of telecommunications equipment, engineering
services, certain related construction costs, third-party equipment and other
expenses. The Company also has an OEM agreement to sell certain equipment,
hardware and software to Northern Telecom at its normal selling prices, which
will result in licensing fees and revenues.
A portion of the NT Credit Facility, which may be used for working capital
purposes including interest payments on the principal of the Facility, matures
on June 30, 1997. Any amounts repaid can be subsequently borrowed for the other
purposes allowed under the NT Credit Facility. The principal amount on the other
portions of the NT Credit Facility are payable in installments beginning in
2000, with the final payment due on December 31, 2004. Interest on the NT Credit
Facility is payable quarterly.
The NT Credit Facility is secured by a pledge of all capital stock of OCI
owned by a wholly-owned subsidiary of the Company (which constitutes a 95.58%
ownership interest) and substantially all of OCI's assets.
Under the terms of the NT Credit Facility, OCI is subject to certain financial
and operational covenants including restrictions on OCI's ability to pay
dividends, restrictions on indebtedness and certain financial maintenance
requirements. Additionally, the NT Credit Facility provides that, among other
events, the failure of OCI to pay when due amounts owing the FCC shall
constitute an event of default. As of December 31, 1995, OCI had a balance
(principal and accrued interest) of approximately $19.5 million outstanding
under this facility.
On November 22, 1995, the Company sold variable interest rate Senior Notes in
the aggregate amount of $25.0 million, together with warrants to purchase
625,000 shares of Common Stock at an exercise price of $.004 per
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<PAGE>
share. The Senior Notes mature in five years and may be prepaid at any time. The
Senior Notes contain a sinking fund obligation whereby the Company is required
to pay $5.0 million of the outstanding principal balance of the Senior Notes on
the third and fourth anniversary of their date of issuance. The note purchase
agreement contains certain covenants and restrictions on the Company, including
a restriction on the payment of cash dividends and the requirement that any
indebtedness of the Company be pari passu or subordinate to the Senior Notes.
On November 29, 1995, the Company sold Convertible Subordinated Notes in the
aggregate amount of $15.0 million, together with warrants to purchase 375,000
shares of Common Stock at an exercise price of $.004 per share. On December 18,
1995, the Company sold to Hansol Convertible Subordinated Notes in the aggregate
amount of $10.0 million, together with warrants to purchase 250,000 shares of
Common Stock at an exercise price of $.004 per share. The Convertible
Subordinated Notes were converted upon the closing of the Company's initial
public offering into shares of Common Stock, based on the initial public
offering price to the public of $16.00 per share.
On January 31, 1996, the Company completed an initial public offering of
8,050,000 shares of Common Stock resulting in proceeds, net of related expenses
of approximately $118.6 million. Associated with the offering, the Preferred
Stock was converted into 10,605,591 shares of Common Stock and the Convertible
Subordinated Notes were converted into 1,562,500 shares of Common Stock. The
Company used a portion of the proceeds to pay down the outstanding balance of a
credit agreement of $36.5 million.
The Company's future capital requirements will depend upon many factors,
including the development of new products, the extent and timing of acceptance
of the Company's equipment in the market, requirements to maintain adequate
manufacturing facilities, the progress of the Company's research and development
efforts, expansion of the Company's marketing and sales efforts, the Company's
results of operations and the status of competitive products. The Company
estimates that it will require between $100 million to $150 million to build out
its network at a sufficient level to meet the Five Year Buildout Requirement
imposed on the Company as a license holder. The Company believes that cash and
cash equivalents on hand, the net proceeds of the offering, anticipated
revenues, vendor financing and additional strategic partnerships will be
adequate to fund its operations for the next 12 months. There can be no
assurance, however, that the Company will not require additional financing prior
to such date to fund its operations. The Company believes that it will require
substantial amounts of additional capital over the next several years and
anticipates that this capital will be derived from a mix of public offerings and
private placements of debt or equity securities or both.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by Item 8 of Part II is incorporated herein by
reference to the Consolidated Financial Statements filed with this report; see
Item 14 of Part IV.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
The information required by Item 10 is hereby incorporated by reference from
the Proxy Statement of Omnipoint Corporation.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 is hereby incorporated by reference
from the Proxy Statement of Omnipoint Corporation.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 12 is hereby incorporated by reference
from the Proxy Statement of Omnipoint Corporation.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 13 is hereby incorporated by reference
from the Proxy Statement of Omnipoint Corporation.
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<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
(a) DOCUMENTS FILED AS PART OF THE REPORT:
<S> <C> <C>
(1) Report of Independent Accountants F-2
Consolidated Balance Sheets at December 31, 1994 and 1995 F-3
Consolidated Statements of Operations for the years ended
December 31, 1993, 1994 and 1995 F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 1993, 1994 and 1995 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1993, 1994 and 1995 F-6
Notes to Consolidated Financial Statements F-7
(2) Financial Statement Schedule S-1
(3) Exhibits
Exhibit Number Description
-------------- -----------
3.1 Amended and Restated Certificate of Incorporation of the Registrant.
3.6* Amended and Restated Bylaws of the Registrant.
4.2 See Exhibit 3.1.
10.1* Registrant's Amended and Restated 1990 Stock Option Plan.
10.2* Form of Incentive Stock Option Agreement under Registrant's 1990
Stock Option Plan.
10.3* Form of Stock Option Agreement under Registrant's 1990 Stock Option
Plan for non-qualified options.
10.4* Form of Stock Option Agreement outside scope of Registrant's 1990
Stock Option Plan for non-qualified options.
10.5* Warrant Certificate, dated August 2, 1991, by and between the
Registrant and Allen & Company Incorporated.
10.6* Warrant Certificate, dated August 2, 1991, by and between the
Registrant and Allen & Company Incorporated.
10.7* Letter agreement, dated June 29, 1995, by and between the Registrant
and Allen & Company Incorporated (relating to Exhibit 10.6).
10.8* Common Stock Purchase Warrant issued March 10, 1995, granted to
Madison Dearborn Capital Partners, L.P.
10.9* Common Stock Purchase Warrant issued March 10, 1995, granted to
Madison Dearborn Capital Partners, L.P.
10.10* Proprietary Information, Development and Non-Compete Agreement,
dated December 6, 1990, by and between the Registrant and Douglas G.
Smith.
10.11* Employment Agreement, effective October 1, 1995, by and between the
Registrant, Omnipoint Communications Inc. and George F. Schmitt.
10.12* Promissory Note, dated October 1, 1995, by George F. Schmitt.
10.13* Stock Restriction Agreement, dated October 1, 1995, by and between
the Registrant and George F. Schmitt.
10.14* Employment Agreement, dated April 17, 1995, by and between the
Registrant and Bradley E. Sparks.
</TABLE>
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<PAGE>
10.15* Promissory Note, dated April 17, 1995, by Bradley E. Sparks.
10.16* Stock Restriction Agreement, dated April 17, 1995, by and between
the Registrant and Bradley E. Sparks.
10.17* Employment Agreement, dated December 5, 1994, by and between the
Registrant and Randall Meals.
10.18* Promissory Note, dated December 5, 1994, by Randall Meals.
10.19* Promissory Note, dated September 19, 1995, by Randall Meals.
10.20* Stock Restriction Agreement, dated December 5, 1995, by and between
the Registrant and Randall Meals.
10.21* Employment Agreement, dated June 21, 1994, by and between Omnipoint
Communications Inc. and Harry Plonskier.
10.22* Stock Restriction Agreement, dated July 5, 1994, by and between the
Registrant and Harry Plonskier.
10.23* Employment Agreement, dated June 16, 1991, by and between the
Registrant and Evelyn Goldfine.
10.24* Employment Agreement, dated April 15, 1994, by and between the
Registrant and Robert Dixon.
10.25 [Intentionally left blank]
10.26* Form of Employment Agreement by and between the Registrant and its
employees.
10.27* Form of Non-Disclosure Agreement.
10.28* Form of Stock Restriction Agreement by and between the Registrant
and certain stockholders.
10.29* Series A Convertible Preferred Stock Purchase Agreement, dated
August 2, 1991, by and between the Registrant and Allen & Company
Incorporated.
10.30* Series B Convertible Preferred Stock Purchase Agreement, dated
August 9, 1993, by and among the Registrant and Madison
Dearborn Capital Partners, L.P.
10.31* Amendment No. 1 to Series B Convertible Preferred Stock Purchase
Agreement, dated June 29, 1995, by and between the Registrant and
Madison Dearborn Capital Partners, L.P.
10.32* Series C Convertible Preferred Stock Purchase Agreement, dated June
29, 1995, by and among the Registrant and the other parties named
therein.
10.33* Stock Purchase Agreement, dated January 29, 1994, by and between
the Registrant and Ameritech Development Corporation.
10.34* Stock Purchase Agreement, dated June 29, 1994, by and between the
Registrant and Associated PCN Company.
10.35* Common Stock Purchase Agreement, dated June 1, 1994, by and between
the Registrant and the parties named therein.
10.36* Amended and Restated Registration Rights Agreement, dated June 29,
1995, by and among the Registrant and the parties named therein.
10.37* First Amended and Restated Voting Agreement, dated June 29, 1995,
by and among the Registrant and the other parties named therein.
10.38* OEM Supply Agreement for Omnipoint PCS (Personal Communication
Systems) Products, dated September 22, 1994, by and between the
Registrant and Northern Telecom Inc.
10.39* Letter agreement dated December 9, 1994, by and between the
Registrant and Northern Telecom Inc. (relating to Exhibit 10.38).
10.40* Manufacturing License and Escrow Agreement for Personal
Communication Service Products, dated February 28, 1995, by and
between the Registrant and Northern Telecom Inc.
10.41* Collaborative Development Agreement, dated March 1, 1995, by and
between the Registrant and Northern Telecom Inc.
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<PAGE>
10.42* Reciprocal OEM Agreement Memorandum of Understanding, dated March
30, 1995, by and between the Registrant and Northern Telecom
Inc.
10.43* Supply Agreement, dated September 22, 1994, by and between
Omnipoint Communications Inc. and Northern Telecom Inc.
10.44* Amendment No. 1 to Supply Agreement, dated July 21, 1995, by and
between Omnipoint Communications Inc. and Northern Telecom Inc.
10.45* Loan Agreement, dated as of July 21, 1995, by and between
Omnipoint Communications Inc. and Northern Telecom Inc.
10.46 [Intentionally left blank]
10.46.1* Letter Agreement, dated November 14, 1995, by and among the
Registrant, Omnipoint Communications Inc. and JRC
International Inc. (relating to Exhibit 10.46).
10.46.2* Letter Agreement, dated December 21, 1995, by and among the
Registrant, Omnipoint Communications Inc. and JRC International
Inc. (relating to Exhibit 10.46).
10.47* Engineering Services Agreement, dated as of August 31, 1995, by
and between the Registrant and JRC International Inc.
10.48* Memorandum of Understanding, dated April 21, 1995, by and between
the Registrant and Pacific Bell Mobile Services.
10.49* Office Sublease Agreement by and between the Registrant and
United Technologies Microelectronics Center, Inc., commencing
August 1, 1994 or upon earlier occupation by the Registrant.
10.50* Amendment to Office Sublease Agreement, signed August 17, 1994,
by and between the Registrant and United Technologies
Microelectronics Center, Inc.
10.51* Office Building Lease for Courthouse Plaza Office Building, dated
January 18, 1994, by and between the Registrant and Eastrich
No. 130 Corporation.
10.52* First Lease Amendment, dated January 20, 1995, by and between the
Registrant and Eastrich No. 130 Corporation.
10.53* Pioneer's Preference License granted by the FCC to Omnipoint
Communications Inc. on December 14, 1994.
10.54* Note and Warrant Purchase Agreement dated November 22, 1995,
between the Registrant and the purchasers named therein.
10.55* Senior Note Due 2000 issued by the Registrant on November 22,
1995 to the holder identified therein.
10.56* Senior Note Due 2000 issued by the Registrant on November 22,
1995 to the holder identified therein.
10.57* Common Stock Warrant issued by the Registrant on November 22,
1995 to the holder identified therein.
10.58* Common Stock Warrant issued by the Registrant on November 22,
1995 to the holder identified therein.
10.59* Credit Agreement, dated as of November 21, 1995, by and among
OPCS Corp., Omnipoint PCS Entrepreneurs, Inc. and Bank of
America National Trust and Savings Association.
10.60* Memorandum of Understanding, dated November 22, 1995, by and
between the Registrant and Ericsson Inc.
10.60.1* Letter Agreement, dated January 24, 1996, by and between the
Registrant and between Ericsson Inc.
10.61* Convertible Subordinated Note and Warrant Purchase Agreement,
dated December 12, 1995, by and between the Registrant and
Hansol Paper Co., Ltd.
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<PAGE>
10.62* Convertible Subordinated Note and Warrant Purchase Agreement,
dated as of November 29, 1995, by and among the Registrant and
the entities identified therein.
10.63* Letter of Intent, dated October 26, 1995, by and between the
Registrant and BellSouth Personal Communications, Inc.
10.64* Waiver of Registration Rights and Confirmation of 180-Day Lockup,
dated as of October 31, 1995, by and between the Registrant and
Ameritech Development Corporation.
10.65* Registration Rights Agreement dated as of April 26, 1994, by and
among the Registrant and the parties thereto.
10.66* Contract for Sale of Real Estate, dated August 30, 1995, by and
between F&R Bari Realty, Ltd., Inc. and Omnipoint
Communications Inc.
10.67* Lease Agreement, dated October 15, 1995, by and between the
Registrant and Baetis Properties, Inc.
11.1 Statement of computation of loss per share.
22.1* Subsidiaries of the Registrant.
24.1 Consent of Coopers & Lybrand L.L.P.
25.1 Power of Attorney (included in signature pages).
27 Financial Data Schedule
___________________________
* Incorporated herein by reference to the Company's Registration Statement on
Form S-1, No. 33-98360.
___________________________
(b) REPORTS ON FORM 8-K
None.
(c) EXHIBITS
The exhibits required by this Item are listed under Item 14(a)(3).
(d) FINANCIAL STATEMENT SCHEDULE
The consolidated financial statement schedule required by this Item
are listed under Item 14(a)(2).
-28-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Company has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized, in
Arlington, Commonwealth of Virginia, on the 27 of June, 1996.
OMNIPOINT CORPORATION
By: /s/ Douglas G. Smith
--------------------
Douglas G. Smith
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf of
the Company in the capacities and on the date indicated.
Each person whose signature appears below in so signing also makes,
constitutes and appoints Douglas G. Smith and Edwin M. Martin, Jr., and each of
them acting alone, his true and lawful attorney-in-fact, with full power of
substitution, for him in any and all capacities, to execute and cause to be
filed with the Securities and Exchange Commission any and all amendments and
post-effective amendments to this Report, with exhibits thereto and other
documents in connection therewith, and hereby ratifies and confirms all that
said attorney-in-fact or his substitute or substitutes may do or cause to be
done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Douglas G. Smith President, Chief Executive June 27, 1996
- ------------------------ Officer, Chairman of the
Douglas G. Smith Board and Director (Principal
Executive Officer)
* Executive Vice President and June 27, 1996
- ------------------------ Director; President of
George F. Schmitt Omnipoint Communications Inc.
/s/ Bradley E. Sparks Chief Financial Officer June 27, 1996
- ------------------------ (Principal Financial and
Bradley E. Sparks Accounting Officer)
* Director and Vice Chairman June 27, 1996
- ------------------------ of the Board
James J. Ross
* Director June 27, 1996
- ------------------------
Evelyn Goldfine
</TABLE>
-29-
<PAGE>
* Director June 27, 1996
- -----------------------
Richard L. Fields
* Director June 27, 1996
- -----------------------
Paul J. Finnegan
* Director June 27, 1996
- -----------------------
James N. Perry, Jr.
* Director June 27, 1996
- ----------------------
Arjun Gupta
*/s/ Edwin M. Martin, Jr.
- -----------------------------
Edwin M. Martin, Jr.
Attorney-in-Fact
-30-
<PAGE>
OMNIPOINT CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants F-2
Consolidated Balance Sheets at December 31, 1994 and 1995 F-3
Consolidated Statements of Operations for the years ended December 31,
1993, 1994 and 1995 F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the years
ended December 31, 1993, 1994 and 1995 F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1993, 1994 and 1995 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Omnipoint Corporation:
We have audited the accompanying consolidated balance sheets of Omnipoint
Corporation as of December 31, 1994 and 1995, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Omnipoint Corporation as of December 31, 1994 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
March 15, 1996
F-2
<PAGE>
OMNIPOINT CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS Pro Forma
December 31, 12/31/95
-------------------
1994 1995 (Unaudited)
---- ---- -----------
(Note 1)
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 5,542,712 $ 57,784,381 $139,618,017
Prepaid expenses and other assets
(Note 3) 200,197 5,039,621 5,039,621
Inventory 605,090 1,309,632 1,309,632
------------ ------------ ------------
Total current assets 6,347,999 64,133,634 145,967,270
------------ ------------ ------------
Fixed assets, net (Notes 4 and 10) 3,015,405 18,957,189 18,957,189
FCC deposit (Note 7) - 40,000,000 40,000,000
Other assets - 878,896 -
Licensing costs, net of
accumulated amortization of
$428,447 and $9,116,405 as of
December 31, 1994 and 1995,
respectively 347,089,862 338,401,904 338,401,904
Deferred financing costs and other
intangible assets, net of
accumulated amortization
of $86,986 and $987,470 as of
December 31, 1994 and 1995,
respectively 4,492,274 12,618,474 12,618,474
------------ ------------ ------------
Total assets $360,945,540 $474,990,097 $555,944,837
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<S> <C> <C> <C>
Current liabilities:
Accounts payable 894,672 15,610,528 15,610,528
Accrued expenses (Note 5) 2,096,264 4,592,719 3,024,791
Accrued interest payable (Note 8) - 387,654 220,672
Capital lease obligations -
current portion (Note 10) 261,968 170,885 170,885
Notes payable - current portion
(Note 7) - 10,856 10,856
Credit agreement (Note 7) - 36,500,000 -
Convertible Subordinated Notes
(Note 7) - 16,250,000 -
Deferred revenue - 4,300,000 4,300,000
------------ ------------ ------------
Total current liabilities 3,252,904 77,822,642 23,337,732
Notes payable - long-term portion
(Note 7) - 27,179 27,179
Capital lease obligations - long
term portion (Note 10) 230,767 78,557 78,557
Accrued interest payable (Note 8) 1,456,721 - -
Loan payable under financing
agreement (Note 7) - 19,478,778 19,478,778
Senior notes (Note 7) - 16,485,199 16,485,199
New York MTA license obligation
(Note 8) 347,518,309 347,518,309 347,518,309
Commitments and contingencies
(Notes 8, 9 and 10)
Redeemable convertible preferred
stock, $.01 par value, 4,000,000
shares authorized at
December 31, 1994 and 5,750,000
shares authorized at December
31, 1995
(Notes 6 and 7):
Series A; 666,667 shares issued
and outstanding at December 31,
1994 and 1995
(at liquidation preference) 1,500,000 1,500,000 -
Series B; cumulative preferred
stock; 1,500,000 shares issued
and outstanding at
December 31, 1994 and 1,651,714
shares issued and outstanding
at December 31, 1995 (liquidation
preference of $16,267,879 and
$17,243,689 at December 31, 1994
and 1995, respectively), net of
issuance costs 14,402,389 15,919,529 -
Series C; cumulative preferred
stock; 1,866,338 shares issued
and outstanding at
December 31, 1995 (liquidation
preference of $29,105,916),
net of issuance costs - 26,707,933 -
Stockholders' equity (deficit)
(Notes 6, 7 and 11):
Common stock, par value $.01 per
share; authorized 75,000,000
shares, issued and
outstanding 24,428,424 shares
at December 31, 1994,
24,658,618 shares at
December 31, 1995, and
44,876,709 shares pro forma at
December 31, 1995 244,284 246,586 448,768
Additional paid-in capital 14,334,297 29,860,440 209,225,370
Accumulated deficit (21,728,147) (59,498,572) (59,498,572)
Unearned compensation (20,150) (23,220) (23,220)
Notes receivable (Note 2) (245,834) (1,133,263) (1,133,263)
------------ ------------ ------------
Total stockholders' equity
(deficit) (7,415,550) (30,548,029) 149,019,083
------------ ------------ ------------
Total liabilities and
stockholders' equity
(deficit) $360,945,540 $474,990,097 $555,944,837
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-3
<PAGE>
OMNIPOINT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1993 1994 1995
------------ -------------- --------------
<S> <C> <C> <C>
Revenues:
License fees (Note 9) $ - $ 3,000,000 $ -
Contract revenue (Note 2) 1,617,759 - -
----------- ------------ ------------
Total revenues 1,617,759 3,000,000 -
Operating expenses:
Research and development 4,593,137 7,018,338 14,344,753
Sales, general and administrative 2,974,035 6,289,440 12,619,345
Depreciation and amortization 245,234 1,125,137 11,037,453
----------- ------------ ------------
Total operating expenses 7,812,406 14,432,915 38,001,551
----------- ------------ ------------
Loss from operations (6,194,647) (11,432,915) (38,001,551)
----------- ------------ ------------
Other income (expense):
Interest income 201,231 362,955 749,092
Interest expense (Notes 7 and 8) (233,246) (1,518,701) (517,966)
Miscellaneous income - 65,000 -
Gain on sale of subsidiary stock
(Note 10) - 3,193,600 -
----------- ------------ ------------
Net loss $(6,226,662) $ (9,330,061) $(37,770,425)
=========== ============ ============
Pro forma net loss per common share (unaudited)
(Note 1) $ (.96)
===========
Pro forma weighted average common shares outstanding
(unaudited) (Note 1) 39,528,883
===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-4
<PAGE>
OMNIPOINT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
for the years ended December 31, 1993, 1994, and 1995
<TABLE>
<CAPTION>
Total
Additional Stockholders'
Common Stock Paid-In Accumulated Unearned Notes Equity
--------------------
Shares Amount Capital Deficit Compensation Receivable (Deficit)
---------- -------- ------------- -------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 22,822,443 $228,224 $ 6,314,384 $ (6,171,424) $(119,759) $ (150,640) $ 100,785
Exercise of stock options 13,343 133 11,875 - - - 12,008
Stock options granted below
market value - - 13,780 - (13,780) - -
Amortization of unearned
compensation - - - - 91,024 - 91,024
Interest on employee note
receivable - - - - - (7,675) (7,675)
Net loss - - - (6,226,662) - - (6,226,662)
---------- -------- ----------- ------------- ------------ ----------- ------------
Balance, December 31, 1993 22,835,786 228,357 6,340,039 (12,398,086) (42,515) (158,315) (6,030,520)
---------- -------- ----------- ------------- ------------ ----------- ------------
Issuance of common stock in
exchange for convertible
subordinated note 382,308 3,823 3,213,670 - - - 3,217,493
Issuance of common stock in
exchange for an option held
by
third party to purchase
shares of subsidiary 1,125,000 11,250 4,488,750 - - - 4,500,000
Issuance of restricted stock
to employee 2,500 25 24,975 - - - 25,000
Issuance of common stock 270 3 241 - - - 244
Exercise of stock options 57,560 576 16,872 - - - 17,448
Issuance of restricted stock
in exchange for employee note
receivable 25,000 250 249,750 - - (250,000) -
Amortization of unearned
compensation - - - - 22,365 - 22,365
Interest on employee notes
receivable - - - - - (2,259) (2,259)
Forgiveness of employee notes
receivable - - - - - 164,740 164,740
Net loss - - - (9,330,061) - - (9,330,061)
---------- -------- ----------- ------------- ------------ ----------- ------------
Balance, December 31, 1994 24,428,424 244,284 14,334,297 (21,728,147) (20,150) (245,834) (7,415,550)
---------- -------- ----------- ------------- ------------ ----------- ------------
Issuance of 151,714 shares of
Series B preferred stock in
payment of Series B dividend - - (1,517,140) - - - (1,517,140)
Dividends accrued on Series B
and Series C preferred stock - - (1,839,032) - - - (1,839,032)
Issuance of warrants - - 17,797,300 - - - 17,797,300
Issuance of common stock in
exchange for services 8,700 87 58,453 - - - 58,540
Exercise of stock options 83,994 840 90,546 - - - 91,386
Issuance of options as form
of advanced compensation - - 112,391 - (112,391) - -
Amortization of unearned
compensation - - - - 109,321 - 109,321
Issuance of restricted stock
in exchange for employee
notes
receivable 137,500 1,375 823,625 - - (825,000) -
Issuance of employee note
receivable - - - - - (87,100) (87,100)
Interest on employee notes
receivable - - - - - (29,579) (29,579)
Forgiveness of employee notes
receivable - - - - - 54,250 54,250
Net loss - - - (37,770,425) - - (37,770,425)
---------- -------- ----------- ------------- ------------ ----------- ------------
Balance, December 31, 1995 24,658,618 $246,586 $29,860,440 $(59,498,572) $ (23,220) $(1,133,263) $(30,548,029)
========== ======== =========== ============= ============ =========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-5
<PAGE>
OMNIPOINT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows used in operating
activities:
Net loss $(6,226,662) $(9,330,061) $(37,770,425)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Amortization and depreciation 245,234 1,125,137 11,037,453
Compensation expense from
stock grants 91,024 22,365 109,321
Pilot system equipment
funded by the financing
agreement - - 1,053,288
Gain on sale of subsidiary
stock - (3,193,600) -
Increase in employee notes
receivable and related
accrued interest (7,675) (2,259) (116,679)
Forgiveness of employee
notes receivable - 164,740 54,250
Accrued interest on
subordinated notes 214,699 217,493 -
Payment in kind interest on
financing agreement - - 553,140
Accrued interest on New York
MTA License obligation and
reversal based on FCC order - 1,456,721 (1,456,721)
Interest expense associated
with warrants - - 532,539
Issuance of common stock in
exchange for services - - 58,540
Changes in assets and
liabilities:
(Increase) decrease in
operating assets:
Accounts receivable 600,702 110,148 -
Prepaid expenses and other
assets (29,409) (148,802) 576
Inventory (83,943) (143,448) (704,542)
Other Assets - - (878,896)
Increase in operating
liabilities:
Accounts payable and
accrued expenses 201,173 1,826,949 3,481,701
Deferred revenue - - 4,300,000
----------- ----------- ------------
Net cash used in operating
activities (4,994,857) (7,894,617) (19,746,455)
----------- ----------- ------------
Cash flows used in investing
activities:
Purchase of fixed assets (479,990) (2,423,551) (3,990,903)
FCC deposit - - (40,000,000)
Purchase of license - (50,000) -
Proceeds from sale of
subsidiary stock - 3,193,600 -
----------- ----------- ------------
Net cash provided by (used
in) investing activities (479,990) 720,049 (43,990,903)
----------- ----------- ------------
Cash flows from financing
activities:
Proceeds from line of credit
loan agreement - - 10,000,000
Proceeds from issuance of
preferred stock, net of
issuance costs 14,402,389 - 16,707,933
Proceeds from issuance of debt 3,000,000 - -
Proceeds from issuance of
common stock 12,008 42,692 91,386
Payments of obligations under
capital leases (38,682) (19,353) (283,284)
Proceeds from convertible
subordinated and senior notes - - 50,000,000
Proceeds from credit agreement - - 40,000,000
Payments on credit agreement - - (3,500,000)
Proceeds from financing
agreement - - 4,500,000
Payment of deferred financing
costs - - (1,526,984)
Payments of short-term debt
and notes payable - (150,000) (10,024)
----------- ----------- ------------
Net cash provided by (used
in) financing activities 17,375,715 (126,661) 115,979,027
----------- ----------- ------------
Net increase (decrease) in
cash and cash equivalents 11,900,868 (7,301,229) 52,241,669
Cash and cash equivalents at
beginning of year 943,073 12,843,941 5,542,712
----------- ----------- ------------
Cash and cash equivalents at
end of year $12,843,941 $ 5,542,712 $ 57,784,381
=========== =========== ============
Supplemental cash flow
information (Note 15):
Cash paid for interest $ 16,373 $ 107,234 $ 501,348
Cash paid for taxes 3,178 9,198 32,271
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-6
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
------------------------------------------
General
Omnipoint Corporation ("Omnipoint" or the "Company"), was incorporated in
Delaware on June 18, 1987 to design, develop, and market proprietary
digital wireless products based on spread spectrum. Substantially all of
the Company's revenues have been derived from contracts related to
research and development, prototype equipment sales and related services
in the field of wireless digital communication products. The Company's
success in developing its technology for the first digital personal
communication service ("PCS") system in 1991 and 1992 was instrumental in
the Federal Communications Commission ("FCC") awarding Omnipoint
Communications, Inc. ("OCI"), a subsidiary of the Company, a Pioneer's
Preference in 1993. As a result of the Pioneer's Preference, the FCC
issued to OCI in December 1994 a 30 MHz license to provide PCS services
for the New York MTA (the "New York MTA License"). During 1994, an
unrelated party acquired a 4.42% minority interest in OCI.
On January 31, 1996, the Company completed an initial public offering in
which 8,050,000 shares of common stock were issued which provided the
Company with proceeds of approximately $118,634,000, net of expenses.
Principles of Consolidation
The consolidated financial statements include the accounts of Omnipoint
Corporation, OCI and Omnipoint Corporation's wholly-owned subsidiaries.
Losses in consolidated corporations attributable to minority interest
holders in excess of their respective share of the subsidiary's net
equity are not eliminated in consolidation. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Nature of Operations
The Company is currently in the engineering and design phase of the
buildout of the New York MTA network. The Company anticipates that it
will take several years to complete the buildout over the entire
geographic area of the New York MTA. To date, the Company has sold PCS
equipment only for trials, and the Company does not expect to have
significant PCS services or equipment revenue before 1997.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expense
during the reporting period. Actual results could differ from those
estimates.
Continued
F-7
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Current Vulnerability Due to Certain Concentrations
The Company substantially relies upon its relationship with Northern
Telecom Inc. ("Northern Telecom"). The Company has entered into a
series of OEM and equipment supply agreements, a collaborative
development agreement, and a vendor financing agreement with Northern
Telecom. The Company has agreed to purchase from Northern Telecom
$250,000,000 of equipment and services over the next five years. The
Company relies substantially on the vendor financing arrangement
through which Northern Telecom provides a $382,500,000 financing
agreement for the buildout of the New York MTA Network, including the
purchase of equipment (see Notes 7, 8, and 9).
The Company has had limited revenues and has been dependent on a
limited number of customers for its revenues. In 1994, the Company
received all of its revenue, $3,000,000 from Northern Telecom,
representing a non-refundable license fee received upon entering into
a non-exclusive OEM agreement. Under the terms of the agreement,
Northern Telecom may pay up to an aggregate of $12,000,000 in license
and OEM fees under certain circumstances. The Company expects Northern
Telecom to be a source of significant revenue in the future. If the
agreement were terminated, the lack of revenues from sales to Northern
Telecom would have a material adverse effect upon the Company's
financial condition and results of operations.
Dependence Upon Key Employees
The Company is highly dependent upon the technical and management
skills of its key employees.
The Company's growth may cause a significant strain on its management,
operational, and financial resources. The Company's ability to manage
its growth effectively will require it to continue to implement and
improve its operational and financial systems. The Company's success
also depends in large part on a limited number of key technical,
marketing, and sales employees and on the Company's ability to
continue to attract and retain additional highly talented personnel.
Competition for qualified personnel in the PCS equipment and service
industries is intense.
Uncertainty of Protection of Patents and Proprietary Rights
The Company's technology business relies on a combination of patents,
trademarks, and nondisclosure and developments agreements in order to
establish and protect its proprietary rights. The Company has filed
and intends to continue to file applications as appropriate for
patents covering its technology and products. There can be no
assurance that additional patents will issue, that the existing
patents and such additional patents allowed will be sufficiently broad
to protect the Company's technology or that the confidentiality
agreements and other methods on which the Company relies to protect
its trade secrets and proprietary information will be adequate.
Pro Forma Presentation (Unaudited)
The unaudited pro forma balance sheet as of December 31, 1995 has been
prepared assuming the conversion of all series of outstanding
Redeemable Convertible Preferred Stock and certain accrued dividends
into 10,605,591 shares of Common Stock, the conversion of Convertible
Subordinated Notes into 1,562,500 shares of Common Stock, with the
related unamortized debt discount charged to additional paid-in
capital and payment of accrued interest, reclassification of prepaid
initial public offering costs to additional paid-in capital and the
issuance of 8,050,000 shares of Common Stock in connection with the
initial public offering. Redeemable Convertible Preferred Stock and
the Convertible Subordinated Notes automatically converted into Common
Stock upon the closing of the initial public offering on January 31,
1996.
The unaudited pro forma net income (loss) per common share is shown on
the face of the income statement because the Company believes the pro
forma presentation is more meaningful since it includes the conversion
Continued
F-8
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
of the Redeemable Convertible Preferred Stock and the conversion of
the Convertible Subordinated Notes. The unaudited pro forma net income
(loss) per common share is computed based upon the weighted average
number of common and common equivalent shares outstanding after
certain adjustments described below. Common equivalent shares are
included in the calculations where the effect on their inclusion would
be dilutive. In accordance with Securities and Exchange Commission
Staff Accounting Bulletin No. 83 ("SAB No. 83"), all common and common
equivalent shares and other potentially dilutive instruments which
include stock options, stock warrants and the Series C Preferred Stock
issued during the twelve month period prior to the filing of the
Registration Statement have been included in the calculation as if
they were outstanding for all periods. As permitted under SAB No. 83,
the common equivalent shares for stock options and warrants, were
determined using the treasury stock method at the initial public
offering price of $16.00 per share. In addition, outstanding shares of
Series A and Series B Preferred Stock to be converted into common
stock upon the effectiveness of the initial public offering are
treated as having been converted into Common Stock at the date of
original issuance. The Series C Preferred Stock, which is considered a
common stock equivalent from the date of its original issuance, was
also included pursuant to SAB No. 83 on an as-if converted basis from
January 31, 1995 until the date of its original issuance. The
Convertible Subordinated Notes were treated as if they were converted
on the date of their issuance.
Net Income (Loss) Per Common Share
Net income (loss) per common share on a historical basis is computed
in the same manner as pro forma net income (loss) per common share,
except that Redeemable Convertible Preferred Stock and the Convertible
Subordinated Notes are not assumed to be converted. In the computation
of net income (loss) per common share, dividends on Redeemable
Convertible Preferred Stock are included as an increase to net loss to
common stockholders.
Net income (loss) per common share on a historical basis is as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1993 1994 1995
----------- ----------- ------------
<S> <C> <C> <C>
Net income (loss) $ (6,226,662) $ (9,330,061) $ (37,770,425)
Dividends on Redeemable
Convertible Preferred Stock -- -- 3,356,172
---------------- ------------- ----------------
Net income (loss) to common
shareholders $ (6,226,662) $ (9,330,061) $ (41,126,597)
================ ============= ================
Net income (loss) per common
share $ (0.21) $ (0.30) $ (1.31)
================ ============= ================
Weighted average number
of common shares outstanding 29,702,042 30,752,269 31,410,442
================ ============= ================
</TABLE>
Supplemental Net Income (Loss) Per Common Share
Supplemental net income (loss) per common share is presented for the
year ended December 31, 1995. For the computation of supplemental net
income (loss) per common share, the weighted average number of shares
of Common Stock assumes (i) all Redeemable Convertible Preferred Stock
had been converted to Common Stock on the date of its original
issuance and (ii) the Convertible Subordinated Notes (which were
converted upon the initial public offering on January 31, 1996) were
converted on the date of issuance of (a) the $15,000,000 Convertible
Subordinated Note (November 29, 1995) and (b) the $10,000,000
Convertible Subordinated Note (December 18, 1995). As the Company used
proceeds from its initial public offering to retire a portion of the
amount outstanding under a $40 million Credit Agreement, the weighted
average number of shares also assumes the issuance of the number of
shares necessary to retire the amount outstanding under such Credit
Agreement as of the date of the borrowing (November 10, 1995).
Continued
F-9
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
Year ended
December 31,
1995
-----------------------
<S> <C>
Net income (loss) $ (37,770,425)
Interest expense on portion of
credit agreement paid with initial
public offering proceeds 209,135
Interest expense on convertible
subordinated notes 166,982
--------------------
Net income (loss) available to common
shareholders $ (37,394,308)
====================
Net income (loss) per common share $ (0.93)
====================
Supplemental weighted average number of
common shares outstanding 40,083,556
====================
</TABLE>
Cash and Cash Equivalents
Cash and cash equivalents are stated at cost which approximates
market. The Company considers all highly liquid debt instruments
purchased with an original maturity at time of purchase of three
months or less to be cash equivalents.
Inventory
Inventory is recorded at the lower of cost or market on the basis of
average cost. Inventory consists of raw materials and other items used
in development of the Company's technology.
Prepaid Expenses and Other Assets
Included in prepaid expenses and other assets is an
advance payment for pilot system equipment financed through the
financing agreement. Upon receipt the pilot system equipment will be
expensed and will be included in research and development expense in
the consolidated statement of operations.
Fixed Assets and Depreciation
Fixed assets are recorded at cost. Major renewals and improvements are
capitalized; repairs and maintenance are charged to expense.
Depreciation is provided by use of the straight-line method over
estimated useful lives of three to five years. Depreciation begins
when the fixed asset is placed into service. Upon retirement or sale,
the cost of the asset disposed of and the related accumulated
depreciation are removed from the accounts and any resulting gain or
loss is credited or charged to income.
Other Assets
Included in other assets are costs incurred in the preparation of the
Company's initial public offering. The offering costs, which were
included in accounts payable and accrued expenses at December 31,
1995, were charged to additional paid-in capital upon completion of
the offering on January 31, 1996.
Continued
F-10
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Licensing Costs, Deferred Financing Costs and Other Intangible Assets
Licensing costs represent the license fees of $347,518,309 for the New
York MTA License granted by the FCC in December 1994. Among other
conditions, the New York MTA License requires that the Company
construct a 30 MHz system in the New York MTA that offers coverage to
at least one-third of the population of the New York MTA within five
years of the license grant date and at least two-thirds of the
population within 10 years. The New York MTA license also contains a
condition that requires the Company to construct a PCS system that
"substantially uses" the design and technology upon which the
Pioneer's Preference Award was based. The condition expires upon the
system providing coverage for one-third of the population of the New
York MTA.
The New York MTA license expires in December 2004; however, FCC rules
provide for renewal expectancy provisions. The Company expects to
exercise the renewal provisions, and accordingly the New York MTA
License is being amortized from the date of grant, using the straight-
line method over a period of 40 years. The Entrepreneurs' Band BTA
licenses and any other licenses the Company purchases in the future
will be accounted for in accordance with the recently agreed upon
industry practices. Accordingly, interest incurred for such licenses
will be capitalized during the buildout phase and amortization of such
license costs will begin with the commencement of service to
customers.
Deferred financing costs include amounts paid related to obtaining
proceeds under debt, credit facilities and financing agreements. These
costs are amortized over the life of the related debt agreement,
generally one to ten years.
Other intangible assets include an asset recorded in connection with
shares of the Company's Common Stock issued in exchange for a
previously granted option to purchase from the Company shares of
common stock of OCI (see Note 11). This asset is being amortized using
the straight-line method over a 40 year period. Other intangible
assets also includes costs incurred for the rights to certain
information and technologies. These costs are being amortized over
their estimated useful lives of 5 to 10 years.
Periodically management assesses, based on undiscounted cash flows, if
there has been a permanent impairment in the carrying value of its
intangible assets and, if so, the amount of any such impairment by
comparing anticipated discounted future operating income resulting
from intangible assets with the carrying value of the related asset.
In performing this analysis, management considers such factors as
current results, trends and prospects, in addition to other economic
factors.
The Company is required to implement Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" in 1996. As the Company
continually evaluates the realizability of its long-lived assets,
including intangibles, adoption of the statement is not anticipated to
have a material effect on the Company's financial statements at the
date of adoption.
Common and Preferred Stock
On December 27, 1995, the Board of Directors authorized, and on
December 28, 1995, the stockholders approved, a 2.5-for-one stock
split of the Common Stock, effected in the form of a stock dividend.
All share and per share data have been restated in these financial
statements for all periods presented to reflect this stock split.
Effective on the closing of the initial public offering, the Company's
Board of Directors authorized 5,000,000 shares of preferred stock. The
Board of Directors has the authority to issue these shares and to
determine the price, rights, preferences, privileges and restrictions,
including voting rights, of those shares without further vote or
action by the stockholders.
Revenue Recognition
Income from contracts is recognized on the percentage-of-completion
basis. Percentage of completion is determined by relating the actual
cost of work performed to date for each contract to its current
estimated final cost. When current contract estimates indicate a loss,
provision is made for the total anticipated loss. Revenue
Continued
F-11
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
from license fees or equipment sales and related support services is
recognized when hardware or software has been delivered, providing
other obligations are no longer significant, customer acceptance is
reasonably assured and collectibility is deemed probable.
Research and Development
Expenditures for research and development are charged to operations as
incurred. Research and development expenses include costs for both new
product development and ongoing efforts to improve existing
technologies. Costs of internally developed software which qualify for
capitalization are immaterial.
Income Taxes
Deferred income taxes reflect the tax consequences on future years of
differences between the tax bases of assets and liabilities and their
bases for financial reporting purposes, including the recognition of
future tax benefits, such as net operating loss carryforwards to the
extent that realization of such benefits are more likely than not.
Accounting for Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," which is effective for fiscal year 1996.
The Company is evaluating the impact of this pronouncement but
currently expects to elect the disclosure alternative. As a result,
the adoption of this pronouncement is not expected to have a material
impact on the Company's financial statements.
2. Related Party Transactions:
--------------------------
Employee notes receivable included a demand note of $158,315 as of December
31, 1993 due from an employee of the Company with a stated interest rate of
5%. In accordance with an agreement, the note receivable was forgiven on
April 14, 1994 and recorded as compensation expense. During 1994 and 1995,
two employees executed five-year promissory notes payable to the Company in
the original principal amount of $250,000 and $75,000, respectively, with
interest at the rate of 8.5% per year as consideration for the purchase of
common stock. The annual payments due under these notes may be forgiven
pursuant to a special bonus provision contained in the employment
agreements. In accordance with this provision, $54,250 of the $250,000 note
was forgiven during 1995 representing $50,000 principal and $4,250 of
interest.
On September 19, 1995, an employee executed a three-year promissory note
payable to the Company in the original principal amount of $87,100, plus
interest on the unpaid principal balance from time to time at the rate of
8.5%. The annual payment due under the note may be forgiven pursuant to a
special bonus provision contained in an amendment to the employee's
employment agreement.
On October 1, 1995, an employee executed a five-year balloon promissory
note payable to the Company in the original principal amount of $750,000,
plus interest on the unpaid principal balance from time to time outstanding
at the rate of 8% per year, as consideration for the purchase of 125,000
shares of restricted Common Stock at $6.00 per share. The payment due under
the note may be forgiven pursuant to a special bonus provision contained in
the employee's employment agreement.
Interest earned under all employee notes was $2,259 and $29,579 for the
years ended December 31, 1994 and 1995, respectively.
Included in contract revenues is $300,000 for the year ended December 31,
1993 received from a customer that, in an unrelated transaction, became a
stockholder in 1994.
Continued
F-12
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. Prepaid Expenses and Other Assets:
---------------------------------
Prepaid expenses and other assets consist of the following at December 31,
1994 and 1995:
<TABLE>
<CAPTION>
December 31,
--------------------
1994 1995
-------- ----------
<S> <C> <C>
Advance payment for pilot system equipment
financed through financing agreement $ - $4,840,000
Deposits 127,607 83,109
Other 72,590 116,512
-------- ----------
$200,197 $5,039,621
======== ==========
</TABLE>
4. Fixed Assets:
------------
Fixed assets including equipment under capital leases consist of the
following at December 31, 1994 and 1995:
<TABLE>
<CAPTION>
December 31,
--------------------------
1994 1995
------------ ------------
<S> <C> <C>
Building $ - $ 1,190,265
Office equipment 369,097 649,287
Lab equipment 2,490,811 3,692,584
Network infrastructure equipment - 12,634,467
Furniture and fixtures 106,452 264,530
Purchased software 785,776 1,453,116
Leasehold improvements 280,802 1,324,900
Vehicles - 214,324
----------- -----------
4,032,938 21,423,473
Less: accumulated depreciation (1,017,533) (2,466,284)
----------- -----------
$ 3,015,405 $18,957,189
=========== ===========
</TABLE>
Depreciation expense for the years ended December 31, 1993, 1994 and 1995
was $241,875, $628,747 and $1,448,751, respectively. Network infrastructure
equipment consists of equipment which will not be placed into service until
1996. Accordingly, no depreciation has been recorded.
Continued
F-13
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. Accrued Expenses:
----------------
Accrued expenses consist of the following at December 31, 1994 and 1995:
<TABLE>
<CAPTION>
December 31,
----------------------
1994 1995
---------- ----------
<S> <C> <C>
Salaries and benefits $ 424,963 $ 723,475
Bonuses - 350,000
Relocation 147,017 538,714
Professional fees 1,181,574 464,466
Dividends - 1,839,032
Initial public offering costs - 593,406
Other 342,710 83,626
---------- ----------
$2,096,264 $4,592,719
========== ==========
</TABLE>
Amounts accrued for dividends as of December 31, 1995 include $338,722
payable in 33,872 shares of Series B Preferred Stock and Series B and C
dividends of $1,500,310 to be paid in cash.
6. Redeemable Convertible Preferred Stock:
--------------------------------------
The Company authorized 3,000,000 shares of Redeemable Convertible Preferred
Stock in 1991 and an additional 1,000,000 shares in 1993. The Company
authorized an additional 1,750,000 shares of convertible stock in 1995.
During 1991, the Company sold 666,667 shares of Series A Convertible
Preferred Stock ("Series A Preferred Stock") for $1,500,000. In August
1993, the Company sold 1,500,000 shares of Series B Convertible Preferred
Stock ("Series B Preferred Stock") for $15,000,000. During 1995, the
Company sold 1,866,338 shares of Series C Convertible Preferred Stock
("Series C Preferred Stock") resulting in gross proceeds of $27,995,070,
including 666,667 shares issued in satisfaction of a $10,000,000
outstanding balance under a line of credit loan agreement (see Note 7).
Issuance costs of the Series C Preferred Stock included a $600,000
brokerage commission, transaction fees of $559,861 to certain investors and
$127,276 of other related issuance costs.
Shares of Common Stock reserved for conversion of the Company's outstanding
Series A, B and C Preferred Stock were 1,666,667, 7,550,000 and 4,665,842
at December 31, 1995, respectively.
The Series A Preferred was convertible at any time into Common Stock of the
Company at a conversion rate of one share of common stock for each share of
Series A Preferred Stock, subject to adjustment in the event of any stock
dividend, stock split or other recapitalization. The Company at its option
could require each share of the Series A Preferred Stock to be converted
into shares of common stock at any time on or after the closing of the sale
of shares of common stock at an initial public offering meeting certain
defined criteria. The holders of the Series A Preferred Stock were entitled
to receive, when and only if declared by the Board of Directors, dividends
in an amount per share equal to the per share amount to be declared for the
common stock. No dividends were declared. Each holder of outstanding shares
of the Series A Preferred Stock was entitled to the number of votes equal
to the number of whole shares of common stock into which such shares were
convertible at the time. Upon the closing of the initial public offering on
January 31, 1996, the Series A Preferred Stock was converted into 1,666,667
shares of Common Stock.
Continued
F-14
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The holders of Series B Preferred Stock had the right to convert such stock
at any such time into shares of Common Stock at a one for one conversion
rate subject to, and automatically convert into Common Stock in the event
of a public offering meeting certain defined criteria. The holders of the
Series B Preferred Stock had the right to vote that number of shares equal
to the number of shares of Common Stock issuable upon conversion. The
Series B Preferred Stock accrued a cumulative dividend on a daily basis,
whether declared or not, at the rate of 1.467% of the original purchase
price per quarter, compounded quarterly on principal investment plus
accrued dividends not paid in cash, payable on the last day of each quarter
either in cash or original shares of Series B Preferred Stock and valued at
the original purchase price. In the event of equity offerings or qualified
fundraisings meeting certain criteria, the dividend rate would have been
reduced to zero. Under an amendment to the Series B Stock Purchase
Agreement, unpaid and previously undeclared cumulative dividends, through
April 4, 1995 were paid by the issuance of 151,714 shares of Series B
Preferred Stock. As of December 31, 1995, Series B accrued dividends were
$728,197. Upon the closing of the initial public offering, the Series B
Preferred Stock and certain accrued dividends were converted into 4,273,082
shares of Common Stock. Additionally, accrued dividends of $236,892 through
such date were paid in cash.
The holders of Series C Preferred Stock had the right to convert the Series
C Preferred Stock at any time into shares of Common Stock at a one for one
conversion rate, and could be required by the Company to be converted into
Common Stock in the event of a public offering meeting certain defined
criteria. The holders of the Series C Preferred Stock had the right to vote
that number of shares equal to the number of shares of Common Stock
issuable upon conversion. The Series C Preferred Stock accrued a cumulative
dividend, whether declared or not, at the rate of 1.9427% per quarter,
compounded quarterly on the stated value (plus cumulative dividends which
were accrued but which were not paid). As of December 31, 1995, Series C
accrued dividends of $1,110,835 were payable in cash. Upon the closing of
the initial public offering, the Series C Preferred Stock was converted
into 4,665,842 shares of Common Stock and accrued dividends of $1,299,326
through such date were paid in cash.
7. Notes Payable and Financing Agreements:
--------------------------------------
On January 29, 1993, the Company received $3,000,000 from an investor in
exchange for a $3,000,000 face value convertible subordinated note and
warrants to purchase 972,223 shares of common stock. The convertible
subordinated note accrued interest at one percent over prime and principal
and interest were payable on January 29, 1994. Interest expense accrued for
the period from January 29, 1993 through December 31, 1993 was $199,698 at
an interest rate of 7%. On January 29, 1994, the $3,000,000 face value
convertible subordinated note plus accrued interest of $217,493 was
converted into 382,307 shares of common stock of the Company at
approximately $8.40 per share.
On January 31, 1995, the Company entered into a $10,000,000 Line of Credit
Loan Agreement with the holder of the Series B Preferred Stock of the
Company, bearing interest at 12%. On March 10, 1995 and April 4, 1995, the
Company was advanced $3,000,000 and $7,000,000 under the line,
respectively. The Company's shares of OCI stock were pledged as collateral
for the Line of Credit. The Line of Credit expired upon the closing of the
Series C Preferred Stock equity financing on June 29, 1995. The Company
issued warrants to purchase 50,000 shares of common stock at $.004 per
share at the initial closing, and issued additional warrants to purchase
179,168 shares of Common Stock at $6.00 per share, which expire on March
10, 2002. In connection with the warrants, the Company recorded interest
expense and an increase to additional paid-in capital of $299,800 in 1995.
On June 29, 1995, the $10,000,000 outstanding balance under the Line of
Credit expired, and was exchanged for 666,667 shares of Series C
Convertible Preferred Stock.
Continued
F-15
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Northern Telecom Financing Agreement
On July 21, 1995 OCI entered into a $382,500,000 credit facility (the
"Financing Agreement") with Northern Telecom to finance future purchases
and installations of telecommunications equipment, engineering services,
certain related construction costs, third-party equipment and other
expenses.
A portion of the financing agreement, which may be used for working capital
purposes including interest payments on the amounts outstanding on the
financing agreement, matures June 30, 1997. Any amounts repaid can be
subsequently borrowed for other purposes allowed under the financing
agreement. The principal amount on the other portions of the financing
agreement are payable in twenty consecutive quarterly installments
beginning in 2000, with the final payment due on December 31, 2004.
Interest on the unpaid principal balance on all loans payable quarterly in
arrears at varying interest rates at a base or LIBOR rate at the Company's
election. On each interest payment date which occurs prior to June 30,
1997, unless otherwise paid by the Company, all accrued and payable
interest on the outstanding balance of the facility will be paid in kind by
increasing the principal balance under a portion of the financing
agreement, provided that no default or event of default has occurred and is
continuing.
The Company, at its election, can prepay the outstanding amount of loans at
any time without penalty or premium.
The financing agreement is collateralized by a pledge of stock of OCI owned
by a wholly-owned subsidiary of the Company and by substantially all of
OCI's assets. Under the terms of the financing agreement, the Company is
subject to certain financial and operational covenants including
restrictions on the payment of dividends by OCI, restrictions on additional
indebtedness and financial maintenance obligations. Additionally, the
financing agreement provides that, among other things, the failure to pay
when due amounts owed to the FCC shall constitute an event of default. As
of December 31, 1995, OCI had a outstanding balance (principal and payment
in kind interest) of $19,478,778. Of this outstanding balance, $2,599,536
is due June 30, 1997, with the remaining balance due in consecutive
installments beginning March 31, 2000.
Credit Agreement
On November 21, 1995, the Company, through its subsidiary Omnipoint PCS
Entrepreneurs, Inc. ("OPCSE"), signed a credit agreement and a term note
with a bank in the original principal amount of $40,000,000. This note was
used to fund the deposit with the Federal Communication Commission in
connection with the C Block Auction.
Interest periods on the term note ranged from one to fourteen days with
interest rates set by the bank based on wholesale money market rates
available to the bank which at December 31, 1995 was 6.375%. The agreement
and term note was collateralized by all assets of OPCSE. Interest accrued
as of December 31, 1995 was $58,172. The Company's outstanding balance at
December 31, 1995 was $36,500,000. Subsequent to year end, the Company
repaid the outstanding balance with the proceeds from the convertible
subordinated and senior notes and initial public offering proceeds.
Senior Notes
On November 22, 1995, the Company issued to two institutional investors
both warrants to purchase an aggregate of 625,000 shares of Common Stock at
$.004 per share and two five year term Senior Notes in the aggregate
principal amount of $25,000,000. The Senior Notes contain sinking fund
provisions requiring the Company to redeem in the aggregate $5,000,000 in
principal amount at the third and fourth anniversary dates of the date of
issuance. The Company is subject to certain restrictions and requirements
regarding the issuance of indebtedness senior or pari passu to the Senior
Notes. Under the terms of the notes the Company is subject to certain
covenants which, among other things, restrict the ability of the Company
and certain of its subsidiaries to incur additional indebtedness; pay
dividends or make distributions in respect of its capital stock or make
certain restricted payments; create liens; or merge or sell all or
substantially all of its assets. In the event that the employment of a
senior officer of the Company is terminated prior to June 30, 1998, the
Company must either pay the Senior Notes in full or pay a one time fee in
an amount equal to 5% of the then outstanding principal of the Senior
Notes. The Company may prepay the Senior Notes at any time. Interest is
payable at 6% for the period November 22, 1995 to November 22, 1996,
Continued
F-16
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
and thereafter is payable at 12% semiannually for the period from November
22, 1996 to November 22, 2000. Interest accrued as of December 31, 1995 was
$162,500. Associated with the valuation of the warrants, the Company
recorded a debt discount and increase in additional paid-in capital of
$8,747,500. The discount will be amortized over the five years life of the
notes and resulted in $232,739 of amortization included in interest expense
at December 31, 1995.
10% Convertible Subordinated Notes
On November 29, 1995, the Company issued Convertible Subordinated Notes in
the aggregate amount of $15,000,000, together with warrants to purchase
375,000 shares of Common Stock at an exercise price of $.004 per share. On
December 18, 1995, the Company issued Convertible Subordinated Notes in the
aggregate amount of $10,000,000, together with warrants to purchase 250,000
shares of Common Stock at an exercise price of $.004 per share. These notes
are together known as the "Convertible Subordinated Notes". The Convertible
Subordinated Notes have a stated interest rate of 10%, payable semiannually
on March 31 and September 30, commencing on March 31, 1996. Interest
accrued as of December 31, 1995 was $166,982. The Convertible Subordinated
Notes were converted upon the closing of the initial public offering into
an aggregate of 1,562,500 shares of Common Stock at $16.00 per share.
Associated with the valuation of the warrants, the Company recorded a debt
discount and an increase in additional paid-in capital of $8,747,500.
The Company paid $1,000,000 for investment banking services rendered in
connection with the issuance of the Senior Notes and $15,000,000 of the
Convertible Subordinated Notes. The unamortized amounts are included in
deferred financing costs and other intangible assets.
Total interest expense associated with the notes payable and financing
agreements as of December 31, 1995 was $1,931,693.
8. New York MTA License Obligation:
-------------------------------
In December 1993, OCI was awarded a final Pioneer's Preference for a
license that required no payment from OCI. Subsequent legislation mandated
a methodology for charging for the New York MTA License. In accordance with
terms defined in that legislation, OCI is obligated to pay a license fee to
the FCC for the New York MTA License awarded in December 1994. The license
fee was derived from 85% of the average per population price (based on the
1990 population) paid by the winning MTA auction bidders of the top 23 MTAs
excluding the three MTA areas awarded by Pioneer's Preference. This derived
number of $13.158 is multiplied by the 1990 New York MTA population of
26,411,597 to arrive at the total obligation of $347,518,309.
Prior to December 31, 1995, the FCC had not implemented the exact terms for
principal and interest payments on the New York MTA License. The initial
terms generally allowed for installment payments over the first five years
of the New York MTA License with interest-only for at least the first two
years. Since payments did not begin until after the New York MTA License
and Pioneer's Preference orders were no longer subject to judicial review,
the FCC had not yet determined the interest rate to be charged, the timing
and nature of the installment payments, and related issues. Therefore, OCI
estimated and accrued interest at the prime rate (8.5% at December 31, 1994
and 1995) from the date the New York MTA license obligation was awarded,
and had recorded as of December 31, 1995 accrued interest on the New York
MTA license of $33,547,639.
On March 8, 1996, the Federal Communications Commission adopted an Order
which specifies the license payment terms, such as the interest rate and
timetable for payment of the principal obligations for recipients of the
Pioneer's Preference license. The Order provides for the Pioneers to make
their payments in installments over five years. Based on this Order, the
payments will be interest only for the first two years and the unpaid
principal balance and interest will be paid over the remaining three years.
The FCC adopted an interest rate of 7.75%.
Continued
F-17
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Payments commence 30 days from the Order date or April 8, 1996, and
thereafter will be due on the last day of each financial quarter over the
next five years. The five year payment period will run and interest will
accrue from the adoption date of March 8, 1996.
Based on the Order, the Company has revised its estimate and accrual of
interest. Pursuant to Accounting Principles Board Opinion No. 20,
"Accounting Changes," this change in accounting estimate was recorded in
the Company's financial statements during December 1995, resulting in a
decrease in 1995 interest expense of $33,547,639. Had this adjustment not
been made, the historical net loss and loss per common share for the year
ended December 31, 1995 would have been $(74,674,236) and $(2.37),
respectively after giving effect of the dividends on Redeemable Convertible
Preferred Stock.
In addition, the license is conditioned upon the full and timely
performance of payment obligations under the Company's installment plan. If
the Company is more than ninety days delinquent in any payment, it will be
deemed to be in default.
9. Agreements with Northern Telecom:
--------------------------------
Northern Telecom and the Company have signed a series of OEM equipment and
supply agreements, as well as a vendor financing agreement (see Note 7).
Northern Telecom will make varying payments as it purchases core
electronics (primarily radio and digital cards for base stations) and
software from the Company. Northern Telecom made an initial $3,000,000
license payment in 1994 (part of up to $12,000,000 in license and OEM fees
to be paid to the Company under certain circumstances) and may make
additional royalty payments based on shipments of the Company's products.
Northern Telecom will then sell Omnipoint/Northern Telecom integrated
systems to PCS operators, including the Company. The Company's purchases to
build out the New York network will be financed by Northern Telecom under a
financing agreement. The Company has agreed to make certain product
upgrades and warranties available to Northern Telecom's customers. No
equipment, hardware or software sales were made to Northern Telecom under
OEM Agreement during 1994 or 1995.
During 1994, the Company entered into an agreement to purchase $100,000,000
of equipment and services over the next five years with Northern Telecom.
Under the terms of the Supply Agreement, if the conditions of OCI's
purchase obligation are met and OCI fails to purchase $100,000,000 of
equipment and services, it may have to pay a penalty of 10% of the unmet
portion of the $100,000,000, which may be waived under certain conditions.
On July 21, 1995, the Company entered into an amendment to this supply
agreement to increase the purchase commitment from $100,000,000 to
$250,000,000. The Company has purchased approximately $19,000,000 under
this purchase commitment as of December 31, 1995.
Manufacturing License Agreement
On February 28, 1995, the Company entered into an agreement (the
"Manufacturing License Agreement") with Northern Telecom in conjunction
with the OEM Supply Agreement. Under the terms of the Manufacturing License
Agreement, the Company will give Northern Telecom an option to receive the
non-exclusive worldwide right to use, modify, manufacture, or have
manufactured all of the products supplied by the Company under the OEM
Supply Agreement, subject to certain terms and restrictions. This option
can be exercised if: 1) there is a breach of the OEM Supply Agreement by
the Company, 2) a termination of supply of licensed product under the OEM
Supply Agreement by the Company, or 3) mutual agreement to terminate the
OEM Supply Agreement by the Company and Northern Telecom. Additionally, if
Northern Telecom meets certain purchasing thresholds from the Company,
Northern Telecom may also elect to exercise this option. If the option is
exercised under this circumstance, Northern Telecom has agreed to pay the
Company a one-time license fee. In addition, in all cases, certain
royalties on the products licensed are to be paid. The Manufacturing
License Agreement has an initial
Continued
F-18
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
five-year term unless terminated earlier in accordance with terms and
conditions specified in the agreement. The agreement may extend for
additional one-year terms.
Collaborative Development Agreement
On March 4, 1995, the Company entered into a five-year agreement (the
"Collaborative Development Agreement") with Northern Telecom to collaborate
with Northern Telecom on their mutual planning and development activities
for PCS products. Under the terms of the Collaborative Development
Agreement, Northern Telecom and the Company have agreed to commit resources
to joint projects. The Collaborative Development Agreement may be renewed
for successive one-year periods, and is subject to earlier termination by
mutual agreement of the parties or by either party upon written notice to
the other party thirty days prior to the end of the initial term or a
renewal term.
10. Commitments and Contingencies:
---------------------------------------------------
Commitments
The Company has entered into various leases for its office, facilities and
for equipment used in the development of its products. The leases are
typically three to five years in length and payable monthly. The Company
also has acquired the rights to approximately 4,500 sites in the New York
MTA as possible locations for cell sites. Future minimum rentals under
these noncancelable operating and capital leases as of December 31, 1995
are as follows:
<TABLE>
<CAPTION>
Operating Leases Capital Leases
---------------- --------------
<S> <C> <C>
1996 $ 906,793 $191,102
1997 760,476 88,649
1998 276,984 13,130
1999 280,421 -
2000 216,563 -
---------- --------
$2,441,237 292,881
==========
Less amount representing interest 43,439
----------
Present value of minimum lease payments 249,442
Less current portion 170,885
----------
Long-term portion of capital lease obligations $ 78,557
==========
</TABLE>
Total rental expense for the years ended December 31, 1993, 1994, and 1995
was $201,670, $398,978, and $957,167, respectively. Capital leases in the
amount of $551,139 and $591,191, net of $116,068 and $234,867 accumulated
depreciation, respectively, are included in fixed assets at December 31,
1994 and 1995.
On December 12, 1995, the Company and Hansol Paper Co., Ltd. ("Hansol") and
its telecom affiliates entered into a strategic alliance for the promotion
of the Omnipoint System in the Republic of Korea and other parts of Asia,
and the grant of a license to Hansol to manufacture Omnipoint System
handsets. The agreement provides that Omnipoint will enter into a purchase
order, subject to certain preconditions, including competitive pricing, to
acquire from Hansol handsets for sale to subscribers in areas covered by
licenses, if any, purchased by the Company in the Entrepreneurs' Band
auction.
Continued
F-19
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Litigation
The Company is not currently aware of any pending or threatened
litigation that could have a material adverse effect on the Company's
financial condition, results of operations or cash flows.
11. Stock Options and Warrants:
--------------------------
During 1991, the Company granted a warrant to purchase 915,000 shares of
common stock at an exercise price of $.008 per share, a price below market
value, exercisable for a period of 10 years in exchange for investment
banking services over five years. In connection with the warrants, the
Company recorded a charge to operations and an increase to paid-in-capital
of $816,180 in 1991. The Company also issued a warrant to purchase 750,000
shares of Common Stock originally exercisable for a period of five years
from the date of issuance. The warrants are exercisable for a price of
$1.00 per share for the first 250,000 shares exercised, $1.10 per share for
the next 250,000 shares exercised and $1.20 per share for the remaining
250,000 shares exercised. Subsequent to December 31, 1994, the Company and
the warrant holder agreed that the warrant holder could loan to the Company
an amount equal to the aggregate exercise price of the warrant on or before
the original expiration date. In such event the expiration date of the
warrant would be extended for an additional five years.
In connection with the Senior Notes and Convertible Subordinated Notes
issued during 1995, the Company granted to the holders of the notes
warrants to purchase 1,250,000 shares of common stock at an exercise price
of $.004 per share, a price below market value, exercisable for a period of
five years from the date of issuance. In connection with the warrants, the
Company recorded a discount on the notes and an increase to paid-in capital
of $17,497,500.
The 1990 stock option plan authorizes the grant of options exercisable for
a maximum of 6,250,000 of Common Stock to key employees, consultants,
officers and directors of the Company. Options under the plan expire 10
years from the date of the grant for incentive stock options and 10 years
plus 30 days for nonstatutory options. Prior to the approval of the 1990
stock option plan, the Company granted a total of 890,000 nonstatutory
stock options at an exercise price below the fair value of the stock. The
Company recorded $91,024 of compensation expense in 1993 associated with
these options. During 1995, the Company granted 5,044 additional stock
options at an exercise price below the fair value of the stock. The Company
recorded $24,255 of compensation expense during 1995 associated with these
options.
In June 1994, an unrelated party acquired 1,125,000 shares of Common Stock
of the Company in exchange for an option held by such unrelated party an
option to purchase a 9.85% interest in OCI. The estimated fair value of the
Common Stock of $4,500,000 at the time of the exercise of the option has
been recorded as an additional investment in the subsidiary, with a
corresponding intangible asset. Also in June 1994, an unrelated party
exercised its option to purchase 549 shares (4.42%) of Omnipoint's stock in
OCI for $3,193,600 resulting in a gain of the same amount. The Company
issued the options in 1992 to other Pioneer's Preference applicants who
were ultimately unsuccessful in obtaining a preference award.
Continued
F-20
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Information regarding the Company's stock option plan and warrants are
summarized below:
<TABLE>
<CAPTION>
Incentive Stock Nonstatutory Stock
Option Plan Option Plan Warrants
----------------------------------- ---------------------------- -------------------------
Number of Price Number of Price Number of Price
Shares Per Share Shares Per Share Shares Per Share
---------------- ------------------ ---------- --------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at December 31, 1992 462,483 $ 0.44-$0.90 2,407,741 $ 0.008-$0.90 1,665,000 $ 0.008-$1.20
--------- -------------- --------- --------------- --------- --------------
Granted during 1993 107,633 4.00 55,000 4.00 972,223 7.20
Expired during 1993 (29,430) 0.90 (17,778) 0.90 (972,223) 7.20
Exercised during 1993 (13,343) 0.90 - - - -
--------- -------------- --------- --------------- --------- --------------
Outstanding at December 31, 1993 527,343 0.44- 4.00 2,444,963 0.008- 4.00 1,665,000 0.008-1.20
--------- -------------- --------- --------------- --------- --------------
Exercisable at December 31, 1993 272,650 0.44-0.90 2,165,888 0.008-0.90 1,665,000 0.008-1.20
--------- -------------- --------- --------------- --------- --------------
Granted during 1994 243,458 10.00 86,668 10.00 - -
Expired during 1994 (285) 0.90 (1,110) 0.90 - -
Exercised during 1994 (16,828) 0.44-0.90 (40,733) 0.008-0.90 - -
--------- -------------- --------- --------------- --------- --------------
Outstanding at December 31, 1994 753,688 0.44- 10.00 2,489,788 0.008-10.00 1,665,000 0.008-1.20
--------- -------------- --------- --------------- --------- --------------
Exercisable at December 31, 1994 377,815 0.44-4.00 2,304,198 0.008-4.00 1,665,000 0.008-1.20
--------- -------------- --------- --------------- --------- --------------
Granted during 1995 389,611 6.00 - 14.00 1,058,565 0.004 - 24.00 1,479,168 0.004 - 6.00
Expired during 1995 (12,962) 0.90 - 10.00 - - - -
Exercised during 1995 (83,992) 0.90 - 4.00 - - - -
--------- -------------- --------- --------------- --------- --------------
Outstanding at December 31, 1995 1,046,345 $0.90 - $14.00 3,548,353 $0.004 - $24.00 3,144,168 $0.004 - $6.00
========= ============== ========= =============== ========= ==============
Exercisable at December 31, 1995 390,491 $0.44 - $14.00 2,423,133 $0.004 - $24.00 3,144,168 $0.004 - $6.00
========= ============== ========= =============== ========= ==============
</TABLE>
At December 31, 1995, 7,140,000 shares of Common Stock are reserved for the
exercise of stock options, and 3,144,168 shares are reserved for the
exercise of warrants.
In July 1995, the Board of Directors repriced the Stock Options granted at
$10.00 per share to $6.00 per share to reflect the adjusted fair value of
the Common Stock.
12. Income Taxes:
------------
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $64,200,000 to be used to offset future taxable income; these
carryforwards expire during the years through 2010, subject to certain
limitations. Under the Tax Reform Act of 1986, the amount of and benefits
from net operating losses that can be carried forward may be impaired or
limited in certain circumstances. Due to the losses, the Company has not
recorded income tax expense.
Continued
F-21
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Deferred tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1994 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Inventory $ 112,000 $ 244,000
Compensation related - 361,000
Deferred revenue - 1,720,000
Other - 144,000
Net operating loss carryforwards 7,585,000 25,680,000
Valuation allowance (7,056,000) (21,611,000)
Deferred tax liabilities:
FCC license (601,000) (6,393,000)
Fixed assets (40,000) (145,000)
----------- ------------
Net deferred tax assets - -
=========== ============
</TABLE>
Due to the uncertainty surrounding the realization of the favorable tax
attributes on future tax returns, the Company has placed a valuation
allowance against its otherwise recognizable net deferred tax assets.
13. Major Customers:
---------------
In 1993, three customers each accounted for approximately 53%, 19% and 18%
of total revenues. In fiscal year 1994, one customer accounted for 100%
of total revenues. The customers included in these percentages vary from
period to period.
14. Fair Value of Financial Instruments:
-----------------------------------
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107, "Disclosures About Fair Value of
Financial Instruments." The estimated fair value amounts have been
determined by the Company, using available market information and
appropriate valuation methodologies. However, considerable judgment is
required in interpreting market data to develop the estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value
amounts.
Continued
F-22
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1995
--------------------------------- ---------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------------- -------------- -------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Credit Agreement $ - $ - $ 36,500,000 $ 36,500,000
Convertible Subordinated Notes - - 16,250,000 25,000,000
Loan payable under financing agreement - - 19,478,778 19,478,778
Senior Notes - - 16,485,199 25,000,000
New York MTA License Obligation 347,518,309 347,518,309 347,518,309 347,518,309
</TABLE>
Cash and Cash Equivalents, Prepaid Expenses and Other Assets, Accounts
Payable and Accrued Expenses
The carrying amounts of these items are a reasonable estimate of their
fair value.
Long-Term and Short-Term Debt
The fair value of these securities are estimated based on recent
transactions. The value of these transactions are based on interest rates
that are available to the Company for issuance of debt with similar terms
and maturities because there are no public market quotes available for
these securities.
New York MTA License Obligation
The fair value of this obligation on the prevailing terms the United States
Government offers other Pioneer Preference license holders. The terms and
conditions for this obligation are set by the Federal Communications
Commission based on authority granted by the Congress of the United States
of America.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1994 and December
31, 1995. Although management is not aware of any factors that would
significantly affect the estimated fair value amounts, such amounts have
not been comprehensively revalued for purposes of these financial
statements since those dates, and current estimates of fair value may
differ significantly from the amounts presented herein.
Continued
F-23
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
15. Supplemental Cash Flow Information:
----------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Non cash investing and financing activities:
Liability incurred for acquisition of the
license $ - $ 347,518,309 $ -
Capital lease obligations incurred and notes
payable issued in exchange for fixed
assets 278,343 233,109 88,110
Common stock issued upon conversion of
subordinated note - 3,217,493 -
Common stock issued in exchange for an option
held by a third-party to purchase shares
of subsidiary - 4,500,000 -
Common stock issued in exchange for employee
notes receivable - 250,000 825,000
Issuance of Series B preferred stock in payment
of Seried B dividend - - 1,517,140
Issuance of Series C preferred stock in exchange for
amounts due under line of credit - - 10,000,000
Dividends accrued on Series B and Series C
preferred stock - - 1,839,032
Proceeds from financing agreement used to
pay origination fee - - 7,500,000
Common stock issued in exchange for services - - 58,540
Fixed assets financed by the financing agreement - - 13,311,582
Advance payment of pilot system equipment
financed through financing agreement - - 4,840,000
Pilot system equipment funded by financing
agreement - - 1,053,288
Issuance of options as from advanced
compensation - - 112,391
</TABLE>
Continued
F-24
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
16. Industry Segment Information:
----------------------------
<TABLE>
<CAPTION>
1995
-------------------------------------------
Equipment Service
Division Division Total
------------- ------------- -------------
<S> <C> <C> <C>
Revenues $ - $ - $ -
Income (loss) from operations (23,838,532) (14,163,019) (38,001,551)
Identifiable assets 108,683,957 366,306,140 474,990,097
Deprecation and amortization 1,899,265 9,138,188 11,037,453
Interest income (expense), net 56,028 175,098 231,126
1994
------------------------------------------
Equipment Service
Division Division Total
------------ ------------ ------------
Revenues $ 3,000,000 $ - $ 3,000,000
Income (loss) from operations 3,216,580 (14,649,495) (11,432,915)
Identifiable assets 13,809,636 347,135,904 360,945,540
Deprecation and amortization 687,630 437,507 1,125,137
Interest income (expense), net 300,975 (1,456,721) (1,155,746)
1993
------------------------------------------
Equipment Service
Division Division Total
------------ ------------ ------------
Revenues $ 1,617,759 $ - $ 1,617,759
Income (loss) from operations 3,589,077 (9,783,724) (6,194,647)
Identifiable assets 14,464,835 - 14,464,835
Deprecation and amortization 245,234 - 245,234
Interest income (expense), net (32,015) - (32,015)
</TABLE>
Continued
F-25
<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
17. Quarterly Financial Information (Unaudited):
-------------------------------------------
The following table provides quarterly data for the fiscal year ended
December 31, 1995 and 1994.
<TABLE>
<CAPTION>
1995
----------------------------------------------
<S> <C> <C> <C> <C>
March 31 June 30 September 30 December 31
-------- ------- ------------ ------------
Revenues $ - $ - $ - $ -
Operating expenses:
Research and development 2,317,574 2,859,534 3,643,362 5,524,283
Sales, general, and 1,784,593 2,639,043 3,648,651 4,547,058
administrative
Depreciation and amortization 2,690,199 2,690,198 2,907,317 2,749,739
------------ ------------ ------------ ------------
Total operating expenses 6,792,366 8,188,775 10,199,330 12,821,080
------------ ------------ ------------ ------------
Loss from operations (6,792,366) (8,188,775) (10,199,330) (12,821,080)
Other income (expense):
Interest income 50,544 102,103 400,379 196,066
Interest expense (Note 8) (7,981,974) (8,353,002) (8,269,927) 24,086,937
------------ ------------ ------------ ------------
Net income (loss) $(14,723,796) $(16,439,674) $(18,068,878) $ 11,461,923
============ ============ ============ ============
Net income (loss) per common share $(0.47) $(0.52) $(0.58) $.36
============ ============ ============ ============
Weighted average number of common
shares outstanding 31,344,821 31,869,950 31,396,645 31,529,298
============ ============ ============ ============
1994
-----------------------------------------------
Revenues $ - $ - $ 3,000,000 $ -
Operating expenses:
Research and development 1,102,275 1,574,744 1,951,692 2,389,627
Sales, general, and 989,916 1,297,766 1,714,778 2,286,980
administrative
Depreciation and 93,703 115,698 182,791 732,945
amortization ------------ ------------ ------------ ------------
Total operating expenses 2,185,894 2,988,208 3,849,261 5,409,552
------------ ------------ ------------ ------------
Loss from operations (2,185,894) (2,988,208) (849,261) (5,409,552)
Other income (expense):
Interest income 94,170 83,949 95,236 89,600
Interest expense (25,712) (10,172) (10,813) (1,472,004)
Miscellaneous income - 65,000 - -
Gain on sale of subsidiary stock - 3,193,600 - -
------------ ------------ ------------ ------------
Net income (loss) $ (2,117,436) $ 344,169 $ (764,838) $ (6,791,956)
============ ============ ============ ============
Net income (loss) per common share $(0.07) $0.01 $(0.02) $(0.22)
============ ============ ============ ============
Weighted average number of common
shares outstanding 29,968,569 30,487,584 31,266,311 31,274,146
============ ============ ============ ============
</TABLE>
F-26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
In connection with our audits of the consolidated financial statements of
Omnipoint Corporation and its Subsidiaries as of December 31, 1994 and 1995, and
for each of the three years in the period ended December 31, 1995, which
financial statements are included in this Form 10-K, we have also audited the
financial statement schedule listed in Item 14(a) herein.
In our opinion, this financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included herein.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 15, 1996
<PAGE>
SCHEDULE I
OMNIPOINT CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
for the years ended December 31, 1993, 1994, and 1995
<TABLE>
<CAPTION>
Additions
Balance at Charged to Deductions Balance at
Beginning Costs and from End of
of Period Expenses Reserves Period
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Period ended December 31, 1993:
Reserve for doubtful accounts $369,946 - - $369,946
Period ended December 31, 1994:
Reserve for doubtful accounts 369,946 - 369,946 -
Period ended December 31, 1995:
Reserve for doubtful accounts - - - -
</TABLE>
S-1
<PAGE>
OMNIPOINT CORPORATION
________________
FORM 10-K
________________
EXHIBIT INDEX
EXHIBIT DESCRIPTION SEQUENTIAL PAGE NO.
- ------- ----------- -------------------
3.1 Amended and Restated Certificate of
Incorporation of the Registrant.
3.6* Amended and Restated Bylaws of the Registrant.
4.2 See Exhibit 3.1.
10.1* Registrant's Amended and Restated 1990 Stock
Option Plan.
10.2* Form of Incentive Stock Option Agreement under
Registrant's 1990 Stock Option Plan.
10.3* Form of Stock Option Agreement under Registrant's
1990 Stock Option Plan for non-qualified options.
10.4* Form of Stock Option Agreement outside scope of
Registrant's 1990 Stock Option Plan for
non-qualified options.
10.5* Warrant Certificate, dated August 2, 1991, by
and between the Registrant and Allen &
Company Incorporated.
10.6* Warrant Certificate, dated August 2, 1991, by
and between the Registrant and Allen &
Company Incorporated.
10.7* Letter agreement, dated June 29, 1995, by and
between the Registrant and Allen & Company
Incorporated (relating to Exhibit 10.6).
10.8* Common Stock Purchase Warrant issued March 10,
1995, granted to Madison Dearborn Capital
Partners, L.P.
10.9* Common Stock Purchase Warrant issued March 10,
1995, granted to Madison Dearborn Capital
Partners, L.P.
10.10* Proprietary Information, Development and
Non-Compete Agreement dated December 6, 1990,
by and between the Registrant and Douglas G.
Smith.
10.11* Employment Agreement, effective October 1, 1995,
by and between the Registrant, Omnipoint
Communications Inc. and George F. Schmitt.
10.12* Promissory Note, dated October 1, 1995, by
George F. Schmitt.
10.13* Stock Restriction Agreement, dated October 1,
1995, by and between the Registrant and
George F. Schmitt.
10.14* Employment Agreement, dated April 17, 1995,
by and between the Registrant and Bradley E.
Sparks.
10.15* Promissory Note, dated April 17, 1995, by
Bradley E. Sparks.
10.16* Stock Restriction Agreement, dated April 17,
1995, by and between the Registrant and
Bradley E. Sparks.
10.17* Employment Agreement, dated December 5, 1994,
by and between the Registrant and Randall Meals.
10.18* Promissory Note, dated December 5, 1994,
by Randall Meals.
10.19* Promissory Note, dated September 19, 1995, by
Randall Meals.
10.20* Stock Restriction Agreement, dated December 5,
1995, by and between the
<PAGE>
Registrant and Randall Meals.
10.21* Employment Agreement, dated June 21, 1994, by and between Omnipoint
Communications Inc. and Harry Plonskier.
10.22* Stock Restriction Agreement, dated July 5, 1994, by and between the
Registrant and Harry Plonskier.
10.23* Employment Agreement, dated June 16, 1991, by and between the
Registrant and Evelyn Goldfine.
10.24* Employment Agreement, dated April 15, 1994, by and between the
Registrant and Robert Dixon.
10.25 [Intentionally left blank]
10.26* Form of Employment Agreement by and between the Registrant and its
employees.
10.27* Form of Non-Disclosure Agreement.
10.28* Form of Stock Restriction Agreement by and between the Registrant and
certain stockholders.
10.29* Series A Convertible Preferred Stock Purchase Agreement, dated August
2, 1991, by and between the Registrant and Allen & Company
Incorporated.
10.30* Series B Convertible Preferred Stock Purchase Agreement, dated August
9, 1993, by and among the Registrant and Madison Dearborn Capital
Partners, L.P.
10.31* Amendment No. 1 to Series B Convertible Preferred Stock Purchase
Agreement, dated June 29, 1995, by and between the Registrant and
Madison Dearborn Capital Partners, L.P.
10.32* Series C Convertible Preferred Stock Purchase Agreement, dated June
29, 1995, by and among the Registrant and the other parties named
therein.
10.33* Stock Purchase Agreement, dated January 29, 1994, by and between the
Registrant and Ameritech Development Corporation.
10.34* Stock Purchase Agreement, dated June 29, 1994, by and between the
Registrant and Associated PCN Company.
10.35* Common Stock Purchase Agreement, dated June 1, 1994, by and between
the Registrant and the parties named therein.
10.36* Amended and Restated Registration Rights Agreement, dated June 29,
1995, by and among the Registrant and the parties named therein.
10.37* First Amended and Restated Voting Agreement, dated June 29, 1995, by
and among the Registrant and the other parties named therein.
10.38* OEM Supply Agreement for Omnipoint PCS (Personal Communication
Systems) Products, dated September 22, 1994, by and between the
Registrant and Northern Telecom Inc.
10.39* Letter agreement dated December 9, 1994, by and between the
Registrant and Northern Telecom Inc. (relating to Exhibit 10.38).
10.40* Manufacturing License and Escrow Agreement for Personal Communication
Service Products, dated February 28, 1995, by and between the
Registrant and Northern Telecom Inc.
10.41* Collaborative Development Agreement, dated March 1, 1995, by and
between the Registrant and Northern Telecom Inc.
10.42* Reciprocal OEM Agreement Memorandum of Understanding, dated March 30,
1995, by and between the Registrant and Northern Telecom Inc.
10.43* Supply Agreement, dated September 22, 1994, by and between Omnipoint
Communications Inc. and Northern Telecom Inc.
10.44* Amendment No. 1 to Supply Agreement, dated July 21, 1995, by and
between Omnipoint Communications Inc. and Northern Telecom Inc.
10.45* Loan Agreement, dated as of July 21, 1995, by and between Omnipoint
Communications Inc. and Northern Telecom Inc.
10.46 [Intentionally left blank]
<PAGE>
10.46.1* Letter Agreement, dated November 14, 1995, by and among the
Registrant, Omnipoint Communications Inc. and JRC International
Inc. (relating to Exhibit 10.46).
10.46.2* Letter Agreement, dated December 21, 1995, by and among the
Registrant, Omnipoint Communications Inc. and JRC International
Inc. (relating to Exhibit 10.46).
10.47* Engineering Services Agreement, dated as of August 31, 1995, by and
between the Registrant and JRC International Inc.
10.48* Memorandum of Understanding, dated April 21, 1995, by and between the
Registrant and Pacific Bell Mobile Services.
10.49* Office Sublease Agreement by and between the Registrant and United
Technologies Microelectronics Center, Inc., commencing August 1,
1994 or upon earlier occupation by the Registrant.
10.50* Amendment to Office Sublease Agreement, signed August 17, 1994, by
and between the Registrant and United Technologies Microelectronics
Center, Inc.
10.51* Office Building Lease for Courthouse Plaza Office Building, dated
January 18, 1994, by and between the Registrant and Eastrich No.
130 Corporation.
10.52* First Lease Amendment, dated January 20, 1995, by and between the
Registrant and Eastrich No. 130 Corporation.
10.53* Pioneer's Preference License granted by the FCC to Omnipoint
Communications Inc. on December 14, 1994.
10.54* Note and Warrant Purchase Agreement dated November 22, 1995, between
the Registrant and the purchasers named therein.
10.55* Senior Note Due 2000 issued by the Registrant on November 22, 1995 to
the holder identified therein.
10.56* Senior Note Due 2000 issued by the Registrant on November 22, 1995 to
the holder identified therein.
10.57* Common Stock Warrant issued by the Registrant on November 22, 1995 to
the holder identified therein.
10.58* Common Stock Warrant issued by the Registrant on November 22, 1995 to
the holder identified therein.
10.59* Credit Agreement, dated as of November 21, 1995, by and among OPCS
Corp., Omnipoint PCS Entrepreneurs, Inc. and Bank of America
National Trust and Savings Association.
10.60* Memorandum of Understanding, dated November 22, 1995, by and between
the Registrant and Ericsson Inc.
10.60.1* Letter Agreement, dated January 24, 1996, by and between the
Registrant and between Ericsson Inc.
10.61* Convertible Subordinated Note and Warrant Purchase Agreement, dated
December 12, 1995, by and between the Registrant and Hansol Paper
Co., Ltd.
10.62* Convertible Subordinated Note and Warrant Purchase Agreement, dated
as of November 29, 1995, by and among the Registrant and the
entities identified therein.
10.63* Letter of Intent, dated October 26, 1995, by and between the
Registrant and BellSouth Personal Communications, Inc.
10.64* Waiver of Registration Rights and Confirmation of 180-Day Lockup,
dated as of October 31, 1995, by and between the Registrant and
Ameritech Development Corporation.
10.65* Registration Rights Agreement dated as of April 26, 1994, by and
among the Registrant and the parties thereto.
10.66* Contract for Sale of Real Estate, dated August 30, 1995, by and
between F&R Bari Realty, Ltd., Inc. and Omnipoint Communications
Inc.
<PAGE>
10.67* Lease Agreement, dated October 15, 1995, by and between the
Registrant and Baetis Properties, Inc.
11.1 Statement of computation of loss per share.
22.1* Subsidiaries of the Registrant.
24.1 Consent of Coopers & Lybrand L.L.P.
25.1 Power of Attorney (included in signature pages).
27 Financial Data Schedule
___________________________
* Incorporated herein by reference to the Company's Registration Statement on
Form S-1, No. 33-98360.
___________________________
<PAGE>
EXHIBIT 3.1
-----------
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
OMNIPOINT CORPORATION
OMNIPOINT CORPORATION, a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), hereby certifies as follows:
1. The name of the Corporation is Omnipoint Corporation (formerly Omni-
Point Data Company, Inc.). The date of filing of its original Certificate of
Incorporation with the Secretary of State was June 18, 1987.
2. This Amended and Restated Certificate of Incorporation restates and
integrates and further amends the Certificate of Incorporation of the
Corporation and all prior amendments thereto by deleting from the Certificate of
Incorporation, as amended, all provisions thereof and substituting in lieu
thereof the Amended and Restated Certificate of Incorporation set forth in
Paragraph 3 below.
3. The text of the Certificate of Incorporation as amended or
supplemented heretofore is further amended and restated hereby to read as herein
set forth in full:
FIRST. Name. The name of the Corporation is: Omnipoint
Corporation
SECOND. Registered Office and Agent. The address of the
Corporation's registered office in the State of Delaware is Corporation Trust
Center, 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of the Corporation's registered agent at such address is The
Corporation Trust Company.
THIRD. Purpose. The nature of the business or purposes to be
conducted or promoted by the Corporation is as follows:
To engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware and to possess and
exercise all of the powers and privileges granted by such law and any other law
of Delaware.
FOURTH. Authorized Capital.
A. Common Stock. The total number of shares of stock which the
Corporation shall have authority to issue is (i) 75,000,000 shares of Common
Stock, $0.01 par value per share, and (ii) 5,000,000 shares of Preferred Stock,
$0.01 par value per share.
<PAGE>
The powers, privileges and rights, and the qualifications, limitations
or restrictions thereof in respect of the Common Stock of the Corporation are as
follows:
(1) General. The voting, dividend and liquidation rights of the
holders of the Common Stock are subject to and qualified by the rights of the
holders of the Preferred Stock of any series as may be designated by the Board
of Directors upon any issuance of the Preferred Stock of any series.
(2) Voting. The holders of the Common Stock are entitled to one vote
for each share held at all meetings of stockholders (and written actions in lieu
of meetings). There shall be no cumulative voting.
(3) Dividends. Dividends may be declared and paid on the Common
Stock from funds lawfully available therefor as and when determined by the Board
of Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
(4) Liquidation. Upon the dissolution or liquidation of the
Corporation, whether voluntary or involuntary, holders of Common Stock will be
entitled to receive all assets of the Corporation available for distribution to
its stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. Preferred Stock. The Board of Directors expressly is authorized,
subject to limitations prescribed by the Delaware General Corporation Law and
the provisions of this Amended and Restated Certificate of Incorporation of the
Corporation, to provide, by resolution and by filing a certificate pursuant to
the Delaware General Corporation Law, for the issuance from time to time of the
shares of Preferred Stock in one or more series, to establish from time to time
the number of shares to be included in each such series, and to fix the
designation, powers, preferences and other rights of the shares of each such
series and to fix the qualifications, limitations and restrictions thereon,
including, but without limiting the generality of the foregoing, the following:
(1) the number of shares constituting that series and the distinctive
designation of that series;
(2) the dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that series;
(3) whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
-2-
<PAGE>
(4) whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provision for adjustment
of the conversion rate in such events as the Board of Directors shall determine;
(5) whether or not the shares of that series shall be redeemable, and,
if so, the terms and conditions of such redemption, including the dates upon or
after which they shall be redeemable, and the amount per share payable in case
of redemption, which amount may vary under different conditions and at different
redemption rates;
(6) whether that series shall have a sinking fund for the redemption
or purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;
(7) the rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the Corporation, and
the relative rights of priority, if any, of payment of shares of that series;
and
(8) any other relative powers, preferences, and rights of that series,
and qualifications, limitations or restrictions on that series.
FIFTH. Board of Directors. In furtherance of and not in limitation of
powers conferred by statute, it is further provided:
(1) Election of directors need not be by written ballot.
(2) The Board of Directors is expressly authorized to adopt, amend or
repeal the By-Laws of the Corporation.
SIXTH. Limitation on Liability. No director of the Corporation shall
be personally liable to the Corporation or to any stockholder of the Corporation
for monetary damages for breach of fiduciary duty as a director, provided that
this provision shall not limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involved intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the General Corporation
Law of Delaware, or (iv) for any transaction from which the director derived an
improper personal benefit.
If the General Corporation Law of Delaware or any other statute of the
State of Delaware hereafter is amended to authorize the further elimination or
limitation of the liability of directors of the corporation, then the liability
of a director of the corporation shall be limited to the fullest extent
permitted by the statutes of the State of Delaware, as so amended, and such
elimination or limitation of liability shall be in addition to, and not in lieu
of, the limitation on the liability of a director provided by the foregoing
provisions of this Eighth Article.
-3-
<PAGE>
Any repeal of or amendment to this Sixth Article shall be prospective
only and shall not adversely affect any limitation on the liability of a
director of the corporation existing at the time of such repeal or amendment.
SEVENTH. To the extent permitted by law, the Corporation shall fully
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding (whether
civil, criminal, administrative or investigative) by reason of the fact that
such person is or was a director or officer of the Corporation, or is or was
serving at the request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding.
To the extent permitted by law, the Corporation may fully indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (whether civil,
criminal, administrative or investigative) by reason of the fact that such
person is or was an employee or agent of the Corporation, or is or was serving
at the request of the Corporation as an employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding.
The Corporation may advance expenses (including attorneys' fees)
incurred by a director or officer in advance of the final disposition of such
action, suit or proceeding upon the receipt of an undertaking by or on behalf of
the director or officer to repay such amount if it shall ultimately be
determined that such director or officer is not entitled to indemnification. The
Corporation may advance expenses (including attorneys' fees) incurred by an
employee or agent in advance of the final disposition of such action, suit or
proceeding upon such terms and conditions, if any, as the Board of Directors
deems appropriate.
EIGHTH. Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders, and may not be effected by any consent in
writing by such stockholders, unless such consent is unanimous.
NINTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute and the
Certificate of Incorporation, and all rights conferred upon stockholders herein
are granted subject to this reservation.
-4-
<PAGE>
4. This Amended and Restated Certificate of Incorporation was duly adopted
by the Board of Directors in accordance with Section 245 of the General
Corporation Law of the Sate of Delaware.
5. This Amended and Restated Certificate of Incorporation was duly adopted
by written consent of the stockholders in accordance with the applicable
provisions of Sections 228, 242 and 245 of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF, Omnipoint Corporation has caused this Certificate to be
signed by Douglas G. Smith, its President, and attested by Edwin M. Martin, Jr.,
its Secretary, this 31st day of January, 1996.
OMNIPOINT CORPORATION
By: /s/ Douglas G. Smith
--------------------
Douglas G. Smith
President
ATTEST:
By: /s/ Edwin M. Martin, Jr.
------------------------
Edwin M. Martin, Jr.
Secretary
-5-
<PAGE>
Exhibit 11.1
------------
OMNIPOINT CORPORATION
STATEMENT OF COMPUTATION OF LOSS PER SHARE
Type of Security
----------------
<TABLE>
<S> <C>
Company, for the year ended December 31, 1993
Common stock outstanding 22,831,289
Issuance of cheap stock(1) 6,870,753
----------
Weighted average common shares outstanding 29,702,042
==========
Company, for the year ended December 31, 1994
Common stock outstanding 23,881,516
Issuance of cheap stock(1) 6,870,753
----------
Weighted average common shares outstanding 30,752,269
==========
Company, for the year ended December 31, 1995
Common stock outstanding 24,539,689
Issuance of cheap stock(1) 6,670,753
----------
Weighted average common shares outstanding 31,410,442
==========
Company, for the year ended December 31, 1995 Pro Forma
Common stock outstanding 24,539,689
Conversion of preferred stock 8,013,989
Conversion of convertible subordinated notes 104,452
Issuance of cheap stock(1) 6,870,753
----------
Weighted average common shares outstanding 39,528,883
==========
Company, for the year ended December 31, 1996 Supplemental
Common stock outstanding 24,539,689
Conversion of preferred stock 8,219,347
Conversion of convertible subordinated notes 104,452
Conversion of Credit Agreement retired with proceeds
from the initial public offering 349,315
Issuance of cheap stock(1) 6,870,753
----------
Weighted average common shares outstanding 40,083,556
==========
</TABLE>
(1) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, common equivalent shares issued during the twelve month period
prior to the initial filing date of the Company's Initial Public Offering
Registration Statement are exercise prices below the initial public
offering price of $16.00 have been included in the calculation of cheap
stock shares using the treasury stock method, as if they were outstanding
for all periods presented.
S-2
<PAGE>
EXHIBIT 24.1
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Omnipoint Corporation on Form S-1 (File No. 33-98360) of our reports dated March
15, 1996, on our audits of the consolidated financial statements and financial
statement schedule of Omnipoint Corporation as of December 31, 1995 and 1994,
and for the years ended December 31, 1995, 1994 and 1993 which reports are
included in this Annual Report on Form 10-K/A.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
June 26, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> DEC-31-1995
<CASH> 57,784,381
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,309,632
<CURRENT-ASSETS> 64,133,634
<PP&E> 21,423,473
<DEPRECIATION> (2,466,284)
<TOTAL-ASSETS> 474,990,097
<CURRENT-LIABILITIES> 77,822,642
<BONDS> 0
0
44,127,462
<COMMON> 246,586
<OTHER-SE> (30,794,615)
<TOTAL-LIABILITY-AND-EQUITY> 474,990,097
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 38,001,551
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (231,126)
<INCOME-PRETAX> (37,770,425)
<INCOME-TAX> 0
<INCOME-CONTINUING> (37,770,425)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (37,770,425)
<EPS-PRIMARY> (1.31)
<EPS-DILUTED> (1.31)
</TABLE>
