SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE 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.)
THREE BETHESDA METRO CENTER, SUITE 400 20814
BETHESDA, MD (Zip Code)
(Address of principal executive office)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (301) 951-2500
2000 NORTH 14TH STREET, SUITE 550 22201
ARLINGTON, VA (Former Zip Code)
(Former address of principal executive office)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class: Name of Each Exchange
COMMON STOCK, PAR VALUE on which Registered:
$0.01 PER SHARE NASDAQ NATIONAL MARKET
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
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 51,472,810 shares of common
stock were outstanding as of May 13, 1997.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Note 1)
OMNIPOINT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31
1997 December 31,
(unaudited) 1996
---------------- ----------------
ASSETS
Current assets:
Cash and cash equivalents $ 198,370 $ 215,029
Short term investments 44,112 46,827
Escrow deposit 50,537 43,516
Accounts receivable, net of
allowances of $46 6,537 47
Inventory 33,728 37,490
Prepaid expenses and other
current assets 2,433 1,748
---------------- ----------------
Total current assets 335,717 344,657
Fixed assets, net 257,636 186,851
FCC licensing costs, net of
accumulated amortization of
$19,976 and $17,804 as of
March 31, 1997 and December 31,
1996, respectively 759,982 752,189
FCC deposit - 60,000
Unissued license payment (see Note 4) 28,851 -
Escrow deposit 24,166 48,466
Deferred financing costs and
other intangible assets, net
of accumulated amortization of
$2,762 and $2,089 as of March 31,
1997 and December 31, 1996,
respectively 26,497 27,047
Other long-term assets 1,423 262
---------------- ----------------
Total assets $ 1,434,272 $ 1,419,472
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 55,522 73,937
Accrued expenses 17,295 12,333
Accrued interest payable 15,395 12,072
Deferred revenue 189 -
Loan payable under financing
agreement - current portion 14,864 -
---------------- ----------------
Total current liabilities 103,265 98,342
Loan payable under financing
agreement 58,911 -
Senior notes 18,892 18,617
11 5/8% Senior and Series A Notes
due 2006 458,714 458,886
FCC license obligations 711,799 709,853
Commitments and contingencies (Note 6)
Continued
- 1 -
<PAGE>
Stockholders' equity (deficit):
Common stock, par value, $.01 per share;
authorized 75,000,000 shares; 51,331,757
shares issued and outstanding at March 31, 1997
and 50,969,300 shares issued and
outstanding at December 31, 1996 513 510
Additional paid-in capital 330,396 329,772
Accumulated deficit (238,791) (186,428)
Unearned compensation (8,487) (8,883)
Notes receivable (940) (1,197)
----------------------------------------
Total stockholders'equity 82,691 133,774
----------------------------------------
Total liabilities and
stockholders' equity $ 1,434,272 $ 1,419,472
================ ================
See notes to consolidated financial statements
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<PAGE>
OMNIPOINT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share data)
Three Months Ended March 31,
1997 1996
------------- --------------
Revenues:
License fees $ 4,500 0
Handset and service revenues 3,087 0
-------- ---------
Total revenues $ 7,587 $ 0
Operating expenses:
Research and development 7,707 4,759
Sales, general, and
administrative 27,890 5,172
Depreciation and amortization 10,419 3,501
------- -------
Total operating expenses 46,016 13,432
Loss from operations (38,429) (13,432)
Other income (expense):
Interest income 4,661 1,398
Interest expense (18,595) (3,869)
--------- ---------
Net loss $ (52,363) $ (15,903)
========= =========
Loss per share $ (1.02) $ (0.39)
Weighted average common shares
outstanding 51,278 40,469
========= =========
See notes to consolidated financial statements
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<PAGE>
OMNIPOINT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Three Months Ended
March 31,
------------------------
1997 1996
----------- -----------
Cash flows used in operating activities:
Net loss $ (52,363) $ (15,902)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization and depreciation 10,419 3,501
Inventory write-down to replacement cost 3,000 -
Allowance for doubtful accounts 46 -
Compensation expense from stock grants 617 20
Increase in employee notes receivable and
related accrued interest (21) (37)
Forgiveness of employee notes receivable 74 -
Payment in kind interest on financing agreement - 540
Accrued interest 3,323 2,057
Interest expense associated with amortization of
discount, premium and issuance cost 1,915 591
Interest income associated with restricted cash (999) -
Changes in assets and liabilities:
(Increase) decrease in operating assets:
Accounts receivable (6,536) -
Prepaid expenses and other assets (1,847) 617
Inventory 762 (302)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses (13,399) (1,990)
Unearned revenue 189 -
----------- -----------
Net cash used in operating activities (54,820) (10,905)
----------- -----------
Cash flows used in investing activities:
Purchase of equipment (78,349) (3,348)
Down payments for FCC licenses (28,851) -
Refund of FCC deposit 60,000 -
Capitalized interest on C Block licenses (9,964) -
Purchase of investment securities (13,801) -
Sales of investment securities 16,516 -
Proceeds from held to maturity investments 18,278 -
----------- -----------
Net cash used in investing activities (36,171) (3,348)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 557 76
Proceeds from financing agreement 73,775 2,000
Payments of obligations under capital leases - (49)
Proceeds from credit agreement - (36,500)
Proceeds from initial public offering, net of
expenses - 118,437
Dividends accrued and paid - (273)
-------- --------
Net cash provided by financing activities 74,332 83,691
-------- --------
Continued
- 4 -
<PAGE>
Net increase (decrease) in cash and cash equivalents (16,659) 69,438
Cash and cash equivalents at beginning of period 215,029 57,784
-------- --------
Cash and cash equivalents at end of period $198,370 $127,222
======== ========
See notes to consolidated financial statements
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<PAGE>
OMNIPOINT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
(In thousands, except per share data)
For The Three Months Ended March 31, 1997
<TABLE>
<CAPTION>
Total
Common Stock Accumulated Unearned Notes Stockholders'
Shares Amount Paid-in Capital Deficit Compensation Receivable Equity (Deficit)
---------- ------ --------------- ----------- ------------ ---------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 50,969,300 $ 510 $ 329,772 $ (186,428) $ (8,883) $ (1,197) $ 133,774
Exercise of stock options 377,457 3 553 - - - 556
Restricted stock returned
upon termination (15,000) - (150) - - 150 -
Issuance of options in form
of advanced compensation - - 221 - (221) - -
Amortization of
unearned compensation - - - - 617 - 617
Interest on employee
notes receivable - - - - - (21) (21)
Forgiveness of employee
notes receivable - - - - - 128 128
Net loss - - - (52,363) - - (52,363)
---------- ------ --------------- ----------- ------------ ---------- ----------------
Balance, March 31, 1997 51,331,757 $ 513 $ 330,396 $ (238,791) $ (8,487) $ (940) $ 82,691
========== ====== =============== =========== ============ ========== ================
</TABLE>
See notes to consolidated financial statements
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<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL:
The consolidated financial statements have been prepared by Omnipoint
Corporation ("Omnipoint" or the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC") and, in
the opinion of management, include all adjustments necessary for a fair
presentation of the financial information for each period shown. Certain
information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such SEC
rules and regulations. Management believes that the disclosures made are
adequate to make the information presented not misleading. The results for
interim periods are not necessarily indicative of the results for the full
year. These unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and the notes
thereto included in the Company's 1996 Annual Report on Form 10-K.
Certain prior year amounts have been reclassified to conform to the three
month presentation.
2. INVENTORY:
Inventory consists of the following for March 31, 1997 (unaudited) and
December 31 1996:
March 31, December 31,
1997 1996
----------- ------------
(In thousands)
Raw Materials 919 1,102
GSM Handsets 29,871 33,343
Accessories & SIM Cards 2,938 3,045
--------- ---------
$ 33,728 $ 37,490
=========== ===========
3. FIXED ASSETS:
Fixed assets including equipment under capital leases consist of the
following at March 31, 1997 (unaudited) and December 31, 1996:
March 31, December 31,
1997 1996
---------- ------------
(In thousands)
Building and building
improvements $ 10,150 $ 7,751
Machinery, office and
computer equipment 35,813 30,680
Network infrastructure
equipment 100,491 67,252
Vehicles 452 452
--------- ----------
146,906 106,135
Less: accumulated
depreciation (15,547) (8,317)
$ 131,359 $ 97,818
Construction in progress 126,277 89,033
$ 257,636 $ 186,851
========== ==========
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<PAGE>
OMNIPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Depreciation expense for the period ended March 31, 1997 and for the year
ended December 31, 1996 was $7,564,735 and $5,937,051, respectively.
Approximately $5.1 million of capitalized interest has been included in
network infrastructure equipment that was previously or continues to be
construction in progress.
4. D, E AND F BLOCK LICENSES:
On January 14, 1997, the Company successfully bid for 109 D, E and F block
licenses for an aggregate of $181.4 million (net of the 25% small business
discount for the F Block licenses). The Company made its first payment of
$28.8 million utilizing the $60.0 million deposit with the FCC; the
remaining $31.2 million of such deposit was be refunded to the Company. The
Company submitted its long-form application for these licenses. At the time
the licenses are awarded, the Company will pay an additional $93.1 million
at which time payments will be complete for the D and E Block licenses. The
remaining $59.4 million for the F Block licenses is payable over a 10-year
period. The F Block licenses require interest-only payments for the first
two years at the 10-year Treasury Bill rate on the date the licenses are
awarded. Principal and interest will be due over the remaining eight years.
The F Block licenses and any other licenses purchased by the Company which
received favorable financing treatment will be accounted for in accordance
with industry practices. Accordingly, interest incurred for the licenses
will be capitalized during the buildout phase and amortization of the
license cost will begin with the commencement of service to customers.
5. REGISTRATION OF SERIES A SENIOR NOTES:
On February 19, 1997, the Company offered to exchange its 11 5/8% Series A
Senior Notes due 2006, which have been registered under the Securities Act
of 1933, as amended, for any and all of its outstanding 11 5/8% Series A
Senior Notes. The interest rate and covenants of the registered notes are
substantially identical to the interest rate and covenants with respect to
the 11 5/8% Series A Senior Notes. The registered notes are obligations of
the Company evidencing the same indebtedness as the 11 5/8% Series A Senior
Notes and are governed by the same indenture as the 11 5/8% Series A Senior
Notes.
6. COMMITMENTS AND CONTINGENCIES:
The Company is in various stages of negotiation for handsets, accessories
and services from various suppliers. These new contracts could require
minimum purchase commitments from the Company. Management believes that the
Company will fulfill these commitments in the normal course of business.
7. SUBSEQUENT EVENTS:
On May 12, 1997, the Company made a payment of $27.1 million on the D and E
Block licenses and $6.1 million on the F Block licenses issued on May 7,
1997. The remaining licenses are subject to FCC review. These licenses will
be issued upon the resolution of all outstanding judicial and
administrative reviews. Upon issuance of these licenses, the Company will
pay an additional $58.6 million for the D and E licenses and $1.3 million
for the F Block licenses. The Company will also incur $59.4 million in debt
to pay for the F Block licenses, to be repaid over 10 years. See Note 4
above.
Continued
- 8 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Management's Discussion and Analysis of Financial Condition and Results of
Operations contain forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in forward-looking statements.
OVERVIEW
Omnipoint reported a 1997 first quarter loss of $52.4 million, or $1.02 per
share, an increase of 229.3%, or approximately $36.5 million, compared to the
same quarter in 1996. The 1996 first quarter loss was $15.9 million, or $0.39
per share.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996
Revenues for the three months ended March 31, 1997 were $7.6 million,
compared to no revenues in the first quarter of 1996. Revenues for the first
quarter of 1997 consisted of $4.5 million for license fees and $3.1 million of
handsets and service revenue associated with the operation of the New YOrk MTA
PCS networks.
Research and development expenses increased by 62.0%, or approximately $2.9
million, to $7.7 million for the three months ended March 31, 1997, compared to
$4.8 million for the three months ended March 31, 1996. The increase was
primarily due to an increase of $1.1 million in rent, utility and other building
expenses, $841,000 in payroll and related taxes, employee benefits and employee
recruiting costs associated with the Company's continued growth and development
of the IS-661 technology, $279,000 in consulting fees, and $201,000 in equipment
purchases including computers and software.
Sales, general and administrative expenses increased by 439.2%, or
approximately $22.7 million, to $27.9 million for the three months ended March
31, 1997, compared to $5.2 million for the three months ended March 31, 1996. Of
this increase, $7.9 million was due to payroll and payroll related expenses
associated with increases in headcount resulting from the expansion of the
Company's operations. The remaining increase consists primarily of increases of
$8.8 million in advertising and promotion, and $1.2 million in interconnect
fees. The Company expects that such expenses will continue to increase
significantly during the remainder of 1997 as the Company continues to expand
its operations.
Depreciation and amortization increased by 197.6%, or approximately $6.9
million, to $10.4 million for the three months ended March 31, 1997, compared to
$3.5 million for the three months ended March 31, 1996. The increase is due to
depreciation from the Company's network infrastructure equipment as a result of
activation of the New York metropolitan area PCS networks.
Interest and other income increased approximately $3.3 million, to $4.7
million for the three months ended March 31, 1997 compared to $1.4 million for
the three months ended March 31, 1996. The increase was due to the increase in
interest earned on interest bearing cash and cash equivalents and short-term
investments. The increase in cash and cash equivalents resulted from a follow-on
public offering in July 1996, and proceeds from sales of two tranches of 11 5/8%
Senior Notes due 2006 (the "1996 Senior Notes") in August and December of 1996.
Interest expense increased by 380.6%, or approximately $14.7 million, to
$18.6 million for the three months ended March 31, 1997 compared to $3.9 million
for the three months ended March 31, 1996. The increase was due to $6.2 million
of interest expense for the New York MTA Pioneer Preference license, and $12.4
million for the 1996 Senior Notes. The Company capitalized interest of $12.1
million during the first quarter of 1997.
Net loss increased by 229.2%, or approximately $36.5 million to $52.4
million for the three months ended March 31, 1997 compared to $15.9 million for
the three months ended March 31, 1996. This increase was primarily due to a
general increase in operating expenses, as well as an increase of $11.5 million
in net interest expense.
- 9 -
<PAGE>
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995
Research and development expenses increased by 108.7%, or approximately
$2.5 million, to $4.8 million for the three months ended March 31, 1996 compared
to $2.3 million for the three months ended March 31, 1995. The increase was
primarily due to an increase of $1.0 million in the purchase of research and
development components and an increase of $1.2 million in payroll and related
taxes, employee benefits and employee recruiting costs associated with the
Company's continued growth and its development of the IS-661 technology. The
Company expects that research and development expenses will continue to increase
significantly during the remainder of 1996 as compared to 1995.
Sales, general and administrative expenses increased by 188.9%, or
approximately $3.4 million, to $5.2 million for the three months ended March 31,
1996 compared to $1.8 million for the three months ended March 31, 1995. Of this
increase, $947,000 was due to payroll and payroll related expenses associated
with increases in headcount resulting from the expansion of the Company's
operations. The remaining increase consists primarily of increases of $750,000
in consulting service fees, $283,000 in rent and utility expenses, $261,000 in
legal fees, $216,000 in tradeshow and other business development expenses,
$143,000 in equipment rentals and leases and $100,000 in insurance expense. The
Company expects that such expenses will continue to increase significantly
during 1996, as the Company continues to expand its operations.
Depreciation and amortization increased by 30.0%, or approximately
$811,000, to $3.5 million for the three months ended March 31, 1996 compared to
$2.7 million for the three months ended March 31, 1995. The increase in the 1996
period was due to depreciation on a building and related building improvements
acquired in late 1995, combined with a general increase in depreciation related
to the Company's research and development equipment.
Interest income increased approximately $1.3 million, to $1.4 million for
the three months ended March 31, 1996 compared to $50,000 for the three months
ended March 31, 1995. The increase was due to excess cash invested in short term
interest bearing investments. The increase in cash and cash equivalents resulted
from the issuance of $25.0 million in senior notes in November 1995 and $25.0
million in convertible notes in November and December 1995 and the proceeds of
$119.8 million received from the Company's initial public offering in January
1996.
Interest expense decreased by 51.3%, or approximately $4.1 million, to $3.9
million for the three months ended March 31, 1996 compared to $8.0 million for
the three months ended March 31, 1995. The interest expense for the three months
ended March 31, 1995 included $7.7 million of accrued interest expense related
to the New York MTA License. On March 8, 1996, the FCC adopted an order setting
the interest rate for the License at 7.75% per annum accruing from March 8,
1996. As a result, the Company reversed $33.5 million of accrued interest
related to the New York MTA License during December 1995. Had this adjustment
been retroactively recorded in the three months ended march 31, 1995, the net
loss and loss per share would have been $7.1 million and $0.23, respectively.
Net loss increased by 8.2%, or approximately $1.2 million, to $15.9 million
for the three months ended March 31, 1996 compared to $14.7 million for the
three months ended March 31, 1995. This increase was primarily due to a general
increase in operating expenses, partially offset by a decrease of $5.5 million
in net interest expense.
- 10 -
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 1997, the Company has financed its
operations and met its capital requirements primarily through vendor financing.
These financing activities provided net cash of $74.3 million for the three
months ended March 31, 1997 compared to $83.7 million for the three months ended
March 31, 1996. Operating activities used net cash of $54.8 million for the
three months ended March 31, 1997, compared to $10.9 million for the three
months ended March 31, 1996. The increase resulted from the Company's additional
activity relating to supporting product development, operation of the New York
MTA network, buildout of the Company's core PCS networks, and interest expense
associated with the Company's related obligations. Investing activities used net
cash of $36.2 million for the three months ended March 31, 1997, compared to
$3.3 million for the three months ended March 31, 1996. The increase in
investing activities consists of $78.3 million for purchases of New York MTA
infrastructure related items and lab equipment used in engineering and
manufacturing, and $28.9 million for the down payment on the D, E and F Block
licenses, $9.9 million in capitalized interest relating to the C Block licenses;
offset by cash provided from the refund of the $60.0 million FCC deposit and
$21.0 million net from short and long term investments.
As of March 31, 1997, the Company had working capital of approximately
$232.5 million. On March 25, 1997, the Company borrowed $73.8 million from its
existing NT Credit Facility. Associated with the $73.8 million draw on the NT
Credit Facility, the Company paid for $46.7 million of outstanding invoices in a
net transaction. The FCC's D, E and F Block auctions ended in January 1997. The
Company used its $60 million deposit to make its initial down payment of $28.8
million. The remaining $31.2 million was refunded to the Company in January
1997. The FCC issued a stay on broadband PCS payments on April 1, 1997. This
notice effectively postponed the Company's $8.1 million quarterly interest
payment on the C Block licenses. The exact timing of this interest payment is
still undetermined. The April 1 notice will also postpone future quarterly
installments until further notice. On February 15, 1997, the Company used $18.3
million of proceeds from its escrow deposit to pay interest on the 11 5/8%
Senior and Series A Notes due 2006.
The Company has an agreement to purchase $250.0 million of equipment and
services over the next five years from Northern Telecom. The Company has a
$382.5 million credit facility with Northern Telecom, the "NT Credit Facility,"
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.
The NT Credit Facility is secured by a pledge of all capital stock of
Omnipoint Communications, Inc. ("OCI"), that is owned by a wholly-owned
subsidiary of the Company (which constitutes a 95.58% ownership interest) and
substantially all of OCI's assets. Under the terms of the NT Credit Facility,
OCI is subject to certain financial and operational covenants including
restrictions on OCI's ability to pay dividends, restrictions on indebtedness and
certain financial maintenance requirements. Additionally, the NT Credit Facility
provides that, among other events, the failure of OCI to pay when due amounts
owing the FCC shall constitute an event of default. Interest on the NT Credit
Facility is payable quarterly.
The principal amount of the non-working capital portions of the NT Credit
Facility is payable in installments beginning in 2000, with the final payment
due on December 31, 2004. As of March 31, 1997, OCI had approximately $58.9
million outstanding under the non-working capital portions of the facility.
A portion of the NT Credit Facility, which may be used for working capital
purposes including interest payments on the principal of such facility, matures
on June 30, 1997. Borrowings for working capital purposes which are repaid may
be subsequently borrowed for the other purposes allowed under the NT Credit
Facility. As of March 31, 1997, the Company had an outstanding balance of
approximately $14.9 million of the working capital portion of the NT Credit
Facility.
Northern Telecom has executed a non-binding commitment letter to extend the
NT Credit Facility from $382.5 million to $612.0 million on substantially the
same terms. Such extension is subject to approval by the Board of Directors of
Northern Telecom. If a definitive agreement is reached, the Company expects to
use these funds in the New York MTA or other markets which the Company acquired
in subsequent FCC auctions.
The Company entered into a credit facility with Ericsson, dated as of
August 7, 1996, to provide financing to the
- 11 -
<PAGE>
Company for up to $132.0 million for the purpose of financing the purchase of
equipment and services from Ericsson for the New York MTA market. A portion of
the Ericsson Credit Facility, which may be used for interest payments accruing
under such facility, and a portion which may be used to purchase handsets,
mature on June 30, 1998. The principal amount on other portions of the facility
is payable in installments beginning in 2000, with the final payment due on
December 31, 2004. Amounts borrowed and repaid are not available for reborrowing
except for the $2.1 million repaid by the Company during the third quarter of
1996. Interest on the Ericsson Credit Facility is payable quarterly.
Under the terms of the Ericsson Credit Facility, OCI is subject to certain
financial and operational covenants including restrictions on OCI's ability to
pay dividends, restrictions on indebtedness and certain financial maintenance
requirements. Additionally, the Ericsson Credit Facility provides that, among
other events, the failure of OCI to pay when due amounts owing the FCC shall
constitute an event of default. The Ericsson Credit Facility is secured by
substantially all of the assets of OCI, including a pledge of all capital stock
of OCI, thatis owned by a wholly-owned subsidiary of the Company (which
constitutes a 95.58% ownership interest). All collateral is held by a collateral
agent and is shared on a pari pasu basis with Northern Telecom pursuant to an
inter-creditor arrangement.
In the recently completed auction by the FCC of the D, E and F Block BTA
licenses, the Company won 109 licenses for an aggregate of $181.4 million (net
of the 25% small business discount). In January 1997, the Company made a down
payment of approximately $28.8 million to the FCC and is expected to pay an
additional $93.1 million shortly after the licenses are issued. The remaining
$59.4 million for the F Block licenses is payable over the next ten years.
The Company believes that access to capital and financial flexibility are
necessary to successfully implement its strategy. The Company believes the
proceeds from the sale of the 1996 Senior Notes, in combination with the NT
Credit Facility and Ericsson Credit Facility, will be sufficient to fund
operating losses, capital expenditures and working capital necessary for the
initial buildout of the Company's PCS networks. To the extent that the buildout
of these networks is faster than expected, the costs are greater than
anticipated or the Company takes advantage of other opportunities, including
those that may arise through current and future FCC auctions, the Company may
require additional funding to implement its business strategy. Prices for the
Company's Senior Notes due 2006 have declined significantly since year end,
resulting in an increase in the Notes effective yield to approximately 14.6%.
The price decline is expected to be temporary, but would significantly increase
the Company's borrowing costs if it decided to issue new debt.
The Company's future capital requirements will depend upon many factors,
including the successful development of new products, the extent and timing of
acceptance of the Company's equipment in the market, requirements to maintain
adequate manufacturing facilities, the progress of the Company's research and
development efforts, expansion of the Company's marketing and sales efforts, the
Company's results of operations and the status of competitive products. The
Company believes that cash and cash equivalents on hand, anticipated revenues,
vendor financing and additional strategic partnerships will be adequate to fund
its operations and its network buildout 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.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
The Company believes that its future operating results over both the short
and long term will be subject to annual and quarterly fluctuations due to
several factors, some of which are outside the control of the Company. These
factors include the cost of buildout of the networks (including any
unanticipated costs associated therewith), fluctuating market demand for the
Company's equipment and services, establishment of a market for PCS, pricing,
competitive services, the timing of significant orders for its equipment, delays
in the introduction of the Company's equipment, competitive equipment
introductions, changes in the regulatory environment, the cost and availability
of equipment components and general economic conditions.
The Company's success in the implementation and operation of its networks
is subject to certain factors beyond the Company's control. These factors
include, without limitation, changes in the general and local economic
conditions, availability of equipment, changes in communication service rates
charged by others, changes in the supply and demand for PCS and the commercial
viability of PCS systems as a result of competition from wireline and wireless
operators in the same geographic region, changes in the federal and state
regulatory schemes affecting the operation of PCS systems (including the
enactment of new statutes and the promulgation of changes in the interpretation
or enforcement of existing or new rules and regulations) and changes in
technology that have the potential of rendering obsolete the Omnipoint/GSM
system planned for deployment. In addition, the extent of the potential demand
for PCS in the Company's markets cannot be estimated with any degree of
certainty. There can be no assurance that one or more of these factors will not
have an adverse effect on the Company's financial conditions and results of
operations.
- 12 -
<PAGE>
Part II -- Other Information
ITEM 6: EXHIBITS AND REPORTS ON FORM 10-Q
(a) Exhibits
3.1* Amended and Restated Certificate of Incorporation of the
Registrant.
3.2@@@ 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 Letter Agreement of Warrant Extension, dated November 1,
1996, by and between the Registrant and Allen & Company
Incorporated (relating to Exhibit 10.6).
10.9@ Common Stock Purchase Warrant issued March 10, 1995, granted to
Madison Dearborn Capital Partners, L.P.
10.10@ Common Stock Purchase Warrant issued March 10, 1995, granted to
Madison Dearborn Capital Partners, L.P.
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 November 3, 1996, by and between
the Registrant and Kjell S. Andersson.
10.18*** Promissory Note, dated February 24, 1997, by Kjell S. Andersson.
10.19*** Stock Restriction Agreement, dated February 24, 1997, by and
between the Registrant and Kjell S. Andersson.
10.20@ Series B Convertible Preferred Stock Purchase Agreement,
dated August 9, 1993, by and among the Registrant and
Madison Dearborn Capital Partners, L.P.
10.21@ 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.
10.22@ Series C Convertible Preferred Stock Purchase Agreement,
dated June 29, 1995, by and among the Registrant and the
other parties named therein.
10.23@ Amended and Restated Registration Rights Agreement, dated
June 29, 1995, by and among the Registrant and the parties
named therein.
10.24@ First Amended and Restated Voting Agreement, dated June
29, 1995, by and among the Registrant and the other
parties named therein.
10.25@ OEM Supply Agreement for Omnipoint PCS
(Personal Communication Systems)Products, dated
September 22, 1994, by and between the Registrant and
Northern Telecom Inc.
10.26@ Manufacturing License and Escrow Agreement for Personal
Communication
- 13 -
<PAGE>
Service Products, dated February 28, 1995,
by and between the Registrant and
Northern Telecom Inc.
10.27@ Collaborative Development Agreement, dated March 1, 1995, by
and between the Registrant and Northern Telecom Inc.
10.28@ Reciprocal OEM Agreement Memorandum of Understanding, dated
March 30, 1995, by and between the Registrant and Northern
Telecom Inc.
10.29@ Supply Agreement, dated September 22, 1994, by and between
Omnipoint Communications Inc. and Northern Telecom Inc.
10.30@ Amendment No. 1 to Supply Agreement, dated July 21, 1995, by
and between Omnipoint Communications Inc. and Northern
Telecom Inc.
10.31 [Intentionally left blank]
10.32+++ Amended and Restated Loan Agreement, dated August 7, 1996,
by and between Omnipoint Communications Inc. and Northern
Telecom Inc.
10.33+++ Loan Agreement, dated as of August 7, 1996, by and between
Omnipoint Communications Inc. and Ericsson Inc., as amended
10.34@ Memorandum of Understanding, dated April 21, 1995, by and
between the Registrant and Pacific Bell Mobile Services.
10.35@ Note and Warrant Purchase Agreement dated November 22,
1995, between the Registrant and the purchasers named
therein.
10.36@ Senior Note Due 2000 issued by the Registrant on November
22, 1995 to the holder identified therein.
10.37@ Senior Note Due 2000 issued by the Registrant on November
22, 1995 to the holder identified therein.
10.38@+ Memorandum of Understanding, dated November 22, 1995, by and
between the Registrant and Ericsson Inc.
10.39@ Letter Agreement, dated January 24, 1996, by and between the
Registrant and Ericsson Inc.
10.40@ Letter of Intent, dated October 26, 1995, by and between the
Registrant and Ericsson Inc.
10.41@ Contract for Sale of Real Estate, dated August 30, 1995, by and
between F&R Bari Realty, Ltd., Inc. and Omnipoint
Communications Inc.
10.42@ Lease Agreement, dated October 15, 1995, by and between the
Registrant and Baetis Properties, Inc.
10.43**++ Acquisition Agreement for Ericsson CMS 40 Personal
Communications Systems (PCS) Infrastructure Equipment, dated
as of April 16, 1996, by and between Ericsson Inc.
and Omnipoint Communications Inc.
10.44**++ Acquisition Supply and License Agreement for Omnipoint Personal
Communications Systems (PCS) Infrastructure Equipment, dated
as of April 16, 1996, by and between Ericsson Inc. and the
Registrant.
10.45**++ Agreement for Purchase and Sale of Ericsson Inc. Masko Terminal
Units, dated as of April 16, 1996, by and between Ericsson,
Inc. and Omnipoint Communications, Inc.
10.46**++ Memorandum of Understanding, dated April 2, 1996, by and
between Orbitel Mobile Communications, Inc. and the
Registrant.
10.47@@ Letter of Intent, dated November 20, 1995, by and between the
Registrant and Western Wireless Corporation.
10.48@@ Letter of Intent, dated February 26, 1996, by and between
Omnipoint Communications, Inc. and American Portable
Telecom, Inc.
10.49@@ Letter of Intent, dated March 22, 1996, by and between
Omnipoint Communications Inc. and American Personal
Communications.
10.50@@ Letter of Intent, dated May 13, 1996, by and between the
Registrant and InterCel, Inc.
10.51@@ License Agreement, dated March 22, 1996, by and between the
Registrant and Bender & Company, Inc.
10.52@@ Second License Agreement, dated April 17, 1996, by and
between Registrant and Bender & Company, Inc.
10.53@@ Lease Agreement, dated March 1, 1996, by and between Omniset
Corporation and Roots Stone Limited Partnership.
- 14 -
<PAGE>
10.54*** Agreement dated as of February 24, 1997, between the
Registrants and Kjell S. Andersson, amending Employment
Agreement dated November 3, 1996.
11.1 Statement of computation of loss per share.
21.1@ Subsidiaries of the Registrant.
27 Financial Data Schedule.
---------------------------
@ Incorporated herein by reference to the Company's Registration
Statement on Form S-1, No. 33-98360.
@@ Incorporated herein by reference to the Company's Registration Statement
on Form S-1, No. 33-03739.
@@@ Incorporated by reference to the Company's Registration Statement on
Form S-4, No. 333-19895.
* Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995.
** Incorporated by reference to the Company's Current Report on Form 8-K,
filed May 3, 1996.
*** Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996.
+ Portions of this Exhibit were omitted and have been filed separately
with the Secretary of the Commission pursuant to the Registrant's
Application Requesting Confidential Treatment under Rule 406 of the
Act, which application was granted by the Commission.
++ Portions of this Exhibit were omitted and filed separately with the
Secretary of the Commission pursuant to the Registrant's Application
Requesting Confidential Treatment under Rule 24b-2 under the Exchange
Act of 1934, filed May 3,1996.
+++ Portions of this Exhibit were omitted and filed separately with the
Secretary of the Commission pursuant to the Registrant's Application
Requesting Confidential Treatment under Rule 24b-2 under the Exchange Act
of 1934, filed March 31, 1997.
- ----------
(b) Reports on Form 8-K
None.
- 15 -
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OMNIPOINT CORPORATION
Date: May 15, 1997 /S/ BRADLEY E. SPARKS
------------------------ -------------------------
Bradley E. Sparks
Chief Financial Officer
EXHIBIT 10.8
November 1, 1996
Allen & Company Incorporated
711 Fifth Avenue
New York, New York 10022
Attn: Mr. Richard Fields
Managing Director
Re: Warrant Extension
Dear Mr. Fields:
We refer to the Warrant Certificate dated as of August 2, 1991, as
amended (the "Warrant Certificate"), issued to Allen & Company Incorporated
("Allen") entitling the holder thereof to purchase 300,000 shares of Common
Stock, par value $.01 per share (subject to adjustment as provided therein), of
Omnipoint Corporation (formerly, Omnipoint Data Company, Inc.) (the "Company").
All capitalized terms not specifically defined therein shall have the meaning
ascribed to such terms in the Warrant Certificate.
Allen and the Company hereby agree that the Warrant Certificate shall
be further amended as follows, effective in all respects as of August 2, 1996:
1. The clause "August 2, 1996" appearing in Section 2.2 of the Warrant
Certificate is amended to read "August 2, 2001," thereby extending for five
years the period during which the Warrants are exercisable.
2. The cash Purchase Price established in Section 1, and adjusted
pursuant to Section 6, of the Warrant Certificate shall be increased at an
annual rate of 7% on a quarterly basis commencing each quarter following August
2, 1996.
3. Section 6.3 of the Warrant Certificate is deleted in its entirety.
<PAGE>
4. Allen agrees not to sell any portion of the Warrant prior to the
exercise of such portion. Allen further agrees that whenever it exercises the
Warrant, whether in whole or in part, it will not sell the shares of Common
Stock issued upon such exercise (the "Underlying Shares") prior to the later of
February 2, 1997 or 90 days following such exercise (the "Hold Period"), except
that if there shall occur an extraordinary transaction involving the Company or
its securities, the effect of which could diminish the value of the Underlying
Shares if they were not sold during the Hold Period, the restrictions contained
in this sentence shall terminate to permit Allen to sell such Underlying Shares,
but only to the extent necessary to prevent such diminution in value. Further,
as a condition to any transfer of such shares prior to the expiration of the
Hold Period, the transferee shall agree in writing to be bound by the terms of
the Warrant Certificate as amended hereby, including the requirements of the
Hold Period.
5. Except as specifically amended hereby, all other terms of the
Warrant Certificate shall remain in full force and effect.
If you are in agreement with the foregoing please indicate by signing
in the space provided below.
Sincerely,
OMNIPOINT CORPORATION
By: /s/ Douglas G. Smith
---------------------
Douglas G. Smith
CEO and President
Agreed and Accepted
ALLEN & COMPANY INCORPORATED
By: /s/ Richard Fields
------------------------
Richard Fields
Managing Director
EXHIBIT 11.1
OMNIPOINT CORPORATION
STATEMENT OF COMPUTATION OF LOSS PER SHARE
( In thousands, except per share data)
Three Months Ended March 31,
(unaudited)
1997 1996
-------------------------------------
Calculation of primary loss per share:
Net loss $ (52,363) $ (15,903)
========= =========
Common shares outstanding 51,278 38,179
Issuance of cheap stock (1) - 2,290
--------- --------
Total shares - primary 51,278 40,469
========= ========
Primary loss per share:
Net loss per share $ (1.02) $ (0.39)
Note: The computation of fully diluted earnings per share is identical to
that of primary earnings per share for the periods presented above
and therefore is not included separately herein.
(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 at 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,
until the initial public offering became effective on January 31,
1996.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND INCOME STATEMENT OF OMNIPOINT CORPORATION AS OF AND FOR THE THREE
MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> MAR-31-1997
<CASH> 198,370
<SECURITIES> 44,112
<RECEIVABLES> 6,583
<ALLOWANCES> (46)
<INVENTORY> 33,728
<CURRENT-ASSETS> 335,717
<PP&E> 273,183
<DEPRECIATION> (15,547)
<TOTAL-ASSETS> 1,434,272
<CURRENT-LIABILITIES> 103,265
<BONDS> 477,606
0
0
<COMMON> 513
<OTHER-SE> 82,178
<TOTAL-LIABILITY-AND-EQUITY> 1,434,272
<SALES> 3,087
<TOTAL-REVENUES> 7,587
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 46,016
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,595
<INCOME-PRETAX> (52,363)
<INCOME-TAX> 0
<INCOME-CONTINUING> (52,363)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (52,363)
<EPS-PRIMARY> (1.02)
<EPS-DILUTED> (1.02)
</TABLE>
