<PAGE>
This amendment is the correct Quarterly Report for the Company's fiscal quarter
ended September 30, 1998 and it replaces an earlier draft which the Company's
filing agent filed with the Securities and Exchange Commission by mistake.
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
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1998 COMMISSION FILE NUMBER: 0-27442
OMNIPOINT CORPORATION
THREE BETHESDA METRO CENTER, SUITE 400
BETHESDA, MD 20814
(301) 951-2500
DELAWARE 04-2969720
-------- ----------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
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 __
Shares of common stock outstanding as of November 9, 1998 were 52,820,217.
-1-
<PAGE>
This amendment is the correct Quarterly Report for the Company's fiscal quarter
ended September 30, 1998 and it replaces an earlier draft which the Company's
filing agent filed with the Securities and Exchange Commission by mistake.
Form 10-Q
Omnipoint Corporation and Subsidiaries
Table of Contents
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. FINANCIAL INFORMATION (Unaudited):
Condensed Consolidated Balance Sheets-
September 30, 1998 and December 31, 1997 2
Condensed Consolidated Statements of Operations-
Three and Nine Months Ended September 30, 1998
and September 30, 1997 3
Condensed Consolidated Statements of Cash Flows-
Nine Months Ended September 30, 1998 and September 30, 1997 4
Condensed Consolidated Statement of Stockholders' Deficit-
Nine Months Ended September 30, 1998 5
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of Results of
Operations and Financial Condition 11
Part II. OTHER INFORMATION AND SIGNATURE 20
-1-
</TABLE>
<PAGE>
This amendment is the correct Quarterly Report for the Company's fiscal quarter
ended September 30, 1998 and it replaces an earlier draft which the Company's
filing agent filed with the Securities and Exchange Commission by mistake.
PART I. FINANCIAL INFORMATION
OMNIPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---------- ----------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 148,309 $ 63,581
Short term investments 267 15,009
Escrow deposit - 51,230
Accounts receivable, net of allowances of $11,826 and $5,746 as of
September 30, 1998 and December 31, 1997, respectively 35,175 20,079
Inventory 34,652 39,962
Prepaid expenses and other current assets 21,173 8,554
---------- ----------
Total current assets 239,576 198,415
Fixed assets, net
Network infrastructure equipment-in-service 729,418 263,781
Construction in progress 237,614 274,575
Other fixed assets 111,746 93,520
Less accumulated depreciation (117,003) (46,886)
---------- ----------
961,775 584,990
FCC licensing costs, net of accumulated amortization of $37,931 and
$28,854 as of September 30, 1998 and December 31, 1997, respectively 649,607 938,533
Deferred financing costs and other intangible assets, net 44,216 27,534
Investments in affiliates and joint ventures 26,131 23,180
Other long-term assets 10,207 6,937
---------- ----------
$1,931,512 $1,779,589
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 179,579 $ 150,135
Accrued interest payable 33,701 57,791
FCC license obligations 111,259 79,527
Loans payable under financing agreement 7,500 -
Deferred revenue and other current liabilities 5,398 3,127
---------- ----------
Total current liabilities 337,437 290,580
Loans payable under financing agreements 1,143,582 513,766
Senior notes 20,862 19,797
11 5/8% Senior and Series A Notes 457,827 458,289
FCC license obligations 359,023 679,063
Commitments and contingencies
Stockholders' equity (deficit):
7% Cumulative Convertible Preferred Stock, $1,000 par value, 5,000,000
authorized, 325,000 and zero shares issued and outstanding, respectively 270,962 -
Common stock, par value, $.01 per share; 75,000,000 shares authorized, 52,804,472
and 52,270,879 shares issued and outstanding, respectively 528 523
Additional paid-in capital 318,462 334,231
Accumulated deficit (969,605) (507,438)
Unearned compensation and notes receivable (7,566) (9,222)
---------- ----------
Total stockholders' deficit (387,219) (181,906)
---------- ----------
$1,931,512 $1,779,589
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
-2-
<PAGE>
This amendment is the correct Quarterly Report for the Company's fiscal quarter
ended September 30, 1998 and it replaces an earlier draft which the Company's
filing agent filed with the Securities and Exchange Commission by mistake.
OMNIPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ------------------------
1998 1997 1998 1997
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Service revenues, net $ 35,043 $ 10,012 $ 98,042 $ 15,548
Handset and accessories revenues, net 6,409 3,817 17,119 8,230
License fees and engineering services 703 - 3,251 4,500
--------- -------- --------- ---------
Total revenues 42,155 13,829 118,412 28,278
Operating costs and expenses:
Cost of service revenues 29,372 13,109 89,589 27,584
Cost of handset and accessories revenues 17,012 16,751 69,401 34,048
Cost of engineering sevices 460 - 1,226 -
Research and development 4,327 5,983 15,316 18,927
Sales, general, and administrative 69,868 26,922 172,563 65,445
Depreciation and amortization 33,654 12,245 85,169 35,314
--------- -------- --------- ---------
Total operating costs and expenses 154,693 75,010 433,264 181,318
Loss from operations (112,538) (61,181) (314,852) (153,040)
Other income (expense):
Equity in losses of joint ventures (2,350) - (6,547) -
Interest income 2,113 2,157 9,327 10,759
Interest expense (44,428) (22,145) (136,660) (59,602)
Other income (expense) 170 8 (2,320) 53
--------- -------- --------- ---------
Loss before extraordinary item (157,033) (81,161) (451,052) (201,830)
Extraordinary loss on return of C-block licenses - - (11,115) -
--------- -------- --------- ---------
Net loss $(157,033) $(81,161) $(462,167) $(201,830)
Accretion of 7% Cumulative Convertible
Preferred Stock (5,230) - (8,716) -
--------- -------- --------- ---------
Net loss attributable to common shareholders $(162,263) $(81,161) $(470,883) $(201,830)
========= ======== ========= =========
Basic and diluted loss per common share:
Loss per common share before extraordinary item $ (3.08) $ (1.57) $ (8.75) $ (3.92)
Loss per common share on extraordinary item - - (0.21) -
--------- -------- --------- ---------
Net loss per common share-basic and diluted $ (3.08) $ (1.57) $ (8.96) $ (3.92)
========= ======== ========= =========
Weighted average common shares
outstanding-basic and diluted 52,747 51,587 52,571 51,440
========= ======== ========= =========
</TABLE>
See notes to condensed consolidated financial statements.
-3-
<PAGE>
This amendment is the correct Quarterly Report for the Company's fiscal quarter
ended September 30, 1998 and it replaces an earlier draft which the Company's
filing agent filed with the Securities and Exchange Commission by mistake.
OMNIPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash flows used in operating activities:
Net loss $(462,167) $(201,830)
Extraordinary loss on return of C-block licenses 11,115 -
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 85,169 35,314
Inventory writedown to replacement cost - 5,166
Accrued interest (4,559) 34,468
Equity in losses on investments in joint ventures 6,547 -
Interest income associated with restricted cash (1,084) (2,964)
Purchases of trading securities, net 14,742 -
Other 1,655 1,925
Changes in operating accounts:
Accounts receivable, net (15,096) (11,125)
Prepaid expenses and other assets (15,889) (11,173)
Inventory 5,310 12,718
Accounts payable and accrued expenses 29,444 53,848
Deferred revenue and other liabilities 2,317 2,943
--------- ---------
Net cash used in operating activities (342,496) (80,710)
Cash flows used in investing activities:
Purchase of fixed assets (326,410) (327,363)
Purchase of FCC licenses (13,000) (121,964)
Refund of FCC deposit - 60,000
Return of FCC licenses 31,094 -
Capitalized interest on C and F Block licenses (6,285) (32,334)
Purchase of investment securities - (54,759)
Proceeds from sales of investment securities - 79,533
Proceeds from held to maturity investments and restricted cash 52,314 44,435
Investments in joint ventures (9,497) -
--------- ---------
Net cash used in investing activities (271,784) (352,452)
Cash flows from financing activities:
Proceeds from issuance of preferred stock, net of issuance costs 252,222 -
Proceeds from issuance of common stock 2,977 1,629
Proceeds from vendor financing agreements 109,534 301,458
Payment on FCC licenses (52,508) -
Payment of deferred financing costs (19,937) -
Proceeds from permanent credit facility 400,000 -
Payment on permanent credit facility (3,750) -
Proceeds from interim facility 25,000 -
Payment on vendor financing agreement (14,484) -
Other (46) (41)
--------- ---------
Net cash provided by financing activities 699,008 303,046
Net increase (decrease) in cash and cash equivalents 84,728 (130,116)
Cash and cash equivalents at beginning of period 63,581 215,029
--------- ---------
Cash and cash equivalents at end of period $ 148,309 $ 84,913
========= =========
Non-cash investing activities:
Purchase of Urban Wireless' customer base $ 4,232 -
Non-cash financing activities:
Purchases of network fixed assets with vendor financing 121,016 -
Refinancing of interim credit facility 350,000 -
</TABLE>
See notes to condensed consolidated financial statements.
-4-
<PAGE>
This amendment is the correct Quarterly Report for the Company's fiscal quarter
ended September 30, 1998 and it replaces an earlier draft which the Company's
filing agent filed with the Securities and Exchange Commission by mistake.
OMNIPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Common Stock Additional Preferred Accumulated
Shares Amount Paid-in Capital Stock Deficit Other
---------- ------- --------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 52,270,879 $523 $334,231 $ - $(507,438) $(9,222)
Exercise of stock options 462,583 5 1,449 - - -
Sale of common stock under
Employee Stock Purchase Plan 45,218 - 862 - - -
Issuance of options in form
of advanced compensation - - 929 - - (929)
Issuance of 325,000 shares
of preferred stock - - (10,024) 262,246 - -
Issuance of common stock for
employee 401(k) matching 25,792 - 660 - - -
Accretion of preferred stock - - (8,716) 8,716 - -
Amortization of unearned
compensation - - - - - 1,746
Cancellation of unearned
compensation - - (929) - - 929
Interest on employee notes receivable - - - - - (109)
Forgiveness of employee
notes receivable - - - - - 19
Net loss - - - - (462,167) -
---------- ------- --------------- --------- ----------- ---------
Balance, September 30, 1998 52,804,472 $528 $318,462 $270,962 $(969,605) $(7,566)
========== ======= =============== ========= =========== =========
</TABLE>
See notes to condensed consolidated financial statements.
-5-
<PAGE>
This amendment is the correct Quarterly Report for the Company's fiscal quarter
ended September 30, 1998 and it replaces an earlier draft which the Company's
filing agent filed with the Securities and Exchange Commission by mistake.
OMNIPOINT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL:
The accompanying condensed consolidated financial statements of
Omnipoint Corporation and subsidiaries (the "Company" or "Omnipoint") have been
prepared by the Company without audit pursuant to the rules and regulations of
the Securities and Exchange Commission (the "SEC"). Certain information and
footnote disclosures normally included in financial statements presented in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the SEC. The Company believes
the disclosures made are adequate to make the information presented not
misleading. However, the condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes thereto
included in the Company's annual report on Form 10-K for the year ended December
31, 1997.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments necessary to present
fairly the financial position of the Company as of September 30, 1998 and
December 31, 1997, and the results of operations for the three and nine months
ended September 30, 1998 and September 30, 1997 and cash flows for the nine
months ended September 30, 1998 and September 30, 1997. Interim results are not
necessarily indicative of fiscal year performance because of the impact of
seasonal or short-term variations.
Certain prior period amounts have been reclassified to conform to
current presentation.
2. LOSS PER COMMON SHARE:
The Company computes basic and diluted earnings per share in
accordance with the Statement of Financial Accounting Standards No. 128,
"Earnings per Share", ("SFAS 128") which the Company adopted as of December 31,
1997. As the Company is in a loss position, both basic and diluted earnings per
share are the same amount. Options and warrants to purchase 9,279,989 and
7,415,490 shares of common stock outstanding as of September 30, 1998 and 1997,
respectively, have been excluded from the calculation of diluted net loss per
share as the effect of their inclusion would have been anti-dilutive. The
Company's 325,000 shares of preferred stock, convertible into 10,445,123 shares
of common stock have also been excluded from the calculation of diluted net loss
per share as the effect of their inclusion would have been anti-dilutive.
3. INVENTORY:
Inventory consists of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- -------------
<S> <C> <C>
Raw Materials $ 613 $ 810
GSM Handsets 30,774 33,254
Accessories & SIM Cards 3,265 5,898
------------- -------------
$34,652 $39,962
============= =============
</TABLE>
4. OMNIPOINT MIDWEST FINANCING FACILITY:
In January 1998, the Company, through an indirect, wholly-owned
subsidiary, Omnipoint Midwest Holdings LLC ("OMWH"), entered into a credit
facility agreement (the "Midwest Facility") with Northern Telecom Inc.
("NorTel") for up to $400 million to provide financing to OMWH. The Midwest
Facility will finance the buildout of networks in certain Midwest markets
including Detroit, Indianapolis, and certain other designated markets. Pursuant
to the D&E Communications, Inc./Omnipoint joint venture ("PCS One") and its need
for financing, the Midwest Facility was amended and reduced from $400 million to
$360 million in available financing. In a related transaction, a separate
$40 million financing facility was created for the PCS One joint venture. The
Midwest Facility will finance the buildout of networks in certain Midwest
markets including Detroit, Indianapolis, and certain other designated markets.
The Midwest Facility provides that up to $85 million is available to OMWH for
any purpose, including an inter-company loan to the Company. The Company at its
sole option can repay the $85 million portion of the loan in either cash or the
Company's Common Stock under certain conditions.
-6-
<PAGE>
This amendment is the correct Quarterly Report for the Company's fiscal quarter
ended September 30, 1998 and it replaces an earlier draft which the Company's
filing agent filed with the Securities and Exchange Commission by mistake.
OMNIPOINT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-CONTINUED-
Under the terms of the Midwest Facility, OMWH is subject to certain
financial and operational covenants, including but not limited to restrictions
on OMWH's ability to pay dividends and level of indebtedness. The Midwest
Facility is collateralized by substantially all the assets of OMWH and its
license and operating subsidiaries for the Midwest and certain other designated
markets, including a pledge of all capital stock of each such license and
operating subsidiaries, as well as all capital stock of OMWH owned by an
indirect, wholly-owned subsidiary of the Company, Omnipoint PCS Entrepreneurs
Two, LLC (" OPCS Two LLC").
The $85 million portion of the Midwest Facility which has no required
amortization, matures in March 2008. Interest on such portion is payable semi-
annually (which interest may be accreted until March 2004). The remaining
portion of the Midwest Facility which is available to finance equipment
purchases from NorTel and certain eligible third party expenses is payable in
installments beginning in 2002, with a final payment due December 2006. Interest
on such amount is payable quarterly with regard to base rate loans and at the
end of an applicable interest period with regard to LIBOR rate loans. The
Midwest Facility was provided in conjunction with the amendment to the Northern
Telecom Supply Agreement, wherein OMWH, together with other affiliates of the
Company, agreed to purchase up to $210 million of equipment and services from
Northern Telecom over a four-year period and to purchase GSM PCS network
equipment exclusively from Northern Telecom in the Midwest markets.
Pursuant to the amended Midwest Facility, PCS One entered into a
credit facility agreement with NorTel for up to $40 million. The Company entered
into a contribution agreement where the Company and D&E Communications, Inc.
have a joint and several obligation to contribute funds not to exceed the lesser
of $50 million or the balance on the PCS One facility plus dividends paid to D&E
Communications, Inc. and the Company. Since the Company and D&E have already
jointly contributed $23.6 million to PCS One, which is greater than the current
draw on the facility, the maximum remaining obligation was zero as of September
30, 1998. If current ownership percentages of the joint venture are maintained,
the Company's anticipated future contribution to meet this obligation would be
less than $14 million.
5. $750 MILLION PERMANENT CREDIT FACILITY:
In February 1998, Omnipoint Communications Inc. ("OCI"), an indirect,
wholly-owned subsidiary of the Company, refinanced a $516 million interim credit
facility (the "Interim Credit Facility") with a $750 million credit facility
with DLJ Capital Funding Inc. ("DLJ") and certain other parties (the "Permanent
Credit Facility" or the "Agreements") pursuant to (a) a $595 million credit
facility agreement and (b) a $155 million note purchase agreement. The
$595 million credit facility agreement may be increased under certain
circumstances. In February 1998, OCI borrowed $450 million (of which $295
million was funded under the credit facility agreement and $155 million was
funded under the note purchase agreement). A portion of the proceeds,
approximately $351.6 million, was used to fully repay outstanding borrowings
including accrued interest on the Interim Credit Facility. An additional $50
million and $250 million were borrowed under the Permanent Credit Facility in
March and April 1998, respectively. Also during the nine months ended September
30, 1998, certain holders, at their option, converted $44.5 million of the notes
purchased under the note purchase agreement into a portion of the credit
facility. Under the terms of the Agreements, OCI and the Company are subject to
certain financial and operational covenants, including restrictions on the
Company's ability to pay dividends, level of indebtedness, and certain other
financial maintenance requirements. The Agreements are collateralized by
substantially all of the assets of OCI and its license subsidiary, including a
pledge of all capital stock and such license subsidiary, as well as 95.6% of the
capital stock of OCI. The obligations of OCI under the Agreements are supported
by guarantees from Omnipoint Holdings, Inc., Omnipoint Investments Two, Inc. and
Omnipoint PCS, Inc., each a direct, wholly-owned subsidiary of the Company, and
collateralized by substantially all of their respective assets. The principal
amount of the Agreements is payable quarterly in installments of one quarter of
one percent of the principal balance, which began June 1998, with a final
payment due February 2006. Interest on such amount is payable quarterly in
arrears or at the end of an applicable interest period as provided in the
Agreements.
6. PREFERRED STOCK OFFERING:
In May 1998, the Company completed the private placement of 6,500,000
depositary shares (the "Depositary Shares"), each representing 1/20 of a share
of 7% Cumulative Convertible Preferred Stock (the "Offering" or "Preferred
Stock"). Each Depositary Share has a liquidation preference of $50, equivalent
to $1,000 per share of Preferred Stock or $325 million for the entire 325,000
shares of Preferred Stock. Net proceeds to the Company totaled approximately
$252.2 million.
Simultaneously with the closing of the Offering, the purchasers of the
Depositary Shares deposited approximately $62.8 million of the gross proceeds
into a restricted deposit account (the "Deposit Account"). The holder of each
Depositary Share is entitled to a quarterly payment from the Deposit Account in
an amount equal to $0.875 per Depositary Share. The quarterly payments (paid on
February, May, August, and November of each year) commence August 1998 and
continue until May 2001 (the "Deposit Expiration Date"). The Company, at its
option, may instruct the deposit agent to disburse the quarterly payment in the
form of cash or shares of the Company's common stock. The number of shares of
common stock to be paid is calculated by dividing the quarterly payment amount
by 95% of the market value of the common stock as of the date notice is given by
the Company to the deposit agent. Additionally, the Company, at its option, may
elect to defer delivery of the quarterly payment until the next quarterly
payment date or
-7-
<PAGE>
This amendment is the correct Quarterly Report for the Company's fiscal quarter
ended September 30, 1998 and it replaces an earlier draft which the Company's
filing agent filed with the Securities and Exchange Commission by mistake.
OMNIPOINT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-CONTINUED-
any subsequent quarterly payment date. However, the payment cannot be delayed
beyond the Deposit Expiration Date. As of the Deposit Expiration Date, all
remaining funds in the Deposit Account will be delivered to holders of the
Depositary Shares in the form of common stock or cash. In the event of a
quarterly payment made in the form of common stock at or prior to the Deposit
Expiration Date, the deposit agent will reimburse the Company for the value of
the quarterly payment in cash from the Deposit Account. In August, the deposit
agent disbursed a quarterly cash payment of $5.7 million to holders of the
Depositary Shares drawn against the Deposit Account.
Holders of the Depositary Shares are entitled to receive cumulative
annual dividends of 7% of the liquidation preference per Depositary Share. The
dividends are payable quarterly in arrears, when and if declared by the Board of
Directors, commencing August 2001. Cumulative annual dividends begin to accrue
on the Depositary Shares beginning May 2001. If the Company elects early
termination of the Deposit Account, dividends will begin to accrue immediately
preceding the date of the early termination.
Each Depositary Share may be converted at any time at the option of
the holder into 1.6069 shares of common stock. The Depositary Shares may not be
redeemed prior to May 2001. On or after May 2001, the Depositary Shares may be
redeemed, in whole or in part, at the option of the Company, in cash or common
stock or a combination thereof, plus all accrued and unpaid dividends to the
redemption date. The redemption price is $52 in 2001, declining to $50 in 2005
and thereafter.
7. RETURN OF C-BLOCK LICENSES:
The FCC issued a reconsideration order (the "Order") which went into
effect April 1998, allowing companies holding C-block Personal Communications
Services licenses several options to restructure their license holdings and
associated obligations. The Company elected under the amnesty option of the
Order to return 14 Basic Trading Area ("BTA") licenses. The Company also elected
to forgo the respective 10 percent deposits on these licenses in return for the
option to re-bid on the licenses. Thus with respect to the returned licenses,
the Company recognized a reduction of $110.5 million in debt and $13.4 million
in accrued interest. The net book value of the fully returned licenses was
$139.1 million.
The Company also elected a second option, the disaggregation option,
to return half the spectrum on four BTAs covering the Philadelphia, Pa.,
Reading, Pa., Dover, De., and Atlantic City, N.J. markets. Under the
disaggregation option, the Company retains 15 MHz in each of the four BTAs while
returning 15 MHz. The disaggregation extinguishes 50 percent of the outstanding
debt on the licenses and prohibits the Company from owning or re-bidding on the
licenses for two years from the date of the re-auction. As a result of the
disaggregation, the Company recognized a reduction of $131.8 million in debt,
and $26.4 million in accrued interest. The net book value of the disaggregated
50% of the licenses was $156.9 million.
On a nominal basis, the two elections reduced the Company's debt and
accrued interest by approximately $337 million. Additionally, the Company will
receive approximately a $2.7 million refund for FCC interest previously paid on
returned licenses. As a result of the amnesty and disaggregation elections, the
Company recognized an extraordinary loss of $11.1 million in the second quarter
of 1998.
8. OMNIPOINT MIAMI BOSTON BANK OF AMERICA FINANCING FACILITY:
In June 1998, Omnipoint MB Holdings, LLC ("OMB"), an indirect, wholly-
owned subsidiary of the Company, entered into a $160 million credit facility
agreement with Bank of America International Limited (the "BankAmerica
Facility"). The BankAmerica Facility replaced $150 million of credit under the
July 1997 Ericsson MB Facility. Proceeds from the BankAmerica Facility are
available to finance equipment purchases for the Miami and Boston markets.
Interest on such amount is payable quarterly in arrears or at the end of each
applicable interest period as provided in the BankAmerica Facility. Principal
amortization on the facility begins no earlier than January 2000 with a final
maturity due no earlier than July 2004. During the third quarter of 1998, OMB
borrowed $104.8 million from the BankAmerica Facility. EXPORTKREDITNAMNDEN
("EKN"), the Swedish Export Credit Guaranty Board, guarantees a portion of the
outstanding balance of the BankAmerica Facility. Contemporaneously with the
closing of the BankAmerica Facility, the Ericsson MB Facility was amended and
restated to, among other things eliminate the $150 million portion that was
replaced by the BankAmerica Facility. Ericsson was granted a five-year exclusive
right to supply network equipment for the Boston and Miami markets.
-8-
<PAGE>
This amendment is the correct Quarterly Report for the Company's fiscal quarter
ended September 30, 1998 and it replaces an earlier draft which the Company's
filing agent filed with the Securities and Exchange Commission by mistake.
OMNIPOINT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-CONTINUED-
Under the terms of the BankAmerica Facility, the Company is subject to
certain financial and operational covenants, including but not limited to
restrictions on the ability to pay dividends and level of indebtedness. The
BankAmerica Facility ranks pari passu with the Ericsson MB Facility and is
collateralized by substantially all the assets of OMB and each of the license
and operating subsidiaries for the Boston and Miami markets, including a pledge
of all capital stock of each such license and operating subsidiaries as well as
capital stock of OMB.
9. PURCHASE OF URBAN WIRELESS' CUSTOMER BASE:
On September 30, 1998, the Company, through its subsidiary, Omnipoint
Communications Services, LLC ("OCS") purchased the outstanding customer base of
Urban Wireless Inc. in a non-cash transaction for $4.2 million. The Company
forgave approximately $3.7 million in net accounts receivable due from Urban
Wireless and issued a credit in the amount of $.5 million in exchange for the
customer base which was subsequently determined to consist of approximately
20,500 subscribers.
10. COMMITMENTS AND CONTINGENCIES:
In September 1998, the Company, through its subsidiary OCS, entered
into a joint venture agreement with D&E Communications Inc. ("D&E") resulting in
the formation of D&E/Omnipoint Wireless Joint Venture. PCS One entered into a
financing agreement with Northern Telecom, Inc. to help finance the buildout of
its central Pennsylvania markets. As a condition of the financing agreement, the
Company and D&E have a joint and several obligation to contribute funds not to
exceed the lesser of $50 million or the balance on the financing agreement plus
dividends in the event of any default on the financing agreement by PCS One.
Since the Company and D&E have already jointly contributed $23.6 million to
PCS One, which is greater than the amount drawn on the facility, the maximum
remaining obligation was zero as of September 30, 1998. If current
ownership percentages of the joint venture are maintained, the Company's
anticipated future contribution to meet this obligation would be less than
$14 million.
The Company, through its subsidiaries, is also in various stages of
negotiation for infrastructure equipment, 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.
11. RECENT ACCOUNTING PRONOUNCEMENTS:
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income".
SFAS 130 requires the reporting of comprehensive income (loss) in addition to
net income (loss) from operations. Comprehensive income is a more inclusive
reporting methodology that includes disclosure of certain financial information
that historically has not been recognized in the calculation of net loss. The
adoption of SFAS 130 had no impact on the Company's net loss or stockholders'
deficit. As of September 30, 1998, there were no differences between the
Company's net loss, as reported, and comprehensive loss.
In March 1998, Statement of Position 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"), was
issued which provides guidance on applying generally accepted accounting
principles in addressing whether and under what conditions the costs of
internal-use software should be capitalized. SOP 98-1 is effective for all
transactions entered into in fiscal years beginning after December 15, 1998,
however earlier adoption is encouraged. The Company adopted the guidelines of
SOP 98-1 as of January 1, 1998, and the impact of such adoption was not material
to results of operations or cash flows for the quarter ended September 30, 1998.
In June 1997, Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"), was issued which redefines how operating segments are determined and
requires disclosures of certain financial and descriptive information about a
company's operating segments. SFAS 131 is effective for fiscal periods beginning
after December 15, 1997 and its adoption may require additional disclosure of
the Company's historical financial data beginning with fiscal year ending
December 31, 1998.
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This Statement provides a comprehensive and consistent standard for
the recognition and measurement of derivatives and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the
-9-
<PAGE>
This amendment is the correct Quarterly Report for the Company's fiscal quarter
ended September 30, 1998 and it replaces an earlier draft which the Company's
filing agent filed with the Securities and Exchange Commission by mistake.
OMNIPOINT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-CONTINUED-
statement of financial position and measure those instruments at fair value. The
Statement is effective for fiscal years beginning after June 15, 1999. The
Company will adopt the new standard by January 1, 2000. Management believes this
statement will not impact the Company's financial statements.
-10-
<PAGE>
This amendment is the correct Quarterly Report for the Company's fiscal quarter
ended September 30, 1998 and it replaces an earlier draft which the Company's
filing agent filed with the Securities and Exchange Commission by mistake.
OMNIPOINT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Form 10-Q include forward-looking statements
within the meaning of the Private Litigation Reform Act of 1995. All forward-
looking statements involve known and unknown risks, uncertainties, and other
factors, many of which are not within the control of the Company, that may cause
actual transactions, results, performance or achievements to be materially
different from any future transactions, results, performance or achievements
expressed or implied by such forward-looking statements. While the Company
believes that the expectations reflected in these forward-looking statements are
based upon reasonable assumptions, it can give no assurance that its performance
or other expectations will be attained. The Company undertakes no obligation to
publicly release the result of any revisions to these forward-looking statements
that may be made to reflect any future events or circumstances.
OVERVIEW
Omnipoint reported a 1998 third quarter net loss of $157 million, an increase of
93%, or approximately $75.8 million over the same quarter in 1997. The year-to-
date net loss is $462.2 million, an increase of 129%, or $260.4 million over the
same period in 1997. The combination of added markets and improved coverage led
to an increase in subscribers of over 200% over this same period. At September
30, 1997, the company offered PCS services in New York and had just commenced
operations in Philadelphia and Atlantic City. One year later, at September 30,
1998, the company had built and launched services in over 20 additional cities
including Boston, Providence, Miami, West Palm, Albany, Syracuse, Hartford and
two joint ventures which offer services in Wichita, KS and several Pennsylvania
markets including Harrisburg, York, Lancaster and Reading.
The Company was the first PCS operator in the country to offer prepaid services,
reseller services, international calling and roaming and enhanced wireless
services such as real time stock quotes and wireless internet access. The
Company marketed to approximately 30 million pops at the beginning of the third
quarter. The Company's operations were affected by the following;
. September 1998 purchase of Urban Wireless' customer base.
. June 1998 $160 million credit facility with the Bank of America.
. June 1998 Connecticut and upstate New York market launches.
. June 1998 return of C-Block licenses reducing FCC debt and accrued interest
by $337 million.
. May 1998 $252.2 million net proceeds from preferred stock issuance.
. March 1998 Boston and Miami market launches.
. February 1998 refinancing of $516 million interim credit facility with $750
million credit facility.
. January 1998 $400 million credit facility for the Midwest market.
. September 1997 Philadelphia and Atlantic City market launches.
. July 1997 $352.5 million credit facility for the Boston and Miami markets.
. July 1997 $120 million credit facility for the Philadelphia and Dover
markets.
RESULTS OF OPERATIONS
Revenues for the three months ended September 30, 1998 increased $28.4 million,
or 206% to $42.2 million, compared to revenues of $13.8 million for the three
months ended September 30, 1997. Year-to-date revenues increased $90.1 million,
or 318% to $118.4 million compared to revenues of $28.3 million in 1997. Service
revenues increased by $25 million, or 250% for the quarter and $82.5 million, or
530% year-to-date. The increase in service revenues is due to the continued
increase in the number of subscribers partially offset by a smaller decrease in
average revenue per subscriber. As a result of the increase in the customer
base, handset and accessories revenues increased $2.6 million for the quarter
and $8.9 million year-to-date. The larger customer base resulted from commercial
operations in the greater metro areas of New York, Miami, Boston, Philadelphia,
and several other Pennsylvania markets. The New York and Philadelphia metro area
coverages continue to expand, along with other less populated Pennsylvania
markets. The Boston and Miami metro areas began service in the last two weeks of
March 1998. Revenues for the first three quarters of 1997 were generated almost
exclusively from the New York metro area. The Company did not heavily advertise
in the New York metro market until February 1997. A
-11-
<PAGE>
This amendment is the correct Quarterly Report for the Company's fiscal quarter
ended September 30, 1998 and it replaces an earlier draft which the Company's
filing agent filed with the Securities and Exchange Commission by mistake.
OMNIPOINT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
-CONTINUED-
significant portion of the Company's customer base is prepay customers. The
Company is currently developing new methods to analyze and report on its prepay
customers and their usage characteristics. The Company's technology subsidiary
("OTI") had revenues related to engineering services of $.7 million in the third
quarter of 1998 and $3.3 million year-to-date, compared to zero and $4.5 million
in license fees in the third quarter of 1997 and year-to-date 1997. OTI is party
to several engineering contract services agreements which are expected to
continue into 1999, but can be terminated under certain circumstances at either
party's option.
Total operating costs and expenses increased approximately $79.7 million, or
106% to $154.7 million for the three months ended September 30, 1998 and
increased approximately $252 million, or 139% to $433.3 million year-to-date.
Cost of service revenues were $29.4 million for the three months ended
September 30, 1998, compared to $13.1 million for the three months ended
September 30, 1997. Year-to-date costs of service revenues were $89.6 million.
Included in the cost of services for the nine months ended September 30, 1998
was approximately $9.6 million of costs associated primarily with international
fraud committed during the first six months of 1998. The Company believes that
the sources of this fraud have largely been suppressed as of July 1998 and steps
have been taken with foreign carriers to limit future exposure to such fraud.
Excluding these fraud charges, the key causes for the increase in cost of
services are increased numbers of cell sites in operation from 729 at
September 30, 1997 to 2,416 at September 30, 1998, expanded minutes of use, and
higher subscriber additions in the first three quarters of 1998 compared to the
first three quarters of 1997. The increase in these indicators results from the
Company offering commercial service in several markets in 1998, which were not
operational in 1997, including the Boston and Miami markets launched at the end
of the first quarter of 1998 and the Connecticut and upstate New York markets
launched in June 1998. Cost of handset and accessories revenues rose
approximately $.2 million to $17 million for the third quarter 1998 and
$35.4 million to $69.4 million year-to-date. Handset and accessories costs
increased as a result of customer additions partially offset by a decrease in
unit costs in the nine months ended September 30, 1998 compared to the same
period in 1997.
Research and development expenses decreased by 28%, or approximately
$1.7 million, to $4.3 million for the three months ended September 30, 1998,
compared to $6 million for the three months ended September 30, 1997. Year-to-
date research and development expenses decreased by 19%, or approximately $3.6
million, to $15.3 million. OTI is nearing completion of its work on the PCS
Fixed Access System, resulting in the expense reduction. Additionally, the
Company has entered into several joint development agreements that fund portions
of the Company's R&D expenses. The decrease was primarily due to a decrease in
R&D components and equipment purchases.
Sales, general, and administrative expenses relate to the Parent Company as well
as its two major operating subsidiaries, Omnipoint Communications Services, LLC
("OCS") and Omnipoint Technologies ("OTI"). General and administrative costs
include costs such as legal fees, patents, regulatory costs, auction and
negotiation expenses, office rents and incidentals, management information
systems, accounting and finance, bad debt, customer care and all payroll and
benefit costs other than those classified as research and development, those
related to cost of service, and those related to selling. Selling costs include
all marketing, advertising, promotion, telemarketing, market research, all
indirect, and direct distribution channels but excludes the costs of handsets
and accessories. Sales, general and administrative costs increased by
approximately $43 million and $107.2 million for the three and nine months ended
September 30, 1998, compared to the three and nine months ended September 30,
1997, or an increase of 160% and 164%, respectively. These increases are driven
by (i) an increase of over 200% in ending subscribers at September 30, 1998,
compared to September 30, 1997; (ii) increase in the number of distribution
outlets by 600% and (iii) an increase in the number of employees by 42% year
over year at September 30, 1998. As a result of the increases in subscribers and
employees, advertising and marketing, consulting, payroll and indirect
acquisition costs rose substantially for both the quarter and year-to-date 1998
over the same periods in 1997. Customer acquisition costs per subscriber
additions continued to decline for the three and nine months ended September 30,
1998. During October and early November, the Company undertook an analysis of
the customer base it acquired from Urban Wireless as well as the Company's other
prepay accounts. The Company decided to reduce the subscriber count reported for
financial analysis purposes as of September 30, 1998 (relative to the 311,500
accounts as of that date, in the Home Location Register, which can actually
make and receive calls) based on its assessment of the probability that a subset
of these prepays are unlikely to purchase coupons in the future. This resulted
in the Company reducing the total financial reported subscriber count by 5.8%
for the reduction in Urban Wireless accounts, by 6.4% for the reduction in the
Company's other prepays, and by approximately one percent for accounts
determined to have used fraudulent identities in prior periods. The Company also
undertook a significant effort to write off accounts receivable balances and
adjust its allowances for doubtful accounts. For the nine month period, this
resulted in the write off from the allowance for doubtful accounts of $19.4
million and thus an associated increase in this allowance by $25.5 million. The
company took other actions during the quarter to address these issues going
forward including installation of a customer profiling system, implementation of
an improved credit scoring system, implementation of barring procedures that
limit customers from making calls to certain foreign countries without
additional credit approvals, and an increase in its monitoring of subscriber
activity. Additionally, the rapid increase in subscribers and the pioneering of
prepay services led the Company to outsource temporary resources in several
areas, particularly in customer care support and billing. The Company built a
second customer care center in the third quarter which should reduce these
temporary outsource costs, and also introduced a new Intelligent Network ("IN")
platform to better monitor and handle the needs of prepay customers.
-12-
<PAGE>
This amendment is the correct Quarterly Report for the Company's fiscal quarter
ended September 30, 1998 and it replaces an earlier draft which the Company's
filing agent filed with the Securities and Exchange Commission by mistake.
OMNIPOINT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
-CONTINUED-
Depreciation and amortization increased approximately $21.5 million or 176% to
$33.7 million for the three months ended September 30, 1998 and $49.9 million,
or 141% to $85.2 million year-to-date. The increase is due to commencement of
depreciation on the network infrastructure equipment from recently launched
markets and amortization of FCC licenses when placed into commercial service.
As a result of the changes in revenues and operating costs and expenses
discussed above, the Company's loss from operations increased approximately
$51.3 million, or 84% to $112.5 million for the third quarter 1998 and
$161.9 million, or 106% to $314.9 million year-to-date.
Equity in losses from joint ventures was $2.4 million and $6.5 million for the
third quarter of 1998 and year to date 1998, respectively, compared to zero
losses in 1997. The Company expects to continue to incur more losses from its
equity ownership interests in the Wichita and PCS One joint ventures as they
continue to build out their respective networks in Wichita and central
Pennsylvania.
Interest income decreased to $2.1 million for the three months ended September
1998 and decreased $1.5 million to $9.3 million year-to-date. The decrease was
due to the use of cash and cash equivalents due to continued expansion and
equipment purchases for new and existing markets for the first three quarters of
1998 partially offset by interest from the proceeds of the May 1998 preferred
stock offering.
Interest expense increased by 101%, or approximately $22.3 million, to
$44.4 million for the three months ended September 30, 1998 and 129%, or
approximately $77.1 million to $136.7 million year-to-date. The increase was due
to increased amounts outstanding from loans payable under financing agreements
and the FCC license obligations partially offset by capitalized interest. The
Company capitalized interest of $6.3 million year to date.
Loss before extraordinary item increased approximately $75.8 million, or 93% to
$157 million for the three months ended September 30, 1998 compared to
$81.2 million for the three months ended September 30, 1997. Loss before
extraordinary item year-to-date 1998 was $451.1 million compared to
$201.8 million for year-to-date 1997. This increase was primarily due to a
general increase in operating expenses, as well as an increase in net other
expenses associated with an increasing customer base and expansion of commercial
operations in existing and new markets.
In June 1998, the Company recognized an extraordinary loss of $11.1 million from
the return of C-block licenses. The Company returned fourteen licenses and
disaggregated four others. Interest associated with the disaggregated and
returned licenses was $4.1 million and $8.4 million for the nine months ended
September 30, 1998, respectively.
Net loss after extraordinary item increased approximately $75.8 million, or 93%
to $157 million for the three months ended September 30, 1998 compared to
$81.2 million for the three months ended September 30, 1997. Net loss year-to-
date 1998 increased $260.4 million, or 129% to $462.2 million compared to
$201.8 million for year-to-date 1997.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1998, the Company reported an increase
in cash and cash equivalents of $84.7 million. This increase is primarily due to
advances of $980.6 million from various financing agreements and net proceeds of
$252.2 million from the issuance of 7% Cumulative Convertible Preferred Stock
("Preferred Stock") partially offset by the Company's additional activity
relating to the operation of the New York MTA network, several Pennsylvania
markets, the March 1998 launch of the Boston and Miami markets, the continued
buildout of the Company's core PCS networks, and interest expense associated
with the Company's related obligations. Operations of the Company for the first
nine months of 1998 have been financed through advances from various financing
agreements and through proceeds from the issuance of Preferred Stock.
Cash used in operations for the nine months ended September 30, 1998 increased
$261.8 million to $342.5 million due to ongoing operations and the launch of the
Miami and Boston markets in March, and the launch of the Connecticut and upstate
New York markets in June. Additionally, during the second quarter of 1998, the
Company identified losses due to fraudulent activities. The Company believes
that the international roaming fraud suffered has largely been eliminated and
steps have been taken with foreign carriers to limit future exposure to this
type of fraud.
-13-
<PAGE>
This amendment is the correct Quarterly Report for the Company's fiscal quarter
ended September 30, 1998 and it replaces an earlier draft which the Company's
filing agent filed with the Securities and Exchange Commission by mistake.
OMNIPOINT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
-CONTINUED-
Cash used in investing activities was $271.8 million for the nine months ended
September 30, 1998, compared to $352.5 million for the nine months ended
September 30, 1997. Investing activities consists primarily of $326.4 million
for purchases of PCS network infrastructure related items and lab equipment used
in engineering and manufacturing, and $9.5 million for investments in joint
ventures, partially offset by proceeds of $52.3 million net from short and long
term investments and $18.1 million net transactions associated with FCC
licenses. Non-cash investing activities of the Company include the purchase of
Urban Wireless' customer base for approximately $3.7 million in net receivables
owed by Urban Wireless to the Company and a $.5 million credit issued to Urban
Wireless.
Cash provided by financing activities was $699.0 million for the nine months
ended September 30, 1998, compared to $303 million for the nine months ended
September 30, 1997. As of September 30, 1998, the Company had negative working
capital of approximately $97.8 million. At September 30, 1998, the Company had a
total borrowing capacity from its existing credit facilities of $460.9 million
comprised of immediate borrowing capacity of $125.9 million and future borrowing
capacity of $335 million based on qualified future orders for fixed asset
purchases. The Company is currently in negotiations for additional financing.
However, there can be no assurance that such financing will be obtained on
favorable terms, or at all. In February and August 1998, the Company used $52.3
million of proceeds from its escrow deposit account to pay interest on the 11
5/8% Senior and Series A Senior Notes. Non-cash financing activities of the
Company include the purchase of network infrastructure equipment from vendors of
$121 million and the $350 million refinancing of the interim credit facility.
In May 1998, the Company completed the private placement of 6,500,000 Depositary
Shares, each representing 1/20 of a share of 7% Cumulative Convertible Preferred
Stock. Each Depositary Share has a Liquidation Preference of $50, equivalent to
$1,000 per share of Preferred Stock. Net proceeds to the Company totaled
approximately $252.2 million net of offering costs and proceeds placed into the
Deposit Account. Quarterly cash payments, funded through the Deposit Account,
commenced in August 1998 and will continue until May 2001. Cumulative annual
dividends begin to accrue May 2001 unless the Company elects early termination
of the Deposit Account. If the Company elects early termination of the Deposit
Account, dividends will begin to accrue immediately preceding the date of the
early termination. In August 1998, the Company approved the quarterly cash
disbursement of $5.7 million, drawn from the Deposit Account to pay the holders
of Depositary Shares.
The Company's future capital requirements will depend upon many factors,
including the successful development of new markets, the extent and timing of
acceptance of the Company's services in the market, 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 access to capital and financial
flexibility are necessary to successfully implement its strategy. The Company
also believes the Permanent Facility, the BankAmerica Facility, the Ericsson MB
Facility, the Ericsson Philadelphia Facility, the amended Midwest Facility, and
the Preferred Stock offering, will be sufficient to fund anticipated operating
losses, and revised capital expenditures for the Company for the next several
months. The Company will require additional financing or expansion of existing
financing facilities to meet its needs. The Company is currently in negotiations
for additional and expanded financing with its vendors. Future financings are
expected to fund a portion of both future fixed asset purchases and working
capital requirements. However, there can be no assurance that such financing
will come to completion on favorable terms, or at all. To the extent that the
buildout of these networks are faster than expected, the costs are greater than
anticipated or the Company takes advantage of other opportunities, including
those that may arise through future FCC auctions, the Company will require
additional funding sooner to implement its business strategy.
The Company, through its subsidiary Omnipoint Venture Partners I, LLC. entered
into a joint venture agreement with D&E Communications Inc. ("D&E")
D&E/Omnipoint Wireless Joint Venture ("PCS One") entered into a financing
agreement with Northern Telecom, Inc. to help finance the buildout of its
central Pennsylvania markets. As a condition of the financing agreement, the
Company and D&E have a joint and several obligation to contribute funds not to
exceed the lesser of $50 million or the balance on the financing agreement in
the event of any default on the agreement by PCS One. Since the Company and D&E
have already jointly contributed $23.6 million to PCS One which is greater than
the amount drawn on the the facility, the maximum remaining obligation was zero
as of September 30, 1998. If current ownership percentages of the joint venture
are maintained, the Company's anticipated future contribution to meet this
obligation would be less than $14 million.
-14-
<PAGE>
This amendment is the correct Quarterly Report for the Company's fiscal quarter
ended September 30, 1998 and it replaces an earlier draft which the Company's
filing agent filed with the Securities and Exchange Commission by mistake.
OMNIPOINT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
-CONTINUED-
In June 1998, Omnipoint MB Holdings, LLC ("OMB"), an indirect, wholly-owned
subsidiary of the Company, entered into a $160 million credit facility agreement
with Bank of America International Limited (the "BankAmerica Facility"). The
BankAmerica Facility replaced $150 million of credit under the July 1997
Ericsson MB Facility. Proceeds from the BankAmerica Facility are available to
finance equipment purchases for the Miami and Boston markets. Interest on such
amount is payable quarterly in arrears or at the end of each applicable interest
period as provided in the BankAmerica Facility. Principal amortization on the
facility begins no earlier than January 2000 with a final maturity due no
earlier than July 2004. EXPORTKREDITNAMNDEN ("EKN"), the Swedish Export Credit
Guaranty Board, guarantees a portion of the outstanding balance of the
BankAmerica Facility. Contemporaneously with the closing of the BankAmerica
Facility, the Ericsson MB Facility was amended and restated to, among other
things eliminate the $150 million portion that was replaced by the BankAmerica
Facility. Ericsson was granted a five-year exclusive right to supply network
equipment for the Boston and Miami markets. As of September 30, 1998, the
Company had $104.8 million outstanding under the BankAmerica Facility.
Under the terms of the BankAmerica Facility, the Company is subject to certain
financial and operational covenants, including but not limited to restrictions
on the ability to pay dividends and level of indebtedness. The BankAmerica
Facility ranks pari passu with the Ericsson MB Facility and is collateralized by
substantially all the assets of OMB and each of the license and operating
subsidiaries for the Boston and Miami markets, including a pledge of all capital
stock of each such license and operating subsidiaries as well as capital stock
of OMB.
The FCC issued a reconsideration order (the "Order") which went into effect
April 1998, allowing companies holding C-block Personal Communications Services
licenses several options to restructure their license holdings and associated
obligations. The Company elected under the amnesty option of the order to return
14 Basic Trading Area ("BTA") licenses. The Company also elected to forgo the
respective 10 percent deposits on these licenses in return for the option to re-
bid on the licenses. Thus with respect to amnestied licenses, the Company
recognized a reduction of $110.5 million in debt and $13.4 million in accrued
interest. The net book value of the fully returned licenses was $139.1 million.
The Company also elected a second option, the disaggregation option, to return
half the spectrum on BTAs covering the Philadelphia, Pa., Reading, Pa., Dover,
De., and Atlantic City, N.J. markets. Under the disaggregation option, the
Company retains 15 MHz in each of the four BTAs while returning 15 MHz. The
disaggregation extinguishes 50 percent of the outstanding debt on the licenses
and prohibits the Company from owning or re-bidding on the licenses for two
years from the date of the re-auction. As a result of the disaggregation, the
Company recognized a reduction of $131.8 million in debt, and $26.4 million in
accrued interest. The net book value of the disaggregated 50 % of the licenses
was $156.9 million.
On a nominal basis, the two elections reduced the Company's debt and accrued
interest by approximately $337 million. Additionally, the Company will receive
approximately a $2.7 million refund for FCC interest previously paid on returned
licenses. As a result of the amnesty and disaggregation elections, the Company
recognized an extraordinary loss of $11.1 million in the second quarter.
In February 1998, Omnipoint Communications Inc. ("OCI"), an indirect, wholly-
owned subsidiary of the Company, refinanced a $516 million interim credit
facility (the "Interim Credit Facility") with a $750 million credit facility
with DLJ Capital Funding Inc. ("DLJ") and certain other parties (the "Permanent
Credit Facility" or the "Agreements") pursuant to (a) a $595 million credit
facility agreement and (b) a $155 million note purchase agreement. The $595
million credit facility agreement may be increased under certain circumstances.
In February 1998, OCI borrowed $450 million (of which $295 million was funded
under the credit facility agreement and $155 million was funded under the note
purchase agreement). A portion of the proceeds, approximately $351.6 million,
was used to fully repay outstanding borrowings including accrued interest on the
Interim Credit Facility. An additional $50 million and $250 million were
borrowed under the Permanent Credit Facility in March and April 1998,
respectively. Also during the second quarter, certain holders, at their option,
converted $44.5 million of the notes purchased under the note purchase agreement
into a portion of the credit facility. Under the terms of the Agreements, OCI
and the Company are subject to certain financial and operational covenants,
including restrictions on the Company's ability to pay dividends, level of
indebtedness, and certain other financial maintenance requirements. The
Agreements are collateralized by substantially all of the assets of OCI and its
license subsidiary, including a pledge of all capital stock and such license
subsidiary, as well as 95.6% of the capital stock of OCI. The obligations of OCI
under the
-15-
<PAGE>
This amendment is the correct Quarterly Report for the Company's fiscal quarter
ended September 30, 1998 and it replaces an earlier draft which the Company's
filing agent filed with the Securities and Exchange Commission by mistake.
OMNIPOINT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
-CONTINUED-
Agreements are supported by guarantees from Omnipoint Holdings, Inc., Omnipoint
Investments Two, Inc. and Omnipoint PCS, Inc., each a direct, wholly-owned
subsidiary of the Company, and collateralized by substantially all of their
respective assets. The principal amount of the Agreements is payable in
installments, which began June 1998, with a final payment due February 2006.
Interest on such amount is payable quarterly in arrears or at the end of an
applicable interest period as provided in the Agreements. As of September 30,
1998, the Company had approximately $746.3 million outstanding under the
Permanent Credit Facility.
In January 1998, the Company, through an indirect, wholly-owned subsidiary,
Omnipoint Midwest Holdings LLC ("OMWH"), entered into a credit facility
agreement (the "Midwest Facility") with Northern Telecom Inc. ("NorTel") for up
to $400 million to provide financing to OMWH. Concurrent with the NorTel
financing agreement with PCS One, the Midwest Facility was amended to reduce the
amount available from $400 million to $360 million. The Midwest Facility will
finance the buildout of networks in certain Midwest markets including Detroit,
Indianapolis, and certain other designated markets. The Midwest Facility
provides that up to $85 million is available to OMWH for any purpose, including
an inter-company loan to the Company. The Company at its sole option can
repay the $85 million portion of the loan in either cash or the Company's Common
Stock under certain conditions. In August 1998, the Company repaid the remaining
balance of approximately $14.5 million outstanding under the Midwest Facility.
The $14.5 million was originally used to purchase network infrastructure
equipment for a market which was later contributed to joint ventures of the
Company. Subsequent to September 30, 1998, the Company drew $42.5 million from
the Midwest Facility.
Under the terms of the Midwest Facility, OMWH is subject to certain financial
and operational covenants, including but not limited to restrictions on OMWH's
ability to pay dividends and level of indebtedness. The Midwest Facility is
collateralized by substantially all the assets of OMWH and its license and
operating subsidiaries for the Midwest and certain other designated markets,
including a pledge of all capital stock of each such license and operating
subsidiary, as well as all capital stock of OMWH owned by an indirect, wholly-
owned subsidiary of the Company, Omnipoint PCS Entrepreneurs Two, LLC (" OPCS
Two LLC").
The $85 million portion of the Midwest Facility which has no required
amortization, matures in March 2008. Interest on such portion is payable semi-
annually (which interest may be accreted until March 2004). The remaining
portion of the Midwest Facility which is available to finance equipment
purchases from NorTel and certain eligible third party expenses is payable in
installments beginning in 2002, with a final payment due December 2006. Interest
on such amount is payable quarterly with regard to base rate loans and at the
end of an applicable interest period with regard to LIBOR rate loans. The
Midwest Facility was provided in conjunction with the amendment to the Northern
Telecom Supply Agreement, wherein OMWH, together with other affiliates of the
Company, agreed to purchase up to $210 million of equipment and services from
Northern Telecom over a four-year period and to purchase GSM PCS network
equipment exclusively from Northern Telecom in the Midwest markets.
In August 1997, Omnipoint MB Holdings, LLC, an indirect, wholly-owned subsidiary
of the Company, entered into a credit facility agreement with Ericsson Inc. to
provide financing to the Company for up to $352.5 million for the purpose of
financing the buildout of networks in the Boston and Miami markets, (the
"Ericsson MB Facility"). The Ericsson MB Facility finances purchases and
installations of telecommunications equipment, engineering services, certain
related construction costs, third-party equipment and other expenses and up to
$100 million for the unrestricted use of OMB, including making a loan to the
Company. The Ericsson MB Facility provides the immediate availability of $202.5
million, of which $100 million was funded to OMB at closing. The Company at its
sole option can repay or prepay in whole or in part interest or principal under
the $100 million portion of the loan in cash or with the Company's Common Stock
under certain conditions. The remaining $150 million was replaced with a $160
million BankAmerica Facility partially guaranteed by EKN in June 1998. In
connection with the BankAmerica Facility, the Company amended and restated the
Ericsson MB Facility and granted Ericsson a five-year exclusive right to supply
network equipment for the Boston and Miami markets. As of September 30, 1998,
the Company had $186.1 million outstanding under the Ericsson MB Facility.
Under the terms of the Ericsson MB Facility, OMB is subject to certain financial
and operational covenants including restrictions on OMB's ability to pay
dividends, restrictions on indebtedness and certain financial maintenance
requirements. Additionally, the Ericsson MB Facility provides that, among other
events, the failure of OMB to pay when due amounts owing to the FCC shall
constitute an event of default. The Ericsson MB Facility is collateralized by
substantially all of the assets of OMB and each of the license and operating
subsidiaries for the Boston and Miami markets, including a pledge of all capital
stock of each such license and operating subsidiaries as well as capital stock
of OMB.
-16-
<PAGE>
This amendment is the correct Quarterly Report for the Company's fiscal quarter
ended September 30, 1998 and it replaces an earlier draft which the Company's
filing agent filed with the Securities and Exchange Commission by mistake.
OMNIPOINT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
-CONTINUED-
The principal amount of portions of the Ericsson MB Facility financing equipment
purchases from Ericsson, and certain eligible third party provided costs, is
repayable in installments beginning 2001, with a final payment due August 2006.
Interest on such portion of the loan is payable quarterly (of which portions of
the loan proceeds are available to finance such interest payments). The $100
million portion funded at closing has no required principal amortization, and
matures August 2007. Interest on such portion is payable semi-annually (of which
interest may be accreted until August 2003).
In July 1997, OPCS Philadelphia Holdings, LLC ("OPCS"), an indirect, wholly-
owned subsidiary of the Company, entered into a credit facility agreement with
Ericsson to provide financing to OPCS for up to $120 million for the purpose of
financing the buildout of networks in the Philadelphia and Dover markets (the
"Ericsson Philadelphia Facility"). Under the terms of the Ericsson Philadelphia
Facility, OPCS is subject to certain financial and operational covenants
including restrictions on OPCS's ability to pay dividends, restrictions on
indebtedness and certain other financial maintenance requirements. Additionally,
the Ericsson Philadelphia Facility provides that, among other events, the
failure of OPCS to pay when due amounts owing to the FCC shall constitute an
event of default. The Ericsson Philadelphia Facility is collateralized by
substantially all of the assets of OPCS and each of the license and operating
subsidiaries for the Philadelphia and Dover markets, including a pledge of all
capital stock of each such license and operating subsidiary as well as capital
stock of OPCS. As of September 30, 1998, the Company had approximately $114
million outstanding under the Ericsson Philadelphia Facility.
The principal amount of the Ericsson Philadelphia Facility is payable in twenty
quarterly installments beginning in the year 2001, with a final payment due
December 2005. Interest on such amount is payable quarterly in arrears with
regard to base rate loans and at the end of an applicable interest period with
regard to LIBOR loans (of which a portion of the loan proceeds are available to
finance such interest payments).
In November 1998, the Company reached a settlement with the United States
Department of Justice ("DOJ") in the form of a civil consent decree that
involves no monetary penalties. See U.S.v. Omnipoint Corp., Case No.
1:98CV02750 (D.D.C. filed Nov. 10, 1998.) The consent decree ended an
investigation into certain bidding techniques that a number of bidders employed
during the FCC's PCS license auctions. The FCC had dropped its independent
investigation into the same bidding techniques several months earlier after a
lengthy review of Omnipoint's bidding, as well as that of many other bidders.
The Company strongly believes that it did nothing wrong during any FCC auction,
and that had it chosen to fight the DOJ's assertions in court, that the Company
would have prevailed. In agreeing to the civil consent decree, the Company does
not admit to any wrong doing, nor was it found guilty of any wrong doing. The
decree does not impose any penalties, nor does it prevent the Company from
participating in any future FCC auctions. The civil consent decree is subject to
final approval by the Court, which the Company currently expects in early 1999.
YEAR 2000 COMPLIANCE
Many of the world's computer systems (including those in non-information
technology equipment and systems) currently record years in a two-digit format.
If not addressed, such computer systems will be unable to properly interpret
dates beyond the year 1999, which could lead to business disruptions in the U.S.
and internationally (the "Y2K" issue). A number of the Company's technology
systems are affected by the Y2K issue. To ensure that the Company will be Y2K
compliant before the new millenium, the Company formed a Y2K compliance team in
the fourth quarter of 1997 and allocated corporate resources to determine the
extent of non-compliance with the Y2K issue and to formulate a Y2K compliance
plan. Since then, the Company has been reviewing its embedded technology and
infrastructure equipment, as well as non-embedded technology equipment to
identify those that contain two-digit year codes, and is in the process of
upgrading its infrastructure and corporate facilities to achieve Y2K compliance.
In addition, the Company is actively working with its suppliers to assess their
compliance and remediation efforts and the Company's exposure to them. The
Company is proceeding on schedule to be Y2K compliant by the second quarter of
1999.
The Company is focusing on three major areas of concern for the Y2K issue:
embedded technology and infrastructure equipment, non-embedded technology
equipment and third party suppliers compliance. The Y2K compliance team created
a five stage process for becoming Y2K compliant. The five process stages are
(1) compiling a complete inventory of all date sensitive technology equipment;
(2) prioritizing systems affected based on estimated time to compliance, vendor
and maintenance schedule; (3) performing modification of affected systems; (4)
completing testing of modified systems; and (5) performing implementation of
modified systems. The Company has generally completed the inventory of its date
sensitive technology equipment and is in various stages of prioritizing and
modifying a number of the systems.
-17-
<PAGE>
This amendment is the correct Quarterly Report for the Company's fiscal quarter
ended September 30, 1998 and it replaces an earlier draft which the Company's
filing agent filed with the Securities and Exchange Commission by mistake.
OMNIPOINT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
-CONTINUED-
EMBEDDED TECHNOLOGY AND INFRASTRUCTURE EQUIPMENT. The embedded technology and
infrastructure equipment area of concern consists primarily of the hardware
portion of the switching platforms and network surveillance equipment. Much of
this equipment, specifically the switching platforms, is purchased from third
party vendors and has a yearly maintenance contracts. The maintenance contracts
include regular software and hardware upgrades that should automatically bring
the equipment into Y2K compliance. The Company is dependent on those third
parties to assess the impact of the Y2K problem on the technology they have
supplied and to take any necessary corrective action. All corrective action
taken by these third parties is covered under maintenance contracts and would be
part of regularly scheduled maintenance. The Company is monitoring the progress
of these third parties and selectively conducting tests to determine whether
they have accurately assessed the problem and taken corrective action. All
embedded technology systems and infrastructure equipment are scheduled to be Y2K
compliant by June 30, 1999. In addition, in order to protect against the
acquisition of additional non-compliant products, the Company now requires
suppliers to warrant that products sold or licensed to the Company are Y2K
compliant.
NON-EMBEDDED TECHNOLOGY EQUIPMENT. Non-embedded technology systems include
predominately applications software and interfacing software. Much of this
equipment has previously been upgraded to Y2K compliance through software
upgrades and the purchase of new systems. Future expenditures in this area will
not be material. Nonetheless, the Company is in the process of prioritizing
those systems that are not Y2K compliant and upgrading or replacing non-
compliant systems. All non-embedded technology systems are scheduled to be Y2K
compliant by June 30, 1999.
THIRD PARTY SUPPLIERS. The Company is currently in the process of prioritizing
its critical suppliers and communicating with them about their plans and
progress in addressing the Y2K issue. Detailed evaluations of the most critical
third parties have been initiated. These evaluations will be followed by the
development of contingency plans, commencing in the fourth quarter of 1998, with
completion expected by June 30, 1999.
RISK AND CONTINGENCY PLAN. There are many risks associated with the Y2K issue,
including the possibility of a failure of the Company's signal, computer, and
non-information technology systems. Such failures could have a material adverse
effect upon the Company and may cause systems malfunctions, signal loss,
incorrect or incomplete transaction processing, the inability to reconcile
accounting books and records, and the inability for the Company to manage its
business. In addition, even if the Company successfully becomes Y2K compliant,
it can be materially and adversely affected by failures of third parties to
become Y2K compliant. The failure of third parties with which the Company has
financial or operational relationships such as network maintenance contractors,
roaming partners, handset and accessory providers, financial institutions,
payroll contractors, regulatory agencies and utility companies, to become Y2K
compliant in a timely manner could result in material adverse effects on the
Company's results of operations.
The Company is currently working diligently to become Y2K compliant by June 30,
1999. However, there can be no assurance that the Company will be successful in
taking corrective action in a timely manner. The Company has started to develop
contingency plans with regard to its key technology systems, although there can
be no assurance that these contingency plans will successfully avoid a service
disruption. The Company intends to document Y2K contingency plans during 1999
as part of its Y2K risk mitigation efforts.
COSTS. Total costs incurred to date specifically associated with becoming Y2K
compliant have been less than $1 million. The total estimated specific costs
of becoming Y2K compliant is estimated to be less than $10 million. Non-
specific costs associated with becoming Y2K compliant, such as maintenance
contracts that automatically upgrade certain technology components within a
larger upgrade have not been included in this estimate. These costs, considered
by the Company to be a normal recurring expense, will be included in the Y2K
compliance costs once the specific Y2K components can be identified and
allocated.
The Company's expectations about future costs and timely completion of its Y2K
modifications are subject to uncertainties that could cause actual results to
differ materially from what has been discussed above. Factors that could
influence the amount of future costs and the effective timing of remediation
efforts include the success of the Company in identifying embedded technology
and infrastructure equipment as well as non-embedded equipment that contain two-
digit year codes, the nature and amount of programming and testing required to
upgrade or replace each of the affected systems and equipment, the nature and
amount of testing, verification, the rate and magnitude of related labor costs,
and the success of the Company's suppliers, in addressing the Y2K issue.
-18-
<PAGE>
This amendment is the correct Quarterly Report for the Company's fiscal quarter
ended September 30, 1998 and it replaces an earlier draft which the Company's
filing agent filed with the Securities and Exchange Commission by mistake.
OMNIPOINT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
-CONTINUED-
RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income". SFAS 130
requires the reporting of comprehensive income (loss) in addition to net income
(loss) from operations. Comprehensive income is a more inclusive reporting
methodology that includes disclosure of certain financial information that
historically has not been recognized in the calculation of net loss. The
adoption of SFAS 130 had no impact on the Company's net loss or stockholders'
deficit. As of September 30, 1998, there were no differences between the
Company's net loss, as reported, and comprehensive loss.
In March 1998, Statement of Position 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"), was issued which
provides guidance on applying generally accepted accounting principles in
addressing whether and under what conditions the costs of internal-use software
should be capitalized. SOP 98-1 is effective for all transactions entered into
in fiscal years beginning after December 15, 1998, however earlier adoption is
encouraged. The Company adopted the guidelines of SOP 98-1 as of January 1,
1998, and the impact of such adoption was not material to results of operations
or cash flows for the quarter ended September 30, 1998.
In June 1997, Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS 131"), was
issued which redefines how operating segments are determined and requires
disclosures of certain financial and descriptive information about a company's
operating segments. SFAS 131 is effective for fiscal periods beginning after
December 15, 1997 and its adoption may require additional disclosure of the
Company's historical financial data beginning with the fiscal year ending
December 31, 1998.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
Statement provides a comprehensive and consistent standard for the recognition
and measurement of derivatives and hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
Statement is effective for fiscal years beginning after June 15, 1999. The
Company will adopt the new standard by January 1, 2000. Management believes this
statement will not impact the Company's financial statements.
-19-
<PAGE>
This amendment is the correct Quarterly Report for the Company's fiscal quarter
ended September 30, 1998 and it replaces an earlier draft which the Company's
filing agent filed with the Securities and Exchange Commission by mistake.
PART II -- OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
The Company is from time to time the subject of, or involved in,
judicial proceedings. Management believes that any liability or loss
resulting from such matters will not have a material adverse effect on
the financial position or results of the Company.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5: OTHER INFORMATION
None
ITEM 6: EXHIBITS AND REPORTS ON FORM 10-Q
(a) Exhibits
10.65* Capital Contribution Agreement dated September 18, 1998, by and
between Omnipoint Corporation and D&E Communications, Inc.
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None.
----------
-20-
<PAGE>
This amendment is the correct Quarterly Report for the Company's fiscal quarter
ended September 30, 1998 and it replaces an earlier draft which the Company's
filing agent filed with the Securities and Exchange Commission by mistake.
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: November 16, 1998
/s/ Harry Plonskier
-------------------------------------
Treasurer and Chief Accounting Officer
-21-
<PAGE>
This amendment is the correct Quarterly Report for the Company's fiscal quarter
ended September 30, 1998 and it replaces an earlier draft which the Company's
filing agent filed with the Securities and Exchange Commission by mistake.
EXHIBIT 10.65
CAPITAL CONTRIBUTION AGREEMENT
CAPITAL CONTRIBUTION AGREEMENT, dated as of September 18, 1998, made by
each of Omnipoint Corporation, a Delaware corporation ("Omnipoint"), and D&E
---------
Communications, Inc., a Pennsylvania corporation ("D&E"), in favor of
---
D&E/Omnipoint Wireless Joint Venture, L.P., a Delaware limited partnership (the
"Borrower"), and in favor of the Lenders (the "Lenders") from time to time
-------- -------
parties to the Loan Agreement (as defined below) and Northern Telecom Inc., as
administrative agent (together with its successors as such administrative agent,
the "Administrative Agent") for the Lenders.
--------------------
PRELIMINARY STATEMENTS:
(1) The Lenders and the Administrative Agent have entered into a Loan
Agreement dated as of September 18, 1998 with the Borrower (as amended or
otherwise modified from time to time, the "Loan Agreement", the terms defined
therein and not otherwise defined herein being used herein as therein defined).
Each of Omnipoint and D&E will derive substantial direct and indirect benefit
from the transactions contemplated by the Loan Agreement.
(2) It is a condition precedent to the making of Advances by the Lenders
under the Loan Agreement that each of Omnipoint and D&E shall have executed and
delivered this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce the
Lenders to make Advances under the Loan Agreement, each of Omnipoint and D&E
agrees as follows:
SECTION 1. Obligation to Contribute Funds. Omnipoint and D&E shall
------------------------------
jointly and severally pay, or shall cause one of their Subsidiaries (other than
the Borrower or any of its Subsidiaries) (such other Subsidiaries, being "Other
-----
Subsidiaries") to pay, to the Borrower (except as otherwise provided herein)
- ------------
immediately upon written request by
(a) the Borrower, or
(b) if an Event of Default shall have occurred and be continuing, the
Administrative Agent,
cash in U.S. dollars in the amount specified in such request; provided that the
aggregate amount of cash required to paid to the Borrower by Omnipoint, D&E or
any Other Subsidiary pursuant to any such request as of any date of
determination shall not exceed the greater of zero and the following amount (the
"Maximum Amount"):
--------------
<PAGE>
This amendment is the correct Quarterly Report for the Company's fiscal quarter
ended September 30, 1998 and it replaces an earlier draft which the Company's
filing agent filed with the Securities and Exchange Commission by mistake.
(1) the sum of (I) $50,000,000, plus (II) the aggregate amount
of all dividends and other distributions by the Borrower in
respect of its Stock and payments of interest and principal owing
by the Borrower and its Subsidiaries to Omnipoint, D&E and their
Other Subsidiaries (other than the Borrower and its Subsidiaries)
on or before such date, plus (III) the aggregate amount of all
cash payments made to D&E or Omnipoint pursuant to Section 4(c)
of the Master Services Agreements,
minus
(2) the greater of
(I) zero, and
(II) the aggregate amount of all cash equity contributions
to the Borrower and Subordinated Debt excluding, however,
cumulative amounts advanced to Borrower to meet financial
covenants pursuant to Section 6.14(A)(a), (b), (c) and (d), of
------------------------------------
the Loan Agreement.
Omnipoint or any other Subsidiary shall make payment of funds hereunder through
additional capital or other contributions in respect of the owners' equity of
the Borrower; provided that
(x) to the extent such purchases or contributions are prohibited under
agreements binding on Omnipoint or D&E or both on the date hereof (the
"Conflicting Agreements"), such of Omnipoint, D&E or both which are party
-----------------------
to such Conflicting Agreements shall make payment hereunder through the
lending of funds to the Borrower by way of Subordinated Debt;
(y) if any such payment made as such a loan may at a later time be
made as an equity contribution to the Borrower without violating such
Conflicting Agreements, such loan shall be converted to an equity
contribution to the Borrower; and
(z) each of Omnipoint and D&E shall use its best efforts to take such
action as will permit any such loan to be converted to such an equity
contribution.
SECTION 2. Taxes. Etc. (a) Omnipoint and D&E, jointly and severally,
----------
will pay any present or future stamp or other taxes, charges or similar levies
(collectively, "Taxes"), including any interest and penalties, which arise from
-----
any payment made hereunder or from the execution, delivery or registration of,
or otherwise with respect to, this Agreement.
-2-
<PAGE>
This amendment is the correct Quarterly Report for the Company's fiscal quarter
ended September 30, 1998 and it replaces an earlier draft which the Company's
filing agent filed with the Securities and Exchange Commission by mistake.
(b) Omnipoint and D&E, jointly and severally, will indemnify the
Administrative Agent and each Lender for the full amount of Taxes (including,
without limitation, any Taxes imposed by any jurisdiction on amounts payable
under this Section) paid by the Administrative Agent or such Lender and any
liability (including penalties, interest and expenses) arising therefrom or with
respect thereto, whether or not such Taxes were correctly or legally asserted.
This indemnification shall be made within 30 days from the date the
Administrative Agent or such Lender (as the case may be) makes written demand
therefor.
SECTION 3. Obligation Absolute. Each of Omnipoint and D&E will perform
-------------------
its obligations under this Agreement regardless of any law, regulation or order
now or hereafter in effect in any jurisdiction affecting any of the terms of the
Notes, the Loan Agreement, the other Loan Documents or any other document
related thereto or the rights of the Administrative Agent or the Lenders with
respect thereto. The obligations of each of Omnipoint and D&E under this
Agreement are independent of the Loan Agreement, the Notes and the other Loan
Documents, and a separate action or actions may be brought and prosecuted
against either of Omnipoint or D&E or both to enforce this Agreement,
irrespective of whether any action is brought against the other of Omnipoint or
D&E or the Borrower or whether Omnipoint or D&E or the Borrower is joined in any
such action or actions. The obligations of each of Omnipoint and D&E under this
Agreement are joint and several and shall be absolute and unconditional
irrespective of:
(i) any lack of validity or enforceability of the Loan Agreement, the
Notes, any other Loan Document or any other agreement or instrument
relating thereto or any collateral therefor;
(ii) any change in the time, manner or place of payment of, or in any
other term of, the Notes, the Loan Agreement, any other Loan Document, or
any other amendment or waiver of or any consent to departure from the Loan
Agreement, the Notes or any other Loan Document, including, without
limitation, any increase in the Notes or the obligations of the Borrower
under the Loan Agreement resulting from the extension of additional credit
to the Borrower or any of its Subsidiaries or otherwise;
(iii) any taking, exchange, release or non-perfection of any
collateral, or any taking, release or amendment or waiver of or consent to
departure from any guaranty, the Notes, the Loan Agreement or any other
Loan Document;
(iv) any manner of application of collateral, or proceeds thereof, to
all or any of the obligations evidenced by the Loan Agreement, the Notes or
any other Loan Document, or any manner of sale or other disposition of any
collateral for all or any of the obligations evidenced by the Loan
Agreement, the Notes or any other Loan Document or any other assets of the
Borrower or any of its Subsidiaries;
-3-
<PAGE>
This amendment is the correct Quarterly Report for the Company's fiscal quarter
ended September 30, 1998 and it replaces an earlier draft which the Company's
filing agent filed with the Securities and Exchange Commission by mistake.
(v) any charge, restructuring or termination of the corporate or
partnership structure or existence of the Borrower or any of its
Subsidiaries; or
(vi) any other circumstances which might otherwise constitute a
defense available to, or a discharge of, the Borrower or a surety.
This Agreement shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Notes is rescinded or must
otherwise be returned by the Administrative Agent or any Lender upon the
insolvency, bankruptcy or reorganization of the Borrower or otherwise, all as
though such payment had not been made.
SECTION 4. Waiver. Each of Omnipoint and D&E waives promptness,
------
diligence, notice of acceptance and any other notice with respect to the Loan
Agreement, the Notes, the other Loan Documents and this Agreement and any
requirement that the Administrative Agent or any Lender protect, secure, perfect
or insure any security interest or lien or any property subject thereto or
exhaust any right or take any action against the Borrower or any other person or
entity or any collateral.
SECTION 5. Separate Undertaking. Without limiting the generality of any
--------------------
of the foregoing provisions of this Agreement, each of Omnipoint and D&E
irrevocably waives, to the full extent permitted by applicable law and for the
benefit of, and as a separate undertaking with, the Lenders and the
Administrative Agent, any defense to the performance of this Agreement which may
be available to either of Omnipoint or D&E or both as a consequence of this
Agreement being rejected or otherwise not assumed by the Borrower or any trustee
or other similar official for the Borrower or for any substantial part of the
property of the Borrower, or as a consequence of this Agreement being otherwise
terminated or modified, in any proceeding seeking to adjudicate the Borrower a
bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief or composition of the Borrower or
the debts of the Borrower under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, whether such rejection, non-assumption,
termination or modification be by reason of this Agreement being held to be an
executory contract or by reason of any other circumstance. If this Agreement
shall be so rejected or otherwise not assumed, or so terminated or modified,
each of Omnipoint and D&E promises for the benefit of, and as a separate
undertaking with, the Lenders and the Administrative Agent, unconditionally,
jointly and severally, to pay to the Administrative Agent an amount equal to
each payment which would otherwise be payable by Omnipoint or D&E under or in
connection with this Agreement if this Agreement were not so rejected or
otherwise not assumed or were otherwise not so terminated or modified, such
amount to be payable to the Administrative Agent, at its account specified in
the Loan Agreement for the payment of amounts owing by the Borrower thereunder
(or otherwise in accordance with the instructions of the Administrative Agent),
as and when such payment would otherwise be payable hereunder and such amount to
be applied as such payment would
-4-
<PAGE>
This amendment is the correct Quarterly Report for the Company's fiscal quarter
ended September 30, 1998 and it replaces an earlier draft which the Company's
filing agent filed with the Securities and Exchange Commission by mistake.
otherwise be applied under Section 2.07 of the Loan Agreement.
------------
SECTION 6. Representations and Warranties of Omnipoint. Omnipoint
-------------------------------------------
represents and warrants as follows:
(a) Omnipoint is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
(b) The execution, delivery and performance by Omnipoint of this
Agreement, and the consummation of the transactions contemplated hereby,
are within Omnipoint's corporate powers, have been duly authorized by all
necessary corporate action, and do not contravene (i) Omnipoint's charter
or by-laws or (ii) any law or any contractual restriction binding on or
affecting Omnipoint.
(c) No authorization or approval or other action by, and no notice to
or filing with any governmental authority or regulatory body or any other
third party is required for the due execution, delivery and performance by
Omnipoint of this Agreement.
(d) This Agreement has been duly executed and delivered by Omnipoint.
This Agreement is the legal, valid and binding obligation of Omnipoint
enforceable against Omnipoint in accordance with its terms.
(e) There are no conditions precedent to the effectiveness of this
Agreement that have not been satisfied or waived.
(f) Omnipoint has, independently and without reliance upon the
Administrative Agent or any Lender and based on documents and information
as it has deemed appropriate, made its own credit analysis and decision to
enter into this Agreement.
SECTION 7. Representations and Warranties of D&E. D&E represents and
-------------------------------------
warrants as follows:
(a) D&E is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania.
(b) The execution, delivery and performance by D&E of this Agreement,
and the consummation of the transactions contemplated hereby, are within
D&E's corporate powers, have been duly authorized by all necessary
corporate action, and do not contravene (i) D&E's charter or by-laws or
(ii) any law or any contractual restriction binding on or affecting D&E.
(c) No authorization or approval or other action by, and no notice to
or
-5-
<PAGE>
This amendment is the correct Quarterly Report for the Company's fiscal quarter
ended September 30, 1998 and it replaces an earlier draft which the Company's
filing agent filed with the Securities and Exchange Commission by mistake.
filing with any governmental authority or regulatory body or any other
third party is required for the due execution, delivery and performance by
D&E of this Agreement.
(d) This Agreement has been duly executed and delivered by D&E. This
Agreement is the legal, valid and binding obligation of D&E enforceable
against D&E in accordance with its terms.
(e) There are no conditions precedent to the effectiveness of this
Agreement that have not been satisfied or waived.
(f) D&E has, independently and without reliance upon the
Administrative Agent or any Lender and based on documents and information
as it has deemed appropriate, made its own credit analysis and decision to
enter into this Agreement.
SECTION 8. Other Agreements. Each of Omnipoint and D&E will make its
----------------
senior officers available for discussions with potential purchasers of
assignments of or participations in loans made by or commitments of Northern
Telecom Inc. under the Loan Agreement and any loan agreement with Northern
Telecom Inc. regarding vendor-financing loans and commitments primarily in
respect of the Network (as defined in the Loan Agreement), and otherwise
cooperate in the syndication of such loans and commitments at such times and
with such frequency as the Administrative Agent may reasonably request, provided
--------
that the Administrative Agent shall use its best efforts to prevent unreasonable
- ----
interference with or disruption of Omnipoint's and D&E's business on account of
the foregoing.
SECTION 9. Amendments, Etc. No amendment or waiver of any provision of
---------------
this Agreement, and no consent to any departure by Omnipoint or D&E or both
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Borrower, the Administrative Agent and the Required Lenders
(provided that no amendment, waiver or consent shall, unless in writing and
signed by all the Lenders, (a) limit the liability of Omnipoint or D&E or both
hereunder, or (b) change the number of Lenders required to take any action
hereunder), and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
SECTION 10. Expenses. Each of Omnipoint and D&E will, jointly and
--------
severally, upon demand pay to the Borrower and the Administrative Agent,
respectively, the amount of any and all expenses, including the fees and
expenses of their respective counsel and of any experts and agents, which the
Borrower and the Administrative Agent or the Lenders, as the case may be, may
incur in connection with (a) the exercise or enforcement of any of their
respective rights hereunder or (b) the failure by Omnipoint or D&E or both to
perform or observe any of the provisions hereof.
-6-
<PAGE>
This amendment is the correct Quarterly Report for the Company's fiscal quarter
ended September 30, 1998 and it replaces an earlier draft which the Company's
filing agent filed with the Securities and Exchange Commission by mistake.
SECTION 11. Addresses for Notices. All notices and other communications
---------------------
provided for hereunder shall be in writing (including telecopy communication)
and mailed, telecopied, or delivered if to Omnipoint, at its address at 3
Bethesda Metro Center, Suite 400, Bethesda, Maryland 20814, Attention: Bradley
Sparks (fax no. (301) 951-2580), if to D&E, at its address at
________________________, Attention: __________________ (fax no. ___________),
and if to the Borrower, the Administrative Agent or any Lender, at its address
specified in the Loan Agreement, or, as to any party at such other address as
shall be designated by such party in a written notice to the other parties. All
such notices and other communications shall, when mailed, be effective when
deposited in the mails or, when telecopied, when transmitted by telecopy,
respectively.
SECTION 12. No Waiver; Remedies. No failure on the part of the Borrower,
-------------------
the Administrative Agent or any Lender to exercise, and no delay in exercising,
any right hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any right hereunder preclude any other or further exercise
thereof or the exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
SECTION 13. Continuing Agreement; Assignments under Loan Agreement. This
------------------------------------------------------
Agreement is a continuing agreement and shall
(a) remain in full force and effect until the later of
(i) the payment in full of the Notes and all other amounts
payable under the Loan Agreement, the other Loan Documents or this
Agreement, and
(ii) the expiration or termination of the Commitments;
(b) be binding upon Omnipoint, D&E, and their respective successors
and assigns; and
(c) inure to the benefit of and be enforceable by the Borrower, the
Lenders, the Administrative Agent and their respective successors,
transferees and assigns.
Without limiting the generality of the foregoing clause (c), any Lender may
assign or otherwise transfer all or any portion of its rights and obligations
under the Loan Agreement and this Agreement (including, without limitation, all
or any portion of its Commitment, the Advances owing to it and any Note held by
it) to any other person or entity, and such other person or entity shall
thereupon become vested with all the rights in respect thereof granted to such
Lender herein or otherwise, subject, however, to the provisions of Article XI
----------
(concerning the Administrative Agent) of the Loan Agreement.
-7-
<PAGE>
This amendment is the correct Quarterly Report for the Company's fiscal quarter
ended September 30, 1998 and it replaces an earlier draft which the Company's
filing agent filed with the Securities and Exchange Commission by mistake.
SECTION 14. Execution in Counterparts. This Agreement may be executed in
-------------------------
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 15. Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of New York.
SECTION 16. Consent to Jurisdiction. Each of Omnipoint and D&E
-----------------------
irrevocably
(a) submits to the jurisdiction of any New York state or federal court
sitting in New York City in any action or proceeding arising out of or
relating to this Agreement;
(b) agrees that all claims in respect of such action or proceeding may
be heard and determined in such New York state court or in such federal
court;
(c) waives, to the fullest extent that it may effectively do so, the
defense of an inconvenient forum to the maintenance of such action or
proceeding;
(d) consents to the service of any and all process in any such action
or proceeding by the mailing of copies of such process to such Borrower at
its address specified in Section 9; and
---------
(e) agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on
the judgment or in any other manner provided by law.
Nothing in this Section 16 shall affect the right of the Administrative Agent,
----------
any Lender or the Borrower to serve legal process in any other manner permitted
by law or affect the right of the Administrative Agent or any Lender to bring
any action or proceeding against Omnipoint or its property in the courts of
other jurisdictions.
SECTION 17. Waiver of Jury Trial. Each of Omnipoint, D&E and, by their
--------------------
acceptance hereof, the Borrower and the Administrative Agent (on behalf of
itself and the Lenders), irrevocably waives all right to trial by jury in any
action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or relating to this Agreement or the actions of the
Administrative Agent, any Lender or the Borrower in the negotiation,
administration, performance or enforcement thereof.
-8-
<PAGE>
This amendment is the correct Quarterly Report for the Company's fiscal quarter
ended September 30, 1998 and it replaces an earlier draft which the Company's
filing agent filed with the Securities and Exchange Commission by mistake.
IN WITNESS WHEREOF, each of Omnipoint and D&E has caused this Agreement to
be duly executed and delivered by its officer thereunto duly authorized as of
the date first above written.
OMNIPOINT CORPORATION
By: /s/ Bradley E. Sparks
----------------------------
Name: Bradley E. Sparks
Title: Vice President
D&E COMMUNICATIONS, INC.
By: /s/ Donald R. Kaufmann
----------------------------
Name: Donald R. Kaufmann
Title: Vice President
The foregoing Agreement is
accepted and agreed to as of the
date first-above written:
D&E/OMNIPOINT WIRELESS JOINT
VENTURE, L.P.
By: /s/ Robert L. Quaranta
-------------------------------
Name: Robert L. Quaranta
Title: Chief Executive Officer
NORTHERN TELECOM INC., as Administrative Agent
for itself and on behalf of the Lenders
By: /s/ Michael W. McCorkle
-------------------------------
Name: Michael W. McCorkle
Title: Director, Customer Finance - North America
-9-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This amendment is the correct Quarterly Report for the Company's fiscal quarter
ended September 30, 1998 and it replaces an earlier draft which the Company's
filing agent filed with the Securities and Exchange Commission by mistake.
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 SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 148,309
<SECURITIES> 267
<RECEIVABLES> 47,001
<ALLOWANCES> 11,826
<INVENTORY> 34,652
<CURRENT-ASSETS> 239,576
<PP&E> 1,078,778
<DEPRECIATION> (117,003)
<TOTAL-ASSETS> 1,931,512
<CURRENT-LIABILITIES> 337,437
<BONDS> 478,689
0
270,962
<COMMON> 528
<OTHER-SE> (658,709)
<TOTAL-LIABILITY-AND-EQUITY> 1,931,512
<SALES> 115,161
<TOTAL-REVENUES> 118,412
<CGS> 433,264
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 136,660
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (451,052)
<DISCONTINUED> 0
<EXTRAORDINARY> (11,115)
<CHANGES> 0
<NET-INCOME> (462,167)
<EPS-PRIMARY> (8.96)
<EPS-DILUTED> (8.96)
</TABLE>
