<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 7, 1996
REGISTRATION NO. 333-______________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________
WIRELESS BROADCASTING SYSTEMS OF AMERICA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
______________
<TABLE>
<S> <C> <C>
DELAWARE 4841 36-3939250
(STATE OF OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) (IDENTIFICATION NUMBER)
</TABLE>
9250 EAST COSTILLA AVENUE, SUITE 325
ENGLEWOOD, COLORADO 80112
TELEPHONE (303) 649-1195
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
______________
JENNIFER L. RICHTER
VICE PRESIDENT AND GENERAL COUNSEL
9250 EAST COSTILLA AVENUE, SUITE 325
ENGLEWOOD, COLORADO 80112
TELEPHONE (303) 649-1195
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
SUSAN M. HERMANN DANIEL J. ZUBKOFF
PEDERSEN & HOUPT, P.C. CAHILL GORDON & REINDEL
161 N. CLARK STREET, SUITE 3100 80 PINE STREET
CHICAGO, ILLINOIS 60601 NEW YORK, NEW YORK 10005
TELEPHONE (312) 641-6888 TELEPHONE (212) 701-3000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, please check the following box / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: / /
If the Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
CALCULATION OF REGISTRATION FEE
<TABLE>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE (1) REGISTRATION FEE
<S> <C> <C>
Class A Common Stock, par value $.01 per share $50,000,000 $17,241.38
============================================== ================== ================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
____________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION (a)
OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAW OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED AUGUST 7, 1996
PROSPECTUS
- --------------------------------------------------------------------------------
_________ SHARES
[LOGO] WIRELESS BROADCASTING SYSTEMS OF AMERICA, INC.
CLASS A COMMON STOCK
- --------------------------------------------------------------------------------
All of the ______ shares of Class A common stock, par value $.01 per share (the
"Class A Common Stock") offered hereby are being sold by Wireless Broadcasting
Systems of America, Inc. ("WBSA" or the "Company").
Prior to this offering (the "Offering") there has been no public market for the
Class A Common Stock. It is currently anticipated that the initial public
offering price will be between $____________ and $____________ per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price.
The Company has two classes of common stock (collectively the "Common Stock").
The Class A Common Stock offered hereby has one vote per share, and the Class
B common stock, par value $.01 per share, of the Company (the "Class B Common
Stock"), has ten votes per share. The economic rights of each class of Common
Stock are identical. Immediately following the Offering, certain of the
executive officers and directors of the Company and related parties will have
approximately ____% of the ownership interests of the Common Stock and ____% of
the combined voting power of the Common Stock assuming no exercise of the
Underwriters' over-allotment option. See "Description of Capital Stock" and
"Principal Stockholders."
The Company intends to make an application to include the Class A Common Stock
in The Nasdaq Stock Market's National Market (the "Nasdaq National Market")
prior to commencement of this Offering under the symbol "WBSA".
SEE "RISK FACTORS" ON PAGES 9 TO 17 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE CLASS A COMMON
STOCK OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE
================================================================================
<TABLE>
<S> <C> <C> <C>
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
Per Share .................. $_________ $__________ $________
---------- ----------- ---------
Total(3)..................... $_________ $_________ $_______
======================================================================
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be
$___________.
(3) The Company has granted the several Underwriters a 30-day over-allotment
option to purchase up to _______ additional shares of Class A Common Stock
on the same terms and conditions as set forth above. If all such
additional shares are purchased by the Underwriters, the total Price to
Public will be $_____, the total Underwriting Discounts and Commissions
will be $_____, and the total Proceeds to Company will be $_______. See
"Underwriting."
The shares of Class A Common Stock are offered by the several Underwriters
subject to delivery by the Company and acceptance by the Underwriters, to prior
sale and to withdrawal, cancellation or modification of the offer without
notice. Delivery of the shares to the Underwriters is expected to be made at
the office of Prudential Securities Incorporated, One New York Plaza, New York,
on or about September ___, 1996.
PRUDENTIAL SECURITIES INCORPORATED LEHMAN BROTHERS
September __, 1996
<PAGE> 3
[MAP OF THE COMPANY'S SYSTEMS]
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON
STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
-ii-
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements contained elsewhere in this Prospectus
including information contained in "Risk Factors." This Prospectus assumes that
the Underwriters' over-allotment option will not be exercised. As used in this
Prospectus, except as the context otherwise requires, the term "Company" or
"WBSA" means Wireless Broadcasting Systems of America, Inc., a Delaware
corporation, its subsidiaries, and WJB-TV Limited Partnership (the "Predecessor
Partnership").
THE COMPANY
Wireless Broadcasting Systems of America, Inc. acquires, owns, develops
and operates wireless cable systems in two regions of the United States. The
Company currently provides subscription television services in its Florida
region through wireless cable systems located in Fort Pierce and Melbourne and
in its Northwest region through wireless cable systems located in Boise, Idaho;
Sacramento, California; and Yakima, Washington (collectively, the "Operating
Systems"). In the 12 month period ended June 30, 1996, which is the latest 12
months in which all five Operating Systems have been fully operational, the
Operating Systems experienced substantial subscriber growth from approximately
52,700 to 63,100, an increase of approximately 19.7%, which represents a
penetration rate of 4.8%. In addition to the Operating Systems, the Company
plans to launch new systems in West Palm Beach, Florida; Coos Bay, Oregon;
Eureka, California; Helena, Montana; Kennewick, Washington; Klamath Falls,
Oregon; and Roseburg, Oregon (collectively, the "Planned Systems"). The
Company's markets encompass over 2.5 million line-of-sight ("LOS") households.
The Company strives to develop its markets in a manner that produces
sustainable subscriber growth and positive System EBITDA (as herein defined) at
low subscriber penetration levels. By maintaining control over operating
expenses and targeting its marketing to identify, attract and retain loyal,
profitable subscribers, the Company has been able to achieve positive System
EBITDA in its Melbourne System, the Company's most recently launched system, at
a subscription level of approximately 6,000 subscribers within 12 months of
launch. In the 12 month period ended June 30, 1996, the Company generated
$19.6 million of revenues and $3.7 million of EBITDA (as herein defined).
The Company has assembled a management team that has one of the most
extensive subscription television operating backgrounds in the wireless cable
industry. Leading the management team is William W. Kingery, Jr., President
and Chief Executive Officer, who has over two decades of management, financial
and consulting experience in the subscription television industry. Mr. Kingery
served as chief financial officer of United Cable Television Corporation,
president of Daniels & Associates, Inc., and most recently as executive vice
president of United Artists Cable Systems Corporation, where he had
responsibility for 90 cable systems serving 1.3 million subscribers. See
"Management."
BUSINESS STRATEGY
The Company employs the following strategies to achieve its objective of
developing wireless cable systems with sustainable growth and attaining
positive System EBITDA at low penetration levels.
<PAGE> 5
Focus on Regional Clusters with Strong Growth Potential. The Company
focuses on markets which it believes exhibit demographic and topographic
characteristics conducive to the transmission of wireless cable services. The
Company operates in and targets markets which it expects to achieve household
growth rates in excess of the national average. Based upon estimates of
household growth by CACI Marketing Systems ("CACI") and the Company's LOS
household engineering studies, the Company estimates the LOS households in its
markets will increase by 9.8% from 1995 to 2000 as compared to CACI's 5.3%
projected national mean household growth rate for the same period. The Company
believes that clustering its systems provides for economies of scale in
management, marketing, training, customer service and billing. The Company
also believes that regional clustering enhances the Company's strategic
position and opportunities for additional revenues, including advertising and
other telecommunications services.
Differentiate Service Offering. The Company seeks to differentiate its
service offering from other subscription television providers by:
- Offering Attractive Channel Line-Ups. The Company focuses on markets in
which it can utilize virtually all the wireless cable channels available,
and therefore is able to offer the programs which it believes are
attractive to the greatest number of subscribers. The Company currently
offers from 29 to 34 channels in each of its markets. See
"Business--Programming;"
- Pricing its Service Competitively. As wireless cable systems typically
incur lower initial capital costs and fewer maintenance costs than
hard-wire cable operators, the Company generally offers its services
below the price of comparable services offered by competing hard-wire
cable operators; and
- Providing Superior Customer Satisfaction. The Company believes it creates
high levels of subscriber satisfaction by providing 24-hour-a-day,
7-day-a-week subscriber telephone support; prompt customer service and
installation; and follow-up calls and on-site inspections to verify
subscriber satisfaction. The Company also believes that its subscribers
enjoy a higher level of signal quality and reliability because its signal
is not adversely affected by weather or by the signal degradation and
interruptions inherent in the extensive Cable Plant (as herein defined)
required by its hard-wire competitors.
Maximize Profitable Subscriber Growth. The Company seeks efficiencies in
all aspects of its operations. When marketing its services, the Company
targets loyal, profitable subscribers in an effort to achieve continued,
consistent subscriber growth. To minimize turnover of existing subscribers,
the Company charges installation fees, conducts credit checks and actively
manages its billing. The Company efficiently plans the introduction of new
equipment and technologies to its systems in a manner that avoids unnecessary
overhead expenses without sacrificing quality. The Company's incentive
compensation program promotes efficient subscriber service and system operation
by rewarding employees for achieving subscriber service goals, minimizing
subscriber turnover and attaining budgeted EBITDA.
Own Wireless Cable Channel Licenses. The Company seeks to own, rather
than lease, the majority of available wireless cable channel licenses in its
markets. Benefits of ownership include: (i) increased EBITDA by eliminating
the increase in variable channel leasing costs resulting from increased
penetration; (ii) enhanced flexibility in deploying digital compression and
other
-2-
<PAGE> 6
technological innovations; and (iii) reduced dependence on third party channel
lessors. With the exception of the Sacramento System, the Company owns between
approximately 67.0% and 100.0% of the available commercial channel licenses in
each of its markets.
Maintain Disciplined Approach to New Technologies. The Company evaluates
the implementation of new technologies on a market-by-market basis as dictated
by subscriber demands and competitive conditions. The Company deploys
cost-efficient technologies in order to maximize its return on investment.
Specifically, installation of whole-house decoders, which are fully
addressable, is targeted for the Company's smaller markets where digital
technology is not expected to be cost-effective in the near term. Digital
technology, which the Company expects to be commercially viable in 1997, will
be incorporated into the Company's larger, more competitive markets. Because
the Company's wireless cable systems do not utilize an extensive network of
fixed plant and equipment, new technologies can be incorporated into a system
with less effort and expense than would be required in a hard-wire cable
system. As a result, the Company believes that it has the flexibility to
deploy new technologies at a significantly lower per subscriber cost than
hard-wire cable operators.
ACQUISITION STRATEGY
A key element of the Company's strategy is to develop or acquire
additional wireless cable systems in other markets that meet its selection
criteria. The Company seeks to take advantage of economies of scale and
operating efficiencies, particularly where it can add to existing regional
clusters or develop new regional clusters of operating systems. The Company
intends to utilize the experience of its management in evaluating, acquiring
and operating potential systems. The Company evaluates acquisition
opportunities using several selection criteria, including: (i) demographic
profile of the market, including size of potential subscriber base and
projected household growth rates; (ii) proximity to existing markets; (iii)
topography of the transmission area; (iv) availability of wireless cable
channel rights and licenses; and (v) the competitive environment.
Management believes that there are significant advantages in increasing
the size and scope of its operations, including improved economies of scale in
management, marketing, training, customer service and billing. Furthermore,
the Company believes that increasing the size and scope of its operations will
result in ancillary revenue opportunities, greater access to capital and
opportunities for strategic partnering.
-3-
<PAGE> 7
THE COMPANY'S MARKETS
The following table outlines the characteristics of the markets in which
the Company operates or where it anticipates launching systems.
<TABLE>
<CAPTION>
Estimated
LOS Number of
Households as of Subscribers Projected Household
December 31, as of June 30, Market Growth
1995(1) 1996(2) Penetration(3) 1995 to 2000(4)
---------------- -------------- -------------- -------------------
<S> <C> <C> <C> <C>
FLORIDA MARKETS:
Ft. Pierce, FL 244,000 12,800 5.2% 10.0%
Melbourne, FL 219,000 14,600 6.7% 11.2%
West Palm Beach, FL(7) 1,010,000 -- -- 10.8%
NORTHWEST MARKETS:
Boise, ID 130,000 12,300 9.5% 15.4%
Sacramento, CA(8) 654,000 16,000 2.4% 7.0%
Yakima, WA 64,000 7,400 11.6% 10.5%
Coos Bay, OR 26,000 -- -- 5.4%
Eureka, CA 42,000 -- -- 4.1%
Helena, MT 22,000 -- -- 9.7%
Kennewick, WA(9) 72,000 -- -- 14.4%
Klamath Falls, OR 23,000 -- -- 4.4%
Roseburg, OR 32,000 -- -- 4.3%
--------- ------ ------ ---
TOTALS 2,538,000 63,100 4.8%(3) 9.8%(4)
========= ====== ======= =======
<CAPTION>
Percentage
of
Amount of Commercial
Number of Channels Spectrum Licenses
Controlled(5) Controlled MHz(5) Owned(6)
------------------ ----------------- ----------
<S> <C> <C> <C>
FLORIDA MARKETS:
Ft. Pierce, FL 34 202 MHz 100.0%
Melbourne, FL 36 214 100.0%
West Palm Beach, FL(7) 31 186 84.6%
NORTHWEST MARKETS:
Boise, ID 33 196 85.7%
Sacramento, CA(8) 29 174 15.4%
Yakima, WA 33 196 66.7%
Coos Bay, OR 20 118 95.2%
Eureka, CA 10 58 76.9%
Helena, MT 21 118 100.0%
Kennewick, WA(9) 33 196 69.2%
Klamath Falls, OR 21 100 100.0%
Roseburg, OR 21 124 100.0%
-----
TOTALS Avg. 82.8%
==========
</TABLE>
- ------------------------
(1) LOS is defined as the number of households in the market that can receive
an unobstructed signal through a receiving antenna that is elevated 30
feet above ground level. Estimated LOS Households are based upon
engineering studies performed for the Company.
(2) Number of Subscribers includes single family homes, the number of units
in each multiple dwelling unit ("MDU") and commercial subscribers.
(3) Market Penetration was derived by dividing the Number of Subscribers in
each market as of June 30, 1996 by the number of Estimated LOS Households
as of December 31, 1995 in that market. Total Market Penetration was
derived by dividing the Total Number of Subscribers as of June 30, 1996
for all Operating Systems by the total Estimated LOS Households as of
December 31, 1995 for all Operating Systems.
(4) Based upon CACI's projection of household growth rates in each market.
(5) Spectrum is measured in megahertz ("MHz"), with each wireless cable
channel containing 6 MHz of bandwidth except for channel 2A which contains
4 MHz. The Sacramento System includes channel 2, which is a full 6 MHz of
bandwidth, but all of the remaining systems include channel 2A. The
Number of Channels Controlled and Amount of Spectrum Controlled figures
include one 6 MHz LPTV channel in Fort Pierce and three 6 MHz Low Power
Television ("LPTV") channels in Melbourne.
(6) Percentage of Commercial Licenses Owned is calculated by dividing the
number of commercial channels for which licenses are owned by the Company
by the total number of commercial channels for which licenses are
available in each market, in each case exclusive of LPTV channels. The
Company owns the licenses for the following number of commercial channels
in each market: Fort Pierce, 13; Melbourne, 13; West Palm Beach, 11;
Boise, 18; Sacramento, 2; Yakima, 14; Coos Bay, 20; Eureka, 10; Helena,
21; Kennewick, 9; Klamath Falls, 21; and Roseburg, 21. The total number of
commercial channels available for license ownership in Fort Pierce,
Melbourne, West Palm Beach, Sacramento, Eureka and Kennewick is 13 and the
total number of commercial channels available for license ownership in
Boise, Yakima, Coos Bay, Helena, Klamath Falls and Roseburg is 21, of
which 8 are commercially available ITFS channel licenses. In the markets
where ITFS channel licenses are commercially available, the Company, as
the BTA Authorization
-4-
<PAGE> 8
winner, has the exclusive right to file license applications under FCC
rules and regulations, subject only to applications of educational
and non-profit institutions and restrictions resulting therefrom. See
"Risk Factors--Uncertainty of Ability to Obtain FCC Authorizations."
(7) The Number of Channels Controlled, Amount of Spectrum Controlled and the
Percentage of Commercial Licenses Owned data for West Palm Beach are
subject to the receipt of certain approvals from the FCC and/or third
party interference agreements. Any delays or failures in obtaining
governmental approvals or interference agreements may delay the Company
from launching the West Palm Beach System, transmitting the maximum number
of channels it controls, or may cause the Estimated LOS Households in West
Palm Beach to be decreased. See "Risk Factors--Interference Issues."
(8) The Company's ownership of licenses for two channels in Sacramento is
subject to receiving FCC approval of an assignment application that was
filed in August 1995 and of two pending requests for license renewal, one
timely filed in April 1991 and one untimely filed in April 1994. There
is no guarantee that the Company will obtain the requisite governmental
approval.
(9) The Number of Channels Controlled, Amount of Spectrum Controlled and
Percentage of Commercial Licenses Owned data contained in the table for
the Kennewick System are subject to the consummation of the Kennewick
acquisition. See "Prospectus Summary--History."
HISTORY
The Company, as the Predecessor Partnership, was formed in October 1991.
In April 1992, the Company acquired certain wireless broadcasting assets in
Fort Pierce, Florida and subsequently launched the Fort Pierce System in May
1992. The Company expanded its presence in Florida with the launch of the
Melbourne System in November 1993. In March 1994, the Predecessor Partnership
was effectively merged into Wireless Broadcasting Systems of America, Inc. and
the Company simultaneously acquired the Sacramento System. The Company
acquired the Boise and Yakima Systems in March and April 1995, respectively.
As a result of the Basic Trading Area ("BTA") Auctions (the "BTA Auctions")
conducted by the Federal Communications Commission ("FCC") and completed in
March 1996, the Company acquired the exclusive right to apply for currently and
subsequently available commercial channels (the "BTA Authorizations") for the
following five new markets: Coos Bay, Eureka, Helena, Klamath Falls and
Roseburg. In addition, the Company acquired licensing rights in four of its
five Operating Systems and the West Palm Beach market. The Company is
currently negotiating to acquire a wireless cable system in Kennewick,
Washington (the "Kennewick System") which is in close proximity to the Yakima
System.
In March and April of 1995, Boston Ventures, a private investment firm,
invested $35.0 million in the Company through the purchase of shares of Class A
Cumulative Convertible Preferred Stock (the "Convertible Preferred Stock").
Since its inception in 1983, Boston Ventures has invested approximately $1.0
billion in the media and communications industries, including significant
investments in the subscription television industry.
The Company's executive offices are located at 9250 East Costilla Avenue,
Suite 325, Englewood, Colorado 80112, and the Company's telephone number is
(303) 649-1195.
-5-
<PAGE> 9
THE OFFERING
<TABLE>
<S> <C>
Class A Common Stock Offered Hereby .............. shares
Common Stock to be Outstanding after the Offering:
Class A Common Stock ....................... shares
Class B Common Stock ....................... 24,080,280 shares (1)(2)
----------
Total ................................ shares (2)
===========
Voting Rights .................................... Each class of Common Stock
has identical rights except
with respect to voting.
Each share of Class A
Common Stock is entitled to
one vote and each share of
Class B Common Stock is
entitled to ten votes on
all matters requiring a
shareholder vote. See
"Description of Capital
Stock--Class B Common
Stock."
Use of Proceeds .................................. To repay amounts
outstanding under the
Revolving Credit Facility
(as herein defined) and for
general corporate purposes,
including financing further
expansion and development
of the Operating Systems,
capital expenditures and
operating expenses in
connection with the launch
and development of the
Planned Systems and
possible acquisitions of
additional wireless cable
systems, assets or channel
rights.
Nasdaq National Market Symbol .................... WBSA
</TABLE>
________________________________
(1) Class B Common Stock is convertible into Class A Common Stock on a
one-for-one basis at the option of the holder and in certain other
circumstances. See "Description of Capital Stock--Class B Common Stock."
(2) Does not include: (i) 2,344,201 shares of Class B Common Stock issuable
upon exercise of stock options outstanding as of July 31, 1996 with an
exercise price of between approximately $1.46 and $4.17 per share, of which
709,201 are currently exercisable; (ii) 13,500,000 shares of Class B Common
Stock issuable upon exercise of warrants outstanding as of July 31, 1996
with an exercise price of $3.00 per share; and (iii) 24,052,280 shares of
Class B Common Stock issuable upon conversion of the Convertible Preferred
Stock. See "Description of Capital Stock."
-6-
<PAGE> 10
SUMMARY CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data as of and for each period in the
three year period ended December 31, 1995 have been derived from audited
financial statements of the Company and its subsidiaries. The following
summary consolidated financial data for the six month periods ended June 30,
1995 and June 30, 1996 have been derived from unaudited consolidated financial
statements that in the opinion of the Company reflect all adjustments
(consisting of normal recurring adjustments) necessary to present fairly the
financial data for such periods.
The summary pro forma statement of operations and other data give effect
to the acquisition of the Boise and Yakima Systems and the issuance of
Convertible Preferred Stock and the application of the proceeds therefrom as if
such events had occurred on January 1, 1995. The pro forma data should not be
considered indicative of actual results that would have been achieved had the
events described above been consummated on the date or for the periods
indicated and do not purport to indicate results of operations for any future
period.
These data should be read in conjunction with the financial statements of
the Company and notes thereto, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Pro Forma Consolidated
Financial Data," each of which is included elsewhere in this Prospectus. The
financial statements include operations of the Predecessor Partnership to March
1994, and the operations of the Company thereafter. The Company's acquisition
and development of its systems during the periods reflected in the Summary
Consolidated Financial Data materially affect the comparability of that data
from one period to another. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
-7-
<PAGE> 11
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
Pro
Forma
1992 1993 1994 1995 1995(a)
---- ---- ---- ---- ----
(in thousands, except per share, system and subscriber data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.......................... $ 361 $ 2,669 $ 9,591 $16,874 $18,431
Expenses.......................... 1,804 6,758 13,998 24,054 25,801
Loss from operations.............. (1,443) (4,089) (4,407) (7,180) (7,370)
Interest income (expense), net.... 94 39 (539) (447) (169)
Net loss.......................... (1,337) (4,015) (4,938) (7,627) (7,539)
Preferred stock dividend
requirement...................... -- -- -- (2,414) (3,634)
Net loss applicable to
common stock..................... (1,337) (4,015) (4,938) (10,041) (11,173)
Net loss per common share(b)...... $ (0.20) $ (0.36) $ (0.23) $ (0.42) $ (0.46)
Weighted average common and
common equivalent shares
outstanding(b)................... 6,582 11,004 21,642 24,052 24,052
OPERATING AND OTHER DATA:
EBITDA(c)......................... $(1,069) $(2,489) $ 242 $ 3,169 $ 3,778
Systems in operation at end
of period........................ 1 2 3 5 5
Total subscribers at end of
period........................... 3,500 11,500 34,600 57,000 57,000
<CAPTION>
Six Months Ended
June 30,
----------------
Pro
Forma
1995 1995(a) 1996
---- ------- ----
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.......................... $ 7,480 $ 9,037 $10,190
Expenses.......................... 10,559 12,306 13,604
Loss from operations.............. (3,079) (3,269) (3,414)
Interest income (expense), net.... (274) 4 (493)
Net loss.......................... (3,353) (3,265) (3,907)
Preferred stock dividend
requirement...................... (611) (1,772) (1,894)
Net loss applicable to
common stock..................... (3,964) (5,033) (5,801)
Net loss per common share (b)..... $ (0.16) $ (0.21) $ (0.24)
Weighted average common and
common equivalent shares
outstanding(b)................... 24,052 24,052 24,052
OPERATING AND OTHER DATA:
EBITDA(c)......................... $ 1,477 $ 2,086 $ 1,971
Systems in operation at end
of period........................ 5 5 5
Total subscribers at end of
period........................... 52,700 52,700 63,100
<CAPTION>
June 30, 1996
----------------------------------------------------
BALANCE SHEET DATA: Actual As Adjusted(d)
---------------- --------------
<S> <C> <C>
Cash and cash equivalents....................... $ 217
Investment in wireless cable systems, net....... 54,755 54,755
Total assets.................................... 58,271
Long-term debt, including current portion....... 12,545
Convertible preferred stock..................... 39,308 39,308
Total stockholders' equity...................... 1,080
</TABLE>
(a) The summary pro forma statement of operations and other data give effect
to acquisition of the Boise and Yakima Systems and the issuance of
Convertible Preferred Stock and the application of the proceeds therefrom
as if such events had occurred on January 1, 1995. See "Pro Forma
Consolidated Financial Statements."
(b) Excludes the common stock equivalents of employee stock options and
warrants, as the effect on all periods presented is anti-dilutive. The
pro forma computation of weighted average common and common equivalent
shares outstanding and net loss per common share for years prior to 1995
assumes common shares issued to the partners in exchange for their
partnership interests were issued at the time of, and in proportion to,
partner capital contributions to the Predecessor Partnership.
(c) "EBITDA" means net income (loss) before interest income, interest
expense, income taxes, depreciation and amortization expenses. EBITDA is
commonly used as a measure of performance in the subscription television
industry; however, EBITDA does not purport to represent cash provided by
or used in operating activities and should not be considered in isolation
or as a substitute for measures of performance in accordance with
generally accepted accounting principles.
(d) As adjusted to reflect sale of ____ shares of Class A Common Stock
offered hereby at an initial public offering price of ____ per share which
is the mid-point of the range of the anticipated initial public offering
price, after deducting underwriting discounts and commissions and
estimated offering expenses, and the application of the estimated net
proceeds therefrom.
-8-
<PAGE> 12
RISK FACTORS
An investment in the Class A Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider the following
risk factors, in addition to the other information in this Prospectus, in
connection with an investment in the Class A Common Stock offered hereby.
This Prospectus contains statements which constitute forward looking
statements within the meaning of Section 27A of the Securities Act of 1933 as
amended (the "Securities Act") and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). Those statements appear in a number
of places in this Prospectus and include statements regarding the intent,
belief or current expectations of the Company, its directors or its officers
with respect to, among other things: (i) potential acquisitions or joint
ventures by the Company; (ii) the use of the proceeds of the Offering; (iii)
the Company's financing plans; (iv) trends affecting the Company's financial
condition or results of operations; (v) the Company's growth strategy and
operating strategy; (vi) the declaration and payment of dividends; or (vii)
regulatory matters affecting the Company. Prospective investors are cautioned
that any such forward looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results may
differ materially from those projected in the forward looking statements as a
result of various factors. The accompanying information contained in this
Prospectus, including without limitation the information set forth under the
headings "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and "Business," identifies important
factors that could cause such differences.
LIMITED OPERATIONS; HISTORY OF LOSSES. The Company's operations commenced
in March 1992. The Operating Systems include the Fort Pierce and Melbourne
Systems, in which the Company initiated service in 1992 and 1993, respectively,
and the Sacramento, Boise and Yakima Systems, which the Company acquired in
March 1994, March 1995 and April 1995, respectively. Prospective investors,
therefore, have limited historical financial information about the Company upon
which to base an evaluation of the Company's performance and an investment in
the Class A Common Stock. Given the Company's limited operating history, there
can be no assurance that it will be able to compete successfully in the
subscription television industry.
The Company has recorded net losses in each year of its operations. At
June 30, 1996, the Company's accumulated deficit was approximately $26.1
million. Losses incurred since inception are attributable primarily to
start-up costs, subscriber service costs, interest expense and depreciation of
assets required to develop wireless cable systems. The Company expects to
continue to experience net losses while it develops and expands its wireless
cable systems. There can be no assurance that the Company will generate
sufficient operating revenues to sustain positive EBITDA or to achieve positive
net income in the foreseeable future. See "Capitalization" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
CAPITAL REQUIREMENTS FOR GROWTH; NEED FOR ADDITIONAL FINANCING. The
growth of the Company's business requires substantial investment on a
continuing basis to finance capital expenditures and related expenses for
expansion of the Company's subscriber base and system development. The Company
may require additional financing, through debt or equity financings, joint
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<PAGE> 13
ventures or other arrangements, to cover ongoing operating losses. Additional
equity or debt also may be required to finance future acquisitions of wireless
cable operations, assets or channel interests. In addition, the Convertible
Preferred Stock is mandatorily redeemable by the Company for cash, if
not previously converted into Class B Common Stock, on December 31, 2002.
There can be no assurance that the Company will be able to obtain additional
debt or equity on satisfactory terms, or at all, to meet its future financing
needs. The Company's future capital requirements also will depend upon a
number of factors, including marketing expenses, staffing levels and subscriber
growth, as well as other factors that are not within the Company's control,
such as competitive conditions, programming costs and capital costs. The lack
of available additional capital could have a material adverse effect on the
Company and its ability to compete successfully in the subscription television
industry. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
COMPETITION AND NEW TECHNOLOGIES. The subscription television industry is
highly competitive. While wireless cable systems typically compete directly
with both hard-wire cable companies and satellite delivery systems, recent
regulatory changes and technological developments have encouraged new
competitors, such as telephone companies, to enter the subscription television
business. Many of the Company's existing or potential competitors have
substantially greater name recognition and greater financial, technical and
human resources than the Company and therefore may be better able to develop
and operate subscription television systems. The hard-wire cable companies
competing in the Company's operating markets currently offer approximately 12
to 70 channels to their subscribers, compared to between 29 and 34 channels
offered by the Company. While the Company believes that its lower prices
provide a competitive advantage, aggressive price competition by any existing
or new competitor would likely have a material adverse effect on the Company's
results of operations and financial condition. The subscription television
industry also competes with conventional over-the-air broadcast television
stations and, in areas where several off-air television signals can be received
free, subscription television systems have found market penetration to be more
difficult.
New and advanced technologies for the subscription television industry,
such as Local Multipoint Distribution Service ("LMDS") and direct broadcast
satellite services ("DBS"), are in various stages of development. In addition,
digital video compression ("DVC") and fiber optic networks are being
implemented and supported by entities such as hard-wire cable companies and
regional telephone companies which are likely to have greater resources than
the Company. When fully deployed, these new technologies could have a material
adverse effect on the demand for wireless cable services. There can be no
assurance that the Company will be able to compete successfully with existing
competitors or new entrants in the market for subscription television services.
See "Industry Overview--Competition."
DIFFICULTIES AND UNCERTAINTIES OF A NEW INDUSTRY. Wireless cable
television is a developing industry with a relatively short operating history.
Potential investors should be aware of the difficulties and uncertainties
normally associated with developing industries, such as a lack of consumer
acceptance, difficulty in obtaining financing, increasing competition, advances
in technology and changes in laws and regulations. There can be no assurance
that the wireless cable industry will develop and survive as a viable industry.
See "Industry Overview--Wireless Cable Technology."
-10-
<PAGE> 14
GOVERNMENT REGULATION. The right to transmit video programming,
entertainment services and other information on wireless frequencies is
regulated by the FCC. In each metropolitan market, the FCC has allocated 33
channels for the primary purpose of wireless transmissions of video programming.
Licenses for both Multipoint Distribution Service ("MDS") and Instructional
Television Fixed Service ("ITFS") channels are granted based upon applications
filed with the FCC. FCC approval is also required for license amendments,
license modifications, license assignments, transfers of control of licensees
and license renewals. The FCC imposes restrictions and conditions upon the use
and operation of channels. FCC licenses are limited in duration and subject to
renewal procedures.
In February 1996, the Telecommunications Act of 1996 (the "1996 Act") was
enacted, resulting in comprehensive changes to the regulatory environment for
the telecommunications industry as a whole and the competitive environment in
which the Company operates. The 1996 Act substantially reduces regulatory
authority over hard-wire cable rates and affords hard-wire cable operators
greater flexibility to offer different rates to certain of their subscribers,
and thereby permits them to offer discounts on hard-wire cable service to the
Company's subscribers or prospective subscribers. The 1996 Act also permits
telephone companies to enter the video distribution business, subject to
certain conditions. The entry into the video distribution business by
telephone companies who have greater access to capital and other resources,
could provide significant competition to wireless cable providers, including
the Company. In addition, the legislation affords relief to DBS service by
preempting the authority of local governments to impose certain taxes. The
1996 Act delegates to the FCC the authority to adopt regulations implementing
certain of its provisions. The Company cannot reasonably predict the substance
of rules and policies to be adopted by the FCC or the effect of the legislation
and any such rules on the Company's operations. See "Industry
Overview--Regulatory Environment--The 1996 Act."
While current FCC rules are intended to promote development of a
competitive subscription television industry, the statutes, rules and
regulations affecting the subscription television industry could change and any
future changes in FCC rules, regulations, policies or procedures could have a
material adverse effect on the industry as a whole and the Company in
particular.
UNCERTAINTY OF ABILITY TO OBTAIN FCC AUTHORIZATIONS. Wireless cable
systems transmit programming over some or all of the 33 MDS and ITFS channels
that are licensed by the FCC in a particular market. Depending upon
availability and interference considerations, the FCC also may license LPTV
channels in certain markets that can be used in conjunction with the MDS and
ITFS channels in the wireless cable system. The Company owns one LPTV channel
in Fort Pierce and three LPTV channels in Melbourne that it intends to use in
the channel line-ups in those Operating Systems. There can be no assurance
that the Company will be able to acquire additional LPTV channels in its other
markets.
Depending upon the number of local off-air channels that are available in
a market, the Company estimates that a minimum of 15 wireless cable channels is
necessary to offer commercially viable wireless cable service. With the
exception of Eureka, the Company has or will have the right to use at least 20
channels in each of its markets upon the grant of certain license applications.
Based upon the initial new station applications already filed by the Company,
however, the Company believes it will be able to file acceptable applications
for a sufficient number of additional channels in each market in order to
develop systems in those markets. As to any new applications filed by the
Company, especially if the Company's engineering plans are altered in any way,
the Company may
-11-
<PAGE> 15
need to secure interference agreements with nearby incumbent licensees and
other BTA Authorization winners. See "--Interference Issues."
All of the channels composing a wireless cable system must operate from
the same transmitter site so that subscribers may receive a clear picture on
all channels offered. In the Company's seven Planned Systems, it does not
currently have the right to operate a sufficient number of channels from a
single transmitter site. In these markets, the Company is dependent upon the
following types of approvals from the FCC before operations in a coordinated
manner can begin: (i) grant of pending applications for new licenses or for
modification of existing licenses; and (ii) grant of new station applications
and license modification applications, which have not yet been filed with the
FCC. Currently, the Company has applications pending with the FCC in most of
its markets. See "Business--The Company's Markets." In launching or upgrading
a system, the Company may wish to relocate its transmission facility or
increase its height or signal power in order to serve its targeted market. If
such changes cause the Company's signal to violate the above referenced
interference standards in the protected service areas of other wireless license
holders, the Company would be required to negotiate interference agreements
with such other license holders. There can be no assurance that any of these
applications will be granted by the FCC. The Company believes that denial of
any single application will not adversely affect the Company. However, denial
of several applications, particularly if concentrated in one or a few of the
Company's markets, could have a material adverse effect on the ability of the
Company to serve such market or markets. See "Industry
Overview--Regulatory Environment--Licensing Procedures."
MDS authorizations are also subject to cable cross-ownership prohibitions.
An MDS authorization may not be granted to a cable operator if a portion of
the MDS station's protected service area is within a franchise area actually
served by the cable operator. Although the Company is not a cable operator and
its investors, including Boston Ventures, are not cable operators, two
affiliates of Boston Ventures own interests in Falcon Holding Group, L.P.
("Falcon"). Under the FCC's attribution rules, these interests could be
attributed to Boston Ventures and the Company and thereby call into question
the cable cross-ownership rules in communities where the Company owns or seeks
to own MDS authorizations and Falcon operates cable systems. In March 1995,
before Boston Ventures invested in the Company, the Company sought and received
a waiver of the cable cross-ownership rules from the FCC relating to the extent
of cross-ownership between the Company and Falcon. The market of particular
concern at that time was Melbourne. However, subsequent to receiving the
waiver, the Company bid for and won BTA Authorizations for three other markets
where Falcon operates cable systems: Coos Bay, Eureka and Roseburg. While an
additional waiver request may not have been necessary, the Company has
requested waivers from the FCC in each of these markets. There can be no
assurance that the Company will obtain the requisite governmental approvals for
these or any other markets where the conflict may exist.
PHYSICAL LIMITATIONS OF WIRELESS CABLE TRANSMISSION. Line-of-sight
wireless cable programming is transmitted via microwave frequencies from a
head-end to a small receive-site antenna at each subscriber's location.
Reception of wireless cable programming generally requires a direct,
unobstructed line-of-sight from the head-end to the subscriber's receive-site
antenna. Therefore, in communities with hilly terrain, dense foliage, tall
buildings or other obstructions in the transmission path, wireless cable
transmissions can be difficult or impossible to receive at certain locations.
Consequently, the Company may not be able to supply service to certain
potential subscribers within its service areas. While the Company intends to
employ signal repeaters to
-12-
<PAGE> 16
overcome line-of-sight obstructions, there can be no assurance that it will be
able to secure the necessary FCC authorizations for the repeaters. In addition
to line-of-sight obstructions, in limited circumstances extremely adverse
weather can damage individual receive-site antennae as well as transmission
equipment.
INTERFERENCE ISSUES. Interference from other wireless cable systems can
limit the ability of a wireless cable system to serve any particular point.
Historically, the FCC's primary concern in licensing MDS and ITFS stations has
been avoiding situations where proposed new or modified stations are predicted
to cause interference to the reception of previously proposed or authorized
stations. Since conclusion of the BTA Auctions, the FCC also is now concerned
that proposed stations not cause interference along BTA boundaries. MDS and
ITFS licensees that were in existence before the advent of the BTA Auctions
("incumbent licensees") are protected from interference within a 35-mile radius
of their transmission site. Licenses issued in connection with a BTA
Authorization will be protected from interference from other proposed new or
modified BTA Authorizations at the BTA boundary.
Where the FCC-prescribed interference protection standards cannot be met,
negotiation of interference agreements with nearby licensees is necessary in
order to receive FCC grant of pending applications. At this time, the Company
will be required to negotiate interference agreements in West Palm Beach, Yakima
and Kennewick (upon acquisition) in order to obtain the grant of its pending
applications. See "Business--The Company's Markets." In launching or upgrading
a system, the Company may wish to relocate its transmission facility or increase
its height or signal power in order to serve its targeted market. If such
changes would cause the Company's signal to violate the above referenced
interference standards in the protected service areas of other wireless license
holders, the Company would be required to negotiate interference agreements with
such other license holders. There can be no assurance that the Company will be
able to negotiate all necessary interference agreements on terms acceptable to
the Company or that the FCC will approve the Company's applications. In the
event that the Company cannot obtain interference agreements required to
implement the Company's plans for a market, the Company may have to curtail or
modify operations in that market, utilize a less optimal tower location or
reduce the height or power of the transmission facility, which could have a
material adverse effect on the growth of the Company in that market.
With respect to the Company's planned West Palm Beach System, the Company
is a party to a settlement agreement which resolves mutually exclusive
applications for ITFS licenses, and is seeking FCC approval to modify existing
and proposed ITFS facilities in the West Palm Beach market. License holders
who intend to initiate a wireless cable service in Miami have opposed the
proposed settlement agreement. The Company has filed a formal objection to the
opposition by the Miami license holders, and believes that an agreement
acceptable to all parties can be reached. However, there can be no assurance
that the Company will be able to negotiate successfully such an agreement with
the Miami license holders. The Company believes that the failure to negotiate
an interference agreement could lead to interference affecting approximately
25.0% of the LOS households in the West Palm Beach market.
-13-
<PAGE> 17
DEPENDENCE ON KEY INDIVIDUALS. The Company is dependent in large part on
the experience and knowledge of its senior management, particularly William W.
Kingery, Jr., President and Chief Executive Officer of the Company. The loss
of the services of Mr. Kingery could have a material adverse effect upon the
Company. The Company has entered into an employment agreement with Mr.
Kingery. See "Management--Employment Agreements." Furthermore, should Mr.
Kingery no longer be involved in the management of the Company, the Company
would be in default under its Revolving Credit Facility.
NEED TO MANAGE GROWTH. Since inception, the Company has experienced rapid
growth in the number of its employees, the scope of its operating and financial
systems and the geographic area of its operations. This growth has increased
the operating complexity of the Company and the level of responsibility for
management personnel. Through acquisition of new systems and the development of
its Operating Systems and Planned Systems, the Company expects to continue to
experience rapid growth. In managing this growth, the Company will be required
to continue to expand its operating and financial systems and to train and
manage its employee base. There can be no assurance that the Company will be
able to attract and retain qualified employees to meet the Company's needs
during its growth.
DEPENDENCE UPON PROGRAM MATERIAL AND CHANNEL LEASE AGREEMENTS. The
Company has fixed-term contracts with various program suppliers, such as CNN,
ESPN and HBO. These contracts generally cover a period of one to ten years and
are typically renewable upon expiration. Although the Company has no reason to
believe that these contracts will not be renewed upon expiration, if the
contracts are not renewed, the Company will be required to seek program
material from other sources. While current legislation requires that
vertically integrated multiple cable system operators ("MSOs") sell programming
to their competitors on fair and reasonable terms, there can be no assurance
that the Company will be able to procure programming at favorable rates.
Certain portions of that legislation unrelated to programming access are the
subject of various legal challenges. See "Industry Overview--Regulatory
Environment."
Although the Company's strategy is to own a significant number of the
available wireless cable channel licenses in each of its markets, the Company,
particularly in its Sacramento System, is dependent on leases with third
parties for some of its wireless cable channels. Under FCC rules, the terms of
certain of the leases cannot exceed ten years. While many of the Company's
leases provide for automatic renewals, or provide the Company with a right of
first refusal in the event the lessor proposes to lease channels to a third
party, there can be no assurance that these leases will be renewed or extended
beyond their current terms or on terms satisfactory to the Company. Similarly,
the failure by these lessors to comply with the terms of their FCC
authorizations or rules could result in the termination or forfeiture of their
authorizations or the denial of their license renewal by the FCC. While the
Company's lease agreements with license holders typically require the license
holders, at the Company's expense, to use their best efforts, in cooperation
with the Company, to make various required filings with the FCC in connection
with the maintenance and renewal of licenses, any terminations, forfeitures or
denial of license renewal by the FCC or failure to obtain renewal of channel
lease agreements would result in a reduction of the amount of programming the
Company offers in some markets. In addition, while the Company's leases with
MDS and ITFS licensees require their cooperation, it is possible that one or
more of such licensees may hinder or delay the Company's efforts to use the
channels. See "Business--Licenses and Channel Leases."
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<PAGE> 18
CONTROL BY EXISTING STOCKHOLDERS; CONFLICT OF INTEREST. Boston Ventures
owns Convertible Preferred Stock which is convertible, at any time, into shares
of Class B Common Stock. If converted, Boston Ventures would own approximately
38.6% of the Class B Common Stock on a fully diluted basis which as of July 31,
1996 after giving effect to the Offering would have represented ____% of the
voting power of the Common Stock. Pursuant to the Stockholders Agreement,
Boston Ventures has the right to designate two persons to be elected to the
Company's Board of Directors who may not be removed except by a unanimous vote
of the Board of Directors and whose vote is required to approve certain
material transactions. As a result of these rights, Boston Ventures is in a
position to influence significantly the business and affairs of the Company.
See "Principal Stockholders--Stockholders Agreement" and "--Preferred Stock
Purchase Agreement" and "Description of Capital Stock--Convertible Preferred
Stock." In addition to Boston Ventures' holdings, approximately 20.3% of the
Class B Common Stock on a fully diluted basis, representing _____% of the
voting power of the Common Stock as of July 31, 1996 and after giving effect to
the Offering is beneficially owned by Dean L. Buntrock or members of his family
who, in the aggregate, may be able to exercise considerable control over the
Company's affairs. There can be no assurance that the interests of these
stockholders and the other stockholders will not conflict. See "Principal
Stockholders--Stockholders Agreement" and "--Authority to Issue Preferred
Stock; Anti-Takeover Provisions." Also, under the Company's Revolving Credit
Facility, specified changes in the percentage of Common Stock held by certain
of the Company's shareholders could result in an event of default.
SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of the Offering and based
on the shares of Common Stock outstanding as of June 30, 1996, the Company will
have a total of __________ shares of Common Stock outstanding, assuming no
exercise of outstanding warrants for 13,500,000 shares of Class B Common Stock
immediately prior to the closing of the Offering and no exercise of options
after June 30, 1996. Of these shares, the _______ shares of Class A Common
Stock offered hereby (__________ shares if the Underwriters' over-allotment
option is exercised in full) will be freely tradable without restriction or
registration under the Securities Act by persons other than "affiliates" of the
Company, as defined under the Securities Act. The 24,080,280 shares of Class B
Common Stock outstanding and any shares purchased in this Offering by an
affiliate are "restricted shares" as that term is defined by Rule 144 as
promulgated under the Securities Act ("Restricted Shares"). Because Class B
Common Stock is convertible into Class A Common Stock, however, sales of
Restricted Shares in the public market, or the availability of such shares for
sale, could adversely affect the market price of the Class A Common Stock.
The current stockholders and the executive officers who, upon completion
of the Offering, will own in the aggregate _________ shares of Class B
Common Stock and the Company have each agreed not to directly or indirectly,
offer, sell, offer to sell, contract to sell, pledge, grant any option to
purchase or otherwise sell or dispose (or announce any offer, sale, offer of
sale, contract of sale, pledge, grant of any option to purchase or other sale or
disposition) of any shares of Common Stock or other capital stock, or any
securities convertible into, or exercisable or exchangeable for, any shares of
Common Stock or other capital stock of the Company, for a period of 180 days
after the date of this Prospectus, without the prior written consent of
Prudential Securities Incorporated, on behalf of the Underwriters. The number
of shares of such Common Stock available for sale in the public market is
further limited by restrictions under the Securities Act.
In addition, holders of 24,080,280 shares of Class B Common Stock and the
holders of warrants to purchase 13,500,000 shares of Class B Common Stock may
require the Company to register their shares of Class B Common Stock under the
Securities Act, which would permit such holders to resell a certain amount of
their shares without complying with Rule 144. Such holders have, however,
waived their registration rights with respect to the Offering and have agreed
to a similar 180-day lock-up period with respect to the warrants and shares of
Class B Common Stock for which the warrants are exercisable. See "Principal
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<PAGE> 19
Stockholders--Stockholders Agreement," "Description of Capital
Stock--Class B Common Stock" and "Description of Capital Stock--Warrants."
The Company has reserved for issuance ________ shares of Class ___ Common
Stock under the Directors' Plan (as defined herein) and 3,103,000 shares of
Class B Common Stock under the Stock Option Plan. As of July 31, 1996, options
to purchase a total of 2,344,201 shares of Class B Common Stock pursuant to the
Stock Option Plan were outstanding with an exercise price of approximately
$1.46 (with the exception of options to purchase 300,000 shares of Class B
Common Stock issued in July 1996 exercisable at approximately $4.17 per share)
of which 709,201 were fully vested and exercisable. Of the shares issuable upon
exercise of such options, _____ are subject to a similar lock-up period with
respect to such shares. See "Management--Stock Option Plan," and
"Underwriting."
Rule 701 under the Securities Act provides that, beginning 90 days after
the date of this Prospectus, shares of Common Stock acquired on the exercise of
outstanding options may be resold by persons other than affiliates subject only
to the manner of sale provisions of Rule 144, and by affiliates subject to all
provisions of Rule 144 except its two-year minimum holding period. The Company
intends to file one or more registration statements on Form S-8 under the
Securities Act to register shares of Common Stock subject to stock options.
See "Management--Non-Employee Director Stock Option Plan."
Prior to this Offering, there has been no public market for the Common
Stock of the Company, and no predictions can be made of the effect, if any,
that the sale or availability for sale of shares of additional Common Stock
will have on the trading price of the Common Stock. Nevertheless, sales of
substantial amounts of such shares in the public market, or the perception that
such sales could occur, could adversely affect the trading price of the Common
Stock and could impair the Company's future ability to raise capital through an
offering of its equity securities. See "Shares Eligible for Future Sale" and
"Description of Capital Stock."
AUTHORITY TO ISSUE PREFERRED STOCK; ANTI-TAKEOVER PROVISIONS. The
Company's Board of Directors has the authority to issue up to _________ shares
of preferred stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or action by the Company's
stockholders. In addition, the rights of the holders of Class A Common Stock
will be subject to, and may be adversely affected by, the rights of the holders
of any shares of preferred stock which may be issued in the future. While the
Company has no present intention to issue shares of preferred stock, such
issuance, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding
voting stock of the Company. In addition, such preferred stock may have other
rights, including economic rights senior to the Class A Common Stock, and, as a
result, the issuance thereof could have a material adverse effect on the market
value of the Class A Common Stock. Currently the Company has 35,000 shares of
Convertible Preferred Stock outstanding. The shares of Convertible Preferred
Stock may be converted into Class B Common Stock at the Applicable Conversion
Rate (as defined in the Company's Amended and Restated Certificate of
Incorporation (the "Certificate")) and the holders are entitled to
anti-dilution protection in the event of the sale or issuance of any Common
Stock for a price per share less than the Applicable Conversion Rate. See
"Description of Capital Stock--Convertible Preferred Stock" and "--Preferred
Stock."
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<PAGE> 20
Certain provisions of the Certificate could delay, defer or prevent a
takeover attempt that a stockholder might consider in the Company's best
interest. These provisions may adversely affect prevailing market prices for
the Class A Common Stock. These provisions include the terms of the Class B
Common Stock, which has ten votes per share for every one vote per share by
Class A Common Stock, and the authority of the Board of Directors to issue
preferred stock in one or more series without the consent of the Class A Common
stockholders. In addition, Section 203 of the Delaware General Corporation Law
(the "Delaware Act") prohibits the Company from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person first becomes an "interested
stockholder" unless the business combination is approved in a prescribed
manner. The application of Section 203 also could have the effect of delaying
or preventing a change of control of the Company. The Stockholders Agreement
also may make it difficult in some respects to effect a change in control of
the Company and replace incumbent management. The existence of these
provisions may have a negative impact on the price of the Class A Common Stock,
may discourage third party bidders from making a bid for the Company or may
reduce any premiums paid to shareholders for their Class A Common Stock. See
"Principal Stockholders--Stockholders Agreement" and "Description of Capital
Stock."
LACK OF DIVIDEND HISTORY. The Company has never declared or paid any cash
dividends on any of its Common Stock and does not expect to declare any such
dividends in the foreseeable future. Payment of any future dividends will
depend upon earnings and capital requirements of the Company, the terms of the
Company's credit facilities, the terms of any preferred stock and other factors
the Board of Directors considers appropriate. The Company currently intends to
retain earnings, if any, to support continuing growth and expansion. Although
accruing, no dividends have been paid to date on the Convertible Preferred
Stock. See "Dividend Policy," and "Management's Discussion and Analysis of
Financial Condition--Liquidity and Capital Resources" and "Description of
Capital Stock--Convertible Preferred Stock."
DILUTION. The anticipated initial public offering price of the Class A
Common Stock of $____ per share (the mid-point of the proposed range of $_____
to $_____) is substantially higher than the net tangible book value per share
of Common Stock. Investors in shares of Class A Common Stock offered hereby
will incur immediate and substantial dilution in the net tangible book value
per share of Common Stock from the initial public offering price, and may incur
substantial additional dilution upon the exercise of outstanding stock options
and warrants by holders thereof.
ABSENCE OF A PUBLIC MARKET AND SUBSTANTIAL POSSIBLE VOLATILITY OF STOCK
PRICE. Prior to the Offering, there has been no public market for the Class A
Common Stock, and there can be no assurance that an active trading market will
develop or be sustained. The price of the Class A Common Stock offered hereby
will be determined through negotiations between the Company and the
Underwriters and may not reflect the market price of the Class A Common Stock
after the Offering. See "Underwriting." The market price of the Class A
Common Stock could be subject to wide fluctuations in response to variations in
operating results, announcements of technological innovations or new services
by the Company or its competitors and other events and factors. In addition,
in recent years the stock market has experienced extreme price and volume
fluctuations that have affected the market prices for many emerging growth
companies, often being unrelated to their operating performance. Such market
fluctuations could have a material adverse effect on the market price of the
Class A Common Stock.
-17-
<PAGE> 21
USE OF PROCEEDS
The net proceeds to the Company from the sale of the __ shares of Class A
Common Stock offered by the Company (assuming an offering price of $_______ per
share, the mid-point of the range of the anticipated initial public offering
price and after deducting underwriting discounts and commissions and estimated
offering expenses), are estimated to be approximately $___ million
(approximately $___ million if the Underwriters' over-allotment option is
exercised in full). Of the net proceeds, the Company intends to use
approximately $____ million to repay outstanding amounts under its $40.0
million Revolving Credit Facility (as herein defined) and the remaining
proceeds for general corporate purposes, including financing further expansion
and development of the Operating Systems, capital expenditures and operating
expenses in connection with the launch and development of the Planned Systems
and possible acquisition of additional wireless cable systems, assets or
channel rights. Pending use by the Company for the foregoing purposes, the net
proceeds will be invested in short-term, investment grade interest-bearing
securities.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on any class of
its Common Stock and does not expect to declare any such dividends for the
foreseeable future. The Company is currently accruing dividends on its
Convertible Preferred Stock. The Certificate prohibits the payment of any
dividends on Common Stock while any Convertible Preferred Stock is outstanding
and accrued dividends on the Convertible Preferred Stock remain unpaid. The
Company may not declare dividends on the Class B Common Stock without declaring
an equal per share dividend on the Class A Common Stock. In addition, the
terms of the Revolving Credit Facility prohibit the payment of dividends so
long as any funds are outstanding or the commitment to lend remains in place.
See "Management Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." Payments of any future dividends
(other than stock dividends) will depend upon earnings and capital requirements
of the Company, the Company's credit facilities and other factors the Company's
Board of Directors considers appropriate. The Company currently intends to
retain earnings, if any, to support continuing growth and expansion.
-18-
<PAGE> 22
CAPITALIZATION
The following table sets forth the capitalization of the Company at June
30, 1996 and as adjusted to: (i) give effect to the sale by the Company of
_____ shares of Class A Common Stock offered (assuming an initial public
offering price of $_____ per share, the mid-point of the range of the
anticipated initial public offering price, after deducting underwriting
discounts and commissions and estimated offering expenses) and the application
of the proceeds therefrom and (ii) reflect the designation of the original
Common Stock as Class B Common Stock and the authorization of a new Class A
Common Stock. This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and related Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
June 30, 1996
---------------------------------
Actual As Adjusted
------ -----------
(unaudited, in thousands)
<S> <C> <C>
Cash and cash equivalents............................................ $ 217 $
======= =======
Current portion of long term debt.................................... $ 45 $
======= =======
Long-term debt:
Revolving Credit Facility(1)........................................ $12,500 $
Convertible Preferred Stock, $.01 par value,
35,000 shares authorized, issued and outstanding,
stated at liquidation value, including cumulative
dividends of $4,307,835............................................. 39,308 39,308
------- -------
Stockholders' equity:
Preferred Stock, $.01 par value,
__________ shares authorized, no shares
issued and outstanding (other than Convertible
Preferred Stock) and no shares issued and outstanding
(other than Convertible Preferred Stock) as adjusted......... -- --
Common Stock, $.01 par value,
65,000,000 shares authorized, 24,080,280 shares
issued and outstanding and no shares authorized,
issued and outstanding as adjusted(2)........................ 241 --
Class A Common Stock $.01 par value,
_____ shares authorized, no shares issued and
outstanding, _____ shares issued and outstanding
as adjusted.................................................. --
Class B Common Stock $.01 par value,
____ authorized, no shares issued outstanding,
____ shares issued and outstanding as adjusted............... -- 241
Additional paid in capital........................................... 26,971
Accumulated deficit.................................................. (26,132) (26,132)
------- -------
Total stockholders' equity................................... 1,080
------- -------
Total capitalization................................. $52,888 $
======= =======
</TABLE>
- -------------------------------
(1) In November 1995, the Company entered into a $40.0 million secured
revolving credit facility (the "Revolving Credit Facility"). The
Revolving Credit Facility becomes a term loan on December 31, 1998, at
which time outstanding borrowings are amortized on a quarterly basis
through December 31, 2002. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
(2) The capitalization table does not reflect the exercise of outstanding
warrants to purchase 13,500,000 shares of Class B Common Stock for an
aggregate purchase price of $40.5 million or exercisable options to
purchase 709,201 shares of Class B Common Stock for an aggregate purchase
price of approximately $1.0 million.
-19-
<PAGE> 23
DILUTION
Purchasers of the shares of Class A Common Stock offered hereby will
experience an immediate and substantial dilution in the net tangible book value
per share of their Class A Common Stock from the initial public offering price.
As of June 30, 1996, the net tangible book value of the Common Stock was
$________, or $_____ per share. Net tangible book value per share represents
the amount of total tangible assets less total liabilities, divided by the
total number of shares of Common Stock outstanding. Assuming no changes in the
net tangible book value after June 30, 1996, other than to give effect to the
sale of the ______ shares of Class A Common Stock offered (assuming an initial
public offering price of $_______ per share, the mid-point of the range of the
anticipated initial public offering price, and after deducting underwriting
discounts and commissions and estimated offering expenses), the pro forma net
tangible book value of the Company as of June 30, 1996 would have been
$_________, or $______ per share ($______ per share if the Underwriters'
over-allotment option is exercised in full), representing an immediate increase
in net tangible book value per share of $_____ to existing stockholders and an
immediate dilution of $_______ per share to new investors purchasing shares of
Class A Common Stock in the Offering. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share
Net tangible book value before the Offering .................................... $ $
Increase per share attributable to sale of new shares to new investors.......... ______
Pro forma net tangible book value after the Offering.............................. _______
Dilution of net tangible book value to new investors.............................. $ =======
</TABLE>
The following table sets forth as of June 30, 1996, the number of shares
of Common Stock purchased from the Company, the total effective cash
consideration paid, and the average price per share paid by existing
stockholders and by new investors purchasing shares sold by the Company in the
Offering.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average Price
Number Percent Amount Percent Per Share
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 24,080,280 _____% $27,211,512 _____% $_________
New investors.............. __________ _____ __________ _____% $_________
Total..................... 100.0% $ 100.0%
========== ====== ========== ======
</TABLE>
The foregoing table assumes: (i) no exercise of outstanding warrants to
purchase 13,500,000 shares of Class B Common Stock for an aggregate purchase
$40.5 million; (ii) no exercise of exercisable options to purchase 709,201
shares of Class B Common Stock for an aggregate purchase price of approximately
$1.0 million; and (iii) no conversion of the Convertible Preferred Stock into
24,052,280 shares of Class B Common Stock and cash payment of the $4.3 million
accrued preferred dividend upon such conversion. If all such warrants and
options were assumed to be exercised, Convertible Preferred Stock converted and
preferred dividends paid at June 30, 1996 the pro forma tangible book value
after the Offering would have been $________, or $______ per share. This would
represent an immediate dilution of $____ per share to investors purchasing Class
A Common Stock in the Offering. See "Description of Capital Stock."
-20-
<PAGE> 24
PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated statement of operations for
the year ended December 31, 1995, gives effect to the acquisition of the Boise
and Yakima Systems and the issuance of Convertible Preferred Stock and the
application of the proceeds therefrom as if such events had occurred on January
1, 1995.
These pro forma financial statements should be read in conjunction with
the financial statements of the Company, as well as the financial statements of
Boise Cable Limited Partnership and Northwest Cable Network included elsewhere
in this Prospectus. The pro forma adjustments, as described in the
accompanying notes are based upon currently available information and upon
certain assumptions that management believes are reasonable under current
circumstances. The pro forma information does not purport to be indicative of
the results which would have been achieved had the events described above been
consummated for the periods indicated and do not purport to indicate the
results of operations for any future period.
<TABLE>
<CAPTION>
Year Ended December 31, 1995
--------------------------------------------------------------------
Unaudited
WBSA Boise Yakima Combined
Historical Historical(a) Historical(a) Total
---------- ---------- ---------- ---------
(Unaudited, in thousands except per share amounts)
<S> <C> <C> <C> <C>
Revenues.................................... $16,874 $551 $1,006 $18,431
Expenses:
System operations......................... 8,913 228 344 9,485
Selling, general and administrative....... 4,792 100 276 5,168
Depreciation and amortization............. 10,349 93 197 10,639
------ ---- ------ -------
Total operating expenses................ 24,054 421 817 25,292
------ ---- ------ -------
Income (loss) from operations............... (7,180) 130 189 (6,861)
Interest income............................. 25 -- -- 25
Interest expense............................ (472) (32) (146) (650)
------- ---- ------ -------
Net income (loss)........................... (7,627) 98 43 (7,486)
Preferred stock dividend requirement........ (2,414) -- -- (2,414)
-------- ---- ------ -------
Net income (loss) applicable to common stock $(10,041) $ 98 $ 43 $(9,900)
======== ==== ====== =======
Net loss per common share................... $ (0.42) $ (0.41)
======== =======
Weighted average number of common shares and
common equivalent shares outstanding...... 24,052 24,052
======== =======
<CAPTION>
Year Ended December 31, 1995
--------------------------------
Unaudited Unaudited
Pro Forma Pro Forma
Adjustments Combined
----------- ---------
(Unaudited, in thousands except per share amounts)
<S> <C> <C>
Revenues.................................... -- $ 18,431
Expenses
System operations......................... -- 9,485
Selling, general and administrative....... -- 5,168
Depreciation and amortization............. 509 (b) 11,148
------- --------
Total operating expenses................ 509 25,801
------- --------
Income (loss) from operations............... (509) (7,370)
Interest income............................. -- 25
Interest expense............................ 456 (c) (194)
------- --------
Net income (loss)........................... (53) (7,539)
Preferred stock dividend requirement........ (1,220)(d) (3,634)
------- --------
Net income (loss) applicable to common stock $(1,273) $(11,173)
======= ========
Net loss per common share................... $ (0.46)
========
Weighted average number of common shares and
common equivalent shares outstanding...... 24,052
========
</TABLE>
- ------------------------------------
(a) Historical results of operations are for the period from January 1, 1995
to March 15, 1995 for the Boise System and are for the period from
January 1, 1995 to April 30, 1995 for the Yakima System.
(b) Adjusted to reflect additional depreciation and amortization expense
relating to the acquisitions of the Boise and Yakima Systems under the
purchase method of accounting for business combinations.
(c) Adjusted to exclude interest expense of $175,000 relating to seller debt
not assumed in the purchase of the Boise and Yakima Systems and to reduce
interest expense under the Previous Credit Facility (as herein defined) to
reflect the payment of indebtedness thereunder with a portion of the
proceeds of the Convertible Preferred Stock.
(d) Reflects additional dividend requirements of the Convertible Preferred
Stock.
-21-
<PAGE> 25
SELECTED CONSOLIDATED FINANCIAL DATA
The summary selected consolidated financial data as of and for each year
in the three year period ended December 31, 1995 have been derived from the
audited consolidated financial statements of the Company and its subsidiaries.
The following summary selected consolidated financial data for the six month
periods ended June 30, 1995 and June 30, 1996 have been derived from unaudited
consolidated financial statements that in the opinion of the Company reflect
all adjustments (consisting of normal recurring adjustments) necessary to
present fairly the financial data for such periods.
These data should be read in conjunction with the financial statements of
the Company and notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," each of which is included
elsewhere in this Prospectus. The Company's acquisition and development of
systems during the periods reflected in the Selected Consolidated Financial
Data materially affect the comparability of that data from one period to
another. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
-22-
<PAGE> 26
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
(in thousands, except per share, system and subscriber data)
STATEMENT OF OPERATIONS DATA:
Revenues................................. $ 361 $ 2,669 $ 9,591 $ 16,874 $ 7,480 $10,190
Expenses:
System operations....................... 533 2,818 5,531 8,913 4,017 5,301
Selling, general and administrative..... 897 2,340 3,818 4,792 1,986 2,918
Depreciation and amortization........... 374 1,600 4,649 10,349 4,556 5,385
------- ------- ------- -------- ------- -------
Total operating expenses.......... 1,804 6,758 13,998 24,054 10,559 13,604
------- ------- ------- -------- ------- -------
Loss from operations..................... (1,443) (4,089) (4,407) (7,180) (3,079) (3,414)
Interest income.......................... 94 62 12 25 13 1
Interest expense......................... -- (23) (551) (472) (287) (494)
Minority interest........................ 12 35 8 -- -- --
------- ------- ------- -------- ------- -------
Net loss................................. (1,337) (4,015) (4,938) (7,627) (3,353) (3,907)
Preferred stock dividend requirement..... -- -- -- (2,414) (611) (1,894)
------- ------- ------- -------- ------- -------
Net loss applicable to common stock...... $(1,337) $(4,015) $(4,938) $(10,041) $(3,964) $(5,801)
======= ======= ======= ======== ======= =======
Net loss per common share(a)............. $ (0.20) $ (0.36) $ (0.23) $ (0.42) $ (0.16) $ (0.24)
======= ======= ======= ======== ======= =======
Weighted average common and common
equivalent shares outstanding(a)......... 6,582 11,004 21,642 24,052 24,052 24,052
======= ======= ======= ======== ======= =======
OPERATING AND OTHER DATA:
EBITDA (b)............................... $(1,069) $(2,489) $ 242 $ 3,169 $ 1,477 $ 1,971
Systems in operation at end of period.... 1 2 3 5 5 5
Total subscribers at end of period....... 3,500 11,500 34,600 57,000 52,700 63,100
BALANCE SHEET DATA AT END OF PERIOD:
Cash and cash equivalents................ $ 2,004 $ 410 $ 384 $ 584 $ 1,002 $ 217
Investment in wireless cable systems, net 3,663 8,611 26,317 48,104 49,150 54,755
Total assets............................. 7,067 10,751 30,533 52,216 52,965 58,271
Long-term debt, including current
portion................................ -- 3,000 11,750 5,096 2,567 12,545
Convertible preferred stock.............. -- -- -- 37,414 35,611 39,308
Total stockholders' equity(c)............ 6,330 6,648 17,386 6,839 12,893 1,080
</TABLE>
(a) Excludes the common stock equivalents of employee stock options and
warrants as the effect on all periods presented is anti-dilutive. The pro
forma computation of weighted average common and common equivalent shares
outstanding and net loss per common share for years prior to 1995 assumes
common shares issued to the partners in exchange for their partnership
interests were issued at the time of, and in proportion to, partner
capital contributions to the Predecessor Partnership.
(b) "EBITDA" means net income (loss) before interest income, interest
expense, income taxes, depreciation and amortization expenses. EBITDA is
commonly used as a measure of performance in the subscription television
industry; however, EBITDA does not purport to represent cash provided by
or used in operating activities and should not be considered in isolation
or as a substitute for measures of performance in accordance with
generally accepted accounting principles.
(c) Prior to March 1994, the Company was a partnership. Total stockholders'
equity for periods prior to the Company's formation represents total
partners' equity with respect to the Predecessor Partnership.
-23-
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company acquires, develops, owns and operates wireless cable
television systems. The Company currently has systems in operation in Fort
Pierce, Melbourne, Boise, Sacramento and Yakima. The Company also holds
wireless cable channel rights in West Palm Beach, Coos Bay, Eureka, Helena,
Klamath Falls and Roseburg, and has a pending acquisition of channel rights and
equipment in Kennewick.
The Company's goal when launching a new operating system is to achieve
positive EBITDA before the allocation of corporate overhead ("System EBITDA")
at relatively low penetration rates and subscriber levels, within 18 months
after the launch of service. To achieve this goal, the Company launches
wireless cable systems only when it is able to offer a sufficient number of
available wireless cable channels from a transmission site with adequate power
to deliver quality service. The Melbourne System, which is the Company's most
recently launched system, achieved positive System EBITDA after approximately
12 months of service at a subscriber level of 6,000. Each of the Company's
Operating Systems currently generates positive System EBITDA. The Company, on
a consolidated basis and including corporate overhead expenses, also generates
positive EBITDA. The Company intends to expand into markets that are
geographically contiguous or in close proximity to the Operating or Planned
Systems as part of a regional clustering strategy. Management believes this
clustering strategy will create opportunities to develop economies of scale in
marketing, subscriber service, installation and administrative management,
thereby reducing the time necessary for new system launches to achieve positive
System EBITDA. The Company does, however, consider acquisitions which are not
geographically contiguous or in close proximity to its Operating or Planned
Systems but which otherwise meet its selection criteria.
Historically, the Company has generated net losses and can be expected to
do so for the foreseeable future as it continues to develop additional
operating systems. Such losses may increase as additional systems are
commenced or acquired. As the Company continues to develop systems, positive
System EBITDA from the Operating Systems is expected to be partially or
completely offset by development costs and start-up losses from the Planned
Systems.
Revenues consist of television subscription revenues and other revenues,
primarily installation fees and advertising sales. Television subscription
revenues consist of monthly fees paid for basic, expanded basic, premium and
pay-per-view programming and rental charges for additional outlets.
Installation fees are charged in connection with, and recognized as revenue
upon, the initiation of service. Revenues from advertising sales are largely
dependent upon the size of the subscriber base and demand from local
advertisers. The Company currently sells advertising in its Melbourne, Fort
Pierce and Sacramento Systems.
System operating expenses consist principally of programming, channel
lease fees, customer service and technical labor costs related to the servicing
of subscribers and the maintenance of head-end distribution facilities.
Programming costs and channel lease fees (with the exception of certain
-24-
<PAGE> 28
fixed and minimum payments) are variable expenses which fluctuate with changes
in the number of subscribers. In particular, the Company's programming
expenses depend primarily upon the number and type of channels offered and are
generally based on a contractual per-subscriber cost. Channel lease costs for
each system vary with the number of channel rights subject to lease agreements
and are also generally based on a contractual per-subscriber cost. The Company
believes that owning, rather than leasing, channel rights provides certain
economic and strategic benefits to the Company. License ownership eliminates
the recurring monthly cost of leasing channels, thereby increasing the
Company's EBITDA, and provides the Company with greater opportunities to offer
additional services in connection with the deployment of new technologies.
Other operating expenses, such as head-end rent and utilities, remain
relatively constant, while subscriber billing, copyright fees, bad debt
expenses and other costs fluctuate, but not directly proportionately to
subscriber growth.
Selling, general and administrative expenses ("SG&A") consist of sales and
marketing costs, including advertising and sales commissions, personnel
salaries and related benefit costs and office operations expenses. As the
Company launches additional wireless cable systems, it expects SG&A expenses to
increase as a direct result of hiring additional personnel, establishing new
office and operational centers and incurring pre-operational expenses
associated with each new market launch.
The Company capitalizes costs associated with the installation of
subscriber services, including equipment, installation labor and direct
installation overhead expenses. Such capitalized installation costs are
depreciated over three to five years. Costs incurred to acquire wireless cable
channel licenses are capitalized and amortized generally over the life of the
license, usually not more than ten years. The Company recognizes additional
depreciation expense for any undepreciated cost associated with subscriber
equipment that is not physically recovered upon discontinuance of service to
subscribers. All selling and marketing costs are expenses as incurred.
RESULTS OF OPERATIONS
While the period to period changes described below may be of significant
magnitude in certain cases, the Company believes that the limited operating
history, start-up nature and rapid growth of the Company are pervasive factors
which limit the comparability of operating results between such periods.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Revenues. Revenues increased $2.7 million, or 36.0%, from $7.5 million
for the six months ended June 30, 1995 to $10.2 million for the six months
ended June 30, 1996. The increase was primarily due to an increase in
subscribers in the Operating Systems. In addition, the acquisition of the
Boise and Yakima Systems in March 1995 and April 1995, respectively,
contributed revenues for only a portion of the prior period as compared to six
months of revenues for 1996.
System Operating Expenses. System operating expenses increased $1.3
million, or 32.5%, from $4.0 million for the six months ended June 30, 1995 to
$5.3 million for the six months ended June 30, 1996. System operating expenses
are primarily variable costs and therefore increased correspondingly with the
increase in revenue and subscribers. System operating expenses as a
-25-
<PAGE> 29
percentage of revenues decreased from 53.7% in 1995 to 52.0% in 1996 primarily
due to lower operating cost structures for the Boise and Yakima Systems
relative to the Company's other Operating Systems.
Selling, General and Administrative Expenses. SG&A increased
approximately $900,000, or 45.0%, from $2.0 million for the six months ended
June 30, 1995 to $2.9 million for the six months ended June 30, 1996. The
increase was primarily due to incremental costs from the acquisition and
integration of the Boise and Yakima Systems and increased marketing costs
relating to the implementation of a marketing program designed to increase
market awareness of the Company and its services.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased approximately $800,000, from $4.6 million for the six months
ended June 30, 1995 to $5.4 million for the six months ended June 30, 1996.
The increase was due to an increase in depreciable assets resulting from the
acquisition of the Boise and Yakima Systems and installation of new subscriber
equipment in the Operating Systems.
Interest Expense. Interest expense increased $207,000, from $287,000, for
the six months ended June 30, 1995 to $494,000 for the six months ended June
30, 1996. The increase was due to higher average borrowings under the
Revolving Credit Facility in 1996.
Net Loss. Net loss increased approximately $500,000, from $3.4 million
for the six months ended June 30, 1995 to $3.9 million for the six months ended
June 30, 1996 due to the various factors mentioned above.
Preferred Stock Dividend Requirement. The preferred stock dividend
requirement increased $1.3 million, from approximately $611,000 for the six
months ended June 30, 1995 to $1.9 million for the six months ended June 30,
1996. The increase was due to the fact that the Convertible Preferred Stock
was outstanding for only a portion of 1995 and the compounding of larger
accrued dividends in 1996.
Net Loss Applicable to Common Stock. Net loss applicable to common stock
increased $1.8 million, from $4.0 million for the six months ended June 30,
1995 to $5.8 million for the six months ended June 30, 1996 primarily due to
the higher preferred stock dividend requirement in 1996 and other factors
mentioned above.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenues. Revenues increased $7.3 million, or 76.0%, from $9.6 million
for the year ended December 31, 1994 to $16.9 million for the year ended
December 31, 1995. The increase was primarily due to the addition of new
subscribers from the acquisition of the Boise and Yakima Systems and subscriber
growth in the other Operating Systems. In addition, the acquisition of the
Sacramento System in March 1994 contributed only nine months of revenues in
1994 compared to a full 12 months of revenues in 1995.
-26-
<PAGE> 30
System Operating Expenses. System operating expenses increased $3.4
million, or 61.8%, from $5.5 million for the year ended December 31, 1994 to
$8.9 million for the year ended December 31, 1995. System operating expenses
increased correspondingly with the increase in revenues and subscribers.
System operating expenses as a percentage of revenues declined from 57.7% in
1994 to 52.8% in 1995 primarily due to lower operating cost structures for the
Boise and Yakima Systems relative to the Company's other Operating Systems.
Selling, General and Administrative Expenses. SG&A increased $1.0
million, or 26.3%, from $3.8 million for the year ended December 31, 1994 to
$4.8 million for the year ended December 31, 1995. The increase was primarily
due to: (i) the incremental costs from the acquisition and integration of the
Boise and Yakima Systems; (ii) increased personnel costs resulting from the
addition of several corporate officers during the second half of 1994; and
(iii) a full year of operations for the Sacramento System in 1995 compared to
nine months of operations in 1994. These increases were partially offset by
lower legal expenses and personnel-related costs in the Fort Pierce System.
SG&A as a percentage of revenue decreased from 39.8% in 1994 to 28.4% in 1995
due to further realization of economies of scale and the absence of certain
non-recurring costs in 1995.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased $5.7 million, from $4.6 million for the year ended December
31, 1994 to $10.3 million for the year ended December 31, 1995. The increase
was primarily due to: (i) the acquisition of the Boise and Yakima Systems; (ii)
installation of new subscriber equipment; and (iii) accelerated depreciation of
certain subscriber equipment in the Sacramento System resulting from a change
in the estimated useful life of such equipment.
Interest Expense. Interest expense decreased $79,000, from $551,000 for
the year ended December 31, 1994 to $472,000 for the year ended December 31,
1995. The decrease was due to lower average borrowings under the Previous
Credit Facility partially offset by higher average borrowing rates.
Minority Interest in Net Loss of Consolidated Entities. A minority
interest in certain operations of the Predecessor Partnership was acquired by
the Company in March 1994, in connection with the exchange of the partners'
interests for Common Stock.
Net Loss. Net loss increased $2.7 million, from $4.9 million for the year
ended December 31, 1994 to $7.6 million for the year ended December 31, 1995
due to the various factors mentioned above.
Preferred Stock Dividend Requirement. In March and April 1995, the Company
issued Convertible Preferred Stock resulting in a cumulative preferred dividend
of $2.4 million as of December 31, 1995.
Net Loss Applicable to Common Stock. Net loss applicable to common stock
increased $5.1 million, from $4.9 million for the year ended December 31, 1994
to $10.0 million for the year ended December 31, 1995 due primarily to the
introduction of the preferred stock dividend requirement in 1995 and other
factors mentioned above.
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<PAGE> 31
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Revenues. Revenues increased $6.9 million, or 255.6%, from $2.7 million
for the year ended December 31, 1993 to $9.6 million for the year ended
December 31, 1994. The increase in revenues was due to: (i) the Melbourne
System being in operation for only two months in 1993 as compared to twelve
months in 1994; (ii) the acquisition of the Sacramento System in March 1994;
and (iii) the increase in subscribers in each of the three systems operated by
the Company.
System Operating Expenses. System operating expenses increased $2.7
million, or 96.4%, from $2.8 million for the year ended December 31, 1993 to
$5.5 million for the year ended December 31, 1994. The increase was due to
additional operational expenses associated with the Melbourne System and
incremental costs associated with the acquisition and integration of the
Sacramento System.
Selling, General and Administrative Expenses. SG&A increased $1.5
million, or 65.2%, from $2.3 million for the year ended December 31, 1993 to
$3.8 million for the year ended December 31, 1994. The increase in SG&A
consisted of incremental costs associated with the acquisition and integration
of the Sacramento System and the addition of personnel in a newly established
corporate office in Denver, Colorado.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased $3.0 million, from $1.6 million for the year ended December
31, 1993 to $4.6 million for the year ended December 31, 1994. The increase
was primarily due to the increase in depreciable assets resulting from the
acquisition of the Sacramento System and installation of new subscriber
equipment.
Interest Expense. Interest expense increased by $528,000, from $23,000
for the year ended December 31, 1993 to $551,000 for the year ended December
31, 1994. The increase in interest expense was due to higher average
borrowings under the Previous Credit Facility.
Net Loss. Net loss increased $900,000, from $4.0 million for the year
ended December 31, 1993 to $4.9 million for the year ended December 31, 1994.
The increase was due to the various factors mentioned above.
LIQUIDITY AND CAPITAL RESOURCES
The business of the Company requires substantial capital investment on a
continuing basis and the availability of sufficient financing is essential to
the Company's continued expansion. The Company's operations will require
substantial amounts of capital for the acquisition of additional wireless cable
channel rights and systems, the construction of additional transmission and
head-end facilities, the installation of equipment at subscriber locations, the
development of administrative and field offices, the funding of start-up losses
in new markets and for other working capital requirements.
The Company estimates that the launch of a new wireless cable system
utilizing analog technology requires the expenditure of approximately $1.0
million to $1.5 million, consisting of head-end construction costs, acquisition
of transmission equipment and expenses associated with pre-
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<PAGE> 32
launch administrative and marketing activities. In comparison, the Company
estimates the launch and initial development costs associated with a new
wireless cable system utilizing digital technology will be approximately $2.8
million to $3.5 million. Subsequent to the launch of a new wireless cable
system, the Company will incur additional capital expenditures associated with
the installation of equipment at subscriber locations. Incremental
installation cost per subscriber location in the Company's analog systems are
approximately $350 to $450 for equipment, labor and other installation overhead
costs, depending on whether set-top converters or lower cost whole-house
decoders are used. Based on the Company's current estimates, incremental
installation costs per subscriber location in a digital system are
approximately $550 to $650 for equipment, labor and other installation overhead
costs.
Since inception, the Company has expended funds to acquire or lease
channel licenses in various markets, to construct or acquire Operating Systems
and to finance initial operating losses. In 1993, the Company's capital
expenditures were approximately $6.4 million, including subscriber installation
costs in the Fort Pierce System, construction costs for head-end facilities in
the Melbourne System and acquisition costs for various channel licenses. Such
expenditures were financed with contributions and loans made to the Predecessor
Partnership by its limited partners.
In 1994, the Company's capital expenditures were approximately $23.8
million, including the purchase of the Sacramento System, construction costs
for a new head-end facility in the Sacramento System, subscriber installation
costs associated with the expansion of the Fort Pierce, Melbourne and
Sacramento Systems, and escrow deposits made in connection with the purchase of
the Boise and Yakima Systems. Such capital expenditures were financed with net
proceeds from the sale of Common Stock to partners of the Predecessor
Partnership and borrowings under the Company's $14.0 million revolving credit
facility which has since been retired (the "Previous Credit Facility").
In 1995, the Company's capital expenditures were approximately $31.1
million, including the purchase of the Boise and Yakima Systems and subscriber
installation costs associated with the expansion of the Operating Systems.
Such capital expenditures were financed with the net proceeds from the issuance
of the Convertible Preferred Stock and borrowings under the Previous Credit
Facility and Revolving Credit Facility. As of June 30, 1996, the Convertible
Preferred Stock liquidation preference equaled $39.3 million, including
accumulated dividends of $4.3 million. See "Description of Capital
Stock--Convertible Preferred Stock."
For the six months ended June 30, 1996, capital expenditures were
approximately $11.5 million, principally composed of new subscriber
installation costs and approximately $3.5 million paid or accrued with respect
to the Company's successful BTA Auction bids.
The Company estimates that through 1998 approximately $75.0 million of
capital expenditures will be required to launch and initially develop the
Planned Systems and to fund further subscriber growth in the Operating Systems.
There can be no assurance, however, that the Company will not alter its
current development plans to respond to specific market opportunities, channel
availability, competitive factors or other industry developments or that its
capital requirements will not increase as a result of future acquisitions, if
any.
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<PAGE> 33
Historically, the Company's ability to generate positive System EBITDA has
enabled it to fund partially the expansion of its Operating Systems and to
obtain bank financing to fund additional subscriber growth. New system
launches are expected to generate negative System EBITDA for approximately 12
to 18 months after the launch of service. As the Company continues to develop
its Planned Systems, positive EBITDA from its Operating Systems is expected to
continue to offset partially start-up losses and development costs associated
with new system launches. To the extent that EBITDA is insufficient to meet
future capital and operating requirements of the Company, the Company will be
required to utilize its Revolving Credit Facility and the proceeds of this
Offering or external sources of funding to satisfy its capital needs.
In November 1995, the Company entered into the $40.0 million secured
Revolving Credit Facility. The interest rate on borrowings under the Revolving
Credit Facility is based on the lender's base rate or the rate offered in the
interbank Eurodollar market, plus a spread which varies based upon the
Company's ratio of debt to EBITDA. The facility becomes a term loan on December
31, 1998 at which time outstanding borrowings are amortized on a quarterly
basis through December 31, 2002. The Revolving Credit Facility also contains
covenants that, among other things, permit borrowings based upon a defined
leverage ratio of total debt to EBITDA, require the Company to meet certain
subscriber levels and financial ratios and prohibit the Company from paying
dividends for the term of the facility. As of July 31, 1996, the Company had
$15.0 million outstanding under the Revolving Credit Facility.
The Company intends to apply approximately $____ million of net proceeds
from the Offering to the full repayment of outstanding indebtedness under the
Revolving Credit Facility. The remainder of the net proceeds are expected to
be used to finance further expansion and development of the Operating Systems,
capital expenditures and operating expenses in connection with the launch and
development of the Planned Systems, possible acquisition of additional wireless
cable systems, assets or channel licenses and for general working capital
purposes.
The Company anticipates it will have a continuing need for additional
financing to fund the development and subscriber growth anticipated for both
the Planned and Operating Systems. Based on its current business plan, the
Company expects that the net proceeds from the Offering and the available
financing under the Revolving Credit Facility should be sufficient to meet its
financing needs for the next 18 to 24 months. The Company may, however, elect
to alter its market expansion plans which could change the timing of funding
for capital and operational expenditures. The Company intends to supplement
its existing sources of funds through additional borrowings, the sale of
additional debt or equity securities, joint ventures or other arrangements.
There can be no assurance, however, that the Company will obtain the financing
to complete its current business plan or that the Company will be able to
obtain such equity capital or debt on satisfactory terms, or at all, to meet
its future financing needs. See "Risk Factors--Capital Requirements for
Growth; Need for Additional Financing."
INCOME TAX MATTERS
Prior to March 16, 1994, the Predecessor Partnership accumulated taxable
losses of approximately $6.2 million which were allocated to its partners and
are not available to offset future taxable income of the Company. Because of
recurring operating losses, the provision for income
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<PAGE> 34
taxes for all periods since that date has also been zero, and no income taxes
were payable by the Company as of June 30, 1996. Through December 31, 1995,
the Company had accumulated tax net operating loss ("NOL") carryovers as a
Subchapter C corporation of approximately $10.9 million, expiring in 2009 and
2010. However, because the Company has not yet earned taxable income,
management has recorded a valuation allowance equal to the full amount of the
Company's net deferred tax assets related to its NOL and temporary differences.
NEW ACCOUNTING PRINCIPLES
In March 1995 and October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("SFAS No. 121"), and Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), respectively. Both
statements are effective for fiscal years beginning after December 15, 1995.
The Company believes these statements will not have a material effect on its
consolidated financial position or results of operations.
INFLATION
The Company does not believe that inflation has had or is likely to have
any significant impact on the Company's operations. The Company believes that
it will be able to increase subscriber rates, if necessary, to keep pace with
inflationary increases in costs.
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<PAGE> 35
BUSINESS
OVERVIEW
Wireless Broadcasting Systems of America, Inc. acquires, owns, develops
and operates wireless cable systems in two regions of the United States. The
Company currently provides subscription television services in its Florida
region through wireless cable systems located in Fort Pierce and Melbourne and
in its Northwest region through wireless cable systems located in Boise, Idaho;
Sacramento, California; and Yakima, Washington. In the 12 month period ended
June 30, 1996, which is the latest 12 months in which all five Operating
Systems have been fully operational, the Operating Systems experienced
substantial subscriber growth from approximately 52,700 to 63,100, an increase
of approximately 19.7%, which represents a penetration rate of 4.8%. In
addition to the Operating Systems, the Company plans to launch new systems in
West Palm Beach, Florida; Coos Bay, Oregon; Eureka, California; Helena,
Montana; Kennewick, Washington; Klamath Falls, Oregon; and Roseburg, Oregon.
The Company's markets encompass over 2.5 million LOS households.
The Company strives to develop its markets in a manner that produces
sustainable subscriber growth and positive System EBITDA at low subscriber
penetration levels. By maintaining control over operating expenses and
targeting its marketing to identify, attract and retain loyal, profitable
subscribers, the Company has been able to achieve positive System EBITDA in its
Melbourne System, the Company's most recently launched system, at a
subscription level of 6,000 subscribers within 12 months of launch. In the 12
month period ended June 30, 1996, the Company generated $19.6 million of
revenues and $3.7 million of EBITDA.
The Company has assembled a management team that has one of the most
extensive subscription television operating backgrounds in the wireless cable
industry. Leading the management team is William W. Kingery, Jr., President
and Chief Executive Officer, who has over two decades of cable system
management, financial and consulting experience in the subscription television
industry. Mr. Kingery served as chief financial officer of United Cable
Television Corporation, president of Daniels & Associates, Inc., and most
recently as executive vice president of United Artists Cable Systems
Corporation, where he had responsibility for 90 cable systems serving 1.3
million subscribers. See "Management."
HISTORY
The Company, as the Predecessor Partnership, was formed in October 1991.
In April 1992, the Company acquired certain wireless broadcasting assets in
Fort Pierce and subsequently launched the Fort Pierce System in May 1992. The
Company expanded its presence in Florida with the launch of the Melbourne
System in November 1993. In March 1994, the Predecessor Partnership was
effectively merged into Wireless Broadcasting Systems of America, Inc. and the
Company simultaneously acquired the Sacramento System. The Company acquired
the Boise and Yakima Systems in March and April 1995, respectively. As a
result of the BTA Auctions conducted by the FCC and completed in March 1996,
the Company won the BTA Authorizations for the following five new markets: Coos
Bay, Eureka, Helena, Klamath Falls and Roseburg. In addition, the Company
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<PAGE> 36
acquired licensing rights in four of its five Operating Systems and the West
Palm Beach market. The Company is currently negotiating to acquire a wireless
cable system in Kennewick, Washington which is in close proximity to the
Yakima System.
In March and April 1995, Boston Ventures, a private investment firm,
invested $35.0 million in the Company through the purchase of shares of the
Convertible Preferred Stock. Since its inception in 1983, Boston Ventures has
invested approximately $1.0 billion in the media and communications industries,
including significant investments in the subscription television industry.
BUSINESS STRATEGY
The Company employs the following strategies to achieve its objective of
developing wireless cable systems with sustainable growth and attaining
positive System EBITDA at low penetration levels.
Focus on Regional Clusters with Strong Growth Potential. The Company
focuses on markets which it believes exhibit demographic and topographic
characteristics conducive to the transmission of wireless cable services. The
Company operates in and targets markets which it expects to achieve household
growth rates in excess of the national average. Based upon estimates of
household growth by CACI Marketing Systems ("CACI") and the Company's LOS
household engineering studies, the Company estimates the LOS households in its
markets will increase by 9.8% from 1995 to 2000, as compared to the 5.3%
projected national mean household growth rate for the same period. The Company
believes that clustering its systems provides for economies of scale in
management, marketing, training, customer service and billing. The Company
also believes that regional clustering enhances the Company's strategic
position and opportunities for additional revenues, including advertising and
other telecommunications services.
Differentiate Service Offering. The Company seeks to differentiate its
service offering from other subscription television providers by:
- Offering Attractive Channel Line-Ups. The Company focuses on
markets in which it can utilize virtually all the wireless cable
channels available, and therefore is able to offer the programs
which it believes are attractive to the greatest number of
subscribers. The Company currently offers from 29 to 34 channels
in each of its markets. "See "Business-Programming;"
- Pricing its Service Competitively. As wireless cable systems
typically incur lower initial capital costs and fewer maintenance
costs than hard-wire cable operators, the Company generally
offers its services below the price of comparable services offered
by competing hard-wire cable operators; and
- Providing Superior Customer Satisfaction. The Company believes it
creates high levels of subscriber satisfaction by providing
24-hour-a-day, 7-day-a-week subscriber telephone support; prompt
customer service and installation; as well as follow-up calls and
on-site inspections to verify subscriber satisfaction. The Company
also believes that its subscribers enjoy a higher level of signal
quality and reliability because its
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<PAGE> 37
signal is not adversely affected by weather or by the signal
degradation and interruptions inherent in the extensive coaxial
cable networks and signal boosters ("Cable Plant") required by its
hard-wire competitors.
Maximize Profitable Subscriber Growth. The Company seeks efficiencies in
all aspects of its operations. When marketing its services, the Company
targets loyal, profitable subscribers in an effort to achieve continued,
consistent subscriber growth. To minimize turnover of existing subscribers,
the Company charges installation fees, conducts credit checks and actively
manages its billing. The Company efficiently plans the introduction of new
equipment and technologies to its systems in a manner that avoids unnecessary
overhead expenses without sacrificing quality. The Company's incentive
compensation program promotes efficient subscriber service and system operation
by rewarding employees for achieving targeted subscriber service goals,
minimizing subscriber turnover and attaining budgeted EBITDA.
Own Wireless Cable Channel Licenses. The Company seeks to own, rather
than lease, the majority of available licenses for wireless cable channels in
its markets. Benefits of ownership include: (i) increased EBITDA by
eliminating the increase in variable channel leasing costs resulting from
increased penetration; (ii) enhanced flexibility in deploying digital
compression and other technological innovations and (iii) reduced dependence on
third party channel lessors. With the exception of the Sacramento System, the
Company owns between approximately 67.0% and 100.0% of the available commercial
channel licenses in each of its markets.
Maintain Disciplined Approach to New Technologies. The Company evaluates
the implementation of new technologies on a market-by-market basis as dictated
by subscriber demands and competitive conditions. The Company deploys
cost-efficient technologies in order to maximize its return on investment.
Specifically, installation of whole-house decoders, which are fully
addressable, is targeted for the Company's smaller markets where digital
technology is not expected to be cost-effective in the near term. Digital
technology, which the Company expects to be commercially viable in 1997, will
be incorporated into the Company's larger, more competitive markets. Because
the Company's wireless cable systems do not utilize an extensive network of
fixed plant and equipment, new technologies can be incorporated into a system
with less effort and expense than would be required in a hard-wire cable
system. As a result, the Company believes that it has the flexibility to
deploy new technologies at a significantly lower per subscriber cost than
hard-wire cable operators.
MARKETING AND SUBSCRIBER RETENTION STRATEGY
The Company's marketing and subscriber retention strategy is aimed at:
(i) identifying and attracting loyal, profitable subscribers; (ii) minimizing
subscriber turnover; and (iii) maintaining superior customer service in order
to achieve continued, consistent subscriber growth.
The Company targets customer segments which it believes exhibit the most
growth potential and will generate loyal, profitable subscribers. The Company
sorts its existing subscriber data into groupings and then merges that data
with general market household data using a sophisticated relational database.
The Company continuously tracks the subscription television buying patterns of
its subscribers and utilizes focus groups and subscriber surveys to further
refine the profiles of the
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Company's most loyal, profitable subscribers. The information derived by
the Company from its marketing data also guides the Company in prudently and
selectively implementing additional services in its various markets.
In each of its markets, the Company's marketing staff uses a targeted plan
that typically employs direct mailings, telemarketing follow-up calls and
selective door-to-door sales to single family homes. In certain markets, the
Company uses print and television advertising. The Company avoids non-targeted
marketing techniques, such as free installation and service promotions. While
such promotions may provide short-term subscriber growth, the Company believes
that subscribers lured by promotions which require no financial commitment are
more likely to disconnect.
In addition to targeting single family home subscribers, the Company
actively markets to MDUs where it can provide programming on a bulk basis. The
Company enters into contractual arrangements with building owners which allow
the Company to provide services to an entire MDU at a fixed rate for terms
typically ranging from three to five years. By servicing an entire MDU, the
Company is not affected by the high turnover normally associated with apartment
dwelling subscribers. MDU contracts generally produce higher margins for the
Company than single family residential subscribers because subscriber
turnover,installation and maintenance costs are lower. To a lesser extent, the
Company also markets its services to several commercial enterprises, including
doctors' offices, restaurants and bars.
While the Company believes that its targeted marketing strategy
successfully identifies ideal subscribers, the Company also utilizes a number
of techniques designed to minimize subscriber turnover, including: (i)
requesting subscribers to make an up-front financial commitment by paying an
installation charge and one month's service charge prior to receiving service;
(ii) utilizing credit checks to evaluate the creditworthiness of new
subscribers and, where appropriate, collecting deposits from applicants with
poor credit histories before instituting service; (iii) maintaining collection
procedures to mitigate the risk of subscribers falling behind in their
payments; (iv) employing a specialized team of subscriber retention personnel
who work with subscribers in order to maintain their subscriptions; and (v)
developing rates and programs designed to reduce the number of subscribers in
Florida who are prone to canceling service during the off-season.
The Company believes the most effective means of retaining its subscribers
is providing high quality subscriber service, including: (i) 24-hour-a-day,
7-day-a-week subscriber telephone support; (ii) computerized tracking of all
incoming calls to minimize waiting times; (iii) service calls generally made
the same day the subscriber indicates a service problem; (iv) flexible,
6-day-a-week installation and service appointments; (v) follow-up calls and
on-site inspections to verify subscriber satisfaction; and (vi) installation
within three days of receiving the initial installation request. The Company
also uses focus groups and subscriber surveys to monitor subscriber
satisfaction.
The Company's experience has shown that subscribers are highly sensitive
to responsive and efficient subscriber service. The Company's standards of
subscriber service and satisfaction meet or exceed the published standards of
the National Cable Television Association. In order to encourage all employees
to focus on subscriber growth and retention, the Company has instituted an
incentive compensation program. Incentive compensation is paid quarterly based
upon each System's EBITDA
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and subscriber turnover ratio as well as the System's performance rating on the
following ten key measures of subscriber service and satisfaction:
- Percentage of phone calls answered within 18 seconds;
- In-home visits as a percentage of average weekly subscribers;
- Percentage of service requests satisfied by telephone;
- Installation appointments met as a percentage of scheduled appointments;
- Percentage of service requests satisfied on same day;
- Percentage of installations requiring in-home service within 30 days;
- Installation backlog (number of days);
- Installations completed as a percentage of scheduled installations;
- Service requests completed as a percentage of service requests; and
- New subscriber initial rating of quality of service.
ACQUISITION STRATEGY
A key element of the Company's strategy is to develop or acquire
additional wireless cable systems in other markets that meet its selection
criteria. The Company seeks to take advantage of economies of scale and
operating efficiencies, particularly where it can add to existing regional
clusters or develop new regional clusters of Operating Systems. The Company
intends to utilize the experience of its management in evaluating, acquiring
and operating potential systems. The Company evaluates acquisition
opportunities using several selection criteria, including: (i) demographic
profile of the market, including size of potential subscriber base and
projected household growth rates; (ii) proximity to existing markets; (iii)
topography of the transmission area; (iv) availability of wireless cable
channel rights and licenses; and (v) the competitive environment.
Management believes that there are significant advantages in increasing
the size and scope of its operations, including improved economies of scale in
management, marketing, training, customer service and billing. Furthermore,
the Company believes that increasing the size and scope of its operations will
result in ancillary revenue opportunities, greater access to capital and
opportunities for strategic partnering.
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THE COMPANY'S MARKETS
The following table outlines the characteristics of the markets in which
the Company operates or where it anticipates launching systems.
<TABLE>
<CAPTION>
Estimated
LOS Number of
Households as of Subscribers Projected Household
December 31, as of June 30, Market Growth Number of Channels
1995(1) 1996(2) Penetration(3) 1995 to 2000(4) Controlled(5)
-------------------- -------------------- -------------- -------------------- ------------------
<S> <C> <C> <C> <C> <C>
FLORIDA MARKETS:
Ft. Pierce, FL 244,000 12,800 5.2% 10.0% 34
Melbourne, FL 219,000 14,600 6.7% 11.2% 36
West Palm Beach, FL(7) 1,010,000 -- -- 10.8% 31
NORTHWEST MARKETS:
Boise, ID 130,000 12,300 9.5% 15.4% 33
Sacramento, CA(8) 654,000 16,000 2.4% 7.0% 29
Yakima, WA 64,000 7,400 11.6% 10.5% 33
Coos Bay, OR 26,000 -- -- 5.4% 20
Eureka, CA 42,000 -- -- 4.1% 10
Helena, MT 22,000 -- -- 9.7% 21
Kennewick, WA(9) 72,000 -- -- 14.4% 33
Klamath Falls, OR 23,000 -- -- 4.4% 21
Roseburg, OR 32,000 -- -- 4.3% 21
--------- ------------- -------- ----
TOTALS 2,538,000 63,100 4.8%(3) 9.8%(4)
========= ============= ======== ====
<CAPTION>
Percentage
of
Amount of Commercial
Spectrum Licenses
Controlled MHz(5) Owned(6)
----------------- ----------
<S> <C> <C>
FLORIDA MARKETS:
Ft. Pierce, FL 202 MHz 100.0%
Melbourne, FL 214 100.0%
West Palm Beach, FL(7) 186 84.6%
NORTHWEST MARKETS:
Boise, ID 196 85.7%
Sacramento, CA(8) 174 15.4%
Yakima, WA 196 66.7%
Coos Bay, OR 118 95.2%
Eureka, CA 58 76.9%
Helena, MT 118 100.0%
Kennewick, WA(9) 196 69.2%
Klamath Falls, OR 100 100.0%
Roseburg, OR 124 100.0%
----------
TOTALS Avg. 82.8%
==========
</TABLE>
(1) LOS is defined as the number of households in the market that can receive
an unobstructed signal through a receiving antenna that is elevated 30
feet above ground level. Estimated LOS Households are based upon
engineering studies performed for the Company.
(2) Number of Subscribers includes single family homes, the number of units
in each MDU and commercial subscribers.
(3) Market Penetration was derived by dividing the Number of Subscribers in
each market as of June 30, 1996 by the number of Estimated LOS Households
as of December 31, 1995 in that market. Total Market Penetration was
derived by dividing the Total Number of Subscribers as of June 30, 1996
for all Operating Systems by the total Estimated LOS Households as of
December 31, 1995 for all Operating Systems.
(4) Based upon CACI's projection of household growth rates in each market.
(5) Spectrum is measured in megahertz ("MHz"), with each wireless cable
channel containing 6 MHz of bandwidth except for channel 2A which contains
4 MHz. The Sacramento System includes channel 2, which is a full 6 MHz of
bandwidth, but all of the remaining systems include channel 2A. The
Number of Channels Controlled and Amount of Spectrum Controlled figures
include one 6 MHz LPTV channel in Fort Pierce and three 6 MHz LPTV channels
in Melbourne.
(6) Percentage of Commercial Licenses Owned is calculated by dividing the
number of commercial channels for which licenses are owned by the Company
by the total number of commercial channels for which licenses are available
in each market, in each case exclusive of LPTV channels. The Company owns
the licenses for the following number of commercial channels in each
market: Fort Pierce, 13; Melbourne, 13; West Palm Beach, 11; Boise, 18;
Sacramento, 2;
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Yakima, 14; Coos Bay, 20; Eureka, 10; Helena, 21; Kennewick, 9; Klamath
Falls, 21; and Roseburg, 21. The total number of commercial channels
available for license ownership in Fort Pierce, Melbourne, West Palm
Beach, Sacramento, Eureka and Kennewick is 13 and the total number of
commercial channels available for license ownership in Boise, Yakima, Coos
Bay, Helena, Klamath Falls and Roseburg is 21, of which 8 are commercially
available ITFS channel licenses. In the markets where ITFS channel
licenses are commercially available, the Company, as the BTA Authorization
winner, has the exclusive right to file license applications under FCC
rules and regulations, subject only to applications of educational and
non-profit institutions and restrictions resulting therefrom. See "Risk
Factors--Uncertainty of Ability to Obtain FCC Authorizations."
(7) The Number of Channels Controlled, Amount of Spectrum Controlled and the
Percentage of Commercial Licenses Owned data for West Palm Beach are
subject to the receipt of certain approvals from the FCC and/or third
party interference agreements. Any delays or failures in obtaining
governmental approvals or interference agreements may delay the Company
from launching the West Palm Beach System, transmitting the maximum number
of channels it controls, or may cause the Estimated LOS Households in West
Palm Beach to be decreased. See "Risk Factors--Interference Issues."
(8) The Company's ownership of licenses for two channels in Sacramento is
subject to receiving FCC approval of an assignment application that was
filed in August 1995 and of two pending requests for license renewal, one
timely filed in April 1991 and one untimely filed in April 1994. There
is no guarantee that the Company will obtain the requisite governmental
approval.
(9) The Number of Channels Controlled, Amount of Spectrum Controlled and
Percentage of Commercial Licenses Owned data contained in the table for
the Kennewick System are subject to the consummation of the Kennewick
acquisition. See "Prospectus Summary--History."
OPERATING SYSTEMS
The following is an overview of each of the Company's Operating and
Planned Systems. Market household growth rate projections are based on
estimates of household growth by CACI. Cable penetration rates represent the
number of current hard-wire cable customers divided by the number of households
passed by hard-wire cable ("Cable Penetration"). These rates were
derived from statistics contained in the Television and Cable Fact Book (Volume
64, 1996 edition).
Fort Pierce. The Fort Pierce System, consisting of operations in Indian
River, St. Lucie and Martin Counties in Florida, was launched by the Company in
May 1992. While the Company controls 34 channels, it currently offers a 32
channel service, comprised of 30 wireless channels and two local off-air
channels. Of the 34 channels (33 wireless and one LPTV) controlled, the
Company owns licenses for 14 channels. The Company also won the BTA
Authorization for Fort Pierce in the recently concluded BTA Auction, made the
initial down payment and timely filed the requisite applications with the FCC.
Of the four remaining channels on which the Company does not currently offer
programming, the Company intends to add one channel to its programming line-up
in the third quarter of 1997 and it intends to file new station applications
with the FCC for two others. The last remaining channel, channel 2A, will be
utilized by the Company if and when digital technology is activated in the
market. The Fort Pierce System is an analog system with addressable equipment.
At June 30, 1996, the Company provided wireless service to approximately
12,800 subscribers which represents an increase of 1.6% from the prior year and
a penetration rate of 5.2% of estimated LOS households. CACI projects that the
number of households in the Fort Pierce market will increase by 10.0% for the
period 1995 to 2000. The Company's principal competitors in the Fort Pierce
market are Adelphia Communications, Inc. ("Adelphia") and Tele-Communications
Inc. ("TCI"). Cable Penetration is approximately 73.8% in the Fort Pierce
metropolitan area.
Melbourne. The Melbourne System, which operates in Brevard County,
Florida, was launched by the Company in November 1993. While the Company
controls 36 channels (33 wireless and three LPTV), it currently offers a 33
channel service, comprised of 30 wireless and three local off-air channels. Of
the 36 channels controlled, the Company owns licenses for 16 channels. The
Company also won the BTA Authorization for Melbourne in the recently concluded
BTA Auction, made the
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initial down payment and timely filed the requisite applications with the FCC.
Of the six remaining channels on which the Company does not currently offer
programming, the Company intends to add three channels to its programming
line-up in the fourth quarter of 1996. One of the other channels, channel 2A,
will be utilized by the Company if and when digital technology is activated in
the market. The Melbourne System is an analog system with addressable equipment.
At June 30, 1996, the Company provided wireless service to approximately
14,600 subscribers which represents an increase of 41.8% from the prior year
and a penetration rate of 6.7% of estimated LOS households. CACI projects that
the number of households in the Melbourne market will increase by 11.2% for the
period 1995 to 2000. The Company's principal competitors in the market are
Time Warner Inc. ("Time Warner"), Falcon and TCI. Cable Penetration is
approximately 73.2% in the Melbourne metropolitan area.
Boise. The Boise System, which was acquired in March 1995, serves the
Treasure Valley communities of Boise, Nampa and Caldwell, Idaho. While the
Company controls 33 wireless channels, it currently offers a 34 channel
service, comprised of 28 wireless and six local off-air channels. Of the 33
wireless channels controlled, the Company owns licenses for 18 channels. The
Company also won the BTA Authorization for Boise in the recently concluded BTA
Auction, made the initial down payment and timely filed the requisite
applications with the FCC. Of the five remaining wireless channels on which
the Company does not currently offer programming, the Company intends to add
two channels to its programming line-up in the fourth quarter of 1996 and it
has filed new station applications with the FCC for the three remaining
channels. One of these channels, channel 2A, will be utilized by the Company if
and when digital technology is activated in the market. The Boise System is an
analog system which the Company anticipates retrofitting with whole-house
decoders in the first quarter 1997.
At June 30, 1996, the Company provided wireless service to approximately
12,300 subscribers which represents an increase of 32.3% from the prior year
and a penetration rate of 9.5% of estimated LOS households. CACI projects that
the number of households in the Boise market will increase by 15.4% for the
period 1995 to 2000. The Company's principal competitor in the Boise market is
TCI. Cable Penetration is approximately 67.9% in the Boise metropolitan area
Sacramento. The Sacramento System was acquired in March 1994. The 32
channel service currently offered is comprised of 26 wireless channels and six
local off-air channels. The Company controls a total of 29 wireless channels,
of which it will own licenses for two channels pending FCC approval of an
assignment application. The Company intends to add the three remaining
wireless channels on which it does not currently offer programming to its
programming line-up in the fourth quarter of 1996. The Company did not win the
BTA Authorization for this market. The Sacramento System is an analog system
which was retrofitted with addressable set-top converters which are compatible
with digital compression technology.
At June 30, 1996, the Company provided wireless service to approximately
16,000 subscribers which represents an increase of 22.1% from the prior year
and a penetration rate of 2.4% of estimated LOS households. CACI projects that
the number of households in the Sacramento market will increase by 7.0% for the
period 1995 to 2000. The Company's principal competitors in the market
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<PAGE> 43
are Scripps Howard, Inc. ("Scripps Howard"), Jones Intercable, Inc. ("Jones")
and Sonic Cable, Inc. Cable Penetration is approximately 49.3% in the
Sacramento metropolitan area.
Yakima. The Yakima System was acquired in April 1995 and serves the
Yakima Valley. While the Company controls 33 wireless channels, it currently
offers a 29 channel service, comprised of 24 wireless channels and five local
off-air channels. Of the 33 wireless channels controlled, the Company owns
licenses for 14 channels. The Company also won the BTA Authorization for
Yakima in the recently concluded BTA Auction, made the initial down payment for
the market and timely filed the requisite applications with the FCC. Of the
nine remaining wireless channels on which the Company does not currently offer
programming, the Company intends to add eight channels to its programming
line-up in the second quarter of 1997. Two of the Company's ITFS lessors in
Yakima have filed new station applications with the FCC with respect to these
eight channels. The Company has filed a new station application for the last
remaining channel, channel 2A, and intends to use this channel if and when
digital technology is activated in the market. The Yakima System is an analog
system which the Company anticipates retrofitting with whole-house decoders in
the first quarter 1997.
At June 30, 1996, the Company provided wireless service to approximately
7,400 subscribers which represents an increase of 1.4% from the prior year and
a penetration rate of 11.6%. CACI projects that the number of households in
the Yakima market will increase by 10.5% for the period 1995 to 2000. The
Company's principal competitor in the Yakima market is TCI. Cable Penetration
is approximately 50.3% in the Yakima metropolitan area.
PLANNED SYSTEMS
West Palm Beach. The Company controls 31 channels, of which it will own
11 channel licenses. Seven of these channels are dependent upon FCC approval of
license assignment applications. The Company has the exclusive right to apply
for the remaining four channels pursuant to its BTA Authorization received in
the recently concluded BTA Auction. The FCC has already approved the West Palm
Beach BTA Authorization for grant and the Company timely paid the requisite
purchase price. The Company intends to develop West Palm Beach as a digital
system.
CACI projects that the number of households in the West Palm Beach market
will increase by 10.8% for the period 1995 to 2000. In the Company's intended
service area, its competitors are Adelphia, Comcast Corporation and Telemedia
Cable, Inc. Cable Penetration is approximately 71.4% in the West Palm Beach
metropolitan area.
Coos Bay. The Company won the BTA Authorization for Coos Bay in the
recently concluded BTA Auction. As a result, the Company has the exclusive
right to apply for 20 commercial wireless cable channels, eight of which are
subject to commercial ITFS application restrictions. The Company intends to
lease 13 additional channels in the market from other spectrum owners and
applicants. The requisite down payment for the Coos Bay BTA Authorization was
filed with the FCC along with the necessary applications. A new station
application for four channels is currently pending. The Company intends to
develop Coos Bay as an analog system with whole-house decoders.
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CACI projects that the number of households in the Coos Bay market will
increase by 5.4% for the period 1995 to 2000. The Company's principal
competitor in the market is Falcon. Cable Penetration is approximately 76.7%
in the Coos Bay metropolitan area.
Eureka. The Company won the BTA Authorization for Eureka in the recently
concluded BTA Auction. As a result, the Company has the exclusive right to
apply for ten commercial wireless cable channels. The Company intends to lease
23 additional channels in the market from other spectrum owners and applicants.
The FCC has already approved the Eureka BTA Authorization for grant and the
Company timely paid the requisite purchase price. A new station application
for one channel is currently pending, and the channel should be issued in
tandem with the BTA Authorization. The Company intends to develop Eureka as an
analog system with whole-house decoders.
CACI projects that the number of households in the Eureka market will
increase by 4.1% for the period 1995 to 2000. The Company's principal
competitor in the market is Cox Cable Television. Cable Penetration is
approximately 82.7% in the Eureka metropolitan area.
Helena. The Company won the BTA Authorization for Helena in the recently
concluded BTA Auction. As a result, the Company has the exclusive right to
apply for 21 commercial wireless cable channels, eight of which are subject to
ITFS application restrictions. The Company intends to lease 12 additional
channels in the market from other spectrum owners and applicants. The
requisite down payment for the Helena BTA Authorization was filed with the FCC
along with the necessary applications. A new station application for four
channels is currently pending. The Company intends to develop Helena as an
analog system with whole-house decoders.
CACI projects that the number of households in the Helena market will
increase by 9.7% for the period 1995 to 2000. The Company's principal
competitor in the market is TCI. Cable Penetration is approximately 68.3% in
the Helena metropolitan area.
Kennewick. Assuming acquisition of the Kennewick System, the Company
expects to control 33 channels. The Company will have the ability to own
licenses for nine channels and intends to lease 24 additional channels in the
market from other spectrum owners and applicants. Part of the Kennewick
Acquisition will include assignment of the BTA Authorization for the market.
The Company intends to develop Kennewick as an analog system with whole-house
decoders.
CACI projects that the number of households in the Kennewick market will
increase by 14.4% for the period 1995 to 2000. The Company's principal
competitor in the market is TCI. Cable Penetration is approximately 70.1% in
the Kennewick metropolitan area.
Klamath Falls. The Company won the BTA Authorization for Klamath Falls in
the recently concluded BTA Auction. As a result, the Company has the exclusive
right to apply for 21 commercial wireless cable channels, eight of which are
subject to commercial ITFS application restrictions. The Company intends to
lease 12 additional channels in the market from other spectrum owners and
applicants. The requisite down payment for the Klamath Falls BTA Authorization
was filed with the FCC along with the necessary applications. A new station
application for four channels is currently pending. The Company intends to
develop Klamath Falls as an analog system with whole-house decoders.
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CACI projects that the number of households in the Klamath Falls market
will increase by 4.4% for the period 1995 to 2000. The Company's principal
competitor in the market is TCI. Cable Penetration is approximately 68.4% in
the Klamath Falls metropolitan area.
Roseburg. The Company won the BTA Authorization for Roseburg in the
recently concluded BTA Auction. As a result, the Company has the exclusive
right to apply for 21 commercial wireless cable channels, eight of which are
subject to commercial ITFS application restrictions. The Company intends to
lease 12 additional channels in the market from other spectrum owners and
applicants. The requisite down payment for the Roseburg BTA Authorization was
filed with the FCC along with the necessary applications. A new station
application for four channels is currently pending. The Company intends to
develop Roseburg as an analog system with whole-house decoders.
CACI projects that the number of households in the Roseburg market will
increase by 4.3% for the period 1995 to 2000. The Company's principal
competitors in the market are Falcon and Jones. Cable Penetration is
approximately 60.5% in the Roseburg metropolitan area.
PROGRAMMING
The Company seeks to offer popular programming at affordable prices.
Typically, the Company offers between 29 and 34 channels in a market which
includes 25 to 28 basic channels, three premium channels (e.g., HBO, Cinemax
and The Disney Channel), one event pay-per-view (which may share spectrum with
another channel), and, in certain cases, one full-time pay-per-view channel.
The Company selects its basic programming channels to appeal to a broad
subscriber base and does not offer programming which appeals only to small,
specialized market segments. The following chart depicts the Company's current
programming line-up in the Melbourne market. Channel line-ups in other markets
are substantially similar.
CHANNEL OFFERINGS
<TABLE>
<CAPTION>
BASIC CHANNELS
- --------------
<S> <C>
ABC (local network affiliate) TNT (sports, movies)
A&E (arts and entertainment programming) USA (general interest)
AMC (classic movies) The Weather Channel (weather)
CBS (local network affiliate) WGN-Chicago (sports, movies, news superstation)
CMT (country music) WBSF-independent
CNN (news) WIRB-independent
CNBC (news and financial) WMFE-independent
CSPAN I (public affairs) WTGL-independent
CSPAN II (public affairs)
The Discovery Channel (science) PREMIUM CHANNELS
ESPN (sports) Cinemax
Fox (local network affiliate) The Disney Channel*
Lifetime (interests) Home Box Office
MTV (music television)
NBC (local network affiliate) PAY PER VIEW
------------
Nickelodeon (children's) Selected events
Sunshine Sports Network (regional sports)
Sci-Fi Channel (special interest)
TBS-Atlanta (sports, movies)
TNN (music)
</TABLE>
______________________
* The Disney Channel is included in the Melbourne basic programming
line-up.
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The basic programming package offered by the Operating Systems is
comparable to that offered by the local hard-wire cable operators with respect
to the most widely watched channels. Specific programming packages vary
according to particular market demand. The Company's programming is supplied by
numerous distributors and thus the Company is not dependent upon any one
program supplier. In addition, only a few of the major cable television
programming services carried by the Company are not currently directly or
indirectly owned by MSOs and the Company historically has not had difficulty in
arranging satisfactory contracts for these services. The Company believes that
it will have access to sufficient programming material to enable it to provide
widely demanded channel line-ups in its markets for the foreseeable future.
In markets where the Company retransmits local VHF/UHF channels, it must
obtain the consent of local off-air broadcasters. Although there can be no
assurance that the Company will be able to obtain the requisite broadcaster
consents, the Company believes in most cases it will be able to do so for
little or no additional cost. Wireless cable systems, unlike hard-wire cable
systems, are not required under the FCC's "must carry" rules to retransmit a
specified amount of local commercial television or qualified LPTV channels.
In Melbourne and Fort Pierce, the Company owns LPTV channels. Among the
possible uses for LPTV that the Company is currently considering are: network
affiliation, home shopping affiliation, additional premium services, additional
pay-per-view services and digital music. If the use of LPTV channels proves
successful, the Company may apply for LPTV channels in its other wireless cable
markets.
EQUIPMENT AND TECHNOLOGY
Wireless subscriber equipment components used in the Company's systems are
generally similar to those used in hard-wire cable systems. Subscriber
equipment includes a receive antenna, down converter, home wiring, addressable
set-top converter with a handheld wireless remote control unit or addressable
whole-house decoder. Some systems also include an off-air receive antenna to
improve the picture quality of the local off-air channels. The Company is not
dependent upon any one supplier for its equipment needs and believes such
equipment is readily available from a number of suppliers. The following
represents the technologies the Company intends to implement in the near term:
Whole-House Decoders. Whole-house decoders obviate the need for set-top
converters and are generally installed on the exterior of the home. The
whole-house decoder provides the same addressable features as today's set-top
converters. Because whole-house decoders are compatible with digital systems,
they will require only supplementation should the Company begin implementing
digital video technology in its markets. The Company anticipates installing
whole-house decoders in its Boise and Yakima Systems in the first quarter 1997.
The Company believes that use of whole-house decoders will substantially
reduce capital expenditures per subscriber installation. In addition to this
initial cost advantage, the use of whole-house decoders has aesthetic
advantages (the need for set-top converters is eliminated) and, because
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the technology makes it unnecessary to enter the subscriber's home to remove the
home equipment, significantly reduces costs associated with termination of
service and recovery of the equipment.
Digital Video Compression Technology. Currently, wireless cable companies
can provide up to 33 analog channels. DVC technology is expected to increase
channel capacity by four to ten times. Increased channel capacity would enable
the Company to offer additional programming alternatives and increase
pay-per-view programs. Management believes that DVC technology will provide
wireless cable subscribers better signal coverage, digital quality video and
audio signals and incremental digital products and services. The Company
intends to launch its West Palm Beach System as a digital system and is
exploring providing hybrid analog-digital service in its Sacramento System
The Company intends to implement digital video technology and offer
interactive services when management believes that the reliability of the
equipment for DVC has been sufficiently proven and the Company can economically
justify its widespread implementation. Although management believes that DVC
will enable the Company to offer additional programming and increase the homes
that the Company can service from a head-end, before making an investment in DVC
equipment, the Company intends to evaluate subscriber demand for the incremental
programming and services that would be available. The Company believes the
experiences of other wireless cable operators who have announced or commenced
test deployments of these technologies will enable the Company to further
evaluate the benefits of implementing DVC in its own systems. The Company also
believes that evaluating the costs and benefits of DVC and interactivity before
implementing the service is consistent with its marketing strategy. Due to the
limited number of physical components of the wireless transmission system, the
Company believes that it can more easily adapt to technological changes than can
hard-wire cable operators. Nonetheless, the cost of such adaptation by the
Company could be substantial and negatively impact the cost differential between
wireless and other systems. See "Risk Factors--Capital Requirements for Growth;
Need for Additional Financing" and "Management's Discussion of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
FACILITIES
The principal physical assets of a wireless cable system consist of
satellite signal reception equipment, radio transmitters, transmission
antennae, as well as office space and head-end space. The Company leases
office space for its corporate headquarters in Denver, Colorado, and office and
warehouse space for each of its Operating Systems. The Company expects to
purchase or lease additional office space for each of its Planned Systems in
connection with the launch of those systems.
In addition to office space, the Company also leases or intends to lease
head-end space in the markets where it operates, or intends to operate, its
wireless cable systems. The Company's head-end lease agreements provide for
locating transmitters, antennae and other equipment to broadcast wireless cable
signals. The agreements generally cover a period of five to ten years and are
subject to renewal upon expiration. To date, the Company has been able to
obtain suitable head-end space on satisfactory terms for each of its Operating
Systems. In the event that any one or more of these leases is terminated or
not renewed upon expiration, the Company will be required to obtain alternative
head-end space in order to broadcast its programming.
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<PAGE> 48
LICENSES AND CHANNEL LEASES
The Company believes it is unique in its industry in terms of ownership of
substantially all of the commercially available licenses in most of its
markets. The balance of the channels the Company uses in each market to
transmit programming are utilized through long-term, exclusive lease agreements
with unaffiliated third parties. The term of the Company's typical channel
leases is ten years. Benefits of ownership include: (i) increased EBITDA by
eliminating the variable channel leasing costs resulting from increased
penetration; (ii) enhanced flexibility in deploying digital compression and
other technological innovations; and (iii) reduced dependence on third party
channel lessors. With the exception of the Sacramento System, the Company owns
between approximately 67.0% and 100.0% of the available commercial channel
licenses in each of its markets.
The following table indicates, for each of the Company's markets, the
total channels controlled, the number of channels leased, the number of
channels owned through licenses and the percentage of commercial licenses owned
by the Company.
CHANNEL RIGHTS
<TABLE>
<CAPTION>
Number of Channels Percentage of
Total Channels Channels Owned through Commercial Licenses
Controlled(1) Leased(2) Licenses(1)(2) Owned (3)
-------------- ----------- ------------------ -------------------
<S> <C> <C> <C> <C>
FLORIDA MARKETS:
Ft. Pierce(4) 34 20 14 100.0%
Melbourne(4) 36 20 16 100.0%
West Palm Beach(5) 31 20 11 84.6%
NORTHWEST MARKETS:
Boise (6) 33 15 18 85.7%
Sacramento(7) 29 27 2 15.4%
Yakima(8) 33 19 14 66.7%
Coos Bay 20 -- 20 95.2%
Eureka 10 -- 10 76.9%
Helena 21 -- 21 100.0%
Kennewick(9) 33 24 9 69.2%
Klamath Falls 21 -- 21 100.0%
Roseburg 21 -- 21 100.0%
</TABLE>
(1) The Total Channels Controlled and Number of Channels Owned through
Licenses Owned figures include channels that are not yet issued but for
which the Company received the exclusive right to file applications as the
winner of certain BTA Authorizations. In Boise and Yakima, the Company
owns eight commercial ITFS channel licenses in each market which the FCC
previously granted to commercial entities. The FCC will now grant
commercial ITFS channels to BTA Authorization holders only, under certain
circumstances. As the BTA Authorization winner, the Company has the
exclusive right to apply for and anticipates owning eight commercial ITFS
channel licenses in four of its new markets as follows: Coos Bay,
Helena, Klamath Falls and Roseburg. The Company's rights are subject only
to possible applications of educational institutions and non-profit
organizations and restrictions resulting therefrom.
(2) In Coos Bay, Eureka, Helena, Klamath Falls and Roseburg, the Company is
in the process of securing lease agreements with educational institutions
and non-profit organizations and others who are either licensed on the
frequencies in the market, or who have applied for or will apply for
frequencies in the market. The channels associated with such efforts have
not been included in the data presented.
(3) Percentage of Commercial Licenses Owned is calculated by dividing the
number of commercial channels for which licenses are owned by the Company
by the total number of commercial channels for which licenses are available
in each market, in each case exclusive of LPTV channels. The Company owns
the licenses for the following number of commercial channels in each
market: Fort Pierce, 13; Melbourne, 13; West Palm Beach, 11; Boise, 18;
Sacramento, 2; Yakima, 14; Coos Bay, 20; Eureka, 10; Helena, 21; Kennewick,
9; Klamath Falls, 21; and Roseburg, 21. The total number of commercial
channels available for license ownership in Fort Pierce, Melbourne, West
Palm Beach, Sacramento, Eureka and Kennewick is 13 and the total number of
commercial channels available for license ownership in Boise, Yakima, Coos
Bay, Helena, Klamath Falls and Roseburg is 21, of which 8 are commercially
available ITFS channel licenses. In the markets where ITFS channel
licenses are commercially available, the Company, pursuant to its BTA
Authorization has the exclusive right to file license applications under
FCC rules and regulations, subject only to applications of educational and
non-profit institutions and restrictions resulting therefrom. See "Risk
Factors--Uncertainty of Ability to Obtain FCC Authorizations."
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<PAGE> 49
(4) The Channels Controlled and Licenses Owned figures include one 6 MHz LPTV
in Fort Pierce and three LPTV channels in Melbourne.
(5) The Company will acquire the licenses to seven channels in the West Palm
Beach market upon FCC approval of license assignment applications. A
Marketwide Settlement Agreement encompassing 27 channels in the West
Palm Beach market was filed with the FCC on May 25, 1995 and provides for
reallocation of the 27 frequencies between and among all parties to the
settlement and includes modification applications to collocate all 27
channels to the Company's West Palm Beach tower site. There can be no
guarantee that the Company will receive the requisite governmental
approvals or third party interference agreements that may be necessary for
this market. Any delays or failures in obtaining governmental approvals
or interference agreements may delay the Company from launching the West
Palm Beach market and/or transmitting the maximum number of channels it
controls in the market. See "Risk Factors--Interference Issues." The
Company acquired an additional four channels for West Palm Beach in
conjunction with winning the BTA Authorization for the market.
(6) Two channels on which the Company will lease excess capacity in Boise and
one channel the Company will own through license are awaiting grant by the
FCC of a new station application.
(7) The Company's ownership of licenses for two channels in Sacramento is
subject to receiving FCC approval of an assignment application that was
filed in August 1995 and of two pending requests for license renewal, one
timely filed in April 1991 and one untimely filed in April 1994. There
is no guarantee that the Company will obtain the requisite governmental
approval.
(8) Nine of the channels the Company controls in Yakima are awaiting grant by
the FCC of their new station applications.
(9) Twelve of the ITFS channels the Company will lease in Kennewick are
subject to receiving FCC approval of the new station applications that
have been filed by the channel lessors. These applications are mutually
exclusive with other applications that were filed for the market.
However, based upon the selection criteria the FCC utilizes in choosing
between and among mutually exclusive applicants, the Company believes
these applicants will be awarded the licenses for these 12 channels. One
channel the Company will own through license in Kennewick is also awaiting
grant by the FCC. See "Prospectus Summary--History."
The holder of a license issued by the FCC has the right to apply to renew
such license at its expiration date provided that the license holder has
complied with the terms of the license and files an appropriate renewal
applications in a timely manner. While the Company expects grants of its
pending applications and BTA Authorizations, there can be no assurance that the
Company will receive the requisite governmental approvals. See "Risk
Factors--Uncertainty of Ability to Obtain FCC Authorization" and
"--Interference Issues."
LEGAL PROCEEDINGS
In the ordinary course of its business, the Company is involved in certain
pending or threatened legal proceedings. In the opinion of management, none of
such legal proceedings will have a material effect on the financial position or
results of operations of the Company.
EMPLOYEES
At June 30, 1996, the Company had a total of 211 employees. None of the
Company's employees is subject to a collective bargaining agreement. The
Company has experienced no work stoppages and believes that it has good
relations with its employees.
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INDUSTRY OVERVIEW
SUBSCRIPTION TELEVISION INDUSTRY
The subscription television industry began in the late 1940s to serve the
needs of residents in predominantly rural areas with limited access to local
off-air VHF/UHF broadcasts. The subscription television industry, consisting
primarily of hard-wire cable systems, expanded to metropolitan areas because,
among other reasons, it could offer better reception and more programming than
local off-air channels. Currently, subscription television systems offer a
variety of programming, which generally include basic, enhanced basic, premium
and, in some instances, pay-per-view service.
A subscription television subscriber typically pays an initial connection
charge and a fixed monthly fee for basic service. The monthly basic service
fee varies from one area to another and is a function, in part, of the number
of channels and services included in the basic service package, the operating
and capital costs of the subscription television system operator and
competition within the market. In most instances, subscribers are charged a
separate monthly fee for each premium service and certain other specific
programming, with discounts generally available to subscribers receiving
multiple premium services. Monthly service fees for basic, enhanced basic and
premium services constitute the major source of revenue for subscription
television systems. Subscribers normally are free to discontinue service at
any time. Converter rentals, remote control rentals, installation charges and
reconnect charges for subscribers who were previously disconnected as well as
advertising revenue are also included in a subscription television system's
revenues, but generally are not major components of such revenues. The 1996 Act
(and implementing regulations) imposed regulation of cable prices for
programming and equipment. See "--Regulatory Environment."
TRADITIONAL HARD-WIRE CABLE TECHNOLOGY
Most subscription television systems are hard-wire cable systems which
currently use coaxial cable to transmit television signals, although many have
upgraded or are considering upgrading to fiber optic cable which has greater
channel capacity than coaxial cable. Traditional hard-wire cable operators
receive, at a head-end, signals for programming services, such as CBS, NBC,
ABC, Fox, HBO, Cinemax, CNN, etc., which have been transmitted to them by
broadcast or satellite transmissions. A head-end consists of signal reception,
decryption, retransmission, encoding and related equipment. The operator then
delivers the signal from the head-end to subscribers via Cable Plant. As a
direct result of the use of Cable Plant to deliver signals, hard-wire cable
systems are susceptible to signal problems. Signals can be transmitted via
coaxial cable only a relatively short distance without amplification. Each
time a television signal passes through an amplifier some measure of noise is
added. A series of amplifiers between the head-end and the viewing subscriber
leads to progressively greater noise and, accordingly, for some viewers, a
grainier picture. Also, an amplifier must be properly balanced or the signal
may be improperly amplified. Failure of any one amplifier in the chain of a
Cable Plant will black out the transmission signal from that point to the end
of the series. Regular system maintenance is required due to water ingress,
temperature changes and other equipment problems, all of which may affect the
quality of signals delivered to subscribers. Some hard-wire cable companies
have begun installing fiber optic networks which will substantially reduce the
transmission and reception problems currently experienced by hard-wire cable
systems and
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will expand the channel capacity of their systems. The installation of such
networks will require a substantial investment by hard-wire cable operators.
WIRELESS CABLE INDUSTRY
The wireless cable industry was made commercially possible in 1983 when
the FCC reallocated a portion of the electromagnetic radio spectrum located
between 2500 and 2700 MHz for commercial use. Nevertheless, regulatory and
other obstacles impeded the growth of the wireless cable industry through the
remainder of the 1980s. In addition, before the 1992 Cable Act became
effective, a continued supply of programming from cable-controlled programmers
was not assured. The factors contributing to the increasing growth of wireless
cable systems since that time include: (i) regulatory reforms by the FCC to
facilitate competition with hard-wire cable; (ii) Congressional scrutiny of the
rates and practices of the hard-wire cable industry; (iii) increasing
availability of programming for wireless cable systems; (iv) subscriber demand
for alternatives to hard-wire cable service; (v) increasing accumulation by
wireless cable operators of a sufficient number of channels in each market to
create a competitive product; and (vi) increased availability of capital to
wireless cable operators in the public and private markets. According to the
1995 Cable TV Financial Data Book published by Paul Kagan Associates, Inc.
("Kagan"), approximately 150 wireless cable systems presently operate in the
United States serving approximately 400,000 subscribers at the end of 1993 and
approximately 600,000 subscribers at the end of 1994. In addition, the 1995
Wireless Cable Databook also published by Kagan, estimated that wireless cable
would be serving 950,000 subscribers at the end of 1995.
Wireless cable can provide subscribers with the same or superior video
television signal as that of hard-wire cable. Like a hard-wire cable system,
wireless cable receives programming at a head-end. Unlike hard-wire cable
systems, however, the programming is then retransmitted by microwave
transmitters operating in the 2150-2162 MHz and 2500-2686 MHz portions of the
electromagnetic radio spectrum from an antenna typically located on a tower or
building to a small receiving antenna located at a subscriber's premises. At
the subscriber's location, the signals are descrambled, converted to
frequencies that can be viewed on a television set and relayed to a
subscriber's television set by coaxial cable. Wireless cable requires a clear
LOS, because the microwave frequencies used will not pass through dense
foliage, hills, buildings or other obstructions. Some of these obstructions
can be overcome with the use of signal repeaters which retransmit an otherwise
blocked signal over a limited area. Since wireless cable systems do not
require an extensive Cable Plant, wireless cable operators can provide
subscribers with a high quality picture resulting in a reliable signal with few
transmission disruptions at a significantly lower system capital cost per
installed subscriber than hard-wire cable systems.
SUBSCRIPTION TELEVISION INDUSTRY TRENDS
Wireless cable operators will be affected by subscription television
industry trends as well as trends which are particular to the wireless cable
industry. In order to maintain and increase subscribers in the years ahead,
wireless cable operators will need to adapt rapidly to industry trends and may
need to modify practices to remain competitive.
Digital Compression. Several suppliers of wireless cable equipment are
currently in the process of developing the digital equipment necessary to
process and deliver digital programming. The DVC technology is expected to
increase the channel capacity of each wireless cable channel by
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four to ten times. This will create between 132 and 330 channels for a
system with 33 analog channels today. Currently, several wireless operators
have begun testing of DVC systems with several systems' head-ends constructed
(PacBell Corp. in Los Angeles; and CAI Wireless Systems, Inc. ("CAI") in
Virginia and Massachusetts). Digital converters are now starting to be
manufactured with market availability targeted for late 1996 or early 1997.
However, FCC approval is required before a company can convert to or offer
digital programming. See "--Regulatory Environment."
Interactive Services. Wireless cable systems are currently technically
capable of offering selected interactive services by transmitting data from the
subscriber's location back to the head-end facility using response channels
licensed to wireless operators by the FCC. The introduction of digital
technology and wireless cable modems is expected to broaden the services that
can be offered. Several manufacturers of wireless cable equipment are
currently developing the equipment and technology that will allow for more
services than are available today using response channels.
Two-way digital equipment, which may be available within the next several
years, will allow for interactive services such as impulse pay-per-view, home
shopping, video games and interactive two-way data exchange. A potentially
significant service being developed today is Internet access. Modems are being
developed and tested that will allow for asymmetrical operations (data rates
different in each direction) using either the telephone company lines for the
return path to the head-end facility ("telco return") or radio frequencies
already licensed and used by wireless operators ("RF return").
For Internet and Internet-like services utilizing a telco return, the
modem uses the telephone line to request information from the head-end. The
head-end communicates to the Internet through dedicated high speed telephone
lines. The information from the Internet is sent to the head-end where it is
then sent out on one of the MDS channels which has been dedicated to two-way
data services. With the RF return setup, the request is sent from the modem to
a transceiver located on the roof of the subscriber's home. The transceiver
not only processes the standard video channels to the television, it also
transmits a signal through the air which is received at the head-end or cell
site. From there, it proceeds the same as the telco return described above.
Advertising. Local and national advertising through various interconnects
continues to grow as a source of revenue for hard-wire and wireless cable
operators. The Company currently sells advertising in its Fort Pierce,
Melbourne and Sacramento Systems and expects to eventually have such capability
in all of its markets. The Company believes its regional clustering
facilitates its ability to deliver advertising throughout an entire region and
not just isolated markets.
REGULATORY ENVIRONMENT
General. The wireless cable industry is subject to regulation by the FCC
pursuant to the Communications Act of 1934, as amended (the "Communications
Act"). The Communications Act empowers the FCC, among other things, to issue,
revoke, modify and renew licenses within the spectrum available to wireless
cable; to approve the assignment or transfer of control of such licenses; to
approve the location of wireless cable systems; to regulate the kind,
configuration and operation of equipment used by wireless cable systems; and to
impose certain equal employment opportunity and other reporting requirements on
wireless cable operators.
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The FCC has determined that wireless cable systems are not "cable systems"
for purposes of the Communications Act. Accordingly, a wireless cable system
does not require a local franchise and is subject to fewer local regulations
than a hard-wire cable system. Moreover, all transmission and reception
equipment for a wireless cable system can be located on private property;
hence, there is no need to make use of utility poles or dedicated easements or
other public rights-of-way. Unlike hard-wire cable operators, wireless cable
operators do not have to pay local franchise fees. Legislation has been
introduced in some states, including Illinois, Maryland and Florida, which
would authorize state and local authorities to impose on all video program
distributors (including wireless cable distributors) a tax on each
distributor's gross receipts, comparable to the franchise fees paid by
hard-wire cable operators. While the proposals vary among states, the bills
would require, if passed, as much as 5.0% of gross receipts to be paid by
wireless distributors to local authorities. Efforts are underway by the
Wireless Cable Association International, Inc., an industry trade association,
to preempt and thereby prevent such state taxes through federal legislation.
In addition, the industry is opposing the state bills as they are introduced,
and in Pennsylvania and Virginia, it has succeeded in being exempted from the
video tax that was enacted into law. The City of Yakima also has adopted a tax
on gross receipts of subscription television providers from within its city
limits. Similar legislation could be introduced in other states and
municipalities where the Company does business. It is not possible to predict
whether or not new state or municipal laws will be enacted which impose new
taxes on wireless operators. Hearings by the Judiciary Subcommittee of the
Commercial and Administrative Law Committee of the United States House of
Representatives were held on July 25, 1996 to hear presentations supporting the
exemption of wireless cable operators from local franchise taxes through
federal preemption.
Licensing Procedures. The FCC awards MDS and ITFS licenses based upon
applications demonstrating that the applicant is legally and technically
qualified, and certifying that it is otherwise qualified to hold the license
and that the operation of the proposed station will not cause impermissible
interference to other stations or proposed stations entitled to interference
protection.
The FCC accepts applications for new ITFS stations or major modifications
to authorized ITFS stations during designated filing "windows." When two or
more ITFS applicants file for the same channels and the proposed facilities
cannot be operated without impermissible interference, the FCC employs a set of
comparative criteria to select from among the competing applicants.
Recently, the FCC adopted a competitive bidding mechanism under which
initial MDS licenses for 493 designated BTAs were auctioned to the highest
bidder. The BTA Auction concluded on March 28, 1996 after 181 rounds of
bidding. High bidders were required to submit specified down payments to the
FCC by April 5, 1996. BTA Auction winners have the exclusive right to apply
for MDS and commercial ITFS channels within their BTAs, subject to compliance
with interference protection, construction of the channels and other rules.
Generally, once a commercial license application is approved by the FCC
and the applicant resolves any deficiencies identified by the FCC, a
conditional license is issued, allowing construction of the station to
commence. Construction of ITFS stations generally must be completed within 18
months of the date of grant of the authorization. Construction of MDS stations
licensed pursuant to initial applications filed before the implementation of
the BTA Auction rules generally must be completed within 12 months. If
construction of MDS or ITFS stations is not completed within the authorized
construction period, the licensee must file an application with the FCC seeking
additional time to construct the station and demonstrate therein compliance
with certain FCC standards. If the
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extension application is not filed or is not granted, the license will be
deemed forfeited. The construction requirements applicable to MDS stations
licensed pursuant to the BTA Auction are substantially different. The licensee
must build stations capable of reaching two-thirds of the population of the
area within its control in the BTA within five years.
FCC rules prohibit the sale for profit of a conditional commercial license
or of a controlling interest in the conditional license holder prior to
construction of the station or, in certain instances, prior to the completion
of one year of operations. However, the FCC does permit the leasing of 100.0%
of a commercial license holder's spectrum capacity to a wireless cable operator
and the granting of options to purchase a controlling interest in a license
even before such holding period has lapsed.
License Renewals. Applications for renewal of MDS and ITFS licenses must
be filed within a certain period prior to expiration of the license term, and
petitions to deny applications for renewal may be filed during certain periods
following the public notice of the filing of such applications. Licenses are
subject to revocation or cancellation for violation of the Communications Act
or the FCC's rules and policies. Conviction for certain criminal offenses also
may render a licensee or applicant unqualified to hold a license.
Channels Available for Wireless Cable. The right to transmit video
programming, entertainment services and other information on wireless cable
frequencies is regulated by the FCC. In each metropolitan market, the FCC has
allocated 33 channels for the primary purpose of wireless cable transmissions
of video programming. The spectrum bandwidth associated with these channels
varies between 196 and 198 MHz depending upon whether channel 2 or 2A is
included. In the largest 50 markets channel 2 is available and consists of a
full 6 MHz of bandwidth; the remainder of the markets include channel 2A which
consists of 4 MHz of bandwidth and, in an analog format, is not capable of full
audio and video transmissions. The 33 channels consist of 13 MDS channels,
which can be used exclusively for commercial purposes, and 20 ITFS channels.
The FCC does not impose any restrictions on the terms of MDS channel leases,
other than the requirement that the licensee maintain effective control of its
MDS station. The same FCC control requirement applies to ITFS licensees.
Except in limited circumstances, 20 ITFS channels in a service area are
licensed to qualified educational institutions and non-profit organizations.
Each of these channels must be used a minimum of 20 hours per week for
instructional programming (12 hours per week in the first two years). The
remaining "excess air time" on an ITFS channel may be leased to wireless cable
operators for commercial use, without further restrictions (other than the
right of the ITFS license holder, at its option, to recapture up to an
additional 20 hours of air time per week for educational programming). Certain
programs (e.g., C-SPAN and Discovery Channel) qualify as educational
programming and thereby facilitate greater usage by the Company of an ITFS
channel. ITFS excess capacity leases cannot exceed terms of ten years.
A technique known as "channel mapping" also permits ITFS licensees to meet
their minimum educational programming requirements by transmitting educational
programming over several ITFS channels at different times, but in a manner
which appears to the viewer as one channel. Lessees of ITFS's "excess air
time" generally have the right to transmit to their subscribers the educational
programming provided by the lessor at no incremental cost. The FCC amended
its rules to permit "channel loading" in 1994. Channel loading permits ITFS
license holders to consolidate their
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educational programming on one or more of their ITFS channels thereby providing
wireless cable operators leasing such channels, including the Company, with
greater flexibility in their use of ITFS channels. Under certain
circumstances, the FCC will issue commercial ITFS licenses to wireless cable
operators. However, henceforth only BTA Authorization holders may apply for
initial commercial ITFS licenses.
LPTV Licensing. In each television market, the FCC makes available for
licensing 66 LPTV channels: 12 standard VHF channels (2-13) and 54 UHF channels
(14-36, 38-69). The FCC uses a window-filing procedure to process LPTV
applications, and each applicant can apply for a total of five LPTV channels
per window-filing period. There is no limit on the number of LPTV channels an
entity may own and LPTV licenses are not subject to FCC auctions or competitive
bidding procedures. The FCC considers potential interference and availability
of spectrum when granting LPTV licenses.
Like wireless cable channels, LPTV channels are a full six MHz of
spectrum, and the 30-mile reach of an LPTV channel is compatible with the
35-mile protected service area of a wireless cable system. LPTV channels are
received at the subscriber's home through either an off-air antenna or a UHF
loop antenna.
Tower Location and Signal Strength. The FCC also regulates transmitter
locations and signal strength. The operation of a wireless cable television
system requires the co-location of a commercially viable number of transmitting
antennae with common power levels.
Protected Service Areas. Under the current FCC regulations, a wireless
cable operator generally may serve any location within the LOS of its
transmission facility, provided that it complies with the FCC's interference
protection standards. A MDS station generally is automatically entitled to
interference protection within a 35-mile radius around its transmitter site.
Usually an ITFS facility is, upon request, entitled to the same 35-mile
protected service area during excess capacity use by a wireless cable operator,
and during non-excess capacity use times, interference protection for all of
its FCC-registered receive-sites located within 35 miles of its transmitter.
The 1992 Cable Act. The 1992 Cable Act imposed additional regulation on
hard-wire cable operators and permits regulation of hard-wire cable rates in
markets in which there is no "effective competition." The 1992 Cable Act,
among other things, directed the FCC to adopt comprehensive new federal
standards for local regulation of certain rates charged by hard-wire cable
operators. The 1992 Cable Act also deregulated hard-wire cable rates in a
given market once other subscription television providers offer comparable
video programming to at least 50.0% of the households in a franchise area and
serve, in the aggregate, at least 15.0% of the cable franchise area. Rates
charged by wireless cable operators, already typically lower than hard-wire
cable rates, are not subject to regulation under the 1992 Cable Act. Pursuant
to the 1992 Cable Act, the FCC has required hard-wire cable operators to
implement rate reductions.
The 1996 Act. A principal focus of the 1996 Act is freeing local
telephone companies and long distance telephone companies from barriers to
competing in each other's lines of business and preempting state restrictions
on competition in the provision of local telephone service. In addition,
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the 1996 Act contains provisions which amend the 1992 Cable Act and which
affect wireless cable operators.
A significant potential effect on wireless cable operators of the 1996 Act
may result from its provisions exempting hard-wire cable systems from rate
regulation. In particular, the 1996 Act will end rate regulation of all but
basic cable service by 1999 and immediately removes virtually all rate
regulation of "small cable operators"--those cable operators that, directly or
through an affiliate, serve in the aggregate fewer than 1.0% of all U.S. cable
subscribers, and are unaffiliated with any entity whose gross revenue in the
aggregate exceeds $250.0 million--in those franchise areas in which it serves
50,000 or fewer subscribers. In the wake of the lifting of rate caps, some of
such cable systems may raise their rates which would improve the existing price
advantages of wireless cable operators over competing traditional hard-wire
cable service providers.
The 1996 Act also contains provisions allowing local exchange telephone
companies to offer cable service within their telephone service areas. Under
the 1992 Cable Act, exchange telephone companies were free to offer wireless
cable service anywhere, but could offer wired cable service only outside of
their exchange telephone areas or solely as common carriers, subject to FCC
authorization. The 1996 Act allows exchange telephone companies to offer video
programming services via radio communications (such as wireless cable) without
regulation of rates or services, to offer hard-wire or fiber cable service
channels for hire by video programmers, to offer their own hard-wire or fiber
optic service over networks with channels also available for use by other video
program services providers under a modified regulatory scheme and to provide
traditional cable service subject to local franchising requirements. However,
the FCC has recently implemented those provisions of the 1996 Act and,
accordingly, it is too early to predict the impact, if any, that such FCC
regulations will have on wireless cable operators.
The 1996 Act offers wireless cable operators and satellite programmers
relief from private and local government-imposed restrictions on the placement
of receive-site antennae. In some instances, wireless cable operators have
been unable to serve areas due to laws, zoning ordinances, homeowner
association rules or restrictive property covenants banning the erection of
antennae on or near homes. The FCC has initiated proceedings to promulgate
rules implementing Congress' intent which are currently required to be
completed by August 6, 1996. FCC rules ultimately adopted may materially
affect wireless cable operators' access to homes subject to receive-site
antenna placement restrictions.
Finally, the 1996 Cable Act requires wireless cable companies and
hard-wire cable companies to "scramble" or encrypt channels which ordinarily
carry indecent or sexually explicit programming. A United States District
Court has recently issued a temporary restraining order which has led the FCC
to announce that it will not enforce or implement these provisions.
Other Regulations. Wireless cable license holders are subject to
regulation by the FAA with respect to the construction, marking and lighting of
transmission towers and to certain local zoning regulations affecting
construction of head-ends, receive-site antennae and other facilities. There
also may be restrictions imposed by local authorities and private covenants.
Compliance with such regulations and rules can increase the cost of operating a
wireless cable system.
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Due to the regulated nature of the subscription television industry, the
Company's growth and operations may be adversely impacted by the adoption of
new, or changes to existing, laws or regulations or the interpretations
thereof.
AVAILABILITY OF PROGRAMMING
Once a wireless cable operator has obtained the right to transmit
programming over specified frequencies, the operator must then obtain the right
to use the programming to be transmitted.
General. Currently, with the exception of the retransmission of local
off-air VHF/UHF broadcast signals, programming is made available in accordance
with contracts with program suppliers under which the system operator generally
pays a royalty based on the number of subscribers receiving service each month.
Individual program pricing varies from supplier to supplier; however, more
favorable pricing for programming is generally afforded to operators with larger
subscriber bases. The likelihood that program material will be unavailable to
wireless cable operators has been significantly mitigated by the 1992 Cable Act
and various FCC regulations issued thereunder which, among other things, impose
limits on exclusive programming contracts and prohibit MSOs from discriminating
against cable competitors with respect to the price, terms and conditions of
programming. It is important to note that current fair access to programming
rules imposed by the 1992 Cable Act apply only to programming owned or
controlled by a cable company and which is delivered by satellite.
Consequently, unless changed, any programming developed for transmission to
cable operators over telephone lines, or any programming developed by an entity
divested from a cable company, is not subject to fair access rules at this time.
Copyright. Under the federal copyright laws, permission from the
copyright holder generally must be secured before a video program may be
retransmitted. Under Section 111 of the Copyright Act, certain "cable systems"
are entitled to engage in the secondary transmission of television broadcast
signals without the prior permission of the holders of copyrights in the
programming. In order to do so, a cable system must secure a compulsory
copyright license. Such a license may be obtained upon the filing of certain
reports with and the payment of certain fees to the U.S. Copyright Office. In
1994, Congress enacted the Satellite Home Viewer Act of 1994 which enables
operators of wireless cable television systems to rely on the cable compulsory
license under Section 111 of the Copyright Act.
Retransmission Consent. Under the retransmission consent provisions of
the 1992 Cable Act, wireless and hard-wire cable operators seeking to
retransmit certain commercial television broadcast signals must first obtain
the permission of the broadcast station. The FCC has exempted wireless cable
operators from the retransmission consent rules in cases where such signals are
received off-air in conjunction with the wireless cable operator's service,
provided that the reception is without charge to the subscriber and where the
receive-site antenna is either owned by the subscriber or within the
subscriber's control and available for purchase by the subscriber upon
termination of service. In all other cases, wireless cable operators must
obtain consent to retransmit local broadcast signals.
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COMPETITION
The cable television industry is highly competitive. Wireless cable
operators compete primarily with hard-wire cable companies that own local
franchises in which they have the exclusive right to offer their services.
Generally, hard-wire cable operators do not compete with one another
because their respective service areas do not overlap. In most instances, the
hard-wire cable operators with which the wireless cable operators compete serve
more subscribers on both a local and national level and typically offer a
larger selection of programming.
In addition to competition from hard-wire cable television systems,
wireless cable television operators face competition from a number of other
sources, including potential competition from as yet unidentified sources
engendered by the emerging trends and technologies in the subscription
television industry, some of which are described below.
Direct-to-Home ("DTH"). DTH satellite television services originally were
available via satellite receivers which generally were seven to 12 foot dishes
mounted in the yards of homes to receive television signals from orbiting
satellites. Until the implementation of encryption, these dishes enabled
reception of any and all signals without payment of fees. The advent of DBS
has reduced the popularity of DTH, although the Company will to some degree
compete with these systems in marketing its services. More recently, certain
programming providers have begun offering up to 150 channels via DTH and DBS.
DBS. DBS involves the transmission of an encoded signal directly from a
satellite to the subscriber's premises. Because the signal is at a higher power
level than DTH signals, its reception can be accomplished with a relatively
small (18 inch to three foot) dish mounted on a rooftop or in the yard. Four
DBS services currently are available nationwide, and one more is expected to be
launched later in 1996. DBS currently has approximately 2.3 million subscribers
nationwide. AT&T Corp. has announced plans to invest $137.5 million in DirecTV,
Inc., a leading provider of DBS service, in exchange for a 2.5% equity interest
and options to acquire up to a total of a 30.0% equity interest. MCI
Communications Corp. ("MCI") has announced that it has entered into a DBS joint
venture arrangement with News Corp., using a license that MCI recently won in an
FCC auction for which MCI will pay $682.5 million. DBS currently cannot, for
technical and legal reasons, provide local VHF/UHF broadcast channels as part of
its service, although many subscribers receive such channels from standard
off-air antennae. If a subscriber is unable to receive local network signals
off-air, due to such subscriber's geographic location, the subscriber would be
able to receive the network signals through DBS transmissions, but such
transmissions would be limited to distant, rather than local, network signals.
The cost to the subscriber of a DBS system to service one television set is
approximately $300 to $700, which may or may not include the cost of
installation. DBS subscribers also pay monthly subscription fees analogous to
those paid by hard-wire cable system subscribers.
Private Cable. Private cable is a multi-channel subscription television
service where the programming is received by a common satellite receiver and
then transmitted via coaxial cable throughout private property, often MDUs,
without crossing public rights of way. Private cable operates under an
agreement with a private landowner to service a specific MDU, commercial
establishment or hotel. The FCC amended its rules to provide point-to-point
delivery of video
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programming by private cable operators and other video
delivery systems in the 18 gigahertz ("GHz") band. Private cable operators
compete with wireless cable systems for exclusive rights of entry into larger
MDUs.
Telephone Companies. The 1996 Act permits local exchange carriers
("LECs") to provide video programming directly to customers in their respective
telephone service areas. Under recently adopted FCC rules, LECs may operate as
open video service providers subject to streamlined regulations as long as the
LECs permit carriage of unaffiliated video programming providers on a just,
reasonable and nondiscriminatory basis which will permit end users to access
video program services provided by others. Several large telephone companies
have announced plans to acquire or merge with existing hard-wire cable systems
outside of the telephone company's service area.
Two LECs, Bell Atlantic Corp. ("Bell Atlantic") and NYNEX, Inc. ("NYNEX"),
have invested, in the aggregate, $100 million in CAI, which operates wireless
cable systems in large urban markets which are primarily located in Bell
Atlantic's and NYNEX's areas of operations. Bell Atlantic and NYNEX announced
that their investment will allow them to enter the market for subscriber video
services more quickly than by constructing a coaxial fiber optic network. Bell
Atlantic and NYNEX are presently seeking approval for a proposed merger that
would result in a Bell Atlantic takeover of NYNEX. In April 1995, Pacific
Telesis Group ("PacTel"), a LEC based in California, acquired Cross Country
Wireless, Inc. ("Cross Country"), which operates a wireless cable system and
holds channel rights in southern California, for approximately $175.0 million.
Similar to Bell Atlantic and NYNEX, PacTel announced that its acquisition of
Cross Country will allow PacTel to enter the market for subscriber video
services on an expedited basis. In November 1995, PacTel announced it would
acquire Wireless Holdings, Inc., which operates wireless cable systems and
holds channel rights in California, Washington, Florida and South Carolina, for
approximately $170.0 million. Bell Atlantic and NYNEX own a 10.0% equity
interest in CS Wireless Systems, Inc., which operates and is developing
wireless cable systems primarily in the midwestern United States. In May 1996,
BellSouth Corp. announced it had secured rights to serve the New Orleans,
Louisiana market by successfully bidding $12.0 million for the wireless cable
system there. The competitive effect of the entry of telephone companies into
the subscription television business, including wireless cable, is uncertain at
this time.
Local Off-Air VHF/UHF Broadcasts. Local off-air VHF/UHF broadcasts (such
as ABC, NBC, CBS and Fox) provide free programming to the public. Pursuant to
the 1992 Cable Act, local broadcasters may require that subscription television
operators obtain their consent before retransmitting local off-air VHF/UHF
broadcasts. See "Risk Factors--Government Regulation" and "--Dependence Upon
Program Material and Channel Lease Agreements ." The FCC also has recently
permitted broadcast networks to acquire, subject to certain restrictions,
ownership interests in hard-wire cable systems.
LMDS. In 1993, the FCC proposed to redesignate the 28 GHz band to create
a new video programming delivery service referred to as LMDS. The FCC proposed
to allow at least two new wireless video program distributors with access to
more than 49 channels each. After a Second and Third Further Notice of
Proposed Rule Making ("NPRM") setting forth various spectrum-sharing proposals,
the FCC in its First Report and Order allocated 1,000 MHz of spectrum in the 28
GHz band to LMDS despite opposition from both fixed and mobile satellite
operators who also will share portions of the band. In addition, the FCC
issued a Fourth NPRM to allocate additional spectrum
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in the 31 GHz band to permit LMDS operators to offer two-way services.
Consideration of an earlier proposal to move LMDS to spectrum above 40 GHz has
been rejected by the FCC. The Fourth NPRM also indicates the FCC will consider
competitive issues raised by the 1996 Act, including the eligibility of cable
operators for LMDS licenses. Service Rules are expected soon and the FCC has
announced its intention to begin auctioning LMDS spectrum in the latter part of
1996.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Certain information concerning the directors and executive officers of the
Company is set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
Dean L. Buntrock (1)(2)............... 65 Chairman of the Board
William W. Kingery, Jr................ 50 President, Chief Executive Officer
and Director
Sharan L. Wilson...................... 45 Chief Operating Officer
Jeb Dickey............................ 41 Chief Financial Officer, Treasurer
and Assistant Secretary
Jennifer L. Richter................... 29 Vice President and General Counsel
Christopher Scurto.................... 34 Vice President of Marketing
Kenneth Gores......................... 47 Vice President of Engineering
Peer Pedersen (1)..................... 71 Director and Secretary
Roy F. Coppedge III (3)............... 48 Director
Barbara M. Ginader (3)................ 39 Director
George D. Johnson, Jr. (1)(2)......... 54 Director
</TABLE>
(1) Member of Compensation Committee. See "Certain Transactions" regarding
transactions between the Company and certain members of the Compensation
Committee as promoters.
(2) Nominee of the Designated Original Investors (as defined below) pursuant
to the Stockholders Agreement.
(3) Nominee of Boston Ventures pursuant to the Stockholders Agreement.
All directors of the Company hold office until the next annual meeting of
stockholders of the Company and until their successors have been elected and
qualified. All officers of the Company serve at the discretion of the Board of
Directors.
The Company and its current stockholders are parties to a Stockholders
Agreement, dated as of March 15, 1995 (the "Stockholders Agreement"), which
establishes, among other things, the obligation of all such stockholders to
vote their shares at all elections of directors in favor of two individuals
designated by Boston Ventures and two individuals designated by a group of
investors comprised of Canal Investment Society, L.P., George D. Johnson, Jr.,
and the interests controlled by the Buntrock family (collectively, the
"Designated Original Investors"). See "Principal Stockholders--Stockholders
Agreement."
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The present principal occupation and employment background of each of the
executive officers and directors is as follows:
Dean L. Buntrock. Mr. Buntrock has been Chairman of the Board of
Directors of the Company since its incorporation in 1994. Mr. Buntrock has
been Chairman of the Board and until June 1996 was Chief Executive Officer of
WMX Technologies, Inc. (formerly Waste Management, Inc.) since 1968. From May
1993 to January 1995, Mr. Buntrock served as Chairman of the Board and Chief
Executive Officer of Chemical Waste Management, Inc., a subsidiary of WMX
Technologies, Inc. In addition, Mr. Buntrock serves as a director of Waste
Management International, PLC, Wheelabrator Technologies, Inc., Boston Chicken,
Inc. and First Chicago Corporation.
William W. Kingery, Jr. Mr. Kingery has served as the President, Chief
Executive Officer, and a Director of the Company since 1994. Mr. Kingery has
over two decades of experience in the development of successful cable
television systems in the United States. Mr. Kingery began his career with
Scientific Atlanta, Inc., where he was responsible for providing financing
services to potential purchasers of cable television equipment and helped in
acquiring both debt and equity financing for the company. From 1976 to 1981,
he was Vice President of Finance and Corporate Development and Chief Financial
Officer for United Cable Television, a New York Stock Exchange ("NYSE") listed
company. Mr. Kingery joined Daniels & Associates, Inc., where he spent six
years as President. In 1988, Daniels & Associates was sold to United Artists
Cable Systems. As part of that sale, Mr. Kingery became Executive Vice
President of United Artists Cable Systems with responsibility for 90 cable
systems serving approximately 1,300,000 subscribers. From 1989 until joining
WBSA in 1994, Mr. Kingery provided consulting services to the communications
industry. Mr. Kingery also serves as a Director of the Wireless Cable
Association International.
Sharan L. Wilson. Ms. Wilson joined the Company as Chief Operating
Officer in July 1996. From 1992 to July 1996, Ms. Wilson served as a Vice
President of Operations and Corporate Development for TCI. Ms. Wilson also was
the President of Netlink, a C-BAND programming concern in 1992. From 1989 to
1991, Ms. Wilson served as the senior vice president for United Artists Cable
Corporation where she was responsible for strategic planning and day-to-day
operations for the Company's western division which included 25 cable systems
serving approximately 725,000 subscribers.
Jeb Dickey. Mr. Dickey has served as the Chief Financial Officer,
Treasurer and Assistant Secretary of the Company since its incorporation in
1994. From 1990 to 1993, Mr. Dickey was the Chief Financial Officer of Prime
Racing Ventures, a sports promotion and television programming company located
in Denver, Colorado. Mr. Dickey's financial career includes previous tax and
audit experience with Price Waterhouse LLP and Coopers & Lybrand L.L.P.
Jennifer L. Richter. Ms. Richter has served as Vice President and General
Counsel of the Company since July, 1994. From April 1992 to July 1994, Ms.
Richter was an associate with the law firm of Pepper & Corazzini, L.L.P. where
she specialized in the representation of wireless cable, private cable and
private telephone companies. Prior to that position, Ms. Richter served as a
federal judicial clerk for the United States Sentencing Commission from August
1991 through April 1992. She graduated from Drake University School of Law in
May 1991 and is licensed to practice in Illinois and the District of Columbia.
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<PAGE> 63
Christopher Scurto. Mr. Scurto has served as Vice President of Marketing
of the Company since July 1994. Prior to joining the Company, Mr. Scurto was
Manager of Marketing and Business Development at US WEST Enhanced Services from
1992 to 1994 and Director of Marketing for United Artists Cable Systems from
1989 to 1991.
Kenneth Gores. Mr. Gores has served as the Vice President of Engineering
of the Company since November 1995. From October 1990 to July 1996, Mr. Gores
was the Vice President of Engineering for Paragon Cable, a hard-wire cable
operator in Portland, Oregon.
Peer Pedersen. Mr. Pedersen has been a Director of the Company since its
incorporation in 1994. He is founder and Chairman of Pedersen & Houpt, a
Chicago law firm. Mr. Pedersen has been a Director of the Company since 1994
and serves on the Board of Directors of a number of companies, including Aon
Corporation, Boston Chicken, Inc., Extended Stay America, Inc., H2O Plus, Inc.,
Latin America Growth Fund, Inc., Tempel Steel Company and WMX Technologies,
Inc.
Roy F. Coppedge III. Mr. Coppedge has been a Director of the Company
since 1995. He has served as a general partner and director of Boston Ventures
since August 1983. Prior to that date he had been a First Vice President of
The First National Bank of Boston and had headed the bank's U.S. Merchant
Banking Group. Mr. Coppedge is currently a director of American Media Group,
Inc., Falcon Holding Group, L.P. and Continental Cablevision, Inc.
Barbara M. Ginader. Ms. Ginader has been a Director of the Company since
1995. She has served as a general partner and director of Boston Ventures
since January 1993. Prior to January 1993, Ms. Ginader had been a managing
director at Bear, Stearns, & Co., Inc. from 1985 through 1992 with a year
(1991) as a managing director at Chemical Bank. She is currently a member of
the board of advisors of Motown Cafe, L.L.C. and a member of the board of
representatives of Brew House, L.L.C.
George D. Johnson, Jr. Mr. Johnson has been a Director of the Company
since its incorporation in 1994. He is currently Chairman and President of
Extended Stay America, Inc. From July 1987 through August 1993, Mr. Johnson
served as general partner, President and Chief Executive Officer of WJB Video,
which developed over 200 Blockbuster Video stores prior to merging into
Blockbuster Entertainment Corporation in 1993. Mr. Johnson is also a director
of Duke Power Company, Republic Industries, Inc. and Viacom, Inc.
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EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation for
services in all capacities to the Company for the fiscal years ended December
31, 1994 and 1995 of the Chief Executive Officer of the Company ("Named
Officer"). No other executive officer of the Company received more than
$100,000 in compensation during 1995.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
---------------------- ----------------------------------
Name and Principal Position Year Salary Bonus Shares Underlying Stock Options(1)
- --------------------------- ---- ---------- ---------- ----------------------------------
<S> <C> <C> <C> <C>
William W. Kingery, Jr.
President, Chief Executive
Officer and Director(2) ......... 1994 $131,542 $50,000 360,000
1995 $150,000 $75,000 640,000
</TABLE>
(1) After the Offering, the options shall be exercisable for shares of Class
B Common Stock. The Shares Underlying Stock Options represents the class
of Common Stock available for issuance at the time the options were
granted.
(2) Mr. Kingery was first employed and compensated by the Company in February
1994.
The following table sets forth information on grants of stock options to
the Named Officer pursuant to the Company's Stock Option Plan (as defined
herein) during the fiscal year ended December 31, 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants Potential Realizable Value at
----------------------------------------------------------------------------- Assumed Annual Rates of Stock
Price Appreciation for
Option Term
-----------------------------
5% 10%
-- ---
Number of Percentage of
Securities Total Options
Underlying Granted to Exercise Price Expiration
Name Options Granted(1) Employees in 1995 (Per Share) Grant Date Date
- ---- ------------------ ----------------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
William W. Kingery, March March
Jr.... 640,000 45.7% $1.46 1995 2005 $585,700 $1,484,300
</TABLE>
(1) After the Offering, the options shall be exercisable for shares of Class
B Common Stock. The Number of Securities Underlying Options Granted
represents the class of Common Stock available for issuance at the time
the option was granted.
The following table sets forth information with respect to the unexercised
options to purchase the Class B Common Stock granted in 1995 under the
Stock Option Plan (as defined herein). The Named Officer did not exercise
any stock options during the 12 month period ended December 31, 1995.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Unexercised Options Value of Unexercised In-the-Money
Held at December 31, 1995(1) Options at December 31, 1995(2)
---------------------------- -------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William W. Kingery, Jr. ................ 90,000 910,000
</TABLE>
(1) After the Offering, the options shall be exercisable for shares of Class
B Common Stock. The Number of Unexercised Options Held represents the
class of Common Stock available for issuance at the time the option was
granted.
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(2) Market value of the underlying securities is the estimated initial public
offering price of the Class A Common Stock of $______ per share less the
exercise price of "in the money" options.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Mr. Kingery in
February 1994 (the "Kingery Employment Agreement") . Pursuant to the Kingery
Employment Agreement, Mr. Kingery serves as Chief Executive Officer of the
Company. The initial term of the employment agreement was for two years;
however, it automatically renews for successive one-year periods unless either
party to the agreement gives the other notice of its intent to terminate the
agreement at least 60 days prior to the expiration of the current term or any
succeeding one year period. Mr. Kingery's minimum annual base salary is
$150,000 and he also is entitled to a productivity bonus under which he may
earn a bonus of up to 50.0% of his base salary.
Pursuant to the Kingery Employment Agreement, Mr. Kingery was granted
options to purchase 360,000 shares of the Class B Common Stock under the Stock
Option Plan. Mr. Kingery is entitled to receive such other benefits, pension
or health plans as are received by other officers of the Company. The Kingery
Employment Agreement contains a non-competition provision which extends for two
years after termination of the agreement. The Kingery Employment Agreement may
be terminated by the Company upon Mr. Kingery's death or disability or for
"Cause," as defined in the Kingery Employment Agreement. If Mr. Kingery is
terminated other than upon his death or disability or for Cause, Mr. Kingery or
his representatives will continue to be paid under the agreement for the
balance of the then current term.
The Company entered into an employment agreement with Ms. Wilson in July
1996 (the "Wilson Employment Agreement"). Pursuant to the Wilson Employment
Agreement, Ms. Wilson serves as Chief Operating Officer of the Company. The
initial term of the employment agreement is for one year; however, it renews
for successive one-year periods unless either party to the agreement gives the
other notice of intent to terminate the agreement at least 60 days prior to the
expiration of any current one-year period. Ms. Wilson's minimum annual base
salary is $125,000 and she may earn a productivity bonus.
Pursuant to the Wilson Employment Agreement, Ms. Wilson was granted
options to purchase 300,000 shares of the Class B Common Stock under the Stock
Option Plan (as herein defined) at an exercise price of $4.17 per share. Ms.
Wilson is entitled to receive such other benefits, pension or health plans as
are received by other officers of the Company. The Wilson Employment Agreement
contains a non-competition provision which extends for two years after
termination of the agreement. The Wilson Employment Agreement may be
terminated by the Company upon Ms. Wilson's death or disability or for "Cause,"
as defined in the Wilson Employment Agreement. If Ms. Wilson is terminated
other than upon her death or disability or for Cause, Ms. Wilson or her
representatives will continue to be paid under the agreement for the balance of
the then current term.
STOCK OPTION PLAN
On March 15, 1995, the Board of Directors and stockholders of the Company
unanimously adopted a Restated Stock Option Plan (the "Stock Option Plan"),
pursuant to which 3,103,000 shares of the then existing class of the Common
Stock were reserved for issuance. As of July 31, 1996, pursuant to the Stock
Option Plan, the Company has granted options to purchase an aggregate of
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<PAGE> 66
2,372,201 shares of Common Stock to 13 employees of the Company of which
28,000 have been exercised and 709,201 are exercisable at $1.46 per
share (with the exception of options to purchase 300,000 shares of Class B
Common Stock granted in July 1996 exercisble at $4.17 per share.)
On_____________, 1996, the Company's Board of Directors authorized an amendment
to the Stock Option Plan providing for the conversion of outstanding options
into options exercisable for shares of Class B Common Stock.
The purpose of the Stock Option Plan is to encourage key employees of the
Company to acquire a proprietary interest in the Company and to generate an
increased incentive to contribute to the Company's future success and
prosperity. All options granted under the Stock Option Plan will be
nonqualified stock options. The Compensation Committee of the Board of
Directors of the Company is the Plan Administrator and has the power to select
employees for participation, determine the number of shares of Class B Common
Stock subject to each grant and the vesting, option price and terms of
exercise; provided, however that no options under the Stock Option Plan may be
granted until first approved by Boston Ventures. The Compensation Committee
also may adjust the number of shares of Class B Common Stock subject to option
grants in order to prevent dilution or enlargement of the benefits or potential
benefits of the option grant. Options may not be assigned or transferred
except by will or operation of the laws of descent and distribution. Subject
to vesting requirements, options granted under the Stock Option Plan may be
exercised only by the participant, with certain exceptions in the event of
death, during his or her employment and for certain periods thereafter. No
individual may receive options on more than 1,500,000 shares of Class B Common
Stock under the Stock Option Plan and no options under the Stock Option Plan
may be granted after May 10, 2005. No option may be exercised earlier than one
year from the date of grant.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
On ___________, 1996, the board of directors of the Company adopted a 1996
Stock Option Plan for Non-Employee Directors (the "Directors Plan"), which is
being submitted to the stockholders of the Company for approval by written
consent prior to completion of the Offering. On _______, 1996, _____ shares of
Class ___ Common Stock were reserved for issuance under the Directors' Plan,
options to purchase an aggregate of _____ shares of Class _______ Common Stock
were granted under the Directors Plan to each of Messrs. __________________ and
______________ at an exercise price of _____ per share. Only those directors
who are not employees of the Company and own, either directly or indirectly,
less than ____% of the Class A Common Stock will be eligible participants under
the Directors' Plan. Holders of Class B Common Stock are not eligible
participants under the Directors' Plan.
The Directors Plan is intended to assist the Company in attracting and
retaining directors of outstanding ability and to promote the identification of
their interests with those of the stockholders of the Company. The Directors
Plan will provide for automatic grants of non-qualified stock options
("Options") covering ______ shares of Class ___ Common Stock, subject to
adjustment to reflect events such as stock dividends, stock splits,
recapitalizations, mergers or reorganizations of or by the Company. The
Directors Plan will be administered by the Board of Directors of the Company
and is intended to satisfy the requirements of Rule 16b-3 under the Exchange
Act.
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<PAGE> 67
DIRECTORS' FEES
Following consummation of the Offerings, non-employee directors of the
Company will receive a fee of $_______ per meeting and options to acquire Class
____Common Stock for their services as directors of the Company. Directors who
are also employees of the Company receive no additional compensation for
serving as directors. The Company reimburses all directors for travel and
out-of-pocket expenses in connection with their attendance at meetings of the
Board of Directors.
401(K) PLAN
Effective January 1, 1996, the Company instituted a 401(k) plan for its
eligible employees. All employees of the Company who have been employed for
three months are eligible to participate in the plan beginning on the first day
of the first fiscal quarter following the completion of three months of
service. Participants in the 401(k) plan may contribute up to 15.0% of their
total base compensation to the plan. The Company reserves the right to make
matching contributions in an amount not to exceed 5.0% of any participant's
total base compensation. Each employee's interest in contributions of the
Company vests 25.0% per year for the first two years of service and 50.0% in
the third year of service with the Company. Service before January 1, 1996,
with the exception of employees covered by the 401(k) plan previously in place
at the Sacramento System, is not counted toward the vesting. Contributions of
the Company may be made without regard to the profitability of the Company.
The trustees of the 401(k) plan are Jeb Dickey and Jennifer L. Richter.
CERTAIN TRANSACTIONS
Dean L. Buntrock, George D. Johnson, Jr. and E. Craig Wall founded the
Predecessor Partnership, selling $12.0 million in limited partnership interests
to investors in 1992 and 1993. Messrs. Buntrock, Johnson and Wall, either
individually or through affiliates contributed $2,167,000, $917,000 and
$1,167,000, respectively to the Predecessor Partnership in return for which
they received limited partnership interests representing 18.1%, 7.6% and 9.7%
of the total limited partnership interests respectively. In March 1994, the
Company was formed and the Common Stock was exchanged for the limited
partnership interests in the Predecessor Partnership. In addition, the Company
raised an additional $15.7 million in equity from its initial stockholders.
Messrs. Buntrock, Johnson and Wall, either individually or through affiliates,
contributed their limited partnership interests in the Predecessor Partnership
plus $2,889,000, $1,857,000 and $1,555,000, respectively to the Company in
return for which they received 4,389,000, 1,857,000 and 2,363,000 shares of
Common Stock, respectively. In March and April 1995, the Company granted
warrants to its existing stockholders on a pro rata basis for no consideration.
Messrs. Buntrock, Johnson and Wall, either individually or through affiliates
respectively received 2,463,000, 1,042,000 and 1,326,000 warrants. Messrs.
Buntrock and Johnson, along with a third director of the Company, Peer
Pedersen, guaranteed the $14.0 million Previous Credit Facility for the Company
for which they received no compensation. The Previous Credit Facility was
repaid in November 1995 and the guarantees have been released.
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<PAGE> 68
PRINCIPAL STOCKHOLDERS
The following table below sets forth certain information with respect to the
beneficial ownership as of July 31, 1996 of the Class B Common Stock of the
Company with respect to: (i) each person or entity known to the Company who
beneficially owns 5.0% or more of the outstanding shares of such Class B Common
Stock; (ii) each of the Company's directors; and (iii) all executive officers
and directors of the Company as a group. Unless otherwise indicated, the
persons listed in the table have sole voting and investment power with respect
to all shares of Class B Common Stock shown as beneficially owned by them.
There was no Class A Common Stock outstanding prior to the Offering.
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership Percent of Total
of Class B of Common Stock Voting Power
Name of Beneficial Owner Common Stock (1) After Offering(2) After Offering(3)
- ------------------------ ---------------- ----------------- -----------------
Number Percent Number Percent
---------- ------- ----------- -------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Dean L. Buntrock(4)
3003 Butterfield Road
Oak Brook, Illinois 60521 7,116,345 11.4% 7,116,345 ___% ____%
William W. Kingery, Jr.(5)
312 Quito Place
Castle Rock, Colorado 340,000 * 340,000 * *
Jeb Dickey (6)
3323 South Salida Way
Aurora, Colorado 80013 68,750 * 68,750 * *
Kenneth Gores(7)
9411 Southern Hill Circle
Littleton, Colorado 80123 37,500 * 37,500 * *
Jennifer L. Richter(6)
509 Adams Street
Denver, Colorado 80204 68,750 * 68,750 * *
Christopher Scurto(6)
3320 Dinero Place
Castle Rock, Colorado 68,750 * 68,750 * *
Roy F. Coppedge III(8)
21 Custom House Street
Boston, Massachusetts 02110 24,052,280 38.6% 24,052,280 _____% ____%
Barbara M. Ginader(9)
21 Custom House Street
Boston, Massachusetts 02110 24,052,280 38.6% 24,052,280 _____% ____%
George Dean Johnson, Jr.(10)
909 Poinoina Drive
Ft. Lauderdale, Florida 3,163,111 5.1% 3,163,111 _____% ____%
Peer Pedersen(11)
161 N. Clark Street, Suite 3100
Chicago, Illinois 60601 3,162,589 5.1% 3,162,589 _____% ____%
---------- ---- ---------
Total for Directors and Executive Officers(12) 38,078,075 61.1% 38,078,075 _____% ____%
</TABLE>
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<PAGE> 69
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership Percent of Total
of Class B of Common Stock Voting Power
Name of Beneficial Owner Common Stock (1) After Offering(2) After Offering(3)
- ------------------------ ---------------- ----------------- -----------------
Number Percent Number Percent
---------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
OTHER BENEFICIAL OWNERS
Boston Ventures(13)
21 Custom House Street
Boston, Massachusetts 02110 24,052,280 38.6% 24,052,280 _____% ____%
Pedersen Family Partnership I Limited Partnership(11)
161 N. Clark Street, Suite 3100
Chicago, Illinois 60601 3,162,589 5.1% 3,162,589 _____% ____%
Canal Investment Society(14)
2431 Highway 501, P.O. Box 260001
Conway, South Carolina 29526 3,953,754 6.3% 3,953,754 _____% ____%
PSR Investments III L.P.(15)
c/o Phillip Rooney
3003 Butterfield Road
Oak Brook, Illinois 60521 3,162,589 5.1% 3,162,589 _____% ____%
1989 Ryan Family Trust(16)
123 North Wacker Drive
Chicago, Illinois 60606 3,162,589 5.1% 3,162,589 % ____%
----------- ---- --------- -------- ----
Total for all Beneficial Owners(12) 48,357,007 77.5% 48,357,007 _____% ____%
</TABLE>
* Less than one percent.
(1) Beneficial Ownership of Class B Common Stock represents the beneficial
ownership of the Common Stock of the Company as of July 31, 1996 on a
fully diluted basis, assuming the exercise of all warrants and options as
well as the conversion of the Convertible Preferred Stock. The Percentage
of Beneficial Ownership of Common Stock prior to the Offering is
calculated based on 24,080,280 shares issued and outstanding, 24,052,280
shares issuable upon conversion of the Convertible Preferred Stock,
13,500,000 shares issuable upon exercise of warrants and 709,201 shares
issuable upon the exercise of vested options under the Stock Option Plan
for a total of 62,341,761 shares on a fully diluted basis.
(2) Percentage Beneficial Ownership of Common Stock After Offering is based
upon the number of shares of Class B Common Stock owned by each beneficial
owner divided by 62,341,761 shares of Class B Common Stock on a fully
diluted basis plus __________ shares of Class A Common Stock issued under
the Offering.
(3) Percent of Total Voting Power After Offering is based on ten votes per
share of Class B Common Stock and one vote per share of Class A Common
Stock.
(4) Includes: (i) 2,532,053 shares of Class B Common Stock held of record by
Dean L. Buntrock; (ii) 2,025,975 shares of Class B Common Stock held of
record by the Buntrock Family Partnership I Limited Partnership ("Buntrock
Partnership"), the general partner of which is Dean L. Buntrock; (iii)
warrants to purchase 1,421,183 shares of Class B Common Stock held of
record by Dean L. Buntrock; and (iv) warrants to purchase 1,137,134 shares
of Class B Common Stock held of record by the Buntrock Partnership. Does
not include 1,012,820 shares of Class B Common Stock and warrants to
purchase 568,473 shares of Class B Common Stock held by Buntrock/Nuzzo
Limited Partnership, the general partner of which is Rosemarie Buntrock,
Dean L. Buntrock's wife, of which Mr. Buntrock has disclaimed beneficial
ownership.
(5) Options to purchase 1,000,000 shares of Class B Common Stock have been
granted to Mr. Kingery pursuant to the Stock Option Plan of which 340,000
are presently exercisable.
(6) Options to purchase 175,000 shares of Class B Common Stock have been
granted to each of Mr. Dickey, Ms. Richter and Mr. Scurto pursuant to the
Stock Option Plan, of which each may presently exercise 68,750.
(7) Options to purchase 150,000 shares of Class B Common Stock have been
granted to Mr. Gores pursuant to the Stock Option Plan, of which 37,500
are presently exercisable.
(8) Includes 24,052,280 shares of Class B Common Stock beneficially owned by
Boston Ventures, of which Mr. Coppedge is a general partner and as to
which he shares voting and investment power. See Notes (9) and (13).
(9) Includes 24,052,280 shares of Class B Common Stock beneficially owned by
Boston Ventures, of which Ms. Ginader is a general partner and as to which
she shares voting and investment power. See Notes (8) and (13).
(10) Includes warrants to purchase 1,136,953 shares of Class B Common Stock.
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<PAGE> 70
(11) Includes 2,025,642 shares of Class B Common Stock and warrants to
purchase 1,136,947 shares of Class B Common Stock held of record by
Pedersen Family Partnership I Limited Partnership. Peer Pedersen, a
Director of the Company, is the Pedersen Family Partnership I's general
partner.
(12) Totals for all Beneficial Owners and Directors and Executive Officers do
not include double counting of the shares of Class B Common Stock held of
record by the Pedersen Family Partnership I Limited Partnership and Boston
Ventures which are also beneficially owned by Peer Pedersen, Roy F.
Coppedge III and Barbara M. Ginader, respectively.
(13) Boston Ventures Limited Partnership IV ("Fund IV") is the beneficial
owner of 20,919 shares of Convertible Preferred Stock. Boston Ventures
Limited Partnership IVA ("Fund IVA") is the beneficial owner of 14,081
shares of Convertible Preferred Stock. The 35,000 shares of Convertible
Preferred Stock owned collectively by Boston Ventures represent 100.0% of
the Convertible Preferred Stock outstanding. These shares are presently
convertible into 24,052,280 shares of Class B Common Stock. See
"Description of Capital Stock - Convertible Preferred Stock." Boston
Venture Company Limited Partnership IV is the general partner of both Fund
IV and Fund IVA and has sole power to vote and dispose of all of the
shares of Convertible Preferred Stock. The general partners of Boston
Venture Company Limited Partnership IV are Barbara M. Ginader, a Director
of the Company, Roy F. Coppedge III, a director of the Company, Anthony
J. Bolland, Martha H.W. Crowninshield, William F. Thompson, Richard L.
Wallace and James M. Wilson. See Notes (8) and (9).
(14) Includes 2,532,384 shares of Class B Common Stock and warrants to
purchase 1,421,370 shares of Class B Common Stock held of record by Canal
Investment Society, L.P. E. Craig Wall is the principal investor and
managing director of Canal Investment Society, L.P. and has shared voting
and investment power with respect to these shares and warrants.
(15) Includes warrants to purchase 1,136,947 shares of Class B Common Stock
held of record by PSR Investments III L.P. Phillip Rooney is the general
partner of PSR Investments III L.P. and has voting and investment power
with respect to these shares and warrants.
(16) Includes warrants to purchase 1,136,947 of Class B Common Stock held of
record by the 1989 Ryan Family Trust. Shirley W. Ryan, Patrick G. Ryan
and Robert J.W. Ryan are the trustees of the 1989 Ryan Family Trust and
have shared voting and investment power with respect to these shares and
warrants.
STOCKHOLDERS AGREEMENT
The Company and all of its stockholders prior to this Offering are parties
to a Stockholders Agreement. The Stockholders Agreement requires each party
thereto to vote its shares at all elections of directors in favor of two
directors designated by Boston Ventures and two directors designated by the
Designated Original Investors, as defined in the Stockholders Agreement.
The Stockholders Agreement also provides that the Company will not (except
in certain circumstances such as a public offering like this Offering), sell
any of its equity securities without first offering each stockholder the right
to purchase its proportionate percentage of such securities.
The Stockholders Agreement places limitations on the transfer of shares by
each stockholder and also provides Boston Ventures and the Designated Original
Investors with "take-along" rights.
The Stockholders Agreement grants Boston Ventures and the Designated
Original Investors certain registration rights with respect to Common Stock
held by them. Each of these stockholder groups possesses an unlimited right to
request registration of the Common Stock provided that at least 20.0% of the
Common Stock then held by them is being requested to be registered or such
lesser amount as long as: (i) the aggregate offering price is expected to be
at least $10.0 million or (ii) the lesser amount represents all of the Common
Stock held by the stockholders. Boston Ventures and the Designated Original
Investors also have an unlimited right to request "piggyback" registration in
offerings initiated by the Company. Boston Ventures and the Designated
Original Investors have, however, waived their "piggyback" rights with respect
to the Offering.
Pursuant to the Stockholders Agreement, the Original Investors (as defined
in the Stockholders Agreement) indemnified the Company for any amounts which
the Company or a subsidiary may be liable to pay to Charles J. Mauszycki and/or
Family Entertainment Network or Wireless Cable of Florida, Inc. based on equity
or profit sharing arrangements entered into with such persons and the Company
pursuant to a final judgment entered against the Company or a subsidiary, or
pursuant to
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<PAGE> 71
a settlement if the Company and the Original Investors holding 66.7% of all
Original Investors' holdings of Common Stock decide to settle with such
persons.
PREFERRED STOCK PURCHASE AGREEMENT
The Preferred Stock Purchase Agreement between the Company and Boston
Ventures imposes certain restrictions on actions taken by the Company.
Pursuant to such agreement, the Company cannot, without the consent of Boston
Ventures, do any of the following: merge or consolidate; sell or transfer any
system or major assets; acquire or lease any system or major assets; incur any
debt in excess of $500,000 (or in the case of equipment financing transactions
in excess of $250,000); issue any equity securities; hire legal, accounting or
financial advisors in certain circumstances; terminate or replace William W.
Kingery, Jr.; engage in any other business other than the operation of wireless
cable television systems; enter into any agreement or arrangement with an
affiliate; amend its Certificate or Bylaws; or incur any capital expenditures
or other expenditures in an amount exceeding $500,000. Boston Ventures has,
however, consented to the sale of equity securities in the Offering. These
restrictions terminate on the date on which Boston Ventures no longer holds at
least 20.0% of the shares purchased by them pursuant to the Preferred Stock
Purchase Agreement (including any Common Stock into which such shares as may be
converted).
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of _____ shares of
Class A Common Stock, $.01 par value per share, 65,000,000 shares of Class B
Common Stock, $.01 par value per share, and 35,000 shares of Convertible
Preferred Stock. As of June 30, 1996, there were issued and outstanding no
shares of Class A Common Stock, 24,080,280 shares of Class B Common Stock and
35,000 shares of Convertible Preferred Stock.
The following summary of the terms of the Company's capital stock does not
purport to be complete and is qualified in its entirety by reference to the
applicable provisions of Delaware law and the Certificate.
CLASS A COMMON STOCK
Each stockholder is entitled to one vote for each share of Class A Common
Stock held of record on matters coming before the stockholders for a vote.
Holders of Class A Common Stock have no cumulative voting rights with respect
to the election of directors and have no preemptive or other rights to purchase
additional securities of the Company.
Subject to the prior rights of the Convertible Preferred Stock, the
holders of the Class A Common Stock are entitled to receive, pro rata, such
dividends as may be declared by the Board of Directors out of funds legally
available therefor, and are also entitled to share, pro rata, in any other
distribution to stockholders. Dividends may not be paid on the Class A Common
Stock as long as any shares of Convertible Preferred Stock are outstanding, any
amounts payable in respect of the Convertible Preferred Stock have not been
paid in full or the Revolving Credit Facility remains in place.
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CLASS B COMMON STOCK
Each stockholder is entitled to ten votes for each share of Class B Common
Stock held of record on matters coming before the stockholders for a vote.
Holders of Class B Common Stock may not accept any premium in excess of the
consideration paid for the Class A Common Stock for their shares in any such
transaction. Holders of Class B Common Stock, as holders of such shares, have
no cumulative voting rights with respect to the election of directors and have
no preemptive or other rights to purchase additional securities of the Company.
Subject to the prior rights of the holders of the Convertible Preferred
Stock, the holders of the Class B Common Stock of the Company are entitled to
receive, pro rata, such dividends as may be declared by the Board of Directors
out of funds legally available therefor, and are entitled to share, pro rata,
in any other distribution to stockholders. Dividends may not be paid on the
Class B Common Stock as long as any shares of Convertible Preferred Stock are
outstanding, any amounts in respect of the Convertible Preferred Stock have not
been paid in full or the Revolving Credit Facility remains in place.
At the election of the stockholder, shares of Class B Common Stock are
convertible on a one-for-one basis into shares of Class A Common Stock. In
addition, shares of Class B Common Stock automatically convert to shares of
Class A Common Stock upon the sale of such shares to a person who is not then
currently a Class B stockholder or an affiliate thereof. The authorized,
issued and outstanding shares of Class B Common Stock shall be reduced by the
number of shares of Class B Common Stock converted to shares of Class A Common
Stock.
CONVERTIBLE PREFERRED STOCK
Voting Rights. Holders of Convertible Preferred Stock are not entitled to
vote on any matter, except as may be required by law.
Liquidation Preference. In case of the voluntary or involuntary
liquidation, dissolution or winding-up of the Company, holders of Convertible
Preferred Stock are entitled to receive the liquidation value, before any
distribution is made to the holders of shares of Common Stock. The liquidation
value of the Convertible Preferred Stock (the "Liquidation Value") was
initially set at $1,000 per share, to be increased on each of May 31, 1995 and
the last day of each August, November, February and May thereafter on which
such shares of Convertible Preferred Stock are outstanding and on the date that
any payment is made in respect of such shares whose amount is determined by
reference to such Liquidation Value, until the Liquidation Value is paid in
full or such shares of Convertible Preferred Stock are converted into Class B
Common Stock, by an amount equal to 2.5% of the Liquidation Value in effect on
the later of: (i) the date that such share was issued; or (ii) the first day
of the previous March, June, September or December and shall be reduced by any
Payment in Reduction of Liquidation Value made with respect to such shares of
Convertible Preferred Stock. As of May 31, 1996, the Liquidation Value of the
Convertible Preferred Stock was approximately $39.3 million.
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Dividends; Cash Payments. Holders of Convertible Preferred Stock are
entitled to receive, when, and if declared by the Board of Directors: (i) cash
payments in respect of such shares; and (ii) upon conversion of shares of Class
B Common Stock a cash dividend in an amount equal, for each share of
Convertible Preferred Stock, to: (a) the Liquidation Value minus (b) $1,000,
with the Liquidation Value being computed as of the date such dividend is paid
to the holders of the Convertible Preferred Stock; provided, that any amount
not paid within 20 days after such conversion shall accrue interest at a rate
of 12.0% per annum, compounded quarterly. In addition, the holders of shares
of the Convertible Preferred Stock are also entitled to receive, when, as and
if declared by the Board of Directors of the Company, cash payments (a "Payment
in Reduction of Liquidation Value") with respect to such shares, provided that
no Payment in Reduction of Liquidation Value shall be made or declared at any
time when any amounts of any dividend in respect of the Convertible Preferred
Stock that has been converted to shares of Class B Common Stock has not been
paid in full.
Conversion. At the option of the holders of the Convertible Preferred
Stock, such shares may be converted into that number of shares of Class B
Common Stock determined by multiplying the Applicable Conversion Rate (as
defined in the Certificate) by the number of shares of Convertible Preferred
Stock being converted. The conversion rate is equal to $1,000 divided by the
Applicable Conversion Value (initially $1.45516) and is subject to adjustment
in certain events including the issuance or sale of shares of Common Stock of
the Company without consideration or at a price per share less than the greater
of the Fair Market Price (as defined in the Certificate) or Applicable
Conversion Value in effect immediately prior to such issuance or sale. The
Applicable Conversion Rate shall also be adjusted in the event of a stock
dividend, or stock split or combination.
Forced Conversion. The Company has the right to "force" all outstanding
shares of Convertible Preferred Stock to be converted into Class B Common Stock
in the event that on any date after March 15, 1998: (i) any class of Common
Stock will be listed on the NYSE or the American Stock Exchange, Inc. ("ASE"),
or shall have been traded on the Nasdaq National Market; (ii) any class of
Common Stock shall have been listed on either the NYSE or the ASE or traded on
the Nasdaq National Market, or any combination of the foregoing, continuously
for a period of at least one year; (iii) during the past year the Public Float
(as defined below) of any shares of any class of Common Stock shall have at all
times exceeded 20.0% of the number of outstanding shares of such class of
Common Stock; (iv) the average weekly reported trading volume for the Common
Stock on the NYSE, ASE and/or the Nasdaq National Market over the past year
shall have exceeded 2.0% of the number of outstanding shares of any class of
Common Stock; and (v) the Market Price (as defined below) of any shares of
Common Stock shall on any day be at a level such that, if all the outstanding
shares of Convertible Preferred Stock are converted into the number of shares
of Common Stock in which such Convertible Preferred Stock is convertible and
such shares of Common Stock were then sold at the Market Price, the proceeds of
such sale excluding the dividend payable upon conversion would equal or exceed
1.75 times the Liquidation Value applicable to all of the outstanding shares of
Convertible Preferred Stock. The "Market Price" shall be the lowest of the
reported last sale prices on the NYSE, the ASE or the Nasdaq National Market
for the Common Stock on each of the 20 preceding business days on which a
reported sale of the Common Stock took place. The "Public Float" of the Common
Stock shall be the number of shares of Common Stock outstanding and listed for
trading on the NYSE, the ASE or the Nasdaq National Market other than shares
held by affiliates of the Company.
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Conversion to Subordinated Note. Pursuant to the Preferred Stock Purchase
Agreement, the Company may at any time request that Boston Ventures exchange
shares of Convertible Preferred Stock it holds for a convertible subordinated
note of the Company.
Redemptions. On December 31, 2002 the Company shall redeem any shares of
Convertible Preferred Stock outstanding at a price equal to the Liquidation
Value.
PREFERRED STOCK
The Company's Board of Directors has the authority to issue up to
_________ shares of preferred stock and to determine the price, rights,
preferences and privileges of those shares without any further vote or action
by the Company's stockholders. In addition, the rights of the holders of Class
A Common Stock will be subject to, and may be adversely affected by, the rights
of the holders of any shares of preferred stock which may be issued in the
future. While the Company has no present intention to issue shares of
preferred stock, such issuance, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire a majority
of the outstanding voting stock of the Company. In addition, such preferred
stock may have other rights, including economic rights senior to the Class A
Common Stock, and, as a result, the issuance thereof could have a material
adverse effect on the market value of the Class A Common Stock.
WARRANTS
On March 15, 1995 and April 28, 1995 the Company issued warrants to
purchase, in the aggregate, 13,500,000 shares of its Class B Common Stock to
the Company's then existing Common Stockholders. The warrants, which have an
exercise price of $3.00 per share, must be exercised within five years of their
issuance. The warrants may be exercised in whole or in part upon notice by
the warrant holder and the payment of the exercise price in accordance with the
terms thereof. In the event the Company, by stock split, stock dividend,
reverse stock split, consolidation or other form of subdivision or combination,
alters the number of shares of any class of its Common Stock, the number of
shares the warrants are exercisable for shall be proportionally increased or
decreased as needed to prevent dilution or enlargement of the value of the
warrants. In addition, the Company agrees not to enter into any
recapitalization, reorganization, merger or sale of all or substantially all of
its assets unless the warrant holders will be entitled receive such securities
or assets as such warrant holders would have been entitled to had they
exercised their warrants prior to such event. Finally, in the event of an
initial public offering of the Common Stock into which the warrants may be
converted at a price in excess of the exercise price of the warrants, the
Company may force the redemption of all outstanding warrants by paying to the
warrant holders for each share they are entitled to purchase, the difference
between the price per share of the shares sold at the initial public offering
and the exercise price of the warrants. At this time, the Company does not
intend to force redemption or conversion of the warrants in connection with the
Offering.
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BUSINESS COMBINATION PROVISION
The Company is subject to Section 203 of the Delaware Act. In general,
Section 203 prevents an "interested stockholder" from engaging in a "business
combination" with a Delaware corporation for three years following the date
such person became an interested stockholder, unless: (i) prior to the date
such person became an interested stockholder, the board of directors of the
corporation approved the transaction in which the interested stockholder became
an interested stockholder or approved the business combination; (ii) upon
consummation of the transaction that resulted in the interested stockholder
becoming an interested stockholder, the interested stockholder owns at least
85.0% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding stock held by directors who are also officers
of the corporation and stock held by certain employee stock plans; or (iii) on
or subsequent to the date of the transaction in which such person became an
interested stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders by the
affirmative vote of the holders of at least two-thirds of the outstanding
voting stock of the corporation not owned by the interested stockholder.
Section 203 defines a "business combination" to include: (i) any merger or
consolidation involving the corporation or any direct or indirect
majority-owned subsidiary of the corporation with an interested stockholder or
any corporation, partnership, unincorporated association or other entity if
caused by an interested stockholder; (ii) any sale, lease, transfer, pledge or
other disposition involving an interested stockholder of assets of the
corporation or a majority-owned subsidiary of the corporation which assets have
an aggregate market value equal to 10.0% or more of the consolidated assets of
the corporation; (iii) subject to certain exceptions, any transaction which
results in the
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issuance or transfer by the corporation or any majority-owned subsidiary of any
stock of the corporation or such subsidiary to an interested stockholder; (iv)
any transaction involving the corporation or any majority-owned subsidiary
which has the effect of increasing the proportionate share of any class or
series of stock of the corporation or any majority-owned subsidiary,
beneficially owned by the interested stockholder; or (v) the receipt by an
interested stockholder of the benefit of any loans, guarantees, pledges or
other financial benefits provided by or through the corporation or any
majority-owned subsidiary. In addition, Section 203 generally defines an
interested stockholder as any entity or person beneficially owning 15.0% or
more of the outstanding voting stock of the corporation and any entity or
person affiliated with or controlling or controlled by such entity or person.
LIMITATION ON LIABILITY
As permitted by the provisions of the Delaware Act, the Certificate
eliminates, in certain circumstances, the monetary liability of directors of
the Company for a breach of their fiduciary duty as directors. These
provisions do not eliminate the liability of a director: (i) for a breach of
the director's duty of loyalty to the Company or its stockholders; (ii) for
acts or omissions by a director not in good faith or which involve intentional
misconduct or a knowing violation of law; (iii) for liability arising under
Section 174 of the Delaware Act (relating to the declaration of dividends and
purchase or redemption of shares in violation of the Delaware Act); or (iv) for
any transaction from which the director derived an improper personal benefit.
In addition, these provisions do not eliminate the liability of a director for
violations of federal securities laws, nor do they limit the rights of the
Company or its stockholders, in appropriate circumstances, to seek equitable
remedies such as injunctive or other forms of non-monetary relief. Such
remedies may not be effective in all cases.
If the Delaware Act is amended to authorize a further limitation or
elimination of the liability of directors or officers, then the liability of a
director or officer of the Company shall, in addition to the limitation of
personal liability provided in the Certificate be limited or eliminated to the
fullest extent permitted by the Delaware Act, as from time to time amended.
INDEMNIFICATION
Under Section 145 of the Delaware Act, the Company has broad powers to
indemnify its directors and officers against liabilities they may incur in such
capacities, including liabilities under the Securities Act. The Certificate
provides that the Company will indemnify its directors and officers to the
fullest extent permitted by law. Under the provisions of the Certificate, any
director or officer who, in his or her capacity as such, is made or threatened
to be made a party to any suit or proceeding shall be indemnified if the Board
of Directors determines such director or officer acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the Company or, with respect to any criminal action or proceeding,
had no reasonable cause to believe his or her conduct was unlawful.
Indemnification under the Certificate includes payment by the Company of
expenses in defending an action, suit or proceeding in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking
by the indemnified party to repay such advance if it is ultimately determined
that such person is not entitled to indemnification under the Certificate,
which undertaking may be accepted without reference to the financial ability of
such person that makes such repayments. The Company is not responsible for the
indemnification of any person seeking indemnification in connection with a
proceeding initiated by such person unless the
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initiation was approved by the Board of Directors of the Company. The
Certificate and the Delaware Act further provide that such indemnification is
not exclusive of any other rights to which such individuals may be entitled
under the Certificate, the Company's Bylaws, any agreement, any vote of
stockholders or disinterested directors, or otherwise.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Class A Common Stock is
________________.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering and based on the shares of Common Stock
outstanding as of June 30, 1996, the Company will have a total of __________
shares of Common Stock outstanding, assuming no exercise of outstanding
warrants for 13,500,000 shares of Class B Common Stock immediately prior to the
closing of the Offering and no exercise of options after June 30, 1996. Of
these shares, the _______ shares of Class A Common Stock offered hereby
(__________ shares if the Underwriters' over-allotment options are exercised in
full) will be freely tradable without restriction or registration under the
Securities Act by persons other than "affiliates" of the Company, as defined
under the Securities Act. The 24,080,280 shares of Class B Common Stock
outstanding and any shares purchased in this Offering by an affiliate are
Restricted Shares. Because Class B Common Stock is convertible into Class A
Common Stock, however, sales of Restricted Shares in the public market, or the
availability of such shares for sale, could adversely affect the market price
of the Class A Common Stock. The current stockholders and the executive
officers who, upon completion of the Offering, will own in the aggregate
___________ shares of Class B Common Stock and the Company have each
agreed not to directly or indirectly, offer, sell, offer to sell, contract to
sell, pledge, grant any option to purchase or otherwise sell or dispose (or
announce any offer, sale, offer of sale, contract of sale, pledge, grant of any
option to purchase or other sale or disposition) of any shares of Common Stock
or other capital stock, or any securities convertible into, or exercisable or
exchangeable for, any shares of Common Stock or other capital stock of the
Company, for a period of 180 days after the date of this Prospectus, without
the prior written consent of Prudential Securities Incorporated, on behalf of
the Underwriters. The number of shares of such Common Stock available for sale
in the public market is further limited by restrictions under the Securities
Act.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares must be aggregated) who has beneficially owned "restricted shares"
for at least two years, including any persons who may be deemed an "affiliates"
of the Company, would be entitled to sell, within any three-month period, that
number of shares that does not exceed the greater of 1.0% of the number of
shares of Class A Common Stock then outstanding (approximately ___ shares
immediately after this Offering, assuming no exercise of the Underwriters'
over-allotment option) or the average weekly trading volume of the Class A
Common Stock as reported through the Nasdaq National Market during the four
calendar weeks preceding the filing of a Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale restrictions
and notice requirements and to the availability of current public information
about the Company. In addition, a person who is not deemed to have been an
affiliate of the Company during the 90 days preceding a sale, and who has
beneficially owned for at least three years the shares proposed to be sold,
would be entitled to sell such shares under Rule 144(k) without regard to the
requirements set forth above. Because of the restrictions noted above,
beginning 180 days after the effective date of this offering, 24,080,280
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shares of Class B Common Stock and any shares of Class A Common Stock purchased
by an affiliate pursuant to this Offering will be eligible for sale in the
public market subject to Rule 144.
In addition, holders of 24,080,280 shares of Class B Common Stock and the
holders of warrants to purchase 13,500,000 shares of Class B Common Stock may
require the Company to register their shares of Class B Common Stock under the
Securities Act, which would permit such holders to resell a certain amount of
their shares without complying with Rule 144. Such holders have, however,
waived their registration rights with respect to the Offering and have agreed
to a similar 180-day lock-up with respect to the warrants and the shares of
Class B Common Stock for which the warrants are exercisable. See "Principal
Stockholders--Stockholders Agreement," "Description of Capital Stock--Class B
Common Stock" and "Description of Capital Stock--Warrants."
The Company has reserved for issuance ________ shares of Class ___ Common
Stock under the Directors' Plan and 3,103,000 shares of Class B Common Stock
under the Stock Option Plan. As of July 31, 1996, options to purchase a total
of 2,344,201 shares of Class B Common Stock pursuant to the Stock Option Plan
were outstanding with an exercise price of approximately $1.46 per share (with
the exception of options to purchase 300,000 shares of Class B Common Stock
issued in July 1996 exercisable at approximately $4.17 per share) of which
709,201 were fully vested and exercisable. Of the shares issuable upon
exercise of such options, ________ are subject to a similar lock-up period
with respect to such shares. See "Management--Stock Option Plan" and
"Underwriting."
Rule 701 under the Securities Act provides that, beginning 90 days after
the date of this Prospectus, shares of Common Stock acquired on the exercise of
outstanding options may be resold by persons other than affiliates subject only
to the manner of sale provisions of Rule 144, and by affiliates subject to all
provisions of Rule 144 except its two-year minimum holding period. The Company
intends to file one or more registration statements on Form S-8 under the
Securities Act to register shares of Common Stock subject to stock options.
See "Management--Non-Employee Director Stock Option Plan."
Prior to this Offering, there has been no public market for the Common
Stock and no predictions can be made of the effect, if any, that the sale or
availability for shares of additional Common Stock will have on the trading
price of the Common Stock. Nevertheless, sales of substantial amounts of such
shares in the public market, or the perception that such sales could occur,
could adversely affect the trading price of the Common Stock and could impair
the Company's future ability to raise capital through an offering of its equity
securities. See "Shares Eligible for Future Sale" and "Description of Capital
Stock."
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UNDERWRITING
The underwriters named below (the "Underwriters"), for whom Prudential
Securities Incorporated and Lehman Brothers Inc. are acting as Representatives
have severally agreed, subject to the terms and conditions contained in the
Underwriting Agreement, to purchase from the Company the numbers of shares of
Class A Common Stock set forth below opposite their respective names:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ----------
<S> <C>
Prudential Securities Incorporated......
Lehman Brothers Inc.....................
_________
Total................................... ==========
</TABLE>
The Company is obligated to sell, and the Underwriters are obligated to
purchase, all of the shares of Class A Common Stock offered hereby if any are
purchased.
The Underwriters, through their Representatives, have advised the Company
that they propose to offer the Class A Common Stock initially at the initial
public offering price set forth on the cover page of this Prospectus; that the
Underwriters may allow selected dealers a concession of $___ per share; and
such dealers may reallow a concession of $___ per share to certain other
dealers. After the initial public offering, the initial offering price and the
concession may be changed by the Representatives.
The Company has granted the Underwriters an over-allotment option,
exercisable for 30 days from the date of this Prospectus, to purchase up to
_________ additional shares of Class A Common Stock at the initial public
offering price, less underwriting discounts and commissions, as set forth on
the cover page of this Prospectus. The Underwriters may exercise such option
solely for the purpose of covering over-allotments incurred in the sale of the
shares of Class A Common Stock offered hereby. To the extent such option to
purchase is exercised, each Underwriter will become obligated, subject to
certain conditions, to purchase approximately the same percentage of such
additional shares as the number set forth next to such Underwriter's name in
the preceding table bears to _______________.
The current stockholders and the executive officers who, upon completion
of the Offering, will own in the aggregate ___________ shares of Class B
Common Stock and the Company have each agreed not to directly or indirectly,
offer, sell, offer to sell, contract to sell, pledge, grant any option to
purchase or otherwise sell or dispose (or announce any offer, sale, offer
of sale, contract of sale, pledge, grant of any option to purchase or other
sale or disposition) of any shares of Common Stock
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or other capital stock, or any securities convertible into, or exercisable or
exchangeable for, any shares of Common Stock or other capital stock of the
Company, for a period of 180 days after the date of this Prospectus, without
the prior written consent of Prudential Securities Incorporated, on behalf of
the Underwriters.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
Prior to the Offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock will be determined by negotiation between the Company and the
Representatives. Among the factors to be considered in such negotiations are
prevailing market conditions, the results of operations of the Company in
recent periods, the market capitalizations and states of development of other
companies which the Company and the Representatives believe to be comparable to
the Company, estimates of the business potential of the Company, the present
state of the Company's development and other factors deemed relevant.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Pedersen &
Houpt, P.C., Chicago, Illinois, and by its regulatory counsel, Pepper &
Corazzini, L.L.P., Washington, D.C. Peer Pedersen, a Director of the Company
and beneficial owner of 3,162,589 shares of the Company's Class B Common Stock,
is a shareholder of Pedersen & Houpt. Certain legal matters will be passed upon
for the Underwriters by their counsel, Cahill Gordon & Reindel, a partnership
including professional corporations, New York, New York, and the Underwriters'
regulatory counsel, Gibson, Dunn & Crutcher, LLP.
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EXPERTS
The consolidated financial statements of Wireless Broadcasting Systems of
America, Inc. included in this Prospectus and elsewhere in the Registration
Statement for the years ended December 31, 1994 and December 31, 1995 have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing.
The consolidated financial statements of WJB-TV Limited Partnership
(predecessor to Wireless Broadcasting Systems of America, Inc.) included in
this Prospectus and Registration Statement for the year ended December 31, 1993
have been audited by Ernst & Young LLP, independent certified public
accountants, as set forth in their report thereon appearing elsewhere herein,
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
The financial statements of Northwest Cable Network included in this
Prospectus and elsewhere in this Registration Statement, have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of such firm as experts in accounting and auditing.
The financial statements of Boise Cable Limited Partnership included in
this Prospectus and elsewhere in this Registration Statement, have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon
the authority of such firm as experts in accounting and auditing.
The financial statements of Pacific West Cable Television included in
this Prospectus and elsewhere in this Registration Statement, have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto and are included herein in reliance upon the
authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement (together with all amendments, exhibits and schedules
thereto, the "Registration Statement") under the Securities Act with respect to
the Class A Common Stock being offered hereby. This Prospectus, which
constitutes part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement. Statements made in this
Prospectus concerning the contents of any contract, agreement or other document
referred to herein are not necessarily complete. With respect to each such
contract, agreement or other document filed with the Commission as an exhibit
to the Registration Statement, reference is hereby made to such exhibits for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by such reference. The Registration
Statement and the exhibits and schedules thereto may be inspected at the public
reference room maintained by the Commission at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, and is available for inspection and copying at
its regional offices located at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th
Floor, New York, New York 10048. Copies of such material can be obtained from
the public reference section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission also maintains a
site on the World Wide Web (http://www. sec.gov) that contains information
filed electronically by the Company.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
WIRELESS BROADCASTING SYSTEMS OF AMERICA, INC. AND SUBSIDIARIES
<S> <C>
Report of Independent Public Accountants - Arthur Andersen LLP................ F-2
Report of Independent Certified Public Accountants - Ernst & Young LLP........ F-3
Consolidated Balance Sheets as of December 31, 1994 and 1995, and
(unaudited) as of June 30, 1996............................................ F-4
Consolidated Statements of Operations for the Years Ended December 31,
1993, 1994 and 1995, and (unaudited) for the Six Months Ended June 30,
1995 and 1996.............................................................. F-6
Consolidated Statements of Stockholders' and Partners' Equity for the Years
Ended December 31, 1993, 1994 and 1995, and (unaudited) for the Six
Months Ended June 30, 1996................................................. F-7
Consolidated Statements of Cash Flows for the Years Ended December 31,
1993, 1994 and 1995, and (unaudited) for the Six Months Ended June 30,
1995 and 1996.............................................................. F-8
Notes to Consolidated Financial Statements.................................... F-10
BOISE CABLE LIMITED PARTNERSHIP
Report of Independent Public Accountants...................................... F-22
Balance Sheets as of December 31, 1993 and 1994............................... F-23
Statements of Operations for the Years Ended December 31, 1993 and 1994....... F-24
Statements of Changes in Partners' Capital for the Years Ended December 31,
1993 and 1994.............................................................. F-25
Statements of Cash Flows for the Years Ended December 31, 1993 and 1994....... F-26
Notes to Financial Statements................................................. F-27
NORTHWEST CABLE NETWORK
Report of Independent Public Accountants...................................... F-32
Balance Sheets as of December 31, 1993 and 1994............................... F-33
Statements of Operations for the Years Ended December 31, 1993 and 1994....... F-34
Statements of Changes in Partners' Capital for the Years Ended December 31,
1993 and 1994.............................................................. F-36
Statements of Cash Flows for the Years Ended December 31, 1993 and 1994....... F-37
Notes to Financial Statements................................................. F-38
PACIFIC WEST CABLE TELEVISION
Report of Independent Public Accountants...................................... F-43
Balance Sheet as of December 31, 1993......................................... F-44
Statement of Operations and Changes in Partners' Deficit for the Year Ended
December 31, 1993.......................................................... F-45
Statement of Cash Flows For the Year Ended December 31, 1993.................. F-46
Notes to Financial Statements................................................. F-47
</TABLE>
F-1
<PAGE> 83
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wireless Broadcasting Systems of America, Inc.:
We have audited the accompanying consolidated balance sheets of WIRELESS
BROADCASTING SYSTEMS OF AMERICA, INC. (a Delaware corporation) and subsidiaries
as of December 31, 1994 and 1995, and the related consolidated statements of
operations, stockholders' and partners' equity and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wireless Broadcasting Systems
of America, Inc. and subsidiaries as of December 31, 1994 and 1995, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
March 29, 1996.
F-2
<PAGE> 84
Report of Independent Certified Public Accountants
Board of Directors
Wireless Broadcasting Systems of
America, Inc.:
We have audited the consolidated statements of operations, partners' equity
(deficit) and cash flows of WJB-TV Limited Partnership (predecessor to Wireless
Broadcasting Systems of America, Inc.) for the year ended December 31, 1993.
These consolidated financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations, partners' equity
(deficit) and cash flows of WJB-TV Limited Partnership for the year ended
December 31, 1993 in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
West Palm Beach, Florida,
April 21, 1994.
F-3
<PAGE> 85
Page 1 of 2
WIRELESS BROADCASTING SYSTEMS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
------------------------------- June 30,
ASSETS 1994 1995 1996
------ -------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 383,610 $583,568 $216,717
Subscriber receivables, net of allowance for
doubtful accounts of $56,000, $61,500, and
$61,500, respectively 233,035 529,513 659,627
Other receivables 73,481 156,327 100,825
Prepaid expenses and other current assets 99,304 129,965 223,117
Inventories 1,703,770 1,125,623 1,312,812
-------------- --------------- ---------------
Total current assets 2,493,200 2,524,996 2,513,098
-------------- --------------- ---------------
WIRELESS CABLE TELEVISION SYSTEMS (Note 2):
Property and equipment 21,172,216 30,804,430 37,034,774
License acquisition costs 7,356,141 26,438,265 30,530,630
Purchased intangibles 3,144,936 6,075,614 6,188,241
Less accumulated depreciation and amortization (5,356,233) (15,214,525) (18,998,086)
-------------- --------------- ---------------
Total wireless cable television
systems, net 26,317,060 48,103,784 54,755,559
-------------- --------------- ---------------
OTHER ASSETS:
Deferred acquisition costs 1,558,951 505,988 15,029
Other assets, net 163,314 1,080,846 987,223
-------------- --------------- ---------------
Total other assets 1,722,265 1,586,834 1,002,252
-------------- --------------- ---------------
Total assets $30,532,525 $52,215,614 $58,270,909
============== =============== ===============
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these consolidated balance sheets.
F-4
<PAGE> 86
Page 2 of 2
WIRELESS BROADCASTING SYSTEMS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
------------------------------- June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1995 1996
- ------------------------------------ --------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 11,750,000 $ 96,203 $ 44,563
Accounts payable 829,987 1,793,626 1,505,961
Accrued liabilities 566,377 1,073,055 3,832,935
------------- --------------- ---------------
Total current liabilities 13,146,364 2,962,884 5,383,459
------------- --------------- ---------------
LONG-TERM DEBT (Note 5) - 5,000,000 12,500,000
COMMITMENTS AND CONTINGENCIES (Note 7)
CONVERTIBLE PREFERRED STOCK, $.01 par
value, 35,000 shares authorized, issued and
outstanding in 1995 and June 30, 1996,
stated at liquidation value, including cumulative
dividends of $2,413,763 and $4,307,835,
respectively (Note 4) - 37,413,763 39,307,835
STOCKHOLDERS' EQUITY (Note 4):
Common stock, $.01 par value, 65,000,000
shares authorized, 24,052,280, 24,052,280 and
24,080,280 shares issued and outstanding,
respectively 240,523 240,523 240,803
Additional paid in capital 27,435,759 26,928,989 26,970,709
Accumulated deficit (10,290,121) (20,330,545) (26,131,897)
------------- --------------- ---------------
Total stockholders' equity 17,386,161 6,838,967 1,079,615
------------- --------------- ---------------
Total liabilities and stockholders' equity $30,532,525 $52,215,614 $58,270,909
============= =============== ===============
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these consolidated balance sheets.
F-5
<PAGE> 87
WIRELESS BROADCASTING SYSTEMS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Six Months Ended
Year Ended December 31 June 30
----------------------------------------------- ------------------------------
1993 1994 1995 1995 1996
------------- -------------- ---------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES $ 2,669,434 $ 9,590,661 $16,874,475 $ 7,480,026 $10,190,297
EXPENSES:
System operations 2,818,331 5,530,734 8,912,562 4,016,803 5,301,087
Selling, general and administrative 2,340,116 3,817,768 4,792,472 1,986,355 2,917,891
Depreciation and amortization 1,600,330 4,648,793 10,349,202 4,556,469 5,385,830
------------- -------------- --------------- -------------- --------------
Total Expenses 6,758,777 13,997,295 24,054,236 10,559,627 13,604,808
------------- -------------- ---------------- -------------- --------------
LOSS FROM OPERATIONS (4,089,343) (4,406,634) (7,179,761) (3,079,601) (3,414,511)
Interest income 61,854 11,567 25,415 12,724 1,040
Interest expense (22,807) (551,056) (472,315) (286,503) (493,809)
------------- -------------- ---------------- -------------- --------------
LOSS BEFORE MINORITY INTEREST (4,050,296) (4,946,123) (7,626,661) (3,353,380) (3,907,280)
Minority interest in net loss of
consolidated entities 35,329 7,647 - - -
------------- -------------- ---------------- -------------- --------------
NET LOSS (4,014,967) (4,938,476) (7,626,661) (3,353,380) (3,907,280)
PREFERRED STOCK DIVIDEND REQUIREMENT - - (2,413,763) (610,959) (1,894,072)
------------- -------------- ---------------- -------------- --------------
NET LOSS APPLICABLE TO COMMON STOCK $(4,014,967) $(4,938,476) $(10,040,424) $(3,964,339) $(5,801,352)
============= ============== ================ ============== ==============
NET LOSS PER COMMON SHARE* $(.36) $(.23) $(.42) $(.16) $(.24)
============= ============== ================ ============== ==============
Weighted average common shares outstanding* 11,003,719 21,642,024 24,052,280 24,052,280 24,052,357
============= ============== ================ ============== ==============
</TABLE>
* Pro forma for 1993 and 1994 (Note 1)
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
F-6
<PAGE> 88
WIRELESS BROADCASTING SYSTEMS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' AND PARTNERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Partners' Capital
--------------------------- --------------------------
Shares Par Value General Limited
-------------- ----------- ---------- --------------
<S> <C> <C> <C> <C>
BALANCES, January 1, 1993 - $- $- $7,666,734
Capital contributions - - - 4,333,329
Net loss - - - -
-------------- ----------- ---------- --------------
BALANCES, December 31, 1993 - - - 12,000,063
Capital contribution of net amount
due to general partner - - 65,665 -
Shares issued to general partner in
exchange for partnership interest 1,000 10 (65,665) -
Shares issued to limited partners in
exchange for partnership interests 12,000,000 120,000 - (12,000,063)
Shares issued in private offering,
net of offering costs of $57,412 12,051,280 120,513 - -
Net loss - - - -
-------------- ----------- ---------- --------------
BALANCES, December 31, 1994 24,052,280 240,523 - -
Convertible preferred stock
offering costs - - - -
Cumulative dividends on
convertible preferred stock - - - -
Net loss - - - -
-------------- ----------- ---------- --------------
BALANCES, December 31, 1995 24,052,280 240,523 - -
Cumulative dividends on convertible
preferred stock (unaudited) - - - -
Exercise of stock options (unaudited) 28,000 280 - -
Net loss (unaudited) - - - -
-------------- ----------- ---------- --------------
BALANCES, June 30, 1996 (unaudited) 24,080,280 $240,803 $- $-
============== =========== ========== ==============
<CAPTION>
Additional
Paid-in
Capital Deficit Total
-------------- --------------- --------------
<S> <C> <C> <C>
BALANCES, January 1, 1993 $- $(1,336,678) $6,330,056
Capital contributions - - 4,333,329
Net loss - (4,014,967) (4,014,967)
-------------- --------------- --------------
BALANCES, December 31, 1993 - (5,351,645) 6,648,418
Capital contribution of net amount
due to general partner - - 65,665
Shares issued to general partner in
exchange for partnership interest 66,955 - 1,300
Shares issued to limited partners in
exchange for partnership interests 11,880,063 - -
Shares issued in private offering,
net of offering costs of $57,412 15,488,741 - 15,609,254
Net loss - (4,938,476) (4,938,476)
-------------- --------------- --------------
BALANCES, December 31, 1994 27,435,759 (10,290,121) 17,386,161
Convertible preferred stock
offering costs (506,770) - (506,770)
Cumulative dividends on
convertible preferred stock - (2,413,763) (2,413,763)
Net loss - (7,626,661) (7,626,661)
-------------- --------------- --------------
BALANCES, December 31, 1995 26,928,989 (20,330,545) 6,838,967
Cumulative dividends on convertible
preferred stock (unaudited) - (1,894,072) (1,894,072)
Exercise of stock options (unaudited) 41,720 - 42,000
Net loss (unaudited) - (3,907,280) (3,907,280)
-------------- --------------- --------------
BALANCES, June 30, 1996 (unaudited) $26,970,709 $(26,131,897) $1,079,615
============== =============== ==============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
F-7
<PAGE> 89
WIRELESS BROADCASTING SYSTEMS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months Ended
Year Ended December 31 June 30
--------------------------------------------- ------------------------------
1993 1994 1995 1995 1996
-------------- -------------- -------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(4,014,967) $(4,938,476) $(7,626,661) $(3,353,380) $(3,907,280)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities-
Depreciation and amortization 1,600,330 4,648,793 10,349,202 4,556,469 5,385,830
Amortization of loan origination costs - 90,556 43,341 24,616 72,826
Minority interest (35,329) (7,647) - - -
Changes in current assets and liabilities-
Subscriber receivables (75,273) (30,819) (296,478) (34,834) (130,114)
Other receivables 206,264 (73,481) (82,846) (187,207) 55,502
Prepaid expenses and other current assets (153,639) 184,777 (30,661) (31,228) (70,849)
Inventories (314,297) (803,889) 685,890 171,114 (187,189)
Advance to affiliates (148,181) 400,930 - - -
Accounts payable and accrued liabilities 312,707 84,335 1,465,007 513,596 2,472,215
-------------- -------------- -------------- -------------- --------------
Net cash (used in) provided by
operating activities (2,622,385) (444,921) 4,506,794 1,659,146 3,690,941
-------------- -------------- -------------- -------------- --------------
INVESTING ACTIVITIES:
Acquisition of net assets of wireless
cable systems - (13,777,742) (24,065,284) (23,545,004) -
Payments for property and equipment (5,755,418) (7,599,832) (6,475,093) (2,458,604) (7,825,597)
Payments for license acquisition costs (680,471) (835,667) (291,124) (167,282) (3,711,862)
Payments of deferred acquisition costs - (1,586,137) (228,556) (9,289) (6,549)
Cash received from certificate of deposit - 115,790 - - -
Cash received (paid) for other assets - (147,395) 50,822 - -
-------------- -------------- -------------- -------------- --------------
Net cash used in investing activities (6,435,889) (23,830,983) (31,009,235) (26,180,179) (11,544,008)
-------------- -------------- -------------- -------------- --------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
F-8
<PAGE> 90
Page 2 of 2
WIRELESS BROADCASTING SYSTEMS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months Ended
Year Ended December 31 June 30
--------------------------------------------- ------------------------------
1993 1994 1995 1995 1996
------------ -------------- --------------- --------------- -------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
FINANCING ACTIVITIES:
Net proceeds from sale of preferred stock $- $- $34,493,230 $34,449,856 $-
Net proceeds from sale of common stock - 14,054,997 - - -
Contributions from limited partners 4,333,329 - - - -
Contributions from minority interest 88,180 - - - -
Proceeds from exercise of stock options - - - - 42,000
Borrowing under revolving credit facilities - 12,750,000 7,250,000 1,250,000 7,500,000
Principal payments under revolving credit facilities - (1,000,000) (14,000,000) (10,500,000) -
Principal payments under vehicle notes - - (24,220) (8,134) (51,640)
Proceeds from notes payable - related parties 3,000,000 2,000,000 - - -
Payments on notes payable - related parties - (3,444,443) - - -
Cash paid for loan origination fees - (110,557) (1,016,611) (52,670) (4,144)
Advances received from affiliate 224,646 - - - -
Advances repaid to affiliate (182,188) - - - -
------------ -------------- --------------- --------------- -------------
Net cash provided by financing activities 7,463,967 24,249,997 26,702,399 25,139,052 7,486,216
------------ -------------- --------------- --------------- -------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,594,307) (25,907) 199,958 618,019 (366,851)
CASH AND CASH EQUIVALENTS, at beginning of year 2,003,824 409,517 383,610 383,610 583,568
------------ -------------- --------------- --------------- -------------
CASH AND CASH EQUIVALENTS, at end of year $409,517 $383,610 $583,568 $1,001,629 $216,717
============ ============== =============== =============== =============
SUPPLEMENTAL SCHEDULE OF NONCASH
ACTIVITIES:
Cash paid for interest $- $443,790 $342,661 $248,862 $387,775
============ ============== =============== =============== =============
Common stock issued in payment of notes
payable - related parties $- $1,555,557 $- $- $-
============ ============== =============== =============== =============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
F-9
<PAGE> 91
WIRELESS BROADCASTING SYSTEMS OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(including notes applicable to unaudited periods ended June 30, 1995 and 1996)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Organization and Business
Wireless Broadcasting Systems of America, Inc. (the "Company") was formed to
own and operate wireless cable television systems. These systems utilize
microwave frequencies to provide multi-channel television programming to
subscribers. Licenses for the microwave frequencies are owned or leased from
third parties and are regulated by the Federal Communications Commission
("FCC").
The Company is a Delaware corporation and is the successor to WJB-TV Limited
Partnership (the "Partnership"). The Partnership was formed in 1991 and
commenced operations in 1992. The general partner of the Partnership was
WJB-Television Limited Partnership, a Delaware limited partnership, and the
limited partnership interests were held by 18 individuals and business
entities. On March 16, 1994, the Company, a newly formed corporation,
exchanged one share of the Company's common stock for each of 12 million
outstanding limited partnership units. In addition, the Company offered to
sell its common stock to the limited partners in the Partnership. The limited
partner investors collectively purchased 12,051,280 shares of the Company's
common stock for $14,111,109 cash and the conversion of $1,555,557 of notes
payable to certain limited partners (see Note 5).
The general partner, who held a minority interest in a Partnership system,
contributed $119,314 of management fees due to the general partner plus $1,300
cash to the Company in exchange for 1,000 shares of the Company's common stock
and settlement of other amounts due to the Company from the general partner for
unfunded capital contributions, for a net recapitalization of $66,965.
As part of the exchange offer, WJB-TV Ft. Pierce Limited Partnership and WJB-TV
Melbourne Limited Partnership (subsidiaries of the Partnership) contributed all
of their assets and liabilities to newly formed corporations which are
subsidiaries of the Company.
Basis of Consolidation
The consolidated financial statements include the accounts of the Partnership
through March 16, 1994, and the accounts of the Company and its wholly owned
subsidiaries thereafter. Assets and liabilities of the Partnership were
initially recorded by the
F-10
<PAGE> 92
Company at their historical cost basis as of March 16, 1994. The Company's
subsidiaries (and the location of the subsidiaries' principal operations) at
December 31, 1995 are as follows:
Wireless Broadcasting Systems of Ft. Pierce, Inc. - Ft. Pierce, Florida
Wireless Broadcasting Systems of Melbourne, Inc. - Melbourne, Florida
Wireless Broadcasting Systems of Sacramento, Inc. - Sacramento, California
Wireless Broadcasting Systems of West Palm, Inc. - West Palm Beach,
Florida *
Wireless Broadcasting Systems of Boise, Inc. - Boise, Idaho
Wireless Broadcasting Systems of Yakima, Inc. - Yakima, Washington
*System is proposed to launch in 1997
All intercompany balances and transactions have been eliminated in
consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all highly
liquid investments with an original maturity of three months or less to be cash
equivalents.
Inventories
Inventories, consisting primarily of equipment purchased for installation at
subscribers' homes, are stated at the lower of cost (first-in, first-out) or
market.
Wireless Cable Television Systems
Property and Equipment -- Property and equipment are stated at cost.
Depreciation is recorded on a straight-line basis for financial reporting
purposes over the estimated useful lives of the assets (Note 2). An additional
depreciation charge is recognized for the net book value of any equipment not
recovered upon discontinuance of service to subscribers. Repair and
maintenance costs are charged to expense when incurred. Renewals and
betterments are capitalized. Subscriber installation costs, including direct
salaries, equipment and other direct related costs, are capitalized and
amortized over three to five years. Marketing costs and sales commissions are
expensed as incurred. Depreciation expense was approximately $1,428,000,
$3,593,000, and $7,223,000 for the years ended December 31, 1993, 1994, and
1995, respectively. Depreciation expense was approximately $3,622,000 and
$3,508,000 for the six months ended June 30, 1995 and 1996, respectively.
F-11
<PAGE> 93
License Acquisition Costs -- Costs incurred to acquire or lease microwave
frequency licenses issued by the Federal Communications Commission are deferred
and are amortized over ten years. This asset category also includes licenses
purchased as part of the business acquisitions described in Note 3.
Amortization expense was approximately $154,000, $618,000 and $2,134,000 for
the years ended December 31, 1993, 1994, and 1995, respectively. Amortization
expense was approximately $514,000 and $1,356,000 for the six months ended June
30, 1995 and 1996, respectively.
Purchased Intangibles -- The excess of the purchase price of operating wireless
cable systems over net tangible assets acquired represents other purchased
intangibles, including subscriber lists and goodwill. These intangibles are
amortized over estimated useful lives of 3 to 20 years. Amortization expense
was approximately $0, $373,000 and $987,000 for 1993, 1994 and 1995,
respectively. Amortization expense was approximately $418,000 and $519,000 for
the six months ended June 30, 1995 and 1996, respectively.
Deferred Acquisition Costs
The Company defers certain direct third party costs related to potential
acquisitions. If and when it becomes apparent that a particular acquisition
will not be consummated, the related costs are charged to expense. As of
December 31, 1994, the Company had placed in escrow deposits of $1.2 million
related to two acquisitions which were completed in March 1995 and April 1995
(see Note 3).
Other Assets
Other assets are comprised primarily of loan origination fees and also include
organizational costs and the long-term portion of prepaid expenses. Loan
origination fees are amortized over the life of the loan. The unamortized
balance of loan origination fees was approximately $20,000, $988,000 and
$919,000 as of December 31, 1994, December 31, 1995, and June 30, 1996,
respectively. Organizational costs are amortized using the straight-line
method over five years.
Revenue Recognition
Monthly service fees are recognized as earned. Installation revenue is
recognized upon initiation of service to a subscriber. All marketing costs and
commissions related to new subscribers are expensed as incurred.
Net Loss per Share
For purposes of determining net loss per share for periods prior to formation
of the corporation in March 1994, the pro forma computations of weighted
average shares outstanding assume common shares issued to the partners in
exchange for their partnership interests were issued at the time of, and in
proportion to, partner capital contributions to the Partnership. Potential
dilutive effects of common stock equivalents for outstanding options and
warrants, determined using the treasury stock method, were ignored because the
effect on all periods presented was anti-dilutive.
F-12
<PAGE> 94
New Accounting Principles
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," ("SFAS No.
121"). SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. SFAS No. 121 is effective for financial
statements for fiscal years beginning after December 15, 1995. Management
believes the adoption of SFAS No. 121 will not have a significant impact on the
Company's consolidated financial position and results of operations.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"), issued by the FASB in October 1995
and effective for fiscal years beginning after December 15, 1995, encourages,
but does not require, a fair value based method of accounting for employee
stock options or similar equity instruments. It also allows an entity to elect
to continue to measure compensation cost under Accounting Principles Board
Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB No. 25"), but
requires pro forma disclosures of net income and earnings per share as if the
fair value based method of accounting had been applied. The Company expects to
adopt SFAS No. 123 in 1996. While the Company is still evaluating SFAS No.
123, it currently expects to elect to measure compensation cost under APB No.
25 and comply with the pro forma disclosure requirements. If the Company makes
this election, this statement will have no impact on the Company's consolidated
results of operations.
Interim Financial Statements
The financial statements as of June 30, 1996 and for the six months ended June
30, 1995 and 1996 are unaudited. In management's opinion, the unaudited
financial statements include all adjustments necessary for a fair presentation
of financial position and results of operations for the unaudited periods. All
such adjustments were of a normal, recurring nature.
F-13
<PAGE> 95
(2) WIRELESS CABLE TELEVISION SYSTEMS
At December 31, 1994 and 1995, components of wireless cable television system
assets are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------ June 30,
1994 1995 1996 Life
-------------- -------------- -------------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Subscriber equipment $10,792,284 $15,598,480 $19,261,440 2-10 Years
Transmission equipment 5,020,108 5,794,475 6,010,136 5-10 Years
Subscriber installations 3,417,531 6,258,272 8,155,378 3-5 Years
Furniture and equipment 883,439 1,531,444 1,683,497 5-7 Years
Vehicles 771,705 1,294,049 1,575,457 3 Years
Leasehold improvements 154,901 191,688 205,423 3-5 Years
Buildings 132,248 136,022 143,443 30 Years
-------------- -------------- --------------
21,172,216 30,804,430 37,034,774
Less- accumulated depreciation
and amortization (4,141,523) (10,878,162) (12,786,521)
-------------- -------------- --------------
Property and equipment, net $17,030,693 $19,926,268 $24,248,253
============== ============== ==============
License acquisition costs $7,356,141 $26,438,265 $30,530,630 10 Years
Less- accumulated amortization (841,613) (2,975,778) (4,331,734)
------------ -------------- --------------
License acquisition costs, net $6,514,528 $23,462,487 $26,198,896
============== ============== ==============
Purchased intangibles $3,144,936 $6,075,614 $6,188,241 3-20 Years
Less- accumulated amortization (373,097) (1,360,585) (1,879,831)
------------ -------------- --------------
Purchased intangibles, net $2,771,839 $4,715,029 $4,308,410
============== ============== ==============
</TABLE>
(3) ACQUISITIONS
In March 1994, the Company acquired the principal operating assets of Pacific
West Cable Television, a wireless cable television operator in Sacramento,
California, for approximately $13.8 million (the "Sacramento acquisition").
The acquisition was accounted for as a purchase with the purchase price
allocated to the assets acquired based on relative fair values.
In March 1995, the Company acquired the principal operating assets of Boise
Cable Limited Partnership, a wireless cable television operator in Boise,
Idaho, for approximately $15.6 million (the "Boise acquisition"). The Company
utilized the proceeds of the sale of 25,000 shares of its Class A Preferred
Stock (see Note 4) to fund the acquisition. The acquisition was accounted for
as a purchase with the purchase price allocated to the assets acquired based on
relative fair values.
F-14
<PAGE> 96
In April 1995, the Company acquired the principal operating assets of Northwest
Cable Network, a wireless cable television operator in Yakima, Washington, for
approximately $9.2 million (the "Yakima acquisition"). The Company utilized
the proceeds of the sale of 10,000 shares of its Class A Preferred Stock (see
Note 4) to fund the acquisition. The acquisition was accounted for as a
purchase with the purchase price allocated to the assets acquired based on
relative fair values.
<TABLE>
<CAPTION>
1994 1995
------------- ------------------------
Sacramento Boise Yakima
------------- ------------ ----------
<S> <C> <C> <C>
Current assets acquired $250,286 $79,956 $27,787
Investment in wireless cable television systems-
Property and equipment 5,352,243 1,838,036 1,800,200
License acquisition costs 5,330,000 11,984,000 6,807,000
Purchased intangibles 3,144,935 1,825,963 607,553
Less liabilities assumed (299,722) (80,384) (45,349)
------------- ------------ ----------
Cash paid for net assets acquired $13,777,742 $15,647,571 $9,197,191
============= ============ ==========
</TABLE>
The following pro forma total consolidated revenues, net loss and net loss per
common share for the year ended December 31, 1995 reflects the Boise and Yakima
acquisitions as if each had occurred on January 1, 1995:
<TABLE>
<S> <C>
(Unaudited)
Revenues $18,431,000
==========
Net loss $(7,821,000)
==========
Net loss per common share $ (.46)
===========
</TABLE>
(4) STOCKHOLDERS' AND PARTNERS' EQUITY
Class A Preferred Stock
In March 1995, the authorized capital stock of the Company was amended to
include 65,000,000 shares of $0.01 par value common stock and 35,000 shares of
$0.01 par value non-voting Class A cumulative convertible preferred stock
("Class A Preferred Stock"). Each share of Class A Preferred Stock is
convertible into approximately 687 shares of common stock (in the aggregate,
24,052,080 shares of common stock), subject to possible adjustment for certain
future issuances of securities. The Class A Preferred Stock is convertible at
any time at the option of the holder. Holders of the Class A Preferred Stock
are entitled to a liquidation preference ("the Liquidation Value") of $1,000
per share plus 2.5% per quarter, compounded if not paid. Upon conversion to
shares of common stock, the cumulative Liquidation Value of the Class A
Preferred Stock, less $1,000 per share, is to be paid by the Company in cash.
F-15
<PAGE> 97
On any date after March 15, 1998, if the Company's common stock has been
publicly traded for one year and certain other restrictions concerning the
trading volume and market price are satisfied, the Company has the right to
require all shares of Class A Preferred Stock then outstanding to be converted
into common stock of the Company. The Company is required to redeem any
remaining Class A Preferred Stock outstanding at December 31, 2002, at the then
current Liquidation Value.
Dividends may not be paid on the common stock as long as any shares of Class A
Preferred Stock are outstanding, or any amounts payable in respect of the Class
A Preferred Stock have not been paid in full.
In March 1995, the Company agreed to issue 35,000 shares of Class A Preferred
Stock for $1,000 per share. In March 1995, the Company sold 25,000 shares of
Class A Preferred Stock. The Company utilized the net proceeds to acquire the
net assets of Boise Cable Limited Partnership (see Note 3) and reduced the
principal amount on its revolving promissory note to $2,250,000 (see Note 5).
The remaining 10,000 shares of Class A Preferred Stock were issued to the same
purchasers in April 1995, in connection with the Company's acquisition of the
net assets of Northwest Cable Network (see Note 3).
Under the terms of the Class A Preferred Stock Purchase Agreement, the Company
may request, at any time, that the holders of the Class A Preferred Stock
exchange such shares for a subordinated convertible promissory note (the
"Note"). The Note shall be in a principal amount equal to the cumulative
Liquidation Value and will accrue interest of 10% per annum, compounded
quarterly. The holders of the Class A Preferred Stock are required to consent
to such exchange provided they are not subjected to any adverse tax
consequences as a result of the exchange.
The current holders of the Class A Preferred Stock are entitled to certain
piggyback and demand registration rights in the event of a public offering.
Stockholders' Agreement
The Company and all its stockholders were parties to a Stockholders' Agreement
dated March 15, 1995, which requires all stockholders to vote in favor of two
(of seven) directors designated by the Class A Preferred Stockholders. In the
event any stockholder proposes to sell shares, this agreement also grants first
rights of refusal to all other stockholders, and to the Company, to acquire
those shares on the same terms.
So long as the Class A Preferred Stockholders hold at least 20% of the shares
originally issued to them, their consent is required for certain actions of the
Company, including mergers, sales of systems or major assets, system
acquisitions and major expenditures, issuance of debt in excess of $500,000,
issuance of equity securities, and certain matters related to retention of
executives and consultants.
Common Stock Warrants
In connection with the issuance of the Class A Preferred Stock, the Company
issued warrants to the common stockholders to purchase 13,500,000 shares of
common stock
F-16
<PAGE> 98
for $3.00 per share. The warrants are exercisable at any time and expire in
March 2000 and April 2000.
Stock Option Plan
In 1995, the Company's stock option plan was amended to authorize the grant of
stock options to officers and employees of the Company to purchase an aggregate
of 3,103,000 shares of common stock. The board of directors may set the rate
at which the options become exercisable and determine when the options expire,
subject to the following limitations. No options shall be exercisable after
the tenth anniversary of the date of grant, or three months following
termination of employment, except in cases of death or disability, for which
exercisability is extended. In the event of dissolution, liquidation or other
corporate reorganization, all stock options outstanding shall become
exercisable in full.
During 1994, the Company granted options to purchase 1,073,333 shares of common
stock. The exercise price with respect to options to purchase 300,000 shares
was established at the date of grant to be $1.50 per share, the estimated fair
value on the date of grant. The exercise price with respect to the remaining
options to purchase 773,333 shares of common stock was not established until
March 1995, at approximately $1.46 per share, the estimated fair market value
of the Company's common stock in March 1995.
In 1995, the Company granted additional options to purchase 1,401,667 shares of
common stock at approximately $1.46 per share, the estimated fair value of the
common stock on the date of grant. During 1995, options to purchase 330,799
shares were forfeited and canceled.
Options to purchase 100,000 shares of common stock vest ratably over a two year
period from the date of grant. The remaining options vest ratably over a four
year period. As of December 31, 1995, options for the purchase of 2,144,201
common shares were outstanding, of which 259,000 were vested. As of June 30,
1996, options for the purchase of 2,044,201 common shares were outstanding, of
which 709,201 were exercisable.
(5) DEBT
In November 1995, the Company entered into a credit agreement with a group of
banks which provides for maximum aggregate borrowings of $40 million.
Outstanding borrowings bear interest based on the bank's base rate or the
Eurodollar rate, plus a spread which depends upon a defined ratio of the
Company's total indebtedness to its operating cash flow. The revolving credit
facility converts to a term loan in December 1998, at which time outstanding
borrowings are to be amortized on a quarterly basis until December 2002. The
facility is secured by essentially all of the assets of the Company. As of
December 31, 1995, and June 30, 1996, outstanding borrowings under the facility
were $5,000,000 and $12,500,000, respectively.
In connection with the purchase of the Boise and Yakima wireless cable
television systems, the Company assumed notes collateralized by vehicles
totaling approximately
F-17
<PAGE> 99
$120,000. As of December 31, 1995, the outstanding principal balance due under
these notes was approximately $96,000.
In March 1994, the Company obtained a revolving promissory note from a bank of
which $11,750,000 was drawn at December 31, 1994. Interest accrued at certain
spreads over the Eurodollar Rate, the bank's prime rate or the Federal Funds
Rate. Interest was payable monthly (or at maturity for Eurodollar
borrowings). The note was guaranteed by three of the Company's stockholders.
In March 1995, the Company used the proceeds from the sale of Class A Preferred
Stock (see Note 4) to reduce the outstanding note balance to $2,250,000 and the
remainder of the note was paid in November 1995 from proceeds of the new
revolving facility.
During 1993, two limited partners advanced an aggregate of $3,000,000 to the
Partnership, all of which remained outstanding at December 31, 1993. On March
16, 1994, $1,555,557 was converted to shares of the Company's common stock (see
Note 1).
Annual maturities of the long-term debt described above are as follows:
<TABLE>
<S> <C>
Year Ended December 31-
1996 $ 96,203
1997 -
1998 -
1999 1,000,000
2000 1,500,000
Thereafter 2,500,000
---------
$5,096,203
=========
</TABLE>
(6) INCOME TAXES
The Company accounts for income taxes under the provisions of SFAS No. 109
"Accounting for Income Taxes." Accordingly, the current provision for income
taxes represents actual or estimated amounts payable or refundable on tax
returns filed or to be filed for each year. Deferred tax assets and
liabilities are recorded for the estimated future tax effects of: (a) temporary
differences between the tax basis of assets and liabilities and amounts
reported in the consolidated balance sheets, and (b) operating loss and tax
credit carryforwards. The overall change in deferred tax assets and
liabilities for the period measures the deferred tax expense for the period.
Effects of changes in enacted tax laws on deferred tax assets and liabilities
are reflected as adjustments to tax expense in the period of enactment. The
measurement of deferred tax assets may be reduced by a valuation allowance
based on judgmental assessment of available evidence if deemed more likely than
not that some or all of the deferred tax assets will not be realized.
Prior to incorporation, the Partnership had accumulated losses of approximately
$6.2 million. For income tax purposes, these losses were allocated to the
partners in accordance with the provisions of the Partnership agreement. Thus,
Partnership losses included in the accompanying consolidated financial
statements of the Company are not available to offset future taxable income of
the Company, if any. As required by SFAS
F-18
<PAGE> 100
No. 109, this change in tax status was recognized by establishing deferred tax
assets and liabilities for temporary differences between the tax basis and
amounts reported in the Company's consolidated financial statements at March
16, 1994.
As of December 31, 1995, the Company had approximately $10,900,000 of net
operating loss carryover for income tax purposes incurred during the period
from March 16, 1994 through December 31, 1995, available to offset future
federal taxable income, subject to limitations for alternative minimum tax.
The net operating loss is subject to examination by the taxing authorities and
expires in 2009 and 2010. Benefit for this net operating loss carryforward was
recognized in 1994 to the extent of the net deferred tax liability established
to recognize the tax effect of the change in tax status from a partnership to a
C corporation on March 16, 1994.
Because of operating losses, the provision for income taxes for 1994 and 1995
was zero and no income taxes were currently payable.
The components of the deferred income tax assets as of December 31, 1994 and
1995 were as follows:
<TABLE>
<CAPTION>
1994 Change 1995
------------- ------------- -------------
<S> <C> <C> <C>
Net operating loss carryforwards $ 1,167,000 $ 3,084,000 $ 4,251,000
Depreciation expense 115,800 (192,800) (77,000)
Compensation accruals 30,000 9,000 39,000
Allowance for doubtful accounts 20,500 3,500 24,000
Less valuation allowance (1,333,300) (2,903,700) (4,237,000)
------------- ------------ ------------
$ - $ - $ -
============= ============ ============
</TABLE>
The Company has not yet achieved profitable operations. Accordingly,
management believes the net deferred tax assets as of December 31, 1995, do not
satisfy the realization criteria set forth in SFAS No. 109 and has recorded a
valuation allowance for the entire amount.
The current income tax laws and regulations contain provisions that may limit
the net operating loss carryover available in individual future years upon the
occurrence of certain events, including significant changes in ownership. A
change in ownership of greater than 50% within a three year period would result
in an annual limitation on the Company's ability to utilize its net operating
loss carryovers.
F-19
<PAGE> 101
(7) COMMITMENTS AND CONTINGENCIES
The Company is committed under various noncancelable lease agreements for
office and warehouse space, as well as tower space. As of December 31, 1995,
approximate future minimum lease payments under these agreements are as
follows:
<TABLE>
<S> <C>
Year Ended December 31-
1996 $ 413,000
1997 287,000
1998 271,000
1999 113,000
2000 73,000
Thereafter 96,000
---------
$1,253,000
</TABLE>
Rent expense for 1993, 1994 and 1995 totaled approximately $132,000, $306,000
and $425,000, respectively.
The Company has entered into a series of noncancelable agreements to purchase
entertainment programming for rebroadcast which expire through December 1999.
The agreements generally require monthly payments based upon the number of
subscribers to the Company's systems, subject to certain minimums.
The Company is currently involved in certain litigation relating to its
operations. Management of the Company believes none of these actions will
have a material adverse effect on the Company's consolidated financial position
or its results of operations.
The Company, as successor in interest to the Partnership, is a party to a
contractual agreement for the purchase of wireless cable television assets,
including certain channel lease agreements, for one of its operating systems.
The purchase agreement provides for the payment of additional consideration
upon the occurrence of certain mandatory or optional events. The additional
payment obligation becomes due upon the sale or other disposition of a material
portion of the system assets or at the option of the Company at any time after
December 1995. The additional payment obligation is based upon 10% of the
difference between the fair market value received or the appraised value of the
system at the time of the event and the amount of liabilities of the Company
with respect to the system, including loans and capital contributions made by
the Company's shareholders. The extent of any additional payment pursuant to
this agreement will, therefore, depend on the actual fair market value of the
system which is either realized or otherwise agreed to by the parties upon the
disposition event.
The FCC recently adopted a competitive bidding mechanism under which available
Multi Point Distribution System ("MDS") licenses for designated Basic Trading
Areas ("BTA's") are auctioned to the highest bidder. Auctions for each of
nearly 500 BTA's commenced on November 13, 1995 and concluded on March 28,
1996. As of March 28, 1996, the Company had submitted bids on various BTA's in
an aggregate amount of approximately $3.5 million. BTA auction winners will
obtain the exclusive right to
F-20
<PAGE> 102
apply for available MDS channels within the applicable BTA, subject to
compliance with FCC interference protection, construction and other rules.
As a result of the BTA auction, the Company acquired the exclusive right to
apply for the licenses for currently and subsequently available commercial
channels ("BTA Authorizations") for five new markets: Coos Bay, Oregon; Eureka,
California; Helena, Montana; Klamath Falls, Oregon; and Roseburg, Oregon. In
addition, the Company acquired the BTA Authorizations for the West Palm Beach
market and for each of its currently operating wireless cable television
systems, except Sacramento. Through June 30, 1996, the Company had paid
approximately $700,000 to the FCC as required deposits for the above BTA
Authorizations and the remaining approximately $2.8 million to be paid was
included in accrued liabilities.
(8) RELATED PARTY TRANSACTIONS
The Partnership agreement provided for the former general partner to receive a
fee equal to 4% of annual gross operating revenues. The Partnership incurred
management fee expense of approximately $106,000 during 1993 and 1994. In
connection with the exchange offer described in Note 1, these unpaid management
fees, net of unfunded general partner contributions, were contributed as
additional capital to the Company.
During 1993, an affiliate of the general partner made noninterest bearing
advances of approximately $225,000 to the Partnership, of which approximately
$42,000 was unpaid at December 31, 1993.
A Company stockholder, who also serves as a director and secretary of the
Company, is the chairman and founder of a law firm that provides legal services
to the Company. Amounts paid or payable to the law firm for the years ended
December 31, 1993, 1994 and 1995, were approximately $208,000, $208,000 and
$361,000, respectively.
F-21
<PAGE> 103
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wireless Broadcasting Systems of America, Inc.:
We have audited the accompanying balance sheets of BOISE CABLE LIMITED
PARTNERSHIP as of December 31, 1993 and 1994, and the related statements of
operations, changes in partners' capital, and cash flows for the years ended
December 31, 1993 and 1994. These financial statements are the responsibility
of the Partnership's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Boise Cable Limited
Partnership as of December 31, 1993 and 1994, and the results of its operations
and its cash flows for the years then ended, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
July 31, 1995.
F-22
<PAGE> 104
BOISE CABLE LIMITED PARTNERSHIP
BALANCE SHEETS
AS OF DECEMBER 31, 1993 AND 1994
<TABLE>
<CAPTION>
ASSETS 1993 1994
-------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ - $ 94,373
Accounts receivable, net of allowance for doubtful
accounts of $2,487 in 1993 and $65,000 in 1994 169,893 233,633
Deposits 800 1,300
---------- ------------
Total current assets 170,693 329,306
---------- ------------
PROPERTY AND EQUIPMENT 2,525,174 3,701,035
Less- Accumulated depreciation (489,838) (1,042,903)
---------- ------------
Total property and equipment, net 2,035,336 2,658,132
---------- ------------
INTANGIBLE ASSETS 458,634 468,192
Less- Accumulated amortization (112,272) (168,351)
---------- ------------
Total intangible assets, net 346,362 299,841
---------- ------------
Prepaid expenses and other assets 21,744 24,090
---------- ------------
Total assets $2,574,135 $ 3,311,369
========== ============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 116,762 $ 239,074
Accrued interest - 15,582
Unearned income 162,732 246,694
Customer deposits and prepaids - 6,522
Accrued compensation 9,353 12,410
Payable to General Partner. 3,183 2,206
Current portion of long-term debt 307,602 938,194
---------- ------------
Total current liabilities 599,632 1,460,682
---------- ------------
LONG-TERM DEBT, net of current portion 1,090,848 887,853
---------- ------------
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
General Partner 366,055 405,645
Limited Partners 517,600 557,189
---------- ------------
Total partners' capital 883,655 962,834
---------- ------------
Total liabilities and partners' capital $2,574,135 $ 3,311,369
========== ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-23
<PAGE> 105
BOISE CABLE LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994
<TABLE>
<CAPTION>
1993 1994
---------- ----------
<S> <C> <C>
REVENUES $1,551,546 $2,632,806
---------- ----------
EXPENSES:
Operating expenses, net of capitalized costs 223,223 661,748
Selling, general, and administrative expenses 422,852 704,591
Depreciation and amortization 399,411 609,143
Management fees--General Partner 77,048 133,858
---------- ----------
Total expenses 1,122,534 2,109,340
---------- ----------
INCOME FROM OPERATIONS 429,012 523,466
Interest expense (81,838) (154,287)
---------- ----------
NET INCOME $ 347,174 $ 369,179
========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-24
<PAGE> 106
BOISE CABLE LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994
<TABLE>
General Limited
Partner Partners Total
-------- --------- ------
<S> <C> <C> <C>
BALANCES, December 31, 1992 $ 279,968 $ 431,513 $ 711,481
Partner distributions (87,500) (87,500) (175,000)
Net income 173,587 173,587 347,174
----------- ----------- ------------
BALANCES, December 31, 1993 366,055 517,600 883,655
Partner distributions (145,000) (145,000) (290,000)
Net income 184,590 184,589 369,179
----------- ----------- ------------
BALANCES, December 31, 1994 $ 405,645 $ 557,189 $ 962,834
=========== =========== ============
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-25
<PAGE> 107
BOISE CABLE LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994
<TABLE>
<CAPTION>
1993 1994
---------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 347,174 $ 369,179
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization 399,411 609,143
(Increase) in accounts receivable (160,764) (63,740)
Increase in deposits - (500)
Decrease (increase) in prepaid expenses
and other assets 3,256 (2,346)
Increase in accounts payable 93,748 122,312
Increase in accrued interest - 15,582
Increase in unearned income 162,732 83,962
Increase in customer deposits and prepaids - 6,522
Increase in accrued compensation 5,007 3,057
Increase (decrease) in payable to General Partner 3,183 (977)
----------- -----------
Net cash provided by operating activities 853,747 1,142,194
----------- -----------
INVESTING ACTIVITIES:
Purchases of property and equipment (1,312,504) (1,175,861)
Increase in intangible assets (1,001) (9,558)
----------- -----------
Net cash used in investing activities (1,313,505) (1,185,419)
----------- -----------
FINANCING ACTIVITIES:
Principal payments on notes payable (115,859) (207,302)
Proceeds from bank debt 730,312 634,900
Partner distributions (175,000) (290,000)
----------- -----------
Net cash provided by financing activities 439,453 137,598
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (20,305) 94,373
CASH AND CASH EQUIVALENTS, beginning of year 20,305 -
----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ - $ 94,373
=========== ===========
SUPPLEMENTAL INFORMATION:
Cash paid for interest $ 81,838 $ 138,705
=========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-26
<PAGE> 108
BOISE CABLE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1993 AND 1994
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Partnership Formation
On February 11, 1991, Boise Cable Limited Partnership (the "Partnership"), a
limited partnership under the laws of the State of Washington, was formed for
the purpose of operating a wireless cable system in Boise, Idaho. This system
utilizes microwave radio frequencies to provide multi-channel television
programming to subscribers for a monthly fee. Licenses for the microwave radio
frequencies are owned or leased from third parties and are regulated by the
Federal Communications Commission. The formation of the Partnership was
accomplished in the following manner:
1. Northwest Satellite Network, Inc. ("General
Partner"), an S corporation, contributed the rights to
channel licenses for the Boise area and a Boise market
study which were valued at $300,000.
2. In addition, ICTV, Inc. and Positive Images,
Inc. ("Limited Partners"), both S corporations,
contributed cash of $400,000 and $50,000,
respectively.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Partnership considers all
highly liquid investments with an original maturity of three months or less to
be cash equivalents.
Revenue Recognition
Monthly service fees are recognized as earned. Installation revenue is
recognized upon initiation of service to a customer. Service is billed in
advance. Billings for service to be rendered in the future are deferred and
reflected as unearned income on the balance sheet.
Capitalization Policy
All costs related to construction and expansion of the system are capitalized
including the direct costs of receiving and transmission equipment. In
addition, costs incurred to install equipment in subscriber homes are
capitalized, including wages, payroll taxes, benefits, vehicle operating costs
and overhead. The Partnership capitalized approximately $389,000 and $448,000
of operating costs during the years ended December 31, 1993 and 1994,
respectively.
F-27
<PAGE> 109
Federal Income Taxes
The Partnership is not a taxpaying entity, and thus no tax benefit has been
recorded in the statements. Income or loss from the partnership is taxed to
the partners in their individual returns.
Inventory
Inventory consists mainly of in-home equipment not yet installed and is
recorded at cost and classified in the balance sheet with property and
equipment.
(2) PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and is depreciated on a straight line
basis over the estimated useful lives of the assets. Property and equipment
consist of the following at December 31, 1993 and 1994:
<TABLE>
<CAPTION>
1993 1994 Life
---------- ---------- -----
<S> <C> <C> <C>
Inventory $ 44,397 $ 83,934 -
Vehicles 119,314 121,069 3
Office equipment and furniture 33,810 68,205 5
In home equipment and install costs 1,849,084 2,839,891 5
Head-end 464,750 572,492 10
Leasehold improvements 13,819 15,444 3
---------- -----------
2,525,174 3,701,035
Less - accumulated depreciation (489,838) (1,042,903)
---------- -----------
Total property and equipment, net $2,035,336 $ 2,658,132
========== ===========
</TABLE>
Virtually all of the assets of the Partnership are pledged as collateral on
bank debt and on equipment and vehicle contracts.
(3) INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1993 and 1994:
<TABLE>
<CAPTION>
1993 1994 Life
--------- --------- ----
<S> <C> <C> <C>
Licenses $ 373,199 $ 382,757 10
Organization costs 85,435 85,435 5
---------- ----------
458,634 468,192
Less - accumulated amortization (112,272) (168,351)
---------- -----------
Total intangible assets, net $ 346,362 $ 299,841
========== ===========
</TABLE>
F-28
<PAGE> 110
(4) LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1993 and 1994:
<TABLE>
1993 1994
--------- ---------
<S> <C> <C>
Leases payable, due in monthly installments
of $1,667, including interest at rates
varying from 7.75% to 11.95%, secured
by vehicles, final installments due at
various dates from 1995 to 1998. $ 48,700 $ 33,361
Note payable, First Security Bank,
principal payments of $12,000 monthly,
interest payable monthly at prime plus
2% (10.5% at December 31, 1994),
maturity date of July 9, 1997.
1,098,000 954,000
Note payable, First Security Bank,
monthly principal and interest payments
of $4,773 with variable interest rate
of prime plus 1.75% (10.25% at December
31, 1994), maturity date of December
15, 1996. 151,500 106,436
Note payable, First Security Bank,
monthly interest only payments with
variable interest rate of prime plus
1.75% (10.25% at December 31, 1994),
maturity date extended to February 28,
1995. 100,250 100,250
Note payable, First Security Bank,
monthly interest only payments with
variable interest rate of prime plus
1.75% (10.25% at December 31, 1994),
maturity date of February 28, 1995. - 200,000
Note payable, First Security Bank,
monthly interest only payments with
variable interest rate of prime plus
1.5% (10.0% at December 31, 1994),
maturity date of February 28, 1995. - 432,000
--------- ---------
Total debt 1,398,450 1,826,047
Less: Current portion (307,602) (938,194)
--------- ---------
Total long-term debt $1,090,848 $ 887,853
========== =========
</TABLE>
F-29
<PAGE> 111
Principal payments due on long-term debt are as follows as of December 31, 1994:
<TABLE>
<S> <C>
1995 $ 938,194
1996 210,866
1997 674,800
1998 2,187
1999 -
----------
$1,826,047
==========
</TABLE>
(5) COMMITMENTS AND CONTINGENCIES
The Partnership's lease for certain non-owned frequency licenses provides that
the lessor is to be paid a percentage of the sales price (as defined) in the
event the system is sold. The amount agreed to by the lessor for the pending
sale (Note 7) is $280,000.
Leasing Arrangements
The Partnership's business office, head end site, four 1994 Ford trucks and
other office equipment are leased under operating leases with minimum rental
payments due as follows as of December 31, 1994:
<TABLE>
<S> <C>
1995 $ 39,254
1996 32,687
1997 18,761
1998 11,997
1999 7,425
Thereafter 118,026
----------
$ 228,150
==========
</TABLE>
The office lease term ends July 31, 1996. At December 31, 1994, the minimum
rent is $1,458 per month, increasing to $1,510 per month on August 1, 1995.
The head end site lease began July 1, 1991. The term of the lease is four (4)
five (5) year periods for a total of 20 years. The rent for the first
five-year period is $550 per month. The rent for each succeeding period will
be negotiated between the parties which sum shall be no less than 125% and no
more than 160% of the prior period.
(6) RELATED PARTY TRANSACTIONS
The General Partner, NSN, Inc., receives a monthly payment from the Partnership
for management fees equal to 5% of gross monthly revenues.
F-30
<PAGE> 112
(7) SALE OF PARTNERSHIP ASSETS
On September 30, 1994, the Partnership entered into an agreement with Wireless
Broadcasting Systems of America, Inc. (WBSA) to sell the assets (as defined) of
the Partnership for $15,350,000. Closing of the sale occurred in March 1995.
F-31
<PAGE> 113
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wireless Broadcasting Systems of America, Inc.:
We have audited the accompanying balance sheets of NORTHWEST CABLE NETWORK (a
partnership) as of December 31, 1993 and 1994 and the related statements of
operations, changes in partners' capital, and cash flows for each of the years
in the period then ended. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Northwest Cable Network as of
December 31, 1993 and 1994, and the results of its operations and its cash
flows for each of the years in the period then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
July 31, 1995.
F-32
<PAGE> 114
Page 1 of 2
NORTHWEST CABLE NETWORK
BALANCE SHEETS
AS OF DECEMBER 31, 1993 AND 1994
<TABLE>
<CAPTION>
ASSETS 1993 1994
------ ---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ - $ 100
Accounts receivable, net of allowance for doubtful
accounts of $2,000 in 1993 and $5,000 in 1994 153,459 232,397
Other receivables 3,485 2,947
Deposits - 35,904
Prepaid expenses and other current assets 4,882 1,372
---------- ----------
Total current assets 161,826 272,720
---------- ----------
PROPERTY, PLANT AND EQUIPMENT 3,220,288 4,705,875
Less- Accumulated depreciation (902,834) (1,646,844)
---------- ----------
Total property, plant and equipment, net 2,317,454 3,059,031
---------- ----------
INTANGIBLE ASSETS 1,903,848 1,913,042
Less- Accumulated amortization (515,519) (775,810)
---------- ----------
Total intangible assets, net 1,388,329 1,137,232
---------- ----------
Total assets $3,867,609 $4,468,983
========== ==========
</TABLE>
The accompanying notes to financial statements are
an integral part of these balance sheets.
F-33
<PAGE> 115
Page 2 of 2
NORTHWEST CABLE NETWORK
BALANCE SHEETS
AS OF DECEMBER 31, 1993 AND 1994
<TABLE>
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL 1993 1994
--------------------------------- --------- ---------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 133,817 $ 514,530
Unearned income 144,923 225,394
Accrued compensation and taxes 35,357 47,656
Accrued interest payable 20,525 26,620
Current portion of long term debt 120,898 58,752
--------- ---------
Total current liabilities 455,520 872,952
LONG-TERM LIABILITIES:
Long-term leases payable 3,993 41,721
Notes payable to seller 32,947 18,800
Notes payable to a bank 2,000,306 2,703,000
Subordinated notes payable to partners 1,390,814 1,390,814
--------- ---------
Total liabilities 3,883,580 5,027,287
--------- ---------
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
Northwest Satellite Network, Inc. (11,245) (282,411)
Arrow Systems, Inc. (4,726) (275,893)
---------- ----------
Total partners' capital (15,971) (558,304)
---------- ----------
Total liabilities and partners' capital $3,867,609 $4,468,983
========== ==========
</TABLE>
The accompanying notes to financial statements are
an integral part of these balance sheets.
F-34
<PAGE> 116
NORTHWEST CABLE NETWORK
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994
<TABLE>
<CAPTION>
1993 1994
--------- --------
<S> <C> <C>
REVENUES $1,446,619 $2,407,264
---------- ----------
EXPENSES:
Operating expenses, net of capitalized costs 504,233 814,776
Selling, general, and administrative expenses 481,957 731,034
Depreciation and amortization 778,547 1,004,301
Management fees paid to partners - 28,000
---------- ----------
Total expenses 1,764,737 2,578,111
---------- ----------
LOSS FROM OPERATIONS (318,118) (170,847)
Interest expense (133,496) (228,324)
Interest expense to partners (143,162) (143,162)
---------- ----------
NET LOSS $ (594,776) $ (542,333)
========== ==========
</TABLE>
The accompanying notes to financial statements are
an integral part of these statements.
F-35
<PAGE> 117
NORTHWEST CABLE NETWORK
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994
<TABLE>
<CAPTION>
Northwest
Satellite Arrow
Network, Systems,
Inc. Inc. Total
-------- ------- -------
<S> <C> <C> <C>
BALANCES, December 31, 1992 $ 288,605 $ 292,662 $ 581,267
Distribution (2,462) - (2,462)
Net loss (297,388) (297,388) (594,776)
--------- --------- ---------
BALANCES, December 31, 1993 (11,245) (4,726) (15,971)
Net loss (271,166) (271,167) (542,333)
---------- --------- ---------
BALANCES, December 31, 1994 $(282,411) $(275,893) $(558,304)
========= ========= =========
</TABLE>
The accompanying notes to financial statements are
an integral part of these statements.
F-36
<PAGE> 118
NORTHWEST CABLE NETWORK
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994
<TABLE>
<CAPTION>
1993 1994
---------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (594,776) $ (542,333)
Adjustments to reconcile net loss to net cash provided
by operating activities-
Depreciation and amortization 778,547 1,004,301
Increase in accounts receivable (81,604) (78,400)
(Increase) decrease in prepaid expenses (4,090) 3,510
Increase in deposits - (35,904)
Increase in accounts payable 49,599 380,713
Increase in unearned income 61,169 80,471
Increase in accrued compensation and taxes 31,002 12,299
Increase in accrued interest payable 91 6,095
----------- -------------
Net cash provided by operating activities 239,938 830,752
----------- -------------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (886,275) (1,485,587)
Increase in intangible assets (49,430) (9,194)
----------- -------------
Net cash used in investing activities (935,705) (1,494,781)
----------- -------------
FINANCING ACTIVITIES:
Principal payments on leases payable (40,171) (18,886)
Principal payments on notes payable to seller (10,675) (12,775)
Principal payments on note payable to bank - (90,761)
Proceeds from bank debt 732,510 786,551
Partner distribution (2,462) -
----------- -------------
Net cash provided by financing activities 679,202 664,129
----------- -------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (16,565) 100
CASH AND CASH EQUIVALENTS, beginning of year 16,565 -
----------- -------------
CASH AND CASH EQUIVALENTS, end of year $ - $ 100
=========== =============
SUPPLEMENTAL INFORMATION:
Cash paid for interest $ 276,567 $ 365,391
=========== =============
</TABLE>
The accompanying notes to financial statements are
an integral part of these statements.
F-37
<PAGE> 119
NORTHWEST CABLE NETWORK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1994
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Partnership Formation
On February 6, 1992, Northwest Cable Network (the "Partnership") was formed for
the purpose of operating a wireless cable system in Yakima, Washington. This
system utilizes microwave radio frequencies to provide multi-channel television
programming to subscribers for a monthly fee. Licenses for the microwave radio
frequencies are owned or leased from third parties and are regulated by the
Federal Communications Commission. The formation was accomplished in the
following manner:
1. Northwest Satellite Network, Inc. ("NSN"), an
S corporation, contributed all of the assets and
liabilities related to the Yakima, Washington wireless
cable operation to the Partnership as its capital
contribution. Simultaneously, Arrow Systems, Inc.
("Arrow"), an S corporation, purchased a 50% interest
in the Partnership for $500,000 from NSN. Concurrent
with the Partnership formation, NSN was issued a
$750,000 note payable and Arrow loaned the Partnership
$600,000.
2. The Partnership recorded the assets and
liabilities at their relative fair market values.
Revenue Recognition
Monthly service fees are recognized as earned. Installation revenue is
recognized upon initiation of service. Revenues are recognized on the accrual
basis. Service is billed in advance. Billings for service to be rendered in
the future are deferred and reflected as unearned income on the balance sheet.
Capitalization Policy
All costs related to construction and expansion of the system are capitalized
including the direct costs of receiving and transmission equipment. In
addition, costs incurred to install equipment in subscriber homes are
capitalized, including wages, payroll taxes, benefits, vehicle operating costs
and overhead. The Partnership capitalized approximately $53,000 and $181,000
of operating costs related to construction and installation activities during
the years ended December 31, 1993 and 1994, respectively.
F-38
<PAGE> 120
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Partnership considers all
highly liquid investments with an original maturity of three months or less to
be cash equivalents.
Federal Income Taxes
The Partnership is not a taxpaying entity, and thus no tax benefit has been
recorded in the statements. Income or loss from the Partnership is taxed to
the Partners in their individual returns.
(2) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost and is depreciated on a
straight line basis over the estimated useful lives of the assets. Property
and equipment consist of the following at December 31, 1993 and 1994:
<TABLE>
<CAPTION>
1993 1994 Life
------ ------ ------
<S> <C> <C> <C>
Vehicles $133,522 $157,206 3
Furniture and fixtures 28,194 45,131 5
Wireless equipment inventory 50,273 36,800 -
In-home equipment and install costs 2,372,897 3,764,602 5
Shop tools and equipment 18,345 23,552 5
Head end 589,638 609,135 10
Computer equipment 26,752 60,260 5
Leasehold improvements 667 9,189 3
------------ ------------
Total property, plant and equipment 3,220,288 4,705,875
Less - accumulated depreciation (902,834) (1,646,844)
------------ ------------
Total property, plant and equipment, net $2,317,454 $3,059,031
============ ============
</TABLE>
(3) INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1993 and 1994:
<TABLE>
<CAPTION>
1993 1994 Life
------ ------ ------
<S> <C> <C> <C>
Licenses $205,232 $212,926 10
Goodwill 904,177 904,177 10
Customer list 645,070 645,070 5
Organization costs 102,869 102,869 5
Loan fees 46,500 48,000 5
------------ ------------
Total intangible assets 1,903,848 1,913,042
Less - accumulated amortization (515,519) (775,810)
------------ ------------
Total intangible assets, net $1,388,329 $1,137,232
============ ============
</TABLE>
F-39
<PAGE> 121
(4) LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1993 and 1994:
<TABLE>
<CAPTION>
1993 1994
---- ----
<S> <C> <C>
Leases payable, due in monthly installments of
$1,690, including interest at rates varying from
9.25% to 13%, secured by vehicles, paid in full
in April 1995. $ 22,939 $ 56,324
Notes payable to sellers, due in monthly
installments of $1,402 including interest at 10%,
unsecured, paid in full in April 1995. 45,722 32,949
Note payable to a bank, principal payments of
$7,500, scheduled to commence September 1995,
interest payable periodically depending on a
leverage ratio defined in the loan agreement,
paid in full in April 1995. 2,089,483 2,733,000
Subordinated note payable to NSN, interest payable
monthly at 10%, no principal payments allowed until
the note payable to bank is paid in full. 770,407 770,407
Subordinated note payable to Arrow, interest
payable monthly at 10%, no principal payments
allowed until the note payable to bank is paid in
full. 620,407 620,407
---------- ----------
Total debt 3,548,958 4,213,087
Less- due in one year (120,898) (58,752)
---------- ----------
Total long-term debt $3,428,060 $4,154,335
========== ==========
</TABLE>
The note payable to a bank is a secured revolving line of credit with maximum
availability of $3,000,000. The outstanding line of credit converts to a four
year term loan beginning in September 1995.
F-40
<PAGE> 122
Principal payments due on long-term debt are as follows as of December 31, 1994
(exclusive of subordinated debt):
Total
---------
1995 $ 58,752
1996 242,792
1997 456,441
1998 596,292
1999 1,468,000
Thereafter -
---------
$2,822,277
=========
(5) COMMITMENTS AND CONTINGENCIES
Leases
The Partnership entered into a lease for the business office commencing March
1994. The lease term is five years and includes a renewal option for two
additional five-year periods. The head end site lease commenced July 1, 1988
with an initial lease term of ten years and a five year renewal option. The
business office and head end site leases are operating leases with minimum
rental payments due as follows at December 31, 1994:
Total
----------
1995 $ 33,960
1996 38,960
1997 39,960
1998 38,124
1999 6,048
---------
$ 157,052
=========
The Partnership leases the rights to certain frequencies. Such lease payments
are calculated based upon the number of subscribers within the system.
(6) RELATED PARTY TRANSACTIONS
NSN and Arrow each received $14,000 in management fees in 1994.
During 1994, Arrow provided $184,000 in short-term loans which were paid back
when bank loan funds were available.
F-41
<PAGE> 123
(7) SUBSEQUENT EVENT
On April 28, 1995, pursuant to an agreement with Wireless Broadcasting Systems
of America, Inc. ("WBSA"), the Partnership sold the assets (as defined) of the
Partnership for $9,200,000. Under the terms of the agreement, all of the
leases payable, notes to sellers, note payable to a bank and the subordinated
notes payable to Partners were repaid in full.
F-42
<PAGE> 124
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Pacific West Cable Television:
We have audited the accompanying balance sheet of PACIFIC WEST CABLE TELEVISION
(a California joint venture) as of December 31, 1993, and the related
statements of operations and changes in partners' capital and cash flows for
the year then ended. These financial statements are the responsibility of the
Joint Venture's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pacific West Cable Television
as of December 31, 1993, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Sacramento, California
March 19, 1994.
F-43
<PAGE> 125
PACIFIC WEST CABLE TELEVISION
BALANCE SHEET AS OF DECEMBER 31, 1993
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
CURRENT ASSETS:
Cash $ 11,126
Accounts receivable, net of allowance for doubtful accounts
of $33,732 385,645
Other receivables 37,556
Inventory 190,303
Prepaid and other assets 42,760
---------------
Total current assets 667,390
PROPERTY AND EQUIPMENT, net of accumulated depreciation
and amortization of $5,438,726 3,877,462
INTANGIBLE ASSETS, net of accumulated amortization of $312,419 246,565
---------------
$ 4,791,417
===============
LIABILITIES AND PARTNERS' DEFICIT
---------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,190,807
Unearned revenue and customer deposits 325,217
Notes payable to related parties 3,600,000
Notes payables to third parties 3,775,366
Accrual for contract default (Note 6) 5,000,000
---------------
Total current liabilities 13,891,390
CAPITAL LEASE OBLIGATIONS 13,276
COMMITMENTS AND CONTINGENCIES (Note 6)
PARTNERS' DEFICIT (9,113,249)
---------------
$ 4,791,417
===============
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-44
<PAGE> 126
PACIFIC WEST CABLE TELEVISION
STATEMENT OF OPERATIONS AND CHANGES IN PARTNERS' DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<S> <C>
SERVICE REVENUES $ 4,027,216
OPERATING EXPENSES:
Cost of service 1,666,820
General and administrative 1,571,476
Marketing 42,511
Depreciation and amortization 1,821,445
---------------
Total operating expenses 5,102,252
---------------
OPERATING LOSS (1,075,036)
INTEREST EXPENSE 765,984
---------------
NET LOSS (1,841,020)
PARTNERS' DEFICIT, beginning of year (8,031,093)
PARTNERS' CONTRIBUTIONS 758,864
---------------
PARTNERS' DEFICIT, end of year $ (9,113,249)
===============
</TABLE>
The accompanying notes are an integral part of this statement.
F-45
<PAGE> 127
PACIFIC WEST CABLE TELEVISION
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,841,020)
Adjustments to reconcile net loss to net cash
used in operating activities-
Depreciation and amortization 1,821,445
Changes in current assets and liabilities-
Accounts receivable, net (19,974)
Inventory 15,907
Other assets (26,164)
Accounts payable and accrued expenses 230,636
Unearned revenue and customer deposits 19,076
-----------
Net cash provided by operating activities 199,906
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (537,313)
-----------
Net cash used in investing activities (537,313)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Partners' contributions 758,864
Principal repayments of long-term debt (398,853)
-----------
Net cash provided by financing activities 360,011
-----------
Net change in cash 22,604
CASH, beginning of year (11,478)
-----------
CASH, end of year $ 11,126
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during 1993 for interest $ 759,298
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-46
<PAGE> 128
PACIFIC WEST CABLE TELEVISION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993
(1) ORGANIZATION, PARTNERS' INTERESTS, AND SALE OF ASSETS
Organization and Business
Pacific West Cable Television ( the Joint Venture), a California joint venture,
was formed by People's Choice TV of Sacramento (PCTV) and Pacific West Cable
Company (Pacwest Co.) in 1989 (together, the Partners) to own and operate a
wireless cable television system serving the area of Sacramento, California.
Wireless cable television systems utilize microwave frequencies to provide
multi-channel television programming to subscribers. Licenses for microwave
frequencies are owned or leased from third parties (Note 6) and are regulated
by the Federal Communications Commission.
Partners' Interests
Net profits and losses and distributions are allocated to the Partners in
accordance with their respective percentage interests during the period. The
Partners' percentage interests at December 31, 1993 were as follows:
PCTV 50%
Pacwest Co. 50%
Subject to a majority vote of the Partners, contributions to capital are made
to fund the Partnership's capital expenditures and operating losses. Should a
Partner not make all or a portion of a required contribution, that Partner's
interest is subject to dilution as determined by the Partnership agreement.
Sale of Assets Subsequent to December 31, 1993
On March 18, 1994, Wireless Broadcasting Systems of Sacramento, Inc. (the
Buyer), a Delaware corporation and wholly owned subsidiary of Wireless
Broadcasting of America, Inc., purchased the principal operating rights and
assets of the Joint Venture for approximately $13,150,000. The Buyer did not
acquire the Joint Venture's cash, certain receivables, and certain prepaid
expenses which were refundable to the Joint Venture. The Buyer assumed only
certain liabilities of the Joint Venture in the approximate amount of $300,000,
but did not assume any of the Joint Venture's debt or other liabilities arising
prior to the date of sale. Further, the Buyer did not assume any
responsibility or obligation related to the Sacramento Kings contract described
in Note 6, and has been indemnified by the Joint Venture and its Partners for
any obligation or liability that may arise as a result of that matter.
F-47
<PAGE> 129
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition and Accounts Receivable
Fees are billed for monthly service in advance and deferred. Advance billings
are recorded as revenue when service is provided. All other service is billed
and recognized as revenue in the period service is provided. Accounts
receivable represent amounts due from subscribers for which the Joint Venture
provides an allowance for estimated non-collectible amounts. The allowance was
$33,732 at December 31, 1993. Additions to the allowance for 1993 were $88,370
and accounts written off during the year amounted to $75,266.
Inventory
Inventory consists of purchased equipment and components to be installed at
subscriber locations for reception of wireless cable television service and is
stated at the lower of purchased cost or market. Cost is determined using the
first-in, first-out method.
Property and Equipment
Property and equipment is stated at cost. Subscriber installations include
equipment, direct labor costs and other direct costs of the installations.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which are generally two to five years for wireless
cable equipment and three to five years for other property and equipment. The
components of property and equipment at December 31, 1993, were as follows:
<TABLE>
<S> <C>
Subscriber equipment $ 4,174,516
Other subscriber installation costs 2,182,696
Transmission equipment 2,546,406
Furniture and office equipment 165,555
Vehicles 170,140
Leasehold improvements 76,875
-------------
9,316,188
Less - accumulated depreciation and
amortization (5,438,726)
-------------
Property and equipment, net $ 3,877,462
=============
</TABLE>
Intangible Assets
Intangible assets consist primarily of deferred organizational, and consulting
and engineering costs related to the design and development of the wireless
cable broadcasting system. These costs are amortized ratably over periods not
exceeding ten years. At December 31, 1993, intangible assets consisted of the
following:
<TABLE>
<S> <C>
Organizational costs $ 110,184
System design and engineering costs 448,800
---------
558,984
Less - accumulated amortization (312,419)
---------
Intangible assets, net $ 246,546
=========
</TABLE>
F-48
<PAGE> 130
(3) NOTES PAYABLE
The Joint Venture had several notes payable due on demand or maturing in 1994
with interest rates ranging from 4.80% to 11.75%. The notes payable (including
amounts due to the Joint Venture Partners as described below) are secured by
automobiles or are unsecured borrowings. The notes payable have been
classified as a current liability in the accompanying balance sheet and are
comprised of the following:
<TABLE>
<S> <C>
Commercial notes payable $ 3,775,366
Notes payable to Partners 3,600,000
-----------
$ 7,375,366
===========
</TABLE>
Notes payable to Partners represents a loan from a bank to the Partners. The
loan proceeds were transferred to the Joint Venture by the Partners and the
Joint Venture has assumed the debt service to the bank. At December 31, 1993,
the loan balance was $3,600,000 with an interest rate of 10% and a maturity
date of March 2, 1994. The bank loan is the direct obligation of the Partners,
but otherwise unsecured.
(4) TRANSACTIONS WITH RELATED PARTIES
Certain expenditures are made on behalf of the Joint Venture by the Partners.
To the extent the Partners are not reimbursed, these expenditures are treated
as capital contributions.
(5) INCOME TAXES
Income taxes have not been recorded in the accompanying financial statements
because they are obligations of the Partners.
(6) COMMITMENTS AND CONTINGENCIES
Channel Rights
The Joint Venture has entered into frequency leasing arrangements with certain
educational institutions under which the Joint Venture pays for certain capital
improvements for the institutions as well as lease fees. Future commitments
under these arrangements at December 31, 1993 were $488,000 and were payable
through 1996. The Buyer (Note 1) was assigned these leases at closing and
assumed the remaining future commitments.
In addition, the Joint Venture is committed to make frequency lease payments
aggregating $14,786 per month through various dates expiring from September
1995 through October 2002. The Buyer (Note 1) was assigned these leases at
closing and assumed the remaining future commitments.
The Joint Venture has contractual commitments with pay television programmers.
Two of the programmers have required the Joint Venture to post either a
performance bond or a letter of credit issued by a bank. As of December 31,
1993, neither the performance bond nor the letter of credit had been posted or
issued.
F-49
<PAGE> 131
Lease Commitments
The Joint Venture is committed under operating leases and agreements,
principally for facilities, office space and transmission sites, with remaining
terms ranging from four to five years. Certain leases are on a month to month
basis. Certain leases provide for payment by the lessee of taxes, maintenance
and insurance.
Future minimum payments, required under operating leases and agreements that
have an initial or remaining noncancellable lease term in excess of one year at
December 31, 1993, are summarized below:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1994 $ 53,184
1995 53,184
1996 53,184
1997 21,184
1998 4,928
--------
$185,664
========
</TABLE>
Total rent expense for the year ended December 31, 1993 was approximately
$65,658.
Litigation and Claims
In 1989, the Joint Venture entered into a five-year broadcasting contract with
the Sacramento Kings, a National Basketball Association franchise. A principal
owner of the Sacramento Kings was also a principal owner of Pacwest Co. at the
time the contract was negotiated. The same individual continued to be a
principal owner of the Sacramento Kings and Pacwest Co. at December 31, 1993.
The Joint Venture defaulted on the contract after one year, leaving a balance
due under the contract of $4,572,500. As of March 19, 1994, no legal
proceedings had been filed with respect to the contract. Although management
believes the Joint Venture will not be required to pay any amounts due under
the contract, $5,000,000 was accrued prior to 1993 and is included in the
accompanying balance sheet to reflect the contractual obligation as well as
interest and penalties that may be assessed if performance were required. As
described in Note 1, the Buyer did not purchase this contract and has been
indemnified by the Joint Venture and its Partners against any liability with
respect to the contract.
During 1993, a complaint was filed against the Joint Venture by a party with
whom the Joint Venture Partners had entered into a buy-sell agreement for the
assets of the Joint Venture. The claim seeks specific performance and damages
and attorney fees in a sum exceeding $3 million. The Joint Venture filed a
cross-complaint for fraud, breach of contract and damages.
The Buyer was indemnified by the Joint Venture and its Partners in the event of
an order for specific performance.
F-50
<PAGE> 132
The Joint Venture is a party to certain other claims and litigation in the
ordinary course of business. If liability is probable and estimable,
management has accrued specific reserves which are included in accounts payable
and accrued liabilities on the accompanying balance sheet. In management's
opinion, the ultimate resolution of litigation and claims not accrued will not
have a material adverse impact on the Joint Venture. The Joint Venture is also
a party to routine filings with the FCC, state regulatory authorities and other
proceedings which management believes are immaterial to the Joint Venture.
F-51
<PAGE> 133
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus, and, if given
or made, such information or representations must not be relied upon as having
been authorized by the Company or any of the Underwriters. This Prospectus
does not constitute an offer to sell or the solicitation of any offer to buy
any security other than the shares of Common Stock offered by this Prospectus,
nor does it constitute an offer to sell, or a solicitation of any offer to buy
the shares of Common Stock by anyone in any jurisdiction in which such offer or
solicitation is not authorized, or in which the person making such offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make such an offer or solicitation. Neither the delivery of this Prospectus
nor any sales made hereunder shall, under any circumstances, create any
implication that information contained herein is correct as of any time
subsequent to the date hereof.
Until _________, 1996, all dealers effecting transactions in the registered
securities, whether or nor participating in this distribution, may be required
to deliver a Prospectus. This is in addition to the obligation of dealers to
deliver a Prospectus when acting as Underwriters and with respect to their
unsold allotments or subscriptions.
_______________
TABLE OF CONTENTS
PAGE
<TABLE>
<S> <C>
Prospectus Summary........................... 1
Risk Factors................................. 9
Use of Proceeds.............................. 18
Dividend Policy.............................. 18
Capitalization............................... 19
Dilution..................................... 20
Pro Forma Consolidated Financial Data........ 21
Selected Consolidated Financial Data......... 22
Management's Discussion
and Analysis of Financial Condition
and Results of Operations................... 24
Business..................................... 32
Industry Overview............................ 47
Management................................... 58
Certain Transactions......................... 64
Principal Stockholders....................... 65
Description of Capital Stock................. 68
Shares Eligible for Future Sale.............. 74
Underwriting................................. 76
Legal Matters................................ 77
Experts...................................... 78
Available Information........................ 78
Index to Financial Statements................ F-1
</TABLE>
__________ SHARES
[LOGO]
WIRELESS BROADCASTING
SYSTEMS OF AMERICA, INC.
CLASS A COMMON STOCK
______________
PROSPECTUS
______________
PRUDENTIAL SECURITIES INCORPORATED
LEHMAN BROTHERS
SEPTEMBER ___, 1996
<PAGE> 134
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table set forth the estimated expenses to be borne by the
Company in connection with the registration, issuance, and distribution of the
securities be registered hereby, other than underwriting discounts and
commissions. All amounts are estimates except the SEC registration fee, the
NASD filing fee, and the Nasdaq listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee .. $ 17,241.38
NASD filing fee ...................................... $ 5,500.00
Nasdaq listing fee ................................... $ *
Transfer agent and registrar's fee and expenses ...... $ *
Blue Sky fees and expenses ........................... $ *
Printing and engraving expenses ...................... $125,000.00
Legal fees and expenses .............................. $ *
Accounting fees and expenses ......................... $ *
Miscellaneous ........................................ $ *
-----------
Total .......................................... $ *
===========
</TABLE>
__________________
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "Delaware Act")
authorizes indemnification of directors, officers, employees and agents of the
Company; allows the advancement of costs of defending against litigation; and
permits companies incorporated in Delaware to purchase insurance on behalf of
directors, officers, employees and agents against liabilities whether or not in
the circumstances such companies would have the power to indemnify against such
liabilities under the provisions of the statute.
The Company's Restated Certificate of Incorporation (the "Certificate")
provides for indemnification of the Company's officers and directors to the
fullest extent permitted by Section 145 of the Delaware Act. The Company
intends to obtain directors and officers insurance covering its executive
officers and directors.
The Certificate eliminates, to the fullest extent permitted by Delaware
law, liability of a director to the Company of its stockholders for monetary
damages for a breach of such director's fiduciary duty of care except for
liability where a director: (a) breaches his or her duty of loyalty to
II-1
<PAGE> 135
the Company or its stockholders; (b) fails to act in good faith or engages in
intentional misconduct or knowing violation of law; (c) authorizes payment of an
illegal dividend or stock repurchase; or (d) obtains an improper personal
benefit. While liability for monetary damages has been eliminated, equitable
remedies such as injunctive relief or rescission remain available. In addition,
a director is not relieved of his or her responsibilities under any other law,
including the federal securities laws.
Insofar as indemnification by the Company for liabilities arising under
the Securities Act of 1933, as amended (the "Securities Act"), may be permitted
to directors, officers and controlling persons of the Company pursuant to the
foregoing provisions, the Company has been advised that in the opinion of the
Securities and Exchange Commission (the "Commission"), such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On March 15, 1995 and April 28, 1995, the Company issued to Boston
Ventures Limited Partnership IV and Boston Ventures Limited Partnership IVA an
aggregate of 35,000 shares of Class A Cumulative Convertible Preferred Stock
for $35.0 million in cash. Such shares were issued without registration under
the Securities Act in reliance of Section 4(2) of the Securities Act and Rule
506 of Regulation D promulgated thereunder.
Since its inception, the Company has granted options for 2,372,201 shares
of Common Stock pursuant to its Restated Stock Option Plan, as amended, at
exercise prices ranging from approximately $1.46 to approximately $4.17 per
share, of which options to purchase 28,000 shares of the Common Stock have been
exercised and 709,201 are currently exercisable. Such options were issued
without registration under the Securities Act in reliance on Section 4(2) and
Rule 701 promulgated thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The exhibits to the Registration Statement are listed in the Exhibit
Index which appears elsewhere in this Registration Statement and is hereby
incorporated herein by reference.
All other schedules are omitted because of the absence of the condition
under which they are required or because the information is included in the
consolidated financial statements or notes thereto.
II-2
<PAGE> 136
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the
Underwriters, at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted directors, officers and controlling persons of the Company
pursuant to the provisions described under Item 14 above or otherwise, the
Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted against
the Company by such director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted against
the Company by such director, officer, or controlling person in connection with
the securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 137
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Englewood, Colorado, on August 6,
1996.
WIRELESS BROADCASTING SYSTEMS
OF AMERICA, INC.
By: /s/ William W. Kingery, Jr.
-----------------------------------
William W. Kingery, Jr.
President and Chief Executive Officer
II-4
<PAGE> 138
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints William Kingery, as his or her true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
to act, without the other, for him or her and in his or her name, place and
stead, in any and all capacities, to sign any or all amendments (including
post-effective amendments) to this Registration Statement, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or any of them, or their substitutes may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement, has been signed below by the following persons in the
capacities indicated on August 6, 1996.
Signature Title
/s/ William W. Kingery, Jr. President, Chief Executive Officer and
---------------------------- Director
William W. Kingery, Jr. (Principal Executive Officer)
/s/ Jeb Dickey Treasurer and Chief Financial Officer
-------------------------- (Principal Financial and Accounting Officer)
Jeb Dickey
/s/ Dean L. Buntrock Chairman of the Board
--------------------------
Dean L. Buntrock
/s/ Roy F. Coppedge III Director
--------------------------
Roy F. Coppedge III
/s/ Barbara M. Ginader Director
--------------------------
Barbara M. Ginader
/s/ George D. Johnson, Jr. Director
--------------------------
George D. Johnson, Jr.
/s/ Peer Pedersen Director
--------------------------
Peer Pedersen
II-5
<PAGE> 139
Exhibits
Exhibit No. Description of Exhibit
- ----------- ----------------------
1.1 Underwriting Agreement between the Registrant and the Underwriters*
2.1 Organizational Agreement among, inter alia, Registrant, WJB
Television Limited Partnership, WJB-TV Fort Pierce Limited
Partnership, WJB-TV Melbourne Limited Partnership and Investors
2.2 Form of Asset Purchase Agreement between Wireless Broadcasting
Systems of Yakima, Inc. and Microlink Television of Washington,
Inc.*
3.1(a) Certificate of Incorporation of the Registrant
3.1(b) Restated Certificate of Incorporation of the Registrant
3.1(c) Certificate of Amendment to the Certificate of Incorporation of the
Registrant
3.1(d) Certificate of Amendment to the Certificate Incorporation of the
Registrant*
3.2 Bylaws of the Registrant
4.1 Restated Stock Option Plan of the Registrant
4.2 Non-employee Directors Stock Option Plan of Registrant*
4.3 Stockholders Agreement among the Registrant, Boston Ventures
Limited Partnership IV, Boston Ventures Limited Partnership IVA and
all other the Stockholders of the Registrant
4.4 Form of certificate for Class A Common Stock of the Registrant*
5.1 Legal Opinion of Pedersen & Houpt, P.C.*
10.1(a) Credit Agreement among Registrant, Chemical Bank as agent for the
several Lenders from time to time parties thereto.
10.1(b) Revolving Credit Note by Registrant to CIBC, Inc.
10.1(c) Revolving Credit Note by Registrant to Norwest Bank Minnesota
10.1(d) Revolving Credit Note by Registrant to Chemical Bank
- -------------------------
*To be filed by amendment.
II-6
<PAGE> 140
10.2 Standard Form of ITFS Excess Capacity Airtime Lease Agreement of
Registrant
10.3(a) Employment Agreement between Registrant and William W. Kingery, Jr.
10.3(b) Form of Employment Agreement between Registrant and Sharan L.
Wilson
10.4 Preferred Stock Purchase Agreement among Registrant, Boston
Ventures Limited Partnership IV and Boston Ventures Limited
Partnership IVA
10.5 Asset Purchase and Sale Agreement and Channel Lease between
Registrant and Boise Cable Limited Partnership
10.6 Asset Purchase and Sale Agreement and Channel Lease between
Registrant and Northwest Cable Network
21.1 Subsidiaries of the Registrant
23.1 Consent of Pedersen & Houpt, P.C.
23.2 Consent of Pepper & Corazzini, L.L.P.
23.3(a) Consent of Arthur Andersen LLP with respect to report on financial
statements of Wireless Broadcasting Systems of America, Inc.
23.3(b) Consent of Arthur Andersen LLP with respect to report on financial
statements of Boise Cable Limited Partnership
23.3(c) Consent of Arthur Andersen LLP with respect to report on financial
statements of Northwest Cable Network
23.3(d) Consent of Arthur Andersen LLP with respect to report on financial
statements of Pacific West Cable Television
23.4 Consent of Ernst & Young LLP
24.1 Powers of Attorney*
27.1 Financial Data Schedule
27.2 Financial Data Schedule
99.1 Legal Opinion of Pepper & Corazzini, L.L.P.*
- ------------------------------------
*To be filed by amendment.
**Filed herewith on signature page.
II-7
<PAGE> 1
EXHIBIT 2.1
APPENDIX A
ORGANIZATIONAL AGREEMENT
ORGANIZATIONAL AGREEMENT, dated as of March 14, 1994, among Wireless
Broadcasting Systems of America, Inc., a newly-formed Delaware corporation (the
"Company"), WJB Television Limited Partnership, a Delaware limited partnership
("WJB Television"), WJB-TV Ft. Pierce Limited Partnership, a Delaware limited
partnership ("Ft. Pierce"), WJB-TV Melbourne Limited Partnership, a Delaware
limited partnership ("Melbourne"), each of the individuals and entities
(collectively, the "LP Investors") listed on Exhibit A hereto who or which
execute this Agreement and each of the individuals and entities listed on
Exhibit B and Exhibit C hereto, as well as certain other investors, who execute
this Agreement (the "Cash Investors" and, together with the LP Investors, the
"Investors").
WHEREAS, WJB Television and each of the LP Investors own the number of
units of general and limited partner interest ("Units") in WJB- TV Limited
Partnership, a Delaware limited partnership ("WJB-TV"), as listed on Exhibit A
hereto;
WHEREAS, the parties intend to form the Company to own directly or
indirectly all of the outstanding Units;
<PAGE> 2
WHEREAS, the Cash Investors wish to contribute cash to the Company in
exchange for shares of its capital stock;
WHEREAS, WJB Television and WJB-TV own all of the units of general and
limited partner interest in Ft. Pierce and Melbourne;
WHEREAS, it is intended, pursuant to Sections 351 of the Internal
Revenue Code of 1986, as amended (the "Code"), and the regulations thereunder,
that the parties hereto and their respective partners and beneficiaries will
recognize no gain or loss for federal income tax purposes as a result of the
transactions contemplated hereby;
NOW, THEREFORE, in consideration of the agreements, rights,
obligations and covenants contained herein, the parties agree as follows:
1. CONTRIBUTIONS TO CAPITAL.
1.1 Contributions to the Company. Subject to the terms and
conditions described herein, at the Closing (as defined in Section 1.4), the
following transactions shall occur: Contributions by WJB Television. WJB
Television shall contribute to the Company, directly or indirectly free and
clear of all security interests, liens, charges, encumbrances, title
imperfections, title retention agreements, options, rights or
<PAGE> 3
claims of others with respect thereto (collectively, "Liens"), all of its
right, title and interest in and to all of the Units of general partner
interest in WJB-TV owned by it. In addition, WJB Television shall contribute
to the Company, directly or indirectly free and clear of all Liens, all of its
right, title and interest in and to all of the units of general partner
interest in Ft. Pierce and Melbourne owned by it. In addition, WJB Television
shall contribute $1,300 to the Company. In exchange for its contributions, WJB
Television will receive a stock certificate, registered in the name of WJB
Television, representing 1,000 shares of Common Stock, par value $.01 per share
(the "Company Common Stock"), of the Company.
1.1.1 Contribution by the LP Investors. Each of the LP
Investors shall contribute to the Company, free and clear of all Liens, all of
his or its right, title and interest in and to all of the Units of limited
partner interest owned by him or it in exchange for a stock certificate,
registered in the name of such LP Investor, representing the same number of
shares of Company Common Stock as the number of Units contributed, as set forth
in Exhibit A hereto.
1.1.2 Contributions by the Cash Investors. Each of
- 3 -
<PAGE> 4
the Cash Investors shall contribute to the Company the amount of cash, in
immediately available funds, set forth opposite the name of such Cash Investor
in Exhibit B in exchange for a stock certificate, registered in the name of
such Cash Investor, representing the number of shares of Company Common Stock
set forth opposite the name of such Cash Investor in Exhibit B. Each of the
Cash Investors shall also contribute to the Company the amount of cash, in
immediately available funds, set forth opposite the name of such Cash Investor
in Exhibit C in exchange for a stock certificate, registered in the name of
such Cash Investor, representing the number of shares of Company Common Stock
set forth opposite the name of such Cash Investor in Exhibit C.
1.2 Contributions by Ft. Pierce. Ft. Pierce shall contribute to a
newly-formed corporation, free and clear of all Liens, all of its right, title
and interest in and to all of the assets owned by it in exchange for a stock
certificate, registered in the name of Ft. Pierce, representing all of the
outstanding shares of common stock therein.
1.3 Contributions by Melbourne. Melbourne shall contribute to a
newly-formed corporation, free and clear of all Liens, all
- 4 -
<PAGE> 5
of its right, title and interest in and to all of the assets owned by it in
exchange for a stock certificate, registered in the name of Melbourne,
representing all of the outstanding shares of common stock therein.
1.4 Closing. The closing of the transactions contemplated by
Sections 1.1, 1.2 and 1.3 (the "Closing") shall take place at the offices of
Pedersen & Houpt, Chicago, Illinois on March 14, 1994, or such other date and
time as WJB Television shall determine (such date being referred to as the
"Closing Date"). The parties hereto shall seek in good faith and with due
diligence to cause the Closing to occur on the date referred to above or as
promptly as possible thereafter.
1.5 Legends on Stock Certificates. Each of the stock certificates
representing Company Common Stock issued at the Closing shall bear a legend in
the following form:
The securities represented by this certificate have not been registered
under the Securities Act of 1933 or any state securities laws. The
securities represented by this certificate may not be transferred,
sold, offered for sale or otherwise disposed of unless there is an
effective registration statement or other qualification relating to
such securities under the Securities Act of 1933 and any applicable
state securities laws or unless Wireless Broadcasting Systems of
America, Inc. (the "Corporation") receives an opinion of counsel
reasonably satisfactory to the Corporation that such registration or
other
- 5 -
<PAGE> 6
qualification under the Securities Act of 1933 and any applicable state
securities laws is not required in connection with such transfer, sale,
offer or disposition.
1.6 Formation of the Company. WJB Television has caused the
Company to be incorporated in Delaware by filing a certificate of incorporation
in the form attached hereto as Exhibit D. WJB Television has caused the
incorporator of the Company to approve bylaws in the form attached hereto as
Exhibit E.
2. REPRESENTATIONS AND WARRANTIES.
2.1 Representations and Warranties of WJB Television. WJB
Television represents and warrants to the other parties hereto as follows:
2.1.1 Partnership Existence, Due Authorization and Execution.
WJB Television is a limited partnership duly organized, validly existing and in
good standing under the laws of the State of Delaware, with full power and
authority to execute and deliver this Agreement and such other agreements and
undertakings as have been or will be executed and delivered by WJB Television
in connection with the transactions contemplated
- 6 -
<PAGE> 7
hereby, to perform WJB Television's obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. This Agreement
has been duly executed and delivered by WJB Television and constitutes a legal,
valid and binding obligation of WJB Television, enforceable against WJB
Television in accordance with its terms. As of the Closing Date, each of such
other agreements and undertakings as have been or will be executed and
delivered by WJB Television in connection with the transactions contemplated
hereby shall have been duly executed and delivered by WJB Television and will
constitute a legal, valid and binding obligation of WJB Television, enforceable
against WJB Television in accordance with its terms.
2.1.2 No Conflicts. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby will not
conflict in any respect with, or result in any violation of or default under,
or require any authorization, consent, approval, exemption or other action by
or notice to any court, other governmental body or other person or entity under
any provision of the partnership agreement of WJB Television or of any
agreement, instrument, permit, license,
- 7 -
<PAGE> 8
judgment, order, decree, statute, law, ordinance or governmental rule or
regulation applicable to WJB Television.
2.1.3 Government Approvals. No registration, declaration or
filing with, or consent, approval, order or authorization of, or other action
by, any governmental authority is required on the part of WJB Television in
connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
2.1.4 Litigation. There is no claim, action, suit,
litigation, proceeding or investigation pending or, to the best of WJB
Television's knowledge, threatened against WJB Television or WJB-TV concerning
this Agreement or any of the transactions contemplated hereby nor, to the best
of WJB Television's knowledge, is there any reasonable basis for any such
claim, action, suit, litigation, proceeding or investigation.
2.1.5 Title to Assets; Liabilities. WJB Television is the
record and beneficial owner of, and has good and valid title to, the Units
described in Section 1.1.1 free and clear of all Liens. Upon the delivery of
such Units to the Company, the Company will hold good and valid title thereto,
free and clear of all Liens.
- 8 -
<PAGE> 9
2.1.6 Purchase for Investment. WJB Television is acquiring
the Company Common Stock for its own account with the present intention of
holding such securities for purposes of investment, and it has no intention of
selling such securities in a public distribution in violation of the federal
securities laws or any applicable state securities laws. WJB Television was
not formed for the specific purpose of acquiring the Company Common Stock to be
received by it pursuant to this Agreement. WJB Television is an "accredited
investor" as defined in Rule 501(a) of Regulation D promulgated under the
Securities Act of 1933 (the "Securities Act").
2.1.7 Receipt of Information. WJB Television expressly
acknowledges receipt of the financial and other information concerning the
Company and the transactions described in this Agreement in connection with its
execution of this Agreement. WJB Television acknowledges and agrees that it
has read and understood such information. WJB Television has been given full
opportunity to ask questions of and to receive answers from representatives of
the Company concerning the terms and conditions of its acquisition of Company
Common Stock pursuant to this Agreement and such other information as it
desires in order
- 9 -
<PAGE> 10
to evaluate an investment in the Company Common Stock, and all such questions
have been answered to the full satisfaction of WJB Television.
2.1.8 Company Common Stock Not Registered. WJB Television
understands that the shares of Company Common Stock have not been registered
under the Securities Act or the securities laws of any state, and are being
issued in reliance upon specific exemptions from registration thereunder, and
WJB Television agrees that the shares of Company Common Stock may not be sold,
offered for sale, transferred, pledged, hypothecated or otherwise disposed of
except pursuant to (i) a registration statement with respect to such securities
which is effective under the Securities Act and under any applicable securities
act of any state, (ii) Rules 144 or 145 under the Securities Act or (iii) any
other exemption from registration under the Securities Act and under the
securities act of any state relating to the disposition of securities, provided
an opinion of counsel is furnished, reasonably satisfactory in form and
substance to the Company, that exemptions from the registration requirements of
the Securities Act and such state act are available. WJB Television
understands that as a result of the foregoing
- 10 -
<PAGE> 11
restrictions it may be required to bear the economic risk of its investment in
the Company Common Stock for an indefinite period of time. WJB Television
agrees not to resell or otherwise dispose of all or any of the Company Common
Stock acquired by it, except as permitted by applicable laws and agreements,
including without limitation, this Agreement and any regulations under the
Securities Act and any state law or regulations. WJB Television further
understands that no federal or state agency has made any finding or
determination as to the fairness of an investment in, or any recommendation or
endorsement of, the Company Common Stock.
2.1.9 Accuracy of Information Furnished by WJB Television.
No representation, statement, certificate, document, schedule or other
information made or furnished by WJB Television in or pursuant to this
Agreement contains or shall contain any untrue statement of a material fact or
omits or shall omit to state any material fact necessary to make the
information contained herein or therein not misleading.
2.2 Representations and Warranties of the Investors. Each
- 11 -
<PAGE> 12
of the Investors severally and not jointly represents and warrants to the other
parties hereto, including the other Investors, as follows:
2.2.1 Due Execution. This Agreement has been duly executed
and delivered by the Investor and constitutes a legal, valid and binding
obligation of the Investor, enforceable against the Investor in accordance with
its terms. As of the Closing Date, each of such other agreements and
undertakings as have been or will be executed and delivered by the Investor in
connection with the transactions contemplated hereby will have been duly
executed and delivered by the Investor and will constitute a legal, valid and
binding obligation of the Investor, enforceable against the Investor in
accordance with its terms.
2.2.2 No Conflicts. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby will not
conflict in any respect with, or result in any violation of or default under,
or require any authorization, consent, approval, exemption or other action by
or notice to any court, other governmental body or other person or entity under
any agreement, instrument, permit, license,
- 12 -
<PAGE> 13
judgment, order, decree, statute, law, ordinance or governmental rule or
regulation applicable to the Investor.
2.2.3 Government Approvals. No registration, declaration or
filing with, or consent, approval, order or authorization of, or other action
by, any governmental authority is required on the part of the Investor in
connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
2.2.4 Litigation. There is no claim, action, suit,
litigation, proceeding or investigation pending or, to the best of the
Investor's knowledge, threatened against the Investor concerning this Agreement
or any of the transactions contemplated hereby nor, to the best of the
Investor's knowledge, is there any reasonable basis for any such claim, action,
suit, litigation, proceeding or investigation.
2.2.5 Purchase for Investment. The Investor is acquiring the
Company Common Stock for the Investor's own account with the present intention
of holding such securities for purposes of investment, and the Investor has no
intention of selling such securities in a public distribution in violation of
the federal securities laws or any applicable state securities
- 13 -
<PAGE> 14
laws. The Investor was not formed for the specific purpose of acquiring the
Company Common Stock to be received by the Investor pursuant to this Agreement.
The Investor is an "accredited investor" as defined in Rule 501(a) of
Regulation D promulgated under the Securities Act.
2.2.6 Receipt of Information. The Investor expressly
acknowledges receipt of the financial and other information concerning the
Company and the transactions described in this Agreement in connection with the
Investor's execution of this Agreement. The Investor acknowledges and agrees
that the Investor has read and understood such information. The Investor has
been given full opportunity to ask questions of and to receive answers from
representatives of the Company concerning the terms and conditions of the
Investor's acquisition of Company Common Stock pursuant to this Agreement and
such other information as the Investor desires in order to evaluate an
investment in the Company Common Stock, and all such questions have been
answered to the full satisfaction of the Investor.
2.2.7 Company Common Stock Not Registered. The Investor
understands that the shares of Company Common Stock have not been registered
under the Securities Act or the securities
- 14 -
<PAGE> 15
laws of any state, and are being issued in reliance upon specific exemptions
from registration thereunder, and the Investor agrees that the shares of
Company Common Stock may not be sold, offered for sale, transferred, pledged,
hypothecated or otherwise disposed of except pursuant to (i) a registration
statement with respect to such securities which is effective under the
Securities Act and under any applicable securities act of any state, (ii) Rules
144 or 145 under the Securities Act or (iii) any other exemption from
registration under the Securities Act and under the securities act of any state
relating to the disposition of securities, provided an opinion of counsel is
furnished, reasonably satisfactory in form and substance to the Company, that
exemptions from the registration requirements of the Securities Act and such
state act are available. The Investor understands that as a result of the
foregoing restrictions the Investor may be required to bear the economic risk
of its investment in the Company Common Stock for an indefinite period of time.
The Investor agrees not to resell or otherwise dispose of all or any of the
Company Common Stock acquired by the Investor, except as permitted by
applicable laws and agreements, including without limitation, this Agreement
and
- 15 -
<PAGE> 16
any regulations under the Securities Act and any state law or regulations. The
Investor further understands that no federal or state agency has made any
finding or determination as to the fairness of an investment in, or any
recommendation or endorsement of, the Company Common Stock.
2.2.8 No Affiliation With NASD Member. Except as disclosed
to the Company in writing, the Investor has no association or affiliation with
any member of the National Association of Securities Dealers, Inc.
2.2.9 Accuracy of Information Furnished by the Investor. No
representation, statement, certificate, document, schedule or other information
made or furnished by the Investor in or pursuant to this Agreement contains or
shall contain any untrue statement of a material fact or omits or shall omit to
state any material fact necessary to make the information contained herein or
therein not misleading.
2.3 Additional Representation of LP Investors. Each of the LP
Investors severally and not jointly represents and warrants to the other
parties hereto, including the other LP Investors, that the LP Investor is the
record and beneficial owner of, and has good and valid title to, the Units
described in Exhibit A as
- 16 -
<PAGE> 17
being owned by such LP Investor, free and clear of all Liens. Upon the
delivery of such Units to the Company, the Company will hold good and valid
title thereto, free and clear of all Liens.
2.4 Additional Representations of Cash Investors. Each of the
Cash Investors severally and not jointly represents and warrants to the other
parties hereto, including the other Cash Investors, that the receipt of Company
Common Stock by such Cash Investor pursuant to this Agreement will terminate
any and all rights of such Cash Investor to acquire Units of limited partner
interest in WJB-TV.
2.5 Representations and Warranties of Ft. Pierce. Ft. Pierce
represents and warrants to the other parties hereto as follows:
2.5.1 Partnership Existence, Due Authorization and Execution.
Ft. Pierce is a limited partnership duly organized, validly existing and in
good standing under the laws of the State of Delaware, with full power and
authority to execute and deliver this Agreement and such other agreements and
undertakings as have been or will be executed and delivered by Ft. Pierce in
connection with the transactions contemplated hereby, to perform Ft. Pierce's
obligations hereunder and thereunder and to
- 17 -
<PAGE> 18
consummate the transactions contemplated hereby and thereby. This Agreement
has been duly executed and delivered by Ft. Pierce and constitutes a legal,
valid and binding obligation of Ft. Pierce, enforceable against Ft. Pierce in
accordance with its terms. As of the Closing Date, each of such other
agreements and undertakings as have been or will be executed and delivered by
Ft. Pierce in connection with the transactions contemplated hereby shall have
been duly executed and delivered by Ft. Pierce and will constitute a legal,
valid and binding obligation of Ft. Pierce, enforceable against Ft. Pierce in
accordance with its terms.
2.5.2 No Conflicts. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby will not
conflict in any respect with, or result in any violation of or default under,
or require any authorization, consent, approval, exemption or other action by
or notice to any court, other governmental body or other person or entity under
any provision of the partnership agreement of Ft. Pierce or of any agreement,
instrument, permit, license, judgment, order, decree, statute, law, ordinance
or governmental rule or regulation applicable to Ft. Pierce.
- 18 -
<PAGE> 19
2.5.3 Government Approvals. No registration, declaration or
filing with, or consent, approval, order or authorization of, or other action
by, any governmental authority is required on the part of Ft. Pierce in
connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
2.5.4 Litigation. There is no claim, action, suit,
litigation, proceeding or investigation pending or, to the best of Ft. Pierce's
knowledge, threatened against Ft. Pierce concerning this Agreement or any of
the transactions contemplated hereby nor, to the best of Ft. Pierce's
knowledge, is there any reasonable basis for any such claim, action, suit,
litigation, proceeding or investigation.
2.5.5 Title to Assets; Liabilities. Ft. Pierce is the record
and beneficial owner of, and has good and valid title to, the assets described
in Section 1.2 free and clear of all Liens. Upon the delivery of such assets
to the corporation described in Section 1.2, such corporation will hold good
and valid title thereto, free and clear of all Liens.
2.6 Representations and Warranties of Melbourne. Melbourne
represents and warrants to the other parties hereto as follows:
- 19 -
<PAGE> 20
2.6.1 Partnership Existence, Due Authorization and Execution.
Melbourne is a limited partnership duly organized, validly existing and in good
standing under the laws of the State of Delaware, with full power and authority
to execute and deliver this Agreement and such other agreements and
undertakings as have been or will be executed and delivered by Melbourne in
connection with the transactions contemplated hereby, to perform Melbourne's
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. This Agreement has been duly executed and
delivered by Melbourne and constitutes a legal, valid and binding obligation of
Melbourne, enforceable against Melbourne in accordance with its terms. As of
the Closing Date, each of such other agreements and undertakings as have been
or will be executed and delivered by Melbourne in connection with the
transactions contemplated hereby shall have been duly executed and delivered by
Melbourne and will constitute a legal, valid and binding obligation of
Melbourne, enforceable against Melbourne in accordance with its terms.
2.6.2 No Conflicts. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby will not
conflict in any respect with, or
- 20 -
<PAGE> 21
result in any violation of or default under, or require any authorization,
consent, approval, exemption or other action by or notice to any court, other
governmental body or other person or entity under any provision of the
partnership agreement of Melbourne or of any agreement, instrument, permit,
license, judgment, order, decree, statute, law, ordinance or governmental rule
or regulation applicable to Melbourne.
2.6.3 Government Approvals. No registration, declaration or
filing with, or consent, approval, order or authorization of, or other action
by, any governmental authority is required on the part of Melbourne in
connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
2.6.4 Litigation. There is no claim, action, suit,
litigation, proceeding or investigation pending or, to the best of Melbourne's
knowledge, threatened against Melbourne concerning this Agreement or any of the
transactions contemplated hereby nor, to the best of Melbourne's knowledge, is
there any reasonable basis for any such claim, action, suit, litigation,
proceeding or investigation.
2.6.5 Title to Assets; Liabilities. Melbourne is
- 21 -
<PAGE> 22
the record and beneficial owner of, and has good and valid title to, the assets
described in Section 1.3 free and clear of all Liens. Upon the delivery of
such assets to the corporation described in Section 1.3, such corporation will
hold good and valid title thereto, free and clear of all Liens.
3. CONDITIONS PRECEDENT.
3.1 Conditions to Obligations of WJB Television. The obligations
of WJB Television to consummate the transactions contemplated by Section 1.1
shall be subject to the fulfillment, at or prior to the Closing, of the
following conditions:
3.1.1 Representation and Warranties True on Closing Date.
Each of the representations and warranties of the other parties to this
Agreement shall be true at and as of the date hereof and shall be repeated and
shall be true in all material respects at and as of the Closing Date with the
same effect as though made at and as of the Closing Date.
3.1.2 Performance. Each of the other parties to this
Agreement shall have duly performed and complied in all material respects with
all agreements and conditions required by this
- 22 -
<PAGE> 23
Agreement to be performed and complied with by each of them respectively prior
to or at the Closing Date.
3.1.3 The Company. The Company shall be a corporation duly
organized and existing under the laws of the State of Delaware. The
Certificate of Incorporation of the Company as set forth in Exhibit D shall
have been duly filed and shall be in full force and effect and the bylaws of
the Company as set forth in Exhibit E shall have been adopted and shall be in
full force and effect.
3.2 Conditions to Obligations of Parties Other than WJB Television.
The obligations of the parties hereto other than WJB Television to consummate
the transactions contemplated by Section 1.1 shall be subject to the
fulfillment, at or prior to the Closing, of the following conditions:
3.2.1 Representations and Warranties True on Closing Date.
Each of the representations and warranties of each other party hereto shall be
true at and as of the date hereof and shall be repeated and shall be true in
all material respects at and as of the Closing Date with the same effect as
though made at and as of the Closing Date.
- 23 -
<PAGE> 24
3.2.2 Performance. Each of the other parties hereto shall
have duly performed and complied in all material respects with all agreements
and conditions required by this Agreement to be performed and complied with by
each of them respectively prior to or at the Closing Date.
3.2.3 The Company. The Company shall be a corporation duly
organized and existing under the laws of the State of Delaware. The
Certificate of Incorporation of the Company as set forth in Exhibit D shall
have been duly filed and shall be in full force and effect and the bylaws of
the Company as set forth in Exhibit E shall have been adopted and shall be in
full force and effect, and no capital stock or rights to acquire capital stock
of the Company shall be issued and outstanding prior to the Closing except as
contemplated by this Agreement.
3.3 Additional Conditions to Obligations of the Cash Investors.
The obligations of each of the Cash Investors to consummate the transactions
contemplated by Section 1.1 shall be subject to the fulfillment, at or prior to
the Closing, of the following conditions:
3.3.1 Adverse Changes. Since June 30, 1993, there shall not
have occurred any damage, destruction, loss or other
- 24 -
<PAGE> 25
event (whether or not covered by insurance) which materially adversely affects
the business, prospects, financial condition or value of WJB-TV or which could
reasonably be expected to materially adversely affect the business, prospects
or financial condition of WJB-TV.
4. COVENANTS.
4.1 Covenants and Agreements of All Parties. Each of the parties
covenants and agrees for the benefit of the Company and each other as follows:
4.1.1 Best Efforts. Each of the parties hereto will use its
best efforts to cause to occur the conditions to Closing set forth in Section 3
hereof which are to be satisfied by it.
4.1.2 Further Assurances. After the Closing, each of the
parties shall from time to time, at the request of the Company or any party,
execute and deliver to the Company or such other party such other instruments
of conveyance and transfer and take such other action as the Company or such
party may reasonably request so as to more effectively sell, transfer, assign
and deliver and vest in the Company title to, possession
- 25 -
<PAGE> 26
of and benefit of the assets described in Section 1.1 or otherwise to
consummate the transactions contemplated hereby.
4.1.3 Provision of Information. Promptly upon receipt of a
request by the Company, each party shall provide to the Company such
information as is reasonably deemed necessary by the Company for inclusion in,
or to assist in the preparation of, any filing by the Company with the
Securities and Exchange Commission, any state securities commissioner or any
other governmental body.
4.1.4 Closing Procedure; Remaking of Representations. WJB
Television may cause the Closing to occur as promptly as possible after each of
the conditions sets forth in Section 3.1 hereof have been satisfied or waived.
Unless a party has delivered written notice to WJB Television prior to the
Closing to the contrary, the Closing shall, without more, be deemed to (i) be a
representation by the party that the representations and warranties made by the
party in this Agreement are still true in all material respects at and as of
the Closing Date with the same effect as though made at and as of the Closing
Date and (ii) constitute a certification by the party that such party has duly
performed and complied in all material respects with all
- 26 -
<PAGE> 27
agreements and conditions required by this Agreement to be performed and
complied with by such party prior to or at the Closing Date and that all of the
conditions to such party's obligation to consummate the transactions
contemplated by Section 1.1 have been fulfilled or waived by such party.
4.1.5 Agreement Not to Sell. In addition to any other
restrictions on the sale of Company Common Stock to which a party is subject,
if the Company sells shares of Company Common Stock in an initial registered
public offering, each of the parties hereto hereby agrees that he, she or it
will not, directly or indirectly, offer, sell or otherwise dispose of any
Company Common Stock or securities convertible into or exchangeable for, or any
rights to purchase or acquire, Company Common Stock prior to the expiration of
180 days from the effective date of the registration statement with respect to
such public offering without the prior written consent of the firm or firms
acting as underwriters for such offering.
5. INDEMNIFICATION.
5.1 Indemnification; Procedure. (a) From and after the Closing,
and notwithstanding any due diligence investigation
- 27 -
<PAGE> 28
conducted by any party prior to the Closing Date, each of the parties will
indemnify and hold harmless the other parties and the Company from and against
all liabilities, losses, deficiencies, claims, costs and expenses (including,
without limitation, reasonable legal fees incurred in connection with any of
the foregoing and in seeking indemnification hereunder) ("Losses") suffered by
any indemnified party and arising out of or in connection with (i) any
inaccurate representation or warranty made by the indemnifying party in or
pursuant to this Agreement or any certificate delivered pursuant to this
Agreement or (ii) any default in the performance of any of the covenants or
agreements made by the indemnifying party in this Agreement. (b) Promptly
after receipt by any indemnified party of notice of the assertion of any claim,
the commencement of any action, or any other information relating to any
Losses, the party receiving such information shall give written notice to the
indemnifying party and the other parties hereto; provided that the failure of
any indemnified party to give prompt notice as provided herein will not relieve
the indemnifying party of its obligations hereunder, except to the extent such
failure operates materially
- 28 -
<PAGE> 29
to the prejudice of the indemnifying party's ability to defend against such
claim or action.
5.2 Non-exclusivity of Remedies. In addition to any rights to
indemnification under this Section 5, each of the parties hereto shall be
entitled to assert any other rights and exercise any legal and equitable
remedies available to it under applicable law with respect to this Agreement or
under any other agreement and such other rights or remedies shall not be
limited by the provisions of this Section 5.
6. MISCELLANEOUS.
6.1 Termination. (a) Subject to the provisions of Section 6.1(b)
hereof, this Agreement may, by written notice given at or prior to the Closing,
be terminated and abandoned:
(i) by any party if a material default or material breach
shall be made by one of the other parties hereto with respect to the
due and timely performance of any of its covenants and agreements
contained herein or if any of the other parties' representations and
warranties contained in this Agreement shall be inaccurate in any
material respect,
- 29 -
<PAGE> 30
and such default or inaccuracy cannot be cured and has not been waived;
or
(ii) by WJB Television at any time.
(b) In the event this Agreement is terminated pursuant to Section
6.1(a) hereof, all further obligations of the parties hereunder shall
terminate, provided that if this Agreement is so terminated because one or more
of the conditions to the terminating party's obligations hereunder is not
satisfied as a result of the willful failure of one of the other parties to
comply with its obligations under any provision of this Agreement, the right of
the parties other than the non-complying party to pursue all legal remedies for
breach of contract and damages shall also survive such termination unimpaired.
6.2 Waiver. Any of the terms, covenants and conditions of this
Agreement may be waived in writing at any time by the party or parties (as the
case may be) entitled to the benefit of such term, covenant or condition.
6.3 Expenses. Whether or not the transactions contemplated hereby
shall be consummated, each of the parties hereto will bear its own costs and
expenses and will pay for all services rendered to it in facilitation of the
transactions contemplated hereby,
- 30 -
<PAGE> 31
including, without limitation, attorneys', accountants' and investment bankers'
fees. The fees of Pedersen & Houpt and Ernst & Young shall be paid by WJB-TV.
6.4 Notices. All notices, requests, demands, claims or other
communications hereunder shall be in writing and shall be delivered personally
or by certified or registered mail (first-class postage prepaid) or telecopy:
If to WJB Television, Ft. Pierce or Melbourne to:
WJB Television Limited Partnership
c/o Walter R. Pettiss
8423 South U.S. #1
Port St. Lucie, Florida 34985
If to an Investor, at the address or telecopy number, if any, listed
in the Exhibits to this Agreement, or, in each case, at such other address or
to such other person as may be specified in writing and delivered to the other
party in the manner herein provided for the giving of notices, and shall be
effective upon receipt.
6.5 Parties in Interest, Assignment. This Agreement and all the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but neither this
Agreement or any of the
- 31 -
<PAGE> 32
rights, interests and obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other parties hereto.
Nothing in this Agreement, whether expressed or implied, shall be construed to
give any person other than the parties hereto any legal or equitable right,
remedy or claim under or in respect of this Agreement.
6.6 Amendments. This Agreement may be amended only in a writing
signed by all of the parties hereto, except that WJB Television may amend this
Agreement in any respect provided that such amendment does not have a material
adverse effect on the rights of any other party to this Agreement.
6.7 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall constitute one and the same instrument.
6.8 Headings. The article and section headings of this Agreement
are for convenience of reference only and shall not be deemed to alter or
affect the meaning or interpretation of any provisions hereof.
6.9 Governing Law. This Agreement shall be construed, performed
and enforced in accordance with the laws of the State of Illinois applicable to
contracts made and to be performed
- 32 -
<PAGE> 33
therein without regard to the laws that might otherwise govern under applicable
principles of conflicts of laws.
- 33 -
<PAGE> 34
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of the date first written above.
WIRELESS BROADCASTING SYSTEMS OF
AMERICA, INC., a Delaware corporation.
By: /s/ William Kingery
-------------------------------------
William Kingery
President
WJB TELEVISION LIMITED PARTNERSHIP,
a Delaware limited partnership.
By: Johnson Wireless Corporation
Its general partner
By: /s/ George D. Johnson
-------------------------------------
George D. Johnson, Jr.
President
WJB-TV FT. PIERCE LIMITED PARTNERSHIP,
a Delaware limited partnership.
By: WJB Television Limited Partnership,
a Delaware limited Partnership
Its general partner
By: Johnson Wireless Corporation
Its general partner
- 34 -
<PAGE> 35
By: /s/ George D. Johnson
-------------------------------------
George D. Johnson, Jr.
President
WJB-TV MELBOURNE LIMITED PARTNERSHIP,
a Delaware limited partnership.
By: WJB Television Limited Partnership,
a Delaware limited Partnership
Its general partner
By: Johnson Wireless Corporation
Its general partner
By: /s/ George D. Johnson
------------------------------------
George D. Johnson, Jr.
President
- 35 -
<PAGE> 36
THE LP INVESTORS
/s/ ROBERT A. BRANNON /s/ WALTER R. PETTIS
- ----------------------------- -----------------------------------
ROBERT A. BRANNON WALTER R. PETTIS
BUNTROCK FAMILY PARTNERSHIP I BUNTROCK/NUZZO LIMITED
LIMITED PARTNERSHIP PARTNERSHIP
By: /s/ DEAN L. BUNTROCK By: /s/ ROSEMARIE BUNTROCK
--------------------------- ------------------------------
Dean L. Buntrock, Rosemarie Buntrock,
General Partner General Partner
CECILY J. BUNTROCK TRUST NO. 1
/s/ PETER HUIZENGA
/s/ CLAYTON R. BUNTROCK By: /s/ CLAYTON R. BUNTROCK
- ------------------------------- ------------------------------
CLAYTON R. BUNTROCK Trustees
/s/DANA BUNTROCK /s/LEROY HOWARD /s/ DEAN L. BUNTROCK
- --------------------------------- ----------------------------------
DANA BUNTROCK AND LEROY HOWARD DEAN L. BUNTROCK
/s/ DONALD F. FLYNN /s/ GEORGE D. JOHNSON
- ------------------------------ ----------------------------------
DONALD F. FLYNN GEORGE D. JOHNSON, JR.
ESTATE OF LEONARD M. RING PEDERSEN FAMILY PARTNERSHIP I
LIMITED PARTNERSHIP
By: /s/ DONNA R. RING By: /s/ PEER PEDERSEN
--------------------------- -------------------------------
Donna R. Ring, Peer Pedersen,
Executor General Partner
- 36 -
<PAGE> 37
/s/ STEWART JOHNSON /s/ PHILLIP B. ROONEY
- ------------------------------ ----------------------------------
STUART JOHNSON PHILLIP B. ROONEY
/s/ GARY WEINSTEIN
/s/ MARGOT WEINSTEIN /s/ HOWARD C. WARREN
- ------------------------------ ----------------------------------
GARY AND MARGOT WEINSTEIN HOWARD WARREN
RYAN 1989 FAMILY TRUST CANAL INVESTMENT SOCIETY L.P.
By Either:
By: /s/ SHIRLEY W. RYAN
----------------------------
Shirley W. Ryan, Trustee MAAR Investment Company
By: /s/ PATRICK G. RYAN By:
--------------------------- ---------------------------
Patrick G. Ryan, Trustee E. Craig Wall, Jr.,
Managing Partner
By: /s/ ROBERT J. W. RYAN or By:
---------------------------
Robert J. W. Ryan, Trustee
CSI Group, Inc.
Partnership Manager
By: /s/ HAROLD C. STOWE
--------------------------------
Harold C. Stowe
Executive Vice President
- 37 -
<PAGE> 38
THE CASH INVESTORS
Amount Invested: Amount Invested: $333,333
------------ -------------
/s/ ROBERT A. BRANNON /s/ WALTER R. PETTISS
- ---------------------------- -----------------------------
ROBERT A. BRANNON WALTER R. PETTISS
Amount Invested: $1,333,334 Amount Invested: $666,666
------------ -------------
BUNTROCK FAMILY PARTNERSHIP I BUNTROCK/NUZZO LIMITED
LIMITED PARTNERSHIP PARTNERSHIP
By: /s/ DEAN L. BUNTROCK By: /s/ ROSEMARIE BUNTROCK
------------------------- --------------------------
Dean L. Buntrock, Rosemarie Buntrock,
General Partner General Partner
Amount Invested: Amount Invested: $333,333
------------ -------------
CECILY J. BUNTROCK TRUST NO. 1
/s/ CLAYTON R. BUNTROCK
/s/ CLAYTON R. BUNTROCK By: /s/ PETER HUIZENGA
- ---------------------------- ---------------------------
CLAYTON R. BUNTROCK Trustees
Amount Invested: Amount Invested:
------------ -------------
/s/ DANA BUNTROCK
/s/ LEROY HOWARD /s/ DEAN L. BUNTROCK
- ----------------------------- ------------------------------
DANA BUNTROCK AND LEROY HOWARD DEAN L. BUNTROCK
- 38 -
<PAGE> 39
Amount Invested: Amount Invested: $1,222,224
------------ -------------
/s/ DONALD F. FLYNN /s/ GEORGE D JOHNSON, JR.
- ---------------------------- -----------------------------
DONALD F. FLYNN GEORGE D. JOHNSON, JR.
Amount Invested: Amount Invested: $1,333,333
------------ -------------
ESTATE OF LEONARD M. RING PEDERSEN FAMILY PARTNERSHIP I
LIMITED PARTNERSHIP
By: By: /s/ PEER PEDERSEN
------------------------- -------------------------------------
Donna R. Ring, Peer Pedersen,
Executor General Partner
Amount Invested: $333,333 Amount Invested: $1,333,333
------------ --------------
/s/ STEWART JOHNSON /s/ PHILLIP B. ROONEY
- ---------------------------- ------------------------------
STUART JOHNSON PHILLIP B. ROONEY as
Managing General Partner of PSR
Investments III, L.P.
Amount Invested: Amount Invested: $1,000,000
------------ -------------
/s/ GARY WEINSTEIN
/s/ MARGOT WEINSTEIN /s/ HOWARD WARREN
- ----------------------------- -----------------------------
GARY AND MARGOT WEINSTEIN HOWARD WARREN
- 39 -
<PAGE> 40
Amount Invested: $1,333,334 Amount Invested: $1,555,556
------------ -------------
RYAN 1989 FAMILY TRUST CANAL INVESTMENT SOCIETY L.P.
By: /s/ SHIRLEY W. RYAN By Either:
-------------------------
Shirley W. Ryan, Trustee MAAR Investment Company
By: /s/ PATRICK G. RYAN By:
------------------------- --------------------------
Patrick G. Ryan, Trustee E. Craig Wall, Jr.,
or By:
By: /s/ ROBERT J. W. RYAN
---------------------------
Robert J. W. Ryan, Trustee CSI Group, Inc.,
Partnership Manager
By: /s/ HAROLD C. STOWE
--------------------------
Harold C. Stowe
Executive Vice President
Amount Invested: $333,333
------------
BRIAN J. FLYNN JUNE 1992
Managing Partner
NON-EXEMPT TRUST
By: /s/ BRIAN J. FLYNN
-------------------------
Brian J. Flynn,
Trustee
Amount Invested: $333,333
------------
KEVIN F. FLYNN JUNE 1992
NON-EXEMPT TRUST
By: /s/ KEVIN F. FLYNN
-------------------------
Kevin F. Flynn,
Trustee
- 40 -
<PAGE> 1
Exhibit 3.1(a)
CERTIFICATE OF INCORPORATION
OF
WIRELESS BROADCASTING SYSTEMS OF AMERICA, INC.
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental there, and known, identified, and
referred to as the "General Corporation Law of the State of Delaware"), hereby
certifies that:
FIRST: The name of the corporation (hereinafter called the
"corporation") is Wireless Broadcasting Systems of America, Inc.
SECOND: The address, including street, number, city and county, of the
registered office of the corporation in the State of Delaware is Corporation
Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle; and
the name of the Registered agent of the corporation in the State of Delaware at
such address is The Corporation Trust Company.
THIRD: The purpose of the corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The total number of shares of stock which the corporation
shall have authority to issue is Twenty-Two Million (22,000,000) shares of
common stock with a par value of $0.01 per share.
FIFTH: The name and the mailing address of the incorporator are as
follows:
<TABLE>
<CAPTION>
NAME MAILING ADDRESS
- ---------------------------------------------------------- ---------------------------------------------------------
<S> <C>
Heidi L. Shales 161 North Clark Street
Suite 3100
Chicago, Illinois 60601
</TABLE>
SIXTH: The corporation is to have perpetual existence.
<PAGE> 2
SEVENTH: Whenever a compromise or arrangement is proposed
between this corporation and its creditors or any class of them and/or between
this corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in
a summary way of this corporation or of any creditor or stockholder thereof or
on the application of any receiver or receivers appointed for this corporation
under Section 291 of Title 8 of the Delaware Code or on the application of
trustees in dissolution or of any receiver or receivers appointed for this
corporation under Section 279 of Title 8 of the Delaware Code order a meeting
of the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing three
fourths (3/4) in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders of this corporation, as the case may be, and also on this
corporation.
EIGHTH: For the management of the business and for the conduct of the
affairs of the corporation, and in further definition, limitation, and
regulation of the powers of the corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of
the affairs of the corporation shall be vested in its Board of
Directors. The number of directors which shall constitute the
whole Board of Directors shall be fixed by, or in the manner
provided in, the Bylaws. The phrase "whole Board" and the
phrase "total number of directors" shall be deemed to have the
same meaning, to wit, the total number of directors which the
corporation would have if there were no vacancies. No
election of directors need be by written ballot.
2. After the original or other Bylaws of the corporation
has been adopted, amended, or repealed, as the case may be, in
accordance with the provisions of Section 109 of the General
Corporation Law of the State of Delaware, and, after the
corporation has received any payment for any of its stock, the
power to adopt, amend, or repeal the Bylaws of the corporation
may be exercised by the affirmative vote of at least two-
thirds of the members of the Board of Directors or the
affirmative vote of at least two-thirds of the voting power of
the outstanding shares of the stock of the corporation;
provided, however, that any provision for this
<PAGE> 3
classification of directors of the corporation for staggered
terms pursuant to the provisions of subsection (d) of Section
141 of the General Corporation Law of the State of Delaware
shall be set forth in an initial Bylaw or in a Bylaw adopted
by the stockholders entitled to vote of the corporation unless
provisions for such classification shall be set forth in this
certificate of incorporation.
3. Whenever the corporation shall be authorized to issue
only one class of stock, each outstanding share shall entitle
the holder thereof to notice of, and the right to vote at, any
meeting of stockholders. Whenever the corporation shall be
authorized to issue more than one class of stock, no
outstanding share of any class of stock which is denied voting
power under the provisions of paragraph (2) of subsection (b)
of Section 242 of the General Corporation Law of the State of
Delaware shall otherwise require; provided, that no share of
any such class which is otherwise denied voting power shall
entitle the holder thereof to vote upon the increase or
decrease in the number of authorized shares of said class.
NINTH: The personal liability of a director of the corporation is
hereby eliminated to the fullest extend permitted by paragraph (7) of
subsection (b) of Section 102 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented.
TENTH: The corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of the State of Delaware, as the
same may be amended and supplemented, indemnify any and all persons whom it
shall have power to indemnify under said section from and against any and all
of the expenses, liabilities, or other matters referred to in or covered by
said section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any Bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee, or agent and shall inure to
the benefit of the heirs, executors, and administrators of such a person.
ELEVENTH: From time to time, any of the provisions of this
certificate of incorporation may be amended, altered, or repealed, and other
provisions authorized by the laws of the State of Delaware at the time in force
may be added or inserted in the manner and at the time prescribed by said laws,
and all rights at any time conferred upon the stockholders of the corporation
by this certificate of incorporation are granted subject to the provisions of
this Article ELEVENTH.
DATED: February 18, 1994 /s/ Heidi L. Shales
----------------------------------
Heidi L. Shales, Incorporator
<PAGE> 1
Exhibit 3.1(b)
RESTATED CERTIFICATE OF INCORPORATION
OF
WIRELESS BROADCASTING SYSTEMS OF AMERICA, INC.
The undersigned William W. Kingery and John Muehlstein certify that they
are, respectively, the President and Assistant Secretary of Wireless
Broadcasting Systems of America, Inc., a corporation organized and existing
under the laws of the State of Delaware and do hereby further certify as
follows:
1. The name of the Corporation is Wireless Broadcasting Systems of
America, Inc. The Certificate of Incorporation of Wireless Broadcasting
Systems of America, Inc. was originally filed with the Secretary of State of
the State of Delaware on February 18, 1994.
2. This Restated Certificate of Incorporation of Wireless
Broadcasting Systems of America, Inc. has been duly adopted in accordance with
the provisions of Sections 228, 242 and 245 of the General Corporation Law of
the State of Delaware and written notice of the adoption of this Restated
Certificate of Incorporation has been given as provided by Section 228 of the
General Corporation Law of the State of Delaware to the stockholders entitled to
such notice.
3. The text of the Certificate of Incorporation filed on February
18, 1994 of the Corporation is hereby amended and restated to read in its
entirety to read as follows:
"Article I
The name of the Corporation is Wireless Broadcasting Systems of
America, Inc. (the "Corporation").
Article II
The address of the Corporation's registered office in the State of
Delaware is the Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle. The name of the Corporation's registered
agent at such address is The Corporation Trust Company.
Article III
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
<PAGE> 2
Article IV
4.1. Designation. The total number of shares of all classes of
stock which the Corporation shall have authority to issue is 65,035,000 shares
consisting of 35,000 shares of Preferred Stock, par value $.01 per share, all
of which shares are to be of a class designated "Class A Cumulative
Convertible Preferred Stock" ("Class A Preferred Stock") and 65,000,000 shares
of Common Stock, par value $.01 per share ("Common Stock").
The rights, preferences, privileges and restrictions granted to and
imposed upon the classes of stock of the Corporation are set forth below in
this Article IV.
4.2. Dividends.
4.2.1. The holders of shares of Class A Preferred Stock shall
receive, upon conversion of such shares to shares of Common Stock
pursuant to the provisions of Section 4.5 of this Article IV, out of funds
legally available therefor, a cash dividend (the "Cumulative Class A
Dividend") in an amount equal, for each share of Class A Preferred Stock so
converted, to (i) the Liquidation Value (as defined in Section 4.3) minus
(ii) $1,000, with the Liquidation Value being computed as of the date such
dividend is paid to the holders of Class A Preferred Stock. The Cumulative
Class A Dividend shall be paid promptly upon conversion of any Class A
Preferred Stock to Common Stock; provided, however, that if there are
insufficient funds to pay in full upon such conversion the Cumulative Class
A Dividend to all holders of shares of Class A Preferred Stock who have
elected to convert their Class A Preferred Stock pursuant to Section 4.5.9
or within 15 days after the receipt of the notice provided for in Section
4.5.10, then the funds available for such payment shall be allocated among
such holders of shares of Class A Preferred Stock, pro rata in accordance
with the number of shares held by each such holder of shares of Class A
Preferred Stock; and provided, further, that if the Company does not make
any such payment within twenty days after the Conversion Date (as defined
in Section 4.5.9), any amounts not so paid shall accrue interest at a rate
of 12% per annum, compounded quarterly to the extent permitted by
applicable law, from the Conversion Date until paid in full.
4.2.2. The holders of shares of Class A Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors of
the Corporation, cash payments (each a "Payment in Reduction of Liquidation
Value") in respect of such shares; provided, however, that no Payment in
Reduction of Liquidation Value shall be made or declared at any time when
any amounts of the Cumulative Cash A Dividend in respect of Class A
Preferred Stock that has been
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<PAGE> 3
converted shall not have been paid in full. Each Payment in Reduction
of Liquidation Value shall be made equally in respect of all
outstanding shares of Class A Preferred Stock.
4.2.3. No dividend shall be paid, declared or set aside for
payment on the Common Stock nor shall any other distribution on or in
respect of the Common Stock be made (other than dividends payable
solely in shares of Common Stock) at any time while (i) any shares of
Class A Preferred Stock are outstanding, or (ii) any amounts payable
in respect of the Class A Preferred Stock, including the Cumulative
Class A Dividend provided for in Section 4.2.1 and amounts payable
pursuant to Sections 4.3 and 4.6 of this Article IV, have not been
paid in full.
4.3. Liquidation, Dissolution or Winding Up. In the event of any
liquidation, dissolution or winding up of the Corporation, either voluntary or
involuntary (a "Liquidation Event"), distributions to the stockholders of the
Corporation shall be made in the following manner:
4.3.1. Liquidation Preference. Each holder of Class A
Preferred Stock shall receive the Liquidation Value (as defined below)
of such Class A Preferred Stock prior and in preference to any
distribution of any of the assets of the Corporation to the holders of
the Common Stock by reason of their ownership of such stock. The
initial Liquidation Value of each share of Class A Preferred Stock
shall be $1,000, and such Liquidation Value shall be increased on each
of May 31, 1995 and the last day of each August, November, February
and May thereafter on which such share of Class A Preferred Stock is
outstanding, and on the date that any payment is made in respect of
such share whose amount is determined by reference to such Liquidation
Value, until the Liquidation Value is paid in full or such share of
Class A Preferred Stock is converted into Common Stock, by an amount
equal to 2 1/2% of the Liquidation Value in effect on the later of (i)
the date that such share was issued and (ii) the first day of the
previous March, June, September or December, as the case may be (such
amount being prorated for any period of less than a full calendar
quarter), and shall be reduced by any Payment in Reduction of
Liquidation Value made with respect to such share of Class A
Preferred Stock by the Corporation pursuant to Section 4.2.2 of this
Article IV. The Liquidation Value shall be subject to equitable
adjustment whenever there shall occur a stock split, combination,
reclassification or other similar event involving the Class A
Preferred Stock. If the assets of the Corporation legally available
for distribution shall be insufficient to permit the payment in full
to the holders of the Class A Preferred Stock of the full Liquidation
Value, then the entire assets of the Corporation legally available
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<PAGE> 4
for distribution shall be distributed among the holders of the
Class A Preferred Stock pro rata in accordance with the aggregate
Liquidation Value of the shares of Class A Preferred Stock held
by each of them.
4.3.2. Payments on Common Stock. If payment shall have been
made in full to the holders of the Class A Preferred Stock of the
full Liquidation Value to which they shall be entitled pursuant to
Section 4.3.1, the holders of the Common Stock shall be entitled to
share ratably in the Corporation's remaining assets in accordance
with the number of shares of Common Stock held by each such holder.
4.3.3. Treatment of Reorganizations, Consolidations, Mergers,
and Sales of Assets. A consolidation or merger of the Corporation
with or into any other corporation or corporations in which the
stockholders of the Corporation, immediately after the consolidation
or merger, do not own more than 50% of the outstanding voting power of
the surviving corporation, and a sale of all or substantially all of
the assets of the Corporation shall each be treated as a Liquidation
Event for the purpose of this Section 4.3 unless (i) the aggregate
value of the consideration received by the holders of Class A
Preferred Stock in such merger, consolidation or sale, calculated as
if all shares of Class A Preferred Stock outstanding immediately prior
to such merger, consolidation or sale had been converted into Common
Stock pursuant to the provisions of Section 4.5 hereof immediately
prior to such merger, consolidation or sale, exceeds the aggregate
Liquidation Value of such outstanding Class A Preferred Stock, and
such consideration is in the form of cash or marketable securities, or
(ii) the holders of a majority of the then outstanding shares of Class
A Preferred Stock, voting separately as a single class, elect not to
treat such event as a Liquidation Event, by giving written notice to
the Corporation of such election.
4.3.4. Distribution Other Than Cash. Whenever any distribution
provided for in this Section 4.3 shall be payable in property other
than cash, the value of such distribution shall be the fair market
value of such property as determined in good faith by the Board of
Directors of the Corporation; provided, however, that if the holders
of a majority of the shares of the Class A Preferred Stock
("Contesting Holders," which term shall include any such holders
giving a notice pursuant to Section 4.5.4 or 4.5.4.2) notify the Board
of Directors within five business days after receiving written
notification of such determination of fair market value that they
disagree with such determination, then the following procedures (the
"Appraisal Procedures") shall apply. The Board of Directors
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<PAGE> 5
and the Contesting Holders shall attempt to agree upon a fair market
value of the relevant property within thirty days. If, by the end of
such thirty-day period they are unable to agree on a fair market
value, the fair market value shall be determined by an appraisal to be
paid for by the Corporation. All appraisals shall be undertaken by
two appraisers, one selected by the Corporation and one selected by
the Contesting Holders, which selections must be made within ten days
after the expiration of the thirty-day period described above. If one
selecting party fails to timely select its appraiser, the other
selecting party shall select both appraisers. The fair market value
shall be the fair market value arrived at by those appraisers within
sixty days following the appointment of the last appraiser to be
appointed. In the event that the two appraisers cannot agree on such
fair market value within such a period of time, (i) if the appraisers'
valuations are within 10% of each other the fair market value shall be
the average of the two valuations and (ii) if the differences in the
valuations are greater than 10% of each other, the appraisers shall
elect a third appraiser who will calculate fair market value
independently, and, except as provided in the next sentence, the fair
market value of the property shall in each case be the average of the
two fair market values arrived at by the appraisers who are closest in
amount. If one appraiser's valuation is the average of the other two
valuations, the average valuation shall be the fair market value. In
the event that the two original appraisers cannot agree upon a third
appraiser within thirty days following the end of the 60-day period
referred to above, then the third appraiser shall be appointed by the
American Arbitration Association.
4.4. Voting Power. Except as required by law or as otherwise
expressly provided herein, the holders of Class A Preferred Stock shall not be
entitled to vote on any matters, and each holder of Common Stock shall be
entitled to one vote for each share of Common Stock standing in his name on the
books of the Corporation determined as of the record date for the determination
of shareholders entitled to vote on such matters or, if no such record date is
established, at the date such vote is taken or any written consent of
shareholders is solicited.
4.5. Conversion Rights of Class A Preferred Stock. the holders of
Class A Preferred Stock shall have the following rights with respect to the
conversion of the Class A Preferred Stock into shares of Common Stock:
4.5.1. General. Subject to and in compliance with the
provisions of this Section 4.5, any share of the Class A Preferred
Stock may, at the option of the holder, be converted at any time into
fully paid and non-assessable shares of Common Stock. The number of
shares of Common
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<PAGE> 6
Stock to which a holder of Class A Preferred Stock shall be
entitled upon conversion shall be the product obtained by multiplying
the Applicable Conversion Rate (determined as provided in Section
4.5.2), by the number of shares of Class A Preferred Stock being
converted. Exercise of the conversion right set forth herein by the
exercising holder shall entitle the converting holder to receive the
Cumulative Class A Dividend, as set forth in Section 4.2.l.
4.5.2. Applicable Conversion Rate. The conversion rate in
effect at any time for the Class A Preferred Stock (the "Applicable
Conversion Rate") shall be the quotient obtained by dividing $1000 by
the Applicable Conversion Value, determined as provided in Section
4.5.3.
4.5.3. Applicable Conversion Value. The Applicable Conversion
Value shall initially be $l.45516 and shall be adjusted from time to
time in accordance with Section 4.5.4 hereof.
4.5.4. Adjustments to Applicable Conversion Value Upon Sale of
Common Stock. If the Corporation shall, while there are any shares
of Series A Preferred Stock outstanding, issue or sell, or be deemed
to issue and sell in accordance with this Section 4.5.4, shares of
its Common Stock without consideration or at a price per share less
than the greater of the Fair Market Price or Applicable Conversion
Value in effect immediately prior to such issuance or sale, then in
each such case, except as hereinafter provided, the Applicable
Conversion Value shall, concurrently with such issue or sale, be
reduced to an amount determined by multiplying such Applicable
Conversion Value by a fraction:
(a) the numerator of which shall be (i) the number of
shares of common stock outstanding immediately prior to such
issue or sale plus (ii) the number of shares of Common Stock
which the aggregate consideration received by the Company for
the number of shares of Common Stock issued or sold (or deemed
to have been issued or sold) would purchase at the greater of
the Fair Market Price and such Applicable Conversion Value; and
(b) the denominator of which shall be the number of
shares of Common Stock outstanding immediately after such issue
or sale;
provided, however, that no adjustment of the Applicable Conversion value shall
be made in an amount less than $.0001, but any lesser adjustment shall be
carried forward and shall be made at the time and together with the next
subsequent adjustment which together with any adjustments so carried forward
shall amount to $.0001 or more.
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<PAGE> 7
As used herein the term "Fair Market Price" shall mean, on any date
specified herein, the amount per share of Common Stock equal to (a) the last
sale price of Common Stock, regular way, on such date or, if no such sale takes
place on such date, the average of the closing bid and asked prices thereof on
such date, in each case as officially reported on the principal national
securities exchange on which Common Stock is then listed or admitted to
trading, or (b) if Common Stock is not then listed or admitted to trading on
any national securities exchange but is designated as a national market system
security by the National Association of Securities Dealers Automated Quotation
System ("Nasdaq"), the last trading price of Common Stock on such date, or (c)
if there shall have been no trading on such date or if Common Stock is not so
designated, the average of the closing bid and asked prices of Common Stock on
such date as shown by the Nasdaq, or (d) if Common Stock is not then listed or
admitted to trading on any national exchange or quoted in the over-the-counter
market, the fair value thereof determined in good faith by the Board of
Directors of the Corporation as of a date which is within 15 days of the date
as of which the determination is to be made; provided, however, that if the
holders of a majority of the shares of the Class A Preferred Stock notify the
Board of Directors within 5 business days after receiving written notification
of such fair value that they disagree with such determination, the Appraisal
Procedures shall apply, mutatis mutandis.
4.5.4.1. Issuance of Warrants, Options, etc. For the purpose of
this Section 4.5.4, the issuance of any warrants, options,
subscriptions or purchase rights with respect to shares of Common
Stock and the issuance of any securities convertible into, exercisable
for or exchangeable for shares of Common Stock (or the issuance of any
warrants, options or any rights with respect to such convertible or
exchangeable securities) shall be deemed an issuance of such Common
Stock at such time if the Net Consideration Per Share (as hereinafter
defined) which may be received by the Corporation for such Common
Stock shall be less than the greater of the Fair Market Price or the
Applicable Conversion Value for the Class A Preferred Stock in effect
at the time of such issuance. Any obligation, agreement or undertaking
to issue warrants, options, subscriptions or purchase rights at any
time in the future shall be deemed to be an issuance at the time such
obligation, agreement or undertaking is made or arises. No adjustment
of the Applicable Conversion Value for the Class A Preferred Stock
shall be made under Section 4.5.4 upon the issuance or deemed issuance
of any shares of Common Stock which are issued pursuant to the
exercise of any warrants, options, subscriptions or purchase rights or
pursuant to the
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<PAGE> 8
exercise of any conversion or exchange rights with respect to any
convertible securities if any adjustment shall previously have been
made upon the issuance of any such warrants, options or subscriptions
or purchase rights or upon the issuance of any such convertible
securities (or upon the issuance of any such warrants, options or any
rights therefor) as above provided.
Should the Net Consideration Per Share of any such warrants,
options, subscriptions or purchase rights or convertible securities be
decreased or increased from time to time then, upon the effectiveness
of each such change, the Applicable Conversion Value shall be adjusted
to such Applicable Conversion Value as would have obtained (a) had the
adjustments made upon the issuance of such warrants, options, rights
or convertible securities been made upon the basis of the actual Net
Consideration Per Share of such securities, and (b) had the
adjustments made to the Applicable Conversion Value since the date of
issuance of such securities been made to the Applicable Conversion
Value as adjusted pursuant to (a) above. Any adjustment of the
Applicable Conversion Value with respect to this Section 4.5.4.1 which
relates to warrants, options, subscriptions or purchase rights
pursuant to shares of Common Stock shall be disregarded if, as, and
when all of such warrants, options, subscriptions or purchase rights
expire or are canceled without being exercised, so that the Applicable
Conversion Value effective immediately upon such cancellation or
expiration shall be equal to the Applicable Conversion Value which
would have been in effect at the time of such cancellation or
expiration had the expired or canceled warrants, options,
subscriptions or purchase rights not been issued.
For purposes of this paragraph, the "Net Consideration Per
Share" which may be received by the Corporation shall mean the amount
equal to the total amount of consideration, if any, received by the
Corporation for the issuance of such warrants, options, subscriptions
or other purchase rights or convertible or exchangeable securities,
plus the minimum amount of consideration, if any, payable to the
Corporation upon exercise or conversion thereof, divided by the
maximum aggregate number of shares of Common Stock that would be
issued if all such warrants, options, subscriptions or other purchase
rights or convertible or exchangeable securities were exercised,
exchanged or converted.
4.5.4.2. Consideration Other than Cash. For purposes of
Section 4.5.4, if a part or all of the
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<PAGE> 9
consideration received by the Corporation in connection with
the issuance of shares of the Common Stock or the issuance of any of
the securities described in Section 4.5.4 consists of property other
than cash, such consideration shall be deemed to have a fair market
value as is reasonably determined in good faith by the Board of
Directors of the Corporation; provided, however, that if the holders
of a majority of the shares of the Class A Preferred Stock notify the
Board of Directors within 5 business days after receiving written
notification of such value that they disagree with such value, then
the Appraisal Procedures shall apply, mutatis mutandis.
4.5.4.3. Exceptions. Section 4.5.4.1 shall not apply: (i) to
the issuance of up to 3,103,000 shares of Common Stock, or options
exercisable therefor (such number of shares being subject to
equitable adjustment in the event of any stock split, combination,
reclassification or other similar event involving the Common Stock)
issued and issuable to employees of the Corporation pursuant to the
Corporation's Restated Stock Option Plan, as adopted on March 9,
1995, (ii) to the issuance of up to 13,500,000 shares of Common Stock
(such number of shares being subject to equitable adjustment in the
event of any stock split, combination, reclassification or other
similar event involving the Common Stock) issuable upon the exercise
of the Warrants issued or to be issued to certain stockholders of the
Corporation pursuant to Section 4.8 of the Preferred Stock Purchase
Agreement dated as of March , 1995 by and among the Corporation,
Boston Ventures Limited Partnership IV and Boston Ventures Limited
Partnership IVA; (iii) under any of the circumstances which would
constitute an Extraordinary Common Stock Event (as hereinafter
defined in Section 4.5.4.4; or (iv) to the issuance of shares of
Common Stock upon the conversion of any shares of Class A Preferred
Stock. If all or any portion of any option granted under clause (i)
of this Section 4.5.4.3 expires or is terminated without being
exercised, then the number of shares of Common Stock issuable upon
such option or portion thereof shall not be counted against the
maximum number of shares covered by such clause (i).
4.5.4.4. Adjustments to Applicable Conversion Value Upon
Extraordinary Common Stock Event. Upon the happening of an
Extraordinary Common Stock Event (as hereinafter defined), the
Applicable Conversion Value shall, simultaneously with the happening
of such Extraordinary Common Stock Event, be adjusted by
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<PAGE> 10
multiplying the then effective Applicable Conversion Value by a
fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such Extraordinary
Common Stock Event and the denominator of which shall be the number of
shares of Common Stock outstanding immediately after such
Extraordinary Common Stock Event, and the product so obtained shall
thereafter be the Applicable Conversion Value. The Applicable
Conversion Value, as so adjusted, shall be readjusted in the same
manner upon the happening of any successive Extraordinary Common Stock
Event or Events.
"Extraordinary Common Stock Event" shall mean (A) a subdivision
of outstanding shares of Common Stock into a greater number of shares
of the Common Stock, or (B) a combination of outstanding shares of the
Common Stock into a smaller number of shares of Common Stock or (C)
the declaration and payment by the Corporation of a dividend payable
in shares of Common Stock.
4.5.5. Forced Conversion.
4.5.5.1. In the event that, on any date after March 15, 1998,
(A) the Common Stock shall be listed on the New York Stock Exchange,
Inc. ("NYSE") or the American Stock Exchange, Inc. ("ASE"), or shall
be traded on Nasdaq, (B) the Common Stock shall have been listed on
either the NYSE or the ASE or traded on Nasdaq, or any combination of
the foregoing, continuously for a period or at least one year, (C)
during the past year time the Public Float (as hereinafter defined) of
the Common Stock shall have at all times exceeded 20% of number of
outstanding shares of Common Stock, (D) the average weekly reported
trading volume for the Common Stock on the NYSE, ASE and/or Nasdaq
over the past year shall have exceeded 2% of the number of outstanding
shares of Common Stock, and (E) the Market Price (as hereinafter
defined) of the Common Stock shall on any day be at a level such that,
if all the outstanding shares of Class A Preferred Stock were
converted into the number of shares Common Stock into which such Class
A Preferred Stock is convertible pursuant to Section 4.5, and such
shares of Common Stock were then sold at the Market Price, the
proceeds of such sale excluding the Cumulative Class A Dividend
payable upon such conversion would equal or exceed 1.75 times the
Liquidation Value applicable to all of the outstanding shares of Class
A Preferred Stock, then the Board of Directors of the Corporation
shall have the right to require that all outstanding shares of Class A
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Preferred Stock shall be converted into the number of shares of Common
Stock into which such shares are convertible pursuant to Section 4.5
as of such date or any date within 15 days after such date, without
further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the
Corporation or its transfer agent for the Common Stock, provided that
the Cumulative Class A Dividend on all shares of Class A Preferred
Stock shall be paid in full at such time. For the purpose of Section
4.5.5, the "Market Price" of the Common Stock shall be the lowest of
the reported last sale prices on the NYSE, the ASE or Nasdaq for the
Common Stock on each of the twenty (20) preceding business days on
which a reported sale of the Common Stock took place; and the "Public
Float" of the Common Stock shall be the number of shares of Common
Stock outstanding and listed for trading on the NYSE, the ASE or
Nasdaq other than shares held by affiliates of the Corporation.
4.5.5.2. Upon the occurrence of the conversion specified in the
preceding paragraph (i), the holders of the Class A Preferred Stock
shall, upon notice from the Corporation, surrender the certificates
representing such shares at the office of the Corporation or of its
transfer agent for the Common Stock. Thereupon, there shall be issued
and delivered to each such holder a certificate or certificates
for the number of shares of Common Stock into which the shares of the
Class A Preferred Stock surrendered were convertible on the date on
which such conversion occurred, and payment of the Cumulative Class A
Dividend applicable to such shares. The Corporation shall not be
obligated to issue such certificates or pay such dividend unless
certificates evidencing such shares of the Class A Preferred Stock
being converted are either delivered to the Corporation or any such
transfer agent, or the holder notifies the Corporation or any such
transfer agent that such certificates have been lost, stolen or
destroyed and executes an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection
therewith.
4.5.6. Reclassification. If the Common Stock issuable upon the
conversion of the Class A Preferred Stock shall be changed into the same or a
different number of shares of any class or classes of stock, whether by
reclassification or otherwise (other than a subdivision or combination of shares
or stock dividend or a reorganization, merger or sale of assets provided for
elsewhere in Section 4.5, or the sale of
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all or substantially all of the Corporation's properties and assets to
any other person provided for elsewhere in Section 4.5), then and in
each such event, unless such event has been deemed a Liquidation Event
pursuant to Section 4.3, each holder of Class A Preferred Stock shall
have the right thereafter to convert such Class A Preferred Stock into
the kind and amount of shares of stock and other securities and
property receivable upon such reclassification or other change by
holders of the number of shares of Common Stock into which such Class
A Preferred Stock might have been converted immediately prior to such
reclassification or change, all subject to further adjustment as
provided herein.
4.5.7. Capital Reorganization, Merger or Sale of Assets. If
at any time or from time to time there shall be a capital
reorganization of the Common Stock (other than a subdivision,
combination, reclassification, or exchange of shares provided for
elsewhere in Section 4.5) or a merger or consolidation of the
Corporation with or into another corporation, or the sale of all or
substantially all of the Corporation's properties and assets to any
other person, then, unless such event has been deemed a Liquidation
Event pursuant to Section 4.3, as a part of such merger, or
consolidation or sale, provision shall be made so that the holders of
the Class A Preferred Stock shall thereafter be entitled to receive
upon conversion of the Class A Preferred Stock the number of shares
of stock or other securities or property of the Corporation, or of
the successor corporation resulting from such merger, consolidation
or sale, to which such holders would have been entitled if such
holders had converted their shares of Class A Preferred Stock
immediately prior to such capital reorganization, merger,
consolidation, or sale. In any such case, appropriate adjustment
shall be made in the application of the provisions of Section 4.5
with respect to the rights of the holders of Class A Preferred Stock
after the reorganization, merger, consolidation or sale to the end
that the provisions of Section 4.5 (including adjustment of the
Applicable Conversion Value then in effect and the number of shares
issuable upon conversion of the Class A Preferred Stock) shall be
applicable after that event in as nearly equivalent a manner as may
be practicable.
4.5.8. Accountant's Certificate as to Adjustments: Notice by
Corporation. In each case of an adjustment or readjustment of the
Applicable Conversion Value, the Corporation at its expense shall
furnish all holders of Class A Preferred Stock, if requested by [any]
such holder, with a certificate, prepared by independent public
accountants of nationally recognized standing, showing such adjustment
or readjustment, and stating in detail the facts
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<PAGE> 13
upon which such adjustment or readjustment is based.
4.5.9. Exercise of Conversion Privilege. To exercise its
conversion privilege, a holder of Class A Preferred Stock shall
surrender the certificate or certificates representing the shares
being converted to the Corporation at its principal office, and shall
give written notice to the Corporation at that office that such
holder elects to convert such shares. Such notice shall also state
the name or names (with address or addresses) in which the
certificate or certificates for shares of Common Stock issuable upon
such conversion shall be issued. The certificate or certificates for
shares of Class A Preferred Stock surrendered for conversion shall be
accompanied by proper assignment thereof to the Corporation or in
blank. The date when such written notice is received by the
Corporation, together with the certificate or certificates
representing the shares of the Class A Preferred Stock being
converted, shall be the "Conversion Date." As promptly as
practicable, but in any event not later than 30 days after, the
Conversion Date, the Corporation shall issue and shall deliver to the
holder of the shares of Class A Preferred Stock being converted, or
on its written order, such certificate or certificates as it may
request for the number of whole shares of Common Stock issuable upon
the conversion of such shares of Class A Preferred Stock in
accordance with the provisions of Section 4.5, payment of the
Cumulative Class A Dividend in accordance with Section 4.2.1, and
cash in respect of any fraction of a share of Common Stock issuable
upon such conversion, as provided in Section 4.5.11. Such conversion
shall be deemed to have been effective immediately prior to the close
of business on the Conversion Date, and at such time the rights of
the holder as holder of the converted shares of Class A Preferred
Stock shall cease and the person or persons in whose name or names
any certificate or certificates for shares of Common Stock shall be
issuable upon such conversion shall be deemed to have become the
holder or holders of record of the shares of Common Stock represented
thereby.
4.5.10. Notice of Conversion. If any holder of shares of
Class A Preferred Stock shall give notice of such holder's intent to
convert shares of Class A Preferred Stock held by such holder having
an aggregate Liquidation Value in excess of $1,000,000 into Common
Stock pursuant to Section 4.5, the Corporation shall give the other
holders of the Class A Preferred Stock notice of that fact at the
address for such holders shown on the books of the Corporation. Such
other holders shall then have 15 days to give notice to the Company
of the exercise of their conversion rights pursuant to Section 4.5.9
and if such other holders give such notice within such 15 day period,
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the "Conversion Date" for such other holders shares of Class A
Preferred Stock shall be the same date as the Conversion Date of the
holders of Class A Preferred Stock that initially gave a notice under
Section 4.5.9. The failure of any such other holder of shares of
Class A Preferred Stock to give a conversion notice under this Section
4.5.10 after receipt of a notice under this Section 4.5.10 that other
holders of shares of Class A Preferred Stock have given a conversion
notice shall not affect the right of such other holders of shares of
Class A Preferred Stock to give a notice under Section 4.5.9 at a
later date.
4.5.11. Cash in Lieu of Fractional Shares. No fractional
shares of Common Stock of scrip representing fractional shares shall
be issued upon the conversion of shares of Class A Preferred Stock.
Instead of any fractional share of Common Stock which would otherwise
be issuable upon conversion of Class A Preferred Stock, the
Corporation shall pay to the holder of the shares of Class A
Preferred Stock, which were converted, a cash adjustment in respect
to such fractional share in an amount equal to the same fraction of
the Fair Market Value per share of Common Stock, but not less than
the Applicable Conversion Value, at the close of business on the
Conversion Date. The determination as to whether or not any
fractional shares are issuable shall be based upon the total number
of shares of Class A Preferred Stock being converted at any one time
by any holder thereof, not upon each share of Class A Preferred Stock
being converted.
4.5.12. Partial Conversion. In the event some but not all of
the shares of Class A Preferred Stock represented by a certificate or
certificates surrendered by a holder are converted, the Corporation
shall execute and deliver to or on the order of the holder, at the
expense of the Corporation, a new certificate representing the number
of shares of Class A Preferred Stock which were not converted.
4.5.13. Reservation of Common Stock. The Corporation shall at
all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting
the conversion of the shares of Class A Preferred Stock, such number
of its shares of Common Stock as shall from time to time be sufficient
to effect the conversion of all outstanding shares of Class A
Preferred Stock, and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of Class A Preferred Stock,
the Corporation shall take such corporate action as may be necessary
to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.
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<PAGE> 15
4.5.14. Common Stock Defined. For purposes of Section 4.5,
the term "Common Stock" shall include the Corporation's Common Stock,
par value $.01 per share, as authorized on the date on which shares of
Class A Preferred Stock are first issued (the "Initial Issue Date")
and any other capital stock of any class or classes (however
designated) of the Corporation, authorized on or after the Initial
Issue Date, the holders of which shall have the right, without
limitation as to amount, either to all or a share of the balance of
current dividends and distributions on the capital stock of the
Corporation, after payment of any required dividends or distributions
on any shares entitled to preference, and the holders of which shall
ordinarily, in the absence of contingencies, be entitled to vote for
directors of the Corporation (even though the right so to vote has
been suspended by the happening of such a contingency).
4.5.15. Validity of Shares. The Corporation shall from time to
time take all such actions as may be requisite to assure that all
shares of Common Stock which may be issued upon conversion of any
share of the Class A Preferred Stock will, upon issuance, be legally
and validly issued, fully paid and non-assessable and free from all
liens and charges with respect to the issue thereof; and, without
limiting the generality of the foregoing, the Corporation shall from
time to time take all such action as may be requisite to assure that
the par value per share, if any, of the Common Stock is at all times
equal to or less than the amount paid per share for the Class A
Preferred Stock divided by the number of shares of Common Stock into
which each share of Class A Preferred Stock can, from time to time, be
converted.
4.5.16. Good Faith. If any event occurs as to which in the
reasonable opinion of the Board of Directors of the Corporation, in
good faith, the other provisions of Section 4.5 are not strictly
applicable but the lack of any adjustment in the Applicable Conversion
Value would not in the opinion of the Board of Directors of the
Corporation fairly protect the conversion rights of the holders of the
Class A Preferred Stock in accordance with the basic intent and
principles of such provisions, or if strictly applicable would not
fairly protect the conversion rights of the holders of the Class A
Preferred Stock in accordance with the basic intent and principles of
such provisions, then the Board of Directors of the Corporation shall
appoint a firm of independent certified public accountants (which may
be the regular auditors of the Corporation) of recognized national
standing, which shall give their opinion upon the adjustment, if any,
to the Applicable Conversion Value, on a basis consistent with the
basic intent and principles of Section 4.5, necessary to preserve,
without dilution, the
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<PAGE> 16
exercise rights of all the registered holders of the Class A Preferred
Stock. Upon receipt of such opinion, the Board of Directors of the
Corporation shall forthwith make the adjustments described therein.
4.6. Redemption.
4.6.1. Automatic Redemption. If on December 31, 2002 there
remains any Class A Preferred Stock outstanding, the Corporation
shall, on such date, redeem all of the Class A Preferred Stock
outstanding, paying to each holder of Class A Preferred Stock the
Liquidation Amount to which such holder would be entitled pursuant to
Section 4.3 hereof on the occurrence of a Liquidation Event as of the
date such payment is made.
4.6.2. Payment of Redemption Price. If the funds of the
Corporation legally available for redemption of shares of Class A
Preferred Stock are insufficient to redeem the total number of
outstanding shares of Class A Preferred Stock, the holders of the
Class A Preferred Stock shall share ratably in any funds legally
available for redemption of as many shares as possible. Any shares of
Class A Preferred Stock not redeemed because of the Corporation's
inability or failure to carry out the redemption shall remain
outstanding and entitled to all rights and preferences provided
herein. At any time thereafter when additional funds of the
Corporation shall be legally available for the redemption of such
shares of Class A Preferred Stock such funds shall be used to redeem
the balance of such shares, or such portion thereof for which funds
are then legally available, on the basis set forth above.
4.6.3. Surrender of Certificates. Not less than 30 days before
the date specified for redemption in Section 4.6.1, and not more than
10 days after additional funds of the Corporation become legally
available for the redemption of additional shares of Class A Preferred
Stock pursuant to Section 4.6.2, the Corporation shall mail a written
notice (the "Redemption Notice"), postage prepaid, to each holder of
record of Class A Preferred Stock, at such holder's address as shown
on the records of the Corporation; provided, however, that the
Corporation's failure to give such Redemption Notice shall in no way
affect its obligation to redeem the Class A Preferred Stock as
provided in Section 4.6.1 and 4.6.2. The Redemption Notice shall
contain the following information:
(i) The number of shares of Class A Preferred Stock held
by the holder which shall be redeemed by the Corporation
pursuant to the provisions of Sections
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<PAGE> 17
4.6.1 or 4.6.2;
(ii) The date on which the redemption shall be effective
("Redemption Date"),
(iii) The address at which the holder may surrender to
the Corporation its certificate or certificates representing
shares of Class A Preferred Stock to be redeemed.
Each holder of shares of Class A Preferred Stock to be redeemed
shall surrender the certificate or certificates representing such
shares to the Corporation at the place specified in the Redemption
Notice and on or before the Redemption Date designated in the
Redemption Notice, and thereupon the applicable Liquidation Amount in
respect of such shares shall be paid to the order of the person whose
name appears on such certificate or certificates. Each surrendered
certificate shall be canceled and retired and a new certificate,
representing the remaining, unredeemed shares of Class A Preferred
Stock, if any, shall be issued to the holder of such shares.
4.6.4. Dividends and Conversion after Redemption. From and
after the date the Corporation shall have paid the Liquidation Amount
in redemption of any shares of Class A Preferred Stock, no shares of
Class A Preferred Stock thereupon redeemed shall be entitled to any
further dividends pursuant to Section 4.2 hereof or to the conversion
provisions set forth in Section 4.5 hereof.
4.7. No Reissuance of Class A Preferred Stock. No share or shares of
Class A Preferred Stock or Common Stock acquired by the Corporation by
reason of redemption, purchase, conversion or otherwise shall be reissued,
and all such shares shall be canceled, retired and eliminated from the
shares which the Corporation shall be authorized to issue. The Corporation
may from time to time take such appropriate corporate action as may be
necessary to reduce the authorized number of shares of the Class A Preferred
Stock or Common Stock accordingly.
4.8. No Dilution or Impairment. The Corporation shall take all such
action as may be necessary or appropriate in order to effectuate the
provisions of this Article IV. Without limiting the generality of the
foregoing, the Corporation (a) will not increase the par value of any shares
of stock receivable on the conversion of the Class A Preferred Stock or
Common Stock above the amount payable therefor on such conversion and (b)
will take all such action as may be necessary or appropriate in order that
the Corporation may validly and legally issue fully paid and nonassessable
shares of stock on the conversion of all Class A Preferred Stock or Common
Stock from time to time outstanding.
17
<PAGE> 18
4.9. Notices of Record Date. In the event of a record of
(i) any taking by the Corporation of record of the holders
of any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other
distribution, or any right to subscribe for purchase or otherwise
acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
(ii) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the
Corporation, any merger or consolidation of the Corporation (other
than a change in par value or from par value to no par value or from
no par value to par value or as a result of a stock dividend or
subdivision, split up or combination of shares), or any transfer of
all or substantially all of the assets of the Corporation to any other
corporation, or any other entity or person, or
(iii) any voluntary or involuntary dissolution, liquidation or
winding up of the corporation,
then and in each such event the Corporation shall mail or cause to be
mailed to each holder of Class A Preferred Stock or Common Stock a
notice specifying (a) the date on which any such record is to be taken
for the purpose of such dividend, distribution or right and a
description of such dividend, distribution or right, (b) the date on
which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding
up is expected to become effective and (c) the time, if any, that is
to be fixed, as to when the holders of record of Common Stock (or
other securities) shall be entitled to exchange their share of
Common Stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution,
liquidation or winding up. Such notice shall be mailed at least 20
days prior to the date specified in such notice on which such action
is to be taken.
4.10. Common Stock. Except as otherwise provided in this Article IV,
each share of Common Stock issued and outstanding shall be identical in all
respects one with the other. Except for and subject to those rights expressly
granted to the holders of the Class A Preferred Stock, or except as may be
provided by the laws of the State of Delaware, the holders of Common Stock shall
have exclusively all other rights of stockholders, including but not by way of
limitation, (i) the right to vote on matters submitted to a vote of
stockholders, and to notice of and attendance at meetings held for the purpose
of taking such votes,
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<PAGE> 19
(ii) the right to receive dividends, when and as declared by the Board of
Directors out of assets lawfully available therefor, and (iii) in the event of
any distribution of assets upon liquidation, dissolution or winding up of the
Corporation or otherwise, the right to receive ratably and equally all the
assets and funds of the Corporation remaining after the payment to the holders
of the Class A Preferred Stock of the specific amounts which they are entitled
to receive upon such liquidation, dissolution or winding up of the corporation
as herein provided.
Article V
The Corporation is to have perpetual existence.
Article VI
Meetings of Stockholders may be held within or without the State of
Delaware, as the By-Laws may provide. The books of the Corporation may be kept
outside the State of Delaware at such place or places as may be designated from
time to time by the Board of Directors or in the By-Laws of the Corporation.
Elections of Directors need not be by written ballot unless the By-Laws of
the corporation shall so provide.
Article VII
The Corporation shall, to the fullest extent permitted by Section 145
of the General Corporation Law of the State of Delaware, as amended from time
to time, indemnify each person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was, or has agreed to become, a director or officer of the
Corporation, or is or was serving, or has agreed to serve, at the request of
the Corporation, as a director, officer, employee or agent of, or in a similar
capacity with, another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such action, suit or proceeding and any appeal
therefrom.
Indemnification may include payment by the Corporation of expenses in
defending an action, suit or proceeding in advance of the final disposition of
such action, suit or proceeding upon receipt of any undertaking by the person
indemnified to repay such payment if it is ultimately determined that such
person is not entitled to indemnification under this Article, which undertaking
may be accepted without reference to the financial ability of such person to
make such repayments.
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The Corporation shall not indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person unless the initiation thereof was approved by the Board of Directors
of the Corporation.
The indemnification rights provided in this Article VIII (i) shall not
be deemed exclusive of any other rights to which those indemnified may be
entitled under any law, agreement or vote of stockholders of disinterested
directors or otherwise, and (ii) shall inure to the benefit of the heirs,
executors and administrators of such persons. The Corporation may, to the
extent authorized from time to time by its Board of Directors, grant
indemnification rights to other employees or agents of the Corporation or other
persons serving the Corporation and such rights may be equivalent to, or greater
or less than, those set forth in this Article.
Article VIII
No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director
shall be liable to the extent provided by applicable law (i) for breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) pursuant to Section 174 of the Delaware
General Corporation Law or (iv) for any transaction from which the director
derived an improper personal benefit. If the Delaware General Corporation Law
is hereafter amended to authorize a further limitation or elimination of the
liability of directors or officers, then the liability of a director or officer
of the Corporation shall, in addition to the limitation on personal liability
provided herein, be limited or eliminated to the fullest extent permitted by
the Delaware General Corporation Law, as from time to time amended. No
amendment to or repeal of this Article shall apply to or have any effect on the
liability of alleged liability of any director or officer of the Corporation
for or with respect to any acts or omissions of such director or officer
occurring prior to such amendment or repeal.
Article IX
Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
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<PAGE> 21
application of any receiver or receivers appointed for this corporation under
section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this corporation under
section 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three fourths (3/4) in value of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this corporation as a consequence of
such compromise of arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this corporation, as the case
may be, and also on this corporation.
Article X
For the management of the business and for the conduct of the affairs
of the corporation, and in further definition, limitation, and regulation of the
powers of the corporation and of its directors and of its stockholders or any
class thereof, as the case may be, it is further provided:
10.1. Management By The Board. The management of the business and
the conduct of the affairs of the corporation shall be vested in its Board of
Directors. The number of directors which shall constitute the whole Board of
Directors shall be fixed by, or in the manner provided in, the Bylaws. The
phrase "whole Board" and the phrase "total number of directors" shall be deemed
to have the same meaning, to wit, the total number of directors which the
corporation would have if there were no vacancies. No election of directors
need be by written ballot.
10.2. Bylaws. After the original or other bylaws of the corporation
have been adopted, amended, or repealed, as the case may be, in accordance with
the provisions of section 109 of the General Corporation Law of the State of
Delaware, and, after the corporation has received any payment for any of its
stock, the power to adopt, amend, or repeal the Bylaws of the corporation
21
<PAGE> 22
may be exercised by the affirmative vote of at least two-thirds of the
members of the Board of Directors or the affirmative vote of at least
two-thirds of the voting power of the outstanding shares of the stock of the
corporation; provided, however, that any provision for the classification of
directors of the corporation for staggered terms pursuant to the provisions of
subsection (d) of section 141 of the General Corporation Law of the State of
Delaware shall be set forth in an initial Bylaw or in a Bylaw adopted by the
stockholders entitled to vote of the corporation unless provisions for such
classification shall be set forth in this certificate of incorporation.
10.3. Voting Power. Whenever the corporation shall be authorized to
issue only one class of stock, each outstanding share shall entitle the holder
thereof to notice of, and the right to vote at, any meeting of stockholders.
Whenever the corporation shall be authorized to issue more than one class of
stock, no outstanding share of any class of stock which is denied voting power
under the provisions of the certificate of incorporation shall entitle the
holder thereof to the right to vote at any meeting of stockholders except as
the provisions of paragraph (2) of subsection (b) of section 242 of the General
Corporation Law of the State of Delaware shall otherwise require; provided,
that no share of any such class which is otherwise denied voting power shall
entitle the holder thereof to vote upon the increase or decrease in the number
of authorized shares of said class.
Article XI
From time to time, any of the provisions of this certificate of
incorporation may be amended, altered, or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the corporation by this
certificate of incorporation are granted subject to the provisions of this
Article XI.
Signed this 15th day of March, 1995.
/s/ William W. Kingery, Jr.
---------------------------
President
/s/ John H. Muehlstein
---------------------------
Assistant Secretary
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<PAGE> 1
EXHIBIT 3.1(c)
CERTIFICATE OF AMENDMENT TO THE CERTIFICATE
OF INCORPORATION BEFORE PAYMENT OF
ANY PART OF THE CAPITAL
OF
WIRELESS BROADCASTING SYSTEMS OF AMERICA, INC.
* * * *
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is
Wireless Broadcasting Systems of America, Inc.
2. The corporation has not received any payment for any of its stock.
3. The Certificate of Incorporation of the Corporation is hereby amended
by striking out the Fourth Article thereof and by substituting in lieu of said
Article the following new Fourth Article:
FOURTH: The total number of shares of stock which the corporation
shall have authority to issue is Twenty-Six Million (26,000,000)
shares of common stock with a par value of $0.01 per share.
4. The amendment of the Certificate of Incorporation of the Corporation
herein certified was duly adopted, pursuant to the provisions of Section 241 of
the General Corporation Law of the State of Delaware, by the written consent of
the Sole Incorporator, there being no directors named in the Corporation's
Certificate of Incorporation nor elected at this time.
DATED AS OF: February 18, 1994
/s/ Heidi L. Shales
---------------------------------
Heidi L. Shales, Sole
Incorporator
<PAGE> 1
Exhibit 3.2
B Y L A W S
OF
WIRELESS BROADCASTING SYSTEMS OF AMERICA, INC.
ARTICLE I
OFFICES
Section 1. REGISTERED OFFICE. The registered office shall be in the City of
Wilmington, County of New Castle, State of Delaware and the corporation shall
have an office at 1209 Orange Street.
Section 2. OTHER OFFICES. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation
may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. MEETING ELECTING DIRECTORS. All meetings of the stockholders for
the election of directors shall be held at the corporate offices located at
8423 South U.S. #1, Port St. Lucie, Florida, or at such other place either
within or without the State of Delaware as shall be designated from time to
time by the
<PAGE> 2
Board of Directors and stated in the notice of the meeting. Meetings of
stockholders for any other purpose may be held at such time and place, within
or without the State of Delaware, as shall be stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2. ANNUAL MEETING; PLURALITY VOTE. Annual meetings of
stockholders, commencing with the year 1994, shall be held on the Monday in
December, if not a legal holiday, and if a legal holiday, then on the next
secular day following, at 1:00 P.M., or at such other date and time as shall be
designated from time to time by the Board of Directors and stated in the notice
of the meeting, at which they shall elect by a plurality vote a Board of
Directors, and transact such other business as may properly be brought before
the meeting.
Section 3. NOTICE OF ANNUAL MEETING. Written notice of the annual
meeting stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten nor more than
sixty days before the date of the meeting.
Section 4. NOMINATION OF CANDIDATES FOR THE BOARD OF DIRECTORS.
Written notice stating who the candidates are which
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have been nominated for the election as a director of the corporation must be
given to all stockholders entitled to vote on the election of directors not
less than 30 nor more than 60 days before the date of the meeting at which the
election of directors is to take place.
Section 5. STOCKHOLDERS ENTITLED TO VOTE. The officer who has charge of
the stock ledger of the Corporation shall prepare and make, at least ten days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing
the address of each stockholder and the number of shares registered in the name
of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
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Section 6. SPECIAL MEETINGS. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the President and shall be
called by the President at the request in writing by the Chairman of the Board
of Directors, or any other director, or such persons as may be authorized by
the Certificate of Incorporation, or at the request in writing of stockholders
owning a majority in amount of the entire capital stock of the Corporation
issued and outstanding and entitled to vote. Such request shall state the
purpose or purposes of the proposed meeting. The transaction of business at
such special meeting shall be limited to that purpose or purposes stated in the
Notice of Special Meeting and any other business properly brought before the
meeting.
Section 7. NOTICE OF SPECIAL MEETINGS. Written notice of a special
meeting stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called, shall be given not less than ten nor
more than sixty days before the date of the meeting, to each stockholder
entitled to vote at such meeting.
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Section 8. BUSINESS AT SPECIAL MEETING. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice.
Section 9. QUORUM. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present or represented. At such
adjourned meeting at which a quorum shall be present or represented any
business may be transacted which might have been transacted at the meeting as
originally notified. If the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
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Section 10. MAJORITY VOTE. When a quorum is present at any meeting,
the vote of the holders of a majority of the stock having voting power present
in person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which by express provision of the
statutes or of the Certificate of Incorporation, a different vote is required
in which case such express provision shall govern and control the decision of
such question.
Section 11. ONE SHARE ONE VOTE. Unless otherwise provided in the
Certificate of Incorporation each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of
the capital stock having voting power held by such stockholder, but no proxy
shall be voted on after three years from its date, unless the proxy provides
for a longer period.
Section 12. ACTION WITHOUT MEETING. Unless otherwise provided in the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders of the Corporation, or any action which may be
taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent in
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writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking
of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
Section 1. NUMBER; ELECTION. The number of directors of the
corporation shall consist of not less than one (1) nor more than fifteen (15)
members. The number of directors may be fixed or changed from time to time,
within the aforesaid minimum and maximum, by the directors or the stockholders
without further amendment to these bylaws. Thereafter, the directors shall be
elected at the annual meeting of the stockholders at which their term expires,
except as provided in Section 2 of this Article,
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and each director elected shall hold office until his successor is elected and
qualified. Directors need not be stockholders.
Section 2. VACANCIES. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office until
the next annual election of directors and until their successors are duly
elected and shall qualify, unless sooner displaced. If there are no directors
in office, then an election of directors may be held in the manner provided by
statute. If, at the time of filling any vacancy or any newly created
directorship, the Directors then in office shall constitute less than a
majority of the whole board (as constituted immediately prior to any such
increase), the Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent of the total number of the shares at
the time outstanding having the right to vote for such directors, summarily
order an election to be held to fill any such vacancies or newly created
directorships, or to replace the directors chosen by the directors then in
office.
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Section 3. MANAGEMENT OF CORPORATION. The business of the Corporation
shall be managed by or under the direction of its Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
Bylaws directed or required to be exercised or done by the stockholders.
Section 4. MEETINGS OF THE BOARD OF DIRECTORS. The Board of Directors
of the Corporation may hold meetings, both regular and special, either within
or without the State of Delaware.
Section 5. ANNUAL MEETING. The first meeting of each newly elected
Board of Directors shall be held at such time and place as shall be fixed by
the vote of the stockholders at the annual meeting and no notice of such
meeting shall be necessary to the newly elected directors in order legally to
constitute the meeting, provided a quorum shall be present. In the event of
the failure of the stockholders to fix the time or place of such first meeting
of the newly elected Board of Directors, or in the event such meeting is not
held at the time and place so fixed by the stockholders, the meeting may be
held at such time and place as shall be specified in a notice given as
hereinafter provided
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for special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the Directors.
Section 6. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held without notice at such time and at such place as shall
from time to time be determined by the Chairman of the Board of Directors.
Section 7. SPECIAL MEETINGS. Special meetings of the board may be
called by the President without notice to each Director; special meetings shall
be called by the President in like manner and on like notice on the written
request of two directors unless the Board consists only of one director; in
which case special meetings shall be called by the President in like manner and
on like notice of the written request of the sole director.
Section 8. QUORUM. At all meetings of the board a majority of the
total number of directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the Certificate of
Incorporation. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may
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adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present. Notwithstanding the
foregoing, a quorum shall be deemed not constituted unless the Chairman of the
Board is in attendance.
Section 9. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee
thereof may be taken without a meeting, if all members of the board or
committee as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the board or committee.
Section 10. TELEPHONIC MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or any committee, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
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Section 11. COMMITTEES OF DIRECTORS. The Board of Directors may, by
resolution passed by a majority of the whole board, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee.
In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the Certificate of Incorporation, adopting
an agreement of merger or consolidation,
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recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending the Bylaws of the Corporation; and, unless the resolution or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
Section 12. COMMITTEE MEETINGS. Each committee shall keep regular
minutes of its meetings and report the same to the Board of Directors when
required.
Section 13. COMPENSATION OF DIRECTORS. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, the Board of Directors shall
have the authority to fix the compensation of directors. The Directors may be
paid their expenses, if any, of attendance at each meeting of the Board of
Directors and may be paid a fixed sum for attendance at each meeting of the
Board of Directors or a stated salary as director.
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No such payment shall preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor. Members of special or
standing committees may be allowed like compensation for attending committee
meetings.
Section 14. REMOVAL OF DIRECTORS. Unless otherwise restricted by the
Certificate of Incorporation or bylaw, any director or the entire Board of
Directors may be removed, with or without cause, by the holders of a majority
of shares entitled to vote at an election of directors, whether at an annual or
special meeting of the shareholders.
ARTICLE IV
NOTICES
Section 1. NOTICES. Whenever, under the provisions of the statutes or
of the Certificate of Incorporation or of these Bylaws, notice is required to
be given to any director or stockholder, it shall not be construed to mean
personal notice, but such notice may be given in writing, by mail, addressed to
such director or stockholder, at his address as it appears on the records of
the Corporation, with postage thereon prepaid, and such notice shall be deemed
to be given at the time when the same
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shall be deposited in the United States mail. Notice to directors may also be
given by telegram.
Section 2. WAIVER OF NOTICE. Whenever any notice is required to be
given under the provisions of the statutes or of the Certificate of
Incorporation or of these Bylaws, a waiver thereof in writing signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
ARTICLE V
OFFICERS
Section 1. OFFICERS. The officers of the Corporation shall be chosen
by the Board of Directors and shall be a chairman of the board, a president, a
vice-president, a secretary and a treasurer. The Board of Directors may also
choose a chief executive officer, chief operating officer(s), additional
vice-presidents, and one or more assistant secretaries and assistant
treasurers. Any number of offices may be held by the same person, unless the
Certificate of Incorporation or these Bylaws otherwise provide.
Section 2. ELECTION OF OFFICERS. The Board of Directors at its first
meeting after each annual meeting of stockholders shall
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choose a president, one or more vice-presidents, a secretary and a treasurer.
Section 3. OTHER OFFICERS/AGENTS. The Board of Directors may appoint
such other officers and agents as it shall deem necessary who shall hold their
offices for such terms and shall exercise such powers and perform such duties
as shall be determined from time to time by the board.
Section 4. COMPENSATION. The salaries of all officers and agents of
the Corporation shall be fixed by the Board of Directors.
Section 5. TERM OF OFFICE/REMOVAL. The officers of the Corporation
shall hold office until their successors are chosen and qualified. Any officer
elected or appointed by the Board of Directors may be removed at any time by
the affirmative vote of a majority of the Board of Directors. Any vacancy
occurring in any office of the Corporation shall be filled by the Board of
Directors.
Section 6. CHAIRMAN OF THE BOARD. The chairman of the board shall, if
present, preside at all meetings of the Board of Directors and exercise and
perform such other powers and duties
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as may be from time to time assigned to him by the Board of Directors or
prescribed by these Amended and Restated Bylaws.
Section 7. PRESIDENT. Subject to the direction and control of the
Board of Directors, the president shall be in charge of the overall business
strategy of the Corporation; he shall see that the resolutions and directions
of the Board of Directors are carried into effect except in those instances in
which that responsibility is specifically assigned to some other person by the
Board of Directors; and, in general, he shall discharge all duties incident to
the office of president and such other duties as may be prescribed by the Board
of Directors from time to time. He shall preside at all meetings of the
shareholders and in the absence of the chairman of the board, or, if there be
none, at all meetings of the Board of Directors. Except in those instances in
which the authority to execute is expressly delegated to another officer or
agent of the Corporation or a different mode of execution is expressly
prescribed by the Board of Directors or these Bylaws, he may execute for the
Corporation certificates for its shares, and any contracts, deeds, mortgages,
bonds, or other instruments which the Board of Directors has authorized to be
executed, either individually or with the secretary, any
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<PAGE> 18
assistant secretary, or any other officer thereunto authorized by the Board of
Directors, according to the requirements of the form of the instrument. He may
vote all securities which the Corporation is entitled to vote except as to the
extent such authority shall be vested in a different officer or agent of the
Corporation by the Board of Directors.
Section 8. CHIEF EXECUTIVE OFFICER. Subject to the direction and
control of the Board of Directors, the Chief Executive Officer, if there shall
be such an officer, shall be in charge of the day-to-day business of the
Corporation. Except in those instances in which the authority to execute is
expressly delegated to another officer or agent of the Corporation or a
different mode of execution is expressly prescribed by the Board of Directors
or these Amended and Restated Bylaws, he may execute for the Corporation any
contracts, deeds, mortgages, bonds or other instruments which the Board of
Directors has authorized to be executed, either individually or with the
secretary, any assistant secretary, or any other officer thereunto authorized
by the Board of Directors, according to the requirements of the form of the
instrument.
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Section 9. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall
attend all meetings of the Board of Directors and all meetings of the
stockholders and record all the proceedings of the meetings of the Corporation
and of the Board of Directors in a book to be kept for that purpose and shall
perform like duties for the standing committees when required. He shall give,
or cause to be given, notice of all meetings of the stockholders and special
meetings of the Board of Directors, and shall perform such other duties as may
be prescribed by the Board of Directors or President, under whose supervision
he shall be. He shall have custody of the corporate seal of the Corporation
and he, or an assistant secretary, shall have authority to affix the same to
any instrument requiring it and when so affixed, it may be attested by his
signature or by the signature of such assistant secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the Corporation and to attest the affixing by his signature.
The assistant secretary, or if there be more than one, the assistant
secretaries in the order determined by the Board of Directors (or if there be
no such determination, then in the order of their election) shall, in the
absence of the secretary
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or in the event of his inability or refusal to act, perform the duties and
exercise the powers of the secretary and shall perform such other duties and
have such other powers as the Board of Directors may from time to time
prescribe.
Section 10. CHIEF OPERATING OFFICER(s). Subject to the direction and
control of the Board of Directors, the Chief Operating Officers shall be in
charge of the day-to-day business of the corporation. Except in those
instances in which the authority to execute is expressly delegated to another
officer or agent of the corporation or a different mode of execution is
expressly prescribed by the Board of Directors or these Amended and Restated
Bylaws, they may execute for the corporation any contracts, deeds, mortgages,
bonds or other instruments which the Board of Directors has authorized to be
executed, either individually or with the Secretary, any assistant secretary,
or any other officer thereunto authorized by the Board of Directors, according
to the requirements of the form of instrument.
Section 11. TREASURER AND ASSISTANT TREASURERS. The treasurer shall
have the custody of the corporate funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Corporation and shall
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deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors.
He shall disburse the funds of the Corporation as may be ordered by the
Board of Directors, taking proper vouchers for such disbursements, and shall
render to the President and the Board of Directors, at its regular meetings, or
when the Board of Directors so requires, an account of all his transactions as
treasurer and of the financial condition of the Corporation.
If required by the Board of Directors, he shall give the Corporation a
bond (which shall be renewed every six years) in such sum and with such surety
or sureties as shall be satisfactory to the Board of Directors for the faithful
performance of the duties of his office and for the restoration to the
Corporation, in case of his death, resignation, retirement or removal from
office, of all the books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation.
The assistant treasurer, or if there shall be more than one, the
assistant treasurers in the order determined by the Board of Directors (or if
there be no such determination, then in the
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order of their election), shall, in the absence of the treasurer or in the
event of his inability or refusal to act, perform the duties and exercise the
powers of the treasurer and shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
ARTICLE VI
Section 1. CERTIFICATE OF STOCK. Every holder of stock in the Corporation
shall be entitled to have a certificate, signed by, or in the name of the
Corporation by, the Chairman Board of Directors, or the President or a
Vice-President and the Treasurer or an assistant treasurer, or the Secretary or
an assistant secretary of the Corporation, certifying the number of shares
owned by him in the Corporation.
Any of or all the signatures on the certificate may be facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
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Section 2. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
Section 3. TRANSFER OF STOCK. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate
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to the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 4. FIXING RECORD DATE. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting: provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 5. REGISTERED STOCKHOLDERS. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for
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calls and assessments a person registered on its books as the owner of shares,
and shall not be bound to recognize any equitable or other claim to or interest
in such share or shares on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise provided by the
laws of Delaware.
ARTICLE VII
GENERAL PROVISIONS
Section 1. DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the Certificate of
Incorporation.
Before payment of any dividend, there may be set aside out of any funds
of the Corporation available for dividends such sum or sums as the directors
from time to time, in their absolute discretion, think proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing
or maintaining any property of the Corporation, or for such other
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purpose as the directors shall think conducive to the interest of the
Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
Section 2. ANNUAL STATEMENT. The Board of Directors shall present at
each annual meeting, and at any special meeting of the stockholders when called
for by vote of the stockholders, a full and clear statement of the business and
condition of the Corporation.
Section 3. CHECKS. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 4. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 5. SEAL. The corporate seal, if there shall be one, shall have
inscribed thereon the name of the Corporation and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
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Section 6. INDEMNIFICATION. The Corporation shall indemnify its
officers, directors, employees and agents to the extent permitted by the
General Corporation Law of Delaware.
ARTICLE VIII
Section 1. AMENDMENTS. These Bylaws may be altered, amended or
repealed or new Bylaws may be adopted by the affirmative vote of the holders of
at least two-thirds of the issued and outstanding stock of the corporation or
by the affirmative vote of at least two-thirds of the total number of directors
on the Board of Directors, when such power is conferred upon the Board of
Directors by the Certificate of Incorporation at any regular meeting of the
stockholders or of the Board of Directors or at any special meeting of the
stockholders or of the Board of Directors if notice of such alteration,
amendment, repeal or adoption of new Bylaws be contained in the notice of such
special meeting. If the power to adopt, amend or repeal Bylaws is conferred
upon the Board of Directors by the Certificate of Incorporation it shall not
divest or limit the power of the stockholders to adopt, amend or repeal Bylaws.
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Exhibit 4.1
WIRELESS BROADCASTING SYSTEMS OF AMERICA,INC.
RESTATED STOCK OPTION PLAN
SECTION 1. Purpose. The purposes of this Wireless Broadcasting
Systems of America, Inc. Stock Option Plan (the "Plan") are to encourage key
employees of Wireless Broadcasting Systems of America, Inc. (together with any
successor thereto, the "Company") and its Affiliates (as defined below) to
acquire a proprietary interest in the growth and performance of the Company, to
generate an increased incentive to contribute to the Company's future success
and prosperity, thus enhancing the value of the Company for the benefit of its
shareholders, and to enhance the ability of the Company and its Affiliates to
attract and retain exceptionally qualified individuals upon whom, in large
measure, the sustained progress, growth, and profitability of the Company
depend.
SECTION 2. Definitions. As used in the Plan, the following terms
shall have the meanings set forth below:
"Affiliate" shall mean (i) any entity that, directly or through one or
more intermediaries, is controlled by the Company and (ii) any entity in which
the Company has a significant equity interest, as determined by the Committee.
"Board" shall mean the Board of Directors of the Company.
"Cause", as used in connection with the termination of a Participant's
employment, shall mean (i) with respect to any Participant employed under a
written contract with the Company or an Affiliate of the Company which contract
includes a definition of "cause," "cause" as defined in such contract and (ii)
with respect to any other Participant, the failure to perform adequately in
carrying out such Participant's employment responsibilities, including any
directives from the Board, or engaging in such behavior in his personal or
business life, as to lead the Committee in its reasonable judgment to determine
that
<PAGE> 2
it is in the best interests of the Company to terminate his employment.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated thereunder.
"Committee" shall mean the Compensation Committee or any other
committee of the Board designated by the Board to administer the Plan and, in
the event the Company has issued any class of common stock required to be
registered under Section 12 of the Exchange Act, the Committee shall be
composed of not less than two outside directors, as described in Section 162(m)
of the Code, each of whom, to the extent necessary to comply with Rule 16b-3
only, is a "disinterested person" within the meaning of Rule 16b-3.
"Common Shares" shall mean any or all, as applicable, of the Common
Stock, $.01 par value, of the Company.
"Employee" shall mean any employee of the Company or of any Affiliate.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" shall mean (A) with respect to any property other
than the Common Shares, the fair market value of such property determined by
such methods or procedures as shall be established from time to time by the
Committee; and (B) with respect to the Common Shares, as of any date, (i) the
last reported sales price on the New York Stock Exchange, or, if not reported
for the New York Stock Exchange on the Composite Tape, or, in case no such
reported sale takes place on such day, the average of the reported closing bid
and asked quotations on the New York Stock Exchange; (ii) if the Common Shares
are not listed on the New York Stock Exchange or no such quotations are
available, the closing price of the Common Shares as reported by the National
Market System, or similar organization, or, if no such quotations are
available, the average of the high bid and low asked quotations as quoted in
the National Association of
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<PAGE> 3
Securities Dealers' Automated Quotation System, or similar organization; or
(iii) in the event that there shall be no public market for the Common Shares,
the fair market value of the Common Shares as determined (which determination
shall be conclusive) in good faith by the Committee, based upon the value of
the Company as a going concern, as if such Common Shares were publicly owned
stock, but without any discount with respect to minority ownership.
"Good Reason", as used in connection with the termination of a
Participant's employment, shall mean (i) with respect to any Participant
employed under a written employment contract with the Company or an Affiliate
of the Company, "good reason" as defined in such written employment agreement
or, if such contract contains no such definition, a material breach by the
Company of such written employment agreement or (ii) with respect to any other
Participant, a failure by the Company to pay such Participant any amount
otherwise vested and due and a continuation of such failure for 30 business
days following notice to the Company thereof.
"Option" shall mean an option granted under Section 6 of the Plan,
which options are not intended to be incentive stock options pursuant to
Section 422 of the Code.
"Option Agreement" shall mean any written agreement, contract, or
other instrument or document evidencing any Option granted under the Plan.
"Participant" shall mean any Employee granted an Option under the
Plan.
"Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, or
government or political subdivision thereof.
"Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Exchange Act, or any successor rule or regulation
thereto as in effect from time to time.
- 3 -
<PAGE> 4
"16b-3 Plan" shall mean the Plan in the event that any Employee
becomes subject to Section 16 of the Exchange Act with respect to Common
Shares.
"Securities Act" shall mean the Securities Act of 1933, as amended.
SECTION 3. Administration. The Plan shall be administered by the
Committee. Subject to the terms of the Plan and applicable law, and in
addition to other express powers and authorizations conferred on the Committee
by the Plan, the Committee shall have the power and authority to: (i) designate
Participants; (ii) determine the number of Common Shares to be covered by
Options; (iii) determine the terms and conditions of any Option; (iv) determine
whether, to what extent, and under what circumstances Options may be settled or
exercised in cash, Common Shares, other securities, or other property, or
canceled, forfeited, or suspended, and the method or methods by which Options
may be settled, exercised, canceled, forfeited, or suspended; (v) determine
requirements for the vesting of Options or performance criteria to be achieved
in order for Options to vest; (vi) determine whether, to what extent, and under
what circumstances cash, Common Shares, other securities, other property, and
other amounts payable with respect to an Option under the Plan shall be
deferred either automatically or at the election of the holder thereof or of
the Committee; (vii) interpret and administer the Plan and any instrument or
agreement relating to, or Option made under, the Plan; (viii) establish, amend,
suspend, or waive such rules and regulations and appoint such agents as it
shall deem appropriate for the proper administration of the Plan; and (ix) make
any other determination and take any other action that the Committee deems
necessary or desirable for the administration of the Plan. Provided, however,
that no options shall be granted under the Plan until proposed grants have been
approved by Boston Ventures IV, a Delaware limited partnership and Boston
Ventures IVA, a Delaware limited partnership (collectively the "Investors")
pursuant to Section 7.5.5 of the Wireless Broadcasting Systems of America, Inc.
Preferred Stock Purchase Agreement dated as of March 15, 1995, among the
Company and the Investors. Unless otherwise expressly provided in the Plan,
all designations, determinations,
- 4 -
<PAGE> 5
interpretations, and other decisions under or with respect to the Plan or any
Option shall be within the sole discretion of the Committee, may be made at any
time and shall be final, conclusive, and binding upon all Persons, including
the Company, any Affiliate, any Participant, any holder or beneficiary of any
Option, any shareholder, and any Employee. Notwithstanding the foregoing, (a)
the maximum number of Options which may be granted to any one participant under
this Plan shall not exceed 1,500,000 Common Shares, subject to the adjustments
provided in Section 4(b) hereof and (b) no Options under this Plan shall be
granted after May 10, 2005.
SECTION 4. Common Shares Available for Options.
(a) Common Shares Available. Subject to adjustment as provided in
Section 4(b):
(i) Calculation of Number of Common Shares Available.
The number of Common Shares available for granting Options under the
Plan shall be 3,103,000, which number of shares shall be reserved for
Options hereunder. If, after the effective date of the Plan, any
Common Shares covered by an Option granted under the Plan, or to which
such an Option relates, are forfeited, or if an Option otherwise
terminates or is canceled without the delivery of Shares or of other
consideration, then the Common Shares covered by such Option, or to
which such Option relates, or the number of Common Shares otherwise
counted against the aggregate number of Common Shares available under
the Plan with respect to such Option, to the extent of any such
forfeiture, termination or cancellation, shall again be, or shall
become, available for granting Options under the Plan.
(ii) Accounting for Options. For purposes of this Section
4, the number of Common Shares covered by an Option, or to which such
Option relates, shall be counted on the date of grant of such Option
against the aggregate number of Common Shares available for granting
Options under the Plan and against the maximum number of Options
available to any participant; and
- 5 -
<PAGE> 6
(iii) Sources of Common Shares Deliverable Under Options.
Any Common Shares delivered pursuant to an Option may consist, in
whole or in part, of authorized and unissued Common Shares or of
treasury Common Shares.
(b) Adjustments. In the event that the Committee shall determine
that any dividend or other distribution (whether in the form of cash, Common
Shares, other securities, or other property), recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, or exchange of Common Shares or other securities of
the Company (other than a conversion of any convertible preferred class of
capital stock of the Company into Common Shares), issuance of warrants or other
rights to purchase Common Shares or other securities of the Company for nominal
consideration, or other similar corporate transaction or event affects the
Common Shares such that an adjustment is determined by the Committee to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of
(i) the number and kind of Common Shares (or other securities or property)
which thereafter may be made the subject of Options, (ii) the number and kind
of Common Shares (or other securities or property) subject to outstanding
Options, and (iii) the grant or exercise price with respect to any Option or, if
deemed appropriate, make provision for a cash payment to the holder of an
outstanding Option; provided, however, that the number of Common Shares subject
to any Option denominated in Common Shares shall always be a whole number.
If the Company is merged into or consolidated with another
corporation under circumstances where the Company is not the surviving
corporation, or if the Company sells or otherwise disposes of substantially all
its assets to another corporation and is liquidated while unexercised Options
remain outstanding under the Plan, (i) subject to the provisions of clause
(iii) below, after the effective date of such merger, consolidation or sale and
liquidation, as the case may be, each holder of an outstanding Option shall be
entitled, to receive, in lieu of Common Shares, shares of such stock or other
securities or
- 6 -
<PAGE> 7
property as the holders of shares of such class of Common Shares received
pursuant to the terms of the merger, consolidation or sale; (ii) the Committee
may waive any limitations imposed pursuant to Subsection 6(a)(ii) hereof so
that all Options, from and after a date prior to the effective date of such
merger, consolidation, or sale and liquidation, as the case may be, specified
by the Committee, shall be exercisable in full (except that no Option may be
exercised within six (6) months of the date of grant); or (iii) all outstanding
Options may be canceled by the Committee as of the effective date of any such
merger, consolidation or sale and liquidation provided that (x) notice of such
cancellation shall be given to each holder of an Option and (y) each holder of
an Option shall have the right to exercise such Option in full (except Options
which were granted within six (6) months of the date of cancellation) during a
30-day period preceding the effective date of such merger, consolidation or
sale and liquidation.
SECTION 5. Eligibility. Any Employee, including any officer or
employee-director of the Company or of any Affiliate, who is not a member of
the Committee shall be eligible to be designated a Participant.
SECTION 6. Options. Subject to the requirements of Section 3, the
Committee is hereby authorized to grant to eligible Employees Options to
purchase Common Shares which shall contain the following terms and conditions
and with such additional terms and conditions, in either case not inconsistent
with the provisions of the Plan, as the Committee shall determine:
(a) Exercise Price. The purchase price per Common Share
purchasable under an Option shall be determined by the Committee.
(b) Time and Method of Exercise. Subject to the terms of Section
6(c), the Committee shall determine the time or times at which an Option may be
exercised in whole or in part, and the method or methods by which, and the form
or forms (including, without limitation, cash, Common Shares, or other
property, or any combination thereof, having a Fair Market Value on the
exercise date equal to the relevant exercise price) in which, payment of the
exercise price with respect thereto may be made or
- 7 -
<PAGE> 8
deemed to have been made; provided that, unless otherwise specified in the
applicable Option Agreement and subject to the terms of Section 6(c), no Option
may be exercised until the expiration of one year of continued employment of
the Participant by the Company or an Affiliate or both immediately following
the date the Option was granted.
(c) Exercisability Upon Death, Retirement and Termination of
Employment. Subject to the condition that no Option may be exercised in whole
or in part after the expiration of the Option period specified in the
applicable Option Agreement:
(i) Subject to the terms of paragraph (iv) below, upon
the death of a Participant while employed, or if a former Participant
dies within three months after the commencement of retirement or
disability, as defined in paragraph (ii) below, the person or persons
to whom such Participant's rights with respect to any Option held by
such Participant are transferred by will or the laws of descent and
distribution may, prior to the expiration of the earlier of: (A) the
outside exercise date determined by the Committee at the time of
granting the Option, or (B) nine months after such Participant's
death, purchase any or all of the Common Shares with respect to which
such Participant was entitled to exercise such Option immediately
prior to such Participant's death, and any Options not so exercisable
will lapse on the date of such Participant's death;
(ii) Subject to the terms of paragraph (iv) below, upon
termination of a Participant's employment with the Company (x) as a
result of retirement pursuant to a retirement plan of the Company or
an Affiliate or disability (as determined by the Committee) of such
Participant, (y) by the Company other than for Cause, or (z) by the
Participant with Good Reason, such Participant may, prior to the
expiration of the earlier of: (A) the outside exercise date
determined by the Committee at the time of granting the Option, or (B)
three months after the date of such termination, purchase any or all
of the Common Shares with respect to which such Participant was
entitled to exercise any Options immediately
- 8 -
<PAGE> 9
prior to such termination, and any Options not so exercisable will
lapse on such date of termination;
(iii) Subject to the terms of paragraph (iv) below, upon
termination of a Participant's employment with the Company under any
circumstances not described in paragraphs (i) or (ii) above, such
Participant's Options shall be canceled to the extent not theretofore
exercised;
(iv) Upon (A) the death of the Participant, or (B)
termination of the Participant's employment with the Company (1) by
the Company other than for Cause (2) by the Participant with Good
Reason or (3) as a result of retirement or disability as defined in
paragraph (ii) above, the Company shall have the right to cancel all
of the Options such Participant was entitled to exercise at the time
of such death or termination (subject to the terms of paragraphs (i)
or (ii above) for a payment in cash equal to the excess, if any, of
the Fair Market Value of one Common Share on the date of death or
termination over the exercise price of such Option for one Common
Share times the number of Common Shares subject to the Option and
exercisable at the time of such death or termination; and
(v) Upon expiration of the respective periods set forth
in each of paragraphs (i) through (ii) above, the Options of a
Participant who has died or become disabled or whose employment has
been terminated shall be canceled to the extent not theretofore
canceled or exercised.
(d) General.
(i) No Cash Consideration for Options. Options may be
granted for no cash consideration or for such minimal cash
consideration as may be required by applicable law.
(ii) Limits on Transfer of Options.
(A) No Option and no right under any such Option,
may be assigned, alienated, pledged, attached, sold or
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<PAGE> 10
otherwise transferred or encumbered by a Participant otherwise
than by will or by the laws of descent and distribution and
any such purported assignment, alienation, pledge, attachment,
sale or other transfer or encumbrance shall be void and
unenforceable against the Company or any Affiliate.
(B) Each Option, and each right under any Option,
shall be exercisable, during the Participant's lifetime only
by the Participant or if permissible under applicable law, by
the Participant's guardian or legal representative.
(iii) Terms of Options. The term of each Option shall be
for such period as may be determined by the Committee; provided,
however, that in no event shall the term of any Option exceed a period
of ten years from the date of its grant.
(iv) Rule 16b-3 Six-Month Limitations. To the extent
required in order to maintain the exemption provided under Rule 16b-3
only, any equity security offered pursuant to the Plan must be held
for at least six months after the date of grant, and with respect to
any derivative security issued pursuant to the Plan, at least six
months must elapse from the date of acquisition of such derivative
security to the date of disposition of the derivative security (other
than upon exercise or conversion) or its underlying equity security.
Terms used in the preceding sentence shall, for the purposes of such
sentence only, have the meanings, if any, assigned or attributed to
them under Rule 16b-3.
(v) Common Share Certificates. All certificates for Common
Shares delivered under the Plan pursuant to any Option of the exercise
thereof shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the Plan or the
rules, regulations, and other requirements of the Securities and
Exchange Commission, any stock exchange upon which such Common Shares
are then listed, and any applicable Federal or state securities laws,
and the Committee may cause a legend or
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<PAGE> 11
legends to be put on any such certificates to make appropriate
reference to such restrictions.
(vi) Delivery of Common Shares or Other Securities and
Payment by Participant of Consideration. No Common Shares or other
securities shall be delivered pursuant to any Option until payment in
full of any amount required to be paid pursuant to the Plan or the
applicable Option Agreement is received by the Company. Such payment
may be made by such method or methods and in such form or forms as the
Committee shall determine, including, without limitation, cash, Common
Shares, other securities, or other property, or any combination
thereof; provided that the combined value, as determined by the
Committee, of all cash and cash equivalents and the Fair Market Value
of any such Common Shares or other property so tendered to the
Company, as of the date of such tender, is at least equal to the full
amount required to be paid pursuant to the Plan or the applicable
Option Agreement to the Company.
SECTION 7. Amendments; Adjustments and Termination. Except to the
extent prohibited by applicable law and unless otherwise expressly provided in
an Option Agreement or in the Plan:
(a) Amendments to the Plan. The Board may amend, alter, suspend,
discontinue, or terminate the Plan without the consent of any shareholder,
Participant, other holder or beneficiary of an Option, or other Person;
provided, however, that, subject to the Company's rights to adjust Options
under Sections 7(c) and (d), any amendment, alteration, suspension,
discontinuation, or termination that would impair the rights of any
Participant, or any other holder or beneficiary of any Option theretofore
granted, shall not to that extent be effective without the consent of such
Participant, other holder or beneficiary of an Option, as the case may be; and
provided further, however, that notwithstanding any other provision of the Plan
or any Option Agreement, without the approval of the shareholders of the
Company no such amendment, alteration, suspension, discontinuation, or
termination shall be made that would:
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<PAGE> 12
(i) increase the total number of Common Shares available
for Options under the Plan, except as provided in Section 4 hereof; or
(ii) otherwise cause the Plan to cease to comply with any tax
or regulatory requirement, including for these purposes any approval
or other requirement which is or would be a prerequisite for exemptive
relief from Section 16(b) of the Exchange Act.
(b) Amendments to Options. The Committee may waive any conditions
or rights under, amend any terms of, or alter, suspend, discontinue, cancel or
terminate, any Option theretofore granted, prospectively or retroactively;
provided, however, that, subject to the Company's rights to adjust Options
under Sections 7(c) and (d), any amendment, alteration, suspension,
discontinuation, cancellation or termination that would impair the rights of
any Participant or holder or beneficiary of any Option theretofore granted,
shall not to that extent be effective without the consent of such Participant
or holder or beneficiary of an Option, as the case may be.
(c) Adjustment of Options Upon Certain Acquisitions. In the event
the Company or any Affiliate shall assume outstanding employee options or the
right or obligation to make future such options in connection with the
acquisition of another business or another corporation or business entity, the
Committee may make such adjustments, not inconsistent with the terms of the
Plan, in the terms of Options as it shall deem appropriate in order to achieve
reasonable comparability or other equitable relationship between the assumed
options and the Options granted under the Plan as so adjusted.
(d) Adjustments of Options Upon the Occurrence of Certain Unusual
or Non-recurring Events. The Committee is hereby authorized to make
adjustments in the terms and conditions of, and the criteria included in,
Options in recognition of unusual or non recurring events (including, without
limitation, the events described in Section 4(b) hereof) affecting the Company,
any Affiliate, or the financial statements of the Company or any Affiliate, or
of changes in applicable laws, regulations, or
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<PAGE> 13
accounting principles, whenever the Committee determines that such adjustments
are appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan.
SECTION 8. General Provisions.
(a) No Rights to Options. No Employee or other Person shall have
any claim to be granted any Option under the Plan, and there is no obligation
for uniformity of treatment of Employees, or holders or beneficiaries of
Options under the Plan. The terms and conditions of Options need not be the
same with respect to each recipient.
(b) Delegation. Subject to the terms of the Plan and applicable
law, the Committee may delegate to one or more officers or managers of the
Company or any Affiliate, or to a committee of such officers or managers, the
authority, subject to such terms and limitations as the Committee shall
determine, to grant Options to, or to cancel, modify, waive rights with respect
to, alter, discontinue, suspend, or terminate Options; provided that, no such
delegation shall be permitted with respect to Options held by Employees who are
officers or directors of the Company for purposes of Section 16 of the Exchange
Act, or any successor section thereto, or who are otherwise subject to such
Section.
(c) Correction of Defects, Omissions, and Inconsistencies. The
Committee may correct any defect, supply any omission, or reconcile any
inconsistency in the Plan or any Option in the manner and to the extent it
shall deem desirable to carry the Plan into effect.
(d) Withholding. The Company or any Affiliate shall be authorized
to withhold from any Option granted, from any payment due or transfer made
under any Option or under the Plan or from any compensation or other amount
owing to a Participant the amount (in cash, Common Shares, other securities,
other Options, or other property) of withholding taxes due in respect of an
Option, its exercise, or any payment or transfer under such Option or under the
Plan and to take such other action as may be
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<PAGE> 14
necessary in the opinion of the Company or Affiliate to satisfy all obligations
for the payment of such taxes.
(e) No Limit on Other Compensation Arrangements. Nothing
contained in the Plan shall prevent the Company or any Affiliate from adopting
or continuing in effect other or additional compensation arrangements, and such
arrangements may be either generally applicable or applicable only in specific
cases.
(f) No Right to Employment. The grant of an Option shall not be
construed as giving a Participant the right to be retained in the employ of the
Company or any Affiliate. Further, the Company or an Affiliate may at any time
dismiss a Participant from employment, free from any liability, or any claim
under the Plan, unless otherwise expressly provided in the Plan or in any
Option Agreement.
(g) Governing Law. The validity, construction, and effect of the
Plan and any rules and regulations relating to the Plan shall be determined in
accordance with the laws of the State of Delaware and applicable Federal law.
(h) Severability. If any provision of the Plan or any Option is
or becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction or as to any Person or Option under any law deemed applicable by
the Committee, such provision shall be construed or deemed amended to conform
to applicable laws, or if it cannot be construed or deemed amended without, in
the determination of the Committee, materially altering the intent of the Plan
or the Option, such provision shall be stricken as to such jurisdiction, Person
or Option and the remainder of the Plan and any such Option shall remain in
full force and effect.
(i) No Trust or Fund Created. Neither the Plan nor any Option
shall create or be construed to create a trust or separate fund of any kind or
a fiduciary relationship between the Company or any Affiliate and a Participant
or any other Person. To the extent that any Person acquires a right to receive
payments from the Company or any Affiliate pursuant to an Option, such right
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<PAGE> 15
shall be no greater than the right of any unsecured general creditor of the
Company or any Affiliate.
(j) No Fractional Common Shares. No fractional Common Shares
shall be issued or delivered pursuant to the Plan or any Option, and the
Committee shall determine whether cash, other securities, or other property
shall be paid or transferred in lieu of any fractional Common Shares or whether
such fractional Common Shares or any rights thereto shall be canceled,
terminated, or otherwise eliminated.
(k) Headings. Headings are given to the Sections and subsections
of the Plan solely as a convenience to facilitate reference. Such headings
shall not be deemed in any way material or relevant to the construction or
interpretation of the Plan or any provision thereof.
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<PAGE> 16
SECTION 9. Adoption, Approval and Effective Date of the Plan. The
Plan shall be considered adopted and shall become effective on the date the
Plan is approved by the Board; provided, however, that the Plan and any Options
granted under the Plan shall be void, if the stockholders of the Company shall
not have approved the adoption of the Plan within twelve (12) months after the
effective date.
WIRELESS BROADCASTING SYSTEMS OF AMERICA
By: /s/ WILLIAM W. KINGERY
-----------------------------------
Its PRESIDENT
-----------------------------
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<PAGE> 17
Exhibit A
NON-NEGOTIABLE PROMISSORY NOTE
$____________________
[Date]
FOR VALUE RECEIVED, the undersigned, WIRELESS BROADCASTING SYSTEMS OF
AMERICA, INC. (the "Issuer"), hereby promises to pay _____________________
____________________________ (the "Holder"), at________________________________
_________________________________________________ or at such place as shall be
designated in writing to the Issuer from time to time, in lawful money of the
United States of America, by wire transfer or cashier's or certified check, (i)
the principal sum of __________ ________________________________ on [one year
from the date hereof], (ii) the principal sum of ______________________________
________________________________ on [two years from the date hereof), (iii) the
principal sum of _____________________________ ________________________________
on [three years from the date hereof], (iv) the principal sum of
______________________________ ________________________________ on [four years
from the date hereof], and (v) the principal sum of ___________________________
________________________________ on [five years from the date hereof].
The parties hereto hereby acknowledge the personal nature of the
mutual performance of this Note and that the identity of the Issuer and the
Holder is mutually material. This Note shall not be assigned, transferred,
negotiated, conveyed or otherwise transferred in whole in part.
In the event of any default in the payment of principal hereunder, the
remaining principal balance may be declared to be due and payable.
This note is one of the notes referred to in Section 6(a) of the
Wireless Broadcasting Systems of America, Inc. Stock Option Plan. The Company
may, without penalty, prepay all or part of the balance due hereunder. Any
such prepayment shall be applied against the remaining installments in reverse
order.
<PAGE> 18
The Company promises to pay all reasonable costs and expenses,
including reasonable attorneys' fees, incurred in the collection and
enforcement of this Note.
The Issuer hereby waives diligence, presentment, demand, protest and
notice of any kind whatsoever. The non exercise by the Holder of any or its
rights hereunder in any particular instance shall not constitute a waiver
thereof in that or any subsequent instance.
This Note shall be construed in accordance with and governed by the
laws of the State of _____________.
WIRELESS BROADCASTING SYSTEMS OF AMERICA, INC.
By_______________________________
Its____________________________
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<PAGE> 1
Exhibit 4.3
WIRELESS BROADCASTING SYSTEMS OF AMERICA, INC.
STOCKHOLDERS AGREEMENT
DATED AS OF MARCH 15, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
1. DEFINITIONS 2
1.1. Certain Definitions 2
1.2. Certain Matters of Construction 4
1.3. Cross Reference Table 5
2. VOTING AGREEMENT 6
2.1. Election of Directors 6
2.2. Removal 6
2.3. Successors 7
2.4. The Company 7
2.5. Period 7
3. PREEMPTIVE RIGHTS 7
3.1. Right of First Offer 7
3.2. Second Proposal 8
3.3. Notice 8
3.4. Sale to Third Parties 8
3.5. Proportionate Percentage 9
3.6. Expiration; Exceptions 9
4. CERTAIN TRANSFER RIGHTS AND RESTRICTIONS; RIGHTS OF FIRST OFFER 9
4.1. Transfers of Shares to Immediate Family or Affiliate 9
4.2. Transfer of Shares Upon Death 10
4.3. Rights of First Offer on Transfers by Other Original Investors 10
4.4. Restrictions on Transfers by Designated Original Investors 11
4.5. Expiration 12
5. "TAKE ALONG" RIGHTS 12
5.1. Procedure 12
5.2. Further Assurances 13
5.3. Closing 13
5.4. Expiration. 13
6. CERTAIN ISSUANCES AND TRANSFERS, ETC 13
7. REGISTRATION RIGHTS 14
</TABLE>
-ii-
<PAGE> 3
<TABLE>
<S> <C> <C>
7.1. Piggyback Registration Rights 14
7.2. Demand Registration Rights 15
7.3. Cooperation; Expenses etc 16
7.4. Indemnification and Contribution 17
7.5. Registration Procedures. 19
7.6. Form S-3 Registration Rights 21
7.7. Selection of Underwriter 21
7.8. Lock-up 22
7.9. Reports Under Securities Exchange Act of 1934. 22
8. REMEDIES 23
8.1. Generally 23
8.2. Deposit 23
9. INDEMNIFICATION 24
9.1. Generally 24
9.2. Procedure 25
9.3. Payment 25
9.4. Enforceability 25
9.5. Termination 25
10. EXCLUSIVE INVESTMENT 25
11. LEGENDS 26
12. AMENDMENT, TERMINATION, ETC 26
12.1. No Oral Modifications 26
12.2. Written Modifications 26
13. MISCELLANEOUS 27
13.1. Authority; Effect 27
13.2. Notices 27
13.3. Binding Effect, etc 28
13.4. Descriptive Headings 28
13.5. Counterparts 28
13.6. Severability 29
13.7. Governing Law 29
</TABLE>
-iii-
<PAGE> 4
STOCKHOLDERS AGREEMENT
This Stockholders Agreement (the "Agreement") is made as of March 15, 1995
by and among (i) Wireless Broadcasting Systems of America, Inc., a Delaware
corporation (the "Company"), (ii) Boston Ventures Limited Partnership IV, a
Delaware limited partnership ("Fund IV"), and Boston Ventures Limited
Partnership IVA, a Delaware limited partnership ("Fund IVA"; together with Fund
IV, the "Investors," each an "Investor"); (iii) the stockholders of the
Company listed on Exhibit A hereto (the "Designated Original Investors"); and
(iv) the stockholders of the Company listed on Exhibit B hereto (the "Other
Original Investors"). The Designated Original Investors and the Other Original
Investors are referred to collectively herein as the "Original Investors," each
an "Original Investor," and the Investors and the Original Investors are
collectively referred to herein as the "Stockholders."
WHEREAS, the Original Investors are the owners of all of the issued and
outstanding shares of Common Stock, par value $.01 per share ("Common Stock"),
of the Company;
WHEREAS, pursuant to a Preferred Stock Purchase Agreement dated as of
March 15, 1995 (the "Stock Purchase Agreement") by and among the Company and
the Investors, the Investors are acquiring as of the date hereof 25,000 shares
of Class A Cumulative Convertible Preferred Stock, par value $.01 per share
("Preferred Stock"), of the Company, and may under the circumstances described
in the Stock Purchase Agreement acquire an additional 10,000 shares of
Preferred Stock (the shares of Preferred Stock acquired by the Investors
pursuant to the Stock Purchase Agreement are referred herein as the "Investor
Shares");
WHEREAS, the Preferred Stock is convertible into shares (the "Conversion
Shares") of Common Stock of the Company;
WHEREAS, the Original Investors are acquiring, as of the date hereof,
certain warrants to acquire, in the aggregate, 9,642,857 shares, and may under
the circumstances described in the Stock Purchase Agreement acquire additional
warrants to acquire, in the aggregate, 3,857,143 shares, of Common Stock of the
Company, all of such warrants (the "Warrants") collectively covering an
aggregate of 13,500,000 shares (the "Warrant Shares") of Common Stock of the
Company, subject to future adjustment as provided in the Warrants;
WHEREAS, the Investors and the Original Investors are the holders of all
of the outstanding capital stock of the Company;
<PAGE> 5
WHEREAS, the parties believe that it is in the best interests of the
Company and the Stockholders to: (i) provide that certain shares of Common
Stock shall be transferable only upon compliance with the terms hereof; (ii)
provide the Company with certain rights with respect to the purchase of shares
of Common Stock under certain circumstances; (iii) provide for certain rights
with respect to the registration under the Securities Act of the Common Stock
held by or issuable to the Stockholders; (iv) provide for certain rights and
obligations of the Stockholders with respect to the election of directors of
the Company; and (v) set forth their agreements on certain other matters;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
agreements set forth below, the parties hereto, each intending to be legally
bound, hereby agree as follows:
1. DEFINITIONS. For purposes of this Agreement:
1.1. Certain Definitions. The following terms shall have the following
meanings:
1.1.1. "Affiliate" shall mean, with respect to any specified Person,
any Person that, directly or indirectly, through one or more
intermediaries, controls, is controlled by or is under common control
with, the Person specified and, in the case of the Investors, shall
include their partners and limited partners and any Affiliated Funds.
1.1.2. "Affiliated Fund" shall mean any limited partnership or other
Person formed for the purpose of investing in other companies or
businesses and for which Boston Ventures Management, Inc., or any of its
Affiliates or officers, acts as a partner or as an advisor or manager.
1.1.3. "Board" shall mean the Board of Directors of the Company.
1.1.4. "Fully Diluted Shares" shall mean outstanding shares of
Common Stock, assuming the conversion or exercise of all outstanding
securities then convertible into or exercisable for Common Stock but
excluding the Warrant Shares.
1.1.5. "Independent Third Party" means any person who, immediately
prior to the contemplated transaction, does not own in excess of 5% of
the Fully Diluted Shares, who is not controlling, controlled by or under
common control with any such 5% owner, and who is not the spouse or
descendent (by birth or adoption) of any such 5% owner.
1.1.6. "Initial Public Offering" shall mean the first public
offering of shares of Common Stock registered under the Securities Act.
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<PAGE> 6
1.1.7. "Stock Option Plan" shall mean the Restated Stock Option Plan
adopted by the Company on March 9, 1995.
1.1.8. "Members of the Immediate Family" shall mean, with respect to
any individual, each spouse, parent, brother, sister or child of such
individual, each spouse of any such Person, each child of any of the
aforementioned Persons, each trust or partnership created solely for the
benefit of one or more of the aforementioned Persons and each custodian
or guardian of any property of one or more of the aforementioned Persons
in his capacity as such custodian or guardian.
1.1.9. "Person" shall mean any individual, partnership, corporation,
company, association, trust, joint venture, unincorporated organization
or entity, or any government, governmental department or agency or
political subdivision thereof.
1.1.10. "Public Offering" shall mean a registered public offering of
shares of Common Stock under the Securities Act and shall include in the
case of a sale by a Stockholder a sale pursuant to Rule 144 under the
Securities Act or any similar rule substituted therefor.
1.1.11. "Required Shares" shall mean (i) in the case of the
Investors, 20% of the Investor Shares originally purchased by the
Investors under the Stock Purchase Agreement (which Investor Shares shall
include for purpose of this definition any Conversion Shares into which
such Investor Shares were converted), and (ii) in the case of the
Designated Original Investors, 20% of the shares of Common Stock held by
the Designated Original Investors as of the date hereof.
1.1.12. "Registrable Securities" shall mean the shares of Common
Stock held as of the date hereof by the Original Investors, the shares of
Common Stock underlying the Warrants, the Conversion Shares, any shares
of Common Stock issued to, or issuable on conversion or exercise of any
securities issued to, the Investors or the Original Investors pursuant to
Section 3 hereof, and any shares of Common Stock issuable as a dividend
on, in exchange for, or in replacement of any of the foregoing, provided
that any shares of Common Stock sold to the public pursuant to a
registered public offering or pursuant to Rule 144 (or a similar rule)
under the Securities Act shall cease to be Registrable Securities from
and after the time of such sale.
1.1.13. "Registration Expenses" shall mean all expenses incident to
the registration of Registrable Securities pursuant to Section 7 hereof
including, without limitation, all
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<PAGE> 7
registration and filing fees, all fees and expenses in connection
with complying with securities or blue sky laws, including the
expenses required by or incident to such performance or
compliance, all printing expenses, all messenger and delivery
expenses, the fees and disbursements of counsel for the Company
and of its independent public accountants, including the expenses
of any special audits required by or incident to such performance
and compliance, and the reasonable fees and disbursements of one
law firm and one accounting firm for the holders of Registrable
Securities participating in the offering in question, but
excluding any underwriting discounts and commissions and
applicable transfer taxes on the Registrable Securities which
shall be borne pro-rata by the sellers of Registrable Securities.
1.1.14. "Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations of the Securities and Exchange
Commission promulgated thereunder, all as from time to time in effect.
1.1.15. "Shares" shall mean all shares of Common Stock, Preferred
Stock and any other capital stock of the Company now or hereafter in
existence, and any securities of the Company exercisable for or
convertible into Common Stock, Preferred Stock, or any other capital
stock of the Company now or hereafter in existence.
1.1.16. "Voting Shares" shall mean Common Stock and any other shares
of capital stock or other securities now or hereafter issued, carrying
the right to vote for directors of the Company.
1.2. Certain Matters of Construction. In addition to the definitions
referred to as set forth in the Section 1.1:
(a) The words "hereof", "herein", "hereunder" and words of similar
import shall refer to this Agreement as a whole and not to any particular
Section or provision of this Agreement, and reference to a particular
Section of this Agreement shall include all subsections thereof;
(b) Definitions shall be equally applicable to both the singular
and plural forms of the terms defined; and
(c) The masculine, feminine and neuter genders shall each include
the other.
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<PAGE> 8
1.3. Cross Reference Table. The following terms defined elsewhere in this
Agreement in the Sections set forth below shall have the respective meanings
therein defined:
<TABLE>
<CAPTION>
Term Definition
----- -----------
<S> <C>
Agreement Preamble
Common Stock Preamble
Company Preamble
Conversion Shares Preamble
Covered Person Section 7.4.1
Designated Directors Section 2.1
Designated Original Investors Preamble
Exchange Act Section 7.9.1
FCC Section 9.1
Fund IV Preamble
Fund IVA Preamble
Future Shares Exercise Period Section 3.1
Future Shares Section 3.1
Initiating Holders Section 7.2.1
Initiating Request Section 7.2.1
Investor Directors Section 2.1
Investor Shares Preamble
Investors Preamble
Majority Holders Section 5
Majority Requesting Holders Section 7.2.2
Non-Complying Stockholder Section 8.2
Notice of Purchase Section 3.3
Offer Notice Section 4.3
Original Investor Directors Section 2.1
Original Investors Preamble
Other Original Investors Preamble
Participating Seller Section 5.1
Preferred Stock Preamble
Proportionate Percentage Section 3.5
Proposal Section 3.1
Proposed Buyer Section 5
Proposed Sellers Section 5
Refused Future Shares Section 3.4
</TABLE>
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<PAGE> 9
<TABLE>
<S> <C>
Remaining Future Shares Section 3.2
Remaining Future Shares Exercise Period Section 3.2
Remaining Shares Section 4.3
Sale Section 5
Sale Percentage Section 5
SEC Section 7.5
Second Proposal Section 3.2
Selling Holders Section 7.5
Stockholders Preamble
Stock Purchase Agreement Preamble
Take Along Notice Section 5.1
Transfer Section 4
Transferring Holder Section 4.3
Warrant Shares Preamble
Warrants Preamble
144A Information Section 7.9.2
</TABLE>
2. VOTING AGREEMENT.
2.1. Election of Directors. Each Stockholder hereby agrees to cast all
votes to which such Stockholder is entitled in respect of any Voting Shares now
or hereafter owned by such Stockholder, whether at any annual or special meeting
of stockholders, by written consent or otherwise, and otherwise to use its best
efforts, to: (i) fix the number of directors constituting the Board not less
than seven, (ii) elect as directors of the Company any two individuals (the
"Investor Directors") that may be designated by Investors for election at any
election of directors and (iii) elect as directors of the Company any two
individuals (the "Original Investor Directors"; together with the Investor
Directors, the "Designated Directors") that may be designated by the Designated
Original Investors for election at any election of directors held at a time
during which the Designated Original Investors continue to own the Required
Shares; provided, however, that the Investors may at any time designate fewer
than two Investor Directors, without affecting their right to designate two
Investor Directors at any future time; and provided, further, that at any time
when the Board shall consist of more than seven directors, the Investors and the
Designated Original Investors shall each be entitled to designate and have
elected to the Board such number of Investor Directors and Original Investor
Directors, respectively, as constitutes not less than two-sevenths of the total
number of directors (rounded up to the next highest whole number).
2.2. Removal. No Designated Director may be removed without the consent of
the parties with the right to designate such Designated Director, except for
cause as determined in good
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<PAGE> 10
faith by unanimous decision of all directors other than the director or
directors to be so removed, after giving the director being removed an
opportunity to be heard.
2.3. Successors. In the event an Investor Director or Original Investor
Director shall cease to serve for any reason at a time when the Investors or
the Designated Original Investors, as the case may be, would be entitled to
designate a director pursuant to Section 2.1 above, the Investors or the
Designated Original Investors, as the case may be, shall have the right to
nominate a successor to the Investor Director or Original Investor Director in
question. The Board and each holder of Voting Shares shall, upon receipt of
notice identifying such nominee, promptly take all action necessary to cause
the appointment of such nominee to the Board pursuant to the Company's by-laws
and certificate of incorporation, each as amended and in effect from time to
time.
2.4. The Company. The Company agrees not to give effect to any action by
any holder of Shares which is in contravention of this Section 2.
2.5. Period. The foregoing provisions of this Section 2 shall expire on
the earliest of: (i) December 31, 2005; (ii) the date of termination of this
Agreement; and (iii) the first date on which the Investors and their Affiliates
own less than the Required Shares.
3. PREEMPTIVE RIGHTS.
3.1. Right of First Offer. Except as set forth in Section 3.6, the
Company shall not issue or sell any of its equity securities, including
but not limited to Common Stock or securities convertible into, or
options, warrants, or other rights to purchase Common Stock
(collectively, the "Future Shares"), to any Person without providing
each Investor and each Original Investor the right to subscribe for its
Proportionate Percentage (as defined in Section 3.5) of such Future
Shares at a price and on such other terms (including the method of
purchase) which are at least as favorable as shall be offered to such
third party and which shall have been specified by the Company in a
writing delivered to each Investor and each Original Investor (the
"Proposal"); provided, however, that the Investors and the Original
Investors shall have the option of purchasing Future Shares with cash,
regardless of the method of purchase offered to such Person. The
Proposal by its terms shall remain open and irrevocable for a period of
20 days from the date it is delivered by the Company to each Investor
and each Original Investor (the "Future Shares Exercise Period"). The
Proposal shall also certify that the Company has either (a) if the
Company intends to sell the Future Shares to a specific purchaser or
group of purchasers, received a firm offer from a prospective purchaser,
who shall be identified in such certification or that the Company in
good faith believes a binding agreement of sale is obtainable for
consideration having a fair market, cash equivalent or present value set
forth in such certification, or (b) if the Company has no specific
purchaser in mind, intends in good faith to offer its securities at the
price and on the terms set forth in such certification.
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<PAGE> 11
3.2. Second Proposal. If any Investor or Original Investor shall
subscribe for less that its Proportionate Percentage of the Future Shares set
forth in the Proposal to it, then the Company, at the end of the Future Shares
Exercise Period, shall give notice in the same manner to each Investor and each
Designated Original Investor who did subscribe for its entire Proportionate
Percentage of the Future Shares of the number of Future Shares which the
Investors and Original Investors had not elected to purchase during the Future
Shares Exercise Period (the "Remaining Future Shares") and stating that such
Investor or Designated Original Investor may elect to purchase at the same
price any or all of the Remaining Future Shares (the "Second Proposal"), which
Second Proposal by its terms shall remain open and irrevocable for a period of
five days from the date it is delivered by the Company to each such Investor or
Designated Original Investor (the "Remaining Future Shares Exercise Period").
If the total number of Remaining Future Shares is sufficient to satisfy the
elections of Investors and Designated Original Investors who received the
Second Proposal, such Remaining Future Shares shall be allocated to them in
accordance with their elections; if not, the available Remaining Future Shares
shall be allocated among such Investors and Designated Original Investors
according to their respective Proportionate Percentage (provided that such
allocation shall be adjusted if necessary so that no Investor or Designated
Original Investor is allocated more Remaining Future Shares than it has elected
to purchase).
3.3. Notice. Notice of each Investor's and each Original Investor's
intention to accept, in whole or in part, the Proposal made pursuant to Section
3.1 or 3.2 shall be evidenced by a writing signed by such Investor or Original
Investor and delivered to the Company prior to the end of the Future Shares
Exercise Period or the Remaining Future Shares Exercise Period setting forth
that portion of the Future Shares or the Remaining Future Shares which the
Investor or Original Investor elects to purchase (the "Notice of Purchase").
3.4. Sale to Third Parties. In the event that the Investors and the
Original Investors elect not to purchase all (or any part) of the Future Shares
or the Remaining Future Shares, the Company shall have 120 days (which 120 days
shall be extended by the number of days which elapse between the filing for and
the receipt of any necessary regulatory approvals) from the expiration of the
later of Future Shares Exercise Period or the Remaining Future Shares Exercise
Period to offer and sell all or any part of such Future Shares not purchased by
the Investors and the Original Investors (the "Refused Future Shares") to one or
more other Persons, but only upon terms and conditions in all respects which are
no more favorable to such other Persons or less favorable to the Company than
those set forth in the Proposal and the Second Proposal, as the case may be;
provided, however, that such sale shall be to the same Persons or their
Affiliates identified in the Proposal, if so identified pursuant to Section 3.1.
In the event that the Company so sells the Refused Future Shares to such other
Persons, the sale to each Investor and each Original Investor of the Future
Shares and the Remaining Future Shares in respect of which a Notice of Purchase
was delivered to the Company
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<PAGE> 12
by such Investor or Original Investor shall occur upon the closing of the sale
to such other Persons of Refused Future Shares (which closing shall include full
payment to the Company). If there are no Refused Future Shares, the sale to
such Investor or Original Investor of such Future Shares shall occur within 20
days of the expiration of the Future Shares Exercise Period or the Remaining
Future Shares Exercise Period, whichever is later . If such offering or sale of
Refused Future Shares shall be terminated, the Company shall promptly give such
Investor or Original Investor written notice of such termination and such
Investor or Original Investor may, but shall not be required to, purchase such
Future Shares and Remaining Future Shares, in which case such purchase shall
occur within 30 days of the date of such termination. In any event, the sale to
such Investor or Original Investor of such Future Shares and Remaining Future
Shares shall be on the terms specified in the Proposal and the Second Proposal.
Any Refused Future Shares not purchased by such other Persons within such
120-day period (as extended) shall remain subject to this Section 3.
3.5. Proportionate Percentage. The term "Proportionate Percentage" in
this Section 3 shall mean, as to any Investor or Original Investor, that
percentage figure which expresses the ratio which (i) the number of Fully
Diluted Shares then owned by such Investor or Original Investor bears to (ii)
the aggregate number of Fully Diluted Shares held by the Investors and by the
Original Investors.
3.6. Expiration; Exceptions. This Section 3 shall expire on the first
date on which the Investors and their Affiliates own less than the Required
Shares and in any event shall not apply to the issuance and sale by the Company
of: (i) the Warrants or the Warrant Shares, (ii) options granted pursuant to
the Stock Option Plan or Common Stock issuable upon exercise thereof, (iii) the
Investor Shares or the Conversion Shares or (iv) its Common Stock in a Public
Offering.
4. CERTAIN TRANSFER RIGHTS AND RESTRICTIONS; RIGHTS OF FIRST OFFER.
No Original Investor shall sell, pledge, assign, grant a participation
interest in, encumber or otherwise transfer or dispose of any of Shares held by
such Original Investor to any other Person, whether directly, indirectly,
voluntarily, involuntarily, by operation of law, pursuant to judicial process
(including, without limitation, divorce decree) or otherwise (collectively, a
"Transfer"), except as permitted by this Section 4. Any attempted Transfer of
Shares by an Original Investor not permitted by this Section 4 shall be null
and void, and the Company shall not in any way give effect to any such
impermissible Transfer.
4.1. Transfers of Shares to Immediate Family or Affiliate. Any Original
Investor that is an individual may Transfer any or all of his Shares to a
Member of the Immediate Family of such Original Investor, and an Original
Investor that is not an individual may Transfer any or all of its Shares to an
Affiliate of such Original Investor; provided, however, that no such Transfer
shall be effective until such Member of the Immediate Family or Affiliate has
delivered to the Company a
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<PAGE> 13
written acknowledgement and agreement in form and substance reasonably
satisfactory to the Company that the Shares to be received by such Member of the
Immediate Family or Affiliate are subject to all the provisions of this
Agreement and that such Member of the Immediate Family or Affiliate is bound
hereby and a party hereto to the same extent as an Original Investor.
4.2. Transfer of Shares Upon Death. Upon the death of any Original
Investor that is an individual, any Shares held by such Original Investor shall
either (i) be distributed by will or other instrument taking effect at death or
by applicable laws of descent and distribution to a member of the Immediate
Family of such Original Investor, in accordance with and subject to the
requirements of Section 4.1, or (ii) be subject to a right of first offer to
the Company and to the Investors and the Original Investors as provided in
Section 4.3, as if such Original Investor were an Other Original Investor and
as if such Original Investor had proposed to sell such Shares at their fair
market value (measured at the time of death), provided that the Company shall,
to the extent that it does not elect to purchase all of such Shares, shall be
required to give an Offer Notice to the Investors and the Designated Original
Investors in respect of such Shares.
4.3. Rights of First Offer on Transfers by Other Original Investors. Except
as provided in Sections 4.1 and 4.2, no Other Original Investor shall Transfer
any Shares to any Person (other than pursuant to Section 5 below or in a Public
Offering), unless such Other Original Investor (the "Transferring Holder") first
(i) gives the Company, the Investors and the Designated Original Investors not
less than fifteen days prior written notice of its intent to Transfer such
Shares (the "Offer Notice"), which notice shall set forth the principal terms of
the proposed Transfer, including the number and type of Shares to be
Transferred, the purchase price therefor, the identity of any proposed
transferee or transferees (if known) and any other material term of the
proposed transaction and (ii) offers to Transfer such Shares, first to the
Company, and then to the Investors and the Designated Original Investors, on the
terms set forth in such Offer Notice (or, in the case of a Transfer all or a
portion of the consideration for which would consist of property other than
cash, at the Company's or an Investor's or Designated Original Investor's
option, for cash in an amount equal to the fair market value of the total
consideration proposed to be received in respect of such Shares). The Company
may elect to purchase all or any portion of the Shares specified in the Offer
Notice at the price and on the terms specified therein by delivering written
notice of such election to the Transferring Holder within 15 days after the
delivery of the Offer Notice. If the Company has elected to purchase all or a
portion of the Shares specified in the Offer Notice from the Transferring
Holder, the Transfer of such Shares will be consummated as soon as practical
after the delivery of the election notice, but in any event within 30 days from
the delivery of the Offer Notice. If the Company has not elected to purchase
all of the Shares specified in the Offer Notice within such 15 day period, each
Investor and each Designated Original Investor may elect to purchase all or any
portion of the Shares specified in the Offer Notice that have not been purchased
by the Company (the "Remaining Shares") at the price and on the terms specified
in the Offer Notice by delivering written
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<PAGE> 14
notice of such election to the Transferring Holder and to the Company within 30
days after the delivery of the Offer Notice. Each Investor and each Designated
Original Investor electing to purchase Remaining Shares shall first be allocated
the lesser of (i) the number of Remaining Shares that such Investor or
Designated Original Investor has elected to purchase, and (ii) such Investor's
or Designated Original Investor's Proportionate Percentage of the Remaining
Shares. If fewer than all the Remaining Shares shall have been allocated
according to the previous sentence, then any Remaining Shares not so allocated
shall be allocated among these Original Investors and Designated Original
Investors who were allocated fewer than all of the Remaining Shares that they
had elected to purchase, in proportion to the Proportionate Percentage of each
such Investor or Designated Original Investor, except that no Investor or
Designated Original Investor shall be allocated more Remaining Shares than he
has elected to purchase. The Transferring Holder and the Investors and the
Designated Original Investors who have had Remaining Shares allocated to them,
in accordance with the preceding two sentences, shall consummate the Transfer of
such Remaining Shares in accordance with such allocation as soon as practical,
but in any event within 60 days from the date of the Offer Notice; provided,
however, that if the Investors and the Designated Original Investors have not,
in the aggregate, elected to purchase all of the Remaining Shares, then (i) the
Transferring Holder shall not be required under this Section 4.3 to transfer any
Remaining Shares to any Investor or Designated Original Investor that has not
elected to purchase at least its Proportionate Percentage of the Remaining
Shares, and (ii) the Transferring Holder may, within 90 days after the delivery
of the Offer Notice, Transfer any of the Remaining Shares not Transferred to the
Investors or the Designated Original Investors to the transferee or transferees
specified in the Offer Notice, if any, or to an Affiliate thereof, at not less
than the price, and on other terms and conditions no more favorable to the
transferees than offered to the Company, the Investors and the Designated
Original Investors in the Offer Notice. In the event the Shares are subject to
any Offer Notice are not sold within the applicable period specified above, they
shall again become subject to the restrictions on Transfer contained in this
Section 4.3.
4.4. Restrictions on Transfers by Designated Original Investors. Except
as provided in Sections 4.1 and 4.2, no Designated Original Investor shall
Transfer any Shares to any Person (other than pursuant to a Public Offering)
unless such Designated Original Investor obtains the prior written consent of
the Investors after having furnished the Investors with the principal terms of
the proposed Transfer, including the number and type of Shares to be
Transferred, the purchase price therefor, the identity of any proposed
transferee (if known) and such other information with respect to the proposed
transaction as the Investors may reasonably request. In the event that any
Shares which the Investors have agreed may be sold pursuant to this Section 4.4
are not sold in the transaction which has been approved by the Investors, they
shall again become subject to the restrictions on Transfer contained in this
Section 4.4.
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4.5. Expiration. The provisions of this Section 4 shall expire on the
first date on which the Investors and their Affiliates own less than the
Required Shares. Further, on the first date on which the Designated Original
Investors own less than the Required Shares, the provisions of Section 4.3
shall expire insofar as they require a Transferring Holder to transmit an Offer
Notice to the Designated Original Investors, to offer Remaining Shares to the
Designated Original Investors or give the right to purchase any Remaining
Shares to the Designated Original Investors.
5. "TAKE ALONG" RIGHTS.
Each Other Original Investor hereby agrees, if requested by the Investors
and Designated Original Investors holding at least two-thirds of the Fully
Diluted Shares then held by all Investors and Designated Original Investors
("the Majority Holders"), to Transfer for value (for purposes of this Section
5, a "Sale") a specified percentage (for purposes of this Section 5, the "Sale
Percentage") of the Shares then owned by such Other Original Investor to an
Independent Third Party (for purposes of this Section 5, the "Proposed Buyer")
in the manner and on the terms set forth in this Section 5 in connection with
the Sale by one or more Investors or Designated Original Investors
(collectively, the "Proposed Sellers") of the Sale Percentage of the total
number of Fully Diluted Shares held by all Investors and Designated Original
Investors to the Proposed Buyer; provided, however, that no Other Original
Investor shall be obligated to sell Shares pursuant to this Section 5 unless at
least 50% of all Fully Diluted Shares are Transferred in the Sale.
5.1. Procedure. If the Majority Holders elect to exercise their rights
under this Section 5, a notice (the "Take Along Notice") shall be furnished by
the Proposed Sellers to each holder of Shares. The Take Along Notice shall set
forth the principal terms of the proposed Sale, including the number of Shares
to be purchased from the Proposed Sellers, the Sale Percentage, the purchase
price and the name and address of the Proposed Buyer. If the Majority Holders
consummate the Sale referred to in the Take Along Notice, each Other Original
Investor (each a "Participating Seller") shall be bound and obligated to Sell
the Sale Percentage of the Shares in the Sale on the same terms and conditions
with respect to each Share sold, as the Proposed Sellers shall Sell each Share
in the Sale. If at the end of 180 days (which 180 days shall be extended by
the number of days which elapse between the filing for and the receipt of any
necessary regulatory approvals) following the date of the effectiveness of the
Take Along Notice the Proposed Sellers have not completed the Sale, each
Participating Seller shall be released from his obligation under the Take Along
Notice, the Take Along Notice shall be null and void, and it shall be necessary
to comply anew with the provisions of this Section 5, unless the failure to
complete such Sale resulted from any failure by any Participating Seller to
comply in any material respect with the provisions of this Section 5.
5.2. Further Assurances. Each Participating Seller shall, whether in his
capacity as a Participating Seller, stockholder, officer or director of the
Company, or otherwise, take or cause to
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<PAGE> 16
be taken all such actions as may be reasonably requested in order expeditiously
to consummate each Sale pursuant to Section 5.1. Each such Participating Seller
agrees (i) to vote all Shares with respect to which such Participating Seller
holds power to vote in favor of any proposal to stockholders in connection with
the Sale which is approved by the holders of a majority of the outstanding
shares of Common Stock entitled to vote with respect to such matter and (ii) to
execute and deliver such agreements as may be necessary for the Participating
Seller to be subject to the same terms and conditions with respect to the Sale
as apply to the Proposed Sellers, including without limitation, an agreement by
such Participating Seller to be subject to such purchase price escrow or
adjustment provisions as may apply to Stockholders generally and to be liable in
respect of any individual representations, warranties and indemnities to be
given by selling Stockholders in the Sale regarding such matters as legal
capacity or due organization of such Participating Seller, authority to
participate in the Sale and ownership (free and clear of liens) of Shares to be
sold by such Participating Seller; provided, however, that the aggregate amount
of such liability shall not exceed either such Participating Seller's pro rata
portion of any such liability, in accordance with such Participating Seller's
portion of the total number of Shares included in the Sale or the net proceeds
received by such Participating Seller from the Sale, whichever is less. The
voting agreement provided by the immediately preceding sentence shall continue
in effect during the period specified in Section 2.6.
5.3. Closing. The closing of a Sale pursuant to Section 5.1 shall take
place at such time and place as the Majority Holders shall specify by notice to
each Participating Seller. At the closing of any Sale under this Section 5,
each Participating Seller shall deliver the certificates evidencing the Shares
to be sold by such Participating Seller, duly endorsed, or with stock powers or
other appropriate instruments duly endorsed, for transfer with signature
guaranteed, free and clear of any liens or encumbrances, with any stock
transfer tax stamps affixed, against delivery of the applicable consideration.
5.4. Expiration. The foregoing provisions of this Section 5 shall expire
on the first date on which the Investors hold less than the Required Shares.
6. CERTAIN ISSUANCES AND TRANSFERS, ETC.
Notwithstanding any other provision of this Agreement, Shares transferred
pursuant to and in accordance with Section 5 to any Proposed Buyer (as defined
in such Section) hereof or in a Public Offering shall be conclusively deemed
thereafter not to be Shares under this Agreement and not to be subject to any
of the provisions hereof or entitled to the benefit of any of the provisions
hereof.
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In the event that an Investor Transfers Shares to any Affiliated Fund,
such Affiliated Fund shall be deemed for all purposes hereunder to be an
Investor with all of the rights and obligations of an Investor hereunder.
7. REGISTRATION RIGHTS.
The Company will perform and comply, and cause each of its subsidiaries to
perform and comply, with such of following provisions as are applicable to it.
Each holder of Shares will perform and comply with such of the following
provisions as are applicable to such holder.
7.1. Piggyback Registration Rights.
7.1.1. Election. Except as set forth in Section 7.1.4., whenever the
Company proposes to register any Shares of Common Stock for its own or
others' account under the Securities Act for a public offering, including
but not limited to an offering made as a result of a demand pursuant to
Section 7.2.1, the Company shall furnish each Investor and each Original
Investor prompt notice of its intent to do so describing such securities
and specifying the form and manner and other relevant facts involving such
registration. Upon the request of any such Investor or Designated Original
Investor given by notice to the Company within 30 days after the delivery
of such notice from the Company, the Company will use its best efforts to
cause to be included in such registration all of the Registrable
Securities which such Investor or Original Investor requests.
Notwithstanding the foregoing provisions of this Section 7.1.1, if the
Company is advised in writing in good faith by any managing underwriter of
the securities being offered pursuant to any Public Offering under this
Section 7 that the number of Shares to be sold by Persons other than the
Company in such Public Offering is greater than the number of such shares
which can be included in such Public Offering without adversely affecting
such Public Offering, the Company may reduce the number of Shares offered
for the accounts of such Persons other than the Company to a number of
Shares deemed satisfactory by such managing underwriter by first
eliminating, to the extent necessary, any Warrant Shares proposed to be
offered, and then reducing any other Shares to be sold by Persons other
than the Company pro rata (based upon the number of such other Shares
requested to be included by such Persons other than the Company).
7.1.2. Excluded Transactions. Notwithstanding the preceding
provisions of this Section 7.1, no holder of Registrable Securities shall
have any right of participation or otherwise with respect to the
following Public Offerings:
(a) Any Public Offering relating to employee benefit plans on
Form S-8 or any similar form then in effect.
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(b) Any Public Offering on Form S-4 or any similar form then
in effect relating to the acquisition after the date hereof by the
Company or any of its subsidiaries of any acquired businesses.
7.2. Demand Registration Rights.
7.2.1. Registration on Request of Holders of Registrable Securities.
One or more of the Investors and the Designated Original Investors
holding Registrable Securities that wish to register Registrable
Securities representing (together with Registrable Securities requested
to be registered on behalf of any other holders of Registrable Securities
who join in such request) at least 20% of the total amount of Registrable
Securities then held by the Investors and the Designated Original
Investors (including outstanding securities exercisable for or
convertible into Registrable Securities) or such lesser amount of
Registrable Securities (i) whose aggregate offering price is expected to
be at least $10,000,000 or (ii) which represents all of the Registrable
Securities held by such holders ("Initiating Holders") may, by notice to
the Company specifying the intended method or methods of disposition
(each, an "Initiating Request") specifying the intended method or
methods of disposition, request that the Company effect the registration
under the Securities Act of all or a specified part of the Registrable
Securities held by such Initiating Holders. Promptly after receipt of
such notice, the Company will give notice of such requested registration
to all other holders of Registrable Securities. The Company will then
use its best efforts to effect the registration under the Securities Act
of the Registrable Securities which the Company has been requested to
register by such Initiating Holders, and, subject to all of the
provisions of this Section 7, all other Registrable Securities which the
Company has been requested to register pursuant to either Section 7.1.1
or this Section 7.2.1 by notice delivered to the Company within 20 days
after the giving of such notice by the Company (which request shall
specify the intended method of disposition of such Registrable
Securities), all to the extent requisite to permit the disposition (in
accordance with the intended methods thereof as aforesaid) of the
Registrable Securities which the Company has been so requested to
register. Subject to the minimum amounts of Registrable Securities per
Initiating Request set forth above in this Section 7.2.1., the holders of
Registrable Securities shall be permitted to make an unlimited number of
Initiating Requests.
7.2.2. Form. Each registration requested pursuant to this Section
7.2 shall be effected by the filing of a registration statement on Form
S-1 (or any other form which includes substantially the same information
as would be required to be included in a registration statement on such
form as currently constituted), unless the use of a different form has
been agreed to in writing by holders of at least a majority of the
Registrable Securities initially requesting such registration (the
"Majority Requesting Holders").
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7.2.3. Registrations Pursuant to Section 7.2. In the case of a
registration pursuant to this Section 7.2, whenever the Majority
Requesting Holders shall request that such registration shall be effected
pursuant to an underwritten offering, such registration shall be so
effected, and all Registrable Securities to be included in such
registration shall be included in such underwritten offering, subject to
the cutback provisions of Section 7.1.1. If requested by such
underwriters, the Company will enter into an underwriting agreement with
such underwriters for such offering containing such representations and
warranties by the Company and such other terms and provisions as are
customarily contained in underwriting agreements with respect to
secondary distributions, including, without limitation, customary
indemnity and contribution provisions.
7.3. Cooperation; Expenses etc.
7.3.1. Further Assurances. Investors and Original Investors
participating in any Public Offering shall take all such actions and
execute all such documents and instruments that are reasonably requested
by the Company to effect the sale of their Registrable Securities in such
Public Offering, including without limitation being parties to the
underwriting agreement entered into by the Company and any other selling
shareholders in connection therewith (and being liable in respect of the
representations and warranties made by such holder in respect of its legal
capacity or due organization, authority to sell Registrable Securities
being registered by such Investor or Original Investor and ownership (free
and clear of liens) of such Registrable Securities), and any
indemnification agreements or "lock-up" agreements for the benefit of the
underwriters in such underwriting agreement; provided, however, that the
aggregate amount of such liability shall not exceed the net proceeds to
such holder from the disposition of such Registrable Securities.
7.3.2. Expenses. The Company shall pay all Registration Expenses of
the Investors and Original Investors participating in any Public Offering
pursuant to this Sections 7.1 or 7.2.
7.3.3. Participation in Preparation of Registration Statement. In
connection with the preparation and filing of each registration statement
registering Registrable Securities under the Securities Act, the Company
will give the holders of the Registrable Securities participating therein
and their underwriters, if any, and one law firm and one accounting firm
selected by such holders of Registrable Securities, the opportunity to
participate in the preparation of such registration statement, each
prospectus included therein or filed with the Commission, and each
amendment thereof or supplement thereto, and will give each of them such
access to its books and records and such opportunities to discuss the
business of the
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Company with its officers and the independent public accountants who have
certified its financial statements as shall be reasonably necessary, in
the reasonable opinion of such holders of Registrable Securities and such
underwriters or their respective counsel, to conduct a reasonable
investigation within the meaning of the Securities Act to protect
themselves from liability thereunder.
7.4. Indemnification and Contribution.
7.4.1. Indemnities of the Company. In the event of any registration
of any Registrable Securities under the Securities Act pursuant to this
Section 7, and in connection with any registration statement or any other
disclosure document produced by or on behalf of the Company pursuant to
which securities of the Company are sold (whether or not for the account
of the Company), the Company shall, and hereby do, and shall cause its
subsidiaries, jointly and severally to, indemnify and hold harmless each
seller of Registrable Securities, any other holder of securities who is or
might be deemed to be a controlling Person of the Company within the
meaning of Section 15 of the Securities Act, their respective direct and
indirect partners, advisory board members, directors, officers and
shareholders, and each other Person, if any, who controls any such seller
or any such holder within the meaning of Section 15 of the Securities Act
(each such person being referred to herein as a "Covered Person"), against
any losses, claims, damages or liabilities, joint or several, to which
such Covered Person may be or become subject under the Securities Act, any
other securities or other law of any jurisdiction, common law or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) arise out of or are based upon
(i) any untrue statement or alleged untrue statement of any material fact
contained or incorporated by reference in any registration statement under
the Securities Act, any preliminary prospectus or final prospectus
included therein, or any related summary prospectus, or any amendment or
supplement thereto, or any document incorporated by reference therein, or
any other such disclosure document, or (ii) any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will
reimburse such Covered Person for any legal or any other expenses incurred
by it in connection with investigating or defending any such loss, claim,
damage, liability, action or proceeding; provided, however, that neither
the Company nor any of its subsidiaries shall be liable to any Covered
Person in any such case to the extent that any such loss, claim, damage,
liability, action or proceeding arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made
in such registration statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement, incorporated
document or other such disclosure document in reliance upon and in
conformity with written information furnished to the Company through an
instrument duly executed by such Covered Person
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<PAGE> 21
specifically stating that it is for use in the preparation thereof. The
indemnities of the Company and of its subsidiaries contained in this
Section 7.4.1 shall remain in full force and effect regardless of any
investigation made by or on behalf of such Covered Person and shall
survive any transfer of securities.
7.4.2. Indemnities to the Company. The Company may require, as a
condition to including any securities in any registration statement filed
pursuant to this Section 7, that the Company shall have received an
undertaking satisfactory to it from the prospective seller of such
securities, to indemnify and hold harmless the Company, each director of
the Company, each officer of the Company who shall sign such registration
statement and each other Person (other than such seller), if any, who
controls the Company within the meaning of Section 15 of the Securities
Act, with respect to any statement in or omission from such registration
statement, any preliminary prospectus or final prospectus included
therein, or any amendment or supplement thereto, or any document
incorporated therein, if such statement or omission was made in reliance
upon and in conformity with written information furnished to the Company
through an instrument executed by such seller specifically stating that it
is for use in the preparation of such registration statement, preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement,
or incorporated document. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Company
or any such director, officer or controlling Person and shall survive any
transfer of securities.
7.4.3. Contribution. If the indemnification provided for in
Sections 7.4.1 or 7.4.2 hereof is unavailable to a party that would have
been an indemnified party under any such Section in respect of any
losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) referred to therein, then each party that would have
been an indemnifying party thereunder shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such
proportion as is appropriate to reflect the relative fault of such
indemnifying party on the one hand and such indemnified party on the
other in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof). The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of
a material fact or the omission or alleged omission to state a material
fact relates to information supplied by such indemnifying party or such
indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The parties agree that it would not be just or equitable if
contribution pursuant to this Section 7.4.3 were determined by pro rata
allocation or by any other method of allocation which does not take
account of the equitable
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considerations referred to in the preceding sentence. The amount paid or
payable by a contributing party as a result of the losses, claims, damages
or liabilities (or actions or proceedings in respect thereof) referred to
above in this Section 7.4.3 shall include any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
7.4.4. Limitation on Liability of Holders of Registrable Securities.
The liability of each holder of Registrable Securities in respect of any
indemnification or contribution obligation of such holder arising under
this Section 7.3 shall not in any event exceed an amount equal to the net
proceeds to such holder (after deduction of all underwriters' discounts
and commissions and all other expenses paid by such holder in connection
with the registration in question) from the disposition of the Registrable
Securities disposed of by such holder pursuant to such registration.
7.5. Registration Procedures. If and whenever the Company is required to
use its best efforts to effect the registration of any Registrable Securities
under the Securities Act as provided in this Section 7, the Company shall as
promptly as practicable:
(a) in cooperation with one counsel selected by the holders of such
Registrable Securities (the "Selling Holders"), prepare and file with the
Securities and Exchange Commission (the "SEC") a registration statement
with respect to such Registrable Securities and use its best efforts to
cause such registration statement to become effective;
(b) prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement
effective and to comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities and other
securities covered by such registration statement until the later of (x)
such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition set forth in such
registration statement, but in no event for a period of more than one
year after such registration statement becomes effective, or (y) the
expiration of the time when a prospectus relating to such registration is
required to be delivered under the Securities Act;
(c) furnish to each Selling Holder such number of conformed copies
of such registration statement and of each such amendment and supplement
thereto (in each case including all exhibits, other than documents
incorporated by reference), such number of
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copies of the prospectus included in such registration statement
(including each preliminary prospectus and any summary prospectus), in
conformity with the requirements of the Securities Act, such documents
incorporated by reference in such registration statement or prospectus,
and such other documents, as such Selling Holder may reasonably request in
order to facilitate the disposition of its Registrable Securities covered
by such registration statement;
(d) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such
jurisdictions as each Selling Holder shall reasonably request, and do any
and all other acts and things which may be necessary or advisable to
enable such Selling Holder to consummate the disposition in such
jurisdictions of its Registrable Securities covered by such registration
statement; provided, however, that the Company shall not be required to
qualify as a foreign corporation in any state where it is not then
required to qualify or to take any other action that would subject it to
service of process in any jurisdiction where it is not then so subject or
subject itself to general taxation in any state where it is not then so
subject;
(e) cause to be furnished to each Selling Holder an opinion of
counsel for the Company and a "cold comfort" letter signed by the
independent public accountants who have certified the Company's financial
statements included in such registration statement, each addressed to
such Selling Holder and in the forms customary in underwritten public
offerings of securities;
(f) promptly notify each Selling Holder, at any time when a
prospectus relating to the Registrable Securities covered by such
registration statement is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect, includes an
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing, and at
the request of any such Selling Holder prepare and furnish to such
Selling Holder a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such Registrable Securities, such
prospectus shall not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the
circumstances then existing;
(g) take action reasonably necessary or desirable to facilitate the
public trading of such Registrable Securities including, if the Company
so determines, listing such Registrable Securities on a national
securities exchange; and
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(h) provide a transfer agent and registrar for such Registrable
Securities not later than the effective date of such registration
statement.
The Company may require each Selling Holder to furnish the Company such
information regarding such Selling Holder and the distribution of such Selling
Holder's Registrable Securities covered by such registration statement, as the
Company may from time to time reasonable request in writing or which shall be
required by law or by the SEC in connection therewith. Each holder of
Registration Securities agrees that, (x) it will comply with the provisions of
the Securities Act with respect to the disposition of all of its securities
covered by a registration statement filed under this Section 7 during the
applicable period, (y) it will cooperate with the Company to the extent
required by the Securities Act or applicable blue sky or state securities
laws in its efforts to file any registration statement required hereunder and
to have it declared effective, and (z) upon receipt of any notice from the
Company pursuant to paragraph (f) above, such holder will forthwith discontinue
disposition of Registrable Securities until such holder's receipt of the copies
of the supplemented or amended prospectus contemplated by such paragraph (vi),
or until it is advised in writing by the Company that the use of the prospectus
may be resumed, and has received copies of any additional or supplemental
filings that are incorporated by reference in the prospectus, and, if so
directed by the Company, such holder shall deliver to the Company all copies,
other than permanent file copies then in such holder's possession, of the
prospectus covering such Registrable Securities that is current at the time of
receipt of such notice.
7.6. Form S-3 Registration Rights. If the Company shall receive from any
holder or holder of Registrable Securities a written request or requests that
the Company effect a registration on Form S-3 (or on any successor form to Form
S-3, regardless of its designation) with respect to all or a part of the
Registrable Securities owned by such holder or holders, the anticipated net
offering price (after deduction of underwriting discounts and commissions) of
which is expected to be at least $1,000,000, and Form S-3 (or any successor
form to Form S-3, regardless of its designation) is available for such
offering, then the Company shall (i) promptly give written notice of the
proposed registration to all other holders of Registrable Securities, and (ii)
use its best efforts to effect, as soon as practicable, such registration as
may be so requested and as would permit or facilitate the sale or distribution
of all or such portion if such Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of any
other holder or holders of Registrable Securities as are specified in a written
request given within 20 days after the receipt of such written notice from the
Company.
7.7. Selection of Underwriter. The Company shall choose any and all
underwriters to be engaged in connection with any public offering of Shares
pursuant to a registration effected pursuant to this Section 7; provided,
however, that in the case of an underwritten offering pursuant to a
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registration of Shares requested under Section 7.2.1, the Company shall consult
with the Investors prior to making such selection.
7.8. Lock-up. No Stockholder shall Transfer any Shares for a period
beginning seven days immediately preceding and ending on the 180th day
following any Public Offering without the prior written consent of the
underwriters managing the offering; provided, however, that the provisions of
this Section 7.8 shall not prohibit any Transfers among any Affiliates,
provided that the transferee Affiliate agrees to be bound by the terms of this
Agreement, including this Section 7.8.
7.9. Reports Under Securities Exchange Act of 1934.
7.9.1. Resales Under Rule 144; Form S-3 Registration. With a view
to making available to the holders of Registrable Securities the benefits
of Rule 144 under the Securities Act and any other rule or regulation of
the SEC that may at any time permit a holder to sell securities of the
Company to the public without registration, and with a view to making it
possible for holders of Registrable Securities to register the
Registrable Securities pursuant to a registration on Form S-3, the
Company agrees to:
(a) use its best efforts to make and keep public information
available, as those terms are understood and defined in Rule 144, at all
times after 90 days after the effective date of the first registration
statement filed by the Company for the offering of its securities to the
general public;
(b) take such action, including the voluntary registration of the
Common Stock under Section 12 of the Securities Exchange Act of 1934 (the
"Exchange Act"), as is necessary to enable the holders of Registrable
Securities to utilize Form S-3 for the sale of their Registrable
Securities, such action to be taken as soon as practicable (but not later
than 90 days) after the end of the fiscal year in which the first
registration statement filed by the Company for the offering of its
securities to the general public is declared effective;
(c) use its best efforts to file with the SEC in a timely manner
all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(d) furnish to any holder of Registrable Securities, so long as the
holder owns any Registrable Securities, forthwith upon request (A) a
written statement by the Company as to its compliance with the reporting
requirements of Rule 144 (at any time after 90 days after the effective
date of the first registration statement filed by the Company for the
offering of the securities to the general public), the Securities Act and
the Exchange Act (at any time after it has become subject to such
reporting requirements), or as to its qualification as a
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registrant whose securities may be resold pursuant to Form S-3 (at any
time after it so qualifies), (B) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so
filed by the Company, and (C) such other information as may be reasonably
requested in availing any holder of Registrable Securities of any rule,
regulation or form of the SEC which permits the selling of any such
securities without registration or pursuant to such form.
7.9.2. Resale Under Rule 144A. At all times during which the
Company is neither subject to the reporting requirements of Sections 13
or 15(d) of the Exchange Act nor exempt from reporting pursuant to Rule
12g3-2(b) under the Exchange Act, the Company shall, upon the written
request of a holder of Registrable Securities, provide in written form to
such holder and to any prospective purchaser of Registrable Securities
designated by such holder, all information required by Rule 144A(d)(4)(i)
under the Securities Act (the "144A Information"). With respect to each
holder of Registrable Securities, the Company's obligations under this
Section 7.9.2 shall at all times be contingent upon such holder's
obtaining from a prospective purchaser an agreement to take all
reasonable precautions to safeguard the 144A Information from disclosure
to anyone other than employees of the prospective purchaser who require
access to the 144A Information for the sole purpose of evaluating its
purchase of the Company's securities.
8. REMEDIES.
8.1. Generally. The Company and the Stockholders shall have all remedies
available at law, in equity or otherwise in the event of any breach or
violation of this Agreement or any default hereunder by the Company or any
holder of Shares. The parties acknowledge and agree that in the event of any
breach of this Agreement, in addition to any other remedies which may be
available, each of the parties hereto shall be entitled to specific performance
of the obligations of the other parties hereto and, in addition, to such other
equitable remedies (including, without limitation, preliminary or temporary
relief) as may be appropriate in the circumstances.
8.2. Deposit. Without limiting the generality of Section 8.1, if any
Stockholder who is a natural person (a "Non-Complying Stockholder") fails to
deliver any certificate or certificates evidencing Shares that may be required
to be sold pursuant to any provision of this Agreement in accordance with the
terms hereof, the Company or other Person entitled to purchase such securities
may, at its option, in addition to all other remedies it may have, deposit the
purchase price for such Shares with any national bank or trust company having
combined capital, surplus and undivided profits in excess of one hundred
million dollars ($100,000,000) and which has agreed to act as escrow agent in
the manner contemplated by this Section 8.2 and shall furnish or make available
to all interested Persons satisfactory evidence of such deposit and thereupon
the Company shall cancel
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on its books the certificate or certificates representing such securities and,
in the case of any such purchase of securities by a Person other than the
Company issue, in lieu thereof and in the name of such Person, a new certificate
or certificates representing such securities, and thereupon all of the
Non-Complying Stockholder's rights in and to such securities shall terminate.
Thereafter, upon delivery to the Company by such Non-Complying Stockholder of
the certificate or certificates evidencing such securities (duly endorsed, or
with stock powers or other appropriate instruments of transfer duly endorsed,
for transfer, with signature guaranteed, free and clear of any liens or
encumbrances, and with any stock transfer tax stamps affixed), the Company shall
instruct the escrow agent referred to above to deliver the purchase price
(without any interest from the date of the closing to the date of such delivery,
any such interest to accrue to the Person who deposited the purchase price for
such securities) to such Non-Complying Stockholder.
9. INDEMNIFICATION.
9.1. Generally. The Original Investors shall, and hereto do, jointly and
severally indemnify and hold harmless the Company and its subsidiaries against
any and all losses, claims, damages and liabilities, joint or several, to which
the Company or any of its subsidiaries may become subject, and any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, or liability (or action with respect
thereto) insofar as such losses, claims, damages, liabilities or actions arise
out of or are based upon or related to any of the following:
(i) The Agreement of Purchase and Sale dated as of November 1,
1991 by and between Wireless Cable of Florida, Inc. and WJB-TV Ft.
Pierce Limited Partnership;
(ii) The Agreement dated as of February 22, 1991 by and between
Chuck Mauszycki and WJB Video, the letter agreement dated December
16, 1991 by and between Mr. Mauszycki and WJB Video, or the
provision of consulting services by Mr. Mauszycki to the Company or
its subsidiaries or any of their respective predecessor entities;
(iii) The engagement letter dated March 10, 1994 by and between
the Company and Daniels & Associates, L.P.;
(iv) The matters referred to in the litigation described in
Schedule 2.8 to the Stock Purchase Agreement;
(v) The fact that the Company does not, as of the date hereof,
own 100% of the partnership interests in each of WJB-TV Ft. Pierce
Limited Partnership and WJB-TV
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Melbourne Limited Partnership, and any transactions pursuant to which
the Company acquires any portion of the partnership interests in such
partnerships that the Company does not hold as of the date hereof;
(vi) any failure by the Company or any subsidiary thereof to
comply with the Communications Act of 1934, as amended, or the rules
and regulations of the Federal Communications Commission (the "FCC")
thereunder or the Copyright Act of 1976, as amended, or the rules
and regulations of the United States Copyright Office thereunder or
any violation of any term or condition of any permit or license
issued by the FCC relating to any channel operated by the Company or
any subsidiary thereof, in each case (a) identified in or
specifically excepted from the opinion of Pepper & Corazzini, L.L.P.
to the Investors dated the date hereof or (b) relating to any excess
air time lease agreements or other agreements for the use of any
Leased Channels (as defined in the Stock Purchase Agreement); or
(vii) any material misrepresentation or omission in the Stock
Purchase Agreement with respect to the Company's activities in West
Palm Beach, Florida.
9.2. Procedure. Promptly after receipt by the Company or any of its
subsidiaries of notice of any matter in respect of which a claim is to be made
against the Original Investors under Section 9.1, the Company shall deliver to
the Original Investors a written notice of such matter of such action, and the
Original Investors shall have the right to participate in and, jointly with one
another, to assume and control the defense thereof or negotiations with respect
thereto with counsel mutually satisfactory to the Company and the Original
Investors.
9.3. Payment. The Original Investors shall pay to the Company any amounts
due to the Company under Section 9.1 within 30 days after receiving a notice
from the Company that such amounts are due. The Company shall not fail to
enforce its rights under Section 9.1 without the written consent of the
Investors or the affirmative votes of all Investor Directors (at a time when
there are at least two Investor Directors on the Company's Board of Directors).
9.4. Enforceability. If any portion of the indemnification obligations
provided for in this Section 9 is determined to be unlawful, the remainder of
such obligations shall nonetheless be enforced to the fullest extent permitted
by law.
9.5. Termination. The obligations of the Original Investors under Section
9.1 shall terminate at such time as the Investors no longer own any Shares,
except that the Original Investors shall not thereby be relieved of any
obligations under Section 9.1 in respect of any losses, claims,
-25-
<PAGE> 29
damages or liabilities incurred by the Company or any of its subsidiaries, and
of which the Company had given notice to the Original Investors, prior to such
termination.
10. EXCLUSIVE INVESTMENT.
The Designated Original Investors intend that the Company be the exclusive
means by which they invest in the wireless cable television business.
Accordingly, each Designated Original Investor covenants that neither such
Designated Original Investor nor any Affiliate or Member of the Immediate
Family of such Designated Original Investor shall hold (nor currently holds),
directly or indirectly, any equity interest in any Person engaged in the
wireless cable television business in the United States, excluding holdings of
publicly traded stocks not in excess of 1% of the outstanding shares of any
class of stock of any given issuer.
11. LEGENDS.
Each certificate representing Shares shall have the following legend
endorsed conspicuously thereupon:
"The securities represented by this certificate were issued in a
private placement, without registration under the Securities Act of 1933,
as amended (the "Act"), and may not be sold, assigned, pledged or
otherwise transferred in the absence of an effective registration under
the Act covering the transfer or an opinion of counsel, satisfactory to
the issuer, that registration under the Act is not required."
"The shares of stock represented by this certificate are subject to
restrictions on voting and transfer and requirements of sale set forth in
the Stockholders Agreement dated as of March __, 1995, as amended and in
effect from time to time. The Company will furnish a copy of such
agreement to the holder of this certificate without charge upon written
request."
Any person who acquires Shares which are not subject to all or part of the
terms of this Agreement shall have the right to have such legend (or the
applicable portion thereof) removed from certificates representing such Shares.
12. AMENDMENT, TERMINATION, ETC.
12.1. No Oral Modifications. This Agreement may not be orally amended,
modified, extended or terminated, nor shall any oral waiver of any of its terms
be effective.
-26-
<PAGE> 30
12.2. Written Modifications. This Agreement may be amended, modified,
extended or terminated, and the provisions hereof may be waived, by an
agreement in writing signed by holders of two-thirds of the Fully Diluted
Shares then outstanding and each such amendment, modification, extension,
termination and waiver shall be binding upon each party hereto and each holder
of Shares subject hereto; provided, however, that no such amendment,
modification, extension, termination or waiver which adversely affects the
rights of the Investors hereunder in any material respect or which amends,
modifies, extends, terminates or waives any of the provisions hereof will be
effective with respect to the Investors unless and until the consent of each of
the Investors has been obtained. In addition, each party hereto and each
holder of Shares subject hereto may waive any of its rights hereunder by an
instrument in writing signed by such party or holder.
13. MISCELLANEOUS.
13.1. Authority; Effect. Each party hereto represents and warrants to and
agrees with each other party that the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized on behalf of such party and do not violate any agreement or other
instrument applicable to such party or by which its assets are bound. This
Agreement does not, and shall not be construed to, give rise to the creation of
a partnership among any of the parties hereto, or to constitute any of such
parties members of a joint venture or other association.
13.2. Notices. Notices and other communications provided for in this
Agreement shall be in writing and shall be effective (i) when one day shall
have elapsed (exclusive of Saturdays, Sundays and banking holidays in the City
of Boston) from their deposit for overnight delivery with Federal Express or
other bonded courier (charges prepaid), addressed to the party or parties
sought to be charged with notice of the same at the respective addresses set
forth or referred to below, subject to written notice of change of address
given by any party to each other party, or (ii) if earlier, upon receipt.
If to the Company, to it at:
Wireless Broadcasting Systems of America, Inc.
9250 East Costilla Avenue
Suite 325
Englewood, CO 80122
Attention: President
Telecopier: (303) 649-1196
with a copy to:
-27-
<PAGE> 31
John Muehlstein, Esq.
Pedersen & Houpt
161 North Clark Street
Chicago, IL 60601
Telecopier: (312) 641-6895
If to the Investors, to them at:
Boston Ventures Limited Partnership IV
Boston Ventures Limited Partnership IVA
c/o Boston Ventures Management, Inc.
21 Custom House Street
Boston, MA 02110
Attention: Ms. Barbara M. Ginader
Telecopier: (617) 737-3709
with a copy to:
Philip J. Smith, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Telecopier: (617) 951-7050
If to the Original Investors, to them at the addresses set forth in
Exhibit A hereto, and if to the Other Original Investors, to them
at the addresses set forth in Exhibit B hereto.
Notice to the holder of record of any shares of capital stock shall be
deemed to be notice to the holder of such shares for all purposes hereof.
13.3. Binding Effect, etc. This Agreement constitutes the entire
agreement of the parties with respect to its subject matter, supersedes all
prior or contemporaneous oral or written agreements or discussions with respect
to such subject matter, and shall be binding upon and inure to the benefit of
the parties hereto and their respective heirs, representatives, successors and
assigns.
-28-
<PAGE> 32
13.4. Descriptive Headings. The descriptive headings of this Agreement
are for convenience of reference only, are not to be considered a part hereof
and shall not be construed to define or limit any of the terms or provisions
hereof.
13.5. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one instrument.
13.6. Severability. If in any judicial proceedings a court shall refuse
to enforce any provision of this Agreement, then such unenforceable provision
shall be deemed eliminated from this Agreement for the purpose of such
proceedings to the extent necessary to permit the remaining provisions to be
enforced. To the full extent, however, that the provisions of any applicable
law may be waived, they are hereby waived to the end that this Agreement be
deemed to be valid and binding agreement enforceable in accordance with its
terms, and in the event that any provision hereof shall be found to be invalid
or unenforceable, such provision shall be construed by limiting it so as to be
valid and enforceable to the maximum extent consistent with and possible under
applicable law.
13.7. Governing Law. Except to the extent that any provision of this
Agreement is contrary to any mandatory provision of the General Corporation Law
of the State of Delaware (in which case such mandatory statutory provision
shall apply), this Agreement shall be governed by and construed in accordance
with the domestic substantive laws of The Commonwealth of Massachusetts without
giving effect to any choice or conflict of laws provision or rule that would
cause the application of the domestic substantive laws of any other
jurisdiction.
[The remainder of this page has been intentionally left blank.]
-29-
<PAGE> 33
IN WITNESS WHEREOF, each of the undersigned has duly executed this
Agreement (or caused this Agreement to be executed on its behalf by its officer
or representative thereunto duly authorized) under seal as of the date first
above written.
THE COMPANY: WIRELESS BROADCASTING
SYSTEMS OF AMERICA, INC.
By: /s/ WILLIAM KINGERY
----------------------------
Name: William Kingery
Title: President
THE INVESTORS: BOSTON VENTURES LIMITED
PARTNERSHIP IV
By Boston Ventures Company Limited
Partnership IV, its general partner
By: /s/ BARBARA M. GINADER
----------------------------
Name: Barbara M. Ginader
Title: General Partner
BOSTON VENTURES LIMITED
PARTNERSHIP IVA
By Boston Ventures Company Limited
Partnership IV, its general partner
By: /s/ BARBARA M. GINADER
----------------------------
Name: Barbara M. Ginader
Title: General Partner
<PAGE> 34
THE DESIGNATED ORIGINAL
INVESTORS:
Buntrock Family Partnership I
Limited Partnership
By /s/ Dean L. Buntrock
-----------------------------
Dean L. Buntrock, General Partner
Buntrock/Nuzzo Limited Partnership
By /s/ Rosemarie Buntrock
-----------------------------
Rosemarie Buntrock
General Partner
/s/ Dean L. Buntrock
-----------------------------
Dean L. Buntrock
/s/ George Dean Johnson, Jr.
-----------------------------
George Dean Johnson, Jr.
Pedersen Family Partnership I
Limited Partnership
By /s/ Peer Pedersen
-----------------------------
Peer Pedersen, General Partner
WJB Television Limited Partnership
By Johnson Wireless Corporation,
General Partner
By /s/ George Dean Johnson, Jr.
-----------------------------
George Dean Johnson, Jr.
President
<PAGE> 35
/s/ Clayton R. Buntrock
-------------------------------
Clayton R. Buntrock
/s/ Dana Buntrock
-------------------------------
Dana Buntrock
/s/ Leroy Howard
-------------------------------
Leroy Howard
Cecily J. Buntrock Trust No. 1
By /s/ Peter Huizenga
----------------------------
Its Trustee
By /s/ Clayton R. Buntrock
----------------------------
Its Trustee
/s/ Gary Weinstein
-------------------------------
Gary Weinstein
/s/ Margot Weinstein
-------------------------------
Margot Weinstein
Canal Investment Society, L.P.
By MAAR Investment Company, General
Partner
By /s/ E. Craig Wall
----------------------------
E. Craig Wall, Managing
General Partner
THE OTHER GENERAL
INVESTORS:
/s/ Robert A. Brannon
-------------------------------
Robert A. Brannon
/s/ Walter R. Pettiss
-------------------------------
Walter R. Pettiss
<PAGE> 36
/s/ Donald F. Flynn
-------------------------------
Donald F. Flynn
/s/ Stewart Johnson
-------------------------------
Stewart Johnson
PSR Investments III L.P.
By /s/ Phillip B. Rooney
----------------------------
Its General Partner
1985 Ryan Family Trust
By /s/ Shirley W. Ryan
----------------------------
Shirley W. Ryan, a Trustee
By /s/ Patrick G. Ryan
----------------------------
Patrick G. Ryan, a Trustee
By /s/ Robert J. W. Ryan
----------------------------
Robert J. W. Ryan, a Trustee
/s/ Howard Warren
-------------------------------
Howard Warren, by Peer Pedersen
under Power of Attorney
Brian J. Flynn, June, 1992
Non-Exempt Trust
By /s/ Brian J. Flynn
----------------------------
Its Trustee
Kevin F. Flynn, June, 1992
Non-Exempt Trust
By /s/ Kevin F. Flynn
----------------------------
Its Trustee
<PAGE> 37
Exhibit A
Designated Original Investors
<TABLE>
<CAPTION>
Stockholder Number of Shares
----------- ----------------
<S> <C>
WJB Television Limited Partnership 1,000
Buntrock Family Partnership I Limited Partnership 2,025,642
Buntrock/Nuzzo Limited Partnership 1,012,820
Clayton R. Buntrock 1,012,820
Dana Buntrock and Leroy Howard 506,409
Cecily J. Buntrock Trust No. 1 1,006,409
Dean L. Buntrock 2,363,250
George Dean Johnson, Jr. 1,856,839
Pedersen Family Partnership I Limited Partnership 2,025,642
Gary and Margot Weinstein 1,012,820
Canal Investment Society L.P. 2,363,248
----------
TOTAL: 15,186,899
</TABLE>
<PAGE> 38
Exhibit B
Other Original Investors
<TABLE>
<CAPTION>
Stockholder Number of Shares
------------ ----------------
<S> <C>
Robert A. Brannon 506,409
Walter R. Pettiss 506,409
Donald F. Flynn 1,012,820
Stewart Johnson 506,409
PSR Investments III L.P. 2,025,642
1989 Ryan Family Trust 2,025,642
Howard Warren 1,769,230
Brian J. Flynn June, 1992 Non-Exempt Trust 256,410
Kevin F. Flynn June, 1992 Non-Exempt Trust 256,410
---------
TOTAL: 8,865,381
</TABLE>
<PAGE> 1
Exhibit 10.1(a)
CREDIT AGREEMENT
among
WIRELESS BROADCASTING SYSTEMS OF AMERICA, INC.
The Several Lenders
from Time to Time Parties Hereto
and
CHEMICAL BANK,
as Agent
Dated as of November 3, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 1. DEFINITIONS.......................................................... 1
1.1 Defined Terms........................................................ 1
1.2 Other Definitional Provisions........................................ 16
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS...................................... 17
2.1 Revolving Credit Commitments......................................... 17
2.2 Procedure for Borrowing.............................................. 17
2.3 Commitment Fee....................................................... 17
2.4 Repayment of Loans; Evidence of Debt................................. 18
2.5 Optional Prepayments................................................. 18
2.6 Termination or Reduction of Commitments and Mandatory Prepayments.... 19
2.7 Conversion and Continuation Options.................................. 20
2.8 Minimum Amounts and Maximum Number of Tranches....................... 21
2.9 Interest Rates and Payment Dates..................................... 21
2.10 Computation of Interest and Fees..................................... 21
2.11 Inability to Determine Interest Rate................................. 22
2.12 Pro Rata Treatment and Payments...................................... 22
2.13 Illegality........................................................... 23
2.14 Requirements of Law.................................................. 23
2.15 Taxes................................................................ 25
2.16 Indemnity............................................................ 26
2.17 Change of Lending Office............................................. 27
SECTION 3. REPRESENTATIONS AND WARRANTIES....................................... 27
3.1 Financial Condition.................................................. 27
3.2 No Change; Programming Contracts; FCC Agreements..................... 27
3.3 Corporate Existence; Compliance with Law............................. 28
3.4 Corporate Power; Authorization; Enforceable Obligations.............. 28
3.5 No Legal Bar......................................................... 28
3.6 No Material Litigation............................................... 29
3.7 No Default........................................................... 29
3.8 Ownership of Property; Liens......................................... 29
3.9 Intellectual Property................................................ 29
3.10 No Burdensome Restrictions........................................... 29
3.11 Taxes................................................................ 29
3.12 Federal Regulations.................................................. 30
3.13 ERISA................................................................ 30
3.14 Investment Company Act; Other Regulations............................ 30
3.15 Subsidiaries......................................................... 30
3.16 Purpose of Loans..................................................... 30
3.17 Environmental Matters................................................ 30
3.18 Accuracy of Information.............................................. 32
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
<S> <C> <C>
3.19 Security Documents..................................................... 32
3.20 Solvency............................................................... 33
3.21 FCC Matters............................................................ 33
SECTION 4. CONDITIONS PRECEDENT................................................... 34
4.1 Conditions to Initial Loans............................................ 34
4.2 Conditions to Each Loan................................................ 37
SECTION 5. AFFIRMATIVE COVENANTS.................................................. 37
5.1 Financial Statements................................................... 37
5.2 Certificates; Other Information........................................ 38
5.3 Payment of Obligations................................................. 39
5.4 Conduct of Business and Maintenance of Existence....................... 39
5.5 Maintenance of Property; Insurance..................................... 39
5.6 Inspection of Property; Books and Records; Discussions................. 39
5.7 Notices................................................................ 40
5.8 Environmental Laws..................................................... 40
5.9 Further Assurances; Security Interests; Consents....................... 41
5.10 Additional Collateral.................................................. 41
5.11 FCC Licenses........................................................... 42
SECTION 6. NEGATIVE COVENANTS..................................................... 42
6.1 Financial Condition Covenants.......................................... 43
6.2 Limitation on Indebtedness............................................. 44
6.3 Limitation on Liens.................................................... 45
6.4 Limitation on Guarantee Obligations.................................... 46
6.5 Limitation on Fundamental Changes...................................... 46
6.6 Limitation on Sale of Assets........................................... 46
6.7 Limitation on Leases................................................... 47
6.8 Limitation on Dividends................................................ 47
6.9 Limitation on Capital Expenditures..................................... 47
6.10 Limitation on Investments, Loans and Advances.......................... 47
6.11 Limitation on Optional Payments and Modifications of Debt Instruments.. 48
6.12 Limitation on Transactions with Affiliates............................. 48
6.13 Limitation on Sales and Leasebacks..................................... 48
6.14 Limitation on Changes in Fiscal Year................................... 48
6.15 Limitation on Negative Pledge Clauses.................................. 49
6.16 Limitation on Lines of Business........................................ 49
SECTION 7. EVENTS OF DEFAULT...................................................... 49
SECTION 8. THE AGENT.............................................................. 52
8.1 Appointment............................................................ 52
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<CAPTION>
Page
<S> <C> <C>
8.2 Delegation of Duties................................................ 52
8.3 Exculpatory Provisions.............................................. 52
8.4 Reliance by Agent................................................... 53
8.5 Notice of Default................................................... 53
8.6 Non-Reliance on Agent and Other Lenders............................. 53
8.7 Indemnification..................................................... 54
8.8 Agent in Its Individual Capacity.................................... 54
8.9 Successor Agent..................................................... 54
SECTION 9. MISCELLANEOUS....................................................... 55
9.1 Amendments and Waivers.............................................. 55
9.2 Notices............................................................. 55
9.3 No Waiver; Cumulative Remedies...................................... 56
9.4 Survival of Representations and Warranties.......................... 56
9.5 Payment of Expenses and Taxes....................................... 56
9.6 Successors and Assigns; Participations and Assignments.............. 57
9.7 Adjustments; Set-off................................................ 59
9.8 Counterparts........................................................ 60
9.9 Severability........................................................ 60
9.10 Integration......................................................... 60
9.11 GOVERNING LAW....................................................... 60
9.12 Submission To Jurisdiction; Waivers................................. 60
9.13 Acknowledgements.................................................... 61
9.14 WAIVERS OF JURY TRIAL............................................... 61
9.15 Confidentiality..................................................... 62
SCHEDULES
1.1A Lenders, Commitments and Addresses
1.1B Pricing and Commitment Fee Grid
1.1C FCC Licenses
1.1D Leased Properties
1.1E Programming Contracts
1.1F FCC Agreements
1.1G Designated Original Investors
3.4 Consents and Authorizations
3.6 Litigation
3.10 Requirements of Law
3.15 Subsidiaries
3.19(b) UCC Filing Offices and Actions
6.2(c) Indebtedness
6.3(f) Liens
6.4(a) Guarantee Obligations
</TABLE>
- iii -
<PAGE> 5
EXHIBITS
<TABLE>
<S> <C>
A Form of Borrower Pledge Agreement
B Form of Borrower Security Agreement
C Form of Collateral Assignment of Lease
D Form of Subsidiaries Guarantee
E Form of Subsidiaries Pledge Agreement
F Form of Subsidiaries Security Agreement
G Form of Note
H Form of Closing Certificate
I Form of Assignment and Acceptance
</TABLE>
<PAGE> 6
CREDIT AGREEMENT, dated as of November 3, 1995, among WIRELESS
BROADCASTING SYSTEMS OF AMERICA, INC., a Delaware corporation (the "Borrower"),
the several banks and other financial institutions from time to time parties to
this Agreement (the "Lenders") and CHEMICAL BANK, a New York banking
corporation, as agent for the Lenders hereunder.
The parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms shall
have the following meanings:
"ABR": for any day, a rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime
Rate in effect on such day, (b) the Base CD Rate in effect on such day
plus 1% and (c) the Federal Funds Effective Rate in effect on such day
plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall mean the rate
of interest per annum publicly announced from time to time by the Agent
as its prime rate in effect at its principal office in New York City (the
Prime Rate not being intended to be the lowest rate of interest charged
by Chemical Bank in connection with extensions of credit to debtors);
"Base CD Rate" shall mean the sum of (a) the product of (i) the
Three-Month Secondary CD Rate and (ii) a fraction, the numerator of which
is one and the denominator of which is one minus the C/D Reserve
Percentage and (b) the C/D Assessment Rate; "Three-Month Secondary CD
Rate" shall mean, for any day, the secondary market rate for three-month
certificates of deposit reported as being in effect on such day (or, if
such day shall not be a Business Day, the next preceding Business Day) by
the Board through the public information telephone line of the Federal
Reserve Bank of New York (which rate will, under the current practices of
the Board, be published in Federal Reserve Statistical Release H.15(519)
during the week following such day), or, if such rate shall not be so
reported on such day or such next preceding Business Day, the average of
the secondary market quotations for three-month certificates of deposit
of major money center banks in New York City received at approximately
10:00 A.M., New York City time, on such day (or, if such day shall not be
a Business Day, on the next preceding Business Day) by the Agent from
three New York City negotiable certificate of deposit dealers of
recognized standing selected by it; and "Federal Funds Effective Rate"
shall mean, for any day, the weighted average of the rates on overnight
federal funds transactions with members of the Federal Reserve System
arranged by federal funds brokers, as published on the next succeeding
Business Day by the Federal Reserve Bank of New York, or, if such rate is
not so published for any day which is a Business Day, the average of the
quotations for the day of such transactions received by the Agent from
three federal funds brokers of recognized standing selected by it. Any
change in the ABR due to a change in the Prime Rate, the Three-Month
Secondary CD Rate or the Federal Funds Effective Rate shall be effective
as of the opening of business on the effective day of
<PAGE> 7
2
such change in the Prime Rate, the Three-Month Secondary CD Rate
or the Federal Funds Effective Rate, respectively.
"ABR Loans": Loans the rate of interest applicable to which is
based upon the ABR.
"Adjustment Date": with respect to the effectiveness of any change
in the Applicable Margin:
(a) the Closing Date; and
(b) five days after each subsequent date upon which the Agent
receives (i) the financial statements required to be delivered
pursuant to subsection 5.1(a) or (b), as the case may be, for the
most recently completed fiscal period and (ii) the compliance
certificate required pursuant to subsection 5.2(b) with respect to
such financial statements (or, if such compliance certificate and
financial statements have not been delivered in a timely manner,
each of (x) the date upon which the compliance certificate required
to be delivered pursuant to subsection 5.2(b) for the most recently
completed fiscal period was due and (y) the date thereafter on
which such financial statements and compliance certificate actually
are delivered).
"Affiliate": as to any Person, any other Person (other than a
Subsidiary) which, directly or indirectly, is in control of, is
controlled by, or is under common control with, such Person. For
purposes of this definition, "control" of a Person means the power,
directly or indirectly, either to (a) vote 10% or more of the securities
having ordinary voting power for the election of directors of such Person
or (b) direct or cause the direction of the management and policies of
such Person, whether by contract or otherwise.
"Agent": Chemical Bank, together with its affiliates, as the
arranger of the Commitments and as the agent for the Lenders under this
Agreement and the other Loan Documents.
"Aggregate Consideration": with respect to any acquisition of
Capital Stock or assets of any Person, the amount equal to the sum of (a)
the aggregate of the purchase price paid by the Borrower and its
Subsidiaries for such acquisitions and (b) the aggregate amount of the
Indebtedness paid or assumed by the Borrower and its Subsidiaries in
connection with such purchase or for which any acquired Person remains
liable following such purchase.
"Agreement": this Credit Agreement, as amended, supplemented or
otherwise modified from time to time.
<PAGE> 8
3
"Applicable Commitment Fee Rate": for the period commencing
with any Adjustment Date and ending on the day immediately
preceding the next succeeding Adjustment Date, the rate per annum
set forth on Schedule 1.1B opposite the Leverage Ratio determined
on such Adjustment Date; provided, that, (a) until the receipt by
the Agent of the financial statements and certificate referred to
in clause (b) of the definition of "Adjustment Date," the Leverage
Ratio shall be deemed for purposes of this definition to be 4.5 to
1.0; and (b) in the event that the financial statements required
to be delivered pursuant to subsection 5.1 are not delivered when
due, then during the period from the date upon which such
financial statements were required to be delivered until the date
upon which they actually are delivered, the Leverage Ratio shall
be deemed for purposes of this definition to be 4.5 to 1.0; and
provided, further, that if the Borrower shall deliver to the Agent
on or prior to the Closing Date the financial statements required
to be delivered pursuant to subsection 5.1(b) with respect to the
fiscal period ended September 30, 1995 and a corresponding
compliance certificate pursuant to subsection 5.2(b), then the
rate per annum set forth on Schedule 1.1B opposite the Leverage
Ratio determined based on such financial statements and
certificate shall take effect as of Closing Date.
"Applicable Margin" for the period commencing with any Adjustment
Date and ending on the day immediately preceding the next succeeding
Adjustment Date, the Applicable Margin shall be the rate per annum set
forth on Schedule 1.1B opposite the Leverage Ratio determined on such
Adjustment Date; provided, that, (a) until the receipt by the Agent of
the financial statements and certificate referred to in clause (b) of the
definition of "Adjustment Date," the Leverage Ratio shall be deemed for
purposes of this definition to be 4.5 to 1.0; and (b) in the event that
the financial statements required to be delivered pursuant to subsection
5.1 are not delivered when due, then during the period from the date upon
which such financial statements were required to be delivered until the
date upon which they actually are delivered, the Leverage Ratio shall be
deemed for purposes of this definition to be 4.5 to 1.0; and provided,
further, that if the Borrower shall deliver to the Agent on or prior to
the Closing Date the financial statements required to be delivered
pursuant to subsection 5.1(b) with respect to the fiscal period ended
September 30, 1995 and a corresponding compliance certificate pursuant to
subsection 5.2(b), then the rate per annum set forth on Schedule 1.1B
opposite the Leverage Ratio determined based on such financial statements
and certificate shall take effect as of Closing Date.
"Asset Sale": any sale, transfer or other disposition by the
Borrower or any of its Subsidiaries of its respective assets (including
any sale and leaseback of assets and any mortgage of real property).
"Assignee": as defined in subsection 9.6(c).
<PAGE> 9
4
"Available Commitment": as to any Lender at any time, an amount
equal to the excess, if any, of (a) the amount of such Lender's
Commitment over (b) the aggregate principal amount of all Loans made by
such Lender then outstanding.
"Board": the Board of Governors of the Federal Reserve System.
"Borrower Pledge Agreement": the Pledge Agreement to be executed
and delivered by the Borrower, substantially in the form of Exhibit A, as
the same may be amended, supplemented or otherwise modified from time to
time.
"Borrower Security Agreement": the Security Agreement to be
executed and delivered by the Borrower, substantially in the form of
Exhibit B, as the same may be amended, supplemented or otherwise modified
from time to time.
"Borrower Security Documents": the collective reference to the
Borrower Pledge Agreement, the Borrower Security Agreement and any Lease
Assignment executed and delivered by the Borrower.
"Borrowing Date": any Business Day specified in a notice pursuant
to subsection 2.2 as a date on which the Borrower requests the Lenders to
make Loans hereunder.
"Boston Ventures": collectively, Boston Ventures Limited
Partnership IV and Boston Ventures Limited Partnership IV A.
"Business": as defined in subsection 3.17(b).
"Business Day": a day other than a Saturday, Sunday or other day on
which commercial banks in New York City are authorized or required by law
to close.
"Capital Expenditures": for any period, with respect to any Person,
the aggregate of all expenditures by such Person and its Subsidiaries for
the acquisition or leasing (pursuant to a Capital Lease) of fixed or
capital assets or additions to equipment (including replacements,
capitalized repairs and improvements during such period) which are
required to be capitalized in accordance with GAAP on a consolidated
balance sheet of such person and its Subsidiaries.
"Capital Lease": any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance
with GAAP to be capitalized on a balance sheet of the lessee.
"Capital Lease Obligations": as to any Person, the obligations of
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are
<PAGE> 10
5
required to be classified and accounted for as capital leases on a balance
sheet of such Person under GAAP and, for the purposes of this Agreement,
the amount of such obligations at any time shall be the capitalized amount
thereof at such time determined in accordance with GAAP.
"Capital Stock": any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation,
including preferred stock, any and all equivalent ownership interests in a
Person (other than a corporation) and any and all warrants or options to
purchase any of the foregoing.
"Cash Equivalents": (a) securities with maturities of one year or
less from the date of acquisition issued or fully guaranteed or insured
by the United States Government or any agency thereof, (b) certificates
of deposit and eurodollar time deposits with maturities of one year or
less from the date of acquisition and overnight bank deposits of any
Lender or of any commercial bank having capital and surplus in excess of
$500,000,000, (c) repurchase obligations of any Lender or of any
commercial bank satisfying the requirements of clause (b) of this
definition, having a term of not more than 30 days with respect to
securities issued or fully guaranteed or insured by the United States
Government, (d) commercial paper of a domestic issuer rated at least A-2
by Standard and Poor's Rating Group ("S&P") or P-2 by Moody's Investors
Service, Inc. ("Moody's"), (e) securities with maturities of one year or
less from the date of acquisition issued or fully guaranteed by any
state, commonwealth or territory of the United States, by any political
subdivision or taxing authority of any such state, commonwealth or
territory or by any foreign government, the securities of which state,
commonwealth, territory, political subdivision, taxing authority or
foreign government (as the case may be) are rated at least A by S&P or A
by Moody's, (f) securities with maturities of one year or less from the
date of acquisition backed by standby letters of credit issued by any
Lender or any commercial bank satisfying the requirements of clause (b)
of this definition or (g) shares of money market mutual or similar funds
which invest exclusively in assets satisfying the requirements of clauses
(a) through (f) of this definition.
"C/D Reserve Percentage": for any day as applied to any ABR Loan,
that percentage (expressed as a decimal) which is in effect on such day,
as prescribed by the Board, for determining the maximum reserve
requirement for a Depositary Institution (as defined in Regulation D of
the Board) in respect of new non-personal time deposits in Dollars having
a maturity of 30 days or more.
"Chemical": Chemical Bank, a New York banking corporation.
"Closing Date": the date on which the conditions precedent set
forth in subsection 4.1 shall be satisfied.
"Code": the Internal Revenue Code of 1986, as amended from time to
time.
<PAGE> 11
6
"Collateral": all assets of the Loan Parties, now owned or
hereinafter acquired, upon which a Lien is purported to be created by any
Security Document.
"Commitment": as to any Lender, the obligation of such Lender to
make Loans to the Borrower hereunder in an aggregate principal amount at
any one time outstanding not to exceed the amount set forth opposite such
Lender's name on Schedule 1.1A, as such amount may be reduced from time
to time in accordance with the provisions of this Agreement.
"Commitment Percentage": as to any Lender at any time, the
percentage which such Lender's Commitment then constitutes of the
aggregate Commitments (or, at any time after the Commitments shall have
expired or terminated, the percentage which the aggregate principal
amount of such Lender's Loans then outstanding constitutes of the
aggregate principal amount of the Loans then outstanding).
"Commitment Period": the period from and including the date hereof
to but not including December 31, 1998 or such earlier date on which the
Commitments shall terminate as provided herein.
"Commonly Controlled Entity": an entity, whether or not
incorporated, which is under common control with the Borrower within the
meaning of Section 4001 of ERISA or is part of a group which includes the
Borrower and which is treated as a single employer under Section 414 of
the Code.
"Communications Act": the Communications Act of 1934, as amended
(including, without limitation, the Cable Communications Policy Act of
1984 and the Cable Television Consumer Protection and Competition Act of
1992) and all rules and regulations of the FCC, in each case as from time
to time in effect.
"Consolidated Cash Interest Coverage Ratio": for any fiscal quarter
of the Borrower, the ratio of (a) Consolidated EBITDA as of the last day
of such fiscal quarter for such fiscal quarter and for the preceding
fiscal quarter, as annualized in accordance with the succeeding sentence,
to (b) Consolidated Cash Interest Expense as of the last day of such
fiscal quarter for the preceding four consecutive fiscal quarters. For
purposes of any such calculation of Consolidated EBITDA for any period
that does not include four full fiscal quarters, such calculation shall
be annualized by multiplying the actual Consolidated EBITDA for such
shorter period by a fraction, the numerator of which is 365 and the
denominator of which is the actual number of days included in such
period.
"Consolidated Cash Interest Expense": for any period, total cash
interest expense (including that attributable to Capital Lease
Obligations) of the Borrower and its Subsidiaries for such period with
respect to all outstanding Indebtedness of the Borrower and its
Subsidiaries (including, without limitation, all commissions, discounts
<PAGE> 12
7
and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing) less interest amortization or write-off of
debt discount and debt issuance costs and commissions included therein,
net of cash interest income of the Borrower and its Subsidiaries for such
period.
"Consolidated Debt Service": for any period, the amount of all
principal of and interest and fees on any Indebtedness paid by the
Borrower and its Subsidiaries during such period, including with respect
to the Loans and any obligations paid with respect to Capital Leases.
"Consolidated EBITDA": for any period, Consolidated Net Income for
such period plus, without duplication and to the extent reflected as a
charge in the statement of such Consolidated Net Income for such period,
the sum of (a) total income tax expense, (b) interest expense,
amortization or write-off of debt discount and debt issuance costs and
commissions, discounts and other fees and charges associated with
Indebtedness (including the Loans), (c) depreciation, amortization and
asset impairment expense, (d) amortization of intangibles (including, but
not limited to, goodwill) and organization costs, (e) any extraordinary
expenses or losses (including, whether or not otherwise includable as a
separate item in the statement of such Consolidated Net Income for such
period, losses on sales of assets outside of the ordinary course of
business), (f) any other noncash charges (excluding inventory writedowns)
and (g) if applicable, restructuring charges, write-off of goodwill and
licensing agreements and minus, to the extent included in the statement
of such Consolidated Net Income for such period, the sum of (a) non-cash
interest income, (b) any extraordinary income or gains (including,
whether or not otherwise includable as a separate item in the statement
of such Consolidated Net Income for such period, gains on the sales of
assets outside of the ordinary course of business) and (c) any other
noncash income, all as determined on a consolidated basis.
"Consolidated Fixed Charge Coverage Ratio": as at the end of any
fiscal quarter of the Borrower, the ratio of (a) the Consolidated EBITDA
of the Borrower and its Subsidiaries to (b) the Consolidated Fixed
Charges of the Borrower and its Subsidiaries, in the case of clause (a)
and (b), for such fiscal quarter and the preceding fiscal quarter of the
Borrower.
"Consolidated Fixed Charges": for any period, for any Person,
without duplication, the sum of (i) the Consolidated Debt Service of such
Person and (ii) Capital Expenditures to the extent actually made by such
Person.
"Consolidated Lease Expense": for any period, the aggregate amount
of fixed and contingent rentals payable by the Borrower and its
Subsidiaries, determined on a consolidated basis in accordance with GAAP,
for such period with respect to leases of real and personal property.
<PAGE> 13
8
"Consolidated Net Income": for any period, the consolidated net
income (or loss) of the Borrower and its Subsidiaries, determined on a
consolidated basis in accordance with GAAP; provided that there shall be
excluded (a) the income (or deficit) of any Person accrued prior to the
date it becomes a Subsidiary of the Borrower or is merged into or
consolidated with the Borrower or any of its Subsidiaries, (b) the income
(or deficit) of any Person (other than a Subsidiary of the Borrower) in
which the Borrower or any of its Subsidiaries has an ownership interest,
except to the extent that any such income is actually received by the
Borrower or such Subsidiary in the form of dividends or similar
distributions and (c) the undistributed earnings of any Subsidiary of the
Borrower to the extent that the declaration or payment of dividends or
similar distributions by such Subsidiary is not at the time permitted by
the terms of any Contractual Obligation (other than under any Loan
Document) or Requirement of Law applicable to such Subsidiary.
"Consolidated Total Indebtedness": at any date, the sum (without
duplication) of (a) the Indebtedness of the Borrower and its Subsidiaries
for borrowed money on such date, (b) all Capital Lease Obligations of the
Borrower and its Subsidiaries on such date and (c) the Guarantee
Obligations of the Borrower and its Subsidiaries on such date in respect
of Indebtedness for borrowed money.
"Contractual Obligation": as to any Person, any provision of any
security issued by such Person or of any agreement (credit or otherwise),
instrument or other undertaking to which such Person is a party or by
which it or any of its property is bound.
"Default": any of the events specified in Section 7, whether or not
any requirement for the giving of notice, the lapse of time, or both, or
any other condition, has been satisfied.
"Designated Original Investors": collectively, Boston Ventures and
other stockholders of the Borrower as of the Closing Date listed on
Schedule 1.1G hereto.
"Dollars" and "$": dollars in lawful currency of the United States
of America.
"Domestic Subsidiary": any subsidiary of the Borrower organized
under the laws of any jurisdiction within the United States.
"Environmental Laws": any and all foreign, Federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, requirements of any Governmental Authority or other Requirements
of Law (including common law) regulating, relating to or imposing
liability or standards of conduct concerning protection of human health
or the environment, as now or may at any time hereafter be in effect.
<PAGE> 14
9
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to a
Eurodollar Loan, the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of reserve requirements in effect on
such day (including, without limitation, basic, supplemental, marginal
and emergency reserves under any regulations of the Board or other
Governmental Authority having jurisdiction with respect thereto) dealing
with reserve requirements prescribed for eurocurrency funding (currently
referred to as "Eurocurrency Liabilities" in Regulation D of such Board)
maintained by a member bank of the Federal Reserve System.
"Eurodollar Base Rate": with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, the rate per annum equal
to the rate at which Chemical is offered Dollar deposits at or about 10:00
A.M., New York City time, two Business Days prior to the beginning of such
Interest Period in the interbank eurodollar market where the eurodollar
and foreign currency and exchange operations in respect of its Eurodollar
Loans are then being conducted for delivery on the first day of such
Interest Period for the number of days comprised therein and in an amount
comparable to the amount of its Eurodollar Loan to be outstanding during
such Interest Period.
"Eurodollar Loans": Loans the rate of interest applicable to which
is based upon the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each Interest
Period pertaining to a Eurodollar Loan, a rate per annum determined for
such day in accordance with the following formula (rounded upward to the
nearest 1/100th of 1%):
Eurodollar Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Event of Default": any of the events specified in Section 7,
provided that any requirement for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied.
"Excess Cash Flow": for any period, Consolidated EBITDA for such
period minus the sum of (i) Consolidated Debt Service for such period,
(ii) Capital Expenditures made during such period and (iii) the amount of
any taxes paid during such period.
"Facilities": any and all real property (including, without
limitation, all buildings, fixtures or other improvements located
thereon) now, or hereafter, owned, leased, operated or used by the
Borrower or any of its Subsidiaries or any of their respective
predecessors.
<PAGE> 15
10
"FCC": the Federal Communications Commission and any successor
governmental agency performing functions similar to those performed by
the Federal Communications Commission on the date hereof.
"FCC Agreements": collectively, any channel lease agreement, MMDS
service agreement, microwave service agreement or similar document to
which the Borrower or its Subsidiaries is a party, as the same may be
amended, supplemented or otherwise modified from time to time.
"FCC License": any of the licenses, permits or other authorizations
issued by the FCC relating to or necessary for the operation of the
wireless cable televisions systems of the Borrower and its Subsidiaries,
including, without limitation, those listed on Schedule 1.1C hereto.
"Foreign Subsidiary": any Subsidiary of the Borrower organized
under the laws of any jurisdiction outside the United States of America.
"GAAP": generally accepted accounting principles in the United
States of America consistent with those utilized in preparing the audited
financial statements referred to in subsection 3.1.
"Governmental Authority": any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guarantee Obligation": as to any Person (the "guaranteeing
person"), any obligation of (a) the guaranteeing person or (b) another
Person (including, without limitation, any bank under any letter of
credit) to induce the creation of which the guaranteeing person has
issued a reimbursement, counterindemnity or similar obligation, in either
case guaranteeing or in effect guaranteeing any Indebtedness, leases,
dividends or other obligations (the "primary obligations") of any other
third Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of the
guaranteeing person, whether or not contingent, (i) to purchase any such
primary obligation or any property constituting direct or indirect
security therefor, (ii) to advance or supply funds (1) for the purchase
or payment of any such primary obligation or (2) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain
the net worth or solvency of the primary obligor, (iii) to purchase
property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary
obligor to make payment of such primary obligation or (iv) otherwise to
assure or hold harmless the owner of any such primary obligation against
loss in respect thereof; provided, however, that the term Guarantee
Obligation shall not include endorsements of instruments for deposit or
collection in the ordinary course of business. The amount of any
Guarantee Obligation of any guaranteeing person shall be
<PAGE> 16
11
deemed to be the lower of (a) an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Guarantee Obligation is made and (b) the maximum amount for which such
guaranteeing person may be liable pursuant to the terms of the instrument
embodying such Guarantee Obligation, unless such primary obligation and
the maximum amount for which such guaranteeing person may be liable are
not stated or determinable, in which case the amount of such Guarantee
Obligation shall be such guaranteeing person's maximum reasonably
anticipated liability in respect thereof as determined by the Borrower in
good faith.
"Indebtedness": of any Person at any date, (a) all indebtedness of
such Person for borrowed money or for the deferred purchase price of
property or services (other than current trade liabilities incurred in the
ordinary course of business and payable in accordance with customary
practices), (b) any other indebtedness of such Person which is evidenced
by a note, bond, debenture or similar instrument, (c) all obligations of
such Person under Capital Leases, (d) all obligations of such Person in
respect of acceptances issued or created for the account of such Person,
(e) all liabilities secured by any Lien on any property owned by such
Person even though such Person has not assumed or otherwise become liable
for the payment thereof and (f) other than for purposes of subsection 6.1,
the liquidation value of any preferred capital stock of such Person or its
Subsidiaries held by any Person other than such Person and its wholly
owned Subsidiaries.
"Insolvency": with respect to any Multiemployer Plan, the condition
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
"Interest Payment Date": (a) as to any ABR Loan, the last day of
each March, June, September and December, (b) as to any Eurodollar Loan
having an Interest Period of three months or less, the last day of such
Interest Period, and (c) as to any Eurodollar Loan having an Interest
Period longer than three months or 90 days, respectively, each day which
is three months or 90 days, respectively, or a whole multiple thereof,
after the first day of such Interest Period and the last day of such
Interest Period.
"Interest Period": with respect to any Eurodollar Loan:
(i) initially, the period commencing on the borrowing or
conversion date, as the case may be, with respect to such
Eurodollar Loan and ending one, two, three or six months
thereafter, as selected by the Borrower in its notice of borrowing
or notice of conversion, as the case may be, given with respect
thereto; and
<PAGE> 17
12
(ii) thereafter, each period commencing on the last day of the
next preceding Interest Period applicable to such Eurodollar Loan
and ending one, two, three or six months thereafter, as selected by
the Borrower by irrevocable notice to the Agent not less than three
Business Days prior to the last day of the then current Interest
Period with respect thereto;
provided that, all of the foregoing provisions relating to Interest
Periods are subject to the following:
(1) if any Interest Period pertaining to a Eurodollar Loan
would otherwise end on a day that is not a Business Day, such
Interest Period shall be extended to the next succeeding Business
Day unless the result of such extension would be to carry such
Interest Period into another calendar month in which event such
Interest Period shall end on the immediately preceding Business
Day;
(2) any Interest Period pertaining to a Eurodollar Loan that
begins on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar
month at the end of such Interest Period) shall end on the last
Business Day of a calendar month; and
(3) the Borrower shall select Interest Periods so as not to
require a payment or prepayment of any Eurodollar Loan during an
Interest Period for such Loan.
"Interest Rate Protection Agreement": any interest rate protection
agreement, interest rate futures contract, interest rate option, interest
rate cap or other interest rate hedge arrangement, to or under which the
Borrower or any other Subsidiary is a party or a beneficiary.
"Lease Assignment": each Collateral Assignment of Lease to be
executed and delivered by the Borrower or any of its Subsidiaries,
substantially in the form of Exhibit C and covering the leases of real
property listed on Schedule 1.1D, or any leases of real property acquired
by the Borrower or any of its Subsidiaries and for which the Agent
requests the execution and delivery of a Lease Assignment, as the same
may be amended, supplemented or otherwise modified from time to time.
"Leverage Ratio": as at the end of any fiscal quarter of the
Borrower, the ratio of (a) Consolidated Total Indebtedness of the
Borrower and its Subsidiaries on a consolidated basis on such date to (b)
the Consolidated EBITDA of the Borrower and its Subsidiaries for such
fiscal quarter and for the preceding fiscal quarter of the Borrower, as
annualized in accordance with the succeeding sentence. For purposes of
any such calculation of Consolidated EBITDA for any period that does not
include four full fiscal quarters, such calculation shall be annualized
by multiplying the actual
<PAGE> 18
13
Consolidated EBITDA for such shorter period by a fraction, the numerator
of which is 365 and the denominator of which is the actual number of days
included in such period.
"License Subsidiary": each Subsidiary of the Borrower which holds
or becomes a holder of any FCC License.
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge or other
security interest or any preference, priority or other security agreement
or preferential arrangement of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention
agreement and any Capital Lease having substantially the same economic
effect as any of the foregoing).
"Loan": any loan made by any Lender pursuant to this Agreement.
"Loan Documents": this Agreement, any Notes and the Security
Documents.
"Loan Parties": the Borrower and each Subsidiary of the Borrower
which is a party to a Loan Document.
"Loans": as defined in subsection 2.1.
"Major Programming Contracts": collectively, all material
programming contracts of the Borrower or its Subsidiaries, as the same
may be amended, supplemented or otherwise modified from time to time.
"Material Adverse Effect": a material adverse effect on (a) the
business, operations, property, condition (financial or otherwise) or
prospects of the Borrower and its Subsidiaries taken as a whole or (b)
the validity or enforceability of this or any of the other Loan Documents
or the rights or remedies of the Agent or the Lenders hereunder or
thereunder.
"Material Environmental Amount": an amount payable by the Borrower
and/or its Subsidiaries in excess of $100,000 for remedial costs,
compliance costs, compensatory damages, punitive damages, fines,
penalties or any combination thereof.
"Materials of Environmental Concern": any gasoline or petroleum
(including crude oil or any fraction thereof) or petroleum products or
any hazardous or toxic substances, materials or wastes, defined or
regulated as such in or under any Environmental Law, including, without
limitation, asbestos, polychlorinated biphenyls and urea-formaldehyde
insulation.
"Multiemployer Plan": a Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
<PAGE> 19
14
"Net Cash Proceeds": in connection with:
(a) any Asset Sale, the proceeds thereof in the form of cash
and Cash Equivalents (including any such proceeds received by way
of deferred payment of principal pursuant to a note or installment
receivable or purchase price adjustment receivable or otherwise,
but only as and when received), net of attorneys' fees,
accountants' fees, investment banking fees, amounts required to be
applied to the repayment of Indebtedness secured by a Lien
expressly permitted hereunder on any asset which is the subject of
such Asset Sale (other than any Lien in favor of the Agent for the
benefit of the Lenders) and other customary fees and expenses
actually incurred in connection therewith and net of taxes paid or
reasonably estimated to be payable as a result thereof (after
taking into account any available tax credits or deductions and any
tax sharing arrangements); and
(b) any issuance or sale of equity securities or debt
securities or instruments or the incurrence of loans, the cash
proceeds received from such issuance or incurrence, net of
attorneys' fees, investment banking fees, accountants' fees,
underwriting discounts and commissions and other customary fees and
expenses actually incurred in connection therewith.
"Non-Excluded Taxes": as defined in subsection 2.15.
"Notes": as defined in subsection 2.4(e).
"Ownership Report": the Ownership Report of each Loan Party most
recently filed with the FCC.
"Participant": as defined in subsection 9.6(b).
"PBGC": the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
"Person": an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
"Plan": at a particular time, any employee benefit plan which is
covered by ERISA and in respect of which the Borrower or a Commonly
Controlled Entity is (or, if such plan were terminated at such time,
would under Section 4069 of ERISA be deemed to be) an "employer" as
defined in Section 3(5) of ERISA.
"Pledge Agreements": the collective reference to the Borrower
Pledge Agreement and the Subsidiaries Pledge Agreement.
<PAGE> 20
15
"Properties": as defined in subsection 3.17(a).
"Register": as defined in subsection 9.6(d).
"Reorganization": with respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of
Section 4241 of ERISA.
"Reportable Event": any of the events set forth in Section 4043(b)
of ERISA, other than those events as to which the thirty day notice
period is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC
Reg. Section 2615.
"Required Lenders": at a particular time, the holders of at least
66-2/3% of the aggregate unpaid principal amount of the Loans, or, if no
Loans are outstanding, Lenders the Commitment Percentages of which
aggregate at least 66-2/3%.
"Requirement of Law": as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents
of such Person, and any law, treaty, rule or regulation or determination
of an arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"Responsible Officer": the chief executive officer and the
president of the Borrower or, with respect to financial matters, the
chief financial officer of the Borrower.
"Security Agreements": the collective reference to the Borrower
Security Agreement and the Subsidiaries Security Agreement.
"Security Documents": the collective reference to the Lease
Assignments, the Pledge Agreements, the Subsidiaries Guarantee, the
Security Agreements and all other security documents hereafter delivered
to the Agent granting a Lien on any asset or assets of any Person to
secure the obligations and liabilities of the Borrower hereunder and
under any of the other Loan Documents or to secure any guarantee of any
such obligations and liabilities.
"Single Employer Plan": any Plan which is covered by Title IV of
ERISA, but which is not a Multiemployer Plan.
"Solvent": when used with respect to any Person, means that, as of
any date of determination, (a) the amount of the "present fair saleable
value" of the assets of such Person will, as of such date, exceed the
amount of all "liabilities of such Person, contingent or otherwise", as
of such date, as such quoted terms are determined in accordance with
applicable federal and state laws governing determinations of the
insolvency of debtors, (b) the present fair saleable value of the assets
of such Person
<PAGE> 21
16
will, as of such date, be greater than the amount that will be required to
pay the liability of such Person on its debts as such debts become
absolute and matured, (c) such Person will not have, as of such date, an
unreasonably small amount of capital with which to conduct its business,
and (d) such Person will be able to pay its debts as they mature. For
purposes of this definition, (i) "debt" means liability on a "claim", and
(ii) "claim" means any (x) right to payment, whether or not such a right
is reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal, equitable, secured or
unsecured or (y) right to an equitable remedy for breach of performance if
such breach gives rise to a right to payment, whether or not such right to
an equitable remedy is reduced to judgment, fixed, contingent, matured or
unmatured, disputed, undisputed, secured or unsecured.
"Subsidiaries Guarantee": the Guarantee to be executed and
delivered by each Subsidiary, substantially in the form of Exhibit D, as
the same may be amended, supplemented or otherwise modified from time to
time.
"Subsidiaries Pledge Agreement": the Subsidiaries Pledge Agreement
to be executed and delivered by certain Subsidiaries of the Borrower,
substantially in the form of Exhibit E, as the same may be amended,
supplemented or otherwise modified from time to time.
"Subsidiaries Security Agreement": the Subsidiaries Security
Agreement to be executed and delivered by each Subsidiary in favor of the
Agent, substantially in the form of Exhibit F, as the same may be
amended, supplemented or otherwise modified from time to time.
"Subsidiaries Security Documents": the collective reference to the
Subsidiaries Pledge Agreement, the Subsidiaries Security Agreement and
any Lease Assignment executed and delivered by a Subsidiary.
"Subsidiary": as to any Person, a corporation, partnership or other
entity of which shares of stock or other ownership interests having
ordinary voting power (other than stock or such other ownership interests
having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly
through one or more intermediaries, or both, by such Person. Unless
otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary or
Subsidiaries of the Borrower.
"Termination Date": November 1, 2002.
"Tranche": the collective reference to Eurodollar Loans the then
current Interest Periods with respect to all of which begin on the same
date and end on the
<PAGE> 22
17
same later date (whether or not such Loans shall originally have been made on
the same day).
"Transferee": as defined in subsection 9.6(f).
"Type": as to any Loan, its nature as an ABR Loan or a Eurodollar Loan.
1.2 Other Definitional Provisions. (a) Unless otherwise specified
therein, all terms defined in this Agreement shall have the defined meanings
when used in any Notes or any certificate or other document made or delivered
pursuant hereto.
(b) As used herein and in any Notes, and any certificate or other document
made or delivered pursuant hereto, accounting terms relating to the Borrower
and its Subsidiaries not defined in subsection 1.1 and accounting terms partly
defined in subsection 1.1, to the extent not defined, shall have the respective
meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, subsection,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(d) The meanings given to terms defined herein shall be equally applicable
to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Revolving Credit Commitments. (a) Subject to the terms and conditions
hereof, each Lender severally agrees to make revolving credit loans ("Loans")
to the Borrower from time to time during the Commitment Period in an aggregate
principal amount at any one time outstanding not to exceed the amount of such
Lender's Commitment. During the Commitment Period, the Borrower may use the
Commitments by borrowing, prepaying the Loans in whole or in part, and
reborrowing, all in accordance with the terms and conditions hereof.
2.2 Procedure for Borrowing. (a) The Loans may from time to time be
(i) Eurodollar Loans or (ii) ABR Loans or (iii) a combination thereof, as
determined by the Borrower and notified to the Agent in accordance with
subsections 2.2(b) and 2.7, provided that no Loan shall be made as a Eurodollar
Loan after the day that is one month prior to the Termination Date.
(b) The Borrower may borrow under the Commitments on any Business Day
during the periods specified in subsection 2.1, provided that the Borrower
shall give the Agent irrevocable notice (which notice must be received by the
Agent prior to 10:00 A.M., New
<PAGE> 23
18
York City time, (a) three Business Days prior to the requested Borrowing Date,
if all or any part of the requested Loans are to be initially Eurodollar Loans
or (b) one Business Day prior to the requested Borrowing Date, otherwise),
specifying (i) the amount to be borrowed, (ii) the requested Borrowing Date,
(iii) whether the borrowing is to be of Eurodollar Loans, ABR Loans, or a
combination thereof and (iv) if the borrowing is to be entirely or partly of
Eurodollar Loans, the respective amounts of each such Type of Loan and the
respective lengths of the initial Interest Periods therefor. Each borrowing
under the Commitments shall be in an amount equal to (x) in the case of ABR
Loans, $100,000 or a whole multiple thereof (or, if the then Available
Commitments are less than $100,000, such lesser amount) and (y) in the case of
Eurodollar Loans, $500,000 or a whole multiple of $250,000 in excess thereof.
Upon receipt of any such notice from the Borrower, the Agent shall promptly
notify each Lender thereof. Each Lender will make the amount of its pro rata
share of each borrowing available to the Agent for the account of the Borrower
at the office of the Agent specified in subsection 9.2 prior to 11:00 A.M., New
York City time, on the Borrowing Date requested by the Borrower in funds
immediately available to the Agent. Such borrowing will then be made available
to the Borrower by the Agent crediting the account of the Borrower on the books
of such office with the aggregate of the amounts made available to the Agent by
the Lenders and in like funds as received by the Agent.
2.3 Commitment Fee. The Borrower agrees to pay to the Agent for the
account of each Lender a commitment fee during the Commitment Period with
respect to the Commitments in the amount equal to (i) the average daily amount
of the Available Commitment of such Lender during the period for which payment
is made times (ii) the Applicable Commitment Fee Rate in effect on each day
during such period. Such commitment fee shall be payable, in arrears, on the
last day of each March, June, September and December and on the Termination Date
or such earlier date as the Commitments shall terminate as provided herein,
commencing on the first of such dates to occur after the date hereof.
2.4 Repayment of Loans; Evidence of Debt. (a) The Borrower hereby
unconditionally promises to pay to the Agent for the account of each Lender the
then unpaid principal amount of each Loan of such Lender pursuant to subsection
2.6 and on the Termination Date (or such earlier date on which the Loans become
due and payable pursuant to Section 7). The Borrower hereby further agrees to
pay interest on the unpaid principal amount of the Loans from time to time
outstanding from the date hereof until payment in full thereof at the rates per
annum, and on the dates, set forth in subsection 2.9. Payments due hereunder
and the obligation of the Borrower relating thereto shall be deemed paid and
satisfied when payment is received by the Agent.
(b) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing indebtedness of the Borrower to such Lender
resulting from each Loan of such Lender from time to time, including the
amounts of principal and interest payable and paid to such Lender from time to
time under this Agreement.
<PAGE> 24
19
(c) The Agent shall maintain the Register pursuant to subsection 9.6(d),
and a subaccount therein for each Lender, in which shall be recorded (i) the
amount of each Loan made hereunder, the Type thereof and each Interest Period
applicable thereto, (ii) the amount of any principal or interest due and
payable or to become due and payable from the Borrower to each Lender hereunder
and (iii) both the amount of any sum received by the Agent hereunder from the
Borrower and each Lender's share thereof.
(d) The entries made in the Register and the accounts of each Lender
maintained pursuant to subsection 2.4(b) shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
obligations of the Borrower therein recorded; provided, however, that the
failure of any Lender or the Agent to maintain the Register or any such
account, or any error therein, shall not in any manner affect the obligation of
the Borrower to repay (with applicable interest) the Loans made to such
Borrower by such Lender in accordance with the terms of this Agreement.
(e) The Borrower agrees that, upon the request to the Agent by any
Lender, the Borrower will execute and deliver to such Lender a promissory note
of the Borrower evidencing the Loans of such Lender, substantially in the form
of Exhibit G with appropriate insertions as to date and principal amount (a
"Note").
2.5 Optional Prepayments. The Borrower may at any time and from time to
time prepay the Loans, in whole or in part, without premium or penalty, upon at
least four Business Days' irrevocable notice to the Agent, specifying the date
and amount of prepayment and whether the prepayment is of Eurodollar Loans, ABR
Loans or a combination thereof, and, if of a combination thereof, the amount
allocable to each, provided, that if a Eurodollar Loan is prepaid on any day
other than the last day of the Interest Period applicable thereto, the Borrower
shall also pay any amounts owing pursuant to subsection 2.16. Upon receipt of
any such notice the Agent shall promptly notify each Lender thereof. If any
such notice is given, the amount specified in such notice shall be due and
payable on the date specified therein, together with any amounts payable
pursuant to subsection 2.16. Partial prepayments shall be in an aggregate
principal amount of $500,000 or a whole multiple thereof.
2.6 Termination or Reduction of Commitments and Mandatory Prepayments.
(a) The Borrower shall have the right, upon not less than five Business
Days' notice to the Agent, to terminate the Commitments or, from time to time,
to reduce the amount of the Commitments. Any such reduction shall be in an
amount equal to $500,000 or a whole multiple thereof and shall reduce
permanently the Commitments then in effect. Termination of the Commitments
shall also terminate the obligation of the Lenders to make Loans.
(b) On each March 31, June 30, September 30 and December 31 and on the
Termination Date, commencing on March 31, 1999, the Loans outstanding on
December 31, 1998 shall be amortized in sixteen installments (as such amount of
Loans may be reduced by any prepayments pursuant to this subsection 2.6). The
amount of each such installment shall
<PAGE> 25
20
be equal to the product of (a) the amount of the Loans outstanding on December
31, 1998 times (b) the percentage set forth below opposite such date:
<TABLE>
<CAPTION>
Date Percentage
---- ----------
<S> <C>
March 31, 1999 5%
June 30, 1999 5%
September 30, 1999 5%
December 31, 1999 5%
March 31, 2000 7.5%
June 30, 2000 7.5%
September 30, 2000 7.5%
December 31, 2000 7.5%
March 31, 2001 7.5%
June 30, 2001 7.5%
September 30, 2001 7.5%
December 31, 2001 7.5%
March 31, 2002 5%
June 30, 2002 5%
September 30, 2002 5%
Termination Date 5%
</TABLE>
(c) If any class of equity or debt securities or instruments of the
Borrower or any of its Subsidiaries shall be issued or sold or the Borrower or
its Subsidiaries shall incur or permit the incurrence of loans, an amount equal
to 100% of the Net Cash Proceeds thereof shall (i) prior to the end of the
Commitment Period, be applied on the date of such issuance toward the reduction
of the Commitments as set forth in paragraph (f) of this subsection and (ii)
thereafter, to the prepayment of the Loans in the inverse order of maturity.
(d) (i) Prior to the end of the Commitment Period, the Commitments shall
be reduced as set forth in paragraph (f) of this subsection by the amount equal
to the Net Cash Proceeds received by the Borrower and its Subsidiaries from
Asset Sales which, after giving effect to all other Net Cash Proceeds received
by the Borrower and its Subsidiaries on account of Asset Sales during the
immediately preceding period of 12 consecutive months, exceeds $250,000 (only
to the extent such $250,000 of Net Cash Proceeds are invested in similar new
assets within 12 months of such Asset Sale) and (ii) thereafter, such Net Cash
Proceeds in excess of $250,000 shall be applied to the prepayment of the Loans
pro rata.
(e) If, for any fiscal year of the Borrower prior to the Termination Date,
there shall be Excess Cash Flow, the Borrower shall, on the relevant Excess
Cash Flow Application Date, apply toward the reduction of the aggregate
Commitments or the prepayment of the Loans as set forth in paragraph (f) of
this subsection, 100% of Excess Cash Flow for such fiscal year. Each such
prepayment or commitment reduction shall be made on a date (an "Excess Cash
Flow Application Date") no later than five days after the earlier of (i) the
date
<PAGE> 26
21
on which the financial statements of the Borrower referred to in subsection
5.1(a), for the fiscal year with respect to which such reduction or prepayment
is made, are required to be delivered to the Lenders and (ii) the date such
financial statements are actually delivered.
(f) Any reduction of the aggregate Commitments pursuant to this subsection
2.6 shall be accompanied by the prepayment of the Loans to the extent, if any,
that the sum of the aggregate outstanding Loans of all Lenders exceeds the
amount of the aggregate Commitments as so reduced. After the end of the
Commitment Period, any Net Cash Proceeds or Excess Cash Flow to be applied
pursuant to this subsection 2.6 shall be applied to the prepayment of the
Loans. Reductions of the Commitments or prepayment of the Loans pursuant to
this subsection 2.6 (other than pursuant to subsection 2.6(d)) shall be applied
to the installments of principal of the Loan in the inverse order of scheduled
maturity.
2.7 Conversion and Continuation Options. (a) The Borrower may elect from
time to time to convert Eurodollar Loans to ABR Loans, by giving the Agent at
least two Business Days' prior irrevocable notice of such election, provided
that any such conversion of Eurodollar Loans may only be made on the last day of
an Interest Period with respect thereto. The Borrower may elect from time to
time to convert ABR Loans to Eurodollar Loans by giving the Agent at least three
Business Days' prior irrevocable notice of such election. Any such notice of
conversion to Eurodollar Loans shall specify the length of the initial Interest
Period or Interest Periods therefor. Upon receipt of any such notice the Agent
shall promptly notify each Lender thereof. All or any part of outstanding
Eurodollar Loans and ABR Loans may be converted as provided herein, provided
that (i) no Loan may be converted into a Eurodollar Loan when any Event of
Default has occurred and is continuing and the Agent has or the Required Lenders
have determined that such a conversion is not appropriate and (ii) no Loan may
be converted into a Eurodollar Loan after the date that is one month prior to
the Termination Date.
(b) Any Eurodollar Loans may be continued as such upon the expiration of
the then current Interest Period with respect thereto by the Borrower giving
notice to the Agent, in accordance with the applicable provisions of the term
"Interest Period" set forth in subsection 1.1, of the length of the next
Interest Period to be applicable to such Loans, provided that no Eurodollar
Loan may be continued as such (i) when any Event of Default has occurred and is
continuing and the Agent has or the Required Lenders have determined that such
a continuation is not appropriate or (ii) after the date that is one month
prior to the Termination Date and provided, further, that if the Borrower shall
fail to give such notice or if such continuation is not permitted such Loans
shall be automatically converted to ABR Loans on the last day of such then
expiring Interest Period.
2.8 Minimum Amounts and Maximum Number of Tranches. All borrowings,
conversions and continuations of Loans hereunder and all selections of Interest
Periods hereunder shall be in such amounts and be made pursuant to such
elections so that, after giving effect thereto, the aggregate principal amount
of the Loans comprising each Tranche shall be
<PAGE> 27
22
equal to $500,000 or a whole multiple of $250,000 in excess thereof. In no
event shall there be more than 5 Tranches outstanding at any time.
2.9 Interest Rates and Payment Dates. (a) Each Eurodollar Loan shall bear
interest for each day during each Interest Period with respect thereto at a
rate per annum equal to the Eurodollar Rate determined for such day plus the
Applicable Margin.
(b) Each ABR Loan shall bear interest at a rate per annum equal to the ABR
plus the Applicable Margin.
(c) If all or a portion of (i) any principal of any Loan, (ii) any
interest payable thereon, (iii) any commitment fee or (iv) any other amount
payable hereunder shall not be paid when due (whether at the stated maturity,
by acceleration or otherwise), the principal of the Loans and any such overdue
interest, commitment fee or other amount shall bear interest at a rate per
annum which is (x) in the case of principal, the rate that would otherwise be
applicable thereto pursuant to the foregoing provisions of this subsection plus
2% or (y) in the case of any such overdue interest, commitment fee or other
amount, the rate described in paragraph (b) of this subsection plus 2%, in each
case from the date of such non-payment until such overdue principal, interest,
commitment fee or other amount is paid in full (as well after as before
judgment).
(d) Interest shall be payable in arrears on each Interest Payment Date,
provided that interest accruing pursuant to paragraph (c) of this subsection
shall be payable from time to time on demand.
2.10 Computation of Interest and Fees. (a) Whenever it is calculated on
the basis of the Prime Rate, interest shall be calculated on the basis of a
365- (or 366-, as the case may be) day year for the actual days elapsed; and,
otherwise, commitment fees and interest shall be calculated on the basis of a
360-day year for the actual days elapsed. The Agent shall as soon as
practicable notify the Borrower and the Lenders of each determination of a
Eurodollar Rate. Any change in the interest rate on a Loan resulting from a
change in the ABR or the Eurocurrency Reserve Requirements shall become
effective as of the opening of business on the day on which such change becomes
effective. The Agent shall as soon as practicable notify the Borrower and the
Lenders of the effective date and the amount of each such change in interest
rate.
(b) Each determination of an interest rate by the Agent pursuant to any
provision of this Agreement shall be conclusive and binding on the Borrower and
the Lenders in the absence of manifest error. The Agent shall, at the request
of the Borrower, deliver to the Borrower a statement showing the quotations
used by the Agent in determining any interest rate pursuant to subsection
2.9(a) or (b).
2.11 Inability to Determine Interest Rate. If prior to the first day of
any Interest Period:
<PAGE> 28
23
(a) the Agent shall have determined (which determination shall be
conclusive and binding upon the Borrower) that, by reason of
circumstances affecting the relevant market, adequate and reasonable
means do not exist for ascertaining the Eurodollar Rate for such Interest
Period, or
(b) the Agent shall have received notice from the Required Lenders
that the Eurodollar Rate determined or to be determined for such Interest
Period will not adequately and fairly reflect the cost to such Lenders
(as conclusively certified by such Lenders) of making or maintaining
their affected Loans during such Interest Period,
the Agent shall give telecopy or telephonic notice thereof to the Borrower and
the Lenders as soon as practicable thereafter, and such notice shall describe
the reason for such notice. If such notice is given (x) any Eurodollar Loans
requested to be made on the first day of such Interest Period shall be made as
ABR Loans, (y) any Loans that were to have been converted on the first day of
such Interest Period to Eurodollar Loans shall be converted to or continued as
ABR Loans and (z) any outstanding Eurodollar Loans shall be converted, on the
first day of such Interest Period, to ABR Loans. Until such notice has been
withdrawn by the Agent, no further Eurodollar Loans shall be made or continued
as such, nor shall the Borrower have the right to convert Loans to Eurodollar
Loans.
2.12 Pro Rata Treatment and Payments. (a) Each borrowing by the Borrower
from the Lenders hereunder, each payment by the Borrower on account of any
commitment fee hereunder and any reduction of the Commitments of the Lenders
shall be made pro rata according to the respective Commitment Percentages of
the Lenders. Each payment (including each prepayment) by the Borrower on
account of principal of and interest on the Loans shall be made pro rata
according to the respective outstanding principal amounts of the Loans then
held by the Lenders. All payments (including prepayments) to be made by the
Borrower hereunder, whether on account of principal, interest, fees or
otherwise, shall be made without set off or counterclaim and shall be made
prior to 12:00 Noon, New York City time, on the due date thereof to the Agent,
for the account of the Lenders, at the Agent's office specified in subsection
9.2, in Dollars and in immediately available funds. The Agent shall distribute
such payments to the Lenders promptly upon receipt in like funds as received.
If any payment hereunder becomes due and payable on a day other than a Business
Day, such payment shall be extended to the next succeeding Business Day, and,
with respect to payments of principal, interest thereon shall be payable at the
then applicable rate during such extension.
(b) Unless the Agent shall have been notified in writing by any Lender
prior to a borrowing that such Lender will not make the amount that would
constitute its Commitment Percentage of such borrowing available to the Agent,
the Agent may assume that such Lender is making such amount available to the
Agent, and the Agent may, in reliance upon such assumption, make available to
the Borrower a corresponding amount. If such amount is not made available to
the Agent by the required time on the Borrowing Date therefor, such Lender
shall pay to the Agent, on demand, such amount with interest thereon at a rate
equal to the daily average Federal Funds Effective Rate for the period until
such Lender makes such
<PAGE> 29
24
amount immediately available to the Agent. A certificate of the Agent submitted
to any Lender with respect to any amounts owing under this subsection shall be
conclusive in the absence of manifest error. If such Lender's Commitment
Percentage of such borrowing is not made available to the Agent by such Lender
within three Business Days of such Borrowing Date, the Agent shall also be
entitled to recover such amount with interest thereon at the rate per annum
applicable to ABR Loans hereunder, on demand, from the Borrower. Notwithstanding
anything contained in this subsection 2.12(b), each Lender shall remain
obligated to make the Loans it has agreed to make pursuant to, and under the
terms and conditions specified in, this Agreement.
2.13 Illegality. Notwithstanding any other provision herein, if the
adoption of or any change in any Requirement of Law or in the interpretation or
application thereof shall make it unlawful for any Lender to make or maintain
Eurodollar Loans as contemplated by this Agreement, (a) the commitment of such
Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such
and convert ABR Loans to Eurodollar Loans shall forthwith be cancelled and (b)
such Lender's Loans then outstanding as Eurodollar Loans, if any, shall be
converted automatically to ABR Loans on the respective last days of the then
current Interest Periods with respect to such Loans or within such earlier
period as required by law. If any such conversion of a Eurodollar Loan occurs
on a day which is not the last day of the then current Interest Period with
respect thereto, the Borrower shall pay to such Lender such amounts, if any, as
may be required pursuant to subsection 2.16.
2.14 Requirements of Law. (a) If the adoption of or any change in any
Requirement of Law or in the interpretation or application thereof or compliance
by any Lender with any request or directive (whether or not having the force of
law) from any central bank or other Governmental Authority made subsequent to
the date hereof:
(i) shall subject any Lender to any tax of any kind whatsoever with
respect to this Agreement, any Note or any Eurodollar Loan made by it, or
change the basis of taxation of payments to such Lender in respect
thereof (except for Non-Excluded Taxes covered by subsection 2.15 and
changes in the rate of tax on the overall net income of such Lender);
(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans
or other extensions of credit by, or any other acquisition of funds by,
any office of such Lender which is not otherwise included in the
determination of the Eurodollar Rate thereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or to reduce any amount receivable
hereunder in respect thereof,
<PAGE> 30
25
then, in any such case, the Borrower shall promptly pay such Lender such
additional amount or amounts as will compensate such Lender for such increased
cost or reduced amount receivable.
(b) If any Lender shall have determined that the adoption of or any change
in any Requirement of Law regarding capital adequacy or in the interpretation
or application thereof or compliance by such Lender or any corporation
controlling such Lender with any request or directive regarding capital
adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof shall have the effect of reducing
the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder to a level below that which such
Lender or such corporation could have achieved but for such adoption, change or
compliance (taking into consideration such Lender's or such corporation's
policies with respect to capital adequacy) by an amount deemed by such Lender
to be material, then from time to time, the Borrower shall promptly pay to such
Lender such additional amount or amounts as will compensate such Lender for
such reduction.
(c) If any Lender becomes entitled to claim any additional amounts
pursuant to this subsection, it shall promptly notify the Borrower (with a copy
to the Agent) of the event by reason of which it has become so entitled. A
certificate as to any additional amounts payable pursuant to this subsection
submitted by such Lender to the Borrower (with a copy to the Agent) shall be
conclusive in the absence of manifest error. The agreements in this subsection
shall survive the termination of this Agreement and the payment of the Loans
and all other amounts payable hereunder.
(d) In the event any Lender delivers a certificate requesting compensation
pursuant to this subsection 2.14, the Borrower may, at its sole expense and
effort, upon notice to such Lender and the Agent, require such Lender to
transfer and assign, without recourse (in accordance with and subject to the
restrictions contained in subsection 9.6), all of its interests, rights and
obligations under this Agreement to an assignee which shall assume such assigned
obligations (which assignee may be another Lender, if a Lender accepts such
assignment); provided, however, that (x) such assignment shall not conflict with
any law, rule or regulation or order of any court or other Governmental
Authority having jurisdiction, (y) the Borrower shall have received the prior
written consent to such assignment of the Agent, which consent shall not
unreasonably be withheld, and (z) the Borrower or such assignee shall have paid
to the affected Lender in immediately available funds an amount equal to the sum
of the principal of the outstanding Loans of such Lender plus all interest, fees
and other amounts accrued and unpaid for the account of such Lender hereunder
(including any amounts under this subsection 2.14); provided, further, that if
prior to any such transfer and assignment the circumstances or event that
resulted in such Lender's claim for compensation under this subsection 2.14
cease to cause such Lender to suffer increased costs or reductions in amounts
received or receivable or reduction in return on capital (including as a result
of any action taken by such Lender pursuant to subsection 2.17), or if such
Lender shall waive its right to claim further
<PAGE> 31
26
compensation under this subsection 2.14 in respect of such circumstances or
event, then such Lender shall not thereafter be required to make any such
transfer and assignment hereunder.
2.15 Taxes. (a) All payments made by the Borrower under this Agreement
and any Notes shall be made free and clear of, and without deduction or
withholding for or on account of, any present or future income, stamp or other
taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now
or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority, excluding net income taxes and franchise taxes (imposed
in lieu of net income taxes) imposed on the Agent or any Lender as a result of
a present or former connection between the Agent or such Lender and the
jurisdiction of the Governmental Authority imposing such tax or any political
subdivision or taxing authority thereof or therein (other than any such
connection arising solely from the Agent or such Lender having executed,
delivered or performed its obligations or received a payment under, or
enforced, this Agreement or any Note). If any such non-excluded taxes, levies,
imposts, duties, charges, fees deductions or withholdings ("Non-Excluded
Taxes") are required to be withheld from any amounts payable to the Agent or
any Lender hereunder or under any Note, the amounts so payable to the Agent or
such Lender shall be increased to the extent necessary to yield to the Agent or
such Lender (after payment of all Non-Excluded Taxes) interest or any such
other amounts payable hereunder at the rates or in the amounts specified in
this Agreement, provided, however, that the Borrower shall not be required to
increase any such amounts payable to any Lender that is not organized under the
laws of the United States of America or a state thereof if such Lender fails to
comply with the requirements of paragraph (b) of this subsection. Whenever any
Non-Excluded Taxes are payable by the Borrower, as promptly as possible
thereafter the Borrower shall send to the Agent for its own account or for the
account of such Lender, as the case may be, a certified copy of an original
official receipt received by the Borrower showing payment thereof. If the
Borrower fails to pay any Non-Excluded Taxes when due to the appropriate taxing
authority or fails to remit to the Agent the required receipts or other
required documentary evidence, the Borrower shall indemnify the Agent and the
Lenders for any incremental taxes, interest or penalties that may become
payable by the Agent or any Lender as a result of any such failure. The
agreements in this subsection shall survive the termination of this Agreement
and the payment of the Loans and all other amounts payable hereunder.
(b) Each Lender that is not incorporated under the laws of the United
States of America or a state thereof shall:
(i) deliver to the Borrower and the Agent (A) two duly completed
copies of United States Internal Revenue Service Form 1001 or 4224, or
successor applicable form, as the case may be, and (B) an Internal
Revenue Service Form W-8 or W-9, or successor applicable form, as the
case may be;
(ii) deliver to the Borrower and the Agent two further copies of any
such form or certification on or before the date that any such form or
certification expires or
<PAGE> 32
27
becomes obsolete and after the occurrence of any event requiring a change
in the most recent form previously delivered by it to the Borrower; and
(iii) obtain such extensions of time for filing and complete such
forms or certifications as may reasonably be requested by the Borrower or
the Agent;
unless in any such case an event (including, without limitation, any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly completing and delivering any such
form with respect to it and such Lender so advises the Borrower and the Agent.
Such Lender shall certify (i) in the case of a Form 1001 or 4224, that it is
entitled to receive payments under this Agreement without deduction or
withholding of any United States federal income taxes and (ii) in the case of a
Form W-8 or W-9, that it is entitled to an exemption from United States backup
withholding tax. Each Person that shall become a Lender or a Participant
pursuant to subsection 9.6 shall, upon the effectiveness of the related
transfer, be required to provide all of the forms and statements required
pursuant to this subsection, provided that in the case of a Participant such
Participant shall furnish all such required forms and statements to the Lender
from which the related participation shall have been purchased.
2.16 Indemnity. The Borrower agrees to indemnify each Lender and to hold
each Lender harmless from any loss or expense which such Lender may sustain or
incur as a consequence of (a) default by the Borrower in making a borrowing of,
conversion into or continuation of Eurodollar Loans after the Borrower has given
a notice requesting the same in accordance with the provisions of this
Agreement, (b) default by the Borrower in making any prepayment after the
Borrower has given a notice thereof in accordance with the provisions of this
Agreement or (c) the making of a prepayment of Eurodollar Loans on a day which
is not the last day of an Interest Period with respect thereto. Such
indemnification may include an amount equal to the excess, if any, of (i) the
amount of interest which would have accrued on the amount so prepaid, or not so
borrowed, converted or continued, for the period from the date of such
prepayment or of such failure to borrow, convert or continue to the last day of
such Interest Period (or, in the case of a failure to borrow, convert or
continue, the Interest Period that would have commenced on the date of such
failure) in each case at the applicable rate of interest for such Loans provided
for herein (excluding, however, the Applicable Margin included therein, if any)
over (ii) the amount of interest (as reasonably determined by such Lender) which
would have accrued to such Lender on such amount by placing such amount on
deposit for a comparable period with leading banks in the interbank eurodollar
market. This covenant shall survive the termination of this Agreement and the
payment of the Loans and all other amounts payable hereunder.
2.17 Change of Lending Office. Each Lender agrees that if it makes any
demand for payment under subsection 2.14 or 2.15(a), or if any adoption or
change of the type described in subsection 2.13 shall occur with respect to it,
it will use reasonable efforts (consistent with its internal policy and legal
and regulatory restrictions and so long as such
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28
efforts would not be disadvantageous to it, as determined in its sole
discretion) to designate a different lending office if the making of such a
designation would reduce or obviate the need for the Borrower to make payments
under subsection 2.14 or 2.15(a), or would eliminate or reduce the effect of any
adoption or change described in subsection 2.13.
SECTION 3. REPRESENTATIONS AND WARRANTIES
To induce the Agent and the Lenders to enter into this Agreement and to
make the Loans, the Borrower hereby represents and warrants to the Agent and
each Lender that:
3.1 Financial Condition. The audited consolidated balance sheet of the
Borrower and its consolidated Subsidiaries as at December 31, 1993 and December
31, 1994 and the related consolidated statements of income and of cash flows for
the fiscal years ended on such dates, reported on by Arthur Andersen L.L.P. and
Ernst & Young, copies of which have heretofore been furnished to each Lender,
present fairly the consolidated financial condition of the Borrower and its
consolidated Subsidiaries as at such dates, and the consolidated results of
their operations and their consolidated cash flows for the fiscal years then
ended. The unaudited consolidated balance sheet of the Borrower and its
consolidated Subsidiaries as at September 30, 1995 and the related unaudited
consolidated statements of income and of cash flows for the nine-month period
ended on such date, certified by a Responsible Officer, copies of which have
heretofore been furnished to each Lender, are complete and correct and present
fairly the consolidated financial condition of the Borrower and its consolidated
Subsidiaries as at such date, and the consolidated results of their operations
and their consolidated cash flows for the nine-month period then ended (subject
to normal year-end audit adjustments). All such financial statements, including
the related schedules and notes thereto, have been prepared in accordance with
GAAP applied consistently throughout the periods involved (except as approved by
such accountants or Responsible Officer, as the case may be, and as disclosed
therein). Neither the Borrower nor any of its consolidated Subsidiaries had, at
the date of the most recent balance sheet referred to above, any material
Guarantee Obligation, contingent liability or liability for taxes, or any
long-term lease or unusual forward or long-term commitment, including, without
limitation, any interest rate or foreign currency swap or exchange transaction,
which is not reflected in the foregoing statements or in the notes thereto.
During the period from September 30, 1995 to and including the date hereof there
has been no sale, transfer or other disposition by the Borrower or any of its
consolidated Subsidiaries of any material part of its business or property and
no purchase or other acquisition of any business or property (including any
capital stock of any other Person) material in relation to the consolidated
financial condition of the Borrower and its consolidated Subsidiaries at
September 30, 1995.
3.2 No Change; Programming Contracts; FCC Agreements. (a) Since September
30, 1995 there has been no development or event which has had or could
reasonably be expected to have a Material Adverse Effect, and (b) during the
period from September 30, 1995 to and including the date hereof no dividends or
other distributions have
<PAGE> 34
29
been declared, paid or made upon the Capital Stock of the Borrower nor has any
of the Capital Stock of the Borrower been redeemed, retired, purchased or
otherwise acquired, in each case, for value by the Borrower or any of its
Subsidiaries. Schedule 1.1E accurately lists all of the material programming
contracts of the Borrower and its Subsidiaries. The Borrower has provided to
the Agent each and every material amendment, supplement or modification (if any)
to the FCC Agreements entered into since the Closing Date and Schedule 1.1F
accurately lists all of the FCC Agreements of the Borrower or its Subsidiaries.
3.3 Corporate Existence; Compliance with Law. Each Loan Party (a) is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, (b) has the corporate power and authority,
and the legal right, to own and operate its property, to lease the property it
operates as lessee and to conduct the business in which it is currently
engaged, (c) is duly qualified as a foreign corporation and in good standing
under the laws of each jurisdiction where its ownership, lease or operation of
property or the conduct of its business requires such qualification and (d) is
in compliance with all Requirements of Law except to the extent that the
failure to comply therewith could not, in the aggregate, reasonably be expected
to have a Material Adverse Effect.
3.4 Corporate Power; Authorization; Enforceable Obligations. The Borrower
has the corporate power and authority, and the legal right, to make, deliver and
perform the Loan Documents to which it is a party and to borrow hereunder and
has taken all necessary corporate action to authorize the borrowings on the
terms and conditions of this Agreement and any Notes and to authorize the
execution, delivery and performance of the Loan Documents to which it is a
party. Except as disclosed on Schedule 3.4, no consent or authorization of,
filing with, notice to or other act by or in respect of, any Governmental
Authority or any other Person is required in connection with the borrowings
hereunder, with the execution, delivery, performance, validity or enforceability
of the Loan Documents to which the Borrower is a party (including any consent
necessary for the grant of a security interest by the Borrower and its
Subsidiaries to the Lenders of all of their right, title and interest in the FCC
Agreements and the Major Programming Contracts in accordance with the Security
Agreements) or with the continuing operations of the Borrower and its
Subsidiaries. This Agreement has been, and each other Loan Document to which it
is a party will be, duly executed and delivered on behalf of the Borrower. This
Agreement constitutes, and each other Loan Document to which it is a party when
executed and delivered will constitute, a legal, valid and binding obligation of
the Borrower enforceable against the Borrower in accordance with its terms,
subject to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, general equitable principles (whether considered in
a proceeding in equity or at law).
3.5 No Legal Bar. The execution, delivery and performance of the Loan
Documents to which the Borrower or its Subsidiaries are parties, the borrowings
hereunder and the use of the proceeds thereof will not violate any Requirement
of Law or Contractual Obligation of the Borrower or of any of its Subsidiaries
and will not result in, or require, the
<PAGE> 35
30
creation or imposition of any Lien on any of its or their respective properties
or revenues pursuant to any such Requirement of Law or Contractual Obligation.
3.6 No Material Litigation. Except as disclosed on Schedule 3.6, no
litigation, investigation or proceeding of or before any arbitrator or
Governmental Authority is pending or, to the knowledge of the Borrower,
threatened by or against the Borrower or any of its Subsidiaries or against any
of its or their respective properties or revenues (a) with respect to any of
the Loan Documents or any of the transactions contemplated hereby or thereby,
or (b) which could reasonably be expected to have a Material Adverse Effect.
3.7 No Default. Neither the Borrower nor any of its Subsidiaries is in
default under or with respect to any of its Contractual Obligations in any
respect which could reasonably be expected to have a Material Adverse Effect.
No Default or Event of Default has occurred and is continuing.
3.8 Ownership of Property; Liens. Each Loan Party has good record and
marketable title in fee simple to, or a valid leasehold interest in, all its
real property, and good title to, or a valid leasehold interest in, all its
other property, and none of such property is subject to any Lien except as
permitted by subsection 6.3.
3.9 Intellectual Property. The Loan Party owns, or is licensed to use, all
trademarks, tradenames, copyrights, technology, know-how and processes
necessary for the conduct of its business as currently conducted except for
those the failure to own or license which could not reasonably be expected to
have a Material Adverse Effect (the "Intellectual Property"). No claim has
been asserted and is pending by any Person challenging or questioning the use
of any such Intellectual Property or the validity or effectiveness of any such
Intellectual Property, nor does the Borrower know of any valid basis for any
such claim. The use of such Intellectual Property by the Borrower and its
Subsidiaries does not infringe on the rights of any Person, except for such
claims and infringements that, in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
3.10 No Burdensome Restrictions. Except as disclosed on Schedule 3.10, no
Requirement of Law or Contractual Obligation of the Borrower or any of its
Subsidiaries could reasonably be expected to have a Material Adverse Effect.
3.11 Taxes. Each of the Borrower and its Subsidiaries has filed or caused
to be filed all tax returns which, to the knowledge of the Borrower, are
required to be filed and has paid all taxes shown to be due and payable on said
returns or on any assessments made against it or any of its property and all
other taxes, fees or other charges imposed on it or any of its property by any
Governmental Authority (other than any the amount or validity of which are
currently being contested in good faith by appropriate proceedings and with
respect to which reserves in conformity with GAAP have been provided on the
books of the Borrower or its Subsidiaries, as the case may be); no tax Lien has
been filed, and, to the knowledge of the Borrower, no claim is being asserted,
with respect to any such tax, fee or other charge.
<PAGE> 36
31
3.12 Federal Regulations. No part of the proceeds of any Loans will be
used for "purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation G or Regulation U of the
Board as now and from time to time hereafter in effect. If requested by any
Lender or the Agent, the Borrower will furnish to the Agent and each Lender a
statement to the foregoing effect in conformity with the requirements of
FR Form G-1 or FR Form U-1 referred to in said Regulation G or Regulation U,
as the case may be.
3.13 ERISA. Neither a Reportable Event nor an "accumulated funding
deficiency" (within the meaning of Section 412 of the Code or Section 302 of
ERISA) has occurred during the five-year period prior to the date on which this
representation is made or deemed made with respect to any Plan, and each Plan
has complied in all material respects with the applicable provisions of ERISA
and the Code. No termination of a Single Employer Plan has occurred, and no
Lien in favor of the PBGC or a Plan has arisen, during such five-year period.
The present value of all accrued benefits under each Single Employer Plan
(based on those assumptions used to fund such Plans) did not, as of the last
annual valuation date prior to the date on which this representation is made or
deemed made, exceed the value of the assets of such Plan allocable to such
accrued benefits. Neither the Borrower nor any Commonly Controlled Entity has
had a complete or partial withdrawal from any Multiemployer Plan, and neither
the Borrower nor any Commonly Controlled Entity would become subject to any
liability under ERISA if the Borrower or any such Commonly Controlled Entity
were to withdraw completely from all Multiemployer Plans as of the valuation
date most closely preceding the date on which this representation is made or
deemed made. No such Multiemployer Plan is in Reorganization or Insolvent.
The present value (determined using actuarial and other assumptions which are
reasonable in respect of the benefits provided and the employees participating)
of the liability of the Borrower and each Commonly Controlled Entity for post
retirement benefits to be provided to their current and former employees under
Plans which are welfare benefit plans (as defined in Section 3(1) of ERISA)
does not, in the aggregate, exceed the assets under all such Plans allocable to
such benefits.
3.14 Investment Company Act; Other Regulations. The Borrower is not an
"investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended. The
Borrower is not subject to regulation under any Federal or State statute or
regulation (other than Regulation X of the Board) which limits its ability to
incur Indebtedness.
3.15 Subsidiaries. The Persons set forth on Schedule 3.15 constitute all
the Subsidiaries of the Borrower at the date hereof.
3.16 Purpose of Loans. The proceeds of the Loans shall be used by the
Borrower for general corporate purposes including to finance working capital
and Capital Expenditures and to refinance existing Indebtedness.
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3.17 Environmental Matters.
(a) The facilities and properties owned, leased or operated by the Borrower
or any of its Subsidiaries (the "Properties") do not contain, and have not
previously contained, any Materials of Environmental Concern in amounts or
concentrations which (i) constitute or constituted a violation of, or (ii) could
reasonably be expected to give rise to liability under, any Environmental Law
except in either case insofar as such violation or liability, or any aggregation
thereof, is not reasonably likely to result in the payment of a Material
Environmental Amount.
(b) The Properties and all operations at the Properties are in compliance,
and have in the last five years been in compliance, in all material respects
with all applicable Environmental Laws, and there is no contamination at, under
or about the Properties or violation of any Environmental Law with respect to
the Properties or the business operated by the Borrower or any of its
Subsidiaries (the "Business") which could materially interfere with the
continued operation of the Properties or materially impair the fair saleable
value thereof.
(c) Neither the Borrower nor any of its Subsidiaries has received any
notice of violation, alleged violation, non-compliance, liability or potential
liability regarding environmental matters or compliance with Environmental Laws
with regard to any of the Properties or the Business, nor does the Borrower have
knowledge or reason to believe that any such notice will be received or is being
threatened except insofar as such notice or threatened notice, or any
aggregation thereof, does not involve a matter or matters that is or are
reasonably likely to result in the payment of a Material Environmental Amount.
(d) Materials of Environmental Concern have not been transported or
disposed of from the Properties in violation of, or in a manner or to a location
which could reasonably be expected to give rise to liability under, any
Environmental Law, nor have any Materials of Environmental Concern been
generated, treated, stored or disposed of at, on or under any of the Properties
in violation of, or in a manner that could reasonably be expected to give rise
to liability under, any applicable Environmental Law except insofar as any such
violation or liability referred to in this paragraph, or any aggregation
thereof, is not reasonably likely to result in the payment of a Material
Environmental Amount.
(e) No judicial proceeding or governmental or administrative action is
pending or, to the knowledge of the Borrower, threatened, under any
Environmental Law to which the Borrower or any Subsidiary is or will be named as
a party with respect to the Properties or the Business, nor are there any
consent decrees or other decrees, consent orders, administrative orders or other
orders, or other administrative or judicial requirements outstanding under any
Environmental Law with respect to the Properties or the Business except insofar
as such proceeding, action, decree, order or other
<PAGE> 38
33
requirement, or any aggregation thereof, is not reasonably likely to
result in the payment of a Material Adverse Amount.
(f) There has been no release or threat of release of Materials of
Environmental Concern at or from the Properties, or arising from or
related to the operations of the Borrower or any Subsidiary in connection
with the Properties or otherwise in connection with the Business, in
violation of or in amounts or in a manner that could reasonably give rise
to liability under Environmental Laws except insofar as any such
violation or liability referred to in this paragraph, or any aggregation
thereof, is not reasonably likely to result in the payment of a Material
Environmental Amount.
3.18 Accuracy of Information. No statement or information contained in this
Agreement, any other Loan Document or any other document, certificate or
statement furnished to the Agent or the Lenders or any of them, by or on behalf
of any Loan Party for use in connection with the transactions contemplated by
this Agreement or the other Loan Documents, contained as of the date such
statement, information, document or certificate was so furnished any untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements contained herein or therein, when taken as a
whole, not misleading. The projections and pro forma financial information
contained in the materials referenced above are based upon good faith estimates
and assumptions believed by management of the Borrower to be reasonable at the
time made, it being recognized by the Lenders that such financial information
as it relates to future events is not to be viewed as fact and that actual
results during the period or periods covered by such financial information may
differ from the projected results set forth therein by a material amount.
There is no fact known to any Loan Party that could reasonably be expected to
have a Material Adverse Effect that has not been expressly disclosed herein, in
the other Loan Documents or in such other documents, certificates and
statements furnished to the Agent and the Lenders for use in connection with
the transactions contemplated hereby and by the other Loan Documents.
3.19 Security Documents. (a) Each of the Pledge Agreements is effective to
create in favor of the Agent, for the benefit of the Lenders, a legal, valid and
enforceable security interest in the Pledged Securities described therein and
proceeds thereof (subject to any applicable FCC approval) and, when the Pledged
Notes described therein (if and when applicable) and stock certificates
representing the Pledged Stock described therein are delivered to the Agent (and
the Lenders have given value to the Borrower), each such Pledge Agreement shall
constitute a fully perfected first priority Lien on, and security interest in,
all right, title and interest of the relevant Loan Party in such Pledged
Securities and the proceeds thereof (subject to any applicable FCC approval), as
security for the Obligations (as defined in the relevant Pledge Agreement), in
each case prior and superior in right to any other Person.
(b) Each of the Security Agreements and Lease Assignments is effective to
create in favor of the Agent, for the benefit of the Lenders, a legal, valid
and enforceable security interest in the Collateral (other than any Collateral
determined to be a "Fixture") pursuant to the Uniform Commercial Code in effect
in the state where such Collateral is
<PAGE> 39
34
located) described therein and proceeds thereof (subject to any applicable FCC
approval), and when financing statements in appropriate form are filed in the
offices specified on Schedule 3.19(b) and the other actions specified on
Schedule 3.19(b) are taken (and the Lenders have given value to the Borrower),
each such Security Agreement and Lease Assignment shall constitute a fully
perfected Lien on, and security interest in, all right, title and interest of
the Loan Parties in such Collateral and the proceeds thereof (subject to any
applicable FCC approval), as security for the Obligations (as defined in the
relevant Security Agreement and Lease Assignment), in each case prior and
superior in right to any other Person, other than with respect to Liens
expressly permitted by Section 6.3.
3.20 Solvency. Each Loan Party is, and after giving effect to the
incurrence of all Indebtedness and obligations being incurred in connection
herewith and therewith will be and will continue to be, Solvent.
3.21 FCC Matters. (a) Schedule 1.1C correctly sets forth (i) all of the
FCC Licenses necessary for the current operation of the wireless cable
television systems of the Borrower and its Subsidiaries, (ii) the ownership of
such FCC License and (iii) the termination date, if any, of each such FCC
License. Each FCC License was duly and validly issued by the FCC pursuant to
procedures which comply with all requirements of applicable law, and neither the
Borrower nor any other Loan Party has any knowledge of the occurrence of any
event or the existence of any circumstance which, in the reasonable judgment of
the Borrower or any other Loan Party, is likely to lead to the revocation or
suspension of any FCC License. The Loan Parties have the right to use all FCC
Licenses required in the ordinary course of business of the Loan Parties for the
operation of its network of wireless cable television systems. Each such FCC
License is in full force and effect, and each holder thereof is in substantial
compliance therewith with no known conflict with the valid rights of others
which could have a Material Adverse Effect. No event has occurred which
permits, or after notice or lapse of time or both would permit, the revocation,
termination, modification or restriction of any such FCC License or other right
which could have a Material Adverse Effect. The Borrower does not directly own
or hold any FCC License.
(b) The Loan Parties have duly filed in a timely manner all material
filings which are required to be filed by the Loan Parties under the
Communications Act and are in all material respects in substantial compliance
with the Communications Act.
(c) None of the Facilities (including without limitation, the transmitter
and tower sites owned or used by the Borrower or any of its Subsidiaries)
violate in any material respect the provisions of any applicable building
codes, fire regulations, building restrictions or other governmental
ordinances, orders or regulations, except for any such violations which could
not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect, and each such Facility is zoned so as to permit the
commercial uses intended by the owner or occupier thereof and there are no
outstanding variances or special use permits materially affecting any of the
Facilities or the uses thereof.
<PAGE> 40
35
(d) Each Ownership Report filed by any Loan Party is true, correct and
complete in all respects, and there have been no changes in the ownership of
the Loan Parties or the FCC Licenses of any Loan Party since the most recently
filed Ownership Report for any of the Loan Parties other than as disclosed in
writing to the Agent and the Lenders.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions to Initial Loans. The agreement of each Lender to make the
initial Loan requested to be made by it is subject to the satisfaction,
immediately prior to or concurrently with the making of such Loan on the Closing
Date (and, in any event, on or prior to November 1, 1995), of the following
conditions precedent:
(a) Loan Documents. The Agent shall have received (i) this
Agreement, executed and delivered by a duly authorized officer of the
Borrower, with a counterpart for each Lender, (ii) each of the Pledge
Agreements, each executed and delivered by a duly authorized officer of
the parties thereto, with a counterpart or a conformed copy for each
Lender, (iii) the Subsidiaries Guarantee, executed and delivered by a
duly authorized officer of the parties thereto, with a counterpart or a
conformed copy for each Lender, (iv) the Security Agreements, executed
and delivered by a duly authorized officer of the parties thereto, with a
counterpart or a conformed copy for each Lender and (v) each of the Lease
Assignments, each executed and delivered by a duly authorized officer of
the party thereto, with a counterpart or a conformed copy for each
Lender.
(b) Related Agreements. The Agent shall have received, with a copy
for each Lender, true and correct copies, certified as to authenticity by
the Borrower, of the FCC Agreements, the Programming Contracts and such
other documents or instruments as may be reasonably requested by the
Agent, including, without limitation, a copy of any debt instrument,
security agreement or other material contract to which the Borrower or
its Subsidiaries may be a party.
(c) Closing Certificate. The Agent shall have received, with a
counterpart for each Lender, a certificate of the Borrower, dated the
Closing Date, substantially in the form of Exhibit H, with appropriate
insertions and attachments, satisfactory in form and substance to the
Agent, executed by the President or any Vice President and the Secretary
or any Assistant Secretary of the Borrower.
(d) Corporate Proceedings of the Borrower. The Agent shall have
received, with a counterpart for each Lender, a copy of the resolutions,
in form and substance satisfactory to the Agent, of the Board of
Directors of the Borrower authorizing (i) the execution, delivery and
performance of this Agreement and the other Loan Documents to which it is
a party, (ii) the borrowings contemplated hereunder and (iii) the
granting by it of the Liens created pursuant to the Borrower Security
Documents, certified by
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36
the Secretary or an Assistant Secretary of the Borrower as of the Closing
Date, which certificate shall be in form and substance satisfactory to the
Agent and its counsel and shall state that the resolutions thereby
certified have not been amended, modified, revoked or rescinded.
(e) Borrower Incumbency Certificate. The Agent shall have received,
with a counterpart for each Lender, a Certificate of the Borrower, dated
the Closing Date, as to the incumbency and signature of the officers of
the Borrower executing any Loan Document satisfactory in form and
substance to the Agent, executed by the President or any Vice President
and the Secretary or any Assistant Secretary of the Borrower.
(f) Corporate Proceedings of Subsidiaries. The Agent shall have
received, with a counterpart for each Lender, a copy of the resolutions,
in form and substance satisfactory to the Agent, of the Board of
Directors of each Subsidiary of the Company which is a party to a Loan
Document authorizing (i) the execution, delivery and performance of the
Loan Documents to which it is a party and (ii) the granting by it of the
Liens created pursuant to the Subsidiaries Security Documents to which it
is a party, certified by the Secretary or an Assistant Secretary of each
such Subsidiary as of the Closing Date, which certificate shall be in
form and substance satisfactory to the Agent and shall state that the
resolutions thereby certified have not been amended, modified, revoked or
rescinded.
(g) Subsidiary Incumbency Certificates. The Agent shall have
received, with a counterpart for each Lender, a certificate of each
Subsidiary of the Borrower which is a Loan Party, dated the Closing Date,
as to the incumbency and signature of the officers of such Subsidiaries
executing any Loan Document, satisfactory in form and substance to the
Agent, executed by the President or any Vice President and the Secretary
or any Assistant Secretary of each such Subsidiary.
(h) Corporate Documents. The Agent shall have received, with a
counterpart for each Lender, true and complete copies of the certificate
of incorporation and by-laws of each Loan Party, certified as of the
Closing Date as complete and correct copies thereof by the Secretary or
an Assistant Secretary of the such Loan Party.
(i) Capital Structure. The terms and conditions, documentation and
structure of any material Indebtedness and all equity securities of the
Borrower and its Subsidiaries to be outstanding as of the Closing Date
shall be in form and substance satisfactory to the Agent in all material
respects.
(j) Consents, Licenses and Approvals. The Agent shall have
received, with a counterpart for each Lender, a certificate of a
Responsible Officer of the Borrower (i) attaching copies of all consents,
authorizations and filings referred to in subsection 3.4 (taking into
consideration the schedule thereto), (ii) stating that such consents,
licenses and filings are in full force and effect, and each such consent,
authorization
<PAGE> 42
37
and filing shall be in form and substance satisfactory to
the Agent and (iii) stating that all applicable waiting periods have
expired without any action being taken or threatened by any competent
authority which would restrain, prevent or otherwise impose adverse
conditions on the financing contemplated hereby.
(k) Quarterly and Monthly Financial Statements. The Lenders shall
have received satisfactory unaudited interim consolidated financial
statements of the Borrower and its Subsidiaries for each fiscal month and
quarterly period ended prior to the Closing Date as to which such
financial statements are available.
(l) Fees. The Agent shall have received the fees and expenses to be
received on the Closing Date.
(m) Legal Opinions. The Agent shall have received, with a
counterpart for each Lender, the following executed legal opinions:
(i) the executed legal opinion of Pedersen & Houpt, counsel to
the Borrower and the other Loan Parties, in form and substance
satisfactory to the Agent and the Lenders; and
(ii) the executed legal opinion of Pepper & Corazzini, L.L.P.,
FCC counsel to the Borrower, in form and substance satisfactory to
the Agent and the Lenders.
Each such legal opinion shall cover such other matters incident to the
transactions contemplated by this Agreement as the Agent may reasonably
require;
(n) Pledged Stock; Stock Powers. The Agent shall have received the
certificates representing the shares pledged pursuant to each of the
Pledge Agreements, together with an undated stock power for each such
certificate executed in blank by a duly authorized officer of the pledgor
thereof.
(o) Actions to Perfect Liens. The Agent shall have received
evidence in form and substance satisfactory to it that all filings,
recordings, registrations and other actions, including, without
limitation, the filing of duly executed financing statements on form
UCC-1, necessary or, in the opinion of the Agent, desirable to perfect
the Liens created by the Security Documents shall have been completed.
(p) Lien Searches. The Agent shall have received the results of a
recent search by a Person satisfactory to the Agent, of the Uniform
Commercial Code, judgement and tax lien filings which may have been filed
with respect to personal property of the Borrower, and the results of
such search shall be satisfactory to the Agent.
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38
(q) Insurance. The Agent shall have received evidence in form and
substance satisfactory to it that all of the requirements of subsection
5.5 and Section 4.2 of the Security Agreements shall have been satisfied.
4.2 Conditions to Each Loan. The agreement of each Lender to make any Loan
requested to be made by it on any date (including, without limitation, its
initial Loan) is subject to the satisfaction of the following conditions
precedent:
(a) Representations and Warranties. Each of the representations and
warranties made by the Borrower and its Subsidiaries in or pursuant to
the Loan Documents shall be true and correct in all material respects on
and as of such date as if made on and as of such date.
(b) No Default. No Default or Event of Default shall have occurred
and be continuing on such date or after giving effect to the Loans
requested to be made on such date and the Agent shall have received a
certificate from the Borrower setting forth in reasonable detail such
calculations (including calculation of pro forma compliance with
subsection 6.1) as are necessary to establish Borrower's satisfaction of
this condition to the reasonable satisfaction of the Agent.
(c) Additional Matters. All corporate and other proceedings, and
all documents, instruments and other legal matters in connection with the
transactions contemplated by this Agreement, the other Loan Documents
shall be satisfactory in form and substance to the Agent, and the Agent
shall have received such other documents and legal opinions in respect of
any aspect or consequence of the transactions contemplated hereby or
thereby as it shall reasonably request.
Each borrowing by the Borrower hereunder shall constitute a representation and
warranty by the Borrower as of the date thereof that the conditions contained
in this subsection have been satisfied.
SECTION 5. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain in
effect or any amount is owing to any Lender or the Agent hereunder or under any
other Loan Document, the Borrower shall and (except in the case of delivery of
financial information, reports and notices) shall cause each of its
Subsidiaries to:
5.1 Financial Statements. Furnish to each Lender:
(a) as soon as available, but in any event within 90 days after the
end of each fiscal year of the Borrower, a copy of the audited
consolidated balance sheet of the Borrower and its consolidated
Subsidiaries as at the end of such year and the related
<PAGE> 44
39
consolidated statements of income and retained earnings and of cash flows
for such year, setting forth in each case in comparative form the figures
for the previous year, reported on without a "going concern" or like
qualification or exception, or qualification arising out of the scope of
the audit, by Arthur Andersen L.L.P. or other independent certified public
accountants of nationally recognized standing; and
(b) as soon as available, but in any event not later than 45 days
after the end of each of the first three quarterly periods of each fiscal
year of the Borrower, the unaudited consolidated balance sheet of the
Borrower and its consolidated Subsidiaries as at the end of such quarter
and the related unaudited consolidated statements of income and retained
earnings and of cash flows of the Borrower and its consolidated
Subsidiaries for such quarter and the portion of the fiscal year through
the end of such quarter, setting forth in each case in comparative form
the figures for the previous year, certified by a Responsible Officer as
being fairly stated in all material respects (subject to normal year-end
audit adjustments);
all such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein).
5.2 Certificates; Other Information. Furnish to each Lender:
(a) concurrently with the delivery of the financial statements
referred to in subsection 5.1(a), a certificate of the independent
certified public accountants reporting on such financial statements
stating that in making the examination necessary therefor no knowledge
was obtained of any Default or Event of Default, except as specified in
such certificate;
(b) concurrently with the delivery of the financial statements
referred to in subsections 5.1(a) and (b), a certificate of a Responsible
Officer stating that, to the best of such Officer's knowledge, the
Borrower during such period has observed or performed all of its covenants
and other agreements, and satisfied every condition, contained in this
Agreement and the other Loan Documents to be observed, performed or
satisfied by it, and that such Officer has obtained no knowledge of any
Default or Event of Default except as specified in such certificate;
(c) not later than the end of each fiscal year of the Borrower, a
copy of the projections by the Borrower of the operating budget and cash
flow budget of the Borrower and its Subsidiaries for the succeeding
fiscal year, such projections to be accompanied by a certificate of a
Responsible Officer to the effect that such projections have been
prepared on the basis of sound financial planning practice and that such
Officer has no reason to believe they are incorrect or misleading in any
material respect;
<PAGE> 45
40
(d) within five days after the same are sent, copies of all
financial statements and reports which the Borrower sends to its
stockholders, and within five days after the same are filed, copies of
all financial statements and reports which the Borrower may make to, or
file with, the Securities and Exchange Commission or any successor or
analogous Governmental Authority;
(e) promptly upon the occurrence of any significant business,
financial or operational event of the Borrower and its Subsidiaries, a
revised business plan of the Borrower and a written analysis of the
business and prospects of the Borrower and its Subsidiaries from the date
of such occurrence through the Termination Date;
(f) promptly, each new Programming Contract or FCC Agreement (or
material amendment, supplement or modification to any Programming
Contract or FCC Agreement previously provided to the Agent) entered into
by the Borrower or its Subsidiaries since the Closing Date; and
(g) by November 30, 1995, the Lenders shall have received a
satisfactory business plan for the 1996 fiscal year of the Borrower and a
satisfactory written analysis of the business and prospects of the
Borrower and its Subsidiaries for the period from the Closing Date
through the Termination Date.
(h) promptly, such additional financial and other information as any
Lender may from time to time reasonably request.
5.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or
before maturity or before they become delinquent, as the case may be, all its
obligations of whatever nature, except where the amount or validity thereof is
currently being contested in good faith by appropriate proceedings and reserves
in conformity with GAAP with respect thereto have been provided on the books of
the Borrower or its Subsidiaries, as the case may be.
5.4 Conduct of Business and Maintenance of Existence. Continue to engage in
business of the same general type as now conducted by it and preserve, renew
and keep in full force and effect its corporate existence and take all
reasonable action to maintain all rights, privileges and franchises necessary
or desirable in the normal conduct of its business except as otherwise
permitted pursuant to subsection 6.5; comply with all Contractual Obligations
and Requirements of Law except to the extent that failure to comply therewith
could not, in the aggregate, be reasonably expected to have a Material Adverse
Effect.
5.5 Maintenance of Property; Insurance. Keep all property useful and
necessary in its business in good working order and condition; maintain with
financially sound and reputable insurance companies insurance on all its
property in at least such amounts and against at least such risks (but
including in any event public liability, product liability and business
interruption) as are usually insured against in the same general area by
companies engaged in the same or a similar business; and furnish to each
Lender, upon written request,
<PAGE> 46
41
full information as to the insurance carried. All such (i) property insurance
shall be payable to the Agent as loss payee under a "standard" or "New York"
loss payee clause for the benefit of the Agent and the Lenders and (ii)
liability insurance shall name the Agent as an additional insured for the
benefit of the Agent and the Lenders.
5.6 Inspection of Property; Books and Records; Discussions. Keep proper
books of records and account in conformity with GAAP and all Requirements of
Law shall be made of all dealings and transactions in relation to its business
and activities; and permit representatives of any Lender to visit and inspect
any of its properties and examine and make abstracts from any of its books and
records at any reasonable time and as often as may reasonably be desired and to
discuss the business, operations, properties and financial and other condition
of the Borrower and its Subsidiaries with officers and employees of the
Borrower and its Subsidiaries and with its independent certified public
accountants.
5.7 Notices. Promptly give notice to the Agent and each Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of the Borrower or any of its Subsidiaries or (ii) litigation,
investigation or proceeding which may exist at any time between the
Borrower or any of its Subsidiaries and any Governmental Authority, which
in either case, if not cured or if adversely determined, as the case may
be, could reasonably be expected to have a Material Adverse Effect;
(c) any litigation or proceeding affecting the Borrower or any of
its Subsidiaries in which the amount involved is $250,000 or more and not
covered by insurance or in which injunctive or similar relief is sought;
(d) the following events, as soon as possible and in any event
within 30 days after the Borrower knows or has reason to know thereof:
(i) the occurrence or expected occurrence of any Reportable Event with
respect to any Plan, a failure to make any required contribution to a
Plan, the creation of any Lien in favor of the PBGC or a Plan or any
withdrawal from, or the termination, Reorganization or Insolvency of, any
Multiemployer Plan or (ii) the institution of proceedings or the taking
of any other action by the PBGC or the Borrower or any Commonly
Controlled Entity or any Multiemployer Plan with respect to the
withdrawal from, or the terminating, Reorganization or Insolvency of, any
Plan; and
(e) any development or event which could reasonably be expected to
have a Material Adverse Effect.
Each notice pursuant to this subsection shall be accompanied by a statement of
a Responsible Officer setting forth details of the occurrence referred to
therein and stating what action the Borrower proposes to take with respect
thereto.
<PAGE> 47
42
5.8 Environmental Laws. (a) Comply with, and ensure compliance by all
tenants and subtenants, if any, with, all applicable Environmental Laws and
obtain and comply in all material respects with and maintain, and ensure that
all tenants and subtenants obtain and comply in all material respects with and
maintain, any and all licenses, approvals, notifications, registrations or
permits required by applicable Environmental Laws except, in each case, to the
extent that failure to do so could not be reasonably expected to have a
Material Adverse Effect.
(b) Conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply in all material respects with all lawful
orders and directives of all Governmental Authorities regarding Environmental
Laws except to the extent that the same are being contested in good faith by
appropriate proceedings and the pendency of such proceedings could not be
reasonably expected to have a Material Adverse Effect.
5.9 Further Assurances; Security Interests; Consents. Upon the request of
the Agent, promptly perform or cause to be performed any and all acts and
execute or cause to be executed any and all documents (including, without
limitation, the execution, amendment or supplementation of any financing
statement and continuation statement or other statement) for filing under the
provisions of the UCC and the rules and regulations thereunder, or any other
statute, rule or regulation of any applicable foreign, federal, state or local
jurisdiction, which are desirable, from time to time, in order to grant and
maintain in favor of the Lenders as beneficiaries thereof the security interest
in the Collateral contemplated hereby. The Borrower and its Subsidiaries shall
obtain each of the consents specified on Schedule 3.4 within the time periods
specified on such Schedule for obtaining each consent (in each case, such
consent shall be in a form satisfactory to the Agent).
5.10 Additional Collateral. (a) With respect to any assets acquired after
the Closing Date by the Borrower or any of its Domestic Subsidiaries (other
than (y) any assets described in paragraph (b) or (c) below and (z) immaterial
assets a security interest with respect to which cannot be perfected by filing
UCC-1 financing statements), promptly (i) execute and deliver to the Agent such
amendments to this Agreement or the relevant Security Document or such other
documents as the Agent or the Required Lenders deem necessary or advisable in
order to grant to the Agent, for the benefit of the Lenders, a security
interest in such assets, (ii) take all actions necessary or advisable to grant
to the Agent, for the benefit of the Lenders, a perfected security interest in
such assets prior and superior in right to any other Person, including without
limitation, the filing of UCC financing statements in such jurisdictions as may
be required by the appropriate Security Document or by law or as may be
requested by the Agent and (iii) if requested by the Agent or the Required
Lenders, deliver to the Agent legal opinions relating to the matters described
in the preceding clauses (i) and (ii), which opinions shall be in form and
substance, and from counsel, reasonably satisfactory to the Agent or the
Required Lenders.
<PAGE> 48
43
(b) With respect to any new Subsidiary (other than a Foreign Subsidiary),
promptly upon the request of the Agent (i) execute and deliver to the Agent a
new pledge agreement or such amendments to the relevant Pledge Agreement as the
Agent or the Required Lenders deem necessary or advisable in order to grant to
the Agent, for the benefit of the Lenders, a perfected security interest in the
Capital Stock of such Subsidiary which is owned by the Borrower or any of its
Subsidiaries prior and superior in right to any other Person and (ii) deliver
to the Agent the certificates representing such Capital Stock, together with
undated stock powers, in blank, executed and delivered by a duly authorized
officer of the Borrower or such Subsidiary, as the case may be, (iii) cause
such new Subsidiary (A) to become a party to the Subsidiary Guarantee and the
Subsidiary Security Agreement, in each case, in a form satisfactory to the
Agent and (B) to take such actions necessary or advisable to grant to the Agent
for the benefit of the Lenders a perfected security interest in the collateral
to be described in such Subsidiary Security Agreement with respect to such
Subsidiary, including, without limitation, the filing of UCC financing
statements in such jurisdictions as may be required by such Subsidiary Security
Agreement or by law or as may be requested by the Agent, prior and superior in
right to any other Person and (iv) if requested by the Agent or the Required
Lenders, deliver to the Agent legal opinions relating to the matters described
in the preceding clauses (i), (ii) and (iii), which opinions shall be in form
and substance, and from counsel, reasonably satisfactory to the Agent or the
Required Lenders.
(c) With respect to any Foreign Subsidiary, promptly upon the request of
the Agent (i) execute and deliver to the Agent a new pledge agreement or such
amendments to the relevant Pledge Agreement as the Agent or the Required Lenders
deem necessary or advisable in order to grant to the Agent, for the benefit of
the Lenders, a perfected security interest in the Capital Stock of such
Subsidiary which is owned by the Borrower or any of its Subsidiaries (provided
that in no event shall more than 65% of the Capital Stock of any such Subsidiary
be required to be so pledged), (ii) deliver to the Agent the certificates
representing such Capital Stock, if any, together with undated stock powers, in
blank, executed and delivered by a duly authorized officer of the Borrower or
such Subsidiary, as the case may be and (iii) if requested by the Agent, deliver
to the Agent legal opinions relating to the matters described in the preceding
clauses (i) and (ii), which opinions shall be in form and substance, and from
counsel, reasonably satisfactory to the Agent or the Required Lenders.
5.11 FCC Licenses. (a) Use their best efforts to keep in full force and
effect all of the FCC Licenses of the Borrower, if any, and its Subsidiaries.
The Loan Parties shall provide a copy of any notice of default (or, in the
event of any notice based on knowledge of such Loan Party, a brief description
of such default and the basis of such knowledge) under any FCC License received
by it or any of its respective Subsidiaries (or with respect to which any of
such Loan Parties may have any knowledge).
(b) Establish and maintain wholly-owned License Subsidiaries for the
purpose of holding the FCC Licenses owned on and after the Closing Date and
shall cause the License Subsidiaries not to own any material assets other than
FCC Licenses nor incur any liabilities or engage in any business other than
ownership of the FCC Licenses and the execution of the
<PAGE> 49
44
Loan Documents. Borrower shall, and shall cause its Subsidiaries to, cause each
new FCC License issued by the FCC to be issued to, and held by, a License
Subsidiary.
(c) Use its best efforts to keep in full force and effect all Major
Programming Contracts and FCC Agreements. The Loan Parties shall provide a
copy of any notice of default (or, in the event of any notice based on
knowledge of such Loan Party, a brief description of such default and the basis
of such knowledge) under any Major Programming Contract or FCC Agreement
received by it or any of its respective Subsidiaries (or with respect to which
any of such Loan Parties may have any knowledge).
SECTION 6. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain in
effect or any amount is owing to any Lender or the Agent hereunder or under any
other Loan Document, the Borrower shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly:
6.1 Financial Condition Covenants.
(a) Consolidated Total Indebtedness Ratio. Maintain at the end of each
fiscal quarter of the Borrower a Leverage Ratio of greater than the ratio set
forth below opposite the period in which such date occurs:
<TABLE>
<CAPTION>
Period Ratio
-------- -------------
<S> <C>
Closing Date - December 31, 1997 5.00 to 1.00
January 1, 1998 - December 31, 1998 4.00 to 1.00
January 1, 1999 - December 31, 1999 3.00 to 1.00
January 1, 2000 - thereafter 2.00 to 1.00
</TABLE>
(b) Consolidated Cash Interest Expense Ratio. Maintain at the end of each
fiscal quarter of the Borrower a Consolidated Cash Interest Expense Ratio of
less than the ratio set forth below opposite the period in which such date
occurs:
<TABLE>
<CAPTION>
Period Ratio
-------- ------------
<S> <C>
Closing Date - December 31, 1998 3.00 to 1.00
January 1, 1999 - thereafter 3.50 to 1.00
</TABLE>
(c) Indebtedness to Subscriber Ratio. Maintain at the end of each fiscal
quarter of the Borrower a ratio of (i) Consolidated Total Indebtedness of the
Borrower and its Subsidiaries to (ii) the aggregate number of subscribers of
the Borrower and its Subsidiaries of greater than the ratio set forth below
opposite the period in which such date occurs:
<PAGE> 50
45
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Closing Date - December 31, 1998 $450 to 1
January 1, 1999 - December 31, 1999 $400 to 1
January 1, 2000 - thereafter $300 to 1
</TABLE>
(d) Consolidated Fixed Charge Coverage Ratio. Maintain at the end of each
fiscal quarter of the Borrower a Consolidated Fixed Charge Coverage Ratio of
less than the ratio set forth below opposite the period in which such date
occurs:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
January 1, 1999 - December 31, 2000 1.00 to 1.00
January 1, 2001 - thereafter 1.10 to 1.00
</TABLE>
(e) Minimum Subscriber Test. Maintain at the end of each fiscal quarter
of the Borrower date an aggregate number of subscribers of the Borrower and its
Subsidiaries of less than the number set forth below opposite the period in
which such date occurs:
<TABLE>
<CAPTION>
Number of
Period Subscribers
------ -----------
<S> <C>
Closing Date - December 31, 1995 52,000
January 1, 1996 - March 31, 1996 53,500
April 1, 1996 - June 30, 1996 56,000
July 1, 1996 - September 30, 1996 60,500
October 1, 1996 - December 31, 1996 64,000
January 1, 1997 - March 31, 1997 68,000
April 1, 1997 - June 30, 1997 72,000
July 1, 1997 - September 30, 1997 76,000
October 1, 1997 - December 31, 1997 80,000
January 1, 1998 - March 31, 1998 84,000
April 1, 1998 - June 30, 1998 88,000
July 1, 1998 - September 30, 1998 92,000
October 1, 1998 - thereafter 96,000
</TABLE>
6.2 Limitation on Indebtedness. Create, incur, assume or suffer to exist
any Indebtedness, except:
(a) Indebtedness of the Loan Parties under this Agreement;
(b) Indebtedness of the Borrower to any Subsidiary and of any
Subsidiary to the Borrower or any other Subsidiary;
<PAGE> 51
46
(c) Indebtedness outstanding on the date hereof and listed on
Schedule 6.2(c);
(d) Indebtedness of a corporation which becomes a Subsidiary after
the date hereof, provided that (i) such indebtedness existed at the time
such corporation became a Subsidiary and was not created in anticipation
thereof and (ii) immediately after giving effect to the acquisition of
such corporation by the Borrower no Default or Event of Default shall
have occurred and be continuing; and
(e) additional Indebtedness not exceeding $75,000 in aggregate
principal amount at any one time outstanding.
6.3 Limitation on Liens. Create, incur, assume or suffer to exist any Lien
upon any of its property, assets or revenues, whether now owned or hereafter
acquired, except for:
(a) Liens for taxes not yet due or which are being contested in good
faith by appropriate proceedings, provided that adequate reserves with
respect thereto are maintained on the books of the Borrower or its
Subsidiaries, as the case may be, in conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business which are not overdue for a period of more than 60 days or which
are being contested in good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation;
(d) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety
and appeal bonds, performance bonds and other obligations of a like
nature incurred in the ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not in any case
materially detract from the value of the property subject thereto or
materially interfere with the ordinary conduct of the business of the
Borrower or such Subsidiary;
(f) Liens in existence on the date hereof listed on Schedule 6.3(f),
securing Indebtedness permitted by subsection 6.2(c), provided that no
such Lien is spread to cover any additional property after the Closing
Date and that the amount of Indebtedness secured thereby is not
increased;
<PAGE> 52
47
(g) Liens on the property or assets of a corporation which becomes a
Subsidiary after the date hereof securing Indebtedness permitted by
subsection 6.2(d), provided that (i) such Liens existed at the time such
corporation became a Subsidiary and were not created in anticipation
thereof, (ii) any such Lien is not spread to cover any property or assets
of such corporation after the time such corporation becomes a Subsidiary,
and (iii) the amount of Indebtedness secured thereby is not increased;
(h) Liens created pursuant to the Security Documents; and
(i) Liens securing Indebtedness permitted by subsection 6.2(e).
6.4 Limitation on Guarantee Obligations. Create, incur, assume or
suffer to exist any Guarantee Obligation except:
(a) Guarantee Obligations in existence on the date hereof and listed
on Schedule 6.4(a);
(b) guarantees made in the ordinary course of its business by the
Borrower of obligations of any of its Subsidiaries, which obligations are
otherwise permitted under this Agreement of Indebtedness permitted by
subsection 6.2; and
(c) the Subsidiaries Guarantees.
6.5 Limitation on Fundamental Changes. Enter into any merger,
consolidation or amalgamation, or liquidate, wind up or dissolve itself
(or suffer any liquidation or dissolution), or convey, sell, lease, assign,
transfer or otherwise dispose of, all or substantially all of its property,
business or assets, or make any material change in its present method
of conducting business, except:
(a) any Subsidiary of the Borrower may be merged or consolidated with
or into the Borrower (provided that the Borrower shall be the continuing
or surviving corporation) or with or into any one or more wholly owned
Subsidiaries of the Borrower (provided that the wholly owned Subsidiary or
Subsidiaries shall be the continuing or surviving corporation); and
(b) any wholly owned Subsidiary may sell, lease, transfer or
otherwise dispose of any or all of its assets (upon voluntary liquidation
or otherwise) to the Borrower or any other wholly owned Subsidiary of the
Borrower.
6.6 Limitation on Sale of Assets. Convey, sell, lease, assign, transfer or
otherwise dispose of any of its property, business or assets (including,
without limitation, receivables and leasehold interests), whether now owned or
hereafter acquired, or, in the case of any Subsidiary, issue or sell any shares
of such Subsidiary's Capital Stock to any Person other than the Borrower or any
wholly owned Subsidiary, except:
<PAGE> 53
48
(a) the sale or other disposition of obsolete or worn out property
in the ordinary course of business; provided that the Net Cash Proceeds
of each such transaction are applied to the prepayment of the Loans as
provided in subsection 2.6(d);
(b) the sale or discount without recourse of accounts receivable
arising in the ordinary course of business in connection with the
compromise or collection thereof; and
(c) as permitted by subsection 6.5(b).
6.7 Limitation on Leases. Permit Consolidated Lease Expense for any fiscal
year of the Borrower to exceed $600,000, provided that any Consolidated Lease
Expense accrued with respect to the FCC Agreements shall be excluded for
purposes of this subsection.
6.8 Limitation on Dividends. Declare or pay any dividend (other than
dividends payable solely in common stock of the Borrower) on, or make any
payment on account of, or set apart assets for a sinking or other analogous
fund for, the purchase, redemption, defeasance, retirement or other acquisition
of, any shares of any class of Capital Stock of the Borrower or any warrants or
options to purchase any such Stock, whether now or hereafter outstanding, or
make any other distribution in respect thereof, either directly or indirectly,
whether in cash or property or in obligations of the Borrower or any
Subsidiary.
6.9 Limitation on Capital Expenditures. Make or commit to make (by way of
the acquisition of securities of a Person or otherwise) any Capital Expenditure
except for expenditures in the ordinary course of business not exceeding, in
the aggregate for the Borrower and its Subsidiaries during any of the fiscal
years of the Borrower set forth below, the amount set forth opposite such
fiscal year below:
<TABLE>
<CAPTION>
Fiscal Year Amount
----------- -----------
<S> <C>
1995 $10,354,000
1996 $20,018,000
1997 $19,092,000
1998 $16,394,000
1999 $14,170,000
2000 $15,387,000
2001 $15,692,000
2002 $15,692,000
</TABLE>
provided that up to 10% of any unused portion of any Capital Expenditures
permitted to be made during any fiscal year (and not carried over from a prior
fiscal year) may be carried over and expended during the next succeeding fiscal
year and provided further that any expenditure (i) made with funds obtained by
the Borrower or any Subsidiary pursuant to the sale or issuance of any equity
securities of the Borrower or its Subsidiaries or (ii) made pursuant to
<PAGE> 54
49
subsection 6.10(e) shall not be considered Capital Expenditures for the
purposes of this subsection 6.9.
6.10 Limitation on Investments, Loans and Advances. Make any advance,
loan, extension of credit or capital contribution to, or purchase any stock,
bonds, notes, debentures or other securities of or any assets constituting a
business unit of, or make any other investment in, any Person, except:
(a) extensions of trade credit in the ordinary course of business;
(b) investments in Cash Equivalents;
(c) loans and advances to employees of the Borrower or its
Subsidiaries for travel, entertainment and relocation expenses in the
ordinary course of business in an aggregate amount for the Borrower and
its Subsidiaries not to exceed $100,000 at any one time outstanding;
(d) investments by the Borrower in its Subsidiaries and investments
by Subsidiaries in the Borrower and in other Subsidiaries; and
(e) acquisitions by the Borrower or any of its Subsidiaries of any
FCC License at the Basic Trading Area auction to be held on or about
November 1995 to the extent that the Aggregate Consideration paid in
connection with all such acquisitions does not exceed $2,000,000;
provided that no Default or Event of Default shall have occurred and be
continuing at the time of any such acquisition or would result therefrom
(including but not limited to pursuant to subsection 6.7).
6.11 Limitation on Optional Payments and Modifications of Debt Instruments.
(a) Make any optional payment or prepayment on or redemption or purchase of any
Indebtedness (other than the Loans) or Guarantee Obligation, (b) amend, modify
or change, or consent or agree to any amendment, modification or change to any
of the terms of any such Indebtedness or Guarantee Obligation (other than any
such amendment, modification or change which would extend the maturity or reduce
the amount of any payment of principal thereof or which would reduce the rate or
extend the date for payment of interest thereon), except, in the case of clauses
(a) and (b), with respect to Capital Leases outstanding on the Closing Date the
Capital Lease Obligations of which do not exceed $150,000, or (c) amend, modify
or change in any material respect, or consent or agree to any amendment,
modification or change in any material respect to any of the terms of any other
capitalization or organizational documents, including its certificate of
incorporation and by-laws.
6.12 Limitation on Transactions with Affiliates. Enter into any
transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate unless
such transaction is (a) otherwise permitted under this Agreement, (b) in the
ordinary course of the Borrower's or such Subsidiary's
<PAGE> 55
50
business and (c) upon fair and reasonable terms no less favorable to the
Borrower or such Subsidiary, as the case may be, than it would obtain in a
comparable arm's length transaction with a Person which is not an Affiliate.
6.13 Limitation on Sales and Leasebacks. Enter into any arrangement with
any Person providing for the leasing by the Borrower or any Subsidiary of real
or personal property which has been or is to be sold or transferred by the
Borrower or such Subsidiary to such Person or to any other Person to whom funds
have been or are to be advanced by such Person on the security of such property
or rental obligations of the Borrower or such Subsidiary.
6.14 Limitation on Changes in Fiscal Year. Permit the fiscal year of the
Borrower to end on a day other than December 31.
6.15 Limitation on Negative Pledge Clauses. Enter into with any Person any
agreement, other than (a) this Agreement, (b) the Loan Documents and (c) any
industrial revenue bonds, purchase money mortgages or Capital Leases permitted
by this Agreement (in which cases, any prohibition or limitation shall only be
effective against the assets financed thereby), which prohibits or limits the
ability of the Borrower or any of its Subsidiaries to create, incur, assume or
suffer to exist any Lien upon any of its property, assets or revenues, whether
now owned or hereafter acquired.
6.16 Limitation on Lines of Business. Enter into any business, either
directly or through any Subsidiary, except for those businesses in which the
Borrower and its Subsidiaries are engaged on the date of this Agreement or
which are related thereto.
SECTION 7. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Loan when
due in accordance with the terms thereof or hereof; or the Borrower shall
fail to pay any interest on any Loan, or any other amount payable
hereunder, within five days after any such interest or other amount
becomes due in accordance with the terms thereof or hereof; or
(b) Any representation or warranty made or deemed made by the
Borrower or any other Loan Party herein or in any other Loan Document or
which is contained in any certificate, document or financial or other
statement furnished by it at any time under or in connection with this
Agreement or any such other Loan Document shall prove to have been
incorrect in any material respect on or as of the date made or deemed
made; or
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51
(c) The Borrower or any other Loan Party shall default in the
observance or performance of any agreement contained in subsection 5.7(a)
or Section 6, Sections 7(b) or (c) of the Borrower Pledge Agreement,
Sections 4.3 and 4.4 of the Borrower Security Agreement, Sections 4.1,
and 4.5 and 4.7 of the Subsidiaries Security Agreement and Sections 7(b)
or (c) of the Subsidiaries Pledge Agreement; or
(d) The Borrower or any other Loan Party shall default in the
observance or performance of any other agreement contained in this
Agreement or any other Loan Document (other than as provided in
paragraphs (a) through (c) of this Section), and such default shall
continue unremedied for a period of 30 days; or
(e) The Borrower or any of its Subsidiaries shall (i) default in any
payment of principal of or interest of any Indebtedness (other than the
Loans) or in the payment of any Guarantee Obligation, beyond the period
of grace (not to exceed 30 days), if any, provided in the instrument or
agreement under which such Indebtedness or Guarantee Obligation was
created, if the aggregate amount of the Indebtedness and/or Guarantee
Obligations in respect of which such default or defaults shall have
occurred is at least $100,000; or (ii) default in the observance or
performance of any other agreement or condition relating to any such
Indebtedness or Guarantee Obligation or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event
shall occur or condition exist, the effect of which default or other
event or condition is to cause, or to permit the holder or holders of
such Indebtedness or beneficiary or beneficiaries of such Guarantee
Obligation (or a trustee or agent on behalf of such holder or holders or
beneficiary or beneficiaries) to cause, with the giving of notice if
required, such Indebtedness to become due prior to its stated maturity or
such Guarantee Obligation to become payable; or
(f) (i) The Borrower or any of its Subsidiaries shall commence any
case, proceeding or other action (A) under any existing or future law of
any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief
entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to it
or its debts, or (B) seeking appointment of a receiver, trustee,
custodian, conservator or other similar official for it or for all or any
substantial part of its assets, or the Borrower or any of its Subsidiaries
shall make a general assignment for the benefit of its creditors; or (ii)
there shall be commenced against the Borrower or any of its Subsidiaries
any case, proceeding or other action of a nature referred to in clause (i)
above which (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of 60 days; or (iii) there shall be commenced
against the Borrower or any of its Subsidiaries any case, proceeding or
other action seeking issuance of a warrant of attachment, execution,
distraint or similar process against all or any substantial part of its
assets which results in the entry of an order for any such relief which
shall not have been
<PAGE> 57
52
vacated, discharged, or stayed or bonded pending appeal within 60 days
from the entry thereof; or (iv) the Borrower or any of its Subsidiaries
shall take any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the acts set forth in clause (i),
(ii), or (iii) above; or (v) the Borrower or any of its Subsidiaries shall
generally not, or shall be unable to, or shall admit in writing its
inability to, pay its debts as they become due; or
(g) (i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving
any Plan, (ii) any "accumulated funding deficiency" (as defined in
Section 302 of ERISA), whether or not waived, shall exist with respect to
any Plan or any Lien in favor of the PBGC or a Plan shall arise on the
assets of the Borrower or any Commonly Controlled Entity, (iii) a
Reportable Event shall occur with respect to, or proceedings shall
commence to have a trustee appointed, or a trustee shall be appointed, to
administer or to terminate, any Single Employer Plan, which Reportable
Event or commencement of proceedings or appointment of a trustee is, in
the reasonable opinion of the Required Lenders, likely to result in the
termination of such Plan for purposes of Title IV of ERISA, (iv) any
Single Employer Plan shall terminate for purposes of Title IV of ERISA,
(v) the Borrower or any Commonly Controlled Entity shall, or in the
reasonable opinion of the Required Lenders is likely to, incur any
liability in connection with a withdrawal from, or the Insolvency or
Reorganization of, a Multiemployer Plan or (vi) any other event or
condition shall occur or exist with respect to a Plan; and in each case
in clauses (i) through (vi) above, such event or condition, together with
all other such events or conditions, if any, could reasonably be expected
to have a Material Adverse Effect; or
(h) One or more judgments or decrees shall be entered against the
Borrower or any of its Subsidiaries involving in the aggregate a
liability (not paid or fully covered by insurance) of $200,000 or more,
and all such judgments or decrees shall not have been vacated,
discharged, stayed or bonded pending appeal within 60 days from the entry
thereof; or
(i) (i) Any of the Security Documents shall cease, for any reason,
to be in full force and effect, or the Borrower or any other Loan Party
which is a party to any of the Security Documents shall so assert or (ii)
the Lien created by any of the Security Documents shall cease to be
enforceable and of the same effect and priority purported to be created
thereby; or
(j) The Subsidiaries Guarantee shall cease, for any reason, to be in
full force and effect or any Guarantor shall so assert, except as a
result of any transaction permitted by subsection 6.5; or
(k) (i) The Designated Original Investors shall, directly or
indirectly, legally or beneficially, fail to own (A) at least 50.1% of
the Capital Stock (on a fully diluted basis) of the Borrower having
ordinary power to vote in the election of directors of the
<PAGE> 58
53
Borrower or (B) Capital Stock (on a fully diluted basis) with direct or
conversion rights entitled to the amount of Capital Stock referred to in
clause (A) above, (ii) Boston Ventures shall, directly or indirectly,
legally or beneficially fail to own (A) at least 33_% of the Capital Stock
of the Borrower (on a fully diluted basis) or (iii) any Person or "group"
(within the meaning of Section 13(d) or 14(d) of the Securities Exchange
Act of 1934, as amended), other than Boston Ventures shall have acquired
beneficial ownership of 20% or more of any outstanding class of Capital
Stock having ordinary voting power in the election of directors of the
Borrower or shall obtain the power (whether or not exercised) to elect a
majority of the Borrower's directors; or
(l) Any FCC License shall (i) be revoked, forfeited or finally
denied renewal or shall expire, in each case, for any reason and such
revocation, forfeiture, final denial or expiration could have a Material
Adverse Effect; or (ii) be renewed on terms which materially adversely
affect the economic or commercial value or usefulness thereof; or
(m) Any FCC Agreement or Major Programming Contract shall be (i)
cancelled, terminated or no longer in full force and effect for any
reason and such cancellation, termination or failure to be in full force
and effect could have a Material Adverse Effect; or (ii) renewed or
amended on terms which could have a Material Adverse Effect; or
(n) William W. Kingery, Jr. shall no longer be actually involved in
the management of the Borrower.
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) of this Section with respect to the
Borrower, automatically the Commitments shall immediately terminate and the
Loans hereunder (with accrued interest thereon) and all other amounts owing
under this Agreement shall immediately become due and payable, and (B) if such
event is any other Event of Default, either or both of the following actions may
be taken: (i) with the consent of the Required Lenders, the Agent may, or upon
the request of the Required Lenders, the Agent shall, by notice to the Borrower
declare the Commitments to be terminated forthwith, whereupon the Commitments
shall immediately terminate; and (ii) with the consent of the Required Lenders,
the Agent may, or upon the request of the Required Lenders, the Agent shall, by
notice to the Borrower, declare the Loans hereunder (with accrued interest
thereon) and all other amounts owing under this Agreement to be due and payable
forthwith, whereupon the same shall immediately become due and payable. Except
as expressly provided above in this Section, presentment, demand, protest and
all other notices of any kind are hereby expressly waived.
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54
SECTION 8. THE AGENT
8.1 Appointment. Each Lender hereby irrevocably designates and appoints
the Agent as the agent of such Lender under this Agreement and the other Loan
Documents, and each such Lender irrevocably authorizes the Agent, in such
capacity, to take such action on its behalf under the provisions of this
Agreement and the other Loan Documents and to exercise such powers and perform
such duties as are expressly delegated to the Agent by the terms of this
Agreement and the other Loan Documents, together with such other powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
elsewhere in this Agreement, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the Agent.
8.2 Delegation of Duties. The Agent may execute any of its duties under
this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys in-fact selected by it with
reasonable care.
8.3 Exculpatory Provisions. Neither the Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or Affiliates shall be (i)
liable for any action lawfully taken or omitted to be taken by it or such Person
under or in connection with this Agreement or any other Loan Document (except
for its or such Person's own gross negligence or willful misconduct) or (ii)
responsible in any manner to any of the Lenders for any recitals, statements,
representations or warranties made by the Borrower or any officer thereof
contained in this Agreement or any other Loan Document or in any certificate,
report, statement or other document referred to or provided for in, or received
by the Agent under or in connection with, this Agreement or any other Loan
Document or for the value, validity, effectiveness, genuineness, enforceability
or sufficiency of this Agreement or any other Loan Document or for any failure
of the Borrower to perform its obligations hereunder or thereunder. The Agent
shall not be under any obligation to any Lender to ascertain or to inquire as to
the observance or performance of any of the agreements contained in, or
conditions of, this Agreement or any other Loan Document, or to inspect the
properties, books or records of the Borrower.
8.4 Reliance by Agent. The Agent shall be entitled to rely, and shall be
fully protected in relying, upon any Note, writing, resolution, notice, consent,
certificate, affidavit, letter, telecopy, telex or teletype message, statement,
order or other document or conversation believed by it to be genuine and correct
and to have been signed, sent or made by the proper Person or Persons and upon
advice and statements of legal counsel (including, without limitation, counsel
to the Borrower), independent accountants and other experts selected by the
Agent. The Agent may deem and treat the payee of any Note as the owner thereof
for all purposes unless a written notice of assignment, negotiation or transfer
thereof shall have been
<PAGE> 60
55
filed with the Agent. The Agent shall be fully justified in failing or refusing
to take any action under this Agreement or any other Loan Document unless it
shall first receive such advice or concurrence of the Required Lenders as it
deems appropriate or it shall first be indemnified to its satisfaction by the
Lenders against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action. The Agent shall in all
cases be fully protected in acting, or in refraining from acting, under this
Agreement and the other Loan Documents in accordance with a request of the
Required Lenders, and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Lenders and all future holders of
the Loans.
8.5 Notice of Default. The Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default hereunder unless
the Agent has received notice from a Lender or the Borrower referring to this
Agreement, describing such Default or Event of Default and stating that such
notice is a "notice of default". In the event that the Agent receives such a
notice, the Agent shall give notice thereof to the Lenders. The Agent shall
take such action with respect to such Default or Event of Default as shall be
reasonably directed by the Required Lenders; provided that unless and until the
Agent shall have received such directions, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the
best interests of the Lenders.
8.6 Non-Reliance on Agent and Other Lenders. Each Lender expressly
acknowledges that neither the Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates has made any representations
or warranties to it and that no act by the Agent hereinafter taken, including
any review of the affairs of the Borrower, shall be deemed to constitute any
representation or warranty by the Agent to any Lender. Each Lender represents
to the Agent that it has, independently and without reliance upon the Agent or
any other Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, financial and other condition and creditworthiness of the
Borrower and made its own decision to make its Loans hereunder and enter into
this Agreement. Each Lender also represents that it will, independently and
without reliance upon the Agent or any other Lender, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not taking action
under this Agreement and the other Loan Documents, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of the
Borrower. Except for notices, reports and other documents expressly required to
be furnished to the Lenders by the Agent hereunder, the Agent shall not have any
duty or responsibility to provide any Lender with any credit or other
information concerning the business, operations, property, condition (financial
or otherwise), prospects or creditworthiness of the Borrower which may come into
the possession of the Agent or any of its officers, directors, employees,
agents, attorneys-in-fact or Affiliates.
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56
8.7 Indemnification. The Lenders agree to indemnify the Agent in its
capacity as such (to the extent not reimbursed by the Borrower and without
limiting the obligation of the Borrower to do so), ratably according to their
respective Commitment Percentages in effect on the date on which
indemnification is sought (or, if indemnification is sought after the date upon
which the Commitments shall have terminated and the Loans shall have been paid
in full, ratably in accordance with their Commitment Percentages immediately
prior to such date), from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind whatsoever which may at any time (including, without
limitation, at any time following the payment of the Loans) be imposed on,
incurred by or asserted against the Agent in any way relating to or arising out
of, the Commitments, this Agreement, any of the other Loan Documents or any
documents contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by the Agent
under or in connection with any of the foregoing; provided that no Lender shall
be liable for the payment of any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting solely from the Agent's gross negligence or willful
misconduct. The agreements in this subsection shall survive the payment of the
Loans and all other amounts payable hereunder.
8.8 Agent in Its Individual Capacity. The Agent and its Affiliates may
make loans to, accept deposits from and generally engage in any kind of business
with the Borrower as though the Agent were not the Agent hereunder and under the
other Loan Documents. With respect to the Loans made by it, the Agent shall
have the same rights and powers under this Agreement and the other Loan
Documents as any Lender and may exercise the same as though it were not the
Agent, and the terms "Lender" and "Lenders" shall include the Agent in its
individual capacity.
8.9 Successor Agent. The Agent may resign as Agent upon 10 days' notice to
the Lenders. If the Agent shall resign as Agent under this Agreement and the
other Loan Documents, then the Required Lenders shall appoint from among the
Lenders a successor agent for the Lenders, which successor agent shall be
approved by the Borrower, whereupon such successor agent shall succeed to the
rights, powers and duties of the Agent, and the term "Agent" shall mean such
successor agent effective upon such appointment and approval, and the former
Agent's rights, powers and duties as Agent shall be terminated, without any
other or further act or deed on the part of such former Agent or any of the
parties to this Agreement or any holders of the Loans. After any retiring
Agent's resignation as Agent, the provisions of this Section 8 shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
Agent under this Agreement and the other Loan Documents.
SECTION 9. MISCELLANEOUS
9.1 Amendments and Waivers. Neither this Agreement nor any other Loan
Document, nor any terms hereof or thereof may be amended, supplemented or
modified except
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57
in accordance with the provisions of this subsection. The Required Lenders may,
or, with the written consent of the Required Lenders, the Agent may, from time
to time, (a) enter with the Borrower into written amendments, supplements or
modifications hereto and to the other Loan Documents for the purpose of adding
any provisions to this Agreement or the other Loan Documents or changing in any
manner the rights of the Lenders or of the Borrower hereunder or thereunder or
(b) waive, on such terms and conditions as the Required Lenders or the Agent, as
the case may be, may specify in such instrument, any of the requirements of this
Agreement or the other Loan Documents or any Default or Event of Default and its
consequences; provided, however, that no such waiver and no such amendment,
supplement or modification shall (i) reduce the amount or extend the scheduled
date of maturity of any Loan or of any installment thereof (including pursuant
to each paragraph of subsection 2.6), or reduce the stated rate of any interest
or fee payable hereunder or extend the scheduled date of any payment thereof or
increase the aggregate amount or extend the expiration date of any Lender's
Commitments, in each case without the consent of each Lender affected thereby,
or (ii) amend, modify or waive any provision of this subsection or reduce the
percentage specified in the definition of Required Lenders, or consent to the
assignment or transfer by the Borrower of any of its rights and obligations
under this Agreement and the other Loan Documents or release more than 20% in
value of the Collateral or any material Subsidiary from the Subsidiaries
Guarantee, in each case without the written consent of all the Lenders, or (iii)
amend, modify or waive any provision of Section 8 without the written consent of
the then Agent. Any such waiver and any such amendment, supplement or
modification shall apply equally to each of the Lenders and shall be binding
upon the Borrower, the Lenders, the Agent and all future holders of the Loans.
In the case of any waiver, the Borrower, the Lenders and the Agent shall be
restored to their former positions and rights hereunder and under the other Loan
Documents, and any Default or Event of Default waived shall be deemed to be
cured and not continuing; no such waiver shall extend to any subsequent or other
Default or Event of Default or impair any right consequent thereon.
9.2 Notices. All notices, requests and demands to or upon the respective
parties hereto to be effective shall be in writing (including by facsimile
transmission) and, unless otherwise expressly provided herein, shall be deemed
to have been duly given or made (a) in the case of delivery by hand, when
delivered, (b) in the case of delivery by mail, three days after being
deposited in the mails, postage prepaid, or (c) in the case of delivery by
facsimile transmission, when sent and receipt has been confirmed, addressed as
follows in the case of the Borrower and the Agent, and as set forth in Schedule
1.1A in the case of the other parties hereto, or to such other address as may
be hereafter notified by the respective parties hereto:
The Borrower: Wireless Broadcasting
Systems of America, Inc.
9250 E. Costilla Avenue, Suite 325
Englewood, Colorado 80112
Attention: Mr. Jeb Dickey
Fax: (303) 649-1195
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58
with a copy to: Pedersen & Houpt
161 N. Clark Street
Suite 3100
Chicago, IL 60601
Attention: Mr. John H. Muehlstein
Fax: (312) 641-6895
The Agent: Chemical Bank
270 Park Avenue
New York, New York 10017
Attention: Rana Khan
Fax: (212) 622-0002
provided that any notice, request or demand to or upon the Agent or the Lenders
pursuant to subsection 2.2, 2.5, 2.6, 2.7, 2.12 or 9.6 shall not be effective
until received.
9.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in
exercising, on the part of the Agent or any Lender, any right, remedy, power or
privilege hereunder or under the other Loan Documents shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, remedy, power
or privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges herein provided are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.
9.4 Survival of Representations and Warranties. All representations and
warranties made hereunder, in the other Loan Documents and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement and the making of
the Loans hereunder.
9.5 Payment of Expenses and Taxes. The Borrower agrees (a) to pay or
reimburse the Agent for all its reasonable out-of-pocket costs and expenses
incurred in connection with the development, preparation and execution of, and
any amendment, supplement or modification to, this Agreement and the other Loan
Documents and any other documents prepared in connection herewith or therewith,
and the consummation and administration of the transactions contemplated hereby
and thereby, including, without limitation, the reasonable fees and
disbursements of counsel to the Agent, except for the amendment to any
documentation as a result of an assignment pursuant to Section 9.6, (b) to pay
or reimburse each Lender and the Agent for all its costs and expenses incurred
in connection with the enforcement or preservation of any rights under this
Agreement, the other Loan Documents and any such other documents, including,
without limitation, the fees and disbursements of counsel (including the
allocated fees and expenses of in-house counsel) to each Lender and of counsel
to the Agent, (c) to pay, indemnify, and hold each Lender and the Agent harmless
from, any and all recording and filing fees and any and all liabilities with
respect to, or resulting from any delay in paying, stamp, excise and other
taxes, if any, which
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may be payable or determined to be payable in connection with the execution and
delivery of, or consummation or administration of any of the transactions
contemplated by, or any amendment, supplement or modification of, or any waiver
or consent under or in respect of, this Agreement, the other Loan Documents and
any such other documents, and (d) to pay, indemnify, and hold each Lender and
the Agent harmless from and against any and all other liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever with respect to the execution,
delivery, enforcement, performance and administration of this Agreement, the
other Loan Documents and any such other documents, including, without
limitation, any of the foregoing relating to the violation of, noncompliance
with or liability under, any Environmental Law applicable to the operations of
the Borrower, any of its Subsidiaries or any of the Properties (all the
foregoing in this clause (d), collectively, the "indemnified liabilities"),
provided, that the Borrower shall have no obligation hereunder to the Agent or
any Lender with respect to indemnified liabilities arising from the gross
negligence or willful misconduct of the Agent or any such Lender. The
agreements in this subsection shall survive repayment of the Loans and all other
amounts payable hereunder.
9.6 Successors and Assigns; Participations and Assignments. (a) This
Agreement shall be binding upon and inure to the benefit of the Borrower, the
Lenders, the Agent and their respective successors and assigns, except that the
Borrower may not assign or transfer any of its rights or obligations under this
Agreement without the prior written consent of each Lender.
(b) Any Lender may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time sell to one or more
banks or other entities ("Participants") participating interests in any Loan
owing to such Lender, any Commitment of such Lender or any other interest of
such Lender hereunder and under the other Loan Documents. In the event of any
such sale by a Lender of a participating interest to a Participant, such
Lender's obligations under this Agreement to the other parties to this Agreement
shall remain unchanged, such Lender shall remain solely responsible for the
performance thereof, such Lender shall remain the holder of any such Loan for
all purposes under this Agreement and the other Loan Documents, and the Borrower
and the Agent shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement and
the other Loan Documents. The voting rights of Participants shall be limited to
those matters with respect to which the affirmative vote of the Lender from
which it purchased its participating interest would be required as described
under subsection 9.1. The Borrower agrees that if amounts outstanding under
this Agreement are due or unpaid, or shall have been declared or shall have
become due and payable upon the occurrence of an Event of Default, each
Participant shall, to the maximum extent permitted by applicable law, be deemed
to have the right of set-off in respect of its participating interest in amounts
owing under this Agreement to the same extent as if the amount of its
participating interest were owing directly to it as a Lender under this
Agreement, provided that, in purchasing such participating interest, such
Participant shall be deemed to have agreed to share with the Lenders the
proceeds thereof as provided in subsection 9.7(a) as fully as if it were a
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60
Lender hereunder. The Borrower also agrees that each Participant shall be
entitled to the benefits of subsections 2.14, 2.15, 2.16 with respect to its
participation in the Commitments and the Loans outstanding from time to time as
if it was a Lender; provided that, in the case of subsection 2.15, such
Participant shall have complied with the requirements of said subsection and
provided, further, that no Participant shall be entitled to receive any greater
amount pursuant to any such subsection than the transferor Lender would have
been entitled to receive in respect of the amount of the participation
transferred by such transferor Lender to such Participant had no such transfer
occurred.
(c) Any Lender may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time and from time to
time assign to any Lender or any affiliate thereof or, with the consent of the
Borrower and the Agent (which in each case shall not be unreasonably withheld),
to an additional bank or financial institution ("an Assignee") all or any part
of its rights and obligations under this Agreement and the other Loan Documents
pursuant to an Assignment and Acceptance, substantially in the form of Exhibit
I, executed by such Assignee, such assigning Lender (and, in the case of an
Assignee that is not then a Lender or an affiliate thereof, by the Borrower and
the Agent) and delivered to the Agent for its acceptance and recording in the
Register provided that (i) no such assignment to an Assignee (other than any
Lender or any affiliate thereof) shall be in an aggregate principal amount of
less than $5,000,000 (other than in the case of an assignment of all of a
Lender's interests under this Agreement), (ii) after giving effect to any such
assignment (other than an assignment of all of a Lender's interests under this
Agreement), the assigning Lender (together with any Lender which is an
affiliate of such assigning Lender) shall retain Loans and/or Commitments
aggregating not less than $5,000,000 and (iii) Borrower shall be under no
obligation to reply to any notices pursuant to this subsection 9.6(c) sent to
it by any party other than the Agent. Upon such execution, delivery,
acceptance and recording, from and after the effective date determined pursuant
to such Assignment and Acceptance, (x) the Assignee thereunder shall be a party
hereto and, to the extent provided in such Assignment and Acceptance, have the
rights and obligations of a Lender hereunder with a Commitment as set forth
therein, and (y) the assigning Lender thereunder shall, to the extent provided
in such Assignment and Acceptance, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering all or the
remaining portion of an assigning Lender's rights and obligations under this
Agreement, such assigning Lender shall cease to be a party hereto).
Notwithstanding any provision of this paragraph (c) and paragraph (e) of this
subsection, the consent of the Borrower shall not be required, and, unless
requested by the Assignee and/or the assigning Lender, new Notes shall not be
required to be executed and delivered by the Borrower, for any assignment which
occurs at any time when any of the events described in Section 7 shall have
occurred and be continuing.
(d) The Agent, on behalf of the Borrower, shall maintain at the address of
the Agent referred to in subsection 9.2 a copy of each Assignment and Acceptance
delivered to it and a register (the "Register") for the recordation of the names
and addresses of the Lenders and the Commitments of, and principal amounts of
the Loans owing to, each Lender from time to time. The entries in the Register
shall be conclusive, in the absence of manifest error, and
<PAGE> 66
61
the Borrower, the Agent and the Lenders may (and, in the case of any Loan or
other obligation hereunder not evidenced by a Note, shall) treat each Person
whose name is recorded in the Register as the owner of a Loan or other
obligation hereunder as the owner thereof for all purposes of this Agreement and
the other Loan Documents, notwithstanding any notice to the contrary. Any
assignment of any Loan or other obligation hereunder not evidenced by a Note
shall be effective only upon appropriate entries with respect thereto being made
in the Register. The Register shall be available for inspection by the Borrower
or any Lender at any reasonable time and from time to time upon reasonable prior
notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Assignee (and, in the case of an Assignee that is not
then a Lender or an affiliate thereof, by the Borrower and the Agent) together
with payment to the Agent of a registration and processing fee of $2,500, the
Agent shall (i) promptly accept such Assignment and Acceptance and (ii) on the
effective date determined pursuant thereto record the information contained
therein in the Register and give notice of such acceptance and recordation to
the Lenders and the Borrower.
(f) The Borrower authorizes each Lender to disclose to any Participant or
Assignee (each, a "Transferee") and any prospective Transferee any and all
financial information in such Lender's possession concerning the Borrower and
its Affiliates which has been delivered to such Lender by or on behalf of the
Borrower pursuant to this Agreement or which has been delivered to such Lender
by or on behalf of the Borrower in connection with such Lender's credit
evaluation of the Borrower and its Affiliates.
(g) For avoidance of doubt, the parties to this Agreement acknowledge that
the provisions of this subsection concerning assignments of Loans and Notes
relate only to absolute assignments and that such provisions do not prohibit
assignments creating security interests, including, without limitation, any
pledge or assignment by a Lender of any Loan or Note to any Federal Reserve
Bank in accordance with applicable law.
9.7 Adjustments; Set-off. (a) If any Lender (a "benefitted Lender") shall
at any time receive any payment of all or part of its Loans, or interest
thereon, or receive any collateral in respect thereof (whether voluntarily or
involuntarily, by set-off, pursuant to events or proceedings of the nature
referred to in Section 7(f), or otherwise), in a greater proportion than any
such payment to or collateral received by any other Lender, if any, in respect
of such other Lender's Loans, or interest thereon, such benefitted Lender shall
purchase for cash from the other Lenders a participating interest in such
portion of each such other Lender's Loan, or shall provide such other Lenders
with the benefits of any such collateral, or the proceeds thereof, as shall be
necessary to cause such benefitted Lender to share the excess payment or
benefits of such collateral or proceeds ratably with each of the Lenders;
provided, however, that if all or any portion of such excess payment or
benefits is thereafter recovered from such benefitted Lender, such purchase
shall be rescinded, and the purchase price and benefits returned, to the extent
of such recovery, but without interest.
<PAGE> 67
62
(b) In addition to any rights and remedies of the Lenders provided by law,
each Lender shall have the right, without prior notice to the Borrower, any
such notice being expressly waived by the Borrower to the extent permitted by
applicable law, upon any amount becoming due and payable by the Borrower
hereunder (whether at the stated maturity, by acceleration or otherwise) to
set-off and appropriate and apply against such amount any and all deposits
(general or special, time or demand, provisional or final), in any currency,
and any other credits, indebtedness or claims, in any currency, in each case
whether direct or indirect, absolute or contingent, matured or unmatured, at
any time held or owing by such Lender or any branch or agency thereof to or for
the credit or the account of the Borrower. Each Lender agrees promptly to
notify the Borrower and the Agent after any such set-off and application made
by such Lender, provided that the failure to give such notice shall not affect
the validity of such set-off and application.
9.8 Counterparts. This Agreement may be executed by one or more of the
parties to this Agreement on any number of separate counterparts (including by
facsimile transmission), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument. A set of the copies of this
Agreement signed by all the parties shall be lodged with the Borrower and the
Agent.
9.9 Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
9.10 Integration. This Agreement and the other Loan Documents represent
the agreement of the Borrower, the Agent and the Lenders with respect to the
subject matter hereof, and there are no promises, undertakings, representations
or warranties by the Agent or any Lender relative to subject matter hereof not
expressly set forth or referred to herein or in the other Loan Documents.
9.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
9.12 Submission To Jurisdiction; Waivers. The Borrower hereby irrevocably
and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to
which it is a party, or for recognition and enforcement of any judgement
in respect thereof, to the non-exclusive general jurisdiction of the
Courts of the State of New York, the courts of the
<PAGE> 68
63
United States of America for the Southern District of New York, and
appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not
to plead or claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to the
Borrower at its address set forth in subsection 9.2 or at such other
address of which the Agent shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit
the right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right
it may have to claim or recover in any legal action or proceeding
referred to in this subsection any special, exemplary, punitive or
consequential damages.
9.13 Acknowledgements. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents;
(b) neither the Agent nor any Lender has any fiduciary relationship
with or duty to the Borrower arising out of or in connection with this
Agreement or any of the other Loan Documents, and the relationship
between Agent and Lenders, on one hand, and the Borrower, on the other
hand, in connection herewith or therewith is solely that of debtor and
creditor; and
(c) no joint venture is created hereby or by the other Loan
Documents or otherwise exists by virtue of the transactions contemplated
hereby among the Lenders or among the Borrower and the Lenders.
9.14 WAIVERS OF JURY TRIAL. THE BORROWER, THE AGENT AND THE LENDERS HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY
COUNTERCLAIM THEREIN.
<PAGE> 69
64
9.15 Confidentiality. Each Lender agrees to keep confidential all
non-public information provided to it by the Borrower pursuant to this
Agreement that is designated by the Borrower in writing as confidential;
provided that nothing herein shall prevent any Lender from disclosing any such
information (i) to the Agent or any other Lender, (ii) to any Transferee or
prospective Transferee, (iii) to its employees, directors, agents, attorneys,
accountants and other professional advisors, (iv) upon the request or demand of
any Governmental Authority having jurisdiction over such Lender, (v) in
response to any order of any court or other Governmental Authority or as may
otherwise be required pursuant to any Requirement of Law, (vi) which has been
publicly disclosed other than in breach of this Agreement, or (vii) in
connection with the exercise of any remedy hereunder.
<PAGE> 70
65
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
WIRELESS BROADCASTING SYSTEMS OF
AMERICA, INC.
By:/s/ Jeb Dickey
---------------------------------------
Title: Chief Financial Officer
CHEMICAL BANK,
as Agent and as a Lender
By:/s/ John J. Huber III
---------------------------------------
Title: Managing Director
CIBC, INC.
By:/s/ Harold Birk
---------------------------------------
Title: Vice President
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION
By:/s/ James Rikkers
---------------------------------------
Title: Assistant Vice President
<PAGE> 71
Schedule 1.1B
<TABLE>
<CAPTION>
Eurodollar ABR
Applicable Applicable Commitment
Leverage Ratio Margin Margin Fee
- -------------- ---------- ---------- ----------
<S> <C> <C> <C>
Greater than or equal to 4.5 to 1.0, 3.00% 2.00% .500%
Greater than or equal to 3.5 to
1.0, but less than 4.5 to 1.0 2.500% 1.50% .500%
Greater than or equal to 2.5 to
1.0, but less than 3.5 to 1.0 2.250% 1.25% .500%
Less than 2.5 to 1.0 2.000% 1.00% .375%
</TABLE>
<PAGE> 1
Exhibit 10.1(b)
REVOLVING CREDIT NOTE
$15,000,000 New York, New York
November 3, 1995
FOR VALUE RECEIVED, the undersigned, WIRELESS BROADCASTING SYSTEMS OF
AMERICA, INC., a Delaware corporation (the "Borrower"), hereby unconditionally
promises to pay to the order of CIBC, INC. (the "Lender") at the office of
Chemical Bank, located at 270 Park Avenue, New York, New York 10017, in lawful
money of the United States of America and in immediately available funds, on
the Termination Date the principal amount of (a) FIFTEEN MILLION DOLLARS
($15,000,000), or, if less, (b) the aggregate unpaid principal amount of all
Loans made by the Lender to the Borrower pursuant to subsection 2.1 of the
Credit Agreement, as hereinafter defined. The Borrower further agrees to pay
interest in like money at such office on the unpaid principal amount hereof
from time to time outstanding at the rates and on the dates specified in
subsections 2.8 and 2.10 of such Credit Agreement.
The holder of this Note is authorized to endorse on the schedules annexed
hereto and made a part hereof or on a continuation thereof which shall be
attached hereto and made a part hereof the date, Type and amount of each Loan
made pursuant to the Credit Agreement and the date and amount of each payment
or prepayment of principal thereof, each continuation thereof, each conversion
of all or a portion thereof to another Type and, in the case of Eurodollar
Loans, the length of each Interest Period with respect thereto. Each such
endorsement shall constitute prima facie evidence of the accuracy of the
information endorsed. The failure to make any such endorsement shall not affect
the obligations of the Borrower in respect of such Loan.
This Note (a) is one of the Notes referred to in the Credit Agreement
dated as of November 3, 1995 (as amended, supplemented or otherwise modified
from time to time, the "Credit Agreement"), among the Borrower, the Lender, the
other banks and financial institutions from time to time parties thereto and
Chemical Bank, as agent, (b) is subject to the provisions of the Credit
Agreement and (c) is subject to optional and mandatory prepayment in whole or
in part as provided in the Credit Agreement. This Note is secured and
guaranteed as provided in the Loan Documents. Reference is hereby made to the
Loan Documents for a description of the properties and assets in which a
security interest has been granted, the nature and extent of the security and
the guarantees, the terms and conditions upon which the security interests and
each guarantee were granted and the rights of the holder of this Note in
respect thereof.
<PAGE> 2
2
Upon the occurrence of any one or more of the Events of Default, all
amounts then remaining unpaid on this Note shall become, or may be declared to
be, immediately due and payable, all as provided in the Credit Agreement.
All parties now and hereafter liable with respect to this Note, whether
maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest and all other notices of any kind.
Unless otherwise defined herein, terms defined in the Credit Agreement and
used herein shall have the meanings given to them in the Credit Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
WIRELESS BROADCASTING SYSTEMS OF
AMERICA, INC.
By: /s/ Jeb Dickey
----------------------------------
Name: Jeb Dickey
--------------------------------
Title: Chief Financial Officer
-------------------------------
<PAGE> 1
EXHIBIT 10.1(c)
REVOLVING CREDIT NOTE
$10,000,000 New York, New York
November 3, 1995
FOR VALUE RECEIVED, the undersigned, WIRELESS BROADCASTING SYSTEMS OF
AMERICA, INC., a Delaware corporation (the "Borrower"), hereby unconditionally
promises to pay to the order of NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
(the "Lender") at the office of Chemical Bank, located at 270 Park Avenue, New
York, New York 10017, in lawful money of the United States of America and in
immediately available funds, on the Termination Date the principal amount of
(a) TEN MILLION DOLLARS ($10,000,000), or, if less, (b) the aggregate unpaid
principal amount of all Loans made by the Lender to the Borrower pursuant to
subsection 2.1 of the Credit Agreement, as hereinafter defined. The Borrower
further agrees to pay interest in like money at such office on the unpaid
principal amount hereof from time to time outstanding at the rates and on the
dates specified in subsections 2.8 and 2.10 of such Credit Agreement.
The holder of this Note is authorized to endorse on the schedules
annexed hereto and made a part hereof or on a continuation thereof which shall
be attached hereto and and made a part hereof the date, Type and amount of each
Loan made pursuant to the Credit Agreement and the date and amount of each
payment or prepayment of principal thereof, each continuation thereof, each
conversion of all or a portion thereof to another Type and, in the case of
Eurodollar Loans, the length of each Interest Period with respect thereto.
Each such endorsement shall constitute prima facie evidence of the accuracy of
the information endorsed. The failure to make any such endorsement shall not
affect the obligations of the Borrower in respect of such Loan.
This Note (a) is one of the Notes referred to in the Credit Agreement
dated as of November 3, 1995 (as amended, supplemented or otherwise modified
from time to time, the "Credit Agreement"), among the Borrower, the Lender, the
other banks and financial institutions from time to time parties thereto and
Chemical Bank, as agent, (b) is subject to the provisions of the Credit
Agreement and (c) is subject to optional and mandatory prepayment in whole or
in part as provided in the Credit Agreement. This Note is secured and
guaranteed as provided in the Loan Documents. Reference is hereby made to the
Loan Documents for a description of the properties and assets in which a
security interest has been granted, the nature and extent of the security and
the guarantees, the terms and conditions upon which the security interests and
each guarantee were granted and the rights of the holder of this Note in respect
thereof.
<PAGE> 2
Upon the occurrence of any one or more of the Events of Default, all
amounts then remaining unpaid on this Note shall become, or may be declared to
be, immediately due and payable, all as provided in the Credit Agreement.
All parties now and hereafter liable with respect to this Note, whether
maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest and all other notices of any kind.
Unless otherwise defined herein, terms defined in the Credit Agreement
and used herein shall have the meanings given to them in the Credit Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
WIRELESS BROADCASTING SYSTEMS OF
AMERICA, INC.
By: /s/ Jeb Dickey
-------------------------
Name: Jeb Dickey
-------------------------
Title: Chief Financial Officer
-------------------------
<PAGE> 1
EXHIBIT 10.1(d)
REVOLVING CREDIT NOTE
$15,000,000 New York, New York
November 3, 1995
FOR VALUE RECEIVED, the undersigned, WIRELESS BROADCASTING SYSTEMS OF
AMERICA, INC., a Delaware corporation (the "Borrower"), hereby unconditionally
promises to pay to the order of CHEMICAL BANK (the "Lender") at the office of
Chemical Bank, located at 270 Park Avenue, New York, New York 10017, in lawful
money of the United States of America and in immediately available funds, on
the Termination Date the principal amount of (a) FIFTEEN MILLION DOLLARS
($15,000,000), or, if less, (b) the aggregate unpaid principal amount of all
Loans made by the Lender to the Borrower pursuant to subsection 2.1 of the
Credit Agreement, as hereinafter defined. The Borrower further agrees to pay
interest in like money at such office on the unpaid principal amount hereof
from time to time outstanding at the rates and on the dates specified in
subsections 2.8 and 2.10 of such Credit Agreement.
The holder of this Note is authorized to endorse on the schedules
annexed hereto and made a part hereof or on a continuation thereof which shall
be attached hereto and and made a part hereof the date, Type and amount of each
Loan made pursuant to the Credit Agreement and the date and amount of each
payment or prepayment of principal thereof, each continuation thereof, each
conversion of all or a portion thereof to another Type and, in the case of
Eurodollar Loans, the length of each Interest Period with respect thereto.
Each such endorsement shall constitute prima facie evidence of the accuracy of
the information endorsed. The failure to make any such endorsement shall not
affect the obligations of the Borrower in respect of such Loan.
This Note (a) is one of the Notes referred to in the Credit Agreement
dated as of November 3, 1995 (as amended, supplemented or otherwise modified
from time to time, the "Credit Agreement"), among the Borrower, the Lender, the
other banks and financial institutions from time to time parties thereto and
Chemical Bank, as agent, (b) is subject to the provisions of the Credit
Agreement and (c) is subject to optional and mandatory prepayment in whole or
in part as provided in the Credit Agreement. This Note is secured and
guaranteed as provided in the Loan Documents. Reference is hereby made to the
Loan Documents for a description of the properties and assets in which a
security interest has been granted, the nature and extent of the security and
the guarantees, the terms and conditions upon which the security interests and
each guarantee were granted and the rights of the holder of this Note in respect
thereof.
<PAGE> 2
Upon the occurrence of any one or more of the Events of Default, all
amounts then remaining unpaid on this Note shall become, or may be declared to
be, immediately due and payable, all as provided in the Credit Agreement.
All parties now and hereafter liable with respect to this Note, whether
maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest and all other notices of any kind.
Unless otherwise defined herein, terms defined in the Credit Agreement
and used herein shall have the meanings given to them in the Credit Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
WIRELESS BROADCASTING SYSTEMS OF
AMERICA, INC.
By: /s/ Jeb Dickey
-------------------------
Name: Jeb Dickey
-------------------------
Title: Chief Financial Officer
-------------------------
<PAGE> 1
EXHIBIT 10.2
ITFS EXCESS CAPACITY AIRTIME LEASE AGREEMENT
<PAGE> 2
ITFS EXCESS CAPACITY AIRTIME LEASE AGREEMENT
THIS AGREEMENT, is made this ______ day of _______________, 1996 by
and between ______________________ (hereinafter referred to as "______") having
its principal place of business at ______________, _________ _____ and WBS_
Licensing Corporation (hereinafter referred to as "WBS") having its principal
place of business at 9250 E. Costilla Avenue, Suite 325, Englewood, CO 80112.
WHEREAS, the Federal Communications Commission ("FCC") has authorized
licenses for Instructional Television Fixed Service ("ITFS") channels and has
authorized licensees to lease excess capacity airtime to non-ITFS users;
WHEREAS, ______ intends to be the applicant for and become the holder
of an FCC license for operation of four (4) ITFS Channels as designated by
subpart I of Part 74 of the FCC's rules in the _______, __ Metropolitan Area
("The Metropolitan Area");
WHEREAS, WBS is in the business of providing subscription cable
television programming to paying customers nationwide via microwave
transmission known as wireless cable. WBS's parent company has been awarded
exclusive rights to the _______________ Basic Trading Area and intends to
develop a wireless cable television system there. In connection with this, WBS
is desirous of leasing excess ITFS capacity from ______. The network of
collocated channels used for subscription television shall hereinafter be
described as "WBS's System";
WHEREAS, the Parties agree that any ITFS Channels licensed or granted
to ______ by the FCC in the band 2500 - 2700 MHz, whether interleaved,
adjacent, or non-contiguous are encompassed by this Agreement. As used herein,
the phrase "ITFS Channels" shall mean the entire spectrum of frequencies in the
band 2500-2700 MHz which are licensed to ______; and
WHEREAS, ______ has determined that there will be excess capacity
airtime available on the ITFS Channels and that this excess capacity airtime is
available for commercial programming. ______ has further determined that by
combining its educational and instructional programming with WBS's commercial
programming, a significant increase may be achieved in the number of persons
who will have access to ______'s educational programming at little or no
additional cost. Since the dissemination of educational and instructional
programming is significantly increased as a result of the integrated system, it
is consequently determined that the channels are being used for ITFS purposes
in serving the good of the public.
NOW THEREFORE, in consideration of the mutual promises, undertakings,
covenants and conditions set forth herein, ______ and WBS do hereby agree and
warrant as follows:
1
<PAGE> 3
1. TERM OF AGREEMENT.
A) Initial Term. This Agreement shall be effective upon the date of
its execution. The term shall begin on the Start Date as defined in Paragraph
12 hereof and extend for an initial period of ten (10) years.
B) New Lease Agreement/Right of First Refusal. Provided that
______'s FCC license remains in good standing and/or ______ seeks to renew such
license, WBS and ______ shall enter into negotiations for a new excess capacity
airtime lease agreement (hereinafter referred to as "New Lease Agreement") no
later than nine months (9) prior to the end of the Initial Term. If ______
elects to not pursue a New Lease Agreement with WBS, then ______ shall notify
WBS in writing of such intent no later than six months (6) prior to the end of
the Initial Term. If ______ and WBS do not enter into a New Lease Agreement,
______ grants WBS a right of first refusal on any competing proposals for lease
agreements or transfers or assignments of any part of the ITFS Channels
received by ______ until twelve (12) months after the expiration of the Initial
Term. If any acceptable offer to lease or acquire the ITFS channels is made to
______, ______ shall give written notice to WBS describing the person to whom
the proposed lease or transfer is to be made, the fees, charges, rental or
other consideration to be received for the lease or transfer, the terms thereof
and generally the relevant other terms and conditions of the lease or transfer.
WBS shall have a period of thirty (30) days after its receipt of such notice
from ______ in which to elect, by giving written notice to ______, to lease or,
if eligible, obtain any or all of the ITFS Channels for the same fees, charges,
rental or other consideration for which ______ proposed to lease or transfer to
the third party.
If the fees, charges, rental or consideration to be paid by such third
party are to be in whole or in part in a form other than cash, the
consideration to be paid by WBS shall be fairly equivalent to the fair value of
the consideration offered by the third person and shall be detailed by WBS in
its notice of election.
C) Operation At End of Term. If ______ and WBS do not enter into a
New Lease Agreement before the end of the Initial Term, WBS shall cease leasing
the ITFS Channels on the last day of the Initial Term.
D) FCC Obligations of ______. While this Agreement is in effect,
______ shall obtain and maintain in force all licenses, permits and
authorizations required or desired in connection with the use of the ITFS
Channels. ______ shall take all necessary steps to renew the licenses for the
ITFS Channels and shall not commit any act or engage in any activity which
could reasonably be expected to cause the FCC to impair, restrict, revoke,
suspend or refuse to renew the ITFS licenses. ______ shall take all reasonable
steps to comply with the Communications Act of 1934, as amended and the rules
and regulations of the FCC, and shall timely file all reports, schedules and/or
2
<PAGE> 4
forms required by the FCC to be filed by ______. All expenses, including
attorneys fees and filing fees, incurred in preparing and filing such reports,
schedules and/or forms required by the FCC shall be paid by WBS.
2. ALLOCATION OF AIRTIME.
A) Excess Capacity Airtime. To the extent allowed by the FCC rules
and regulations and any amendments thereof, ______ agrees to lease to WBS the
exclusive use of all excess capacity airtime on ______'s ITFS Channels as more
fully set forth herein. As used in this Agreement, the phrase "Excess Capacity
Airtime" means all airtime on the ITFS Channels apart from "______'s Primary
Airtime" and when applicable "______'s Ready Recapture Airtime".
B) ______'s Primary Airtime. For each channel licensed, ______
reserves the minimum number of hours of airtime each week (Monday through
Saturday) required by the FCC rules to be used for its ITFS scheduled programs
aired between the hours of 8:00 a.m. and 10:00 p.m. Presently, licensees must
reserve at least twenty (20) hours per channel, per week for ITFS programming.
Such reserved airtime shall include a minimum of three (3) hours per weekday
(Monday through Friday) excluding holidays and vacation days. During the first
two (2) years of operation, licensees must reserve a minimum of twelve (12)
hours per channel, per week for ITFS programming. The parties agree that all of
______'s Primary Airtime may be channel loaded or channel mapped in accordance
with FCC Rules and Regulations.
C) ______'s Ready Recapture Airtime. ______ also reserves additional
hours of airtime each week, up to a total of forty-one (41) hours for each
licensed channel, for any expanded ITFS programming. The recapture airtime is
computed by subtracting the number of hours of primary airtime from forty-one
(41). ______'s Ready Recapture Airtime shall be reserved between the hours of
8:00 a.m. and 10:00 p.m., Monday through Saturday. ______'s Ready Recapture
Airtime is also subject to channel loading or channel mapping.
D) Schedule of Airtime. The schedule which depicts the agreement of
the parties as to the use of ______'s Channels shall be attached hereto and
made a part hereof as Exhibit A within thirty (30) days of grant of a license
to ______.
E) Change of Schedule. There shall be no economic or operational
detriment borne by ______ arising from its use of ______'s Primary Airtime or
______'s Ready Recapture Airtime. According to FCC rules and regulations,
______ agrees to provide WBS_ with one year's advance, written notice of any
intent to use ______'s Ready Recapture Airtime or modify the Schedule of
Airtime.
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F) Use of Vertical Blanking Intervals. WBS shall at all times have
the right to use the vertical blanking intervals, associated subcarriers and
response channels (collectively referred to hereinafter as the "VBI") to the
extent necessary for scrambling and descrambling purposes.
G) ______'s Increase in Scheduling. ______ acknowledges that a
significant capital expenditure is to be made by WBS for the mutual benefit of
the parties to this Agreement. ______ expressly agrees to use its best efforts
to take no action which would jeopardize the ability of WBS to fully recover
its investment through its provision of services contemplated by this
Agreement. In this regard, it is acknowledged that ______'s primary purpose in
using the ITFS Channels is to provide accredited educational and instructional
programming. In the event that ______ seeks to broadcast qualified ITFS
programming other than during ______'s Primary Airtime or ______'s Ready
Recapture Airtime thereby reducing WBS's Excess Capacity Airtime to less than
one hundred twenty-eight (128) hours per week (Monday-Sunday) per channel,
______ shall provide WBS with one year's prior, written notice of this intent
as required by FCC Rules and Regulations. Any such reduction of WBS's Excess
Capacity Airtime shall hereinafter be referred to as a "Significant Reduction
in WBS's Airtime".
H) Significant Reduction in WBS_ Airtime. In the event a Significant
Reduction in WBS's Airtime occurs, WBS shall have each of the following three
rights,which may be exercised from time to time during this Agreement without
prejudice to WBS's subsequent exercise of another of these rights:
i) If the additional ITFS programming sought to be broadcast by ______
may be broadcast during unscheduled Airtime on WBS's System, then the
ITFS programming shall be broadcast during that time period. Also, if
WBS presents ______ with other methods of reasonably accommodating
______'s increased scheduling needs, then ______ agrees to use its
best efforts in cooperating with WBS to implement those other methods.
ii) WBS shall also have the right to require ______ to file for
license modifications with the FCC for the technical channel expansion
of one or more of the ITFS Channels. This right may be exercised even
in the absence of a Significant Reduction in WBS's Airtime. The
expanded channels thereby created shall be referred to hereinafter as
"The Expanded Channels". Upon approval by the FCC of such license
modification, WBS agrees, at its expense, to purchase and install all
equipment necessary to complete such license modification. Any
equipment used in such construction shall be leased to ______ pursuant
to Paragraph 5 hereof. Once the Expanded Channels have been
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constructed, they shall automatically and without further amendment be
considered a part of this agreement and subject to all terms and
conditions hereof; provided, however, that no additional consideration
shall be associated with the expanded channels. ______ and WBS shall
agree upon the allocation of time over the Primary and Expanded
Channels so as to fulfill ______'s ITFS programming requirements that
gave rise to the Significant Reduction of WBS's Airtime, if any.
iii) WBS may terminate this agreement without penalty or further
liability to ______ upon notice to ______. Alternatively, WBS may
reduce in proportionate amount the subscriber royalty fees payable
under Paragraph 6(B) of this Agreement during the remainder of this
Agreement.
I) ______'s Use of ITFS Channels. ______ recognizes the mutual
benefits and technological advantages of the use of encoding methods for
program security, equipment signaling and individual addressability control
over unauthorized equipment use. ______ agrees that its program services and
airtime use will not harm or interfere with WBS's current or future signal
paths utilized with WBS's System for program encryption, pilot carrier
signaling and other technical needs utilized for the operation of services
provided by WBS's System. Nor will ______, by its own action, or through a
third party, utilize any part of its licensed frequency spectrum to create or
operate a service that is in competition with current, planned or future
services provided by WBS's System.
3. TRANSMISSION SITE AND FACILITIES.
A) Transmission Site. Upon execution of this Agreement, WBS and
______ shall select a mutually acceptable location for the Transmission Site
for the provision of the services contemplated by this Agreement. This site
shall hereinafter be described as the "Transmission Site". At WBS's sole
expense, WBS_ shall contract for a lease of space at the Transmission Site upon
such terms as the parties agree. The Transmission Site shall comply with the
requirements and regulations of the FCC rules and orders pertaining to ______'s
ITFS license. At WBS's sole expense pursuant to Paragraph 8, ______ shall
timely file the appropriate applications with the FCC to secure authorizations
to operate the ITFS Channels from the Transmission Site. Such applications
shall be filed during the filing window immediately following execution of this
agreement. If upon reviewing ______'s ITFS applications the FCC directs ______
to amend its applications, including the terms and conditions of this
Agreement, in order to bring the applications in compliance with FCC
regulations and guidelines for conditional licenses, the parties shall
immediately negotiate in good faith toward the necessary revisions. Again at
WBS's sole expense pursuant to Paragraph 8, ______ shall file such agreed
revisions to its FCC applications. If the parties cannot agree upon
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revisions, then this Agreement shall be terminated without further liability.
B) System Construction. Upon issuance by the FCC of authorizations
for the ITFS Channels at the Transmission Site, WBS shall, within a reasonable
period of time, begin construction of the ITFS Channel transmission facilities.
At its expense, WBS shall purchase and install such transmitters, transmission
line, modulators, antennas and other equipment as required to operate the ITFS
Channels in accordance with the provision of such authorizations. Within ten
(10) days of making the channels operational, WBS shall notify ______ in
writing. ______ shall timely notify the Commission that construction is
complete. Any equipment used in such construction shall be leased to ______
pursuant to Paragraph 5 hereof. Such equipment is hereinafter referred to as
the "Leased Equipment". WBS further agrees throughout the term of this
Agreement to provide ______ with sufficient space at the Transmission Site for
any equipment required to provide for ______'s audio and video transmission
needs for its ITFS programming. WBS shall retain title to the Leased Equipment
except as noted by Paragraph 16 herein.
C) Maintenance of Transmission Equipment. At WBS's expense, and
subject to ______'s right to supervise the maintenance of this equipment, WBS
shall maintain and operate the Leased Equipment during the terms of this
Agreement as provided in paragraph 6A. WBS shall also pay all taxes and other
charges assessed against the Leased Equipment.
D) Transmission of Programming. At no cost or expense to ______, WBS
shall provide the necessary labor to transmit the ITFS programming required to
be carried.
E) Interference. WBS shall operate the Leased Equipment so that such
operation does not create or increase interference with electronic transmission
of any other FCC licensees entitled to protection under FCC rules and
regulations. If WBS's operation of the Leased Equipment does create or
increase interference, WBS shall pay all of the reasonable engineering and
legal fees necessary to resolve the interference problem.
F) Alterations and Attachments. WBS, at its own expense, may make
alterations of or attachments to the ITFS Equipment or the Common Equipment as
defined in Exhibit C (including the installation of encoding, compression
and/or addressing equipment) as may be reasonably required from time to time by
the nature of its business; provided however, that such alterations or
attachments do not interfere with ______'s signal or ongoing operations or
violate any FCC rules or regulations; and provided further that FCC
authorization, if required, is obtained in advance of any such alteration or
attachment at the sole cost of WBS. To the extent any FCC authorization
pertaining to the ITFS Equipment is required, ______ agrees to use its best
efforts to obtain such authorization.
G) Increase In Authorized Transmission Power Requirements. If WBS
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determines during the term of this Agreement that an increase in transmitter
power is reasonably necessary to better serve WBS's customers, the parties
agree that such a power increase is permissable. WBS shall, at its cost,
perform such re-engineering studies as may be reasonably necessary and, upon
completion of such re-engineering studies, ______ shall, at WBS's cost, file
the appropriate applications with the FCC to secure approval for such increased
transmitter power. Upon approval of any such application by the FCC, WBS
shall, at its expense, upgrade the ITFS Channel transmission facilities in
accordance with such FCC authorization.
H) Licensee Control and Liability. Nothing herein shall derogate
from the licensee control of operations of the ITFS Channels as is required by
the FCC. WBS acknowledges the reservation by ______ of such control.
4. ______'S RECEIVE SITES. Upon filing the ITFS application, there
shall be attached hereto and incorporated herein as Exhibit B a copy of Section
VI of FCC Form 330, listing the receive sites designated by ______ to receive
its ITFS programming. Up to ten (10) receive sites shall be installed at the
expense of WBS with a Standard Installation. As used herein for the purposes of
this Agreement, the phrase "Standard Installation" shall consist of the
following: (i) placement of the ITFS/MMDS receiving antenna at an elevation
(not to exceed thirty (30) feet above the base mounting location), which could
normally receive the line of sight transmission from the Transmission Site,
(ii) the coupling thereto of a block down converter, (iii) a sufficient amount
of transmission line (coaxial cable) to connect ______'s designated receive
sites to receive the ITFS programming or the receive site internal distribution
system, (iv) a standard television receiver and (v) a video cassette recorder.
Also, if as the result of any relocation of the Transmission Site, the
equipment at ______'s existing receive site must be reoriented, WBS shall pay
the cost of same.
5. LEASE OF EQUIPMENT; ______'S LEASE OF LEASED EQUIPMENT. For one
dollar per year ($1.00), ______ shall lease from WBS the Leased Equipment
during the term of this Agreement. A list of this equipment is attached hereto
as Exhibit C and incorporated by reference herein.
6. FEES.
A) ______'s Service Fee. In consideration for its share of the
projected costs to maintain the Transmission Site and the Leased Equipment,
______ shall pay WBS an annual service fee provided for in Exhibit E.
B) Subscriber Royalty Fees. Commencing on the date of completion of
construction at the Transmission Site and continuing thereafter during the
Initial Term
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of this Agreement, WBS shall pay to ______ the Subscriber Royalty Fee provided
in Exhibit E which is attached hereto and incorporated by reference. All
computations of subscriber royalty fees shall be based upon the average number
of subscribers to WBS's pay television programming service. The term
"Subscriber" means a person who is paying for WBS's basic (first tier or entry
level) programming service. If the date of completion of construction at the
Transmission Site, shall be a date other than the first day of a calendar month
or this Agreement shall be terminated on a date other than the last day of a
calendar month, then the Subscriber Royalty Fee for that partial month shall be
paid on a proportionate basis. In conjunction with the payment of Subscriber
Royalty Fees hereunder, WBS shall provide ______ with a certificate showing the
average number of Subscribers serviced during such month.
C) Right to Audit. WBS shall, for a period of three (3) years after
their creation, keep, maintain and preserve complete and accurate records and
accounts, including all invoices, correspondence, ledgers, financial and other
records pertaining to WBS's use of Excess Capacity Airtime and ______'s charges
hereunder; and such records and corporate accounts shall be available for
inspection and audit at WBS's corporate offices or at WBS's offices in the
Metropolitan Area, at any time or times during the term of this Agreement or
within ninety (90) days thereafter, during reasonable business hours, by
______. Notwithstanding the foregoing, ______ shall be entitled to only one
audit of WBS's records and accounts during any calendar year and such audit
shall be limited to the records and accounts of WBS for the immediately
preceding twelve (12) months, unless an error exceeding ten percent (10%) of
the total is found, in which case WBS's records and accounts of the immediately
preceding three (3) years may be inspected. ______ shall provide WBS with
fifteen (15) business days advance notice of its intent to inspect such records
and accounts prior to being allowed to do so. All information obtained by
______ during any audit herein shall be maintained by ______ in strict
confidence.
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7. PROGRAMMING.
A) Control Over Programming. WBS intends that only programming of a
sort which would not serve to place ______'s reputation in the community in
jeopardy will be transmitted by WBS on ____________'s ITFS Channels. ______
may deny WBS the right to transmit programming over the ITFS Channels that
violates local, state, or federal laws or regulations. The parties have
designated programming on Exhibit D which can be transmitted over the ITFS
channels whenever other instructional programming has not been designated by
______, and such programming is necessary to meet ______'s minimum ITFS
programming requirements.
B) Station Identification. During WBS's use of ______'s excess
channel capacity, WBS shall transmit ______'s call sign over the ITFS station
at the beginning and end of each period of operation and during operation on
the hour. Visual or aural transmissions shall be employed. The hourly station
identification announcement during operation may be deferred if it would
interrupt or otherwise impair the continuity of a program in progress. In such
cases, the station identification announcement shall be made at the first
normal break in the continuity of the program.
8. PROSECUTION OF PETITIONS, AUTHORIZATIONS AND LICENSES.
A) Best Efforts to Secure Approval of this Agreement. The parties
recognize that certain approvals will be required from the FCC in order to
effectuate this Agreement. Both parties shall use their best efforts to
prepare, file and prosecute before the FCC all petitions, waivers, applications
and other documents necessary to secure any FCC approval required to effectuate
this Agreement. WBS shall assist in the preparation and prosecution of such
applications and as provided for herein, shall pay all filing fees, attorney's
fees, engineering fees, and all other expenses in connection therewith.
Notwithstanding anything in this Agreement to the contrary, it is understood
that no filing shall be made with the FCC with respect to this Agreement unless
both parties have reviewed such filing and consented to its submission, such
consent not to be unreasonably withheld.
B) Further Efforts. Throughout the Initial Term of this Agreement,
______ shall use its best efforts to obtain and maintain in force all licenses,
permits and authorizations required for WBS and ______ to use the ITFS Channels
as contemplated by this Agreement. WBS shall be responsible for all expenses
incurred to obtain and maintain in force such licenses, permits and
authorizations. When mutually agreed by the parties and at WBS's sole expense,
______ shall apply for, and use its best efforts to obtain those reasonable
license modifications which would assist WBS in its business. At WBS's sole
expense, ______ shall also file such reasonable protests, comments or other
petitions to deny against any other ITFS, MMDS, MDS and/or OFS
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applications or amendments as may be requested by WBS in the mutual best
interest of the parties and the public. ______ and WBS shall promptly notify
each other of any event of which it has knowledge that may affect any of the
licenses, permits or authorizations affecting the ITFS Channels.
9. REPRESENTATIONS AND WARRANTIES.
A) Representations and Warranties of ______. ______ represents and
warrants to WBS as follows:
1) Organization. ______ is duly organized and existing in good
standing under the laws of the State of ________, and it has full
power and authority to carry out all of the transactions contemplated
by this Agreement and all other agreements, certificates or
instruments executed and delivered in connection herewith.
2. No Violation. Neither the execution nor delivery of this
Agreement or any other agreements, certificates or instruments
executed and delivered herewith, nor the performance of the
transactions contemplated hereby constitute or will constitute a
violation of, be in conflict with, or a default under any term or
provision of the governing instruments of ______ or any agreement or
commitment to which ______ is bound, or any judgment, decree, order,
regulation or rule of any court or governmental authority, or any
statute of law. Except for approval of the FCC, no consent of any
federal, state or local authority is required in connection with the
execution and delivery of this Agreement or any other agreements,
certificates or instruments executed and delivered herewith or with
the performance of the transactions contemplated hereby.
B) Representations and Warranties of WBS. WBS represents and
warrants to ______ as follows:
1) Organization. WBS is duly organized, validly existing and in good
standing under the laws of the State of Delaware and it has full power
and authority to own property and to carry out all of the transactions
contemplated by this Agreement, and all other agreements, certificates
or instruments executed and delivered by WBS in connection herewith.
2) Corporation Action; Valid and Binding Agreements. WBS has taken
all corporate action necessary to authorize the execution and delivery
of this Agreement and all other agreements, certificates or
instruments executed and delivered in connection herewith. Upon
execution and
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delivery, this Agreement and all other agreements, certificates or
instruments executed and delivered by WBS in connection herewith will
constitute valid and binding agreements of WBS enforceable in
accordance with their respective terms.
C) Survival of Representations and Warranties. The representations
and warranties contained in this Agreement shall be deemed to be continuing
during the Initial Term of this Agreement, and each Party shall have the duty
promptly to notify the other of any event or circumstance which might
reasonably be deemed to constitute a breach of or lead to a breach of its
warranties or representations hereunder. The waiver by either Party or any
breach of any representation or warranty under this Agreement shall not
constitute a waiver of any other representation or warranty or of any failure
in the future by the other Party to fulfill such representation or warranty.
10. TERMINATION.
A) Termination of FCC Authorization. Without further liability to
either ______ or WBS, this Agreement shall terminate in the event that for any
reason (i) ______ shall not be licensed on ITFS Channels in the Metropolitan
area, or (ii) the FCC shall terminate or diminish ______'s authority to lease
all of the ITFS Channels in accordance with the terms of this Agreement.
B) Termination by Reason of Default. At the option of the
non-defaulting party, this Agreement may be terminated upon the material breach
or default by the defaulting party of its duties and obligations hereunder if
such breach or default is not cured by such defaulting party and if such breach
or default shall continue for a period of thirty (30) consecutive days after
such defaulting party's receipt of notice thereof from the non-defaulting
party. In the case of a breach or default which is not capable of being cured
in thirty (30) days, if the party in breach or default does not, within such
thirty (30) day period, commence and diligently pursue steps to cure such
breach or default then the agreement may be terminated. It is understood and
agreed that any consequences resulting from the loss of local participating
receive sites for reasons that are not the fault of ______ shall not be
considered a material breach or default by ______ of its duties and obligations
hereunder.
C) Remedies to Continue. In the event of termination of this
Agreement pursuant to Paragraph 10(b), such termination shall not affect or
diminish the rights or claims or remedies available in equity or at law to the
non-defaulting party arising by reason of a breach or default of this
Agreement. However, no liability shall arise on the part of ______ or WBS_
upon termination of this Agreement pursuant to
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paragraph 10(A).
11. TRANSFER OF RIGHTS AND OBLIGATIONS. The parties agree that WBS
shall have the right to assign its rights under this lease as collateral for
any financing arrangements it makes and no further consent is necessary. WBS
shall also have the right to pledge the Leased Equipment as collateral security
for any loans it makes; provided however, that any pledge of the Leased
Equipment shall be made subject to the provisions of this lease. WBS shall
further have the right to subcontract any portion of its obligations under this
Agreement to any partnership, joint venture, corporation or entity which WBS
may choose, provided that WBS gives ______ notice of any proposed
subcontracting and, provided further, that no such subcontracting shall release
WBS from fulfilling all of its obligations under this Agreement. WBS shall
have the right to assign or transfer its rights, benefits, duties and
obligations under this Agreement to a commonly-owned company without the prior
consent of ______. Apart from the foregoing, WBS may not assign or transfer
its rights, benefits, duties or obligations under this Agreement without the
prior written consent of ______, such consent shall not be unreasonably
withheld. ______ shall have the right to assign or transfer its rights,
benefits, duties or obligations under this Agreement to a bona fide ITFS
eligible with the prior written content of WBS, such consent not to be
unreasonably withheld.
12. START DATE. For purposes of this Agreement, the Start Date shall
be the date ______'s ITFS channels are constructed and operational, in
accordance with the terms of this Agreement.
13. INDEMNIFICATION.
A) By ______. To the extent permitted by state and federal law,
______ shall forever protect, save and keep WBS and its permitted successors
and assigns harmless and indemnify WBS against and from any and all claims,
demands, losses, costs, damages, suits, judgments, penalties, expenses and
liabilities of any kind or nature whatsoever, including reasonable attorney's
fees, arising directly or indirectly out of (i) the willful misconduct of
______, its agents or employees in connection with the performance of this
Agreement, or (ii) any programming transmitted by ______ during any of ______'s
Airtime.
B) By WBS. To the same extent ______ is permitted by law to
indemnify WBS, WBS shall forever protect, save and keep ______ and its
permitted successors and assigns harmless and indemnify ______ against and from
any and all claims, demands, losses, costs, damages, suits, judgments,
penalties, expenses and liabilities of any kind or nature whatsoever, including
reasonable attorney's fees, which arise directly and
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indirectly out of (i) the negligence or willful misconduct of WBS, its agents
or employees, in connection with the performance of this Agreement; (ii) any
programming transmitted by WBS pursuant to this Agreement; (iii) any and all
dealings by WBS or any of its authorized agents or subcontractors with the
public, third parties and subscribers; or (iv) any maintenance, installation or
other work performed by WBS or any authorized agent or subcontractor under this
Agreement that is not up to industry standards.
C) Notice of Claim; Defense of Claim. Each party shall notify the
other of any such claim promptly upon receipt of same. Either party shall have
the option to defend, at its own expense, any claims arising under this
Paragraph. If Indemnitor assumes the defense of any such claim, Indemnitee
shall delegate complete and sole authority to the Indemnitor to defend or
settle same and Indemnitee shall cooperate with Indemnitor in the defense
thereof.
14. INSURANCE
A) Policies Required. At its expense, WBS shall secure and maintain
with financially reputable insurers, one or more policies of insurance insuring
the Leased Equipment against casualty and other losses of the kinds customarily
insured against by firms of established reputations engaged in the same or
similar line of business, of such types and in such amounts as are customarily
carried under similar circumstances by such firms, including, without
limitation: (i) "All risk" property insurance covering the ITFS Equipment and
the Common Equipment: (ii) comprehensive general public liability insurance
covering liability resulting from WBS's operation of the ITFS Equipment on an
occurrence basis having minimum limits of liability in an amount of not less
than one million dollars ($1,000,000.00) for bodily injury, personal injury or
death to any person or persons in any one occurrence, and not less than two
million dollars ($1,000,000.00) in the aggregate for all such losses during
each policy year, and not less than one million dollars ($1,000,000.00) with
respect to damage to property; (iii) all workers compensation, automobile
liability and similar insurance required by law.
B) Insurance Policy Forms. All policies of insurance required by
this Paragraph shall, where appropriate, designate ______ as either the insured
party or as a named additionally insured party, shall be written as primary
policies, not contributory with and not in excess of any coverage which ______
shall carry, and shall contain a provision that the issuer shall give to ______
thirty (30) days prior written notice of any cancellation or lapse of such
insurance or of any change in the coverage thereof.
C) Proof of Insurance. Executed copies of the policies of insurance
required under this section or certificates thereof shall be delivered to
______ not later than ten
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(10) days prior to the start of construction at the Transmission Site. WBS_
shall furnish ______ evidence of renewal of each such policy not later than ten
(10) days prior to the expiration of the term thereof.
15. RELATIONSHIP OF PARTIES. By the provisions of this Agreement,
______ and WBS_ intend to enter an airtime lease relationship and not a joint
venture. They will carry out this Agreement to preserve that intent. Neither
party shall represent itself as the other party, nor as having any relationship
with one another other than under the terms of this Agreement.
16. EQUIPMENT PURCHASE
A. ______'s Option to Purchase. In the event that this Agreement is
terminated, ______ shall have the option to purchase the Leased Equipment used
exclusively for ______'s ITFS license. Any equipment which is used in a shared
fashion (such as transmit antenna, decoders, and combiners) in providing
signals other than ______'s signals is excluded from this option to purchase.
The intent of the purchase option provided for in this paragraph is to provide
______ with the capability to continue to distribute educational programming on
______'s ITFS license. The purchase price shall be the then fair market value
of such equipment noted above.
B) WBS's Option to Purchase. If during the terms of this Agreement
the FCC modifies its rules so as to enable WBS to be licensed to operate the
ITFS frequencies, WBS shall have a right of first refusal to acquire such
licenses subject to the same terms and conditions as the right provided for in
paragraph 1(C).
17. NON-DISCLOSURE. ______ acknowledges that there may be made
available to it pursuant to this Agreement proprietary information of WBS
relating to the ITFS channel equipment and its patented processes including,
but not limited to, improvements, innovations, adaptations, inventions, results
of experimentation, processes and methods, whether or not deemed patentable,
and certain business and marketing techniques (all herein referred to as
"Confidential Information"). ______ acknowledges that this Confidential
Information has been developed by WBS at considerable effort and expense and
represents special, unique and valuable proprietary assets of WBS, the value of
which may be destroyed by unauthorized dissemination. Accordingly, ______
covenants and agrees that, except as may be required for the performance of
this Agreement, neither it nor any of its agents or affiliates shall disclose
such Confidential Information to any third person, firm, corporation or other
entity for any reason whatsoever, such undertaking to be enforceable by
injunctive or other equitable relief to prevent any violation or threatened
violation thereof.
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18. NON-COMPETITION. During the term of this Agreement, ______
agrees not to transmit programming or to lease or sub-lease any channel
capacity on its ITFS Facilities for the transmission of programming that is
competitive with the programming transmitted by WBS.
19. FORCE MAJEURE. If by reason of Force Majeure either party is
unable in whole or in part to perform its obligations hereunder, the party
shall not be deemed in violation or default of this Agreement during the period
of such inability. As used herein, the phrase "Force Majeure", shall mean the
following: act of God, acts of public enemies, orders of any branch of the
government of the United States of America, any state or any political
subdivisions, thereof which are not the result of a breach of this Agreement,
orders of any military authority, insurrections, riots, epidemics, fires, civil
disturbances, explosions, or any other cause or event not reasonably within the
control of the adversely affected party.
20. CONDITION PRECEDENT. This Agreement is conditioned on the
issuance of a Final Order by the FCC granting ______ a license for the ITFS
Channels in the Metropolitan Area from the Transmission Site. By "Final Order"
the parties mean an action or order of the FCC which is not reversed, stayed,
enjoined, vacated, set aside, annulled or suspended and with respect to which
no timely-filed request for administrative or judicial review is pending and as
to which the time for filing any such request, or for the FCC to set aside the
action on its own motion, has expired.
21. NOTICE. Any notice required to be given to ______ under any
provision of this Agreement shall be delivered personally or by certified mail
to ______ at the address first written above. Any notice required to be given to
WBS under any provision of this Agreement shall be delivered personally or by
certified mail to WBS at the address first written above.
22. SEVERABILITY. Should any court or agency determine that any
provision of this Agreement is invalid, the remainder of the Agreement shall
remain in effect.
23. WAIVER. A waiver by either ______ or WBS of a breach of any
provision of this Agreement shall not be deemed to constitute a waiver of any
preceding or subsequent breach of the same provision or of any other provision.
24. PAYMENT OF EXPENSES. Except as otherwise provided, WBS shall pay
all costs and expenses incident to fulfilling this Agreement, including all
marketing and receive site acquisition costs and attorney's fees. However, as
to engineering and attorney's fees, WBS shall only pay such expenses that are
incurred through attorneys and engineers of WBS's choosing. _____________ is
welcome to hire its own attorneys and engineers, but will be responsible for
the associated costs.
25. VENUE AND GOVERNING LAW. Venue for any cause of action brought
by or between ______ or WBS relating to this Agreement, shall be in Denver, CO
and
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all provisions of this Agreement shall be construed under the laws of the State
of Colorado.
26. COUNTERPARTS. This Agreement may be executed in one or more
counterparts each of which shall be deemed an original, but all of which shall
constitute one and the same instrument, and shall become effective when each of
the parties hereto has executed it.
27. ENTIRE AGREEMENT. This Agreement constitutes the entire
Agreement between the parties and supersedes all prior oral or written
provisions of any kind. The parties further agree that this Agreement may only
be modified by written Agreement signed by both parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date noted below.
______________________________: WBS LICENSING CORPORATION
______________________________ __________________________________
BY: __________________ BY: Jennifer L. Richter
ITS: __________________ ITS: Vice President &
DATE: __________________ General Counsel
DATE: ________________
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EXHIBIT A
SCHEDULE OF AIRTIME
The schedule of daily hours depicting ______'s Primary Airtime,
______'s Ready Recapture Airtime, and WBS's Excess Capacity Airtime shall be
attached hereto as Exhibit A within thirty days of the grant of the license.
17
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EXHIBIT B
RECEIVE SITES
Upon filing the ITFS application, there shall be attached hereto and
incorporated by reference herein a copy of Section VI of FCC Form 330 listing
______'s receive sites.
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EXHIBIT C
LEASED EQUIPMENT
Noted below is a list of equipment that WBS is leasing to ______.
(1) ITFS EQUIPMENT:
Up to four (4) ITFS transmitters and related hardware.
(One transmitter per licensed ITFS Channel)
(2) COMMON EQUIPMENT:
Combining network transmission line and transmit antenna.
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<PAGE> 21
EXHIBIT D
PROGRAMMING
The following is a list of program services, networks and special events that
______ has approved for WBS's transmission on the ITFS channels whenever other
instructional programming has not been designated, and such programming is
necessary to meet ______'s minimum ITFS programming requirements.
The Discovery Channel
The Learning Channel
C-Span I
C-Span II
The History Channel
CNN
Local PBS Station
Arts & Entertainment
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EXHIBIT E
SERVICE TRANSMISSION AND ROYALTY FEES
1. ______'s Service Fees
Services Provided Annual Fee
----------------- ----------
(a) Lease of Leased Equipment (5) $1.00
(b) Maintenance of Leased Equipment (6A) $1.00
2. Subscriber Royalty Fee
For the channel group leased hereunder, WBS shall pay ______ a
Subscriber Royalty Fee of ten cents ($0.10) per month for each monthly
subscriber served by WBS as defined in paragraph 6(B). Payment shall be due by
the fifteenth day of each calendar month for the preceding month. If Fees
under Paragraph 6 initially begin to accrue on a day other than the first day
of the month or this Agreement is terminated on a day other than the last day
of the month, the payment shall be prorated.
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<PAGE> 1
Exhibit 10.3(a)
WIRELESS BROADCASTING SYSTEMS OF AMERICA, INC.
EMPLOYMENT AGREEMENT
WITH WILLIAM KINGERY
THIS AGREEMENT (the "Agreement") dated as of the 15th day of February,
1994, between WIRELESS BROADCASTING SYSTEMS OF AMERICA, INC., a Delaware
corporation (hereinafter referred to as the "Company"), and WILLIAM W. KINGERY,
JR. (hereinafter referred to as "Kingery"):
W I T N E S E T H:
WHEREAS, the Company has hired Kingery as Chief Executive Officer of
the Company; and
WHEREAS, the Company and Kingery desire to set forth in this Agreement
the terms, conditions and obligations of the parties with respect to such
employment and this Agreement is intended by the parties to supersede all
previous agreements and understandings, whether written or oral, concerning
such employment.
NOW, THEREFORE, for and in consideration of the premises and the
mutual covenants contained herein, the parties agree as follows:
1. EMPLOYMENT. The Company hereby employs Kingery effective as
of the date hereof, and Kingery hereby accepts employment as Chief Executive
Officer of the Company upon the terms and conditions hereinafter set forth.
Kingery shall perform such duties and responsibilities for the Company which
are commensurate with his capacity as may be assigned him by the Company's
Board of Directors. In addition, the Company shall cause Kingery to be
appointed a Director of the Company during the "Term" (as hereinafter
defined). In connection with the duties to be performed pursuant to this
Agreement, Kingery shall report directly to the Chairman of the Board of
Directors of the Company. Incident to the performance of such duties, Kingery
shall be provided by the Company with office space, facilities
<PAGE> 2
and secretarial assistance commensurate with his position. Kingery shall be
required to perform his duties at the principal offices of the Company located
in Colorado.
2. TERM. The initial term of Kingery's employment hereunder
shall be for a period beginning on the date hereof and ending two (2) years
from the date hereof. Unless either party shall give the other party at least
sixty (60) days written notice prior to the expiration of any Term of his or
its intention to terminate this Agreement, the term of this Agreement shall be
extended for additional one year terms thereafter. For the purposes of this
Agreement, "Term" shall mean the initial term and any applicable extended term.
3. COMPENSATION.
(a) Base Salary. The Company agrees to pay Kingery during
the initial term a minimum annual base salary of $150,000. The salary shall be
payable at intervals not less often than monthly and otherwise in accordance
with the Company's policies. Such salary shall be reviewed annually by the
Company's Board of Directors (or a duly constituted and empowered committee
thereof) and may be increased (but in no event decreased) by such amount as it
deems proper.
(b) Productivity Bonus. Kingery shall have the ability
to earn a productivity bonus of up to fifty percent (50%) of Kingery's base
salary. The percentage of bonus to be earned at various target levels and the
growth and profitability targets to be achieved shall be mutually agreed to
between Kingery and the Company's Board of Directors. The productivity bonus
shall be subject to the following additional conditions:
(i) Kingery will be deemed to have earned the
productivity bonus for any fiscal year of the
Company if (a) the Company has met any of the
target levels entitling Kingery to a bonus
for such year, and (b) Kingery is in the
active employ of the Company on the last day
of such fiscal year;
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<PAGE> 3
(ii) During the first fiscal year of the Company
which ends December 31, 1994, the
productivity bonus otherwise payable shall be
multiplied by the fraction 11/12.
(iii) any productivity bonus required to be paid
hereunder shall be paid as soon as practical
after the end of the fiscal year, but in no
event later than 120 days after the end of
such fiscal year.
(c) Stock Options. Kingery shall be granted non
qualified stock options on the date hereof to purchase 360,000 shares of the
Company's common stock which shall be conditioned upon Kingery's execution of
an Option Agreement in the form attached to this Agreement as Exhibit A.
(d) Other Benefits. During the term of his employment,
Kingery shall be entitled to participate in all other employee benefits,
perquisites, vacation days, benefit plans or programs of the Company which were
available generally to officers of the Company who are also employees of the
Company in accordance with the terms of such plans, benefits or programs.
(e) Expenses. Kingery shall be reimbursed for his reasonable
expenses related to and for promoting the business of the Company including
expenses for entertainment, travel and similar items that arise out of
Kingery's performance of Services under this Agreement, and any such expenses
paid by Kingery from his own funds shall be promptly reimbursed to him by the
Company in accordance with the policies and procedures of the Company in effect
from time to time.
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<PAGE> 4
4. INVESTIGATION OF ADDITIONAL BENEFITS. In order to attract
competent employees and to encourage productivity, the Company agrees to
investigate stock based incentive plans or programs for its employees pursuant
to which stock or equity based incentives of up to 10% of the outstanding
shares of Company common stock may be reserved. Any such plan or program will
be implemented at the discretion of the Company's Board of Directors and upon
the approval of the Company's stockholders holding a majority of the
outstanding common stock of the Company.
5. EXTENT OF SERVICE. Kingery shall devote his entire time,
attention and energies to the business of the Company and shall not during the
term of this Agreement be engaged (whether or not during normal business hours)
in any other business or professional activity, whether or not such activity is
pursued for gain, profit or other pecuniary advantage; but this shall not be
construed as preventing Kingery from (a) investing his personal assets in
businesses which do not compete with the Company in such form or manner as will
not require any services on the part of Kingery in the operation or the affairs
of the companies in which such investments are made and in which his
participation is solely that of an investor; (b) purchasing securities in any
corporation whose securities are publicly traded; or (c) accepting appointments
to the boards of directors of other companies provided that the Chairman of the
Company approves of such appointments and Kingery's performance of his duties
on such boards does not result in a violation of his covenants under Section 6
hereof. The Company expressly acknowledges and approves that Kingery currently
serves on the board of directors of Castle Pines Metropolitan District, Castle
Pines Homes Association and Sun Country Distributors, Inc.
6. CONFIDENTIAL INFORMATION AND COVENANT NOT TO COMPETE. All
payments and benefits to Kingery under the Agreement shall be subject to
Kingery's compliance with the provisions of this Section 6.
(a) Confidential Information. Kingery acknowledges that in
his employment he is or will be making use of, acquiring
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<PAGE> 5
or adding to the Company's confidential information which includes, but is not
limited to, memoranda and other materials or records of a proprietary nature;
technical information regarding the operations of the Company; and records and
policy matters relating to finance, personnel, management, and operations.
Therefore, in order to protect the Company's confidential information and to
protect other employees who depend on the Company for regular employment,
Kingery agrees that he will not in any way utilize any of said confidential
information except in connection with his employment by the Company, and except
in connection with the business of the Company he will not copy, reproduce, or
take with him the original or any copies of said confidential information and
will not directly or indirectly divulge any of said confidential information to
anyone without the prior written consent of the Company.
(b) Litigation Support. Kingery shall, upon reasonable
notice, furnish such information and proper assistance to the Company as may
reasonably be required by the Company in connection with any litigation in
which the Company or any of its subsidiaries or affiliates is, or may become a
party. Kingery's reasonable expenses (including travel and reasonable
attorneys fees) incurred in complying with this covenant shall be promptly
reimbursed.
(c) No Solicitation of Employees. Kingery agrees that
during the Term of this Agreement and continuing for a period of two years
after the termination of this Agreement, neither Kingery nor any person or
enterprise controlled by Kingery will solicit for employment any person
employed by the Company.
(d) Covenant Not to Compete. Kingery agrees that during
the Term of this Agreement and for a period of two years after the termination
of his employment with the Company, neither Kingery nor any person or
enterprise controlled by Kingery will become a stockholder, director, officer,
agent, consultant or employee of a business, whether or not incorporated, or
have any financial stake of any nature in any of the foregoing or otherwise
engage directly or indirectly in any enterprise which competes with the Company
in any area in which the Company does business during such period; provided,
however, that the
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<PAGE> 6
foregoing shall not prohibit the ownership of less than 1% of the outstanding
shares of stock of any corporation engaged in any business, which shares are
regularly traded on a national securities exchange or in any over-the-market.
(e) Remedies for Breach of Covenants. In the event that
a covenant included in this Agreement shall be deemed by any court to be
unreasonably broad in any respect, it shall be modified in order to make it
reasonable and shall be enforced accordingly; provided, however, that in the
event that any court shall refuse to enforce any of the covenants contained in
subsections 6(a) through (d), then the unenforceable covenant shall be deemed
eliminated from the provisions of this Agreement for the purpose of those
proceedings to the extent necessary to permit the remaining covenants to be
enforced so that the validity, legality or enforceability of the remaining
provisions of this Agreement shall not be affected thereby.
If Kingery violates any of the covenants contained in this Section 6,
then the Company's obligation to make any payments to Kingery otherwise due him
under this Agreement shall immediately cease. In addition, Kingery
acknowledges that any material breach of his covenants contained in this
Section 6 will cause irreparable harm to the Company, which will be difficult
if not impossible to ascertain, and the Company shall be entitled to equitable
relief, including injunctive relief, against any actual or threatened breach
hereof, without bond and without liability should such relief be denied,
modified or vacated. Neither the right to obtain such relief or the obtaining
of such relief shall be exclusive of or preclude the Company from any other
remedy.
7. TERMINATION.
(a) Death or Disability. If Kingery should die or become
physically or mentally disabled and unable to perform duties hereunder for a
continuous period in excess of ninety (90) days (in the reasonable opinion of
the Company), which event shall result in the termination of Kingery's
employment with the Company, the Company shall continue to pay Kingery's
current base salary (less the amount of any disability benefit payments paid or
payable to Kingery during such period from disability benefits
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<PAGE> 7
maintained and paid for by the Company) for the balance of the calendar year in
which such death or disability occurs, but in no event for less than one
hundred eighty (180) days, plus any bonus payments which have fully accrued at
the date of termination pursuant to this Section 7(a). In addition, in the
event of disability, Kingery's participation in any medical, health, accident,
disability, death, life insurance or similar plan in which Kingery was
participating immediately prior to termination shall continue for the period in
which payments are being made under this Section at the Company's expense
(subject to any normal employee contributions, if any), although any
continuation of health coverage shall count toward the "COBRA" continuation of
coverage period. The payments to be made under this Section shall be made to
Kingery, or in the event of Kingery's death, to such beneficiary as Kingery may
designate in writing to the Company for that purpose, or if Kingery has not so
designated, then to the spouse of the Kingery, or if none is surviving, then to
the personal representative of the estate of Kingery. This Section shall not
be effective after any Termination pursuant to Section 7(b) or (c).
(b) Termination for Cause. The Company shall have the
right to terminate this Agreement for "Cause" upon prior written notice if, in
the reasonable determination of the Company, Kingery has engaged in misconduct
so as to constitute "Cause." For purposes of this Agreement, such misconduct
shall be defined as:
(i) Kingery's failure or refusal, after
written notice thereof, to perform
specific directives approved by a majority
of the Board of Directors which are
consistent with the scope and nature of
Kingery's duties and responsibilities as
Chief Executive Officer of the Company;
(ii) Dishonesty of Kingery which directly or
indirectly has a materially adverse affect
on the Company;
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<PAGE> 8
(iii) Habitual drunkenness or use of drugs which
interferes with the performance of
Kingery's duties and obligations under
this Agreement;
(iv) Kingery's conviction of a felony or of any
crime involving moral turpitude, fraud,
defalcation, or misrepresentation;
(v) Any gross or willful misconduct of
Employee resulting in substantial loss to
the Company or substantial damages to the
Company's reputation;
(vi) Any breach of Kingery's covenants
contained in Sections 6(a) through (d)
hereof.
If this Agreement is terminated for Cause pursuant to this Section
7(b), the Company shall have no further obligations to Kingery under this
Agreement. However, Kingery's covenants under Section 6 hereof shall remain in
full force and effect.
(c) Termination by Company. If the Company terminates
the employment of Kingery for any reason other than as specified in Sections
7(a) or 7(b), Kingery shall be entitled to the following liquidated damages:
(i) an amount equal to base salary for the remainder of the current Term and
(ii) any bonus payable hereunder which is fully accrued at the time of
termination. No prorated bonus shall be payable for the year in which
termination occurs if Kingery is not in the active employ of the Company on the
last day of the Company's fiscal year.
(d) Termination by Kingery. If Kingery voluntarily
terminates his employment prior to the expiration of the Term of this
Agreement, this Agreement shall terminate forthwith and all obligations of each
party to the other shall terminate immediately, other than the Company's
obligation to pay base salary accrued to the date of termination.
8. RESIGNATION AS DIRECTOR. In any instance where Kingery ceases
to be an employee of the Company, no matter what the
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<PAGE> 9
reason, Kingery hereby agrees that he shall simultaneously submit his
resignation as a member of the Board in writing on or before the date he ceases
to be an employee of the Company. If Kingery fails or neglects to submit such
resignation in writing, this Section 8 may be deemed by the Company to
constitute Kingery's written resignation as a member of the Board effective on
the same date that Kingery ceases to be an employee of the Company.
9. WITHHOLDING OF TAXES. The Company may withhold from any
benefits payable under the Agreement all federal, state, city or other taxes as
shall be required pursuant to any law or governmental regulation or ruling.
10. FACILITY OF PAYMENT. If the Company shall find that any
person to whom any amount is or was payable hereunder is unable to care for his
affairs because of illness or accident, or is a minor, or has died, then the
Company, if it so elects, may direct that any payment due him or his estate
(unless a prior claim therefore has been made by a duly appointed legal
representative) or any part thereof, be paid or applied for the benefit of such
person or to or for the benefit of his spouse, children or other dependents, an
institution maintaining or having custody of such person, any other person
deemed by said Board to be a proper recipient on behalf of such person
otherwise entitled to payment, or any of them, in such manner and proportion as
the Board may deem proper. Any such payment shall be in complete discharge of
the liability of the Company therefor.
11. NON-ALIENATION OF BENEFITS. Except insofar as applicable law
may otherwise require, no amount payable to or in respect of Kingery at any
time under the Agreement shall be subject in any manner to alienation by
anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment,
charge or encumbrance of any kind, and any attempt to so alienate, sell,
transfer, assign, pledge, attach, charge or otherwise encumber any such amount,
whether presently or thereafter payable, shall be void; provided, however, that
nothing in this Section 11 shall preclude Kingery from designating a
beneficiary or beneficiaries to receive any benefit on his death.
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<PAGE> 10
12. SEVERABILITY. If any provision of this Agreement, as applied
to any party or to any circumstance, shall be found by a court to be void,
invalid or unenforceable, the same shall in no way affect any other provision
of this Agreement the application of any such provision in any other
circumstance, or the validity or enforceability of this Agreement.
13. ENTIRE UNDERSTANDING. This Agreement contains the entire
understanding of the parties hereto relating to the subject matter contained
herein and supersedes all prior and collateral agreements, understandings,
statements and negotiations of the parties. Each party acknowledges that no
representations, inducements, promises, or agreements, oral or written, with
reference to the subject matter hereof have been made other than as expressly
set forth herein. This Agreement cannot be changed, rescinded or terminated
orally.
14. NOTICES. Any notice required or permitted to be given under
this Agreement shall he in writing and shall be deemed to have been given when
deposited in the U.S. mail in a registered, postage prepaid envelope addressed:
If to Kingery, at his address set forth below, and if to the Company, c/o
Chairman, Wireless Broadcasting Systems of America, Inc., c/o Rosemarie
Buntrock, 3003 Butterfield Rd., Oakbrook, IL 60521, with a copy to Peer
Pedersen, c/o Pedersen & Houpt, 161 North Clark Street, Chicago, Illinois
60601.
15. ASSIGNMENT. Kingery may not assign his obligations hereunder.
The rights of Kingery and the rights and obligations of the Company hereunder
shall inure to the benefit of and shall be binding upon their respective heirs,
personal representatives, successors and assigns.
16. MISCELLANEOUS.
(a) This Agreement shall be subject to and governed by
the laws of the State of Delaware.
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(b) Failure to insist upon strict compliance with any
provisions hereof shall not be deemed a waiver of such provisions or any other
provision hereof.
(c) The invalidity or unenforceability of any provision
hereof shall not affect the validity or enforceability of any other provision.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
WIRELESS BROADCASTING SYSTEMS OF AMERICA, INC.
By /s/ William W. Kingery, Jr
-------------------------------------------
William W. Kingery, Jr, President
-------------------------------------------
/s/ William Kingery
---------------------------------
Name: William Kingery
Address: 312 Quito Place
Castle Rock, Colorado 80104
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<PAGE> 1
EXHIBIT 10.3(b)
WIRELESS BROADCASTING SYSTEMS OF AMERICA, INC.
EMPLOYMENT AGREEMENT
WITH SHARAN WILSON
THIS AGREEMENT, (the "Agreement") dated as of the 8th day of July, 1996,
between WIRELESS BROADCASTING SYSTEMS OF AMERICA, INC., a Delaware corporation
(hereinafter referred to as the "Company"), and SHARAN WILSON (hereinafter
referred to as "Wilson"):
W I T N E S S E T H:
WHEREAS, the Company has hired Wilson as Chief Operating Officer of the
company; and
WHEREAS, the Company and Wilson desire to set forth in this Agreement the
terms, conditions and obligations of the parties with respect to such
employment and this Agreement is intended by the parties to supersede all
previous agreements and understandings, whether written or oral concerning such
employment.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein, the parties agree as follows:
1. EMPLOYMENT. The Company hereby employs effective as of the date
hereof, and hereby accepts employment as Chief Operating Officer of the Company
upon the terms and conditions hereinafter set forth. Wilson shall perform such
duties and responsibilities for the Company which are commensurate with her
capacity as may be assigned her by the Company's Chief Executive Officer or
Board of Directors. In connection with the duties to be performed pursuant to
this Agreement, Wilson shall report directly to the Chief Executive Officer of
the Company. Incident to the performance of such duties, Wilson shall be
provided by the Company with office space, facilities and secretarial
assistance commensurate with her position. Wilson shall be required to perform
her duties or the principal offices of the Company located in Colorado.
2. TERM. The initial term of employment hereunder shall be for a
period beginning on the date hereof and ending one (1) year from the date
hereof. Unless either party shall give the other party as least sixty (60) days
written notice prior to the expiration of any Term of her or its intention to
terminate this Agreement, the term of this Agreement shall be extended for
additional one year terms thereafter. For the purposes of this Agreement,
"Term" shall mean the initial term and any applicable extended term.
<PAGE> 2
3. COMPENSATION.
(a) Base Salary. The company agrees to pay Wilson during the
initial term an annual base salary of $126,000. The salary shall be payable at
the intervals not less often than monthly and otherwise in accordance with the
Company's policies. Such salary shall be reviewed annually upon renewal of the
Agreement by the Company's Chief Executive Officer and the Compensation
Committee (or a duly constituted and empowered committee hereof) and may be
increased (but in no event decreased) by such amount as it deems proper. Any
bonuses to be earned shall be determined annually by the Compensation
Committee.
(b) Stock Options. Wilson shall be granted non qualified stock
options on the date hereof to purchase 300,000 shares of the Company's common
stock at an option price of 4.167 per share. Such options shall be repriced in
the event the Company enters into a transaction within six months of the date
of this Agreement and such transaction impacts the Company's share price
pursuant to that transaction.
(c) Other Benefits. During the term of her employment, Wilson
shall be entitled to participate in all other employee benefits, perquisites,
vacation days, benefit plans or programs of the Company which are available
generally to officers of the Company who are also employees of the Company in
accordance with the terms of such plans, benefits or programs.
(d) Expenses. Wilson shall be reimbursed for her reasonable
expenses related to and for promoting the business of the Company including
expenses for entertainment, travel and similar items that arise out of Wilson's
performance of Services under this Agreement, and any such expenses paid by
Wilson from her own funds shall be promptly reimbursed to her by the Company in
accordance with the policies and procedures of the Company in effect from time
to time.
4. EXTENT OF SERVICE. Wilson shall devote her entire time,
attention and energies to the business of the Company and shall not during the
term of this Agreement be engaged (whether or not during normal business hours)
in any other business or professional activity, whether or not such activity is
pursued for gain, profit or other pecuniary advantage; but this shall not be
construed as preventing Wilson from (a) investing her personal assets in
businesses which do not compete with the Company in such form or manner as will
not require any services on the part of Wilson in the operation or the affairs
of the companies in which such investments are made and in which her
participation is solely that of an investor; (b) purchasing securities in any
corporation whose securities are publicly traded; or (c) accepting appointments
to the boards of directors of other companies provided that the Chairman of the
Company approves of such appointments and Wilson's performance of her duties on
such boards does not result in a violation of her covenants under Section 5
hereof.
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<PAGE> 3
5. CONFIDENTIAL INFORMATION AND COVENANT NOT TO COMPETE. All
payments and benefits to Wilson under the Agreement shall be subject to
Wilson's compliance with the provisions of this Section 5.
(a) Confidential Information. Wilson acknowledges that in her
employment she is or will be making use of, acquiring or adding to the
Company's confidential information which includes, but is not limited to,
memoranda and other materials or records of a proprietary nature; technical
information regarding the operations of the Company; and records and policy
matters relating to finance, personnel, management, and operations. Therefore,
in order to protect the Company's confidential information and to protect other
employees who depend on the Company for regular employment, Wilson agrees that
she will not in any way utilize any of said confidential information except in
connection with the business of the Company, she will not copy, reproduce, or
take with her the original or any copies of said confidential information and
will not directly or indirectly divulge any of said confidential information to
anyone without the prior written consent of the Company.
(b) Litigation Support. Wilson shall, upon reasonable notice,
furnish such information and proper assistance to the Company as may reasonably
be required by the Company in connection with any litigation in which the
Company or any of its subsidiaries or affiliates is, or may become a party.
Wilson's reasonable expenses (including travel and reasonable attorneys fees)
incurred in complying, with this covenant shall be promptly reimbursed.
(c) No Solicitation of Employees. Wilson agrees that during the
Term of this Agreement and continuing for a period of two years after the
termination of this Agreement, neither Wilson nor any person or enterprise
controlled by Wilson will solicit for employment any person employed by the
Company.
(d) Covenant Not to Compete. Wilson agrees that during the Term of
this Agreement and for a period of two years after the termination of her
employment with the Company, neither Wilson nor any person or enterprise
controlled by Wilson will become a stockholder, director, officer, agent,
consultant or employee of a business, whether or not incorporated or have any
financial stake of any nature in any of the foregoing or otherwise engage
directly or indirectly in any enterprise which competes with the Company in any
area in which the Company does business during such period; provided, however,
that the foregoing shall not prohibit the ownership of less than 1% of the
outstanding shares of stock of any corporation engaged in any business, which
shares are regularly traded on a national securities exchange or in any
over-the-market.
(e) Remedies for Breach of Covenants. In the event that a covenant
included in this Agreement shall be deemed by any court to be unreasonably
broad in any respect, it shall be modified in order to make it reasonable and
shall be enforced accordingly; proved, however,
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that in the event that any court shall refuse to enforce any of the covenants
contained in sections 5(a) through (d), then the unenforceable covenant shall
be deemed eliminated from the provisions of this Agreement for the purpose of
those proceedings to the extent necessary to permit the remaining covenants to
be enforced so that the validity, legality or enforceability of the remaining
provisions of this Agreement shall not be affected thereby.
If Wilson violates any of the covenants contained in this Section 5, then
the Company's obligation to make any payments to Wilson otherwise due her under
this Agreement shall immediately cease. In addition, Wilson acknowledges that
any material breach of her covenants contained in this Section 5 will cause
irreparable harm to the Company, which will be difficult if not impossible to
ascertain, and the Company shall be entitled to equitable relief, including
injunctive relief, against any actual or threatened breach hereof, without bond
and without liability should such relief be denied, modified or vacated.
Neither the right to obtain such relief or the obtaining of such relief shall
be exclusive of or preclude the company from any other remedy.
6. TERMINATION.
(a) Death or Disability. If Wilson should die or become physically
or mentally disabled and unable to perform duties hereunder for a continuous
period in excess of ninety (90) days (in the reasonable opinion of the
Company), which event shall result in the termination of Wilson's employment
with the Company, the Company shall continue to pay Wilson's current base
salary (loss the amount of any disability benefit payments paid or payable to
Wilson during such period for disability benefits maintained and paid for by
the Company) for the balance of the calendar year in which such death or
disability occurs, but in no event for less than one hundred eight (180) days,
plus any bonus payments which have fully accrued at the date of termination. In
addition, in the event of disability, Wilson's participation in any medical,
health, accident, disability, death, life insurance or similar plan in which
Wilson was participating immediately prior to termination shall continue for
the period in which payments are being made under this Section at the Company's
expense (subject to any normal employee contributions, if any), although any
continuation of health coverage shall count toward the "COBRA" continuation of
coverage period. The payments to be made under this Section shall be made to
Wilson, or in the event of Wilson's death, to such beneficiary as Wilson may
designate in writing to the Company for that purpose, or if Wilson has not so
designated, then to the spouse of Wilson, or if none is surviving, then to the
personal representative of the estate of Wilson. This Section shall not be
effective after any Termination pursuant to Section 6(b) or (c).
(b) Termination for Cause. The Company shall have the right to
terminate this Agreement for "Cause" upon prior written notice if, in the
reasonable determination of the Company, Wilson has engaged in misconduct so as
to constitute "Cause." For purposes of this Agreement, such misconduct shall
be defined as:
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<PAGE> 5
(i) Wilson's failure or refusal to perform her duties and
responsibilities as Chief Operating Officer of the Company.
(ii) Dishonesty of Wilson which directly or indirectly has a
materially adverse affect on the Company;
(iii) Habitual drunkenness or use of drugs which interferes with
the performance of Wilson's duties and obligations under this Agreement;
(iv) Wilson's conviction of a felony or of any crime involving moral
turpitude, fraud, defalcation or misrepresentation;
(v) Any gross or willful misconduct of Employee resulting in
substantial loss to the Company or substantial damages to the Company's
reputation;
(vi) Any breach of Wilson's covenants contained in Sections 5(a)
through (d) hereof.
If this Agreement is terminated for Cause pursuant to this Section 6(b),
the Company shall have no further obligations to Wilson under this Agreement.
However, Wilson's covenants under Section 5 hereof shall remain in full force
and effect.
(c) Termination by Company. If the Company terminates the
employment of Wilson for any reason other than as specified in Section 6(a) or
6(b), Wilson shall be entitled to the following liquidated damages: (i) an
amount equal to base salary for the remainder of the current Term and (ii) any
bonus payable hereunder which is fully accrued at the time of termination. No
prorated bonus shall be payable for the year in which termination occurs if
Wilson is not in the active employ of the Company on the lost day of the
Company's fiscal year.
(d) Termination by Wilson. If Wilson voluntarily terminates her
employment prior to the expiration of the Term of this Agreement, this
Agreement shall terminate forthwith and all obligations of each party to the
other shall terminate immediately, other than the company's obligation to pay
base salary accrued to the date of termination.
7. WITHHOLDING OF TAXES. The Company may withhold from any
benefits payable under the Agreement all federal, state, city or other taxes as
shall be required pursuant to any law or governmental regulation or ruling.
8. FACILITY OF PAYMENT. If the company shall find that any person
to whom any amount is or was payable hereunder is unable to care for her
affairs because of illness or accident, or is a minor, or has died, then the
company, if it so elects, may direct that any payment due her or her estate
(unless a prior claim therefore has been made by a duly appointed legal
- 5 -
<PAGE> 6
representative) or any part thereof, be paid or applied for the belief it of
such person or to or for the benefit of her spouse, children or other
dependents, an institution maintaining or having custody of such person, any
other person deemed by said Board to be a proper recipient on behalf of such
person otherwise entitled to payment, or any of them, in such manner and
proportion as the Board may deem proper. Any such payment shall be in complete
discharge of the liability of the Company therefor.
9. NON-ALIENATION OF BENEFITS. Except insofar as applicable law
may otherwise require, no amount payable to or in respect of Wilson at any time
under the agreement shall be subject in any manner to alienation by
anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment,
charge or encumbrance of any kind, and any attempt to so alienate, sell,
transfer, assign, pledge, attach, charge or otherwise encumber any such amount,
whether presently or thereafter payable, shall be void; provided, however, that
nothing in this Section 9 shall preclude Wilson from designating a beneficiary
or beneficiaries to receive any benefit on her death.
10. SEVERABILITY. If any provision of this Agreement, as applied
to any party or to any circumstance, shall be found by a court to be void,
invalid or unenforceable, the same shall in no way affect any other provision
of this Agreement the application of any such provision in any other
circumstance, or the validity or enforceability of this Agreement.
11. ENTIRE UNDERSTANDING. This Agreement contains the entire
understanding of the parties hereto relating to the subject matter contained
herein and supersedes all prior and collateral agreements, understandings,
statements and negotiations of the parties. Each party acknowledges that no
representations, inducements, promises, or agreements, oral or written, with
reference to the subject matter hereof have been made other than as expressly
set forth herein. This Agreement cannot be changed, rescinded or terminated
orally.
12. NOTICES. Any notice required or permitted to be given under
this Agreement shall be in writing and shall be deemed to have been given when
deposited in the U.S. mail in a registered, postage prepaid envelope addressed:
If to Wilson, at her address set forth below, and if to the Company, c/o
Jennifer L. Richter, 9250 E. Costilla Avenue, Suite #325, Englewood, CO 80112.
13. ASSIGNMENT. Wilson may not assign her obligations hereunder.
The rights of Wilson and the rights and obligations of the Company hereunder
shall inure to the benefit of and shall be binding upon their respective heirs,
personal representatives, successors and assigns.
14. MISCELLANEOUS.
(a) This Agreement shall be subject to and governed by the laws of
the State of Delaware.
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<PAGE> 7
(b) Failure to insist upon strict compliance with any provisions
hereof shall not be deemed a waiver of such provisions or any other provision
hereof.
(c) The invalidity or unenforceability of any provision hereof
shall not affect the validity or enforceability of any other provision.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
WIRELESS BROADCASTING SYSTEM OF
AMERICA, INC.
By:__________________________________
William W. Kingery, Jr.
President & CEO
_____________________________________
Name: Sharan Wilson
Address: 7950 S. Jasmine Circle
Englewood, CO 80112-3050
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<PAGE> 1
EXHIBIT 10.4
WIRELESS BROADCASTING SYSTEMS OF AMERICA, INC.
PREFERRED STOCK PURCHASE AGREEMENT
As of March 15, 1995
<PAGE> 2
TABLE OF CONTENTS
1. Authorization of Preferred Stock; Purchase and
Sale of Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. Authorization of Preferred Shares . . . . . . . . . . . . . . . . . 1
1.2. Purchase and Sale of the Preferred Stock . . . . . . . . . . . . . 1
1.3. The Closings . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3.1. The Initial Closing . . . . . . . . . . . . . . . . . . . . 1
1.3.2. The Second Closing . . . . . . . . . . . . . . . . . . . . 2
2. Representations and Warranties of the Company . . . . . . . . . . . . . 2
2.1. Corporate Matters, etc . . . . . . . . . . . . . . . . . . . . . . 2
2.1.1. Organization, Power and Standing . . . . . . . . . . . . . 2
2.1.2. Capitalization . . . . . . . . . . . . . . . . . . . . . . 2
2.1.3. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . 3
2.1.4. Charter and By-laws . . . . . . . . . . . . . . . . . . . . 4
2.1.5. Authorization and Enforceability . . . . . . . . . . . . . 4
2.2. Liabilities, Assets, etc. . . . . . . . . . . . . . . . . . . . . . 4
2.2.1. Financial Statements . . . . . . . . . . . . . . . . . . . 4
2.2.2. Accounts Receivable/Churn . . . . . . . . . . . . . . . . . 5
2.2.3. Change in Condition . . . . . . . . . . . . . . . . . . . . 5
2.2.4. Liabilities . . . . . . . . . . . . . . . . . . . . . . . . 7
2.2.5. Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.2.5.1. Title to Assets . . . . . . . . . . . . . . . . . 7
2.2.5.2. Real Property and Equipment . . . . . . . . . . . 8
2.2.5.3. Intellectual Property Rights . . . . . . . . . . . 8
2.3. The Systems, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.3.1. Channels . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.3.2. Licenses for Owned Channels . . . . . . . . . . . . . . . . 9
2.3.3. Channel Lease Agreements . . . . . . . . . . . . . . . . . . 9
2.3.4. Other FCC Licenses . . . . . . . . . . . . . . . . . . . . . 10
2.3.5. FAA Licenses . . . . . . . . . . . . . . . . . . . . . . . . 10
2.3.6. Towers . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.3.7. Programming Contracts . . . . . . . . . . . . . . . . . . . 11
2.3.8. System Documents . . . . . . . . . . . . . . . . . . . . . . 11
2.3.9. Capital Expenditures . . . . . . . . . . . . . . . . . . . . 12
2.4. Contracts, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.4.1. Certain Contractual Obligations . . . . . . . . . . . . . . 12
2.4.2. Nature of Contracts, etc. . . . . . . . . . . . . . . . . . 13
2.4.3. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.4.4. Transactions with Affiliates . . . . . . . . . . . . . . . . 14
2.4.5. Non-Contravention, etc. . . . . . . . . . . . . . . . . . . 14
2.5. Compliance with Laws, etc. . . . . . . . . . . . . . . . . . . . . 15
2.5.1. Compliance Generally . . . . . . . . . . . . . . . . . . . . 15
2.5.2. Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . 15
<PAGE> 3
2.5.3. No Illegal Payments, etc . . . . . . . . . . . . . . . . 16
2.5.4. Employee Benefit Plans . . . . . . . . . . . . . . . . . 16
2.5.4.1. List of Plans . . . . . . . . . . . . . . . . . 16
2.5.4.2. Welfare Plans . . . . . . . . . . . . . . . . . 17
2.5.4.3. Pension Plans . . . . . . . . . . . . . . . . . 17
2.5.4.4. Group Health Plans . . . . . . . . . . . . . . 17
2.5.4.5. Disclosure . . . . . . . . . . . . . . . . . . 17
2.5.5. No Governmental Approval or Consent Required . . . . . . 17
2.5.6. Environmental Matters, etc. . . . . . . . . . . . . . . 17
2.6. Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . 18
2.7. Bulk Subscribers and Suppliers . . . . . . . . . . . . . . . . . 18
2.8. Litigation, etc . . . . . . . . . . . . . . . . . . . . . . . . 18
2.9. Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.10. Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . 19
2.11. Pending Acquisition . . . . . . . . . . . . . . . . . . . . . . 19
2.12. Partnerships. . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.13. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3. Representations and Warranties and other Agreements
of the Investors . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.1. Authorization . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.2. Purchase Entirely for Own Account . . . . . . . . . . . . . . . 20
3.3. Restricted Securities . . . . . . . . . . . . . . . . . . . . . 21
3.4. Suitability . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.5. Financial Condition . . . . . . . . . . . . . . . . . . . . . . 21
3.6. Experience. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.7. Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.8. Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4. Conditions to the Investors' Obligations at
either Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.1. Representations and Warranties. . . . . . . . . . . . . . . . . 22
4.2. Performance . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.3. Compliance Certificate. . . . . . . . . . . . . . . . . . . . . 22
4.4. Restated Certificate. . . . . . . . . . . . . . . . . . . . . . 22
4.5. Qualifications. . . . . . . . . . . . . . . . . . . . . . . . . 22
4.6. Proceedings and Documents . . . . . . . . . . . . . . . . . . . 22
4.7. Stockholders Agreement. . . . . . . . . . . . . . . . . . . . . 22
4.8. Stock Option Plan . . . . . . . . . . . . . . . . . . . . . . . 22
4.9. Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.10. Secretary's Certificate . . . . . . . . . . . . . . . . . . . 23
4.11. Opinion of Company Counsel . . . . . . . . . . . . . . . . . . 23
4.12. Opinion of Company FCC Counsel . . . . . . . . . . . . . . . . 23
4.13. Completion of Boise Acquisition . . . . . . . . . . . . . . . 23
4.14. Payment of Expenses . . . . . . . . . . . . . . . . . . . . . 23
5. Additional Conditions to the Investors' Obligations
at the Second Closing . . . . . . . . . . . . . . . . . . . . . . . 23
5.1. Completion of Yakima Acquisition . . . . . . . . . . . . . . . 24
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<PAGE> 4
6. Conditions to the Company's Obligations at either Closing . . . . . . 24
6.1. Representations and Warranties . . . . . . . . . . . . . . . . . 24
6.2. Payment of Purchase Price . . . . . . . . . . . . . . . . . . . 24
6.3. Stockholders Agreement . . . . . . . . . . . . . . . . . . . . . 24
7. Affirmative Covenants of the Company . . . . . . . . . . . . . . . . . 24
7.1. Financial Statements and Reports. . . . . . . . . . . . . . . . 25
7.1.1. Annual Reports . . . . . . . . . . . . . . . . . . . . . 25
7.1.2. Quarterly Reports. . . . . . . . . . . . . . . . . . . . 25
7.1.3. Monthly Reports . . . . . . . . . . . . . . . . . . . . 25
7.1.4. Other Reports. . . . . . . . . . . . . . . . . . . . . . 26
7.1.5. Visits and Discussions . . . . . . . . . . . . . . . . . 26
7.1.6. Litigation, etc . . . . . . . . . . . . . . . . . . . . 26
7.1.7. Other Information. . . . . . . . . . . . . . . . . . . . 27
7.2. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . 27
7.3. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . 27
7.4. Dealings with Affiliates and Others . . . . . . . . . . . . . . 27
7.5. Certain Restrictions . . . . . . . . . . . . . . . . . . . . . . 27
7.6. Observer Rights . . . . . . . . . . . . . . . . . . . . . . . . 29
7.7. Current Payments to Meet Tax Liability. . . . . . . . . . . . . 29
7.8. Conversion of Shares to Subordinated Note . . . . . . . . . . . 29
8. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.1. Rescission. . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.2. Fair Value . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.3. Cure by Stockholders. . . . . . . . . . . . . . . . . . . . . . 31
8.4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.1. Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . 31
9.2. Expenses, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.3. Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . 32
9.3.1. Action . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.3.2. Affiliate . . . . . . . . . . . . . . . . . . . . . . . . 32
9.3.3. Business . . . . . . . . . . . . . . . . . . . . . . . . 33
9.3.4. By-laws. . . . . . . . . . . . . . . . . . . . . . . . . 33
9.3.5. Charter . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.3.6. Code . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.3.7. Compensation. . . . . . . . . . . . . . . . . . . . . . . 33
9.3.8. Contractual Obligation . . . . . . . . . . . . . . . . . 33
9.3.9. Debt . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.3.10. Distribution . . . . . . . . . . . . . . . . . . . . . . 34
9.3.11. Enforceable. . . . . . . . . . . . . . . . . . . . . . . 34
9.3.12. ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.3.13. Generally Accepted Accounting Principles . . . . . . . . 34
-iii-
<PAGE> 5
9.3.14. Guarantee . . . . . . . . . . . . . . . . . . . . . . . 34
9.3.15. Governmental Authority. . . . . . . . . . . . . . . . . 35
9.3.16. Governmental Order. . . . . . . . . . . . . . . . . . . 35
9.3.17. Legal Requirement . . . . . . . . . . . . . . . . . . . 35
9.3.18. Lien . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.3.19. Material Adverse Effect; Material. . . . . . . . . . . . 35
9.3.20. Members of the Immediate Family. . . . . . . . . . . . . 36
9.3.21. Ordinary Course of Business. . . . . . . . . . . . . . . 36
9.3.22. Person. . . . . . . . . . . . . . . . . . . . . . . . . 36
9.3.23. Required Shares . . . . . . . . . . . . . . . . . . . . 36
9.3.24. Subsidiary . . . . . . . . . . . . . . . . . . . . . . . 36
9.3.25. System . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.3.26. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.3.27. Tax Return. . . . . . . . . . . . . . . . . . . . . . . 37
9.4. Cross-Reference Table. . . . . . . . . . . . . . . . . . . . . . 37
9.5. Survival of Covenants; Assignability of Rights . . . . . . . . . 38
9.6. Replacement of Lost Securities . . . . . . . . . . . . . . . . . 38
9.7. Notice of Proposed Transfer; Opinions of Counsel . . . . . . . . 39
9.8. Incorporation by Reference . . . . . . . . . . . . . . . . . . . 39
9.9. Parties in Interest . . . . . . . . . . . . . . . . . . . . . . 39
9.10. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.11. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.12. Effect of Headings . . . . . . . . . . . . . . . . . . . . . . . 40
9.13. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . 40
9.14. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.15. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 41
-iv-
<PAGE> 6
WIRELESS BROADCASTING SYSTEMS OF AMERICA, INC.
PREFERRED STOCK PURCHASE AGREEMENT
This PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is made as
of this 15th day of March, 1995 by and among WIRELESS BROADCASTING SYSTEMS OF
AMERICA, INC., a Delaware corporation (the "Company"), BOSTON VENTURES LIMITED
PARTNERSHIP IV, a Delaware limited partnership ("Fund IV"), and BOSTON VENTURES
LIMITED PARTNERSHIP IVA, a Delaware limited partnership ("Fund IVA"). Fund IV
and Fund IVA are each referred to herein individually as an "Investor" and are
collectively referred to herein as the "Investors."
THE PARTIES HERETO AGREE AS FOLLOWS:
1. Authorization of Preferred Stock; Purchase and Sale of Preferred Stock.
1.1. Authorization of Preferred Shares. The Company has authorized the
issuance and sale of 35,000 shares of Class A Cumulative Convertible Preferred
Stock, $.01 par value (the "Preferred Stock"). The rights, privileges, and
preferences of the Preferred Stock are as set forth in the Restated Certificate
of Incorporation of the Company in the form attached as Exhibit A to this
Agreement (the "Restated Certificate").
1.2. Purchase and Sale of the Preferred Stock. Subject to the terms
and conditions of this Agreement and on the basis of the representations and
warranties set forth herein, the Company agrees to sell to Fund IV and Fund IVA,
and Fund IV and Fund IVA, severally and not jointly, agree to purchase from the
Company 20,919.045 shares and 14,080.955 shares of Preferred Stock (the
"Shares"), respectively, at a purchase price of $1,000 per share.
1.3. The Closings. The purchase and sale of the Shares shall take
place at two closings (the "Closings", each a "Closing"), at the offices of
Ropes & Gray, One International Place, Boston, Massachusetts or at such other
place as the parties shall mutually agree.
1.3.1. The Initial Closing. The initial Closing (the
"Initial Closing") shall take place on March 15, 1995 at 10:00 a.m.
Boston time, or at such other time as the parties shall mutually
agree. At the Initial Closing, the Company shall deliver to each of
Fund IV and Fund IVA a certificate or certificates, registered in such
Investor's name, representing, respectively, 14,942.175 and 10,057.825
of the Shares to be acquired by such Investor pursuant to this
Agreement, against payment of the purchase price thereof in lawful
money of the United States of America by wire transfer to one or more
accounts designated by the Company prior to the Initial Closing or by
check payable to the Company.
<PAGE> 7
1.3.2. The Second Closing. The second Closing (the "Second
Closing") shall take place at a date and time designated by the
Company on not less than 15 days prior notice to the Investors, but in
no event shall the Investors be obligated to purchase Shares at the
Second Closing after June 30, 1995. At the Second Closing, the
Company shall deliver to each Investor a certificate or certificates,
registered in such Investor's name, representing, respectively, the
remaining 5,976.870 and 4,023.130 of the Shares to be acquired by such
Investor under this Agreement not purchased by such Investor at the
Initial Closing, against payment of the purchase price thereof in
lawful money of the United States of America by wire transfer to one
or more accounts designated by the Company prior to the Second Closing
or by check payable to the Company.
2. Representations and Warranties of the Company.
In order to induce the Investors to enter into this Agreement and to
consummate the transaction contemplated hereby, the Company represents and
warrants to the Investors as follows:
2.1. Corporate Matters, etc.
2.1.1. Organization, Power and Standing. The Company is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. The Company has all
requisite power and authority, corporate and otherwise, to execute,
deliver and perform this Agreement and the Stockholders Agreement to
be entered into pursuant to Sections 4.7 and 6.3 (the "Stockholders
Agreement"; this Agreement and the Stockholders Agreement being
referred to herein collectively as the "Transaction Agreements"), to
carry on its business as currently conducted, and to consummate the
transactions contemplated by the Transaction Agreements. The Company
is duly qualified or licensed to do business as a foreign corporation,
and is in good standing as such, in each jurisdiction listed in
Schedule 2.1.1 and in which the failure to be so qualified or licensed
and in good standing would have a Material Adverse Effect.
2.1.2. Capitalization. Upon filing of the Restated
Certificate, the entire authorized capital stock of the Company will
consist of 65,000,000 shares of common stock, par value $.01 per share
("Common Stock"), of which 24,052,280 shares are issued and
outstanding, and 35,000 shares of Preferred Stock, none of which
shares will be issued and outstanding prior to the Initial Closing.
Schedule 2.1.2 sets forth a list of the holders of record of the
issued and outstanding shares of Common Stock and the number of shares
held by each of them. The Company holds no shares of Common Stock and
no shares of Preferred Stock in its treasury. All of the outstanding
shares of Common Stock of the Company are duly authorized, validly
issued, fully paid and non-assessable. The Company has reserved
35,000 shares of Preferred Stock for issuance hereunder. When issued
and paid for in accordance with the terms of this Agreement, the
Shares will be duly authorized, validly issued, fully paid and
non-assessable. The Company has
-2-
<PAGE> 8
authorized and reserved (and will at all times maintain such
authorization and reservation) a sufficient number of shares of its
Common Stock for issuance upon conversion of the Shares (the
"Conversion Shares"), and the Conversion Shares will, upon such
issuance in accordance with the terms of the Preferred Stock, be duly
authorized, validly issued, fully paid and non-assessable. The
Company has not violated the Securities Act of 1933, as amended (the
"Securities Act"), or any state blue sky or securities law, or the
preemptive rights of any person, in connection with the issuance of
any of its securities. Other than the Preferred Stock, the Restated
Stock Option Plan to be adopted pursuant to Section 4.8 (the "Stock
Option Plan") and the warrants to be issued pursuant to Section 4.9,
there are no outstanding warrants, options or other rights to purchase
or acquire from the Company, or securities exchangeable for or
convertible into, any securities of the Company. Listed and described
on Schedule 2.1.2 are all options which the Company has granted or
determined to grant pursuant to the Stock Option Plan or any
predecessor plan. Other than as set forth in the Stockholders
Agreement, there are no existing rights with respect to registration
under the Securities Act of any of the Company's securities and there
are no preemptive rights with respect to the issuance and sale of the
Shares or the Conversion Shares. Except as set forth in the
Stockholders Agreement or as imposed by applicable securities laws and
the rules and regulations of the Federal Communications Commission
(the "FCC"), upon each Closing there will be no restrictions on the
transfer or voting of any shares of the Company's capital stock.
There is no Contractual Obligation or Charter or By-law provision
which obligates the Company to purchase or redeem, or make any payment
(other than dividends on the Preferred Stock) in respect of, any
shares of capital stock or other securities convertible into or
exchangeable for shares of capital stock or which provides for any
stock appreciation or similar right or grants any right to share in
the equity, income, revenues or cash flow of the Company.
2.1.3. Subsidiaries. Schedule 2.1.3 sets forth the name and
jurisdiction of incorporation or formation of each Subsidiary of the
Company. Each Subsidiary is a corporation or partnership duly
organized, validly existing and in good standing under its
jurisdiction of organization. Each Subsidiary is duly qualified or
licensed to do business as a foreign corporation or partnership, and
is in good standing as such, in each jurisdiction listed in Schedule
2.1.3 and in which the failure to be so qualified or licensed and in
good standing would have a Material Adverse Effect. The Company or
another wholly owned Subsidiary of the Company is the beneficial and
record holder of all of the issued and outstanding shares of capital
stock of each Subsidiary which is a corporation, such shares have been
duly authorized, validly issued, are fully paid and nonassessable, and
the Company or the Subsidiary in question owns such shares free and
clear of any Liens other than restrictions on transfer imposed by
applicable securities laws and the rules and regulations of the FCC.
Except as set forth in Schedule 2.1.3, the Company or another wholly
owned Subsidiary of the Company is the beneficial and record owner of
all the issued and outstanding equity interests in each Subsidiary
which is not a corporation, and such equity interest has been validly
issued and is owned by the
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<PAGE> 9
Company or the Subsidiary in question free and clear of any Liens
other than restrictions on transfer imposed by applicable securities
laws and the rules and regulations of the FCC. Except as set forth in
Schedule 2.1.3, there is no Contractual Obligation or Charter or
By-law provision which obligates any Subsidiary of the Company to
issue, purchase, or redeem, or make any payment in respect of, any
shares of its capital stock or other securities convertible into or
exchangeable for shares of capital stock or which provides for any
stock appreciation or similar right or grants any right to share in
the equity, income, revenues or cash flow of any Subsidiary of the
Company. The Company has no investment in any Person, other than
investments in (i) its Subsidiaries listed on Schedule 2.1.3 and (ii)
demand deposit or money market accounts.
2.1.4. Charter and By-laws. The Company heretofore delivered
to the Investors a true and complete copy of the Charter and By-laws
of the Company and each of its Subsidiaries.
2.1.5. Authorization and Enforceability. Each of the
Transaction Agreements and any other agreements, instruments, or
documents entered into by the Company pursuant to the Transaction
Agreements (collectively, the "Transaction Documents") have been duly
authorized by all necessary corporate action of the Company and its
stockholders and directors, have been duly executed and delivered by
the Company, and are the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their
respective terms.
2.2. Liabilities, Assets, etc.
2.2.1. Financial Statements. Attached hereto as Schedule
2.2.1 are the following: (i) The unaudited consolidated and
consolidating balance sheets as of December 31, 1994 and unaudited
consolidated and consolidating statements of income and cash flows for
the fiscal year then ended of the Company and its Subsidiaries,
including the latest drafts of any notes that have been prepared to be
part of the Company's annual financial statements for 1994 (the "1994
Financials"), (ii) the consolidated balance sheet as of December 31,
1993 and the consolidated statements of income and cash flows for the
fiscal year then ended of WJB-TV Limited Partnership ("WJB-TV"),
together with the report of the independent auditors thereon
(including the accompanying notes thereto, the "1993 Financials"),
(iii) the consolidated balance sheet as of December 31, 1992, and the
audited consolidated statements of income and cash flows for the year
then ended of WJB-TV, together with the report of the independent
auditors thereon (including the accompanying notes thereto, the "1992
Financials") (together with the 1994 Financials and the 1993
Financials, the "Financial Statements"), (iv) the Company's budget for
1995, as approved by the Company's Board of Directors (the "Budget"),
and (v) interim financial information for the Company for 1995,
including consolidated and consolidating balance sheets of the Company
and its Subsidiaries of January 31, 1995 and the related consolidated
and consolidating statements of income for the month then ended
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<PAGE> 10
(the "Interim 1995 Financials").
The Financial Statements (including the notes thereto) were
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods specified therein, and
present fairly the financial position and results of operations of the
Company and its Subsidiaries, and their predecessor entities, for the
periods specified therein, subject in the case of the 1994 Financials
and the Interim 1995 Financials to (i) an absence of footnotes, and
(ii) normal year-end audit adjustments which will not in the aggregate
be material. The Budget was prepared in good faith, and was when
prepared, and continues to be, a reasonable estimate of expected
results for the periods covered thereby, it being understood that the
actual results of operations of the Company's Business after the date
hereof will depend in part upon future general economic conditions and
other matters not within the control of the Company.
2.2.2. Accounts Receivable/Churn. Schedule 2.2.2 sets forth
an aged list of accounts receivable as of February 28, 1995 that are
due from subscribers in the Ordinary Course of Business. Said
receivables are currently due and payable and, except as set forth in
Schedule 2.2.2, are not subject to any deferred payment terms. Such
list of receivables shows, as of February 28, 1995, the number of
subscribers whose accounts had balances outstanding from the due date
for (i) 1-29 days, (ii) 30-59 days, (iii) 60-89 days, and (iv) 90 or
more days, and the estimated reserve for uncollectible amounts. The
Company has estimated the necessary reserve for these receivables in
good faith and will make good faith attempts to collect such
receivables in the ordinary course of business. Schedule 2.2.2 also
sets forth the number of subscribers served by each System operated by
the Company and its Subsidiaries, and the churn rate for each System,
for the months of December 1994, January 1995 and February 1995. The
Company has prepared these numbers in good faith and believes the
numbers to be accurate.
2.2.3. Change in Condition. Except for the matters set forth
in Schedule 2.2.3, which matters have not had and will not have,
individually or in the aggregate, a Material Adverse Effect, since
December 31, 1994:
2.2.3.1. The Business of the Company and its
Subsidiaries has been conducted only in the Ordinary Course
of Business;
2.2.3.2. Neither the Company nor any of its
Subsidiaries has made any capital expenditures in amounts in
excess of that shown in the Budget, the amounts of capital
expenditures set forth in the Budget continue to be reasonable
projections of the capital expenditures of the Company and its
Subsidiaries for the periods covered thereby, and neither the
Company nor any of its Subsidiaries has
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<PAGE> 11
made any commitments for capital expenditures that would
exceed, in any year, the amounts set forth as capital
expenditures in the Budget or in any projections for years
subsequent to 1995 which have been furnished to the Investors;
2.2.3.3. Neither the Company nor any of its
Subsidiaries has mortgaged, pledged or subjected to any Lien
any of its property, business or assets other than (i)
conditional sales or similar security interests granted in
connection with the purchase of equipment or supplies in the
Ordinary Course of Business and aggregating not more than
$100,000, and (ii) Liens disclosed on Schedule 2.2.5 hereto;
2.2.3.4. Neither the Company nor any of its
Subsidiaries has become liable in respect of any Guarantee or
has incurred or otherwise become liable in respect of any Debt
except for borrowings in the Ordinary Course of Business under
credit facilities in existence on December 31, 1994;
2.2.3.5. Neither the Company nor any of its
Subsidiaries has declared or made any Distribution;
2.2.3.6. Neither the Company nor any of its
Subsidiaries has (i) sold, leased to others or otherwise
disposed of any of its assets (except for assets sold in the
Ordinary Course of Business in connection with services
provided to customers), (ii) entered into any Contractual
Obligation relating to (A) the purchase of any capital stock
or interest in any Person, (B) the purchase of assets
constituting a business or (C) any merger, consolidation or
other business combination, (iii) cancelled or compromised any
Debt or claim other than accounts receivable in the Ordinary
Course of Business, (iv) sold, transferred, licensed or
otherwise disposed of any intangible assets, (v) waived or
released any right of substantial value, (vi) instituted,
settled or agreed to settle any material Action or (vii)
entered into or consummated any transaction with any Affiliate
(other than with the Company or a wholly owned Subsidiary of
the Company);
2.2.3.7. There has been no material loss,
destruction or damage to any material item of property of the
Company or any of its Subsidiaries, whether or not insured;
2.2.3.8. Neither the Company nor any of its
Subsidiaries has made any changes in the rate of Compensation
payable or paid or agreed or orally promised to pay,
conditionally or otherwise, any extra Compensation, or
severance or vacation pay, to any director, officer, manager,
consultant or agent of the Company or any of its Subsidiaries
(other than increases granted to employees in the Ordinary
Course of Business and the bonuses listed in Schedule 2.2.3,
which were accrued as expenses in the December 31, 1994
balance sheet of the
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<PAGE> 12
Company and its Subsidiaries);
2.2.3.9. Neither Company nor any of its Subsidiaries
has made any material change in its customary methods of
accounting or accounting practices, pricing policies or
payment or credit practices or failed to pay any creditor any
amount owed to such creditor when due or granted any
extensions of credit other than in the Ordinary Course of
Business;
2.2.3.10. Neither the Company nor any of its
Subsidiaries has entered into any Contractual Obligation to do
any of the things referred to elsewhere in this Section
2.2.3.; and
2.2.3.11. No Material Adverse Effect has occurred,
nor have any event or events occurred which, individually or
in the aggregate, will have a Material Adverse Effect.
2.2.4. Liabilities. Except as set forth in Schedule 2.2.4,
after giving effect to the Closings hereunder and the consummation of
the transactions contemplated hereby, neither the Company nor any of
its Subsidiaries will have any material liabilities or other material
obligations, whether absolute, accrued, contingent, due, to become
due, or otherwise, other than, to the extent the existence thereof is
consistent with all other representations and warranties of the
Company (including without limitation those contained in the Schedules
hereto), the following:
2.2.4.1. Obligations and liabilities of the Company
and its Subsidiaries set forth on the Financial Statements
(or in the notes thereto).
2.2.4.2. Obligations and liabilities of the Company
and its Subsidiaries incurred in usual amounts since December
31, 1994 in the Ordinary Course of Business.
2.2.4.3. Obligations and liabilities of the Company
and its Subsidiaries in respect of the Contracts listed in
Section 2.4.1 and the documents referred to in Section 2.3.
2.2.4.4. Obligations and liabilities of the Company
and its Subsidiaries specifically disclosed in this Agreement
or in a Schedule to this Agreement..
2.2.5. Assets.
2.2.5.1. Title to Assets. Each of the Company and
its Subsidiaries has good and marketable title to or, in the
case of property held under lease or other Contractual
Obligation, a valid and enforceable right to use, all of its
properties,
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<PAGE> 13
rights and assets, whether real or personal and whether
tangible or intangible (collectively, the "Assets"), including
without limitation all properties, rights and assets reflected
in the balance sheets contained in the Financial Statements
(except as sold or otherwise disposed of since the dates of
such balance sheets in the Ordinary Course of Business), and
other minor imperfections of title, if any, which do not
materially detract from the value, or impair the use, of the
Assets subject thereto. The Assets are not subject to any
Lien except as described in Schedule 2.2.5 hereto. The Assets
(including without limitation the Real Property, the
Equipment, the Intangibles and the Contracts) constitute all
properties, rights and assets held for or used in or necessary
for the conduct of the Company's business as currently
conducted.
2.2.5.2. Real Property and Equipment. Except as set
forth in Schedule 2.3.8, all of the real property and fixtures
and other improvements constituting owned or leased real
property included in the Assets (the "Real Property") and all
of the tangible personal property included in the Assets (the
"Equipment") are in such condition that the Business can be
operated as it is currently operated. Schedule 2.3.8 sets
forth a list of each lease or other Contractual Obligation
(including all amendments) under which any Real Property or
Equipment having a cost or capital lease obligation in excess
of $50,000 is held or used by the Company or any of its
Subsidiaries (the "Leases"). There is no lease or other
Contractual Obligation under which the Company or any of its
Subsidiaries is liable as lessor with respect to any Real
Property or Equipment. Schedule 2.3.8 also sets forth a list
of all of the Real Property and of the addresses of each other
location, if any, at which is located any Equipment.
2.2.5.3. Intellectual Property Rights. The Company
and its Subsidiaries have all patents, trademarks, service
marks, trade names, trade secrets, copyrights, license or
similar rights necessary for the conduct of the Business as
presently conducted, and the conduct of the Business by the
Company and its Subsidiaries does not infringe or violate, and
has not infringed or violated, any such rights of any Person.
2.3. The Systems, etc.
2.3.1. Channels. Schedule 2.3.1 contains a complete list, for
each locality in which the Company and its Subsidiaries operate or are
developing a wireless cable television broadcasting system other than
Boise, Idaho or Yakima, Washington (each, a "Locality") of: (i) all
channel frequencies in such Locality for which the Company or a
Subsidiary thereof is the licensee under a license from the FCC to
broadcast over such channel frequency (the "Owned Channels"), (ii) all
channel frequencies in such Locality other than the Owned Channels
which the Company or a Subsidiary thereof has a right to use (the
"Leased Channels"), and the licensee or licensees for each
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<PAGE> 14
Leased Channel, and (iii) any Instructional Television Fixed Service
(ITFS) Multipoint Distribution Service (MDS) or Multichannel
Multipoint Distribution Service (MMDS) channel frequencies used or
usable, or which may become available, for wireless cable television
broadcasting in such Locality other than the Owned Channels and the
Leased Channels (the "Remaining Channels"), the licensee or licensees,
if any, for each Remaining Channel and, if there is no licensee for a
Remaining Channel, the applicant or applicants for any FCC license to
broadcast over such Remaining Channel, the method by which such
license is expected to be issued, and the approximate date by which
such license is expected to be issued. Schedule 2.3.1 also sets forth
the status of any pending applications, channel leases or other
agreements under negotiation, or other events known to the Company,
which could result in any change in the information contained in such
Schedule.
2.3.2. Licenses for Owned Channels. Listed and described on
Schedule 2.3.2 are all of the FCC channel licenses pertaining to the
Owned Channels ("Owned Licenses"), all of which are valid and in full
force and effect, except with respect to the applied-for and
to-be-applied-for modifications listed on Schedule 2.3.2. True,
complete and correct copies of all such licenses, and all amendments
thereto as of the date hereof, have been delivered by the Company to
the Investors. Neither the Company nor any of its Subsidiaries has
done or performed any act which would invalidate or impair its rights
under any of the Owned Licenses; and all of the Owned Licenses will
remain in full force and effect giving effect to the transactions
contemplated hereby.
2.3.3. Channel Lease Agreements.
2.3.3.1. All of the channel lease agreements, excess
air time lease agreements and other agreements pursuant to
which the Company and its subsidiaries have the right to use
any of the Leased Channels (the "Channel Lease Agreements")
are listed and described on Schedule 2.3.1. True, complete
and correct copies of the Channel Lease Agreements and all
amendments thereto as of the date hereof have been delivered
by the Company to the Investors. All of the Channel Lease
Agreements currently being negotiated by the Company and its
Subsidiaries are listed and described on Schedule 2.3.1.
2.3.3.2. All of the Channel Lease Agreements are
validly existing, legally enforceable obligations of the
Company or the Subsidiary party thereto, as the case may be,
and, to the best of the Company's knowledge, the other parties
thereto. All of the Channel Lease Agreements comply with the
terms of existing licenses and approvals, if any, granted by
the FCC to the lessors thereunder and the transmission of
signals pursuant to such Channel Lease Agreements complies in
all respects with such FCC licenses and approvals. Neither
the Company nor any of its Subsidiaries has done
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<PAGE> 15
or performed any act which would invalidate or impair its
rights under any of the Channel Lease Agreements; and all of
the Channel Lease Agreements will remain in full force and
effect after giving effect to the transactions contemplated
hereby.
2.3.3.3. Listed and described on Schedule 2.3.1 are
all of the FCC channel licenses pertaining to the Leased
Channels, all of which are valid and in full force and effect.
True, complete and correct copies of all such licenses, and
all amendments thereto as of the date hereof, have been
delivered by the Company to the Investors.
2.3.4. Other FCC Licenses. Schedule 2.3.4 sets forth all of
the FCC licenses, authorizations and approvals utilized by the Company
and its Subsidiaries to transmit commercial programming, data,
information or for any other use other than the FCC channel licenses
listed in Schedule 2.3.1 and Schedule 2.3.2, all of which are in full
force and effect. The Company or a Subsidiary thereof or the lessors
under the Channel Lease Agreements have all necessary or required FCC
licenses, authorizations and approvals to transmit commercial
programming, data, information or any other use currently authorized
by law over each of the channel frequencies listed in Schedule 2.3.1
in each of the Localities, as set forth on such Schedule. To the
extent that the FCC hereafter authorizes utilization of compression
technology by wireless cable television systems to increase the
capacity of the existing thirty-three (33) channel frequencies in the
Localities, the Company and its Subsidiaries will be entitled to the
benefit of such authorization, and will not be prohibited or
materially restricted from doing so by any of the Channel Lease
Agreements, except for such restrictions as are imposed by applicable
Legal Requirements.
2.3.5. FAA Licenses. Listed and described on Schedule 2.3.5
are all the licenses, authorizations and approvals of the Federal
Aviation Administration (the "FAA") utilized by the Company and its
Subsidiaries to transmit commercial programming, data, information, or
for any other use, all of which are in full force and effect, and all
of which will remain in full force and effect after giving effect to
the transactions contemplated hereby.
2.3.6. Towers.
2.3.6.1. The Company and its Subsidiaries own or
lease for use space at the antenna towers at the locations set
forth in Schedule 2.3.6 (the "Towers"), pursuant to the
leases (the "Tower Leases") identified in such Schedule. To
the best of the Company's knowledge, the Towers comply in all
material respects with all Legal Requirements of the FAA and
the FCC. Except for the Towers, there are no other existing
or proposed antenna towers owned or leased for use by the
Company and its Subsidiaries.
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<PAGE> 16
2.3.6.2. The use of the Towers by the Company and
its Subsidiaries is in full compliance in all respects with
all Legal Requirements applicable to the Company and its
Subsidiaries, including without limitation including without
limitation requirements of the FAA and the FCC. To the best
knowledge of the Company , the construction and use of the
Towers by the owners thereof is in compliance in all material
respects with all Legal Requirements applicable thereto,
including without limitation, requirements of the FAA and FCC,
applicable zoning restrictions and ordinances, variances
thereto or conditional use permits of the jurisdictions in
which the Tower in question is located; all health and fire
codes and ordinances; and all subdivision regulations; except
for such non-compliance as does not and will not, individually
or in the aggregate, result in any Material Adverse Effect.
2.3.6.3. To the best of the Company's knowledge, all
certificates, licenses, approvals and permits necessary in
connection with the construction and present use and operation
of the Towers have been issued by the appropriate Governmental
Authorities, except for such non-compliance with such
requirements as has not had and will not have, individually or
in the aggregate, a Material Adverse Effect. All such
licenses, approvals, permits and certificates will continue in
full force and effect after giving effect to the transactions
contemplated hereby.
2.3.7. Programming Contracts
2.3.7.1. Listed and described on Schedule 2.3.7 are
all contracts under which the Company or any Subsidiary
thereof has the right to broadcast any programming in any of
the Systems (the "Programming Contracts"). True, complete and
correct copies of all of the Programming Contracts and all
amendments thereto have been delivered by the Company to the
Investors. All of the Programming Contracts currently being
negotiated by the Company and its Subsidiaries are listed and
described on Schedule 2.3.7.
2.3.7.2. All of the Programming Contracts are
validly existing, legally enforceable obligations of the
Company or the Subsidiary party thereto, as the case may be.
Neither the Company nor any of its Subsidiaries has done or
performed any act which would invalidate or impair its rights
under the Programming Contracts; and all of the Programming
Contracts will remain in full force and effect after giving
effect to the transactions contemplated hereby.
2.3.8. System Documents.
2.3.8.1. The Company and its Subsidiaries have no
presently existing contract, agreement, lease, permit,
consent, license or commitment, whether
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<PAGE> 17
written or oral, affecting or relating to the operation of the
Systems other than (i) the FCC and FAA approvals and
authorizations listed on Schedules 2.3.2, 2.3.3, 2..3.4 and
2.3.5, (ii) the Channel Lease Agreements, (iii) the
Programming Contracts and (iv) the documents listed on
Schedule 2.3.8 (collectively, the "System Documents"). The
rights granted in the System Documents constitute all of the
rights utilized by the Company and its Subsidiaries to
transmit wireless cable television service over the channel
frequencies in the Localities. All of the System Documents
are validly existing, legally enforceable obligations of the
Company and its Subsidiaries and, to the best of the Company's
knowledge, the other parties thereto. The Company has
delivered copies of all of System Documents to the Investors
as of the date hereof.
2.3.8.2. The Systems and all equipment and real
property used in connection therewith are now being utilized,
operated and maintained in all material respects in conformity
with the provisions of the System Documents and with all other
applicable laws and regulations including, without limitation,
rules and regulations of the FCC and of any governmental
agency or authority having jurisdiction with respect thereto.
2.3.8.3. The Company and its Subsidiaries have not
in any manner at any time prior hereto failed to so utilize,
operate and maintain the Systems in a manner which could now
or hereafter result in cancellation or termination of, or
material liability for damages under, any of the System
Documents or any other applicable laws and regulations, nor
has the Company or any of its Subsidiaries defaulted in its
obligations pursuant to any of the System Documents which
default could result in the cancellation of any System
Document or materially adversely affect the rights of the
Company or any of its Subsidiaries thereunder.
2.3.9. Capital Expenditures. The Company's reasonable good
faith estimate of the costs of fulfilling commitments to complete
construction and provide the technical facilities as required under
the Channel Lease Agreements is set forth in the Budget and, for years
after 1995, in the projections that have been furnished to the
Investors by the Company, which projections were prepared in good
faith, were reasonable when made and continue to be reasonable.
2.4. Contracts, etc.
2.4.1. Certain Contractual Obligations. Set forth on Schedule
2.4.1 hereto is a true and complete list of all of the following
Contractual Obligations of the Company and its Subsidiaries (the
"Contracts"):
2.4.1.1. All plans, agreements, arrangements or
practices which constitute Compensation or benefits to any of
the officers or employees of the Company and
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<PAGE> 18
its Subsidiaries.
2.4.1.2. All Contractual Obligations under which the
Company or any of its Subsidiaries is or will after any
Closing be (i) restricted from carrying on any business or
other activities anywhere in the world or (ii) bound to
participate in any allocation or sharing of taxes;
2.4.1.3. All Contractual Obligations (including
without limitation options) to sell or otherwise dispose of
any Assets except in the Ordinary Course of Business;
2.4.1.4. All Contractual Obligations under which the
Company or any of its Subsidiaries may become obligated to pay
any amount in respect of indemnification obligations, purchase
price adjustment or otherwise in connection with any (i)
acquisition or disposition of assets or securities, (ii)
merger, consolidation or other business combination, or (iii)
series or group of related transactions or events of a type
specified in subclauses (i) and (ii).
2.4.1.5. All commitments for free service or other
obligations to potential subscribers in the markets in which
the Company and its Subsidiaries operate or intend to operate;
and
2.4.1.6. All Contractual Obligations (other than
purchase orders or sales orders) not otherwise required to be
listed on Schedule 2.4.1 or in the Schedules referred to in
Section 2.3, which individually involve liabilities of the
Company or any of its Subsidiaries in excess of $50,000.
Schedule 2.4.1. also lists and described the status of all
contracts currently in negotiation or proposed by the Company or any
Subsidiary of the type which, if entered into by the Company or any
Subsidiary, would require such contract to be listed on Schedule 2.4.1
according to this Section 2.4.1 or otherwise to be disclosed herein.
The Company has heretofore delivered to the Investors a true and
complete copy (or the latest draft thereof, if applicable) of each of
the Contractual Obligations listed on Schedule 2.4.1, each as in
effect on the date hereof and as it will be in effect at each Closing.
2.4.2. Nature of Contracts, etc. Each Contract is, and after
giving effect to the Closings hereunder and the consummation of the
transactions contemplated hereby will be, Enforceable by the Company
or the applicable Subsidiary. No breach or default by the Company or
any of its Subsidiaries under any of the Contracts has occurred and is
continuing, and no event has occurred which with notice or lapse of
time would constitute such a breach or default or permit termination
or acceleration by any other Person under any of the Contracts. To
the best knowledge of the Company, no breach or default by
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<PAGE> 19
any Person other than the Company and its Subsidiaries under any of
its Contracts has occurred and is continuing, and no default has
occurred which with notice or lapse of time would constitute such a
breach or default or permit termination or acceleration by the Company
or any Subsidiary under any of such Contracts.
2.4.3. Insurance. The Company and each of its Subsidiaries
maintains in full force and effect such types and amounts of insurance
issued by insurers of recognized responsibility insuring each of them
with respect to its respective business and properties, and in such
amounts and against such losses and risks as is usually carried by
persons engaged in the same or similar businesses. Set forth on
Schedule 2.4.3 is a list of all policies under which the Company or
any of its Subsidiaries are currently insured (the "Policies"),
including without limitation liability, casualty and business
interruption policies. The list includes the type of policy, policy
number and insurer, coverage dates, named insureds, limit of liability
and deductible. After giving effect to the Closings and the
consummation of the transactions contemplated, each of the Policies
will be in full force and effect and be payable to the Company or one
or more of its Subsidiaries.
2.4.4. Transactions with Affiliates. Except for the matters
set forth on Schedule 2.4.4 hereto, no Affiliate of the Company or its
Subsidiaries is an employee, consultant, competitor, customer,
distributor, supplier or vendor of, or is party to any Contractual
Obligation with, the Company or any of its Subsidiaries. All
Contractual Obligations between the Company and its Subsidiaries and
any Affiliate have been entered into on an arms'-length basis on terms
no less favorable to the Company and its Subsidiaries than would be
available from a non-Affiliate. All transactions between the Company
or any of its Subsidiaries and any Affiliate of Company and its
Subsidiaries which occurred during the periods covered by the
Financial Statements are reflected in the Financial Statements at
amounts which do not overstate the net worth or net income of the
Company and its Subsidiaries as compared with fair market values and
prices which would have been charged and paid between parties at arms'
length at the time of the entering into of the transactions in
question.
2.4.5. Non-Contravention, etc. Neither the execution and
delivery of the Transaction Agreements nor the consummation of any of
the transactions contemplated hereby does or will constitute, result
in or give rise to (i) a breach of or a default under any Contractual
Obligation or Charter or By-Laws provision of the Company or any of
its Subsidiaries, or any Legal Requirement applicable to any Company
or any of its Subsidiaries, (ii) the acceleration of the time for
performance of any obligation under any such Contractual Obligation,
(iii) the imposition of any Lien upon or the forfeiture of any Asset
(including without limitation any Asset held under a lease or
license), (iv) the requirement that any consent under or waiver of any
such Legal Requirement, Contractual Obligation, Charter or By-Laws be
obtained, or (v) any right of termination, modification of terms, or
any other right or cause of action under any such Contractual
Obligation.
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2.5. Compliance with Laws, etc.
2.5.1. Compliance Generally. Except as disclosed in Schedule
2.5.6, the operations of the business of the Company and its
Subsidiaries as heretofore or currently conducted were not and are not
in violation of, nor is the Company or any of its Subsidiaries in
default under, any Legal Requirement, except for such violations or
defaults as have not had and will not have, individually or in the
aggregate, a Material Adverse Effect or will be material to any
Subsidiary of the Company. Future expenditures with respect to the
operations of the business of the Company and its Subsidiaries as
currently conducted required to meet the provisions of any Legal
Requirement currently in effect (or, to the knowledge of the Company,
enacted but to take effect in future) will not, individually or in the
aggregate, have a Material Adverse Effect. The Company and its
Subsidiaries have been duly granted all licenses, permits, franchises
and other authorizations under any Legal Requirement necessary for the
conduct of its business as currently conducted or currently proposed
to be conducted, except licenses, permits, franchises and other
authorizations the failure of which to have been obtained has not had
and will not have, individually or in the aggregate, a Material
Adverse Effect or which would not be material to any Subsidiary of the
Company.
2.5.2. Tax Matters. Except as set forth on Schedule 2.5.2:
2.5.2.1. All Tax Returns that are required to be
filed by or with respect to the Company or any of its
Subsidiaries have been duly and timely filed in accordance
with all applicable Legal Requirements, and no claim has ever
been made by any taxing authority in a jurisdiction where the
Company or any Subsidiary does not file Tax Returns that it is
or may be subject to taxation by that jurisdiction;
2.5.2.2. All Taxes shown to be due on the Tax
Returns referred to in Section 2.5.2.1 have been paid in full,
and all other assessments that are due have been paid in full;
2.5.2.3. None of the Tax Returns referred to in
Section 2.5.2.1 has been examined by the Internal Revenue
Service (the "IRS") or any state, local or foreign taxing
authority;
2.5.2.4. Neither the Company nor any of its
Subsidiaries will have as of the date of either Closing any
liability for Taxes that are not in the accruals and reserves
for unpaid tax liability (excluding any reserve for deferred
Taxes established to reflect timing differences between book
and tax income) set forth in the Financial Statements;
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2.5.2.5. The Company has provided to the Investors
true, correct and complete copies of all federal income Tax
Returns, and has made available to the Investors true, correct
and complete copies of all other Tax Returns, filed by it and
its predecessor entities with taxing authorities since the
date indicated in Schedule 2.5.2 and all requests for
extensions or waivers and notices or claims given or received
with respect thereto; and
2.5.2.6. The Company and each of its Subsidiaries
has withheld and paid to, or will cause to be paid to, the IRS
or the appropriate state, local or foreign taxing authority
all amounts required to be withheld from the wages of the
employees of the Company and its Subsidiaries under state law
and the applicable provisions of the Code, and any payments
made to any independent contractors, creditors, stockholders
or other third parties, and the Company and its Subsidiaries
will continue to do so with respect to all wages and other
payments paid by it through the date of each Closing.
2.5.3. No Illegal Payments, etc. Neither the Company, any of
its Subsidiaries, nor any of their respective officers, employees or
agents (including as agents, directors or stockholders acting on
behalf of the Company), has (a) directly or indirectly given or agreed
to give any gift, contribution, payment or similar benefit to any
supplier, customer, governmental employee or other Person who was, is
or may be in a position to help or hinder the Company or any of its
Subsidiaries (or assist in connection with any actual or proposed
transaction) or made or agreed to make any contribution, or reimbursed
any political gift or contribution made by any other Person, to any
candidate for federal, state, local or foreign public office which
would subject the Company, any of its Subsidiaries or the Investors to
any damage or penalty in any civil, criminal or governmental
litigation or proceeding or (b) established or maintained any
unrecorded fund or asset or made any false entries on any books or
records for any purpose.
2.5.4. Employee Benefit Plans.
2.5.4.1. List of Plans. Schedule 2.5.4 contains a
true and complete list of all of the employee welfare benefit
plans within the meaning of Section 3(1) of ERISA with respect
to the Company and its Subsidiaries (the "Welfare Plans"), as
well as a list of all stock bonus, stock purchase, stock
option, restricted stock, stock appreciation right or similar
equity based plan, or any other deferred-compensation,
retirement, welfare-benefit, bonus, incentive or
fringe-benefit plan under which the Company or any of its
Subsidiaries has any liability for any premiums or benefits,
or which benefits any employee or former employee of the
Company or any of its Subsidiaries or any beneficiary of any
such employee or former employee (collectively, the "Plans").
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<PAGE> 22
2.5.4.2. Welfare Plans. Each Welfare Plan is
in compliance with the applicable provisions of ERISA and the
Code. Neither the Company nor any of its Subsidiaries has any
contingent or other future obligations or liabilities under or
with respect to any Welfare Plan which provides for the
continuation of benefits at the expense of the Company or any
of its Subsidiaries after retirement or other termination of
employment, other than continuation of health coverage under
Sections 601 through 608 of ERISA.
2.5.4.3. Pension Plans. Neither the Company nor any
of its Subsidiaries contributes or is obligated to contribute,
or has any liability for any premiums or benefits under, any
employee pension benefit plan within the meaning of Section
3(2) of ERISA.
2.5.4.4. Group Health Plans. The Company and each
of its Subsidiaries has complied with all requirements of
Section 4980B of the Code and Sections 601 to 608 of ERISA
relating to the continuation of coverage under their group
health plans, except for such non-compliance as has not had
and will not have, individually or in the aggregate, a
Material Adverse Effect.
2.5.4.5. Disclosure. The Company has provided to
the Investors true and accurate copies of all Plans other
material documents relating to the Plans (including without
limitation all summary plan descriptions, employee handbooks
and the like).
2.5.5. No Governmental Approval or Consent Required. Except
as set forth in Schedule 2.5.5, based in part on the representations
and warranties of the Investors contained in Section 3, no approval,
consent, waiver, authorization or other order of, and no declaration,
filing, registration, qualification or recording with, any
governmental authority is required to be obtained or made by or on
behalf of the Company or any of its Subsidiaries in connection with
the execution, delivery or performance of this Agreement and the
transactions contemplated hereby, except for the filing of the
Restated Certificate, which will have been filed as of the Initial
Closing.
2.5.6. Environmental Matters, etc. Except as set forth in
Schedule 2.5.6, the Company and each of its Subsidiaries is and has at
all times been in compliance in all respects with all applicable Legal
Requirements relating to environmental, natural resource, health or
safety matters. There is no suit, claim, action or proceeding,
pending (or, to the knowledge of the Company, threatened) against the
Company or any of its Subsidiaries or any basis therefor, in respect
of (i) noncompliance by the Company or any Subsidiary with any such
Legal Requirement, (ii) personal injury, wrongful death, other
tortious conduct, or the existence of any nuisance relating to
materials, commodities or products held, used, sold, transferred,
manufactured or disposed of by or on behalf of the Company or any
Subsidiary made of, containing or incorporating any hazardous, noxious
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<PAGE> 23
or toxic materials, commodities or substances, or (iii) the presence
or release or threatened release into the environment of any
pollutant, contaminant or toxic, hazardous or noxious material,
substance or waste, whether solid, liquid or gas and whether generated
by the Company or any Subsidiary or located at or about a site
included in the Real Property or heretofore owned, leased or otherwise
used by the Company or any Subsidiary or any predecessor entity.
Except for environmental assessments under 47 C.F.R. Section 1.1311,
copies of which have been furnished to the Investors, no environmental
assessments have ever been undertaken by or on behalf of the Company
or any of its Subsidiaries or any of their respective predecessor
entities.
2.6. Labor Relations. None of the employees of the Company or its
Subsidiaries is represented by a labor union, and, to the best of the Company's
knowledge, no petition has been filed or proceedings instituted by any employee
or group of employees with any labor relations board seeking recognition of a
bargaining representative. To the knowledge of the Company, there is no
organizational effort currently being made or threatened by or on behalf of any
labor union to organize any employees of the Company or any of its
Subsidiaries. There are no controversies or disputes pending between the
Company or any of its Subsidiaries on the one hand and any of their respective
employees on the other hand, except for controversies and disputes with
individual employees arising in the Ordinary Course of Business which have not
had and will not have, individually or in the aggregate, a Material Adverse
Effect.
2.7. Bulk Subscribers and Suppliers. No material bulk subscriber (or
group of subscribers which in the aggregate is material) of the Company or any
of its Subsidiaries has given the Company or any of its Subsidiaries notice or,
to the knowledge of the Company, taken any action which has given the Company
any reason to believe that such subscriber will cease to subscribe for the
services of the Company or any Subsidiary thereof, or reduce significantly the
amount of such services subscribed for, and no significant supplier or vendor
(or group of suppliers or vendors which in the aggregate is significant) of the
Company or any of its Subsidiaries has given the Company or any of its
Subsidiaries notice or, to the knowledge of the Company, has taken any other
action which has given the Company any reason to believe that such supplier or
vendor (or group of suppliers or vendors) will cease to supply or restrict the
amount supplied or adversely change its price or terms to the Company or its
Subsidiaries of any products or services.
2.8. Litigation, etc. There is no litigation, at law or in equity, or
any proceeding before or investigation by any foreign, federal, state or
municipal board or other governmental or administrative agency or any
arbitrator, against the Company or any of its Subsidiaries, or by which any of
their properties are affected, pending (or, to the knowledge of the Company,
threatened) or any basis therefor, except for such of the foregoing as are
described in Schedule 2.8. The matters set forth in Schedule 2.8 will not,
after giving effect to payments actually made pursuant to indemnity obligations
under which the Company and/or its Subsidiaries is the beneficiary, result in
any liability or cost on the part of the Company, any of its Subsidiaries or
the Investors other than upon the occurrence of an event described in clause
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(b) of Section 8.1. There is no litigation at law or in equity, or any
proceeding before or investigation by any foreign, federal, state or municipal
board or other governmental or administrative agency or any arbitrator, pending
(or, to the knowledge of the Company, threatened or any basis therefor), which
seeks rescission of, seeks to enjoin the consummation of, or otherwise relates
to, the Transaction Agreements or any of the transactions contemplated thereby.
Except as set forth in Schedule 2.8, no judgment, decree or order of any
foreign, federal, state or municipal court, board or other governmental or
administrative agency or any arbitrator (i) has been issued against any Person
other than the Company or any of its Subsidiaries which has had or will have a
Material Adverse Effect, or (ii) has been issued against the Company or any of
its Subsidiaries.
2.9. Brokerage. There are no claims for brokerage commissions or
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of the Company or any of its Subsidiaries, and the Company agrees to
indemnify and hold the Investors harmless against any damages incurred as a
result of any such claim.
2.10. Securities Laws. Assuming that the Investors' representations
and warranties contained in Section 3 of this Agreement are true and correct as
of each Closing, the offer, issuance and sale by the Company to the Investors of
the Shares and the Conversion Shares are, and will be as of each Closing, exempt
from the registration and prospectus delivery requirements of the Securities
Act, and have been, or will be as of each Closing, registered or qualified (or
are, or will be as of each Closing, exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state blue sky and securities laws.
2.11. Pending Acquisition. The Company has agreed to purchase the
assets relating to a wireless cable television system in Boise, Idaho (the
"Boise Acquisition"), pursuant to an Asset Purchase & Sale Agreement and Channel
Lease entered into on September 30, 1994, as amended (the "Boise Agreement"),
by and between the Company and Boise Cable Limited Partnership (the "Boise
Seller"). The Company has delivered to the Investors true and complete copies
of the Boise Agreement, including all exhibits and schedules thereto, all
amendments thereto, all side letters entered into in connection therewith and
all financial statements delivered to the Company in connection therewith.
Except as set forth on Schedule 2.11, the Company has no reason to believe that
any of the representations and warranties made to the Company by the Boise
Seller in the Boise Agreement are not true and correct. Schedule 2.11 sets
forth all of the information that would, to the best of the Company's knowledge,
be required to be disclosed in the Schedules referred to in Section 2.3 if the
Boise Acquisition had been completed prior to the date hereof. The Company has
delivered to the Investor true and complete copies of all documents referred to
in Schedule 2.11.
2.12. Partnerships. Neither of WJB-TV Ft. Pierce Limited Partnership
and WJB-TV Melbourne Limited Partnership (collectively, the "Partnerships")
holds any material assets or has
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any material liabilities, other than licenses, permits and authorizations
issued by the FCC the control or ownership of which may not be transferred to
another Person without the approval of the FCC (collectively, the "Partnership
Licenses"). WJB Television Limited Partnership ("Television L.P.") holds a 1%
partnership interest, as sole general partner, in each of the Partnerships.
The Company and its Subsidiaries and Television L.P. have taken all necessary
steps to obtain such approvals from the FCC as are necessary for Television
L.P. to transfer all of the partnership interests in each of the Partnerships
to the Company, and to transfer full ownership of the Partnership Licenses to
the Company and/or one or more of its wholly owned Subsidiaries. The Company
knows of no reason why such FCC approvals should not be granted in the ordinary
course by the FCC, and the Company, its Subsidiaries and Television L.P. will
use their respective best efforts to obtain such approvals and to effect such
transfers as soon as is practicable. Television L.P. has received 1,000 shares
of Common Stock of the Company in full consideration for the transfer by
Television L.P. of its partnership interests in each of the Partnerships to the
Company, and Television L.P. is not entitled to receive, and will not receive,
any further consideration in connection with such transfers. Upon the
consummation of such transfers, each of the Partnerships will dissolve by
operation of law.
2.13. Disclosure. Neither this Agreement (including without limitation
the Schedules hereto), nor the Financial Statements, nor any certificate
furnished or to be furnished by or on behalf of the Company in connection with
the transactions contemplated by the Transaction Agreements, contains or will
contain any untrue statement of a material fact. This Agreement (including
without limitation the Schedules hereto), the Financial Statements and all
certificates furnished or to be furnished by or on behalf of the Company in
connection with the transactions contemplated by the Transaction Agreements do
not, considered as a whole, omit to state a material fact necessary in order to
make the statements contained herein or therein not misleading.
3. Representations and Warranties and other Agreements of the Investors. Each
Investor, severally and not jointly, hereby represents and warrants to the
Company that:
3.1. Authorization. Such Investor has full power and authority to
execute, deliver and perform the Transaction Agreements and to acquire the
Shares. Each of the Transaction Agreements constitutes the valid and legally
binding obligation of such Investor, enforceable against such Investor in
accordance with its respective terms.
3.2. Purchase Entirely for Own Account. The Shares to be received by
such Investor and the Conversion Shares to be received upon conversion of such
Shares (collectively, the "Securities") will be acquired for investment for such
Investor's own account and not with a view to the distribution of any part
thereof. Such Investor has no present intention of selling, granting any
participation in, or otherwise distributing the same, it being understood that
the disposition of such Investor's property shall at all times remain within
such Investor's control and that each Investor has a limited life and will
dissolve and distribute its assets upon the termination of its existence. Such
Investor does not have any contract, undertaking, agreement or arrangement
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with any Person to sell, transfer, or grant participation to such Person or to
any third person, with respect to any of the Securities; provided, however,
that nothing herein shall prohibit the transfer of the Shares to any Affiliate
of such Investor.
3.3. Restricted Securities. Such Investor understands that the
Securities may not be sold, transferred, or otherwise disposed of without
registration under the Securities Act, or an exemption therefrom, and that, in
the absence of an effective registration statement covering the Shares or the
Conversion Shares or an available exemption from registration under the
Securities Act, the Securities must be held indefinitely. In the absence of an
effective registration statement covering the Securities such Investor will
sell, transfer, or otherwise dispose of the Securities only in a manner
consistent with its representations and agreements set forth herein and the
terms and conditions set forth in the Stockholders Agreement.
3.4. Suitability. Such Investor is an accredited investor as such term
is defined in Rule 501(a) promulgated pursuant to the Securities Act.
3.5. Financial Condition. Such Investor's financial condition is such
that it is able to bear the risk of holding the Securities for an indefinite
period of time and can bear the loss of its entire investment in its Securities.
3.6. Experience. Such Investor has such knowledge and experience in
financial and business matters and in making high risk investments of this type
that it is capable of evaluating the merits and risks of the purchase of the
Shares.
3.7. Brokerage. There are no claims for brokerage commissions or
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of such Investor, and such Investor agrees to indemnify and hold the
Company and the other Investors harmless against any damages incurred as a
result of any such claims.
3.8. Legends. Such Investor understands that the certificates
evidencing the Shares (and the certificates evidencing the Conversion Shares)
may bear substantially the following legends:
3.8.1. "These securities have not been registered under the
Securities Act of 1933. They may not be sold, offered for sale,
pledged or hypothecated in the absence of a registration statement in
effect with respect to the securities under such Act or an opinion of
counsel satisfactory to the Company that such registration is not
required or unless sold pursuant to Rule 144(k) of such Act or
transferred to an affiliate."
3.8.2. Any legend required by the Stockholders Agreement or
the laws of any applicable jurisdiction.
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4. Conditions to the Investors' Obligations at either Closing.
The obligations of the Investors under Section 1.3 of this Agreement
to purchase Shares at either the Initial Closing or the Second Closing are
subject to the fulfillment on or before such Closing of each of the following
conditions unless waived by each of the Investors:
4.1. Representations and Warranties. The representations and
warranties of the Company contained in Section 2 shall be true and correct on
and as of the date of such Closing with the same effect as though such
representations and warranties had been made on and as of the date of such
Closing.
4.2. Performance. The Company shall have performed and complied with
all agreements, obligations, and conditions contained in this Agreement that are
required to be performed or complied with by it on or before such Closing.
4.3. Compliance Certificate. The Chief Executive Officer of the
Company shall have delivered to the Investors at such Closing a certificate
certifying that the conditions specified in this Section 4 (and, if such Closing
is the Second Closing, the conditions specified in Section 5) have been
fulfilled.
4.4. Restated Certificate. The Company shall have filed the Restated
Certificate with the Secretary of State of Delaware, and such filing shall have
become effective. Other than such filing, the Company shall have made no
amendments to its Certificate of Incorporation.
4.5. Qualifications. All authorizations, approvals, or permits, if
any, of any Governmental Authority that are required in connection with the
lawful issuance and sale of the Shares to the Investors pursuant to this
Agreement (including without limitation waivers issued by the FCC) shall have
been duly obtained and shall be effective on and as of such Closing, other than
those which are not required to be obtained before such Closing.
4.6. Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at such Closing and all documents
incident thereto shall be satisfactory in form and substance to the Investors
and the Investors' counsel, and they shall have received all such counterpart
original and certified or other copies of such documents as they may reasonably
request.
4.7. Stockholders Agreement. The Stockholders Agreement substantially
in the form of Exhibit B attached hereto shall have been executed and delivered
by the Company, the Investors and each of the stockholders of the Company, and
the Stockholders Agreement shall be in full force and effect.
4.8. Stock Option Plan. The Company shall have adopted, and the
stockholders of the Company shall have approved, the Stock Option Plan
substantially in the form attached hereto as
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Exhibit C.
4.9. Warrants. The Company shall have issued to the stockholders of
the Company (other than the Investors), and such stockholders shall have
accepted and agreed to, the Warrants substantially in the form attached hereto
as Exhibit D, as to an aggregate of 9,642,857 shares if such Closing is the
Initial Closing, and as to an aggregate of 13,500,000 shares if such Closing is
the Second Closing, in each case allocated among the stockholders in proportion
to the respective numbers of shares of Common Stock held by each of them as of
the date hereof, as set forth in Exhibit E.
4.10. Secretary's Certificate. The Secretary or an Assistant Secretary
of the Company shall have delivered to the Investors at such Closing a
Certificate, dated as of the date of such Closing, certifying: (a) that attached
thereto is a true and complete copy of the By-Laws of the Company as in effect
on the date of such certification; (b) that attached thereto is a true and
complete copy of all resolutions adopted by the Board of Directors and the
stockholders of the Company authorizing the execution, delivery and performance
of this Agreement and the Stockholders Agreement and the issuance, sale and
delivery of the Shares and reservation, issuance and delivery of the Conversion
Shares, and that all such resolutions are in full force in effect and are all
the resolutions adopted in connection with the transactions contemplated by this
Agreement and the Stockholders Agreement; (c) that attached thereto is a true
and complete copy of the Restated Certificate of Incorporation of the Company as
in effect on the date of such certification; and (d) to the incumbency and
specimen signature of certain officers of the Company.
4.11. Opinion of Company Counsel. The Investors shall have received
from Pedersen & Houpt, P.C., counsel for the Company, an opinion dated as of the
date of such Closing in substantially the form attached hereto as Exhibit F.
4.12. Opinion of Company FCC Counsel. The Investors shall have
received from Pepper & Corazzini, L.L.P., FCC counsel for the Company, an
opinion dated as of the date of such Closing in substantially the form attached
hereto as Exhibit G.
4.13. Completion of Boise Acquisition. Contemporaneously with the
Initial Closing, the Company shall complete the Boise Acquisition, on
substantially the same terms and for such consideration as is consistent with
that the Boise Agreement, and otherwise on terms and conditions reasonably
satisfactory to the Investors.
4.14. Payment of Expenses. The Company shall have paid the fees and
expenses of the Investors incurred in connection with the negotiation,
preparation, execution and delivery of the Transaction Documents and payable
under Section 8.2 that have been invoiced on or before the date of such Closing.
5. Additional Conditions to the Investors' Obligations at the Second Closing.
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The Investors' obligations under Section 1.3.2 to purchase the balance
of the Shares at the Second Closing shall be subject to the fulfillment on or
before the Second Closing of each of the following conditions unless waived by
each of the Investors:
5.1. Completion of Yakima Acquisition. The Company or a Subsidiary of
the Company shall have entered into an agreement with Northwest Cable Network
for the purchase by the Company or such Subsidiary of the assets relating to the
wireless cable television system in Yakima, Washington (the "Yakima
Acquisition"); the Company shall have delivered to the Investors not later than
20 days prior to the date of the Second Closing true and complete copies of such
agreement, all exhibits and schedules thereto, all amendments thereto, all side
letters entered into in connection therewith and all financial statements
delivered in connection therewith, all of which shall be satisfactory in form
and substance to the Investors; the Company shall have delivered to the
Investors a schedule setting forth all of the information that would, to the
best of the Company's knowledge as of the date of the Second Closing, be
required to be disclosed in the Schedules referred to in Section 2.3 if the
Yakima Acquisition had been completed prior to the date hereof, and true and
complete copies of all documents referred to in such schedule, and such
disclosures and the documents so furnished shall be satisfactory to the
Investors; and contemporaneously with the Second Closing the Company or such
Subsidiary shall have completed the Yakima Acquisition, for such consideration
and on such other terms and conditions as are satisfactory to the Investors.
6. Conditions to the Company's Obligations at either Closing.
The obligation of the Company under Section 1.3 of this Agreement to
issue and sell the Shares at either the Initial Closing or the Second Closing
is subject to the fulfillment on or before such Closing of each of the
following conditions unless waived by the Company:
6.1. Representations and Warranties. The representations and
warranties of the Investors contained in Section 3 shall be true and correct on
and as of the date of such Closing with the same effect as though such
representations and warranties had been made on and as of such date.
6.2. Payment of Purchase Price. The Investors shall have delivered
payment of the aggregate purchase price of the Shares to be purchased by them at
such Closing, as set forth in Section 1.3.
6.3. Stockholders Agreement. The Stockholders Agreement substantially
in the form of Exhibit B attached hereto shall have been executed and delivered
by the Company, the Investors and each of the Stockholders of the Company, and
the Stockholders Agreement shall be in full force and effect.
7. Affirmative Covenants of the Company.
7.1. Financial Statements and Reports. Each of the Company and its
Subsidiaries shall
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maintain a system of accounting in which correct entries shall be made of all
transactions in relation to their business and affairs in accordance with
generally accepted accounting principles.
7.1.1. Annual Reports. The Company shall furnish to the
Investors as soon as available, and in any event within 90 days after
the end of each fiscal year, the consolidated and consolidating
balance sheets of the Company and its Subsidiaries as at the end of
such fiscal year, the consolidated and consolidating statements of
income and the consolidated statements of changes in shareholders'
equity and of cash flows of the Company and its Subsidiaries for such
fiscal year (all in reasonable detail, showing actual versus budgeted
amounts) and together in the case of consolidated financial statements
with comparative figures for the immediately preceding fiscal year.
The consolidated financial statements referred to in this Section
7.1.1. shall be accompanied by unqualified reports of Arthur Andersen
& Co. or other auditors selected by the Board of Directors of the
Company, who shall be independent public accountants of national
standing satisfactory to the Investors, containing no material
uncertainty, to the effect that they have audited the consolidated
financial statements referred to in this Section 7.1.1 in accordance
with generally accepted auditing standards and that such financial
statements present fairly, in all material respects, the consolidated
financial position of the Company and its Subsidiaries covered thereby
at the dates thereof and the results of their consolidated operations
for the periods covered thereby in conformity with generally accepted
accounting principles.
7.1.2. Quarterly Reports. The Company shall furnish to the
Investors as soon as available and in any event within 45 days after
the end of each of the first three fiscal quarters of the Company, the
internally prepared consolidated and consolidating balance sheets of
the Company and its Subsidiaries as of the end of such fiscal quarter,
the consolidated and consolidating statements of income and the
consolidated statements of changes in shareholders' equity and of cash
flows of the Company and its Subsidiaries for such fiscal quarter and
for the portion of the fiscal year then ended (all in reasonable
detail, showing actual versus budgeted amounts) and together in the
case of consolidated financial statements with comparative figures for
the same period in the preceding fiscal year, all accompanied by a
certificate of the Company signed by the principal financial officer
of the Company to the effect that such financial statements have been
prepared in accordance with generally accepted accounting principles
and present fairly, in all material respects, the financial position
of the Company and its Subsidiaries at the dates thereof and the
results of their operations for the periods covered thereby, subject
only to normal year-end audit adjustments and the addition of
footnotes.
7.1.3. Monthly Reports. The Company shall furnish to the
Investors as soon as available, and in any event within 25 days after
the end of each month other than the last month of any fiscal quarter
the internally prepared consolidated and consolidating balance sheets
of the Company and its Subsidiaries as of the end of such month and
the consolidated and consolidating statements of income for such month
and for the portion
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of the fiscal year then ended (all in reasonable detail, showing
actual versus budgeted amounts) and together in the case of
consolidated financial statements with comparative figures for the
same period in the preceding fiscal year, all accompanied by a
certificate of the Company signed by the principal financial officer
of the Company to the effect that such financial statements have been
prepared in accordance with generally accepted accounting principles
and present fairly, in all material respects, the financial position
of the Company and its Subsidiaries at the dates thereof and the
results of their operations for the periods covered thereby, subject
only to normal year-end audit adjustments and the addition of
footnotes.
7.1.4. Other Reports. The Company shall promptly furnish to
the Investors:
7.1.4.1. As soon as prepared and in any event no
later than 30 days before the beginning of each fiscal year,
operating and capital budget for such fiscal year of the
Company and its Subsidiaries, as approved by the Company's
Board of Directors, prepared in a manner and at a level of
detail consistent with the manner in which the financial
statements of the Company are prepared and consistent with the
practice of the cable television industry, on a month-by-month
basis, including projected balance sheets and statements of
income, cash flow and changes in financial condition for each
month;
7.1.4.2. Any management letters furnished to the
Company or any of its Subsidiaries by the Company's
auditors;
7.1.4.3. Such registration statements, proxy
statements and reports, as may be filed by the Company or any
of its Subsidiaries with the Securities and Exchange
Commission, any securities exchange or the National
Association of Securities Dealers, Inc.; and
7.1.4.4. Any financial statements, "no-default"
letters or other material correspondence sent by the Company
or any of its Subsidiaries to any lenders.
7.1.5. Visits and Discussions. The Company shall permit each
Investor and the authorized representatives of each such Investor, at
all reasonable times during normal business hours and as often as
reasonably requested, to visit and inspect, at the expense of such
Investor, any of the properties of the Company and its Subsidiaries,
including its books and records and, subject to reasonable
arrangements with any transfer agents of the Company, lists of
security holders, and to make extracts therefrom and to discuss the
affairs, finances, and accounts of the Company and its Subsidiaries
with its officers and auditors.
7.1.6. Litigation, etc. The Company shall promptly advise
each Investor in writing of each action commenced or threatened
against the Company or any of its
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Subsidiaries with an ad damnum in excess of $50,000 or which if
successful could have a Material Adverse Effect, and of any facts that
come to the Company's attention which question the accuracy or
completeness of the representations and warranties contained herein
when made.
7.1.7. Other Information. The Company shall also furnish to
each Investor, with reasonable promptness, any such other information
and data with respect to the Company and its Subsidiaries as such
Investor may from time to time request.
7.2. Confidentiality. Each of the Investors covenants and agrees that
any person or entity receiving information under Section 7.1 or exercising
rights of visitation or inspection granted hereunder shall maintain the
confidentiality of all financial, confidential and proprietary information of
the Company and its Subsidiaries acquired by them in exercising such rights.
Notwithstanding the preceding sentence, each Investor may (a) disclose such
information when required by law or governmental order or regulation, or when
required by a subpoena or other process, (b) disclose such information to the
extent necessary to enforce this Agreement or the Stockholders Agreement, (c)
disclose such information to its attorneys, accountants, consultants and other
professionals to the extent necessary to obtain their services in connection
with its investment in the Company, provided that the requirements of this
Section 7.2 shall in turn be binding on any such attorney, accountant,
consultant or other professional, (d) disclose such information as may be
required by any prospective purchaser of any Shares or Conversion Shares from
such Investor, provided that such prospective purchaser agrees in writing to be
bound by the provisions of this Section 7.2, or (e) disclose such information to
the holders of partnership interests in such Investor or to any other Affiliate
of such Investor.
7.3. Use of Proceeds. The Company shall use the proceeds from the sale
of the Shares only for reduction of outstanding debt, for working capital and
for expansion, including the Boise Acquisition and the Yakima Acquisition.
7.4. Dealings with Affiliates and Others. Except for ordinary and
usual Compensation arrangements, the Company and its Subsidiaries shall not
enter into any transaction, including, without limitation, any loans or
extensions of credit or royalty agreements, with any Affiliate on terms less
favorable to the Company or such Subsidiary, as the case may be, than the
Company or such Subsidiary would be able to obtain in a transaction with a
person who is not an Affiliate.
7.5. Certain Restrictions. Until the first date on which the Investors
and their Affiliates hold less than the Required Shares, the Company shall not,
without the written consent of both of the Investors, take, or permit any of its
Subsidiaries to take, any of the actions set forth below in this Section 7.5,
provided that such consent shall be deemed to have been given if the Investors
have designated two or more individuals as members of the Board of Directors of
the Company pursuant to the Stockholders Agreement, such persons shall have been
duly elected and qualified as directors of the Company, and an action shall have
been approved by the Board of Directors of the Company with all such members of
the Board of Directors designated by the Investors
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affirmatively voting in favor of such action:
7.5.1. A merger or consolidation, whether or not the Company
or a Subsidiary thereof is the surviving entity;
7.5.2. A sale, transfer, liquidation or other disposition of
any System or any other major assets, whether effected by merger, sale
of assets, sale of equity securities or otherwise;
7.5.3. The acquisition or lease of any System or any other
major assets in excess of $500,000, whether effected by merger,
purchase of assets, purchase of equity securities or otherwise;
7.5.4. The incurrence or refinancing of any Debt in excess of
$500,000, or in the case of equipment financing transactions in excess
of $250,000, per transaction or series of related transactions;
provided, however, that the Investors shall not unreasonably withhold
consent to the refinancing of the $14,000,000 Revolving Promissory
Note dated March 17, 1994 with Bank of America Illinois;
7.5.5. The issuance by the Company of any equity securities,
including pursuant to an initial public offering, and including the
allocation of equity securities to management of the Company pursuant
to the Stock Option Plan or otherwise;
7.5.6. The hiring of legal, accounting and financial advisors
for such matters as material litigation, acquisitions in amounts
exceeding $1,000,000, financings in amounts exceeding $5,000,000 and
public offerings, provided that Arthur Andersen & Co. as initial
auditor and of Pedersen & Houpt as initial counsel are hereby approved
by the Investors;
7.5.7. The termination or replacement of William W. Kingery,
Jr., the current President and Chief Executive Officer of the Company;
7.5.8. Engaging in any business other than wireless cable
television or other businesses which are incidental thereto or use the
same channel frequencies as are used for wireless cable television;
7.5.9. Entering into any agreement or arrangement with an
Affiliate or any agreement or arrangement not negotiated on an arms'
length basis;
7.5.10. Any amendment to the Charter or By-Laws of the
Company; or
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7.5.11. The incurrence of any capital or other expenditure in
an amount exceeding $500,000, or contracting for any such
expenditures.
7.6. Observer Rights. Until such time as the Investors shall have
designated at least two individuals to be members of the Company's Board of
Directors pursuant to the Stockholders Agreement and such persons shall have
been duly elected and qualified as directors of the Company, up to two
individuals designated by the Investors shall be entitled to notice of and to
attend, without voting rights, all meetings of the Board of Directors of the
Company and all committees thereof, and to receive copies of all materials
distributed to the directors in connection with such meetings.
7.7. Current Payments to Meet Tax Liability. During any quarter in
which either of the Investors or any of their respective partners is required to
recognize, for federal income tax purposes, income in respect of any accretion
in the Liquidation Value (as defined in the Restated Certificate) on the
Preferred Stock for such quarter, the Company shall make cash payments to the
holders of the Preferred Stock in reduction of Liquidation Value, pursuant to
Section 4.3.1 of the Restated Certificate, in the amount of 50% of such
accretion for such quarter.
7.8. Conversion of Shares to Subordinated Note. At any time that any
of the Preferred Stock is held by either of the Investors, the Company may
request in writing (an "Exchange Request") that the Investors surrender all of
the Preferred Stock held by them, in exchange for a Subordinated Convertible
Promissory Note (the "Note") of the Company, with terms and conditions as nearly
equivalent as possible and in any event no less favorable to the Investors than
the terms and conditions of the Preferred Stock, including convertibility
provisions. The Note shall be in a principal amount equal to the initial
investment plus accrued dividends and shall accrue interest, compounded
quarterly, at a rate of 10% per annum. The Note shall provide that all amounts
of principal and of accrued but unpaid interest which are not converted into
Conversion Shares shall be paid in cash at the time of conversion, and that 50%
of the interest accruing on such note shall be payable currently in cash. Upon
receipt of an Exchange Request, the Investors shall within 120 days enter into
the exchange specified therein, provided that the Investors shall not be
required to enter into such exchange unless it is (i) without any adverse tax
consequences to the Investors or the holders of partnership interests therein,
and (ii) pursuant to documentation reasonably satisfactory to the Investors and
their counsel. The term "adverse tax consequences" in the previous sentence
shall include a requirement to recognize, for federal income tax purposes,
income in respect of interest on the Note in any period prior to the period in
which less than 50% of such interest is paid to the Investors in cash. From and
after the consummation of such exchange, references herein to the "Shares" shall
be deemed to be references to the Note received by the Investors in exchange
therefor, and references to the "Conversion Shares" shall be deemed to be
references to the shares of Common Stock issued or issuable on conversion of the
Note.
8. Remedies.
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8.1. Rescission. In the event that (a) the Investors determine that
any of the representations and warranties of the Company contained in this
Agreement, or in the Schedules hereto or any documents delivered to the
Investors in connection herewith, are false in whole or in part, and either (i)
the effect thereof is that the Fair Value (as defined in Section 8.2) of the
Company and its Subsidiaries on a consolidated basis is more than $3,000,000
below the Fair Value which the Company and its Subsidiaries would have had on a
consolidated basis if the representations or warranties in question had not been
false, or (ii) if as a result thereof the Company and its Subsidiaries are
required to make payments of $1,000,000 or more than the Company and its
Subsidiaries would have been required to be made if the representations or
warranties in question has not been false or (b) if a court issues a final
judgment binding on the Company or any of its Subsidiaries that results in all
or a substantial portion of the assets relating to the wireless cable television
system in Sacramento, California held by the Company and its Subsidiaries as of
the date hereof being transferred to any Person or Persons other than the
Company and its Subsidiaries, then, subject to the provisions of Section 8.3,
the Investors may, by giving written notice to the Company (which in the case of
(a) above must be given not later than the date which is 90 days after the
delivery by the Company to the Investors of its audited financial statements for
1995), be entitled to rescind this Agreement and the purchase of Shares pursuant
hereto in their entirety and in connection therewith to receive from the
Company, upon demand, the return of the purchase price paid for the Shares,
together with interest thereon at the rate of 10% from the date of purchase,
compounded quarterly, and the surrender to the Company by the Investors of all
the Shares held by the Investors, provided, however, that the Company shall not
be relieved from its obligations under Section 9.2 as a result of such
rescission. The foregoing shall, in the absence of fraud or intentional
misrepresentation, be the Investors' exclusive remedy against the Company for
the matters covered in this Section 8.1.
8.2. Fair Value. The term "Fair Value" in Section 8.1 shall mean the
fair market value of the Company as agreed upon by the Investors and the Company
or as shown by an appraisal performed by an independent appraiser satisfactory
to the Investors and the Company. In the event that the Company and the
Investors do not agree on such fair market value or on the selection of an
independent appraiser within 20 days after the event which gives rise to the
need to determine Fair Value, each of the Company and the Investors shall select
an appraiser within 30 days of such event and those two appraisers shall select
within 45 days of such event another independent appraiser. The appraisers so
selected shall then have 30 days from the date of the selection of the third
appraiser to determine the fair market value of the Company. When determining
the fair market value, the appraisers shall consider, among other factors, book
value, liquidation value, replacement value and the value of future cash flows
of the Company as an ongoing enterprise and shall make no deduction, discount or
other subtraction whatsoever for the possible minority status or limited voting
rights of the Investors. If the single appraiser has been appointed, such
appraiser's determination of value shall be final and binding. If three
appraisers shall have been appointed as hereinabove set forth, the values
determined by the three appraisers shall be averaged, the determination which
shall differ most from such average shall be disregarded, the remaining two
determinations shall be averaged, and such average shall be final and binding.
If one independent appraiser is selected, the Company and the Investors shall
each
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bear one-half of the expenses of the independent appraiser. If the Company and
the Investors have each selected an appraiser, the Company and the Investors
shall each bear the expenses of its own appraiser and one-half the expenses of
the independent appraiser selected by the two appraisers.
8.3. Cure by Stockholders. If an event described in clause (a) of
Section 8.1 (but not an event described in clause (b) of Section 8.1) shall have
occurred, then the Investors shall not be entitled to the rescission remedy
described in Section 8.1 if one or more stockholders of the Company (other than
the Investors) shall, before or within 10 days after the giving of the notice
described in Section 8.1, make payments to the Company, for which no
consideration is received by such stockholders, such that, after giving effect
to such payments, neither of the conditions described in clauses (a)(i) and
(a)(ii) of Section 8.1 remains true.
8.4. In the event of any breach by the Company and its Subsidiaries
in the performance of the covenants contained in Section 7, the Investors shall
be entitled to specific performance of the obligations of the Company and its
Subsidiaries hereunder and to such other equitable remedies (including, without
limitation, preliminary or temporary relief) as may be appropriate in the
circumstances, it being agreed that monetary damages are not sufficient to
compensate the Investors for the breach of such continuing obligations.
8.5. The provisions of this Section 8 have been specifically negotiated
in order to induce the Investors to enter into this Agreement.
9. Miscellaneous.
9.1. Amendments and Waivers. Except as set forth in this Agreement,
changes in or additions to this Agreement may be made, or compliance with any
term, covenant, agreement, condition or provision set forth herein may be
omitted or waived (either generally or in a particular instance and either
retroactively or prospectively), or representatives to act on behalf of the
holders of all of the Shares may be designated, upon the written consent of the
Company and the holders of a majority of the Shares (each Share carrying voting
rights equal to the number of Conversion Shares into which it can at such time
be converted) and Conversion Shares then outstanding voting together as a single
class, provided, however, that so long as the Investors hold any Shares, the
consent of each Investor shall be obtained.
9.2. Expenses, etc. Whether or not the transactions contemplated by
the Transaction Agreements shall be consummated, the Company shall pay on
submission of detailed invoices all expenses in connection with such
transactions and in connection with operations under the Transaction Agreements
and any amendments or waivers (whether or not the same become effective) thereof
and all expenses incurred by the Investors or any transferee of the Shares
issued hereunder or of the Conversion Shares in connection with the enforcement
of any rights hereunder, under the respective Charters of the Company or its
Subsidiaries, or under the Preferred Stock, including without limitation: (a)
the cost and expenses of preparing and
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duplicating the Transaction Agreements and the Shares; (b) the cost of
delivering to the Investors' principal office, insured to the Investors'
satisfaction, the Shares sold to the Investors hereunder and any Securities
delivered to the Investors in exchange therefor or upon any conversion thereof
or in substitution thereof, insured to the Investors' satisfaction; (c) the
fees, expenses and disbursements of Ropes & Gray; Gardner, Carton & Douglas;
and Latham & Watkins in connection with the transactions contemplated by the
Transaction Agreements, including any regulatory or other filing attendant on
the conversion of the Shares, and including filing fees payable in respect of
filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976; (d) the
fees, expenses and disbursements of Ernst & Young LLP and Hardin & Associates;
(e) all taxes including any recording fees and filing fees and documentary,
stamp and similar taxes at any time payable in respect of this Agreement, or
the issuance of the Shares or any securities issued in exchange therefor or
upon conversion thereof or in substitution thereof; and (f) the reasonable fees
and disbursements of counsel for any holder of Shares or Conversion Shares in
connection with all opinions rendered by such counsel pursuant to Section 9.7
hereof.
The Company hereby further agrees to indemnify, exonerate and hold the
Investors and each of their partners, officers, directors, employees and agents
free and harmless from and against any and all actions, causes of action,
suits, litigation, losses, liabilities and damages, investigation or proceeding
instituted by any governmental agency or any other Person and expenses in
connection therewith, including, without limitation, reasonable attorneys' fees
and disbursements, incurred in any capacity by the indemnitees or any of them
as a result of, or arising out of, or relating to (a) any transaction financed
or to be financed in whole or in part directly or indirectly with proceeds from
the sale of any of the Shares, or (b) the execution, delivery, performance or
enforcement of the Transaction Agreements or any instrument contemplated hereby
by any of the indemnitees, except for any such indemnified liabilities arising
on account of any indemnitee's gross negligence or wilful misconduct.
9.3. Certain Defined Terms. As used in this Agreement:
9.3.1. Action. The term "Action" shall mean any claim,
action, cause of action or suit (in contract or tort or otherwise) or
arbitration, or any proceeding by or before any Governmental
Authority.
9.3.2. Affiliate. The term "Affiliate" shall mean, as to any
specified Person at any time, (i) each Person directly or indirectly
controlling, controlled by or under direct or indirect common control
with such specified Person at such time, (ii) each Person who is or
has been within two years prior to the time in question an officer,
director or direct or indirect beneficial holder of at least 1% of any
class of the outstanding capital stock of such specified Person and
the Members of the Immediate Family of each such officer, director or
holder (and, if such specified Person is a natural person, of such
specified Person), and (iii) each Person of which such specified
Person or an Affiliate (as defined in clauses (i) or (ii) above)
thereof shall, directly or indirectly, beneficially own at least 1% of
any class of outstanding capital stock or other evidence of beneficial
interest at
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such time. In the case of the Investors the term "Affiliate" shall
also include their partners and any limited partnership or other
person formed for the purpose of investing in other companies or
businesses and for which Boston Ventures Management, Inc., or any of
its Affiliates acts as a partner or as an advisor or manager.
9.3.3. Business. The term "Business" shall mean the business
of the Company and its Subsidiaries including without limitation as
such business is reflected in the Financial Statements and the Budget.
9.3.4. By-laws. The term "By-laws" shall mean all written
rules, regulations and by-laws, and all other documents (other than
the Charter), relating to the management, governance or internal
regulation of a Person (other than an individual) or interpretative of
the Charter of such Person, each as from time to time in effect.
9.3.5. Charter. The term "Charter" shall mean the certificate
or articles of incorporation or organization, statute, constitution,
joint venture or partnership agreement or articles or other charter
documents of any Person (other than an individual), each as from time
to time in effect.
9.3.6. Code. The term "Code" shall mean the federal Internal
Revenue Code of 1986 or any successor statute, and the rules and
regulations thereunder, and in the case of any referenced section of
any such statute, rule or regulation, any successor section thereto,
collectively and as from time to time amended and in effect.
9.3.7. Compensation. The term "Compensation", as applied to
any Person, shall mean all salaries, compensation, remuneration or
bonuses of any character, and medical, surgical, dental, hospital,
disability, unemployment, retirement, pension, vacation, insurance or
fringe benefits of any kind, or other payments of any kind whatsoever
made directly or indirectly by the Company or any of its Subsidiaries
to such Person or Members of the Immediate Family of such Person.
9.3.8. Contractual Obligation. The term "Contractual
Obligation" shall mean, with respect to any Person, any contract,
agreement, deed, mortgage, lease, license, commitment, undertaking,
arrangement or understanding, written or oral, or other document or
instrument including without limitation any document or instrument
evidencing or otherwise relating to any indebtedness but excluding the
Charter and By-laws of such Person, to which or by which such Person
is a party or otherwise subject or bound or to which or by which any
property or right of such Person is subject or bound.
9.3.9. Debt. "Debt" of any Person means all obligations of
such Person (i) for borrowed money, (ii) evidenced by notes, bonds,
debentures or similar instruments, (iii) for the deferred purchase
price of goods or services (other than trade payables or accruals
incurred in the Ordinary Course of Business), (iv) under capital
leases and (v) in the
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nature of Guarantees of the obligations described in clauses (i)
through (iv) above of any other Person.
9.3.10. Distribution. The term "Distribution" shall mean,
with respect to the capital stock of or other evidence of beneficial
interest in any Person, (i) the declaration or payment of any dividend
on or in respect of any shares of any class of such capital stock or
beneficial interest; (ii) the purchase, redemption or other retirement
of any shares of any class of such capital stock or beneficial
interest, directly, or indirectly through a Subsidiary or otherwise;
(iii) any other distribution on or in respect of any shares of any
class of such capital stock or beneficial interest, or on or in
respect of any stock appreciation or similar right; and (iv) the
payment of cash in lieu of shares upon the exercise of any stock
option or similar instrument.
9.3.11. Enforceable. The term "Enforceable" shall mean, with
respect to any Contractual Obligation stated to be Enforceable by or
against any Person, that such Contractual Obligation is a legal, valid
and binding obligation enforceable by or against such Person in
accordance with its terms, except to the extent that enforcement of
the rights and remedies created thereby is subject to bankruptcy,
insolvency, reorganization, moratorium and other similar laws of
general application affecting the rights and remedies of creditors and
to general principles of equity (regardless of whether enforceability
is considered in a proceeding in equity or at law).
9.3.12. ERISA. The term "ERISA" shall mean the federal
Employee Retirement Income Security Act of 1974 or any successor
statute, and the rules and regulations thereunder, and in the case of
any referenced section of any such statute, rule or regulation, any
successor section thereto, collectively and as from time to time
amended and in effect.
9.3.13. Generally Accepted Accounting Principles. The term
"generally accepted accounting principles" shall mean generally
accepted accounting principles, as defined by the Financial Accounting
Standards Board as of the date hereof.
9.3.14. Guarantee. The term "Guarantee" shall mean (i) any
guarantee of the payment or performance of, or any contingent
obligation in respect of, any indebtedness or other obligation of any
other Person, (ii) any other arrangement whereby credit is extended to
one obligor on the basis of any promise or undertaking of another
Person (A) to pay the indebtedness of such obligor, (B) to purchase
any obligation owed by such obligor, (C) to purchase or lease assets
(other than inventory in the ordinary course of business) under
circumstances that would enable such obligor to discharge one or more
of its obligations, or (D) to maintain the capital, working capital,
solvency or general financial condition of such obligor, and (iii) any
liability as a general partner of a partnership or as a venturer in a
joint venture in respect of indebtedness or other obligations of such
partnership or venture.
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9.3.15. Governmental Authority. The term "Governmental
Authority" shall mean any U.S. Federal, state or local or any foreign
government, governmental authority, regulatory or administrative
agency, governmental commission, court or tribunal (or any department,
bureau or division thereof) or any arbitral body.
9.3.16. Governmental Order. The term "Governmental Order"
shall mean any order, writ, judgment, injunction, decree, stipulation,
determination or award entered by or with any Governmental Authority.
9.3.17. Legal Requirement. The term "Legal Requirement" shall
mean any federal, state, local or foreign law, statute, standard,
ordinance, code, order, rule, regulation, resolution or promulgation,
or any order, judgment or decree of any Governmental Authority, or any
license, franchise, permit or similar right granted under any of the
foregoing, or any similar provision having the force and effect of
law.
9.3.18. Lien. The term "Lien" shall mean any mortgage,
pledge, lien, security interest, charge, claim, equity, encumbrance,
restriction on transfer, conditional sale or other title retention
device or arrangement (including without limitation a capital lease),
transfer for the purpose of subjection to the payment of any
indebtedness, or restriction on the creation of any of the foregoing,
whether relating to any property or right or the income or profits
therefrom; provided, however, that the term "Lien" shall not include
(i) statutory liens for Taxes to the extent that the payment thereof
is not in arrears or otherwise due, (ii) encumbrances in the nature of
zoning restrictions, easements, rights or restrictions of record on
the use of real property if the same do not detract from the value of
such property or impair its use in the Business as currently
conducted, (iii) statutory or common law liens to secure landlords,
lessors or renters under leases or rental agreements confined to the
premises rented to the extent that no payment or performance under any
such lease or rental agreement is in arrears or is otherwise due, (iv)
deposits or pledges made in connection with, or to secure payment of,
worker's compensation, unemployment insurance, old age pension or
other social security programs mandated under applicable Legal
Requirements, (v) statutory or common law liens in favor of carriers,
warehousemen, mechanics and materialmen, statutory or common law liens
to secure claims for labor, materials or supplies and other like
liens, which secure obligations to the extent that payment thereof is
not in arrears or otherwise due; and (vi) restrictions on transfer of
FCC licenses imposed by the rules and regulations of the FCC.
9.3.19. Material Adverse Effect; Material. The term "Material
Adverse Effect" shall mean any change in or effect on the business,
operations, assets, prospects or condition, financial or otherwise, of
the Company or any of its Subsidiaries which is materially adverse to
the Company and its Subsidiaries taken as a whole or to any System on
an individual basis. The term "material" as used in this Agreement
shall mean material as determined by reference to the Company or any
of its Subsidiaries either on an individual basis or a consolidated
basis, or to any System on an individual basis.
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<PAGE> 41
9.3.20. Members of the Immediate Family. The term "Members of
the Immediate Family", with respect to any individual, shall mean each
spouse, parent, brother, sister or child of such individual, each
spouse of any such Person, each child of any of the aforementioned
Persons, each trust or partnership created in whole or in part for the
benefit of one or more of the aforementioned Persons and each
custodian or guardian of any property of one or more of the
aforementioned Persons.
9.3.21. Ordinary Course of Business. The term "Ordinary
Course of Business" shall mean the ordinary course of business
consistent with past custom and practice for the business operations
in question, including without limitation past practice with respect
to quantity and frequency, and the Company's standard employment and
payroll policies and practices.
9.3.22. Person. The term "Person" shall mean any individual,
partnership, corporation, association, trust, joint venture,
unincorporated organization or other entity, and any government,
governmental department or agency or political subdivision thereof.
9.3.23. Required Shares. The term "Required Shares" shall
mean 20% of the Shares originally purchased by the Investors hereunder
(including any Conversion Shares into which such Shares were
converted).
9.3.24. Subsidiary. The term "Subsidiary" shall mean, with
respect to any Person (other than an individual), any other Person at
least 50% of the voting power or 50% of the equity interest in which
is owned or controlled, directly or indirectly, by such Person.
9.3.25. System. The term "System" shall mean any of the
wireless cable systems operated by the Company or its Subsidiaries
that cover a particular Locality.
9.3.26. Taxes. The term "Taxes" shall mean any federal,
state, local, or foreign income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, premium, windfall
profits, environmental (including taxes under Code Section 59A),
customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real or personal
property, sales, use, transfer, registration, value added, alternative
or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed
or not.
9.3.27. Tax Return. The term "Tax Return" shall mean all
federal, state, local and foreign Tax returns, Tax reports, claims for
refund of Tax and declarations of estimated Tax, or other statement
relating to Taxes and any schedule or attachments to any of the
foregoing.
9.4. Cross-Reference Table. The following terms defined elsewhere in
this Agreement in
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the Sections set forth below shall have the respective meanings therein
defined:
Term Definition
---- ----------
Agreement Preamble
Assets Section 2.2.5.1
Boise Acquisition Section 2.11
Boise Agreement Section 2.11
Boise Seller Section 2.11
Budget Section 2.2.1
Channel Lease Agreements Section 2.3.3.1
Closing, Closings Section 1.3
Common Stock Section 2.1.2
Company Preamble
Contracts Section 2.4.1
Conversion Shares Section 2.1.2
Equipment Section 2.2.5.2
Exchange Request Section 7.7
FAA Section 2.3.5
Fair Value Section 8.2
FCC Section 2.1.2
Financial Statements Section 2.2.1
Fund IV Preamble
Fund IVA Preamble
Initial Closing Section 1.3.1
Interim 1995 Financials Section 2.2.1
Investors, Investor Preamble
IRS Section 2.5.2
Leases Section 2.2.5.2
Leased Channels Section 2.3.1
Locality Section 2.3.1
Note Section 7.7
Owned Channels Section 2.3.1
Owned Licenses Section 2.3.2
Partnership Licenses Section 2.12
Partnerships Section 2.12
Plans Section 2.5.4.1
Policies Section 2.4.3
Preferred Stock Section 1.1
Programming Contracts Section 2.3.7.1
Real Property Section 2.2.5.2
Remaining Channels Section 2.3.1
Restated Certificate Section 1.1
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<PAGE> 43
Shares Section 1.2
Second Closing Section 1.3.2
Securities Section 3.2
Securities Act Section 2.1.2
Stock Option Plan Section 21.2
Stockholders Agreement Section 2.1.1
System Documents Section 2.3.8.1
Television L.P. Section 2.12
Towers Section 2.3.6.1
Tower Leases Section 2.3.6.1
Transaction Agreements Section 2.1.1
Transaction Documents Section 2.1.5
Welfare Plans Section 2.5.4.1
WJB-TV Section 2.2.1
Yakima Acquisition Section 5.1
1994 Financials Section 2.2.1
1993 Financials Section 2.2.1
1992 Financials Section 2.2.1
9.5. Survival of Covenants; Assignability of Rights. All covenants,
agreements, representations and warranties of the Company made herein and in the
certificates, lists, exhibits, schedules or other written information delivered
or furnished to any Investor in connection herewith shall be deemed material and
to have been relied upon by such Investor, and, except as provided otherwise in
this Agreement, shall survive the delivery of the Shares, and shall bind the
Company's successors and assigns, whether so expressed or not, and, except as
provided otherwise in this Agreement, all such covenants, agreements,
representations and warranties shall inure to the benefit of the Investors'
successors and assigns and to transferees of the Shares, whether so expressed or
not.
9.6. Replacement of Lost Securities. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any of the Share, and, in the case of any such loss, theft or
destruction, upon delivery of an indemnity bond in such reasonable amount as
the Company may determine (or, in the case of a security held by one of the
Investors or by the nominee of one of the Investors, of an unsecured indemnity
agreement from one of the Investors or such other holder reasonably
satisfactory to the Company) or, in the case of any such mutilation, upon the
surrender of the Share, for cancellation to the Company at its principal
office, the Company its expense will execute and deliver or will cause to be
executed and delivered in lieu thereof a new security or like tenor. Any Share
in lieu of which any such security has been so executed and delivered or caused
to be executed and delivered by the Company shall not be deemed to be an
outstanding security for any purpose.
9.7. Notice of Proposed Transfer; Opinions of Counsel. Prior to any
transfer of any of the Shares or the Conversion Shares, the holder thereof will
give not less than five days' prior
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<PAGE> 44
written notice to the Company of such holder's intention to effect such
transfer, describing in reasonable detail the manner of the proposed transfer.
No holder of Shares or Conversion Shares shall transfer any Shares or
Conversion Shares until (i) such holder delivers to the Company an opinion of
Ropes & Gray or other counsel reasonably acceptable to the Company addressed to
the Company to the effect that the proposed transfer may be effected without
registration of such Shares or Conversion Shares under the Securities Act or
applicable state securities laws and (ii) the transferee agrees in writing to
be bound by all of the terms of this Agreement, and thereupon such holder shall
be entitled, within 30 days thereafter, to transfer such Shares or Conversion
Shares in accordance with the terms of this Agreement and the notice delivered
by such holder to the Company. Each certificate representing Shares or
Conversion Shares so transferred shall bear the restrictive legend referred to
in Section 3.8.1 hereof, in each case unless the holder has delivered to the
Company an opinion of Ropes & Gray or other counsel reasonably acceptable to
the Company that such restrictions are no longer required in order to assure
compliance with the Securities Act or applicable state securities laws.
Whenever any of such restrictions shall cease and terminate as to any of the
Shares or Conversion Shares, the holder thereof shall be entitled to receive,
without expense, from the Company a new certificate of like tenor not bearing
that part of the legend set forth in Section 3.8.1 that it is no longer
applicable.
9.8. Incorporation by Reference. All exhibits and schedules appended
to this Agreement are herein incorporated by reference and made a part hereof.
9.9. Parties in Interest. All covenants, agreements, representations,
warranties and undertakings in this Agreement made by and on behalf of any of
the parties hereto shall bind and inure to the benefit of the respective
successors and assigns of the parties hereto, whether so expressed or not, and
any Investor may assign all of its rights and obligations herein to any
Affiliate of such Investor.
9.10. Governing Law. This Agreement shall be deemed a contract made
under the laws of The Commonwealth of Massachusetts and, together with the
rights of obligations of the parties hereunder, shall be construed under and
governed by the laws of such Commonwealth, without regard to conflict of laws
principles thereof.
9.11. Notices. All notices, requests, consents and demands shall be in
writing and shall be personally delivered, mailed, postage prepaid, telecopied
or telegraphed, to the Company at:
Wireless Broadcasting Systems
of America, Inc.
9250 East Costilla Avenue
Suite 325
Englewood, CO 80122
Attn: President
Telecopier: (303) 649-1196
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<PAGE> 45
with a copy to:
John Muehlstein, Esq.
Pedersen & Houpt
161 North Clark Street
Chicago, IL 60601
Telecopier: (312) 641-6895
to the Investors at:
Boston Ventures Limited Partnership IV
Boston Ventures Limited Partnership IVA
c/o Boston Ventures Management, Inc.
21 Custom House Street
Boston, MA 02110
Attn: Barbara M. Ginader
Telecopier (617) 737-3709
with a copy to:
Philip J. Smith, Esq.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Telecopier: (617) 951-7050
or such other address as may be furnished in writing to the other parties
hereto. All such notices, requests, demands and other communication shall,
when mailed (registered or certified mail, return receipt requested, postage
prepaid), personally delivered, or telegraphed, be effective four days after
deposit in the mails, when personally delivered, or when delivered to the
telegraph company, respectively, addressed as aforesaid, unless otherwise
provided herein and, when telecopied, shall be effective upon actual receipt.
9.12. Effect of Headings. The section and paragraph headings herein
are for convenience only and shall not affect the construction hereof.
9.13. Entire Agreement. This Agreement and the Exhibits and Schedules
hereto, together with any other Agreement referred to herein, constitute the
entire agreement among the Company and the Investors with respect to the subject
matter hereof. This Agreement and such other Agreements supersede all prior
agreements between the parties with respect to the Shares purchased hereunder
and the subject matter hereof.
9.14. Severability. The invalidity or unenforceability of any
provision hereof shall in no
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<PAGE> 46
way affect the validity or enforceability of any other provision.
9.15. Counterparts. This Agreement may be executed in counterparts,
all of which together shall constitute one and the same instrument.
[The remainder of this page has been intentionally left blank.]
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<PAGE> 47
IN WITNESS WHEREOF, this Preferred Stock Purchase Agreement has been
executed by the parties hereto as of the date first above written.
WIRELESS BROADCASTING SYSTEMS
OF AMERICA, INC.
By: /s/ WILLIAM W. KINGERY
------------------------------------------
Name: William W. Kingery
Title: President
BOSTON VENTURES LIMITED
PARTNERSHIP IV
By: Boston Ventures Company Limited
Partnership IV, its general partner
By: /s/ BARBARA M. GINADER
------------------------------------------
Name: Barbara M. Ginader
Title: General Partner
BOSTON VENTURES LIMITED
PARTNERSHIP IVA
By: Boston Ventures Company Limited
Partnership IV, its general partner
By: /s/ BARBARA M. GINADER
-------------------------------------------
Name: Barbara M. Ginader
Title: General Partner
<PAGE> 48
LIST OF EXHIBITS AND SCHEDULES
Exhibits
--------
A Restated Certificate of Incorporation
B Stockholders Agreement
C Stock Option Plan
D Form of Warrants
E Allocation of Warrants
F Opinion of Pedersen & Houpt, P.C.
G Opinion of Pepper & Corazzini, L.L.P.
Schedules
---------
2.1.1 Foreign Qualifications
2.1.2 Stockholders and Option Holders
2.1.3 Subsidiaries
2.2.1 Financial Statements
2.2.2 Accounts Receivable/Churn
2.2.3 Change in Condition
2.2.4 Liabilities
2.2.5 Liens
2.3.1 Channels and Channel Lease Agreements
2.3.2 Owned Licenses
2.3.4 Other FCC Licenses
2.3.5 FAA Licenses
2.3.6 Towers and Tower Leases
2.3.7 Programming Contracts
2.3.8 System Documents
2.4.1 Contracts
2.4.3 Insurance Policies
2.4.4 Transactions with Affiliates
2.5.2 Tax Matters
2.5.4 Employee Benefit Plans
2.5.5 Governmental Approvals and Consents
2.5.6 Health, Safety Matters, etc.
2.8 Litigation
2.11 Boise System
<PAGE> 1
Exhibit 10.5
ASSET PURCHASE & SALE AGREEMENT
AND CHANNEL LEASE
THIS ASSET PURCHASE AND SALE AGREEMENT AND CHANNEL LEASE ("Agreement")
is made and entered into by and between Boise Cable Limited Partnership ("Boise
Partnership" or "Seller"), a limited partnership organized under the laws of
the state of Washington, and Wireless Broadcasting Systems of America, Inc.
("WBSA" or "Buyer"), a Delaware corporation. Boise Partnership and WBSA shall
be collectively referred to herein as "the parties".
W I T N E S S E T H
WHEREAS, Seller owns and operates a wireless cable television
subscription system (the "System") in Boise, Idaho ("the Metropolitan Area")
that is comprised of certain licenses, leases, agreements, tangible assets,
intangible assets and other rights and interests as defined herein (the
"Assets");
WHEREAS, Seller desires to sell, assign and convey such Assets to
Buyer, and Buyer desires to purchase and receive assignment and conveyance of
such Assets from Seller;
WHEREAS, the parties memorialized these intentions in a Revised Offer
Letter from Buyer dated August 29, 1994 and an Acceptance letter from Seller's
counsel dated September 6, 1994; and
WHEREAS, the parties hereto recognize that formal approval to assign
certain of the Assets must be obtained from third parties and governmental
entities. The parties hereto also recognize that Buyer wishes to begin
operating the System at the earliest possible time. Until such time as formal
approval of the necessary assignments is obtained from the proper authorities,
Seller wishes to lease to Buyer, and Buyer wishes to lease from Seller whatever
Assets Buyer cannot obtain direct assignment of.
NOW THEREFORE, in consideration of the premises and mutual promises
and conditions contained herein, and other good and valuable consideration, the
sufficiency and receipt of which is hereby acknowledged, the parties hereby
agree as follows:
I. PURCHASE AND SALE
A. ASSETS TO BE CONVEYED. Subject to the conditions and based upon the
representations made herein, Seller agrees to sell, and Buyer agrees to
purchase the following Assets of Seller, which are to be conveyed to Buyer free
and clear of all mortgages, liens and encumbrances to other persons of every
kind and character, with certain exceptions as detailed herein:
<PAGE> 2
1. All agreements, authorizations, licenses, leases, and
contracts connected with or relating to the operation of the System,
all of which are described on Exhibit A, attached hereto and
incorporated herein by reference.
2. All the tangible personal property of Seller, generally
described on Exhibit B, which is attached hereto and incorporated
herein by reference, less disposals and additions prior to the time of
Closing that are made in the ordinary course of business. Seller will
amend Exhibit B upon Closing in order to reflect these ordinary
disposals and additions.
3. All contracts, consents, assignments and acknowledgments in
effect on the Closing Date that are entered into by Seller for the
benefit of Buyer.
4. All rights of Seller, to the extent any exist, to the name
"Northwest Cable Network" or "Northwest Cable" or "NCN" or to any of
the call signs of the wireless cable stations, whether ITFS, MDS or
MMDS, that comprise the System.
5. All intangible Assets of the Seller including the Covenant Not
to Compete.
B. LIABILITIES NOT ASSUMED. It is understood and agreed that Buyer does
not intend to, and shall not, assume any obligation or liability of Seller of
any character whatsoever, whether relating to the System or otherwise, other
than the liabilities which are specifically assumed by Buyer (the "Assumed
Liabilities"), and detailed on Exhibit C, which is attached hereto and
incorporated herein by reference.
C. PURCHASE PRICE. In full consideration for the Assets to be
transferred to Buyer and the liabilities to be assumed by Buyer, and premised
on Seller's representation that it will have at least EIGHT THOUSAND (8,000)
Equivalent Basic Units ("EBUs") by Closing (see Paragraph I(D)), and subject to
all terms and conditions of this Agreement, the Buyer shall pay the Seller a
total Purchase Price of FIFTEEN MILLION THREE HUNDRED TWENTY FIVE THOUSAND
DOLLARS ($15,325,000.00) to be paid as follows:
1. Escrow Deposit. Upon execution of this Agreement, Buyer will
deposit SEVEN HUNDRED TWENTY SIX THOUSAND DOLLARS ("$726,000.00") into
an Escrow Account pursuant to the Escrow Agreement that is attached
hereto as Exhibit D.
a. Due Diligence, Release of Escrow. Buyer will have
sixty days from the date this document is executed to perform
a due diligence search of the Assets that are the subject
hereof. In the event material defects in the system in
general, or in the licenses in particular, are discovered
during this due diligence period, and such defects are not
cured by Seller within six (6) months after Closing, then the
funds in the Escrow Account shall remain in place until the
defects are resolved. Buyer shall attach hereto as Exhibit E,
upon Closing, a list of any and all defects
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<PAGE> 3
discovered during the due diligence period. The funds in the
Escrow Account shall also remain in place until resolution of
any other claims for indemnity that may arise between the
parties during the six months after Closing. If, at six
months after Closing, there are no defects or claims that
remain to be resolved, then pursuant to the Escrow Agreement,
the funds in the Escrow Account shall be released to Seller,
less any deductions for indemnity claims made in accordance
with this Agreement and any other adjustments, allocations and
prorations as specified herein between Buyer and Seller.
b. Escrow Deposit as Liquidated Damages/Refund of Escrow
Deposit.
(i) In the event Buyer and Seller fail to Close
the transactions contemplated hereunder due to
Buyer's breach of its representations, warranties,
covenants or obligations hereunder, and such breach
is not cured in accordance with Paragraph III(AA)
herein, then Escrow Agent shall deliver to Seller
SEVEN HUNDRED TWENTY SIX THOUSAND DOLLARS
("$726,000.00") as liquidated damages in accordance
with the Escrow Agreement. Any residual funds and
accrued interest in the Escrow Account shall be
returned to Buyer.
(ii) In the event Buyer and Seller fail to Close
the transactions contemplated hereunder due to
Seller's breach of its obligations, representations,
warranties or covenants hereunder, and such breach is
not cured in accordance with Paragraph III(AA)
herein, then Escrow Agent shall return all of the
funds in the Escrow Account to Buyer in accordance
with the Escrow Agreement.
(iii) In the event the transactions contemplated
hereunder cannot Close for reasons unrelated to a
breach by either Buyer or Seller, then, in accordance
with the Escrow Agreement, the funds in the Escrow
Account shall be split by Buyer and Seller, with
Seller receiving 1/120th of the Escrow Deposit for
each day that has passed after execution of this
document, and Buyer receiving the remainder of the
funds, including residual amounts and accrued
interest.
2. Balance of Purchase Price. Upon the Closing Date, Buyer shall
pay Seller the remainder of the Purchase Price, FOURTEEN MILLION FIVE
HUNDRED NINETY NINE THOUSAND DOLLARS ("$14,599,000.00"), in one lump
sum payment in the form of cash, certified check or wire transfer.
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<PAGE> 4
3. Covenant Not To Compete. In consideration of the Covenant Not
to Compete contained herein, Buyer is separately paying Seller the sum
of TWENTY FIVE THOUSAND DOLLARS ($25,000.00), to be paid to Seller
upon Closing.
4. Reduction of Purchase Price. In the event Seller does not
have 8,000 EBUs at Closing, the Purchase Price shall be reduced by ONE
THOUSAND NINE HUNDRED EIGHTEEN DOLLARS AND SEVENTY FIVE CENTS
("$1,918.75") per EBU below 8,000. In the alternative, Seller shall
have the option of postponing Closing until such time as it has 8,000
EBUS, but in no event shall Closing be delayed past January 30, 1995,
unless the parties agree in writing otherwise. If Seller elects to
postpone Closing, and on January 30, 1995 Seller's EBUs are at a level
below 8,000, then the Purchase Price shall be reduced as described
above and the transaction will Close in accord with this Agreement.
5. Post-Closing Adjustment of Purchase Price.
a. On Closing Seller shall deliver to Buyer a final
list, attached hereto as Exhibit F, of all EBUS. The
accounting shall be broken up into three categories: (i)
Current EBUs -- defined as accounts that, on Closing, have
balances that are outstanding for 44 or fewer days; (ii) Past
Due EBUs -- defined as accounts that, on Closing, have
balances outstanding for at least 45 days but not more than 60
days; (iii) Non-EBUs -- defined as accounts that were
installed for free after September 2, 1994, accounts that were
installed after September 2, 1994 at substantially reduced
rates (i.e., less than $9.95 per install), accounts who
receive service for free, and accounts that, on Closing, are
61 or more days past due. EBUs in category (i) and category
(ii) shall be counted toward Seller's final EBU total,
Non-EBUs in category (iii) shall not count toward the final
EBU total. For further definition of the term EBU see
Paragraph 1(1)(15) herein.
At the end of the month in which the transaction Closes, in order to
determine if the Seller should reimburse Buyer for any EBUs in
category (ii) above, the Buyer will undertake the following
evaluation: If Closing occurs on or before November 30, 1994, then
amounts due for October, 1994 service from EBUs in category (ii) must
be collected by November 30, 1994. If Closing occurs during the
month of December, 1994, then amounts due for November, 1994 service
must be paid by the last day in December, 1994. If Closing occurs
during the month of January, 1995, then amounts due for December,
1994 must be paid by the last day in January, 1995. EBUs in category
(ii) for whom payment is not collected for service as described above,
shall be known as "Reimbursable EBUS. "
Reimbursable EBUs shall be subtracted from the total number of EBUs
for which Seller was given credit at Closing. The Purchase Price will
be adjusted downward in the
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<PAGE> 5
following three scenarios by ONE THOUSAND NINE HUNDRED EIGHTEEN
DOLLARS AND SEVENTY FIVE CENTS ("$1,918.75") for each Reimbursable
EBU: (1) If the new EBU total falls below 8,000; (2) If Seller had
fewer than 8,000 EBUs at Closing; and (3) If Buyer delayed Closing
past December 16, 1994 and was required to pay an additional sum of
money for each EBU over 8,000. In these three scenarios, the Escrow
Agent will be instructed, pursuant to the Escrow Agreement, to deduct
from the Escrow Account and return to Buyer a sum equal to the number
of Reimbursable EBUs multiplied by ONE THOUSAND NINE HUNDRED EIGHTEEN
DOLLARS AND SEVENTY FIVE CENTS ("$1,918.75").
D. CLOSING; CLOSING DATE. The Closing Date for the transactions
contemplated hereunder shall be November 30, 1994, but not later than January
30, 1995, unless otherwise agreed in writing, and shall occur at a mutually
agreed upon location.
1. Seller Postponements. Seller may postpone Closing past
November 30, 1994 in the event it does not believe it will have 8,000
EBUs or the Required Consents as of the Closing Date. Seller shall
provide Buyer with written notice of the postponement 48 hours prior
to the Closing Date. In the notice Seller shall estimate, to the best
of its ability, the alternative Closing Date. Unless otherwise agreed
in writing by the parties, Closing shall not be postponed past January
30, 1995.
2. Buyer Postponements. Buyer may postpone Closing for any
reason. If Buyer plans to postpone Closing past November 30, 1994 it
shall provide Seller with notice of the postponement 48 hours in
advance of the Closing Date, and such notice shall estimate, to the
best of Buyer's ability, an alternative Closing Date. Unless
otherwise agreed in writing by the parties, Closing shall not be
postponed past January 30, 1995. If Buyer postpones Closing beyond
December 15, 1994, then Buyer will be required to pay Seller an
additional ONE THOUSAND NINE HUNDRED EIGHTEEN DOLLARS AND SEVENTY FIVE
CENTS (" $1,918.75 ") for each Equivalent Basic Unit (EBU) of
subscribers over 8,000 EBUs that Seller has acquired and begun serving
as of the actual Closing Date. For a definition of EBU see Paragraph
1(1)(15) herein.
3. Termination for Failure to Close. If the transactions
contemplated hereunder are not Closed by January 30, 1995, and the
parties have not agreed in writing to extend Closing, then this
Agreement shall terminate, with no further liability to either Seller
or Buyer, subject to the Escrow provisions contained herein and in the
Escrow Agreement.
E. ADJUSTMENTS.
1. Prorations and Allocations. Appropriate adjustments for
prepaid income, prepaid expenses, and accrued expenses, shall be made
for the benefit of Buyer and Seller, on a pro-rata basis, as soon as
possible following Closing, but not later than three (3) months
following Closing. Seller and Buyer shall jointly prepare the
preliminary settlement
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<PAGE> 6
document as of Closing, and the final settlement document ninety days
after Closing. Such adjustments shall be made payable to Buyer and
Seller out of the funds placed in Escrow pursuant to the Escrow
Agreement. Adjustments shall be made in accordance with generally
accepted accounting principles. All expenses and income attributable
to the System for the period prior to Closing are for the account of
Seller, and all expenses and income attributable to the System for the
period on and after the Closing are for the account of Buyer. Such
adjustments shall include, without limitation, the following:
a. The amount of Channel Lease Agreement fees payable by
Buyer after the Closing Date, covering periods prior to the
Closing Date, shall be credited to Buyer;
b. The pro rata share accrued to the Closing Date of
account receivables, real estate taxes, rentals, copyright
fees, utility charges (electricity) and other customarily
pro-ratable items shall be appropriately credited;
c. Salaries, wages, commissions, accrued vacations, and
accrued sick pay with respect to employees of Seller shall be
prorated between Seller and Buyer as of the Closing Date;
d. All taxes, fees, and assessments, whether relating to
employment, real property, personal property, or otherwise,
shall be prorated between the parties as of the Closing Date.
Any real or personal property taxes due on or after Closing
shall be prorated over the calendar year, notwithstanding the
fact that such taxes may have accrued or may have been
assessed during a previous period.
e. Buyer shall use its reasonable efforts to collect
after Closing all accounts receivable attributable to the
operation of the System prior to Closing. All such
receivables collected on or before the ninetieth (90th) day
following Closing shall be for Seller's account and
receivables collected thereafter shall be for Buyers' account.
2. Customer Deposits. To the extent Buyer assumes any
obligations of Seller with respect to customer deposits of any kind,
Buyer shall receive a credit against the Purchase Price in the amount
of any such deposits.
3. Post-Closing Adjustments.
a. Thirty days past Closing adjustment shall be made for
Reimbursable EBUs consistent with Paragraph I(C)(5) herein.
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<PAGE> 7
b. Any of the foregoing adjustments which are not
capable of calculation at Closing shall remain open and be
adjusted within ninety (90) days after the Closing Date, or
such later date as shall be agreed upon by the parties.
c. Any cash or other property in respect of Seller's
operation of the System prior to Closing that are intended to
remain Seller's property, but which are in Buyer's possession,
shall be held by Buyer in trust for Seller until delivered to
Seller.
F. APPLICATIONS FOR FCC CONSENT. The parties must apply to the FCC for
formal consent to assign the licenses to the C-group, E-group, F-group, G-group
and Channel 1, as identified on Exhibit A, to Buyer.
1. Assignment Applications. In the event it is permissible to
immediately file assignment applications for the above-referenced
stations, then within thirty (30) days of the date this Agreement is
fully executed, the parties shall join in preparing and filing with the
FCC such applications as are necessary to request FCC consent to
assignment of the licenses to Buyer. If immediate assignment is not
permissible under the FCC's rules and regulations, then the assignment
applications shall be filed no later than thirty (30) days after the
first possible date they each may be filed under the FCC's rules and
regulations. Buyer shall pay any FCC filing fees associated with
preparation and filing of the assignment applications.
Seller shall assign to Buyer its right to receive assignment of the
E-group channels from Walter Communications, Inc., pursuant to
Paragraph 28 of the MMDS Channel Lease Agreement between Northwest
Satellite Network, Inc., the general partner of Seller, and Walter
Communications, Inc. Seller shall also assist Buyer and Walter
Communications, Inc. in preparing, filing and prosecuting such
assignment application.
2. Prosecution. Seller and Buyer will cooperate in providing all
information and taking all steps necessary, desirable and proper to
expedite the preparation, filing and prosecution of such assignment
applications to a favorable conclusion. In the event any person
petitions the FCC to deny one or more of the assignment applications,
or otherwise challenges the grant of one or more of the assignment
applications before the FCC, or in the event the FCC enters an order
consenting to and approving the assignments and any person appeals or
otherwise attacks such order, then the parties agree to diligently
oppose and defend against such petition or challenge in absolute good
faith, to the end that the transactions contemplated by this Agreement
may be finally
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<PAGE> 8
consummated. Buyer shall pay all costs and expenses associated with
such opposition and defense.
3. Modification Applications. Seller also agrees, to the extent
Seller's involvement is necessary, to file with the FCC whatever
modification applications Buyer deems necessary for the success of
Buyer's operation of the System. Buyer shall bear the costs,
including the FCC filing fees, associated with preparing and
prosecuting any modification applications. Failure of the FCC to
grant any modification applications filed at the behest of Buyer shall
not affect any rights or obligations of the parties under this
Agreement.
4. Denial of Assignment Applications. In the event the FCC
denies one or more of the assignment applications, and such denials
are not final or are without prejudice, and the parties can amend the
offending applications to make them acceptable to the FCC, then the
parties shall promptly reform, amend and resubmit the offending
assignment applications. If the denials are due to this Agreement,
the parties shall negotiate in good faith to reform it in order to
satisfy the concerns of the FCC, but if such reformation is
impossible, then the parties shall enter into lease agreements as
described at Paragraph II(E) herein, in lieu of the assignments.
Should the FCC, by staff action or otherwise, dismiss or deny one or
more of the assignment applications, then the parties shall appeal
such dismissals or denials through the full Commission and the Court
of Appeals, if necessary; the costs and expenses of such appeals shall
be shared by Buyer and Seller.
G. SELLER'S CLOSING DELIVERIES. At the Closing, Seller shall deliver to
Buyer the following duly executed documents:
1. Such instruments of conveyance, transfer and assignment
pertaining to the Assets as shall be reasonably necessary or
appropriate to convey to Buyer all of the Assets including, but not
limited to, a Bill of Sale, an Assignment and Assumption of Contracts,
and a final accounting of EBUs as described at Paragraph I(C)(5)
herein. Such instruments of conveyance shall be drafted to the mutual
satisfaction of both parties by Closing.
2. A certificate, dated as of the Closing Date and executed by
the General Partner of the Seller, certifying that the
representations, covenants and warranties of Seller contained herein
are true and correct, and Seller has complied with or performed all
duties required to be performed by Closing. Any and all
unaccomplished duties, and any representations, covenants and
warranties that can no longer be made by Seller as of Closing, shall
be specifically disclosed.
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<PAGE> 9
3. A certificate, dated as of the Closing Date and executed by
the General Partner of the Seller, certifying that the limited
partnership has approved the execution and delivery of this Agreement
and consummation of the transactions contemplated hereunder.
4. A certificate, dated as of the Closing Date, prepared in
conjunction with Buyer, and executed by the General Partner of the
Seller, listing all of the Assets to be alienated hereunder.
5. A certificate, dated as of the Closing Date, and executed by
the General Partner of the Seller, listing all EBUs serviced by Seller
as described at Paragraph l(C)(5) herein.
6. Opinion of Counsel to Seller. A separate opinion from counsel
to Seller, dated the Closing Date and addressed to Buyer, satisfactory
in form and substance to Buyer and its counsel, with customary
exceptions and disclaimers stating to the effect that:
a. Seller is a limited partnership organized, validly
existing and in good standing under the laws of the State of
Washington, and has all requisite power to carry on its
business in Idaho as such business is now being conducted.
b. Seller has full power and authority to sign and
deliver this Agreement and to consummate the transactions
contemplated hereby. To the best of such counsel's knowledge,
all acts and other proceedings required to be taken by or on
the part of the Seller to authorize it to perform its
obligations set forth herein and to consummate the
transactions contemplated hereby have been duly and properly
taken. The Agreement, when signed and delivered by Seller,
will constitute the legally binding obligation of Seller in
accordance with its terms subject to the applicability of
bankruptcy, insolvency, reorganization or other similar laws
affecting the rights of creditors generally and the
applicability of equitable remedies.
c. Neither the execution, delivery nor performance of
this Agreement, nor the consummation of the transactions
contemplated hereby, is prohibited by or requires Seller to
obtain any consent (except for the Required Consents), or
authorization, approval or registration under any law, rule or
regulation, judgment, order, writ, injunction or decree which
is binding upon Seller, or violates any provisions of Seller's
partnership agreement.
d. Except as disclosed in Exhibit H hereto, to the best
of Counsel's knowledge, after due inquiry, neither Seller nor
any of Seller's partners, is a party to any litigation which
would in any way affect the Assets transferred pursuant to
this Agreement, nor is there any threatened litigation which
would affect the Assets being transferred pursuant to this
Agreement or affect Seller's ability to
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<PAGE> 10
legally enter into or consummate the transactions contemplated
by this Agreement.
e. The provisions of the Uniform Commercial Code,
Washington and Idaho law relating to Bulk Sales are not
applicable to the transaction.
f. The certificates of the general partner called for in
Paragraph l(G) were validly executed by Seller.
7. Opinion of FCC Counsel. An opinion from Federal
Communications Commission ("FCC") counsel to Seller, dated the Closing
Date and addressed to Buyer, satisfactory in form and substance to
Buyer and its counsel, stating that:
a. The execution, delivery and performance of this
Agreement by the parties does not contravene any law,
regulation, rule or any order binding on any such parties
issued or administered by or otherwise relating to the FCC or
the Copyright Office.
b. Seller holds all FCC licenses and channel lease
agreements identified on Exhibit A, and to the best knowledge
of counsel, after due inquiry, Seller is in material
compliance with the Communications Act and FCC rules and
regulations. Further, Seller has received prior consent of
each of the Lessors identified in Exhibit A, where necessary,
to assignment of such leases.
c. Except as specifically disclosed on Exhibit H, there
are no actions, proceedings, investigations or claims against
or affecting the Seller or any of the licenses that are a part
of the system now pending before the FCC, and each of the
licenses that constitute a part of the System are in good
standing with no defects whatsoever.
8. Seller shall endeavor to cause applicable Lessors to assign
any and all Channel Lease Agreements and/or Asset Purchase Agreements
necessary to operation of the System.
9. All other documents reasonably requested by counsel for the
Buyer, including, without limitation, a release with respect to all
security interests and liens in the Assets being sold to Buyer herein,
with certain exceptions as listed at Exhibit G.
10. Seller, with Buyer's full cooperation, shall be responsible
for preparing the preliminary settlement document as of Closing, and
the final settlement document ninety days after Closing.
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<PAGE> 11
H. BUYER'S CLOSING DELIVERIES. At Closing, Buyer shall deliver to
Seller:
1. A list of the defects in the system in general, or in the
licenses in particular, that were discovered during the due diligence
period, and
2. An opinion from counsel to Buyer, dated the Closing Date and
addressed to Seller, satisfactory in form and substance to Seller and
its counsel, stating to the effect that:
a. Buyer is a corporation organized, validly existing
and in good standing under the laws of the State of Delaware,
and has all requisite power to carry on its business as such
business is now being conducted.
b. Buyer has full power and authority to sign and
deliver this Agreement and to consummate the transactions
contemplated hereby. To the best of such counsel's knowledge,
all acts and other proceedings required to be taken by or on
the part of the Buyer to authorize it to perform its
obligations set forth herein and to consummate the
transactions contemplated hereby have been duly and properly
taken. The Agreement, when signed and delivered by Buyer will
constitute the legally binding obligation of Buyer in
accordance with its terms subject to the applicability of
bankruptcy, insolvency, reorganization or other similar laws
affecting the rights of creditors generally and the
applicability of equitable remedies.
c. Neither the execution, delivery nor performance of
this Agreement nor the consummation of the transactions
contemplated hereby, to counsel's knowledge, is prohibited by,
or requires Buyer to obtain any consent, or authorization,
approval or registration under any law, rule or regulation,
judgment, order, writ, injunction or decree which is binding
upon Buyer or violates any provisions of the Articles of
Incorporation of Buyer;
d. To the best of counsel's knowledge, after due
inquiry, Buyer is not a party to any litigation which would in
any way affect the assets being transferred pursuant to this
Agreement, nor is counsel aware of any threatened litigation
which would affect the assets being transferred pursuant to
this Agreement or affect Buyer's ability to legally enter into
or consummate the transactions contemplated by this Agreement.
I. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER. Seller
represents and warrants to Buyer for the purpose of inducing Buyer to enter
into this Agreement and to consummate the transactions contemplated hereby as
follows:
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<PAGE> 12
1. Organization and Standing of Seller. Seller is a limited
partnership duly organized, validly existing, and in good standing
under the laws of the state of Washington. All entities that form a
part of Seller are likewise duly organized, validly existing and in
good standing under the laws of the state where each is organized.
Seller has full power and authority to own its properties and to carry
on its business in Idaho.
2. Seller's Authority. This Agreement and the transactions
contemplated hereby have been duly authorized by all necessary action
on the part of Seller. This Agreement constitutes, and all other
agreements contemplated hereby will constitute, when executed and
delivered pursuant hereto, the valid and binding obligations of Seller
enforceable in accordance with its respective terms.
3. Title to Properties. There are no security interests
applicable to the Assets, except for those security interests listed
at Exhibit G. Seller holds good title to the Assets free and clear of
all mortgages, claims, liens, charges, encumbrances, security
interests, restrictions on transfer, taxes and other material defects
("Liens") except: (a) those which will be released at Closing, (B)
liens for personal property taxes that are not yet due and payable,
(c) Required Consents which will be obtained prior to Closing, and (d)
those obligations which Buyer expressly assumes (i.e., conditional
purchase contracts for vehicles used in support of the System). With
the exception of the foregoing, the conveyance, transfer and delivery
of the Assets pursuant to the terms hereof will vest in Buyer all of
Seller's title thereto, free and clear of all liens of any nature
whatsoever.
4. Contracts. Except as otherwise disclosed by Seller on Exhibit
1, there exists no default (including without limitation any event
that with the giving of notice or passage of time or both would cause
a default), termination or threatened termination under, or amendment
to, any contract or other material agreement relative to the Assets of
the System. After execution of this document, but before Closing,
Buyer shall have the option of rejecting, and not assuming any
contracts or agreements of Seller. On or before Closing, Buyer will
notify Seller in writing of its election not to assume certain
contracts. Buyer will endeavor to notify Seller of such election in a
sufficient period of time so that Seller can terminate the contract
without penalty. If Seller was in full compliance with the contract,
and if termination results in assessment of penalties against Seller,
Buyer agrees to pay half the cost of such penalty. If Seller was not
in compliance with a contract which Buyer elects not to assume, and
termination of the contract results in assessment of penalties against
Seller, then Buyer shall have no obligation to assist Seller in
payment of the penalties.
5. Condition of Property. Except as otherwise disclosed by
Seller on Exhibit B at Closing, Seller represents and warrants that
all property it is transferring to Buyer hereunder is in good and
operable condition. For any property that is not in good and
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<PAGE> 13
operable condition on Closing, Buyer shall receive an appropriate
credit as part of the Post-Closing Adjustments described herein.
6. Required Consents. Seller will endeavor to obtain, as of
Closing, all consents necessary or required to convey all contracts to
Buyer that are pertinent to the System, unless buyer elects not to
assume the contract pursuant to Paragraph 1(1)(4) herein. Seller will
also diligently pursue obtaining the consent of the FCC to assignment
of whatever licenses are to be assigned to Buyer hereunder. Except
for Required Consents, no consent, order, approval, permit,
authorization or notification of, or registration, declaration or
filing with, any governmental or judicial authority or other third
party is required in connection with the valid execution, delivery or
performance of this Agreement and the consummation of the purchase and
sale of the Assets and assignment of contracts. All contracts to be
transferred hereunder are in full force and effect.
7. Claims and Litigation,. Except as disclosed on Exhibit H,
there is no claim, action, proceeding, or investigation pending or to
the best of Seller's knowledge threatened against or affecting Seller
or its property before or by any court or governmental agency. There
is no strike or unresolved labor dispute relating to Seller's
employees which might have any effect on the Assets.
8. Taxes and Fees.
a. Taxes of Seller. Seller has timely filed all
federal, state, and local tax returns required to be filed by
Seller. Seller has paid and will pay all taxes (as defined
below), due and payable for all periods ending prior to the
Closing Date. "Taxes" means all taxes including without
limitation, real, assessments, fees or other charges
(including without limitation penalties and interest) from
time to time imposed by the laws of any jurisdiction or by any
federal, state, or local government or governmental unit in
connection with the operation of the System.
b. Payment of Buyer's Taxes. Any and all sales, use and
property taxes due from Buyer as a result of the contemplated
transactions shall be born by Seller.
9. Insurance. Seller has in force adequate liability insurance
covering its ownership and operation of the System against loss,
damage and liability and will maintain such insurance up to and
including Closing, and will furnish Buyer evidence of such insurance,
if requested.
10. Material Facts. Seller has not intentionally or recklessly
made any misstatement of material fact in this Agreement and there is
no intentional or reckless omission of a material fact which is
necessary or material to statements made herein.
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<PAGE> 14
11. No Violation. The execution, delivery and performance of this
Agreement by Seller and the consummation of the transactions
contemplated hereby:
a. Will not conflict or cause a breach or default under
any of the terms and provisions of any contract, agreement,
lease, license or other instrument to which Seller is a party,
by which Seller is bound or by which the Assets may be
affected, except for Required Consents, all of which shall be
obtained prior to Closing; and
b. Will not result in a violation of any of Seller's
partnership agreements, or any judgment, decree, order or
award of any court, governmental body or arbitrator or any
applicable law, ordinance, rule or regulation; and
c. Will not result in the creation of any lien, charge
or encumbrance on the Assets; and
d. Will not give to others any rights, including rights
of acceleration, termination or cancellation, with respect to
any contract, agreement or other instrument relating to any of
the Assets.
12. Compliance with Laws and Agreements. With the exception of
what Seller discloses on Exhibit 1, Seller represents and warrants the
following:
a. To Seller's knowledge, neither Seller nor any of
Seller's partners, agents or employees has violated in any
material respect any contracts pertaining to the System, any
laws, ordinances, rules or regulations in connection with
procuring, obtaining, constructing, owning, maintaining or
operating the Assets or the System.
b. Seller has not received any notice (written or
otherwise) from any party with whom it has a contract
pertaining to the System, nor has it received notice from any
federal, state or local agency, commission, board or authority
or any insurance or inspection body asserting or investigating
any alleged failure of Seller to comply with any applicable
contracts, laws, ordinances, regulations, building or zoning
laws.
13. FCC. Except as Seller specifically discloses on Exhibit L '
Seller warrants that to the best of its knowledge, it is not in
material violation of FCC rules and regulations pertaining to the
System or the stations that comprise it. Seller further warrants that
to the best of its knowledge, the consummation of the transactions
contemplated herein will not render Seller in violation of FCC rules
and regulations pertaining to the System or the stations that comprise
it.
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<PAGE> 15
14. No Shop. Upon execution of this Agreement and Buyer's
deposit of the Escrow money with the Escrow Agent, through either
Closing or termination of this Agreement, Seller represents and
warrants that it will not solicit, nor entertain, discuss or accept
any third party offers of any kind for the purchase and sale of the
Assets.
15. Equivalent Basic Units. Seller represents and warrants that
as of Closing it will have EIGHT THOUSAND ("8,000") Equivalent Basic
Units ("EBUs") of subscribers. The term EBU shall mean the number of
residential subscribers plus, for bulk accounts, the number of bulk
subscribers derived by dividing the aggregate monthly amount billed by
Seller to bulk subscribers (i.e., motels, hospitals, prisons and the
like), by the average monthly rate charged to residential households
in the system for Basic Services ($28.45). The calculation of EBUs
shall not include subscribers that were installed for free after
September 2, 1994, subscribers that were installed after September 2,
1994 at substantially reduced rates (i.e., less than $9.95 per
install), nor shall it include subscribers who receive service for
free, nor shall it include EBUs whose accounts are 61 or more days
past due.
16. Litigation. Except as specifically disclosed by Seller on
Exhibit H, there is no litigation, action, suit, proceeding or
publicly known investigation pending or, to the best of Seller's
knowledge threatened, with respect to the Agreement or the
transactions contemplated hereby before or by any federal, state,
municipal or other governmental instrumentality, domestic or foreign,
which may result in any materially adverse effect upon this Agreement
or which may enjoin, prohibit, or otherwise challenge any of the
transactions contemplated hereby.
17. No Customer. Seller has not entered into any contract, lease
or agreement of any nature under which any person shall have any right
to utilize the System or any stations that are a part hereof, for any
purpose whatsoever, other than this Agreement.
18. Licenses and Channel Lease Agreements. All of the licenses
and channel lease agreements relevant to the System, together with all
amendments and modifications to date, are listed at Exhibit A and have
been provided to Buyer. Except as specifically disclosed by Buyer on
Exhibit L, the licenses and leases are valid and in full force and
effect, and the stations are being operated in accordance with their
terms. Seller has complied with all of the terms and conditions of
the licenses and leases, as amended or otherwise modified, as of the
date hereof. No claims, proceedings or investigations are pending, or
to the knowledge of Seller, are threatened against Seller with respect
to the licenses or leases.
19. No Third Party Rights. Except pursuant to this Agreement,
Seller is not a party to any commitment or agreement, and no third
party has been granted any options, rights of
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<PAGE> 16
first refusal or other rights, in connection with the sale or
disposition of the Assets or the System.
20. Rights Protected. Neither Seller nor any of Seller's
representatives has accepted interference from any source, or failed
to timely protest any application that proposes facilities which would
theoretically or actually cause objectionable interference to the
protected reception of the facilities that are the subject of this
Agreement, except as specifically disclosed by Seller on Exhibit J.
21. General Covenants. From execution of this document through
Closing Seller shall continue to fulfill its responsibilities under
its contracts, agreements and channel leases. Seller shall also
continue to use its best efforts to maintain its licenses in full
force and effect and perform all obligations imposed upon it by law as
an FCC licensee. Further, Seller shall take no action or fail to
perform any action that would render its representations and
warranties under this Agreement untrue or incorrect in any material
respect on and as of the Closing.
22. Satisfaction of Forfeitures. Seller represents and warrants
that before Closing it will have satisfied the forfeitures assessed by
the FCC against the licensees of the E-group (WHT-797) and the F-group
(WLW-924) in Boise, Idaho, as detailed in the September 23, 1994
letters from the FCC to counsel for the licensees.
23. Towers. Seller represents and warrants that any towers used
in connection with the System are in compliance, where required, with
applicable notification, lighting or marking requirements pursuant to
section 17.1 et sea. of the FCC's rules.
24. Agreements with Employees. Seller is not a party to any
employment agreement, written or oral, which cannot be terminated at
will by Seller. Seller does not have any pension, profit sharing or
other employee benefit plans, other than health care and life
insurance, for the employees of the System. The employees of Seller
are not parties to any collective bargaining agreement with Seller and
there are no grievances, disputes or controversies with any union or
any other organization of Seller's employees, or threats of strikes,
work stoppages or any pending demands for collective bargaining BY any
Union or to the best of Seller's knowledge, there is not any cause
therefor.
25. Copyright. Seller has filed annual copyright reports and has
paid the appropriate copyright royalties applicable to the System.
J. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER. Buyer represents
and warrants to Seller, for the purpose of inducing it to enter into this
Agreement and to consummate the transactions contemplated hereby, as follows:
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<PAGE> 17
1. Authorization of Agreement. Buyer has all requisite legal
power, authority and capacity to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the
transactions contemplated hereby, and all legal and other proceedings
necessary to authorize the execution, delivery and performance of this
Agreement by Buyer have been duly and validly taken by Buyer. This
Agreement constitutes the legal, valid and binding obligation of
Buyer, enforceable in accordance with its terms. Buyer is duly
organized, validly existing, licensed and in good standing under the
laws of the State of Delaware.
2. Effect of Agreement. The execution, delivery and performance
of this Agreement by Buyer and the consummation of the transactions
contemplated hereby will not, with or without the giving of notice or
the lapse of time, or both, (a) violate any provision of law, statute,
rule or regulation or any judgment, order, writ or decree of any court
applicable to Buyer or (b) result in the breach of or conflict with
any term, covenant, condition or provision of, result in the
modification or termination of, or constitute a default under, any
agreements to which Buyer is a party.
3. Finder's Fees. Buyer has not taken any action which would
impose upon Seller any obligation or liability to any person for
finder's fees, agents' commissions or like payments in connection with
the execution and delivery of this Agreement or the consummation of
the transactions contemplated thereby.
4. Litigation. There is no claim, action, suit, proceedings,
arbitration, investigation or inquiry pending before any court or
governmental or administrative body or agency, or, to the knowledge of
Buyer, threatened against Buyer which would materially adversely
affect the ability of Buyer to perform its obligations under this
Agreement.
K. SELLER'S DUTIES PRIOR TO CLOSING. Seller covenants that between the
date of this Agreement and the Closing Date:
1. Seller shall give to Buyer, Buyer's counsel, accountants, and
other representatives reasonable access, during normal business hours
to all of Seller's properties, books, and records relating to the
System and shall furnish Buyer during such period with all information
concerning the Assets that Buyer may reasonably request. Buyer shall
not make any request, either in time or in volume, that will
materially interfere with Seller's operation of the System prior to
Closing.
2. Seller will conduct its business relating to the System and
the Assets only in the ordinary course of business. Seller shall not
enter into any contracts or commitments relating to the Assets and its
System except contracts or commitments in the normal or usual conduct
of Seller's business.
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<PAGE> 18
3. Except for liens for personal property taxes that are not yet
due and owing, Seller will not allow any mortgage, pledge, lien or
other encumbrance or charge of any kind to exist upon any of the
Assets which will survive the Closing Date.
L. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. Buyer's obligation to
consummate-the Closing is subject to the satisfaction of all of the following
conditions:
1. Seller shall have performed and complied with all agreements
and conditions required by this Agreement to be performed or complied
with by Seller prior to or at the Closing Date.
2. Seller's representations and warranties contained in this
Agreement shall be true in all material respects at and as of the
Closing Date as though such representations and warranties were made
at and as of the Closing Date.
3. No action or proceeding shall have been instituted, on or
prior to Closing, to set aside or modify the transaction provided for
herein or to enjoin or prevent its consummation.
4. Seller shall have obtained all Required Consents.
5. Buyer shall have completed its financing in an amount
sufficient to accomplish the purchase of the Boise System and the
Yakima System.
6. Buyer shall have been satisfied that Seller has good and
marketable title to all of the Assets that are the subject hereof, and
that all Assets are valid, in full force and effect, and in good
standing.
M. CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS. Seller's obligations to
consummate the Closing is subject to the satisfaction of all of the following
conditions:
1. Buyer shall have performed and complied with all agreements
and conditions required by this Agreement to be performed or complied
with by Buyer prior to or at the Closing Date.
2. Buyer's representations and warranties contained in this
Agreement shall be true in all material respects on the Closing Date.
3. No action or proceeding shall have been instituted, on or
prior to Closing, to set aside or modify the transaction provided for
herein or to enjoin or prevent its consummation.
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<PAGE> 19
4. Seller shall have obtained all Required Consents.
II. CHANNEL LEASE
Upon Closing Seller will assign to Buyer and Buyer will assume from Seller all
of Seller's right, title and interest in and to the contracts and lease
agreements listed on Exhibit A. As to the four Licenses listed on Exhibit A
that are owned by Seller, and the Walter Communications, Inc. license
(WHT-797), the parties must seek the approval of the FCC for assignment of
these licenses to Buyer. The lease with Walter Communications, Inc. will be
assigned to Buyer so that Buyer can lease the channel capacity on WHT-797
pending formal Commission approval of the assignment. However, as to the other
four licenses, until such time as the FCC consents to the assignments, and such
consents have become Final Orders and the assignments are consummated, Seller
will lease to Buyer and Buyer will Lease from Seller channel capacity on these
four stations according to the terms and conditions specified below:
A. LEASE OF CHANNEL CAPACITY: Seller is currently authorized by
the FCC to operate on the C-group, F-group, G-group and Channel 1 in the
Metropolitan area, as specified on Exhibit A. Buyer intends to lease from
Seller whatever authority Seller has to operate these channels until the
authorizations can be formally assigned to Buyer.
(1) Capacity. Seller hereby leases to Buyer from the Closing
Date through consummation of the contemplated assignments, the full,
complete and entire capacity on the specified channels, twenty-four
hours per day, seven days a week. Such capacity shall include, but
shall not be limited to, the main channels, the vertical blanking
intervals and subcarrier frequencies.
(2) Control over Programming. Buyer shall have complete control
over all programming, provided that Buyer shall not transmit any
program which is obscene, as defined by the laws of the United States,
or which would violate any local or state law or the Rules and
Regulations of the FCC.
(3) Unused Capacity. Buyer shall have complete discretion and
control with respect to any unused capacity on the Channels.
B. LICENSEE CONTROL AND LIABILITY. Nothing herein shall derogate from
Seller, as licensee, control of operations of the Channels that Seller, as an
FCC licensee, shall be required to maintain, and Buyer acknowledges Seller's
reservation of such control. Therefore, Seller shall at all times retain
ultimate responsibility for the operation and control of the Channels.
Consistent with its exercise of control, Seller shall have the right to prohibit
Buyer from transmitting any program which would violate any law of the
jurisdictions in which Buyer's services may be received, or the Rules and
Regulations of
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<PAGE> 20
the FCC, provided, however, that Seller shall be required to notify
Buyer in writing of its refusal to permit the transmission of any such
program.
C. PAYMENTS. The Purchase Price to be paid under this Agreement shall
serve as the bulk of the consideration for the continued lease of channel
capacity on the specified stations until such time as the FCC grants its
consent to assignment of the stations. In addition, Buyer shall pay Seller ten
dollars per license, per year $10.00 for the lease of capacity until such
time as the assignments are approved by the FCC.
D. EQUIPMENT AND SITE USAGE: Title to all equipment used in operation of
the System shall transfer to Buyer at Closing. Throughout the lease term, and
until formal assignment of the four stations indicated, Buyer shall lease the
equipment back to Seller for the sum of $1.00 per year. Buyer shall provide
Seller with unlimited access to such equipment, and Buyer accepts, in full
consideration for such access, the $1.00 per year payment indicated above. The
equipment lease to Buyer shall terminate upon consummation of the assignments.
Buyer agrees, throughout the lease term, to pay for any modification, upgrade
or enhancement of the equipment required for operation at technical and service
levels which are consistent with prevailing industry standards and technical
developments. Buyer shall also bear all costs associated with maintaining and
operating the equipment, including insurance.
E. TERMINATION/CONTINUATION LEASE: This lease shall be deemed
automatically terminated upon consummation of assignment of the specified
stations from Seller to Buyer. In the event the FCC refuses to grant its
consent to assignment of all the stations from Seller to Buyer, and such
refusal is for reasons unrelated to the licenses, and the subject licenses
remain valid and in full force and effect, then this channel lease shall
continue as to whatever authorizations cannot be assigned. In this event,
Buyer and Seller shall enter into formal lease agreements as to whatever
authorizations cannot be assigned, and such agreements shall provide for
successive, ten-year lease terms, with automatic renewals, at a cost of $100,
per license, per term.
III. GENERAL PROVISIONS
A. SELLER'S FURTHER OBLIGATIONS. From time to time after the Closing,
Seller shall take such further action and execute such further documents,
assurances and certificates as Buyer may reasonably request in order to
effectuate the transactions contemplated by the Agreement.
B. SELLER'S COVENANT NOT TO COMPETE. For a period of five (5) years
following the Closing Date, Seller and the partners that comprise Seller,
directly or indirectly, as a consultant, agent, principal, owner, sponsor,
partner, shareholder, or in any representative capacity, engage or participate
in, or permit its name to be used in connection with any multichannel or single
channel video program distribution, including wireless cable (i.e. MDS, MMDS,
LPTV and ITFS Channels), satellite master antenna television ("SMATV"), 18 GHz
systems, 28 GHz systems and DBS and non-DBS backyard dish businesses within a
fifty ("50") mile radius of the
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Metropolitan Area. By executing this Agreement, Seller agrees to this Covenant
Not to Compete, acknowledges that it is receiving good and valuable
consideration therefore, and agrees to be bound hereby. Because the amount of
any damage which Buyer may suffer as a result of the failure of Seller to
observe this Covenant Not to Compete may be difficult or impossible to
calculate, but may nevertheless be substantial, Buyer shall be entitled, in
addition to any other remedy it may have, to the remedies of injunctive relief
or specific performance. Each city within the Metropolitan Area covered by
this Covenant Not to Compete shall be deemed a severable unit, and should any
court determine that the inclusion of all such cities would render such
covenants unreasonable or unenforceable for any reason, those cities which are
necessary, in the judgment of the court, to be deleted in order to render such
an undertaking reasonable and enforceable shall be deemed free of such
noncompetition, but noncompetition shall remain in full force and effect as to
every other city.
C. RISK OF LOSS. The risk of loss of any Assets between the date of this
Agreement and the Closing Date shall be upon Seller. Seller shall notify Buyer
of any material casualty loss prior to the Closing and Buyer may, upon written
notice to Seller, either terminate this Agreement or proportionally reduce the
Purchase Price as agreed by Buyer and Seller.
D. INDEMNIFICATION BY SELLER. Seller shall indemnify defend, and hold
harmless Buyer from and against any and all losses, costs, liabilities,
damages, and expenses (including legal and other expenses incident thereto) of
every kind, nature, and description, including any undisclosed liabilities of
Seller, that arise out of (i) the breach of any representation or warranty of
Seller set forth in this Agreement (including the Exhibits hereto) or in any
instrument delivered by Seller to Buyer pursuant hereof, (ii) the breach of any
of the covenants of Seller contained in or arising out of this Agreement or the
transactions contemplated hereby, (iii) any breach or claim of breach arising
under any of the Contracts that is asserted to exist as the result of any facts
arising before Closing, or (iv) Seller's ownership or operation of the System
and Assets prior to the Closing Date or any other circumstance, state of facts,
or condition which exists with respect to the System or the Assets prior to the
Closing.
E. INDEMNIFICATION BY BUYER. Buyer shall indemnify, defend, and hold
harmless Seller from and against any and all losses, costs, liabilities,
damages, and expenses (including legal and other expenses incident thereto) of
every kind, nature, and description that arise out of (i) the breach of any
representation or warranty of such Buyer set forth in this Agreement (including
the Exhibits hereto) or in any instrument delivered by Buyer to Seller pursuant
hereof, (ii) the breach of any of the covenants of Buyer contained in or
arising out of this Agreement or the transactions contemplated hereby, (iii)
any breach or claim of breach arising under any of the Contracts that is
asserted to exist as the result of any facts arising after Closing, or (iv) any
circumstance, state of facts or condition which arises with respect to the
System or the Assets subsequent to the Closing.
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<PAGE> 22
F. CLAIMS PROCEDURE. Should any claim covered by the foregoing indemnity
be asserted against a party entitled to indemnification hereunder (the
"Indemnitee"), the Indemnitee shall promptly notify the party obligated to make
indemnification (the "Indemnitor"), provided that any delay or failure in
notifying the Indemnitor shall not affect the Indemnitor's liability under this
Section if such delay or failure was not prejudicial to the Indemnitor. The
Indemnitor upon receipt of such notice shall assume the defense thereof with
counsel reasonably satisfactory to the Indemnitee, and the Indemnitee shall
extend reasonable cooperation to the Indemnitor in connection with such
defense. No settlement of any such claim shall be made without the consent of
the Indemnitee, such consent not to be unreasonably withheld, nor shall any
such settlement be made by the Indemnitor which does not provide for the
absolute, complete, and unconditional release of the Indemnitee from such
claim. In the event that the Indemnitor shall fail to defend a claim within a
reasonable time, the Indemnitee shall have the right to assume the defense
thereof without prejudice to its rights to indemnity hereunder.
No claim for indemnity hereunder shall be allowed unless it is presented within
two (2) years after Closing and unless all claims, liabilities, and expenses
incurred for breaches of representation or covenant exceed FIFTY THOUSAND
DOLLARS ($50,000.00) in the aggregate. Additionally, except for breach of the
Seller's representations and warranty that it is authorized to sell the System
to Buyer and that it has not sold the System to any third party, claims for
indemnity shall not exceed an aggregate limit of FIVE MILLION DOLLARS
($5,000,000.00).
G. SURVIVAL OF REPRESENTATIONS, WARRANTIES. All representations,
warranties and agreements made by Seller or Buyer in this Agreement shall
survive the Closing.
H. ASSIGNMENT. Neither this Agreement nor any right, remedy, obligation
or liability arising hereunder or by reason hereof shall be assignable by
Seller without the prior written consent of the Buyer. Buyer may assign all or
part of this Agreement to any party for any purpose whatsoever with the written
consent of Seller, such consent shall not be unreasonably withheld. Subject to
the foregoing provision of this Section, this Agreement shall inure to the
benefit of and shall be binding upon the parties hereto and their permitted
successors and assigns. Nothing in this Agreement, expressed or implied, is
intended to or shall (i) confer on any person other than the parties hereto,
and their respective successors or assigns, any rights, remedies, obligations
or liabilities under or by reason of this Agreement, (ii) create any rights,
including, but not limited to, third-party beneficiary rights in any person
other than Buyer and Seller, or (iii) constitute the parties hereto partners or
participants in a joint venture.
I. NOTICE. All notices, requests, demands or other communications with
respect to this Agreement shall be in writing and shall be personally delivered
or mailed, postage prepaid, by certified or registered mail, or delivered by a
nationally recognized express courier service, charges prepaid to the following
addresses (or such other addresses as the parties may specify from time to time
in accordance with this Paragraph):
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<PAGE> 23
To Buyer: William W. Kingery, Jr.
Wireless Broadcasting Systems of America, Inc.
9250 E. Costilla Avenue, Suite 325
Englewood, CO 80112
To Seller: Keith Riffle
Northwest Satellite Network, Inc.
2300 130th Avenue, N.E.
Suite 210
Bellevue, WA 98005
Except as otherwise noted in this Agreement, any such notice shall, when sent
in accordance with the preceding sentence, be deemed to have been given and
received (i) on the day personally delivered, (ii) on the third day following
the date mailed, or (iii) twenty-four hours after shipment by such overnight
courier service.
J. AMENDMENTS, WAIVERS AND CONSENTS. The terms of this Agreement may not
be amended, modified or eliminated except by a writing signed by Buyer and
Seller. No delay or omission by either party hereto to exercise any right or
power hereunder shall impair such right or power or be construed to be a waiver
thereof. A waiver by any of the parties hereto of any of the covenants to be
performed by the other or any breach thereof shall not be construed to be a
waiver of any prior or subsequent breach thereof or of any other covenant
herein contained. Any waiver of any nonobservance or nonperformance of a term
or condition shall be in writing and shall not be deemed to excuse any future
nonobservance or nonperformance or to constitute an amendment, modification or
elimination of this Agreement unless it expressly so states. All remedies
provided for in this Agreement shall be cumulative and in addition to and not
in lieu of any other remedies available to either party at law, in equity or
otherwise.
K. EXHIBITS AND SCHEDULES. All Exhibits and Schedules prepared in
accordance with this Agreement are incorporated into and are part of this
Agreement as if actually fully set forth herein.
L. RECOVERY OF LITIGATION COST. If any legal action or other proceeding
is brought by any party hereto for the enforcement of this Agreement or because
of an alleged dispute or default in connection with any of the provisions of
this Agreement, the prevailing party shall be entitled to recover from the
party against which it prevailed reasonable attorneys' fees and other costs
incurred in that action or proceeding, in addition to any other relief to which
it may be entitled.
M. SECTION AND OTHER HEADINGS. The section and other headings contained
in this Agreement are for reference purposes only and shall not be deemed to be
a part of this Agreement or to affect the meaning or interpretation of this
Agreement.
N. EXECUTE IN MULTIPLE COUNTERPARTS. This Agreement may be executed in
any
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<PAGE> 24
number of identical counterparts, each of which shall be deemed an original,
and all of which, together, shall constitute one and the same instrument.
O. GOVERNING LAW. This Agreement and the respective rights and
obligations of the parties hereto shall be governed by and construed and
enforced in accordance with the internal laws of the State of Washington
applicable to contracts made and to be performed wholly within such state.
P. NO RELEASE OF INFORMATION. Unless otherwise required by the terms of
this Agreement or some governmental or regulatory body, or court of law, there
shall be no media releases, public announcements, public disclosures or private
release of any information with respect to this transaction by either party, or
by any of its officers, employees or agents, relating to this Agreement or its
subject matter without the prior written consent of the other party having been
first obtained. It is the specific intention of the parties that no details as
to the consideration paid shall be released except for disclosures required by
law or by contract to be made for legal, accounting or regulatory reasons.
Q. CONFIDENTIALITY. Each party agrees that all information communicated
to it by the other, whether before or after the date hereof will be and was
received in strict confidence, and will be used only for purposes of this
Agreement, and that no such information, including, without limitation, the
provisions of this agreement, will be disclosed by the receiving party, its
directors, officers, employees or agents, without the other party's prior
written consent, except as may be necessary by reason of legal, accounting, or
regulatory requirements beyond the reasonable control of the receiving party.
Buyer agrees that it shall not use the name of Seller, the name of any of
Seller's partners, or the name of any of Seller's agents or employees in
attempting to market, fund or acquire investors for the System, except for
certain financing Buyer is in the process of acquiring.
R. SEVERABILITY. If any provision of this Agreement is declared or found
to be illegal, unenforceable or void, then all parties shall be relieved of all
obligations arising under such provision, but only to the extent that such
provision is illegal unenforceable or void. It is the intent and agreement of
the parties that this Agreement shall be deemed amended by modifying such
provision to the extent necessary to make it legal and enforceable while
preserving its intent or, if that is not possible, by substituting therefor
another provision that is legal and enforceable and achieves the same
objective. If the remainder of this Agreement shall not be affected by such
declaration or finding and is capable of substantial performance, then each
provision not so affected shall be enforced to the extent permitted by law.
S. CONSTRUCTION. The language in all parts of this Agreement shall in
all cases be construed as a whole according to its fair meaning, neither for
nor against any party hereto and without implying a presumption that the terms
thereof shall be more strictly construed against one party by reason of the
rule of construction that a document is to be construed more strictly against
the person who prepared the documents. It is agreed that all parties hereto
have been represented by counsel and that representatives of all parties have
participated in the preparation hereof.
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<PAGE> 25
T. BROKER. Seller has employed Daniels & Associates, L.P. for the
purpose of brokering this transaction for the Seller. Seller is solely
responsible for payment of any fees owing to Daniels & Associates for its
efforts on this transaction, and Buyer shall have no responsibility in this
regard.
U. ENTIRE AGREEMENT. This Agreement, including all attachments and
schedules hereto and other agreements executed contemporaneously herewith,
constitutes the entire agreement between the parties hereto and supersedes all
other prior agreements, understandings and arrangements, oral or written,
between the parties hereto with respect to the subject matter hereof.
V. DUE AUTHORIZATION. The signatories represent and warrant that they
are duly authorized to execute this Agreement.
W. FORCE MAJEURE. If by reason of force majeure either party is unable
in whole or in part to carry out its obligations hereunder, said party shall
not be deemed in violation or default during the continuance of such inability.
The term "Force Majeure, " as used herein, shall mean the following: acts of
God, acts of public enemies, orders of any kind of the government of the United
States of America or of any state or any of their departments, agencies,
political subdivisions, or officials other than the FCC, or any civil or
military authority, insurrections, riots, epidemics, landslides, lightning,
earthquakes, fires, hurricanes, volcanic activity, storms of extraordinary
force, floods, washouts, droughts, civil disturbances, explosions of any
similar cause or event not reasonably with the control of the adversely
affected party, and all requirements as to notice and other performance
required hereunder within a specified period shall be automatically extended to
accommodate the period of pendency of any such contingency which shall
interfere with such performance.
X. PAYMENT OF EXPENSES. Buyer and Seller recognize that they are
obligated to make a Hart-Scott-Redino filing with the Federal Trade Commission,
and the parties agree to split the cost of the filing fee of $25,000.00. Each
party shall pay $12,500.00 toward the filing fee. In general, each party shall
pay its own costs and expenses associated with the negotiation and preparation
of this Agreement. Except as otherwise provided herein, all costs and expenses
incident to the carrying out of this Agreement shall be paid by the party
incurring such cost or expense.
Y. SPECIFIC PERFORMANCE. The parties acknowledge and agree that the
rights reserved to each of them hereunder are of a special, unique, unusual and
extraordinary character, which gives them a particular value, the loss of which
cannot be adequately or reasonably compensated for in damages in an action at
law, and the breach by either of the parties of any of the provisions hereof
will cause the other parties irreparable injury and damage. In such event, the
nondefaulting party shall be entitled, as a matter of right, to require of the
defaulting party specific performance of all of the acts, services and
undertakings required hereunder including the obtaining of all requisite
authorizations to execute or perform this Agreement and to obtain injunction
and other equitable relief in any competent court to prevent the violation of
any of the provisions hereof. Neither this provision nor any exercise by any
party of rights to equitable relief or specific performance herein granted
shall constitute a waiver of any other rights which it may have to damages or
otherwise.
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<PAGE> 26
Z. TIME OF ESSENCE. Wherever this Agreement sets forth any time for the
performance of any act, such time shall be deemed of the essence.
AA. NOTICE AND CURE. This Agreement may be terminated upon the material
breach or default of either party of its duties, obligations, representations,
warranties and covenants hereunder, if such breach is not cured as described
below. In the event of breach, the non-breaching party shall provide the
breaching party with written notice of the breach. The Breaching party will
then have thirty (30) days from the date it received notice of the breach
within which to cure the breach. The rights, claims or remedies available in
equity or at law to the nonbreaching party, arising by reason of the breach or
default, shall not be diminished.
IN WITNESS WHEREOF, the parties hereto have executed this agreement
the day and year written below.
SELLER: BUYER:
BOISE CABLE WIRELESS BROADCASTING SYSTEMS
LIMITED PARTNERSHIP OF AMERICA, INC.
By
Northwest Satellite Network, Inc.
General Partner
By: /s/ KEITH RIFFLE By: /s/ WILLIAM W. KINGERY, JR.
------------------------------- -----------------------------
Keith Riffle William W. Kingery, Jr.
President Chief Executive Officer
Date: SEPTEMBER 30, 1994 Date: SEPTEMBER 30, 1994
------------------------------ ---------------------------
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<PAGE> 1
Exhibit 10.6
ASSET PURCHASE & SALE AGREEMENT
AND CHANNEL LEASE
THIS ASSET PURCHASE AND SALE AGREEMENT AND CHANNEL LEASE ("Agreement")
is made and entered into by and between Northwest Cable Network ("NCN" or
"Seller"), a general partnership organized under the laws of the state of
Washington, and Wireless Broadcasting Systems of America, Inc. ("WBSA" or
"Buyer"), Delaware corporation. NCN and WBSA shall be collectively referred to
herein as "the parties".
WITNESSETH
WHEREAS, Seller owns and operates a wireless cable television subscription
system (the "System") in Yakima, WA ("the Metropolitan Area") that is comprised
of certain licenses, leases, agreements, tangible assets, intangible assets and
other rights and interests as defined herein (the "Assets");
WHEREAS, Seller desires to sell, assign and convey such Assets to Buyer,
and Buyer desires to purchase and receive assignment and conveyance of such
Assets from Seller;
WHEREAS, the parties memorialized these intentions in a Revised Offer
Letter from Buyer dated August 29, 1994 and an Acceptance letter from Seller's
counsel dated September 6, 1994; and
WHEREAS, the parties hereto recognize that formal approval to assign
certain of the Assets must be obtained from third parties and governmental
entities. The parties hereto also recognize that Buyer wishes to begin
operating the System at the earliest possible time. Until such time as formal
approval of the necessary assignments is obtained from the proper authorities,
Seller wishes to lease to Buyer, and Buyer wishes to lease from Seller whatever
Assets Buyer cannot obtain direct assignment of.
NOW THEREFORE, In consideration of the premises and mutual promises and
conditions contained herein, and other good and valuable consideration, the
sufficiency and receipt of which is hereby acknowledged, the parties hereby
agree as follows:
1. PURCHASE AND SALE
A. Assets to be Conveyed. Subject to the conditions and based upon the
representations made herein, Seller agrees to sell, and Buyer agrees to
purchase the following Assets of Seller, which are to be conveyed to Buyer free
and clear of all mortgages, liens and encumbrances to other persons of every
kind and character, with
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<PAGE> 2
certain exceptions as detailed herein:
1. All agreements, authorizations, licenses, leases, and contracts
connected with or relating to the operation of the System, all of which
are described on Exhibit A, attached hereto and incorporated herein by
reference.
2. All the tangible personal property of Seller, generally described on
Exhibit B, which is attached hereto and incorporated herein by reference,
less disposals and additions prior to the time of Closing that are made in
the ordinary course of business. Seller will amend Exhibit B upon Closing
in order to reflect these ordinary disposals and additions.
3. All contracts, consents, assignments and acknowledgements in effect on
the Closing Date that are entered into by Seller for the benefit of Buyer.
4. All rights of Seller, to the extent any exist, to the name "Northwest
Cable Network" or "Northwest Cable" or "NCN" or to any of the call signs of
the wireless cable stations, whether ITFS, MDS OR MMDS, that comprise the
System.
5. All intangible Assets of the Seller including the Covenant Not to
Compete.
B. Liabilities Not Assumed. It is understood and agreed that Buyer does not
intend to, and shall not, assume any obligation or liability of Seller of any
character whatsoever, whether relating to the System or otherwise, other than
the liabilities which are specifically assumed by Buyer (the "Assumed
Liabilities"), and detailed on Exhibit C, which is attached hereto and
incorporated herein by reference.
C. Purchase Price. In full consideration for the Assets to be transferred to
Buyer and the liabilities to be assumed by Buyer, and premised on Seller's
representation that it will have at least SEVENTY TWO HUNDRED (7,200)
Equivalent Basic Units ("EBUs") by Closing (see Paragraph 1(D)), and subject to
all terms and conditions of this Agreement, the Buyer shall pay the Seller a
total Purchase Price of NINE MILLION NINE HUNDRED SEVENTY FIVE THOUSAND DOLLARS
($9,975,000.00) to be paid as follows:
1. Escrow Deposit. Upon execution of this Agreement, Buyer will deposit
FOUR HUNDRED SEVENTY THREE THOUSAND FOUR HUNDRED DOLLARS ("$473,400.00")
into an Escrow Account pursuant to the Escrow Agreement that is attached
hereto as Exhibit D.
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<PAGE> 3
a. Due Diligence, Release of Escrow. Buyer will have sixty days from the
date this document is executed to perform a due diligence search of the
Assets that are the subject hereof. In the event material defects in the
system in general, or in the licenses in particular, are discovered during
this due diligence period, and such defects are not cured by Seller within
six (6) months after Closing, then the funds in the Escrow Account shall
remain in place until the defects are resolved. Buyer shall attach hereto
as Exhibit E, upon Closing, a list of any and all defects discovered during
the due diligence period. The funds in the Escrow Account shall also
remain in place until resolution of any other claims for indemnity that may
arise between the parties during the six months after Closing. If, at six
months after Closing, there are no defects or claims that remain to be
resolved, then pursuant to the Escrow Agreement, the funds in the Escrow
Account shall be released to Seller, less any deductions for indemnity
claims made in accordance with this Agreement and any other adjustments,
allocations and prorations as specified herein between Buyer and Seller.
b. Escrow Deposit as Liquidated Damages/Refund of Escrow Deposit.
(i) In the event Buyer and Seller fail to Close the transactions
contemplated hereunder due to Buyer's breach of its representations,
warranties, covenants or obligations hereunder, and such breach is not
cured in accordance with Paragraph III (AA) herein, then Escrow Agent
shall deliver to Seller FOUR HUNDRED SEVENTY THREE THOUSAND FOUR
HUNDRED DOLLARS ("$473,400.00") as liquidated damages in accordance
with the Escrow Agreement. Any residual funds and accrued interest in
the Escrow Account shall be returned to Buyer.
(ii) In the event Buyer and Seller fail to Close the transactions
contemplated hereunder due to Seller's breach of its obligations,
representations, warranties or covenants hereunder, and such breach is
not cured in accordance with Paragraph III(AA) herein, then Escrow
Agent shall return all of the funds in the Escrow Account to Buyer in
accordance with the Escrow Agreement.
(iii) In the event the transactions contemplated hereunder cannot
Close for reasons unrelated to a breach by either Buyer or Seller,
then, in accordance with the Escrow Agreement, the funds in the Escrow
Account shall be split by Buyer and Seller, with Seller receiving
1/210th of the Escrow Deposit for each day that has passed after
execution of this document, and Buyer receiving the remainder of the
funds, including residual amounts and accrued
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interest.
2. Balance of Purchase Price. Upon the Closing Date, Buyer shall pay
Seller the remainder of the Purchase Price, NINE MILLION FIVE HUNDRED AND
ONE THOUSAND SIX HUNDRED DOLLARS ("$9,501,600.00"), in one lump sum
payment in the form of cash, certified check or wire transfer.
3. Covenant Not To Compete. In consideration of the Covenant Not to
Compete contained herein, Buyer is separately paying Seller the sum of
TWENTY FIVE THOUSAND DOLLARS ($25,000.00), to be paid to Seller upon
Closing.
4. Reduction of Purchase Price. In the event Seller does not have 7,200
EBUs at Closing, the Purchase Price shall be reduced by ONE THOUSAND THREE
HUNDRED EIGHTY NINE DOLLARS ($1,389.00) per EBU below 7,200. In the
alternative, Seller shall have the option of postponing Closing until such
time as it has 7,200 EBUs, but in no event shall Closing be delayed past
April 30, 1995, unless the parties agree in writing otherwise. If Seller
elects to postpone Closing, and on April 30, 1995 Seller's EBUs are at a
level below 7,200, then the Purchase Price shall be reduced as described
above and the transaction will Close in accord with this Agreement.
5. Post-Closing Adjustment of Purchase Price.
a. On Closing Seller shall deliver to Buyer a final list, attached
hereto as Exhibit F, of all EBUs. The accounting shall be broken up into
three categories: (i) Current EBUs -- defined as accounts that, on Closing,
have balances that are outstanding for 44 or fewer days; (ii) Past Due EBUs
-- defined as accounts that, on Closing, have balances outstanding for at
least 45 days but not more than 60 days; (iii) Non-EBUs -- defined as
accounts that were installed for free after September 2, 1994, accounts
that were installed after September 2, 1994 at substantially reduced rates
(i.e., less than $9.95 per install), accounts who receive service for free,
and accounts that, on Closing, are 61 or more days past due. EBUs in
category (i) and category (ii) shall be counted toward Seller's final EBU
total, Non-EBUs in category (iii) shall not count toward the final EBU
total, with the following exception: Buyer shall allow Seller to count
toward its final EBU total a maximum of 200 EBUs installed for free under
the following circumstances: the EBU must be located in a cabled area, the
offer for free installation must have been unadvertised and communicated
through one of Seller's salespeople, and Seller must collect from the EBU,
in advance, the cost of one full month's service. For further definition of
the term EBU see Paragraph l(l)(15) herein.
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<PAGE> 5
At the end of the month in which the transaction Closes, in order to
determine if the Seller should reimburse Buyer for any EBUs in category
(ii) above, the Buyer will undertake the following evaluation: If Closing
occurs on or before November 30, 1994, then amounts due for October 1994
service from EBUs in category (ii) must be collected by November 30, 1994.
If Closing occurs during the month of December, 1994, then amounts due for
November, 1994 service must be paid by the last day in December, 1994. If
Closing occurs during the month of January, 1995, then amounts due for
December, 1994 must be paid by the last day in January, 1995.
If Closing occurs in a subsequent month, the same procedure as just
described will be used. EBUs in category (ii) for whom payment is not
collected for service as described above, shall be known as "Reimbursable
EBUs."
Reimbursable EBUs shall be subtracted from the total number of EBUs for
which Seller was given credit at Closing. The Purchase Price will be
adjusted downward in the following three scenarios by ONE THOUSAND THREE
HUNDRED EIGHTY NINE DOLLARS ($1,389.00) for each Reimbursable EBU: (1)
If the new EBU total falls below 7,200; (2) If Seller had fewer than
7,200 EBUs at Closing; and (3) If Buyer delayed Closing past December
16, 1994 and was required to pay an additional sum of money for each EBU
over 7,200. In these three scenarios, the Escrow Agent will be
instructed, pursuant to the Escrow Agreement, to deduct from the Escrow
Account and return to Buyer a sum equal to the number of Reimbursable
EBUs multiplied by ONE THOUSAND THREE HUNDRED EIGHTY NINE DOLLARS
($1,389.00).
6. Purchase Price Allocation. Upon Closing, Buyer and Seller shall
attach hereto as Exhibit M an itemization of each Asset to be alienated
hereunder, and the corresponding amount of the Purchase Price to be
allocated for each such Asset. The allocation shall be based upon a fair
market appraisal of the Assets by an independent party, to be paid for by
the Buyer.
D. Closing; Closing Date. The Closing Date for the transactions contemplated
hereunder shall be November 30, 1994, but not later than April 30, 1995, unless
otherwise agreed in writing, and shall occur at a mutually agreed upon location.
1. Seller Postponements. Seller may postpone Closing past November 30,
1994 in the event it does not believe it will have 7,200 EBUs or the
Required Consents as of the Closing Date. Seller shall provide Buyer with
written notice of the postponement 48 hours prior to the Closing Date. In
the notice Seller shall estimate, to the best of its ability, the
alternative Closing Date. Unless otherwise agreed in writing by the
parties, Closing shall not be postponed past April 30, 1995.
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2. Buyer Postponements. Buyer may postpone Closing for any reason.
If Buyer plans to postpone Closing past November 30, 1994 it
shall provide Seller with notice of the postponement 48 hours in
advance of the Closing Date, and such notice shall estimate, to the
best of Buyer's ability, an alternative Closing Date. Unless
otherwise agreed in writing by the parties, Closing shall not be
postponed past April 30, 1995. If Buyer postpones Closing beyond
December 15, 1994, then Buyer will be required to pay Seller an
additional ONE THOUSAND THREE HUNDRED EIGHTY-NINE DOLLARS ($1,389.00)
for each Equivalent Basic Unit (EBU) of subscribers over 7,200 EBUs
that Seller has acquired and begun serving as of the actual Closing
Date. For a definition of EBU see Paragraph i(i)(15) herein.
3. Termination for Failure to Close. If the transactions
contemplated hereunder are not Closed by April 30, 1995, and the
parties have not agreed in writing to extend Closing, then this
Agreement shall terminate, with no further liability to either Seller
or Buyer, subject to the Escrow provisions contained herein and in
the Escrow Agreement.
E. Adjustments.
1. Prorations and Allocations. Appropriate adjustments for prepaid
income, prepaid expenses, and accrued expenses, shall be made
for the benefit of Buyer and Seller, on a pro-rata basis, as soon as
possible following Closing, but not later than three (3) months
following Closing. Seller and Buyer shall jointly prepare the
preliminary settlement document as of Closing, and the final
settlement document ninety days after Closing. Such adjustments
shall be made payable to Buyer and Seller out of the funds placed in
Escrow pursuant to the Escrow Agreement. Adjustments shall be made
in accordance with generally accepted accounting principles. All
expenses and income attributable to the System for the period prior
to Closing are for the account of Seller, and all expenses and income
attributable to the System for the period on and after the Closing
are for the account of Buyer. Such adjustments shall include,
without limitation, the following:
a. The amount of Channel Lease Agreement fees payable by Buyer
after the Closing Date, covering periods prior to the
Closing Date, shall be credited to Buyer;
b. The pro rata share accrued to the Closing Date of account
receivables, real estate taxes, rentals, copyright fees,
utility charges (electricity) and other customarily
pro-ratable items shall be appropriately credited;
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c. Salaries, wages, commissions, accrued vacations, and
accrued sick pay with respect to employees of Seller shall be
prorated between Seller and Buyer as of the Closing Date;
d. All taxes, fees, and assessments, whether relating to
employment, real property, personal property, or
otherwise, shall be prorated between the parties as of the
Closing Date. Any real or personal property taxes due on or
after Closing shall be prorated over the calendar year,
notwithstanding the fact that such taxes may have accrued or
may have been assessed during a previous period.
e. Buyer shall use its reasonable efforts to collect after
Closing all accounts receivable attributable to the
operation of the System prior to Closing. All such
receivables collected on or before the ninetieth (90th) day
following Closing shall be for Seller's account and
receivables collected thereafter shall be for Buyers'
account.
2. Customer Deposits. To the extent Buyer assumes any obligations of
Seller with respect to customer deposits of any kind, Buyer shall
receive a credit against the Purchase Price in the amount of any
such deposits.
3. Post-Closing Adjustments.
a. Thirty days past Closing adjustment shall be made for
Reimbursable EBUs consistent with Paragraph i(C)(5) herein.
b. Any of the foregoing adjustments which are not capable of
calculation at Closing shall remain open and be adjusted within
ninety (90) days after the Closing Date, or such later date as shall
be agreed upon by the parties.
c. Any cash or other property in respect of Seller's operation
of the System prior to Closing that are intended to remain Seller's
property, but which are in Buyer's possession, shall be held by
Buyer in trust for Seller until delivered to Seller.
F. Applications for FCC Consent. The parties must apply to the FCC for formal
consent to assign the licenses to the C-group, D-group, E-group, and Channel 1,
as identified on Exhibit A, to Buyer.
1. Assignment Applications. In the event it is permissible to
immediately file assignment applications for the above-referenced
stations, then within thirty (30) days of the date this Agreement is
fully executed, the parties shall join in preparing and filing with
the FCC such applications as are necessary to request.
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FCC consent to assignment of the licenses to Buyer. If immediate
assignment is not permissible under the FCC's rules and
regulations, then the assignment applications shall be filed no
later than thirty (30) days after the first possible date they each
may be filed under the FCC's rules and regulations. Buyer shall pay
any FCC filing fees associated with preparation and filing of the
assignment applications.
2. Prosecution. Seller and Buyer will cooperate in providing all
information and taking all steps necessary, desirable and
proper to expedite the preparation, filing and prosecution of such
assignment applications to a favorable conclusion. In the event any
person petitions the FCC to deny one or more of the assignment
applications, or otherwise challenges the grant of one or more of the
assignment applications before the FCC, or in the event the FCC
enters an order consenting to and approving the assignments and any
person appeals or otherwise attacks such order, then the parties
agree to diligently oppose and defend against such petition or
challenge in absolute good faith, to the end that the transactions
contemplated by this Agreement may be finally consummated. Buyer
shall pay all costs and expenses associated with such opposition and
defense.
3. Modification Applications. Seller also agrees, to the extent
Seller's involvement is necessary, to file with the FCC whatever
modification applications Buyer deems necessary for the success of
Buyer's operation of the System. Buyer shall bear the costs,
including the FCC filing fees, associated with preparing and
prosecuting any modification applications. Failure of the FCC to
grant any modification applications filed at the behest of Buyer
shall not affect any rights or obligations of the parties under this
Agreement.
4. Denial of Assignment Applications. In the event the FCC denies
one or more of the assignment applications, and such denials
are not final or are without prejudice, and the parties can amend
the offending applications to make them acceptable to the FCC, then
the parties shall promptly reform, amend and resubmit the offending
assignment applications. If the denials are due to this Agreement,
the parties shall negotiate in good faith to reform it in order to
satisfy the concerns of the FCC, but if such reformation is
impossible, then the parties shall enter into lease agreements as
described in Paragraph II(E) herein, in lieu of the assignments.
Should the FCC, by staff action or otherwise, dismiss or deny one or
more of the assignment applications, then the parties shall appeal
such dismissals or denials through the full Commission and the Court
of Appeals, if necessary; the costs and expenses of such appeals
shall be shared by Buyer and Seller.
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G. Seller's Closing Deliveries. At the Closing, Seller shall deliver to Buyer
the following duly executed documents:
1. Such instruments of conveyance, transfer and assignment pertaining
to the Assets as shall be reasonably necessary or appropriate to
convey to Buyer all of the Assets including, but not limited
to, a Bill of Sale, an Assignment and Assumption of Contracts, and a
final accounting of EBUs as described at Paragraph I(C)(5) herein.
Such instruments of conveyance shall be drafted to the mutual
satisfaction of both parties by Closing.
2. A certificate, dated as of the Closing Date and executed by the
Managing Partner of the Seller, certifying that the
representations, covenants and warranties of Seller contained
herein are true and correct, and Seller has complied with all
unaccomplished duties, and any representations, covenants and
warranties that can no longer be made by Seller as of Closing, shall
be specifically disclosed.
3. A certificate, dated as of the Closing Date and executed by the
Managing Partner of the Seller, certifying that the partnership has
approved the execution and delivery of this Agreement and
consummation of the transactions contemplated hereunder.
4. A certificate, dated as of the Closing Date, prepared in
conjunction with Buyer, and executed by the Managing Partner of the
Seller, listing all of the Assets to be alienated hereunder, and
the allocation of Purchase Price corresponding to each.
5. A certificate, dated as of the Closing Date, and executed by the
Managing Partner of the Seller, listing all EBUs serviced by
Seller as described at Paragraph I(C)(5) herein.
6. Opinion of Counsel to Seller. A separate opinion from counsel to
Seller, dated the Closing Date and addressed to Buyer, satisfactory
in form and substance to Buyer and its counsel, with customary
exceptions and disclaimers stating to the effect that:
a. Seller is a general partnership organized, validly existing
and in good standing under the laws of the State of
Washington, and has all requisite power to carry on its
business in Washington as such business is now being conducted.
b. Seller has full power and authority to sign and deliver
this Agreement and to consummate the transactions
contemplated hereby. To the best
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of such counsel's knowledge, all acts and other proceedings
required to be taken by or on the part of the Seller to
authorize it to perform its obligations set forth herein and
to consummate the transactions contemplated hereby have been
duly and properly taken. The Agreement, when signed and
delivered by the Seller, will constitute the legally binding
obligation of Seller in accordance with its terms subject to
the applicability of equitable remedies.
c. Neither the execution, delivery nor performance of this
Agreement, nor the consummation of the transactions
contemplated hereby, is prohibited by or requires Seller to
obtain any consent (except for the Required Consents), or
authorization, approval or registration under any law, rule
or regulation, judgment, order, writ, injunction or decree
which is binding upon Seller, or violates any provisions of
Seller's partnership agreement.
d. Except as disclosed in Exhibit H hereto, to the best of
Counsel's knowledge, after due inquiry, neither Seller nor
any of Seller's partners, is a party to any litigation which
would in any way affect the Assets transferred pursuant to
this Agreement, nor is there any threatened litigation which
would affect the Assets being transferred pursuant to this
Agreement or affect Seller's ability to legally enter into or
consummate the transactions contemplated by this Agreement.
e. The provisions of the Uniform Commercial Code and
Washington law relating to Bulk Sales are not applicable
to the transaction.
f. The certificates of the Managing Partner called for in
Paragraph I(G) were validly executed by Seller.
7. Opinion of FCC Counsel. An opinion from Federal Communications
Commission ("FCC") counsel to Seller, dated the Closing Date and
addressed to Buyer, satisfactory in form and substance to Buyer and
its counsel, stating that:
a. The execution, delivery and performance of this Agreement
by the parties does not contravene any law, regulation, rule
or any order binding on any such parties issued or
administered by or otherwise relating to the FCC or the
Copyright Office.
b. Seller holds all FCC licenses and channel lease agreements
identified on Exhibit A, and to the best knowledge of
counsel, after due inquiry,
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Seller is in material compliance with the Communications Act
and FCC rules and regulations. Further, Seller has received
prior consent of each of the Lessors identified in Exhibit
A, where necessary, to assignment of such leases.
c. Except as specifically disclosed on Exhibit H, there are no
actions, proceedings, investigations or claims against or
affecting the Seller or any of the licenses that are a part
of the system now pending before the FCC, and each of the
licenses that constitute a part of the System are in good
standing with no defects whatsoever.
8. Seller shall endeavor to cause applicable Lessors to assign any
and all Channel Lease Agreements and/or Asset Purchase Agreements
necessary to operation of the System.
9. All other documents reasonably requested by counsel for the Buyer,
including, without limitation, a release with respect to all
security interests and liens in the Assets being sold to Buyer
herein, with certain exceptions as listed at Exhibit G.
10. Seller, with Buyer's full cooperation, shall be responsible for
preparing the preliminary settlement document as of Closing, and the
final settlement document ninety days after Closing.
H. Buyer's Closing Deliveries. At Closing, Buyer shall deliver to Seller:
1. A list of the defects in the system in general, or in the licenses
in particular, that were discovered during the due diligence
period, and
2. An opinion from counsel to Buyer, dated the Closing Date and
addressed to Seller, satisfactory in form and substance to Seller
and its counsel, stating to the effect that:
a. Buyer is a corporation organized, validly existing and in
good standing under the laws of the State of Delaware, and
has all requisite power to carry on its business as
such business is now being conducted.
b. Buyer has full power and authority to sign and deliver this
Agreement and to consummate the transactions contemplated
hereby. To the best of such counsel's knowledge, all acts
and other proceedings required to be taken by or on the part
of the Buyer to authorize it to perform its obligations set
forth herein and to consummate the transactions contemplated
hereby have been properly taken. The Agreement,
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when signed and delivered by Buyer will constitute the legally
binding obligation of Buyer in accordance with its terms
subject to the applicability of bankruptcy, insolvency,
reorganization or other similar laws affecting the rights of
creditors generally and the applicability of equitable
remedies.
c. Neither the execution, delivery nor performance of this
Agreement nor the consummation of the transactions
contemplated hereby, to counsel's knowledge, is prohibited
by, or requires Buyer to obtain any consent, or authorization,
approval or registration under any law, rule or regulation,
judgment, order, writ, injunction or decree which is binding
upon Buyer or violates any provisions of the Articles of
Incorporation of Buyer.
d. To the best of counsel's knowledge, after due inquiry,
Buyer is not a party to any litigation which would in
any way affect the assets being transferred pursuant to this
Agreement or affect Buyer's ability to legally enter into or
consummate the transactions contemplated by this Agreement.
I. Representations, Warranties and Covenants of Seller. Seller represents and
warrants to Buyer for the purpose of inducing Buyer to enter into this
Agreement and to consummate the transactions contemplated hereby as follows:
1. Organization and Standing of Seller. Seller is a general
partnership duly organized, validly existing, and in good standing
under the laws of the state of Washington. All entities that form a
part of Seller are likewise duly organized. Seller has full
power and authority to own its properties and to carry on its
business in Washington.
2. Seller's Authority. This Agreement and the transactions
contemplated hereby have been duly authorized by all necessary
action on the part of Seller. This Agreement constitutes, and all
other agreements contemplated hereby will constitute, when executed
and delivered pursuant hereto, the valid and binding obligations of
Seller enforceable in accordance with its respective terms.
3. Title to Properties. There are no security interests applicable
to the Assets, except for those security interests listed at Exhibit
G. Seller holds good title to the Assets free and clear of all
mortgages, claims, liens, charges, encumbrances, security interests,
restrictions on transfer, taxes and other material defects ("Liens")
except:(a) those which will be released at Closing, (b) liens for
personal property taxes that are not yet due and payable, (c)
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Required Consents which will be obtained prior to Closing, and (d)
those obligations which Buyer expressly assumes (i.e.,
conditional purchase contracts for vehicles used in support of the
System). With the exception of the foregoing, the conveyance,
transfer and delivery of the Assets pursuant to the terms hereof
will vest in Buyer all of Seller's title thereto, free and clear of
all liens of any nature whatsoever.
4. Contracts. Except as otherwise disclosed by Seller on Exhibit J,
there exists no default (including without limitation any event that
with the giving of notice or passage of time or both would cause
a default), termination or threatened termination under, or
amendment to, any contract or other material agreement relative to
the Assets of the System. After execution of this document, but
before Closing, Buyer shall have the option of rejecting, and not
assuming any contracts or agreements of Seller. On or before
Closing, Buyer will notify Seller in writing of its election not to
assume certain contracts. Buyer will endeavor to notify Seller of
such election in a sufficient period of time so that Seller can
terminate the contract without penalty. If Seller was in full
compliance with the contract, and if termination results in
assessment of penalties against Seller, Buyer agrees to pay half the
cost of such penalty. If Seller was not in compliance with a
contract which Buyer elects not to assume, and termination of the
contract results in assessment of penalties against Seller, then
Buyer shall have no obligation to assist Seller in payment of the
penalties.
5. Condition of Property. Except as otherwise disclosed by Seller on
Exhibit B at Closing, Seller represents and warrants that all
property it is transferring to Buyer hereunder is in good and
operable condition. For any property that is not in good and
operable condition on Closing, Buyer shall receive an appropriate
credit as part of the Post-Closing Adjustments described herein.
6. Required Consents. Seller will endeavor to obtain, as of Closing,
all consents necessary or required to convey all contracts to Buyer
that are pertinent to the System, unless buyer elects not to assume
the contract pursuant to Paragraph I(I)(4) herein. Seller will also
diligently pursue obtaining the consent of the FCC to assignment of
whatever licenses are to be assigned to Buyer hereunder. Except for
Required Consents, no consent, order, approval, permit, authorization
or notification of, or registration, declaration or filing with, any
governmental or judicial authority or other third party is required
in connection with the valid execution, delivery or performance of
this Agreement and the consummation of the purchase and sale of the
Assets and assignment of contracts. All contracts to be transferred
hereunder are in full force and effect.
7. Claims and Litigation. Except as disclosed on Exhibit H, there is
no claim, action, proceeding, or investigation pending or to the
best of Seller's knowledge
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threatened against or affecting Seller of its property before or by
any court or governmental agency. There is no strike or unresolved
labor dispute relating to Seller's employees which might have any
effect on the Assets.
8. Taxes and Fees.
a. Taxes of Seller. Except as otherwise disclosed in Exhibit I,
Seller has timely filed all federal, state, and local tax returns
required to be filed by Seller. Seller has paid and will pay
all taxes (as defined below), due and payable for all periods ending
prior to the Closing Date. "Taxes" means all taxes including
without limitation, real, assessments, fees, or other charges
(including without limitation penalties and interest) from time to
time imposed by the laws of any jurisdiction or by any federal,
state, or local government or governmental unit in connection with
the operation of the System.
b. Payment of Buyer's Taxes. Any and all sales, use, and property
taxes due from Buyer as a result of the contemplated
transactions shall be born by Seller.
9. Insurance. Seller has in force adequate liability insurance
covering its ownership and operation of the System against loss,
damage and liability and will maintain such insurance up to and
including Closing, and will furnish Buyer evidence of such
insurance, if requested.
10. Material Facts. Seller has not intentionally or recklessly made
any misstatement of material fact in this Agreement and there is no
intentional or reckless omission of a material fact which is
necessary or material to statements made herein.
11. No Violation. The execution, delivery and performance of this
Agreement by Seller and the consummation of the transactions
contemplated hereby:
a. Will not conflict or cause a breach or default under
any of the terms and provisions of any contract, agreement,
lease, license, or other instrument to which Seller is a
party, by which Seller is bound or by which the Assets may
be affected, except for Required Consents, all of which shall
be obtained prior to Closing; and
b. Will not result in a violation of any of Seller's
partnership agreements, or any judgment, decree, order
or award of any court, governmental body or arbitrator or any
applicable law, ordinance, rule or regulation; and
c. Will not result in the creation of any lien, charge or
encumbrance on the Assets; and
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d. Will not give to others any rights, including rights of
acceleration, termination or cancellation, with respect to
any contract, agreement or other instrument relating to any
of the Assets.
12. Compliance with Laws and Agreements. With the exception of what
Seller discloses on Exhibits I & J, Seller represents and warrants
the following:
a. To Seller's knowledge, neither Seller nor any of Seller's
partners, agents or employees has violated in any material
respect any contracts pertaining to the System, any laws,
ordinances, rules or regulations in connection with procuring,
obtaining, constructing, owning, maintaining or operating the
Assets or the System.
b. Seller has not received any notice (written or otherwise)
from any party with whom it has a contract pertaining to
the System, nor has it received notice from any federal,
state or local agency, commission, board or authority or any
insurance or inspection body asserting or investigating any
alleged failure of Seller to comply with any applicable
contracts, laws, ordinances, regulations, building or zoning
laws.
13. FCC. Except as Seller specifically discloses on Exhibit K, Seller
warrants that to the best of its knowledge, it is not in material
violation of FCC rules and regulations pertaining to the System or
the stations that comprise it. Seller further warrants that to the
best of its knowledge, the consummation of the transactions
contemplated herein will not render Seller in violation of FCC rules
and regulations pertaining to the System or the stations that
comprise it.
14. No Shop. Upon execution of this Agreement and Buyer's deposit of
the Escrow money with the Escrow Agent, through either Closing
or termination of this Agreement, Seller represents and warrants
that it will not solicit, nor entertain, discuss or accept any third
party offers of any kind for the purchase and sale of the Assets.
15. Equivalent Basic Units. Seller represents and warrants that as of
Closing it will have SEVENTY TWO HUNDRED ("7,200") Equivalent Basic
Units ("EBUs") of subscribers. The term EBU shall mean the number of
residential subscribers plus, for bulk accounts, the number of bulk
subscribers derived by dividing the aggregate monthly amount billed
by Seller to bulk subscribers (i.e., motels, hospitals, prisons and
the like), by the average monthly rate charged to residential
households in the system for Basic Services ($27.95). The
calculation of EBUs shall not include subscribers that were installed
for free after September 2, 1994, subscribers that were installed
after September 2, 1994 at substantially reduced rates (i.e., less
than $9.95 per install), subscribers who receive service for free,
and EBUs whose accounts are 61 or
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more days past due. Caveat: Buyer shall allow Seller to count toward
its final EBU total a maximum of 200 EBUs installed for free
under the following circumstances: the EBU must be located in a
cabled area, the offer for free installation must have been
unadvertised and communicated through one of Seller's salespeople,
and Seller must collect from the EBU, in advance, the cost of one
full month's service.
16. Litigation. Except as specifically disclosed by Seller on Exhibit
H, there is no litigation, action, suit, proceeding or publicly
known investigation pending or, to the best of Seller's knowledge
threatened, with respect to the Agreement or the transactions
contemplated hereby before or by any federal, state, municipal or
other governmental instrumentality, domestic or foreign, which may
result in any materially adverse effect upon this Agreement or which
may enjoin, prohibit, or otherwise challenge any of the
transactions contemplated hereby.
17. No Customer. Seller has not entered into any contract, lease or
agreement of any nature under which any person shall have any
right to utilize the System or any stations that are a part hereof,
for any purpose whatsoever, other than this Agreement.
18. Licenses and Channel Lease Agreements. All of the licenses and
channel lease agreements relevant to the System, together with all
amendments and modifications to date, are listed at Exhibit A
and have been provided to Buyer. Except as specifically disclosed by
Buyer on Exhibit K, the licenses and leases are valid and in full
force and effect, and the stations are being operated in accordance
with their terms. Seller has complied with all of the terms and
conditions of the licenses and leases, as amended or otherwise
modified, as of the date hereof. No claims, proceedings or
investigations are pending, or to the knowledge of Seller, are
threatened against Seller with respect to the licenses or leases.
19. No Third Party Rights. Except pursuant to this Agreement, Seller
is not a party to any commitment or agreement, and no third
party has been granted any options, rights of first refusal or other
rights, in connection with the sale or disposition of the Assets or
the System.
20. Rights Protected. Neither Seller nor any of Seller's
representatives has accepted interference from any source, or failed
to timely protest any application that proposes facilities which
would theoretically or actually cause objectionable interference to
the protected reception of the facilities that are the subject of
this Agreement, except as specifically disclosed by Seller on
Exhibit_.
21. General Covenants. From execution of this document through
Closing Seller shall continue to fulfill its responsibilities under
its contracts, agreements and channel leases. Seller shall also
continue to use its best efforts to maintain its licenses in full
force and effect and perform all obligations imposed upon it by law
as an FCC licensee. Further, Seller shall take no action or fail to
perform
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any action that would render its representations and warranties
under this Agreement untrue or incorrect in any material respect on
and as of the Closing.
22. Towers. Seller represents and warrants that any towers used in
connection with the System are in compliance, where required, with
applicable notification, lighting or marking requirements pursuant
to section 17.1 et sea. of the FCC's rules.
23. Agreements with Employees. Seller is not a party to any employment
agreement, written or oral, which cannot be terminated at will by
Seller. Seller does not have any pension, profit sharing or other
employee benefit plans, other than health care and life insurance,
for the employees of the System. The employees of Seller are not
parties to any collective bargaining agreement with Seller and there
are no grievances, disputes or controversies with any union or any
other organization of Seller's employees, or threats of strikes,
work stoppages or any pending demands for collective bargaining by
any Union or to the best of Seller's knowledge, there is not any
cause therefor.
24. Copyright. Seller has filed annual copyright reports and has paid
the appropriate copyright royalties applicable to the System.
J. Representations, Warranties and Covenants of Buyer. Buyer represents and
warrants to Seller, for the purpose of inducing it to enter into this Agreement
and to consummate the transactions contemplated hereby, as follows:
1. Authorization of Agreement. Buyer has all requisite legal power,
authority and capacity to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the
transactions contemplated hereby, and all legal and other proceedings
necessary to authorize the execution, delivery and performance of
this Agreement by Buyer have been duly and validly taken by Buyer.
This Agreement constitutes the legal, valid and binding obligation
of Buyer, enforceable in accordance with its terms. Buyer is duly
organized, validly existing, licensed and in good standing under the
laws of the State of Delaware.
2. Effect of Agreement. The execution, delivery and performance of
this Agreement by Buyer and the consummation of the transactions
contemplated hereby will not, with or without the giving of
notice or the lapse of time, or both, (a) violate any provision of
law, statute, rule or regulation or any judgment, order, writ or
decree of any court applicable to Buyer or (b) result in the breach
of or conflict with any term, covenant, condition or provision of,
result in the modification or termination of, or constitute a default
under, any agreements to which Buyer is a party.
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3. Finder's Fees. Buyer has not taken any action which would impose
upon Seller any obligation or liability to any person for
finder's fees, agents' commissions or like payments in connection
with the execution and delivery of this Agreement or the
consummation of the transactions contemplated thereby.
4. Litigation. There is no claim, action, suit, proceedings,
arbitration, investigation or inquiry pending before any court or
governmental or administrative body or agency, or, to the knowledge
of Buyer, threatened against Buyer which would materially adversely
affect the ability of Buyer to perform its obligations under this
Agreement.
K. Seller's Duties Prior to Closing. Seller covenants that between the date of
this Agreement and the Closing Date:
1. Seller shall give to Buyer, Buyer's counsel, accountants, and
other representatives reasonable access, during normal
business hours to all of Seller's properties, books, and records
relating to the System and shall furnish Buyer during such period
with all information concerning the Assets that Buyer may reasonably
request. Buyer shall not make any request, either in time or in
volume, that will materially interfere with Seller's operation of
the System prior to Closing.
2. Seller will conduct its business relating to the System and the
Assets only in the ordinary course of business. Seller shall not
enter into any contracts or commitments relating to the Assets and
its System except contracts or commitments in the normal or usual
conduct of Seller's business.
3. Except for liens for personal property taxes that are not yet due
and owing, Seller will not allow any mortgage, pledge, lien or
other encumbrance or charge of any kind to exist upon any of the
Assets which will survive the Closing Date.
L. Conditions Precedent to Buyer's Obligations. Buyer's obligation to
consummate the Closing is subject to the satisfaction of all of the following
conditions:
1. Seller shall have performed and complied with all agreements and
conditions required by this Agreement to be performed or
complied with by Seller prior to or at the Closing Date.
2. Seller's representations and warranties contained in this
Agreement shall be true in all material respects at and as of the
Closing Date as though such representations and warranties were made
at and as of the Closing Date.
18
<PAGE> 19
3. No action or proceeding shall have been instituted, on or prior to
Closing, to set aside or modify the transaction provided for herein
or to enjoin or prevent its consummation.
4. Seller shall have obtained all Required Consents.
5. Buyer shall have completed its financing in an amount sufficient
to accomplish the purchase of the Boise System and the Yakima
System.
6. Buyer shall have been satisfied that Seller has good and
marketable title to all of the Assets that are the subject
hereof, and that all Assets are valid, in full force and effect, and
in good standing.
M. Conditions Precedent to Seller's Obligations. Seller's obligations to
consummate the Closing is subject to the satisfaction of all of the following
conditions:
1. Buyer shall have performed and complied with all agreements and
conditions required by this Agreement to be performed or
complied with by Buyer prior to or at the Closing Date.
2. Buyer's representations and warranties contained in this Agreement
shall be true in all material respects on the Closing Date.
3. No action or proceeding shall have been instituted, on or prior to
Closing, to set aside or modify the transaction provided for herein
or to enjoin or prevent its consummation.
4. Seller shall have obtained all Required Consents.
II. CHANNEL LEASE
Upon Closing Seller will assign to Buyer and Buyer will assume from Seller all
of Seller's right, title and interest in and to the contracts and lease
agreements listed on Exhibit A. As to the four Licenses listed on Exhibit A
that are owned by Seller, the parties must seek the approval of the FCC for
assignment of these licenses to Buyer. Until such time as the FCC consents to
the assignments, and such consents have become Final Orders and the
assignments are consummated, Seller will lease to Buyer and Buyer will Lease
from Seller channel capacity on these four stations according to the terms
and conditions specified below:
A. Lease of Channel Capacity: Seller is currently authorized by the FCC to
operate on the C-group, D-group, E-group, and Channel 1 in the Metropolitan
area, as specified
19
<PAGE> 20
on Exhibit A. Buyer intends to lease from Seller whatever authority Seller has
to operate these channels until the authorizations can be formally assigned
to Buyer.
(1) Capacity. Seller hereby leases to Buyer from the Closing Date
through consummation of the contemplated assignments, the full,
complete and entire capacity on the specified channels, twenty-four
hours per day, seven days a week. Such capacity shall include, but
shall not be limited to, the main channels, the vertical blanking
intervals and subcarrier frequencies.
(2) Control over Programming. Buyer shall have complete control over
all programming, provided that Buyer shall not transmit any
program which is obscene, as defined by the laws of the United
States, or which would violate any local or state law or the Rules
and Regulations of the FCC.
(3) Unused Capacity. Buyer shall have complete discretion and control
with respect to any unused capacity on the Channels.
B. Licenses Control and Liability. Nothing herein shall derogate from Seller,
as licensee, control of operations of the Channels that Seller, as an FCC
licensee, shall be required to maintain, and Buyer acknowledges Seller's
reservation of such control. Therefore, Seller shall at all times retain
ultimate responsibility for the operation and control of the Channels.
Consistent with its exercise of control, Seller shall have the right to
prohibit Buyer from transmitting any program which would violate any law of the
jurisdictions in which Buyer's services may be received, or the Rules and
Regulations of the FCC, provided, however, that Seller shall be required to
notify Buyer in writing of its refusal to permit the transmission of any such
program.
C. Payments. The Purchase Price to be paid under this Agreement shall serve as
the bulk of the consideration for the continued lease of channel capacity
on the specified stations until such time as the FCC grants its consent to
assignment of the stations. In addition, Buyer shall pay Seller ten dollars
($10.00) per license, per year for the lease of capacity until such time as
the assignments are approved by the FCC.
D. Equipment and Site Usage: Title to all equipment used in operation of the
System shall transfer to Buyer at Closing. Throughout the lease term, and
until formal assignment of the four stations indicated, Buyer shall lease the
equipment necessary to operation of the four stations back to Seller for the
sum of $1.00 per year. Buyer shall provide Seller with unlimited access to
such equipment, and Buyer accepts, in full consideration for such access, the
$1.00 per year payment indicated above. The equipment lease to Seller shall
terminate upon consummation of the assignments. Buyer agrees, throughout the
lease term, to pay for any modification, upgrade or enhancement of the
equipment required for operation at technical and service levels which are
consistent with prevailing industry standards and technical developments.
Buyer shall also bear all costs associated with maintaining and operating the
20
<PAGE> 21
equipment, including insurance.
E. Termination/Continuation of Channel Lease: This lease shall be deemed
automatically terminated upon consummation of assignment of the specified
stations from Seller to Buyer. In the event the FCC refuses to grant its
consent to assignment of one or more of the stations from Seller to Buyer, and
such refusal is for reasons unrelated to the licenses, and the subject
licenses remain valid and in full force and effect, then this channel lease
shall continue as to whatever authorizations cannot be assigned. In this event,
Buyer and Seller shall enter into formal lease agreements as to whatever
authorizations cannot be assigned, and such agreements shall provide for
successive, ten-year lease terms, with automatic renewals, at a cost of $100,
per license, per term.
III. GENERAL PROVISIONS
A. Seller's Further Obligations. From time to time after the Closing, Seller
shall take such further action and execute such further documents,
assurances and certificates as Buyer may reasonably request in order to
effectuate the transactions contemplated by the Agreement.
B. Seller's Covenant Not to Compete. For a period of five (5) years following
the Closing Date, Seller and the partners that comprise Seller, directly or
indirectly, as a consultant, agent, principal, owner, sponsor, partner,
shareholder, or in any representative capacity, engage or participate in, or
permit its name to be used in connection with any multichannel or single
channel video program distribution, including wireless cable (i.e. MDS, MMDS,
LPTV and ITFS Channels), satellite master antenna television ("SMATV"), 18 GHz
systems, 28 GHz systems and DBS and non-DBS backyard dish businesses within a
fifty ("50") mile radius of the transmit site in the Metropolitan Area. By
executing this Agreement, Seller agrees to this Covenant Not to Compete,
acknowledges that it is receiving good and valuable consideration therefore,
and agrees to be bound hereby. Because the amount of any damage which Buyer
may suffer as a result of the failure of Seller to observe this Covenant Not
to Compete may be difficult or impossible to calculate, but may nevertheless
be substantial, Buyer shall be entitled, in addition to any other remedy it
may have, to the remedies of injunctive relief or specific performance. Each
city within the Metropolitan Area covered by this Covenant Not to Compete
shall be deemed a severable unit, and should any court determine that the
inclusion of all such cities would render such covenants unreasonable or
unenforceable for any reason, those cities which are necessary, in the
judgment of the court, to be deleted in order to render such an undertaking
reasonable and enforceable shall be deemed free of such noncompetition, but
noncompetition shall remain in full force and effect as to every other city.
21
<PAGE> 22
C. Risk of Loss. The risk of loss of any Assets between the date of this
Agreement and the Closing Date shall be upon Seller. Seller shall notify
Buyer of any material casualty loss prior to the Closing and Buyer may, upon
written notice to Seller, either terminate this Agreement or proportionally
reduce the Purchase Price as agreed by Buyer and Seller.
D. Indemnification by Seller. Seller shall indemnify defend, and hold harmless
Buyer from and against any and all losses, costs, liabilities, damages,
and expenses (including legal and other expenses incident thereto) of every
kind, nature, and description, including any undisclosed liabilities of
Seller, that arise out of (i) the breach of any representation or warranty of
Seller set forth in this Agreement (including the Exhibits hereto) or in any
instrument delivered by Seller to Buyer pursuant hereof (ii) the breach of any
of the covenants of Seller contained in or arising out of this Agreement or
the transactions contemplated hereby, (iii) any breach or claim of breach
arising before Closing, or (iv) Seller's ownership or operation of the System
and Assets prior to the Closing Date or any other circumstance, state of
facts, or condition which exists with respect to the System or the Assets
prior to the Closing.
E. Indemnification by Buyer. Buyer shall indemnify, defend, and hold harmless
Seller from and against any and all losses, costs, liabilities, damages,
and expenses (including legal and other expenses incident thereto) of every
kind, nature, and description that arise out of (i) the breach of any
representation or warranty of such Buyer set forth in this Agreement
(including the Exhibits hereto) or in any instrument delivered by Buyer to
Seller pursuant hereto, (ii) the breach of any of the covenants of Buyer
contained in or arising out of this Agreement or the transactions contemplated
hereby, (iii) any breach or claim of breach arising under any of the Contracts
that is asserted to exist as the result of any facts arising after Closing, or
(iv) any circumstance, state of facts or condition which arises with respect
to the System or the Assets subsequent to the Closing.
F. Claims Procedure. Should any claim covered by the foregoing indemnity be
asserted against a party entitled to Indemnification hereunder (the
"Indemnitee"), the Indemnitee shall promptly notify the party obligated to
make Indemnification (the "Indemnitor"), provided that any delay or failure in
notifying the Indemnitor shall not affect the Indemnitor's liability under
this Section if such delay or failure was not prejudicial to the Indemnitor.
The Indemnitor upon receipt of such notice shall assume the defense thereof
with counsel reasonably satisfactory to the Indemnitee, and the Indemnitee
shall extend reasonable cooperation to the Indemnitor in connection with such
defense. No settlement of any such claim shall be made without the consent of
the Indemnitee, such consent not to be unreasonably withheld, nor shall any
such settlement be made by the Indemnitor which does not provide for the
absolute, complete, and unconditional release of the Indemnitee from such
claim. In the event
22
<PAGE> 23
that the Indemnitor shall fail to defend a claim within a reasonable time, the
Indemnitee shall have the right to assume the defense thereof without
prejudice to its rights to indemnity hereunder.
No claim for indemnity hereunder shall be allowed unless it is presented within
two (2) years after Closing and unless all claims, liabilities, and
expenses incurred for breaches of representation or covenant exceed FIFTY
THOUSAND DOLLARS ($50,000.00) in the aggregate. Additionally, except for
breach of the Seller's representations and warranty that it is authorized to
sell the System to Buyer and that it has not sold the System to any third
party, claims for indemnity shall not exceed an aggregate limit of FIVE MILLION
DOLLARS ($5,000,000.00).
G. Survival of Representations, Warranties. All representations, warranties and
agreements made by Seller or Buyer in this Agreement shall survive the Closing.
H. Assignment. Neither this Agreement nor any right, remedy, obligation or
liability arising hereunder or by reason hereof shall be assignable by
Seller without the prior written consent of the Buyer. Buyer may assign all or
part of this Agreement to any party for any purpose whatsoever with the
written consent of Seller, such consent shall not be unreasonably withheld.
Subject to the foregoing provision of this Section, this Agreement shall inure
to the benefit of and shall be binding upon the parties hereto and their
permitted successors and assigns. Nothing in this Agreement, expressed or
implied, is intended to or shall (i) confer on any person other than the
parties hereto, and their respective successors or assigns, any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
(ii) create any rights, including, but not limited to, third-party beneficiary
rights in any person other than Buyer and Seller, or (iii) constitute the
parties hereto partners or participants in a joint venture.
I. Notice. All notices, requests, demands or other communications with respect
to this Agreement shall be in writing and shall be personally delivered
or mailed, postage prepaid, by certified or registered mail, or delivered by a
nationally recognized express courier service, charges prepaid to the
following addresses (or such other addresses as the parties may specify from
time to time in accordance with this Paragraph):
To Buyer: William W. Kingery, Jr.
Wireless Broadcasting Systems of America, Inc.
9250 E. Costilla Avenue, Suite 325
Englewood, CO 80112
To Seller: Willis E. Twiner
Arrow Systems, Inc.
P.O. Box 1550
Port Orchard, WA 98368
23
<PAGE> 24
Keith Riffle
Northwest Satellite Network, Inc.
2300 130th Avenue, N.E.
Suite 210
Bellevue, WA 98005
Gary Chrey, Esq.
Shiers, Chrey, Cox & Caulkins
600 Kitsap Street
Suite 202
Port Orchard, WA 98366
Dennis Treger
Ball & Treger
400 Warren Avenue
Suite 430
Bramerton, WA 98310-1480
Katherine Riffle Roper
Lane Powell Spears Lubarsky
1420 Fifth Avenue, Suite 4100
Seattle, WA 98101-2338
Except as otherwise noted in this Agreement, any such notice shall, when sent
in accordance with the preceding sentence, be deemed to have been given
and received (i) on the day personally delivered, (ii) on the third day
following the date mailed, or (iii) twenty-four hours after shipment by such
overnight courier service.
J. Amendments, Waivers and Consents. The terms of this Agreement may not be
amended, modified or eliminated except by a writing signed by Buyer and
Seller. No delay or omission by either party hereto to exercise any right or
power hereunder shall impair such right or power or be construed to be a
waiver thereof. A waiver by any of the parties hereto of any of the covenants
to be performed by the other or any breach thereof shall not be construed to
be a waiver of any prior or subsequent breach thereof or of any other covenant
herein contained. Any waiver of any nonobservance or nonperformance of a term
or condition shall be in writing and shall not be deemed to excuse any future
nonobservance or nonperformance or to constitute an amendment, modification or
elimination of this Agreement unless it expressly so states. All remedies
provided for in this Agreement shall be cumulative and in addition to and not
in lieu of any other remedies available to either party at law, in equity or
otherwise.
K. Exhibits and Schedules. All Exhibits and Schedules prepared in accordance
with this Agreement are incorporated into and are part of this Agreement
as if actually fully set
23
<PAGE> 25
forth herein.
L. Recovery of Litigation Cost. If any legal action or other proceeding is
brought by any party hereto for the enforcement of this Agreement or
because of an alleged dispute or default in connection with any of the
provisions of this Agreement, the prevailing party shall be entitled to
recover from the party against which it prevailed reasonable attorney's fees
and other costs incurred in that action or proceeding, in addition to any
other relief to which it may be entitled.
M. Section and Other Headings. The section and other headings contained in
this Agreement are for reference purposes only and shall not be deemed to be
a part of this Agreement or to affect the meaning or interpretation of this
Agreement.
N. Execution in Multiple Counterparts. This Agreement may be executed in any
number of identical counterparts, each of which shall be deemed an
original, and all of which, together, shall constitute one and the same
instrument.
O. Governing Law. This Agreement and the respective rights and obligations of
the parties hereto shall be governed by and construed and enforced in
accordance with the internal laws of the State of Washington applicable to
contracts made and to be performed wholly within such state.
P. No Release of Information. Unless otherwise required by the terms of this
Agreement or some governmental or regulatory body, or court of law, there
shall be no media releases, public announcements, public disclosures or
private releases of any information with respect to this transaction by either
party, or by any of its officers, employees or agents, relating to this
Agreement or its subject matter without prior written consent of the other
party having been first obtained. It is the specific intention of the parties
that no details as to the consideration paid shall be released except for
disclosures required by law or by contract to be made legal, accounting or
regulatory reasons.
Q. Confidentiality. Each party agrees that all information communicated to it
by the other, whether before or after the date hereof will be and was received
in strict confidence, and will be used only for purposes of this Agreement, and
that no such information, including, without limitation, the provisions of this
agreement, will be disclosed by the receiving party, its directors, officers,
employees, or agents, without the other party's prior written consent, except
as may be necessary by reason of legal, accounting, or regulatory requirements
beyond the reasonable control of the receiving party. Buyer agrees that it
shall not use the name of Seller, the name of any of Seller's partners, or the
name of any of Sellers agents or employees in attempting to market, fund or
acquire investors for the System, except for certain financing Buyer is in the
process of acquiring.
24
<PAGE> 26
R. Severability. If any provision of this Agreement is declared or found to
be illegal, unenforceable or void, then all parties shall be relieved of
all obligations arising under such provision, but only to the extent that such
provision is illegal unenforceable or void. It is the intent and agreement of
the parties that this Agreement shall be deemed amended by modifying such
provision to the extent necessary to make it legal and enforceable while
preserving its intent or, if that is not possible, by substituting therefor
another provision that is legal and enforceable and achieves the same
objective. If the remainder of this Agreement shall not be affected by such
declaration of finding and is capable of substantial performance, then each
provision not so affected shall be enforced to the extent permitted by law.
S. Construction. The language in all parts of this Agreement shall in all
cases be construed as a whole according to its fair meaning, neither for nor
against any party hereto and without implying a presumption that the terms
thereof shall be more strictly construed against one party by reason of the
rule of construction that a document is to be construed more strictly against
the person who prepared the documents. It is agreed that all parties
hereto have been represented by counsel and that representatives of all
parties have participated in the preparation hereof.
T. Broker. Seller has employed Daniels & Associates, L.P. for the purpose of
brokering this transaction for the Seller. Seller is solely responsible
for payment of any fees owing to Daniels & Associates for its efforts on this
transaction, and Buyer shall have no responsibility in this regard.
U. Entire Agreement. This Agreement, including all attachments and schedules
hereto and other agreements executed contemporaneously herewith, constitutes
the entire agreement between the parties hereto and supersedes all other
prior agreements, understandings and arrangements, oral or written, between
the parties hereto with respect to the subject matter hereof.
V. Due Authorization. The signatories represent and warrant that they are duly
authorized to execute this Agreement.
W. Force Majeure. If by reason of force majeure either party is unable in
whole or in part to carry out its obligations hereunder, said party shall
not be deemed in violation or default during the continuance of such
inability. The term "Force Majeure," as used herein, shall mean the
following: acts of God, acts of public enemies, orders of any kind of
government of the United States of America or any state or any of their
departments, agencies, political subdivisions, or officials other than the
FCC, or any civil or military authority, insurrections, riots, epidemics,
landslides, lightning, earthquakes, fires, hurricanes, volcanic activity,
storms of extraordinary force, floods, washouts, droughts, civil disturbances,
explosions of any similar cause or event not reasonably with the control of
the adversely affected party, and all requirements as
26
<PAGE> 27
to notice and other performance required hereunder within a specified period
shall be automatically extended to accommodate the period of pendency of
any such contingency which shall interfere with such performance.
X. Payment of Expenses. Each party shall pay its own costs and expenses
associated with the negotiation and preparation of this Agreement.
Except as otherwise provided herein, all costs and expenses incident to the
carrying out of this Agreement shall be paid by the party incurring such cost
or expense.
Y. Specific Performance. The parties acknowledge agree that the rights
reserved to each of them hereunder are of a special, unique, unusual,
and extraordinary character, which gives them a particular value, the loss of
which cannot be adequately or reasonably compensated for in damages in an
action at law, and the breach by either of the parties of any of the
provisions hereof will cause the other parties irreparable injury and damage.
In such event, the non-defaulting party shall be entitled, as a matter of
right, to require of the defaulting party specific performance of all the acts,
services and undertakings required hereunder including the obtaining of all
requisite authorizations to execute or perform this Agreement and to obtain
injunction and other equitable relief in any competent court to prevent the
violation of any of the provisions hereof. Neither this provision nor any
exercise by any party of rights to equitable relief or specific performance
herein granted shall constitute a waiver of any other rights which it may have
to damages or otherwise.
Z. Time of Essence. Wherever this Agreement sets forth any time for the
performance of any act, such time shall be deemed of the essence.
AA. Notice and Cure. This Agreement may be terminated upon the material
breach or default of either party of its duties, obligations, representations,
warranties, and covenants hereunder, if such breach is not cured as
described below. In the event of breach, the non-breaching party shall
provide the breaching party with written notice of the breach. The Breaching
party will then have thirty (30) days from the date it received notice of the
breach within which to cure the breach. The rights, claims or remedies
available in equity or at law to the non-breaching party, arising by reason of
the breach or default, shall not be diminished.
THE NEXT PAGE IS THE SIGNATURE PAGE
27
<PAGE> 28
IN WITNESS WHEREOF, the parties hereto have executed this agreement the
day and year written below.
SELLER: BUYER:
NORTHWEST WIRELESS BROADCASTING SYSTEMS
CABLE NETWORK OF AMERICA, INC.
By
Arrow Systems, Inc.
Managing Partner
By: /s/ Willis E. Twiner By: /s/ William W. Kingery, Jr.
------------------------- -------------------------
Willis E. Twiner William W. Kingery, Jr.
President Chief Executive Officer
Date: October 3, 1994 Date: October 3, 1994
------------------------- -------------------------
28
<PAGE> 29
SIDE LETTER TO
ASSET PURCHASE & SALE AGREEMENT AND CHANNEL LEASE
Wireless Broadcasting Systems of America, Inc. ("WBSA") and Northwest
Cable Network ("NCN") hereby enter into this Side Letter to the Asset
Purchase & Sale Agreement and Channel Lease that was executed by the parties
on October 3, 1994 and amended by the parties on March 31, 1995 ("Agreement").
1. The Closing Date for the transaction is defined in Section 1, Paragraph D
of the Agreement, as amended, as April 30, 1995.
2. Seller desires to close the transaction on April 28, 1995, and an
agreement, in writing, is required to close the transaction prior to April
30, 1995.
3. Buyer is willing to accommodate Seller's desire to close the transaction on
April 28, 1995, provided that, for purposes of calculations under Paragraph
I(C)(5)(a) of the original Agreement, Paragraph, I(C)(8)(a) of the amendment,
and Paragraph I(I)(15) of the original Agreement, the operative date to be
used as the day for Closing is April 30, 1995.
4. This Side Letter may be signed in more than one counterpart, each of which
shall constitute an original and all of which, together, shall constitute one
in the same document. Facsimile signatures on this Side Letter shall carry
the same weight and validity as original signatures.
ACCEPTED AND AGREED TO AS OF THIS 26TH DAY OF APRIL, 1995.
SELLER: BUYER:
NORTHWEST WIRELESS BROADCASTING SYSTEMS
CABLE NETWORK OF AMERICA, INC.
By
Arrow Systems, Inc.
Managing Partner
By: /s/ Willis E. Twiner By: /s/ William W. Kingery, Jr.
------------------------- -------------------------
Willis E. Twiner William W. Kingery, Jr.
President Chief Executive Officer
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF
WIRELESS BROADCASTING SYSTEMS OF AMERICA, INC.
SUBSIDIARY STATE OF INCORPORATION
---------- ----------------------
[S] [C]
Wireless Broadcasting Systems Delaware
of Melbourne, Inc.
Wireless Broadcasting Systems Delaware
of Sacramento, Inc.
Wireless Broadcasting Systems Delaware
of Fort Pierce, Inc.
Wireless Broadcasting Systems Delaware
of Yakima, Inc.
Wireless Broadcasting Systems Delaware
of Boise, Inc.
Wireless Broadcasting Systems Delaware
of West Palm, Inc.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF PEDERSEN & HOUPT, P.C.
Pedersen & Houpt, P.C. hereby consents to all references made to it in the
Registration Statement on Form S-1 of Wireless Broadcasting Systems of America,
Inc., as filed with the Securities and Exchange Commission on August 7, 1996.
Pedersen & Houpt, P.C.
Chicago, Illinois
August 7, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF PEPPER & CORAZZINI, L.L.P.
Pepper & Corazzini, L.L.P. hereby consents to all references made to it in
the Registration Statement on Form S-1 of Wireless Broadcasting Systems of
America, Inc., as filed with the Securities and Exchange Commission on August
7, 1996.
Pepper & Corazzini, L.L.P.
By /s/ Robert F. Corazzini
-------------------------
Robert F. Corazzini
General Partner
Washington, D.C.
August 7, 1996
<PAGE> 1
EXHIBIT 23.3(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated March 29, 1996 on the financial statements of Wireless Broadcasting
Systems of America, Inc. included in or made part of this Form S-1 registration
statement.
ARTHUR ANDERSEN LLP
Denver, Colorado
August 6, 1996
<PAGE> 1
EXHIBIT 23.3(b)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated July 31, 1995 on the financial statements of Boise Cable Limited
Partnership included in or made part of Wireless Broadcasting Systems of
America, Inc.'s Form S-1 registration statement.
ARTHUR ANDERSEN LLP
Denver, Colorado
August 6, 1996
<PAGE> 1
EXHIBIT 23.3(c)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated August 6, 1996 on the financial statements of Northwest Cable Network
included in or made part of Wireless Broadcasting Systems of America, Inc.'s
Form S-1 registration statement.
ARTHUR ANDERSEN LLP
Denver, Colorado,
August 6, 1996
<PAGE> 1
EXHIBIT 23.3(d)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated March 19, 1996 on the financial statements of Pacific West Cable
Television included in or made part of Wireless Broadcasting Systems of
America, Inc.'s Form S-1 registration statement.
ARTHUR ANDERSEN LLP
Denver, Colorado
August 6, 1996
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated April 21, 1994 with respect to the consolidated
statements of operations, partners equity (deficit) and cash flows of WJB-TV
Limited Partnership (predecessor to Wireless Broadcasting Systems of America,
Inc.) for the year ended December 31, 1993 included in the Registration
Statement (Form S-1) and related Prospectus of Wireless Broadcasting Systems of
America, Inc. expected to be filed on or about August 7, 1996 for the
registration of shares of its common stock.
Ernst & Young LLP
West Palm Beach, Florida
August 6, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
consolidated audited statement of operations for the year ended December 31,
1995 and is qualified in its entirety by reference to such Form S-1
registration statement as filed August 7, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 583,568
<SECURITIES> 0
<RECEIVABLES> 591,013
<ALLOWANCES> 61,500
<INVENTORY> 1,125,623
<CURRENT-ASSETS> 2,524,996
<PP&E> 30,804,430
<DEPRECIATION> 10,878,162
<TOTAL-ASSETS> 52,215,614
<CURRENT-LIABILITIES> 2,962,884
<BONDS> 0
37,413,763
0
<COMMON> 240,523
<OTHER-SE> 6,598,444
<TOTAL-LIABILITY-AND-EQUITY> 52,215,614
<SALES> 16,874,475
<TOTAL-REVENUES> 16,874,475
<CGS> 0
<TOTAL-COSTS> 8,912,562
<OTHER-EXPENSES> 10,349,202
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 472,315
<INCOME-PRETAX> (7,179,761)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,179,761)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,626,661)
<EPS-PRIMARY> (.42)
<EPS-DILUTED> (.42)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
condensed consolidated statement of operations for the six months ended June 30,
1996 (unaudited) and is qualified in its entirety by reference to such Form
S-1 registration statement as filed August 7, 1996.
</LEGEND>
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