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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
------------------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------------- -----------------------
Commission File Number :
0-23008
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AMERICAN TELECASTING, INC.
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(Exact name of registrant as specified in its charter)
Delaware 54-1486988
- ---------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No. )
5575 Tech Center Drive,
Colorado Springs, CO 80919
- ---------------------------------- ----------------------------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number,
including area code: (719) 260 - 5533
----------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
As of August 11, 1997, 25,743,607 shares of the registrant's Common Stock, par
value $.01 per share, were outstanding.
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AMERICAN TELECASTING, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997
INDEX
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Page
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PART I. FINANCIAL INFORMATION.
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Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1996 and June 30, 1997........................3
Condensed Consolidated Statements of Operations -
Three Months Ended June 30, 1996 and 1997 and
Six Months Ended June 30, 1996 and 1997....................4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1996 and 1997....................5
Notes to Condensed Consolidated Financial Statements.........6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................12
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings...........................................19
Items 2-3. Not applicable
Item 4. Submission of Matters to a Vote of Security Holders.........20
Item 5. Other Information ..........................................21
Item 6. Exhibits and Reports on Form 8-K............................22
SIGNATURE..................................................................23
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN TELECASTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
--------- ---------
(Unaudited)
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ASSETS
Current Assets:
Cash and cash equivalents .............................................. $ 18,476 $ 12,777
Trade accounts receivable, net ......................................... 1,867 1,021
Prepaid expenses and other current assets .............................. 2,790 3,107
--------- ---------
Total current assets ...................................................... 23,133 16,905
Property and equipment, net ............................................... 99,271 83,184
Deferred license and leased license acquisition costs, net ................ 139,537 138,028
Goodwill, net ............................................................. 15,163 14,730
Deferred financing costs, net ............................................. 4,704 5,346
Other assets, net ......................................................... 1,764 1,255
--------- ---------
Total assets ..................................................... $ 283,572 $ 259,448
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses ................................... $ 15,022 $ 14,871
Current portion of long-term obligations ................................ 5,852 8,689
Customer deposits ....................................................... 397 347
--------- ---------
Total current liabilities ................................................. 21,271 23,907
Deferred income taxes ..................................................... 2,834 2,834
2004 Notes ................................................................ 135,484 145,750
2005 Notes ................................................................ 116,480 125,444
Other long-term obligations, net of current portion ....................... 4,390 3,662
--------- ---------
Total liabilities ................................................ 280,459 301,597
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred Stock, $.01 par value; 2,500,000 shares authorized;
none issued and outstanding ............................................ -- --
Series B Convertible Preferred Stock, $.01 par value; 500,000
shares authorized; 250,000 shares issued; 110,000 shares
and none outstanding, respectively ..................................... 13,237 --
Class A Common Stock, $.01 par value; 45,000,000 shares authorized;
20,784,238 and 25,743,607 shares issued and outstanding, respectively ... 208 257
Class B Common Stock, $.01 par value; 10,000,000 shares authorized;
no shares issued and outstanding ....................................... -- --
Additional paid-in capital ................................................ 176,091 189,412
Common Stock warrants outstanding ......................................... 10,129 10,129
Accumulated deficit ....................................................... (196,552) (241,947)
--------- ---------
Total stockholders' equity (deficit) ............................. 3,113 (42,149)
--------- ---------
Total liabilities and stockholders' equity ....................... $ 283,572 $ 259,448
========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
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AMERICAN TELECASTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1997 1996 1997
------------ ------------ ------------ ------------
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Revenues:
Service and other ............................. $ 15,109 $ 15,358 $ 30,164 $ 31,118
Installation .................................. 313 281 681 541
------------ ------------ ------------ ------------
Total revenues ................................... 15,422 15,639 30,845 31,659
Costs and Expenses:
Operating ..................................... 9,016 9,301 17,834 19,127
Marketing ..................................... 1,852 667 3,908 1,531
General and administrative .................... 4,509 5,373 9,520 10,449
Depreciation and amortization ................. 10,156 12,776 20,114 25,609
------------ ------------ ------------ ------------
Total costs and expenses ......................... 25,533 28,117 51,376 56,716
------------ ------------ ------------ ------------
Loss from operations ............................. (10,111) (12,478) (20,531) (25,057)
Interest expense ................................. (9,058) (10,796) (17,887) (21,127)
Interest income .................................. 236 166 586 350
Other income, net ................................ 453 295 496 439
------------ ------------ ------------ ------------
Loss before income tax benefit ................... (18,480) (22,813) (37,336) (45,395)
Income tax benefit ............................... 84 -- 189 --
------------ ------------ ------------ ------------
Net loss applicable to Class A Common Stock ...... $ (18,396) $ (22,813) $ (37,147) $ (45,395)
============ ============ ============ ============
Net loss per share ............................... $ (1.06) $ (.89) $ (2.19) $ (1.80)
Weighted average number of shares outstanding .... 17,381,001 25,743,607 16,970,012 25,168,157
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
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AMERICAN TELECASTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
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<CAPTION>
Six Months Ended
June 30,
----------------------
1996 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ........................................................ $(37,147) $(45,395)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ................................. 20,114 25,608
Deferred income taxes ......................................... (189) --
Amortization of debt discount and deferred financing costs .... 16,937 19,874
Warrants ...................................................... -- 485
Minority interest income ...................................... -- (127)
Other ......................................................... (407) 133
Changes in operating assets and liabilities ................... (5,955) 419
-------- --------
Net cash (used in) provided by operating activities ........ (6,647) 997
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ............................. (18,173) (4,726)
Additions to deferred license and leased license
acquisition costs ............................................. (1,923) (1,184)
Proceeds from disposition of assets ............................ -- 55
Net cash used in acquisitions ................................... -- (1,293)
Payments received on loans to related parties and others ........ 252 --
-------- --------
Net cash used in investing activities ....................... (19,844) (7,148)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock, net of
stock issuance costs .......................................... 20,124 --
Borrowings under credit facilities .............................. 200 6,155
Principal payments on revolving credit facilities ............... -- (2,950)
Increase in deferred financing costs ............................ -- (1,285)
Contributions by minority interest holder ....................... 837 462
Principal payments on notes payable ............................. (1,191) (1,409)
Principal payments on capital lease obligations ................. (404) (521)
-------- --------
Net cash provided by financing activities ................... 19,566 452
-------- --------
Net decrease in cash and cash equivalents ....................... (6,925) (5,699)
Cash and cash equivalents, beginning of period .................. 32,514 18,476
-------- --------
Cash and cash equivalents, end of period ........................ $ 25,589 $ 12,777
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
5
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AMERICAN TELECASTING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BUSINESS DESCRIPTION
History and Organization
American Telecasting, Inc. ("ATI") owns and operates a
network of wireless cable television systems providing subscription
television service. ATI and its subsidiaries are collectively referred
to herein as the "Company." As of June 30, 1997, the Company owned and
operated 38 wireless cable systems located throughout the United
States (the "Developed Markets"). The Company also has significant
wireless cable (microwave) frequency interests in 16 other U.S.
markets (the "Undeveloped Markets").
Risks and Other Important Factors
Since inception, the Company has focused principally on
developing wireless cable systems to provide multiple channel
television programming. During 1996, the Company's business strategy
evolved to adapt to the significant regulatory and technological
changes that have occurred recently in the telecommunications industry
and to the Company's capital constraints. Management now believes that
the most promising use of the Company's wireless assets may be to
provide a variety of digital wireless services, instead of the
traditional analog-based technology utilized by the Company to date.
Such digital wireless services could include digital video (i.e.,
subscription television), high-speed Internet access and telephony
services. While the Company has begun planning and testing of these
digital wireless services, it has not yet introduced any of these
services (except for a high-speed Internet access service in the
Colorado Springs market which had a nominal number of paying customers
as of June 30, 1997). The Company's ability to launch and successfully
operate additional high-speed Internet access services and to
introduce digital video and telephony services on a commercial basis
will depend on a number of factors, including the availability of
sufficient capital, the success of the Company's development efforts,
competitive factors (such as the introduction of new technologies or
the entry of competitors with significantly greater resources than the
Company), the level of consumer demand for such services, the
availability of appropriate transmission and reception equipment on
satisfactory terms, and the Company's ability to obtain the necessary
regulatory changes and approvals. The Company expects that the market
for such services will be extremely competitive.
Since early 1996, the Company has taken certain actions aimed
at reducing its costs and conserving its capital. Such measures include
reductions in the size of the Company's workforce and decreases in
capital expenditures and discretionary expenses. During 1997, the
Company does not plan to make the capital expenditures necessary to add
enough subscribers to replace those subscribers who choose to stop
receiving the Company's service. Moreover, at this time, the Company
does not generally intend to further develop any of its Undeveloped
Markets using analog technology. As a result, the Company anticipates
that its analog customer base will decrease in 1997 as compared to
1996. Between December 31, 1996 and June 30, 1997, the Company's analog
subscriber base decreased from 179,800 to 169,000. In addition, the
Company's analog subscriber base decreased by approximately 24,000
subscribers due to the sale of certain of the Company's assets on
August 12, 1997, to BellSouth Wireless (See Note 5). As the Company's
analog subscriber base decreases, its revenues are expected to decrease
unless and until it is able to successfully introduce other
revenue-producing wireless services, such as digital video, high-speed
Internet access and telephony. The Company currently expects that its
existing cash and investment balances, a portion of the proceeds from
the BellSouth transaction (See Note 5) and cash generated from
operations will be sufficient to finance its operations during 1997.
Thereafter, additional financing will be required. If the Company's
capital resources are not sufficient to finance its operations, either
in 1997 or thereafter, the Company will be required, at a minimum, to
curtail its operations and development
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plans, which curtailment could involve, among other things, a complete
cessation of new customer additions.
The Company will require significant additional capital to
fully implement its digital strategy. To meet such capital
requirements, the Company is pursuing opportunities to enter into
strategic relationships or transactions with other providers of
telecommunications services. Such relationships or transactions could
involve, among other things, joint ventures, technology and/or market
trials, sales or exchanges of stock or assets, or loans to or
investments in the Company by strategic partners. As of the date of
this Report, except for the BellSouth transaction, the Company has not
reached any agreements or understandings with respect to such
relationships or transactions and there can be no assurance that any
such agreements or understandings will be reached.
Interest payments on the Company's Senior Discount Notes due
2004 (the "2004 Notes") and the Company's Senior Discount Notes due
2005 (the "2005 Notes") will commence on December 15, 1999 and
February 15, 2001, respectively. Interest payments in 1999, 2000, and
2001 are expected to be approximately $15.5 million, $28.5 million and
$59.1 million, respectively.
Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for
a fair presentation have been included. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Operating results for the six-month period ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the
year ending December 31, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the year ended December
31, 1996.
Reclassifications
Certain amounts from the prior years' consolidated financial
statements have been reclassified to conform with the 1997
presentation.
2. SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers all short-term investments with
original maturities of 90 days or less to be cash equivalents. As of
June 30, 1997, cash equivalents principally consisted of money market
funds, commercial paper, federal government/agency debt securities,
and other short-term, investment-grade, interest-bearing securities.
The carrying amounts reported in the balance sheet for cash and cash
equivalents approximate the fair values of those assets.
Net Loss Per Share
Net loss per share is computed on the weighted-average number
of common shares outstanding for the respective periods. The effect of
common stock equivalents on net loss per share is not included as it
would be antidilutive.
In 1997, the Financial Accounting Standards Board ("FASB")
released SFAS No. 128, "Earnings Per Share." SFAS No. 128 requires
dual presentation of basic and diluted earnings per share on the face
of
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the income statement for all periods presented. Basic earnings per
share excludes dilution and is computed by dividing income available
to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts
to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the
earnings of the entity. Diluted earnings per share is computed
similarly to fully diluted earnings per share pursuant to Accounting
Principles Bulletin No. 15. SFAS No. 128 is effective for reporting
periods ending after December 15, 1997, and when adopted, it will
require restatement of prior years' earnings per share.
Since the effect of outstanding options is antidilutive, they
have been excluded from the Company's computation of net loss per
share. Accordingly, management does not believe that SFAS No.
128 will have an impact upon historical net loss per share as reported.
Comprehensive Income and Segment Information
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income" governing the reporting and display of
comprehensive income and its components, and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
requiring that public businesses report financial and descriptive
information about its reportable operating segments. Both statements
are applicable to reporting periods beginning after December 15, 1997.
The impact of adopting the Statements is not expected to be material
to the financial statements.
3. DEBT
Long-term debt at June 30, 1997 consisted
of the following (in thousands):
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2004 Notes ....................................... $145,750
2005 Notes ....................................... 125,444
Credit facility .................................. 6,641
Notes payable .................................... 3,027
Capital leases ................................... 1,445
--------
Total ........................................ 282,307
Less current portion ......................... 8,689
--------
Long-term debt ............................... $273,618
========
</TABLE>
On February 26, 1997, the Company entered into a twelve-month
$17,000,000 credit facility (the "Credit Facility") with a bank. The
loan was required to be repaid earlier than the specified termination
date and certain mandatory prepayments were required to be made with
proceeds from debt issuances or certain asset sales, including the
BellSouth transaction (See Note 5). On August 12, 1997, the Company
completed a first closing of the sale of certain of its assets to
BellSouth Wireless for total cash consideration approximating $54
million (See Note 5). Concurrent with the closing, a portion of the
proceeds were used to pay off the Credit Facility. As of June 30,
1997, the Credit Facility bore interest at a rate of 13.0%, which rate
was scheduled to increase by 0.50% per quarter. Borrowings under the
Credit Facility were secured by a security interest in favor of the
bank in substantially all of the assets of ATI and its subsidiaries.
The Credit Facility was further secured by a pledge of the stock of
substantially all of ATI's subsidiaries as well as a pledge of the
note due to ATI from its Fresno subsidiary under the Fresno Facility
(as defined herein).
At or prior to closing on the Credit Facility, the Company
paid the bank commitment and additional fees totaling $680,000 and
reimbursed the bank for its out-of-pocket expenses incurred in
conjunction with the making of the loan. These payments are included
in deferred financing costs and are amortized over the life of the
loan. During the term of the Credit Facility, the Company was required
to pay to the bank a commitment commission on the unused loan balance
at the annual rate of 0.50%. The
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Company deposited $1.0 million in escrow to satisfy certain interest
obligations under the Credit Facility, which amount is classified as
a prepaid expense and other current asset in the accompanying balance
sheet. As of June 30, 1997, the Company had used approximately
$176,000 of the escrow for interest charges through May 15, 1997.
At closing of the Credit Facility, the Company also delivered
4,500 bond appreciation rights ("BARs") and an option to exercise
141,667 debt warrants or 141,667 equity warrants. The debt warrants
gave the holder the right to increase the principal amount of the loan
by $6.00 per warrant, or the right to require the Company to purchase
the debt warrant for $6.00 per warrant. The debt warrants became
exercisable or puttable during the five-day period beginning on the
date on which notice was given that payment in full of the Credit
Facility had occurred. The equity warrants give the holder the right
to purchase up to 141,667 shares of the Company's Class A Common Stock
for a price of $3.281 per share. Pursuant to the option agreement
relating to the warrants, the equity warrants would have become
exercisable only to the extent that the holder elected not to exercise
or put the debt warrants or, if the holder elected to put the debt
warrants to the Company, the Company failed to make payment therefor
within the time required. The Company valued the option at $6.00 per
warrant and has been accreting this obligation through interest
expense to the maturity of the debt. Included in the accompanying
balance sheet as of June 30, 1997 is $485,000 for amounts accrued
pursuant to the warrants.
In connection with the repayment of the Credit Facility upon
consummation of the first closing of the BellSouth Transaction, the
holders exercised their options to exercise the debt warrants. The
Company's total obligation under the Credit Facility for the aggregate
principal balance, accrued interest, fees and purchase of the Debt
Warrants was approximately $6.4 million, net of the escrow deposit.
The Credit Facility has been terminated and the Company does not
intend to replace the Credit Facility in the foreseeable future.
During the quarter ending September 30, 1997, the Company will expense
the remaining $857,000 of unamortized deferred financing costs
associated with the Credit Facility.
As of the date of this report, the BARs remain outstanding.
Amounts payable in connection with the BARs are based upon the
appreciation in price of $4.5 million face value of the Company's 2004
Notes. The BARs are exercisable after the earlier of June 15, 1999 or
the occurrence of an Event of Default under the 2004 Notes. The
payment due upon exercise of each BAR is equal to the market price of
the 2004 Notes on the closing date less $290. The net value of the
BARs is payable to holders of the BARs in cash. As of June 30, 1997,
the market price of the 2004 Notes was $290.
During 1996, Fresno MMDS Associates, which operates the
Company's Fresno, Visalia and Merced wireless cable systems (the
"Fresno Partnership") maintained a revolving credit facility (the
"Fresno Facility") with a bank that provided for borrowings for the
Fresno, Visalia and Merced systems. The Fresno Facility was required
to be fully assigned from the bank to ATI by March 31, 1997. On
February 26, 1997, all amounts due to the bank under the Fresno
Facility were repaid by ATI with proceeds from the Credit Facility,
and the Fresno Facility was assigned to ATI. As of June 30, 1997, the
Fresno Partnership was not in compliance with certain of the
restrictive covenants contained in the Fresno Facility.
4. SERIES B CONVERTIBLE PREFERRED STOCK
During 1996, the Company completed private placements of a
total of 250,000 shares of Series B Convertible Preferred Stock,
resulting in total net proceeds to the Company of $23.8 million.
During 1996, 140,000 shares of Series B Convertible Preferred Stock
were converted into a total of 2,273,785 shares of the Company's Class
A Common Stock with conversion prices ranging from $4.33 to $7.87.
During the first quarter of 1997, the remaining 110,000 shares of
Series B Convertible Preferred Stock were converted into a total of
4,959,369 shares of the Company's Class A Common Stock at conversion
prices ranging from $2.10 to $4.37.
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Each share of Series B Preferred Stock was convertible, at
the option of the holder, into that number of shares of Common Stock
determined by dividing (a) the sum of (i) the original issuance price
for each such share of Series B Preferred Stock plus (ii) the amount
of all accrued but unpaid dividends on each share of Series B
Preferred Stock so converted, by (b) the Conversion Price (as defined
herein) in effect at the time of conversion. The "Conversion Price" at
any given time was equal to 80% of the prevailing market price of the
Class A Common Stock, provided that the Conversion Price could not
exceed $12.50 or be less than $2.00.
5. COMMITMENTS AND CONTINGENCIES
Litigation
In February 1994, a complaint was filed by Fresno Telsat,
Inc. ("Fresno Telsat") in the Superior Court of the State of
California for the County of Monterey against a director and an
officer of the Company, the Company, and other named and unnamed
defendants. The complaint seeks compensatory damages and exemplary
damages against all defendants, costs, and other relief. In the course
of pre-trial discovery, the plaintiff estimated its damage claim at
$219,978,000. The complaint alleges, among other claims, that all
defendants, including the Company, participated in a conspiracy to
misappropriate corporate opportunities belonging to Fresno Telsat. On
June 11, 1997, the Court dismissed the conspiracy claims against the
Company and ordered the trial of the remaining claims, including
unfair competition according to the California Business and
Professions Code and interference with fiduciary obligations, to
commence on January 12, 1998. Although the ultimate outcome of this
matter cannot be predicted, management continues to believe, based on
its review of this claim and discussion with legal counsel, that the
resolution of this matter will not have a material effect on the
Company's financial position or future results of operations.
On January 12, 1996, Videotron (Bay Area) Inc. filed a
complaint against ATI in the Circuit Court of the Thirteenth Judicial
Circuit in and for Hillsborough County, Florida. The Complaint alleges
that ATI has caused certain entities from which ATI leases channels
and airtime for its Bradenton and Lakeland, Florida wireless cable
markets to actively oppose Videotron's FCC applications to increase
broadcast power in Videotron's Tampa, Florida wireless cable system in
violation of a Non-Interference Agreement between Videotron and the
Company. On May 15, 1997, the Circuit Court entered an order
dismissing the Complaint without prejudice giving the parties 60 days
to settle their dispute. On July 19, 1997, the Circuit Court approved
an extension of this time period to September 15, 1997. Although the
ultimate outcome of this matter (including whether Videotron will
refile a complaint if the matter is not resolved by September 15,
1997) cannot be predicted at this time, management believes that
resolution of this matter will not have a material adverse impact on
the Company's financial position or future results of operations.
In addition, the Company is occasionally a party to legal
actions arising in the ordinary course of its business, the ultimate
resolution of which cannot be ascertained at this time. However, in
the opinion of management, resolution of such matters will not have a
material adverse effect on the Company.
BTA Auction
The Company was involved in the FCC's bidding process for
wireless cable channel authorizations in certain basic trading areas
("BTAs"), which was completed in March 1996. The Company was the
highest bidder in 59 markets. In the aggregate, the Company's bids in
these markets totaled approximately $10.1 million. Of such amount, a
total of approximately $9.3 million had been paid as of June 30, 1997.
Subsequent to June 30, 1997, a payment of approximately $146,000 was
made for the Greeley, Colorado market. The remaining amount
(approximately $654,000) is due upon the FCC's notification to the
Company of the issuance of the remainder of its BTA licenses, which
the Company expects will occur in 1997.
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BellSouth Transaction
On March 18, 1997, the Company entered into a definitive
agreement (the "BellSouth Agreement") with BellSouth Corporation and
BellSouth Wireless Cable, Inc. ("BellSouth Wireless") which provides
for the sale of all of the Company's Florida and Louisville, Kentucky
wireless cable assets (the "Southeastern Assets") to BellSouth
Wireless. The Southeastern Assets include operating wireless cable
systems in Orlando, Lakeland, Jacksonville, Daytona Beach and Ft.
Myers, Florida and Louisville, Kentucky and wireless cable channel
rights in Bradenton, Naples, Sebring and Miami, Florida. The purchase
price for all of the Southeastern Assets will range from $67.9 million
to $103.2 million, depending upon the number of wireless cable channel
rights that are ultimately transferred to BellSouth Wireless.
On August 12, 1997, the Company completed the first closing,
which involved transferring to BellSouth Wireless the Company's
operating systems and current channel rights in the Florida markets of
Orlando, Jacksonville, Ft. Myers and Daytona Beach, along with the
Louisville, Kentucky market and certain rights in Miami, Florida. The
proceeds received by the Company from the first closing totaled
approximately $54 million. Of such amount, $7 million was placed in
escrow for a period of twelve months to satisfy any indemnification
obligations of the Company. The markets sold in the first closing
accounted for approximately 24,000 subscribers as of June 30, 1997, and
revenue of approximately $4.3 million for the six month period ending
June 30, 1997. Under the terms of the BellSouth Agreement, additional
closings are anticipated over the next two years.
The BellSouth Agreement contains customary conditions for
each closing, including the satisfaction of all applicable regulatory
requirements. There can be no assurance that all of such conditions
will be satisfied or that further sales of assets to BellSouth
Wireless will be consummated.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
All statements contained herein that are not historical facts
including, but not limited to, statements regarding the Company's plans for
future development and operation of its business, are based on current
expectations. These statements are forward looking in nature and involve a
number of risks and uncertainties. Actual results may differ materially. Among
the factors that could cause actual results to differ materially are the
following: a lack of sufficient capital to finance the Company's business plan
on terms satisfactory to the Company; pricing pressures which could affect
demand for the Company's wireless communications services; changes in labor,
equipment and capital costs; the unavailability of digital compression
technology and equipment at reasonable prices; the Company's inability to
incorporate digital compression technology into certain of its subscription
television systems in a cost efficient manner; the Company's inability to
develop and successfully implement new services such as high-speed Internet
access and telephony; the Company's inability to obtain the necessary
authorizations from the FCC for such new services; competitive factors, such as
the introduction of new technologies and competitors into the wireless
communications business; a failure by the Company to attract strategic
partners; general business and economic conditions; and the other risk factors
described from time to time in the Company's reports filed with the SEC. The
Company wishes to caution readers not to place undue reliance on any such
forward looking statements, which statements are made pursuant to the Private
Securities Litigation Reform Act of 1995, and as such, speak only as of the
date made.
INTRODUCTION
During 1996, the Company's business strategy evolved to adapt to the
significant regulatory and technological changes that have occurred recently in
the telecommunications industry and to the Company's capital constraints.
Management now believes that the most promising use of the Company's wireless
assets may be to provide a variety of digital wireless services, instead of the
traditional analog-based technology utilized by the Company to date. Such
digital wireless services could include digital video (i.e., subscription
television), high-speed Internet access and telephony services. A successful
deployment of such services might include the full bundle of broad band (i.e.,
video and high-speed Internet) and narrow band (i.e., telephony) services.
While the Company has begun planning and testing of these wireless services, it
has not yet introduced any of these services (except for a high-speed Internet
access service in the Colorado Springs market which had a nominal number of
paying customers as of June 30, 1997). The Company's ability to launch and
successfully operate additional high-speed Internet access services and to
introduce digital video and telephony services on a commercial basis will
depend on a number of factors, including the availability of sufficient
capital, the success of the Company's development efforts, competitive factors
(such as the introduction of new technologies or the entry of competitors with
significantly greater resources than the Company), the level of consumer demand
for such services, the availability of appropriate transmission and reception
equipment on satisfactory terms and the Company's ability to obtain the
necessary regulatory changes and approvals. The Company expects that the market
for such services will be extremely competitive.
During 1997, the Company intends to continue to operate its Developed
Markets principally as an analog wireless cable business. However, because of
its current financial condition and its revised business strategy, the Company
does not plan to make the capital expenditures necessary to add enough new
subscribers to replace those subscribers that choose to stop receiving the
Company's service. Moreover, at this time, the Company does not generally
intend to further develop any of its Undeveloped Markets using analog
technology. As a result, the Company anticipates that its analog customer base
will decrease in 1997 as compared to 1996. Between December 31, 1996 and June
30, 1997 the Company's analog subscriber base decreased from 179,800 to
169,000. In addition, the Company's analog subscriber base decreased by
approximately 24,000 subscribers due to the sale of certain of the Company's
assets on August 12, 1997, to BellSouth Wireless (See Note 5 to the financial
statements). As the Company's analog subscriber base decreases, its revenues are
expected to decrease unless and until it is able to successfully introduce other
revenue-producing wireless services, such as digital video, high-speed Internet
access and telephony.
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LIQUIDITY AND CAPITAL RESOURCES
SOURCES AND USES OF FUNDS
The Company has experienced negative cash flows from operations in
each year since its formation, and although certain of the Company's more
established systems currently generate positive cash flow from operations, the
Company expects to continue to experience negative consolidated free cash flow
from operations for the foreseeable future. Until sufficient cash flow is
generated from operations, the Company will be required to utilize its current
capital resources or external sources of funding to satisfy its working capital
and capital expenditure needs.
Operating cash flow is a commonly used measure of performance in the
wireless cable industry. However, operating cash flow does not purport to
represent cash used by operating activities and should not be considered in
isolation or as a substitute for measures of performance prepared in accordance
with generally accepted accounting principles.
Since early 1996, the Company has taken certain actions aimed at
reducing its costs and conserving its capital, including reductions in the size
of the Company's workforce and decreases in capital expenditures and
discretionary expenses. As a result, the Company currently expects that its
existing cash and investment balances, proceeds from the BellSouth transaction,
and cash generated from operations will be sufficient to finance its operations
during 1997. Thereafter, additional financing will be required. If the
Company's capital resources are not sufficient to finance its operations,
either in 1997 or thereafter, the Company will be required, at a minimum, to
curtail its operations and development plans, which curtailment could involve,
among other things, a complete cessation of new customer additions.
The Company expects that its principal capital expenditure
requirements for 1997 will relate to replacement of customer churn, additional
launches of high-speed Internet services in one or more markets, setting up
trials of telephony services and the purchase of transmission equipment for new
channels. The Company intends to finance these capital expenditures from
existing cash and investment balances, a portion of the proceeds from the
recent BellSouth Transaction and cash generated from system operations. The
commercial introduction by the Company of digital services, such as digital
video, high-speed Internet access and telephony, would require substantial
additional capital expenditures. While the Company may use a portion of the
proceeds from the BellSouth Transaction to acquire assets for the development
of such digital services, management does not expect that such proceeds will be
sufficient to fully implement its digital strategies for video, Internet access
and telephony throughout its markets. The Company is pursuing relationships or
transactions with other providers of telecommunications services to facilitate
access to additional capital, among other things. The Company's ability to
fully implement its revised business strategy will depend on its ability to
attract sufficient additional capital through relationships with strategic
partners or otherwise. There can be no assurance that sufficient capital will
be available on terms satisfactory to the Company, or at all.
To date, the Company's operations have required substantial amounts of
capital for (i) the installation of equipment in new subscribers' homes, (ii)
the construction of additional transmission and headend facilities and related
equipment purchases, (iii) the funding of start-up losses and other working
capital requirements, (iv) the acquisition of wireless cable channel rights and
systems, and (v) investments in, and maintenance of, vehicles and
administrative offices. The Company's capital expenditures, exclusive of
acquisitions of wireless cable systems and additions to deferred license and
leased license acquisition costs, during the six month periods ended June 30,
1997 and 1996, were approximately $4.7 million, and $18.2 million,
respectively. Such expenditures were primarily for the installation of
equipment in new subscribers' homes for the six months ended June 30, 1997 and
for the construction and expansion of the Company's wireless cable systems and
the installation of equipment in new subscribers' homes for the six months
ended June 30, 1996.
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On March 18, 1997, the Company entered into the BellSouth Agreement
which provides for the sale of all of the Company's Southeastern Assets to
BellSouth Wireless ("The BellSouth Transaction"). The Southeastern Assets
include operating wireless cable systems in Orlando, Lakeland, Jacksonville,
Daytona Beach and Ft. Myers, Florida and Louisville, Kentucky and wireless
cable channel rights in Bradenton, Naples, Sebring and Miami, Florida. The
purchase price for all of the Southeastern Assets will range from $67.9 million
to $103.2 million, depending upon the number of wireless cable channel rights
that are ultimately transferred to BellSouth Wireless. Proceeds from the
BellSouth Transaction will provide further resources to help finance the
Company's operations and development plans. In addition, the Company is
pursuing strategic relationships or transactions with other providers of
telecommunications services. One of the Company's primary objectives in
pursuing such relationships and transactions is to facilitate access to
additional capital. Except for the BellSouth Transaction, the Company has not
reached any agreements or understandings with respect to such relationships or
transactions and there can be no assurance that any such agreements or
understandings will be reached.
On August 12, 1997, the Company completed a first closing of the sale
of certain of its assets to BellSouth Wireless as part of the BellSouth
Transaction. The first closing involved the sale to BellSouth Wireless of the
Company's operating systems and channel rights in the Florida markets of
Orlando, Jacksonville, Ft. Myers and Daytona Beach, along with the Louisville,
Kentucky market and certain rights in Miami, Florida. The proceeds received by
the Company from the first closing totaled approximately $54 million. Of such
amount, $7 million was placed in escrow for a period of 12 months to satisfy
any indemnification obligations of the Company. Under the terms of the
BellSouth Agreement, additional closings are anticipated over the next two
years. However, there can be no assurance that all conditions for future
closings can be met or that further sales of assets to BellSouth Wireless
will be consummated.
The BellSouth Agreement contains customary conditions for each
closing, including the satisfaction of all applicable regulatory requirements.
There can be no assurance that all of such conditions will be satisfied or that
further sales of assets to BellSouth Wireless will be consummated.
Pursuant to certain restrictive covenants in the Indentures ("the
Indentures") relating to the Company's 2004 Notes and 2005 Notes, net available
proceeds from the BellSouth closing must be applied within 270 days of such
closing: (1) first, to prepay or repay outstanding debt of the Company or any
restricted subsidiary to the extent the terms of the governing documents
therefor require such prepayment (2) second, to the extent of any such net
available proceeds remaining after application thereof pursuant to item (1)
above, to the acquisition of assets used in the transmission of video, voice
and data and related businesses and services of the Company or a restricted
subsidiary and (3) third, to the extent of any such net available proceeds
remaining after the application thereof pursuant to items (1) and (2) above,
(i) first to prepay or repay all outstanding debt of the Company or any
restricted subsidiary that prohibits purchases of the 2004 Notes or 2005 Notes
and (ii) then, to the extent of any remaining net available proceeds, to make
an offer to purchase outstanding 2004 Notes and 2005 Notes at a purchase price
equal to 100% of the accreted value thereof to any purchase date prior to
maturity.
On February 26, 1997, the Company entered into a twelve month
$17,000,000 credit facility (the Credit Facility) with a bank. The loan was
required to be repaid earlier than the specified termination date and certain
mandatory prepayments were required to be made with the proceeds from such debt
issuances or asset sales, including the BellSouth Transaction. Concurrent with
the BellSouth Transaction, approximately $6.4 million of the BellSouth proceeds
were used to pay off the Credit Facility. As of June 30, 1997, the Credit
Facility bore interest at a rate of 13.0%, which rate was scheduled to increase
by 0.50% per quarter.
At or prior to closing of the Credit Facility, the Company paid the
bank commitment and additional fees totaling $680,000 and reimbursed the bank
for its out-of-pocket expenses incurred in conjunction with the making of the
loan. During the term of the Credit Facility, the Company was required to pay
to the bank a commitment commission on the unused loan balance at the annual
rate of 0.50%.
At closing of the Credit Facility, the Company also delivered 4,500
bond appreciation rights (BARs) and an option to exercise 141,667 debt warrants
or 141,667 equity warrants. The debt warrants gave the holder the right to
increase the principal amount of the loan by $6.00 per warrant, or the right to
require the Company to purchase the debt warrants for $6.00 per warrant. The
equity warrants gave the holder the right to purchase up to 141,667 shares of
the
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Company's Class A Common Stock for a price of $3.281 per share. Pursuant to
the option agreement relating to the warrants, the equity warrants would have
become exercisable only to the extent that the holder elected not to exercise
or put the debt warrants or, if the holder elected to put the debt warrants to
the Company, the Company failed to make payment therefor within the time
required.
In connection with the repayment of the Credit Facility upon the first
closing of the BellSouth Transaction, the holders exercised their options to
exercise the debt warrants. The Company's total obligation under the Credit
Facility, for the aggregate principal balance, accrued interest, fees and to
purchase of the Debt Warrants was approximately $6.4 million, net of the escrow
deposit. The Credit Facility has been terminated and the Company does not
intend to replace the Credit Facility in the foreseeable future.
As of the date of this report, the BARs remain outstanding. Amounts
payable in connection with the BARs are based upon the appreciation in price of
$4.5 million face value of the Company's 2004 Notes. The BARs are exercisable
after the earlier of June 15, 1999 or the occurrence of an Event of Default
under the 2004 Notes. The payment due upon exercise of each BAR is equal to the
market price of the 2004 Notes on the closing date less $290. The net value of
the BARs is payable to holders of the BARs in cash.
The Company was involved in the FCC's bidding process for wireless
cable channel authorizations in certain BTAs, which was completed in March
1996. The Company was the highest bidder in 59 markets. In the aggregate, the
Company's bids in these markets totaled approximately $10.1 million. Of such
amount, a total of approximately $9.3 million had been paid as of June 30,
1997. Subsequent to June 30, 1997, a payment of approximately $146,000 was made
for the Greeley, Colorado market. The remaining amount (approximately $654,000)
is due upon the FCC's notification to the Company of the issuance of the
remainder of its BTA licenses, which the Company expects will occur in 1997.
On June 28, 1996, the Company entered into a definitive agreement to
acquire wireless cable channel rights and certain other subscription television
assets in Cincinnati, Ohio (the "Cincinnati Acquisition") for aggregate
consideration of approximately $5.4 million (of which approximately $3.3 million
had been paid as of January 31, 1997). Also on June 28, 1996, the Company
acquired certain of the Cincinnati subscription television assets and entered
into a management agreement to operate the subscription television assets that
it had not yet acquired. Closing of the Cincinnati Acquisition occurred on July
10, 1997, and a final payment of approximately $2.1 million was made. The
subscription television assets acquired by the Company in connection with the
Cincinnati Acquisition served approximately 3,100 subscribers as of the date of
acquisition.
During 1996, the Fresno Partnership maintained a revolving credit
facility (the Fresno Facility) with a bank that provided for borrowings for the
Fresno, Visalia and Merced systems. The Fresno Facility was fully assigned from
the bank to ATI prior to March 31, 1997. On February 26, 1997, all amounts due
to the bank under the Fresno Facility were repaid by ATI with proceeds from the
Credit Facility, and the Fresno Facility was assigned to ATI. As of June 30,
1997, the Fresno Partnership was not in compliance with certain of the
restricted covenants contained in the Fresno Facility.
OTHER LIQUIDITY AND CAPITAL RESOURCES REQUIREMENTS AND LIMITATIONS
As a result of certain limitations contained in the Indentures
relating to the 2004 Notes and the 2005 Notes, the Company's total borrowing
capacity outside the 2004 Notes and the 2005 Notes is currently limited to
$17.5 million and its additional borrowing capacity was estimated at
approximately $6.4 million as of June 30, 1997. Interest payments on the 2004
Notes and the 2005 Notes will commence on December 15, 1999 and February 15,
2001, respectively. Interest payments in 1999, 2000, and 2001 are expected to
be approximately $15.5 million, $28.5 million and $59.1 million, respectively.
Concurrent with the first closing of the BellSouth Transaction (See
Sources and Uses of Funds under Liquidity and Capital Resources), all amounts
due under the Credit Facility were repaid by ATI with a portion of the proceeds
from the BellSouth Transaction. The Credit Facility was terminated and the
Company does not expect to replace the Credit Facility in the foreseeable
future. Moreover, under current market conditions, the Company does
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not expect to be able to raise additional capital by issuing equity securities.
In the future, the issuance of moderate amounts of certain types of new equity
could, under Section 382 of the Internal Revenue Code, require the Company to
pay income taxes on gains received on asset sales because of the Company's
inability to fully offset such gains against net operating loss carryforwards.
The Company has taken certain actions aimed at reducing its costs and
conserving its capital, including reductions in the size of its workforce and
decreases in capital expenditures and discretionary expenses. As a result of
these actions, the Company currently expects that its existing cash and
investment balances, a portion of the proceeds from the BellSouth Transaction,
and cash generated from operations will be sufficient to finance its operations
during 1997. Thereafter, additional financing will be required. If the
Company's capital resources are not sufficient to finance its operations,
either in 1997 or thereafter, the Company will be required, at a minimum, to
curtail its operations and development plans, which curtailment could involve,
among other things, a complete cessation of new customer additions. If further
closings of the BellSouth Transaction or any strategic relationships or
transactions with other providers of telecommunications services are
consummated, the proceeds therefrom will provide further resources to help
finance the Company's development plans.
Historically, the Company has generated operating and net losses on a
consolidated basis and can be expected to do so for the foreseeable future. Such
losses may increase as the Company's analog subscriber base declines, unless and
until the Company is able to successfully introduce other revenue-producing
wireless services. As a result of its history of net losses, the Company
currently has a negative tangible net worth and total liabilities exceeded total
assets as of June 30, 1997. By letter dated May 1, 1997, the Nasdaq Stock
Market, Inc. ("Nasdaq") informed the Company that, based upon a review of the
Company's Form 10-K for the fiscal year ended December 31, 1996, the Company no
longer met the net tangible asset requirement for continued listing on the
Nasdaq National Market. The Nasdaq rules require, among other things, that the
Company have net tangible assets (defined by Nasdaq as total assets less
liabilities and goodwill) of at least $4,000,000. At December 31, 1996, the
Company's net tangible assets, as defined, were negative $12,050,000, and at
June 30, 1997, the Company's net tangible assets, as defined, were negative
$56,879,000. In response to the letter from Nasdaq, the Company provided its
proposal to achieve compliance with Nasdaq National Market listing requirements.
By letter dated June 11, 1997, Nasdaq denied the Company's request for continued
listing of its Class A Common Stock on Nasdaq. Nasdaq procedures permitted the
Company to appeal this determination to a Nasdaq review committee. On July 25,
1997, an oral hearing was held on the Company's appeal of Nasdaq's decision to
delist the Company and on the Company's lack of compliance with the minimum bid
price standard. By letter dated August 12, 1997, the Company was notified that a
temporary exception had been granted by The Nasdaq Stock Market. The temporary
exception is subject to certain conditions, which the Company presently does not
meet, and is limited in duration. Delisting could result in a decline in the
trading market for the Company's Class A Common Stock, which could potentially
depress the Company's stock and bond prices, among other consequences.
RESULTS OF OPERATIONS
Management believes that period-to-period comparisons of the Company's
financial results to date are not necessarily meaningful and should not be
relied upon as an indication of future performance due to the changes in the
Company's business strategy during the periods presented, as discussed more
fully above.
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996
Service revenues increased $249,000, or 1.7%, for the three months
ended June 30, 1997 to $15.4 million, as compared to $15.1 million during the
same period of 1996. This increase resulted primarily from subscription rate
increases implemented during the first quarter of 1997, offset in part by fewer
subscribers to the Company's wireless cable systems as of June 30, 1997. The
number of subscribers to the Company's wireless cable systems decreased to
169,000 at June 30, 1997, compared to 179,800 at December 31, 1996 (178,000 and
173,700 at June 30, 1996 and December 31, 1995, respectively).
On a "same system" basis (comparing systems that were operational for
all of each of the three-month periods ended June 30, 1997 and 1996), service
revenues were constant at $14.9 million. Same systems during
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these periods totaled 36 systems. The Company's Portland, Oregon and Anchorage,
Alaska systems were omitted from same system revenues for both periods as these
systems were launched late in the second quarter of 1996. Revenue from the St.
James, Minnesota and Yankton, South Dakota systems were omitted from same
system revenues for both periods as these systems were sold by the Company
during the second and fourth quarters, respectively, of 1996. The average
number of subscribers in these same systems decreased approximately 3.1% for
the three months ended June 30, 1997, as compared to the same period of 1996.
Operating expenses, principally programming, site costs and other
direct expenses, aggregated $9.3 million (or 59.5% of total revenues) during
the three months ended June 30, 1997, compared to $9.0 million (or 58.5% of
total revenues) during the same period of 1996. The increase of approximately
$285,000 was primarily the result of increased programming rates for basic and
premium programming, and increased channel lease costs due to annual rate
increases.
Marketing and selling expenses totaled $667,000 (or 4.3% of total
revenues) during the three months ended June 30, 1997, compared to $1.9 million
(or 12.0% of total revenues) during the same period of 1996. The decrease in
such expenses of $1.2 million was primarily due to headcount reductions which
resulted in reduced salaries and related sales commissions. Reduced advertising
also contributed to the reduction in marketing expenses.
General and administrative expenses totaled $5.4 million (or 34% of
total revenues) for the three months ended June 30, 1997, compared to $4.5
million (or 29% of total revenues) for the same period of 1996. This increase
was principally attributable to higher legal costs and severance accruals
related to the BellSouth Transaction.
The Company's loss from operations was $12.5 million during the
three-month period ended June 30, 1997, compared to $10.1 million during the
same period of 1996. The increase in the loss from operations of $2.4 million
resulted primarily from increased depreciation and amortization expense of $2.6
million. The increase in depreciation and amortization expense was due to a
revision in the useful lives of subscriber premise equipment from seven years
to three or four years made by the Company during the fourth quarter of 1996.
Interest expense increased $1.7 million during the quarter ended June
30, 1997 to $10.8 million, as compared to $9.1 million during the same period
of 1996. The increase in interest expense primarily resulted from noncash
interest charges associated with the Company's 2004 Notes and 2005 Notes.
Interest expense also increased due to interest charges associated with the
BARs, outstanding warrants and outstanding and unused loan balances recorded in
connection with the Credit Facility.
The Company achieved earnings before interest, taxes, depreciation and
amortization of $298,000 for the three months ended June 30, 1997, as compared
to earnings before interest, taxes, depreciation and amortization of $45,000
for the same period of 1996.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Service revenues increased $954,000, or 3.2%, for the six months ended
June 30, 1997 to $31.1 million, as compared to $30.2 million during the same
period of 1996. This increase resulted primarily from subscription rate
increases implemented during the first quarter of 1997, offset in part by fewer
subscribers to the Company's wireless cable systems as of June 30, 1997.
On a "same system" basis (comparing systems that were operational for
all of each of the six-month periods ended June 30, 1997 and 1996), service
revenues increased $540,000, or 1.8%, to $30.3 million, as compared to $29.8
million for the six-month period ended June 30, 1996. Same systems during these
periods totaled 36 systems. The Company's Portland, Oregon and Anchorage,
Alaska systems were omitted from same system revenues for both periods as these
systems were launched in the second quarter of 1996. Revenue from the St.
James, Minnesota and Yankton, South Dakota systems were omitted from same
system revenues for both periods as these systems were sold by the Company
during the second and fourth quarters, respectively, of 1996.
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The average number of subscribers in these same systems decreased approximately
1.0% for the six months ended June 30, 1997, as compared to the same period of
1996.
Installation revenues for the six months ended June 30, 1997 totaled
$541,000, compared to $681,000 during the same period of 1996. The decrease in
installation revenues of $140,000, or 20.6%, was primarily the net result of
fewer subscriber installations as a portion of normal customer churn was not
replaced. The decrease in installation revenues was partially offset by
increased installation rates company-wide for the six-month period ending June
30, 1997, as compared to installation rates during the same period of 1996. The
number of installations completed during the six months ended June 30, 1997
decreased approximately 51.9% as compared to the same period during 1996.
Installation rates vary widely by system based upon competitive conditions. The
Company occasionally reduces installation charges as part of selected
promotional campaigns.
Operating expenses, principally programming, site costs and other
direct expenses, aggregated $19.1 million (or 60.4% of total revenues) during
the six months ended June 30, 1997, compared to $17.8 million (or 57.8% of
total revenues) during the same period of 1996. The increase of $1.3 million
was primarily the result of increased programming rates for basic and premium
programming, and increased channel lease costs due to annual rate increases.
Marketing and selling expenses totaled $1.5 million (or 4.8% of total
revenues) during the six months ended June 30, 1997, compared to $3.9 million
(or 12.7% of total revenues) during the same period of 1996. The decrease in
such expenses of $2.4 million was primarily due to headcount reductions which
resulted in reduced salaries and related sales commissions. Reduced advertising
also contributed to the reduction in marketing expenses.
General and administrative expenses totaled $10.4 million (or 33% of
total revenues) for the six months ended June 30, 1997, compared to $9.5
million (or 31% of total revenues) for the same period of 1996. This increase
was principally attributable to higher legal costs and severance accruals
related to the BellSouth Transaction.
The Company's loss from operations was $25.1 million during the
six-month period ended June 30, 1997, compared to $20.5 million for the same
period of 1996. The increase in the loss from operations of $4.5 million
resulted primarily from increased depreciation and amortization expense of $5.5
million. The increase in depreciation and amortization expense was due to a
revision in the useful lives of subscriber premise equipment from seven years
to three or four years made by the Company during the fourth quarter of 1996.
Interest expense increased $3.2 million during the six months ended
June 30, 1997 to $21.1 million, as compared to $17.9 million during the same
period of 1996. The increase in interest expense primarily resulted from
noncash interest charges associated with the Company's 2004 Notes and 2005
Notes. Interest expense also increased due to interest charges associated with
the BARs, outstanding warrants and outstanding and unused loan balances
recorded in connection with the Credit Facility.
The Company achieved earnings before interest, taxes, depreciation and
amortization of $552,000 for the six months ended June 30, 1997, as compared to
a loss before interest, taxes, depreciation and amortization of $417,000 for
the same period of 1996.
Pending Accounting Pronouncements
In 1997, the FASB released SFAS No. 128, "Earnings Per Share." SFAS
No. 128 requires dual presentation of basic and diluted earnings per share on
the face of the income statement for all periods presented. Basic earnings per
share excludes dilution and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for
the period. Diluted earnings per share reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or
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converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. Diluted earnings per share is
computed similarly to fully diluted earnings per share pursuant to Accounting
Principles Bulletin No. 15. SFAS No. 128 is effective for reporting periods
ending after December 15, 1997, and when adopted, will require restatement of
prior years' earnings per share.
Because the effect of outstanding options is antidilutive, they have
been excluded from the Company's computation of net loss per share.
Accordingly, management does not believe that SFAS No. 128 will have an impact
upon historical net loss per share as reported.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" governing the reporting and display of comprehensive income and its
components, and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information" requiring that public businesses report financial and
descriptive information about its reportable operating segments. Both
statements are applicable to reporting periods beginning after December 15,
1997. The impact of adopting the Statements is not expected to be material to
the financial statements.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously reported in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996, on or about February 17, 1994, Fresno Telsat,
Inc. ("FTI"), the 35% general partner of Fresno MMDS Associates, filed a
Complaint in the Superior Court of the State of California for the County of
Monterey against Robert D. Hostetler, Terry J. Holmes, the Company, and certain
other named and unnamed defendants. On August 28, 1996, the Company filed a
Cross-Complaint against FTI and certain of its officers and directors.
On or about February 24, 1997, the Company and Mr. Holmes each filed a
motion for summary judgment seeking dismissal of the claims in the Complaint
relating to an alleged conspiracy to misappropriate corporate opportunities of
FTI. On or about March 5, 1997, FTI filed a motion for leave to amend the
Complaint to add allegations that the Company aided and abetted Mr. Hostetler's
misappropriation of corporate opportunity and that all defendants wrongfully
interfered with FTI's prospective business opportunities. On June 11, 1997, the
Court granted the Company's motion to dismiss the conspiracy claims against the
Company. Also on June 11, 1997, the Court (1) allowed FTI to amend its
complaint to assert a claim for unfair competition according to Section 17200
of the California Business and Professions Code, and (2) refused to permit FTI
to amend the Complaint to allege against the Company either aiding and abetting
or tortious interference with prospective business opportunities. On July 23,
1997, the Company filed a demurrer to dismiss the unfair competition claim
against the Company.
The Court has ordered that non-expert discovery be completed by
October 31, 1997, and that the trial begin on January 12, 1998. The Company has
been informed by FTI that FTI claims damages against the Company in the amount
of $219,978,000 for injury allegedly caused by the Company tortiously
interfering with Mr. Hostetler's fiduciary duties to FTI, which the Company
denies. Although the ultimate outcome of the litigation cannot be predicted at
this time, management believes that resolution of this matter will not have a
material adverse impact on the Company's financial position or future results
of operations.
As previously reported in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996, on January 12, 1996, Videotron (Bay Area)
Inc. ("Videotron") filed a complaint against the Company in the Circuit Court
of the Thirteenth Judicial Circuit in and for Hillsborough County, Florida. The
Complaint alleged that the Company had caused certain entities from which ATI
leases channels and airtime for its Bradenton and Lakeland, Florida wireless
cable markets to actively oppose Videotron's FCC applications to increase
broadcast power in Videotron's Tampa, Florida wireless cable systems in
violation of a Non-Interference Agreement between Videotron and the Company.
19
<PAGE> 20
On May 15, 1997, the Circuit Court entered an order dismissing the
Complaint without prejudice giving the parties 60 days to settle their dispute.
On July 19, 1997, the Circuit Court approved an extension of this time period
to September 15, 1997. Although the ultimate outcome of this matter (including
whether Videotron will refile a complaint if the matter is not resolved by
September 15, 1997) cannot be predicted at this time, management believes that
resolution of this matter will not have a material adverse impact on the
Company's financial position or future results of operations.
In addition, the Company is occasionally a party to legal actions
arising in the ordinary course of its business, the ultimate resolution of
which cannot be ascertained at this time. However, in the opinion of
management, resolution of these matters will not have a material adverse impact
on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a.) The annual meeting of stockholders of American Telecasting, Inc.
was held on April 25, 1997.
b.) At the annual meeting of stockholders, the reelection of Donald
R. DePriest, Richard F. Seney, Robert D. Hostetler, Mitchell R.
Hauser, James S. Quarforth and Carl A. Rosberg as directors to
serve until the 1998 annual meeting of stockholders was
considered.
c.) Other matters voted upon at the meeting included (i) the approval
of an amendment to the Company's restated certificate of
incorporation to increase the number of authorized shares of
Class A Common Stock from 40,000,000 to 55,000,000, consisting of
45,000,000 shares of Class A Common Stock and 10,000,000 shares
of Class B Common Stock; and (ii) ratification of the appointment
of Arthur Andersen LLP as independent public accountants for the
Company for 1997. The directors-nominees were elected and all
proposals were approved. The voting results were as follows:
<TABLE>
<CAPTION>
Votes Votes Broker
Proposal Votes For Against Withheld Abstained Non-Votes
--------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Election as director:
Donald R. DePriest 18,166,862 -- 409,422 -- --
Richard F. Seney 18,186,843 -- 389,441 -- --
Robert D. Hostetler 18,556,245 -- 20,039 -- --
Mitchell R. Hauser 18,189,843 -- 386,441 -- --
James S. Quarforth 18,189,843 -- 386,441 -- --
Carl A. Rosberg 17,217,684 -- 412,503 -- --
Approval of amendment to the
Company's restated certificate of
incorporation 18,290,511 263,037 -- 22,736 --
Ratification of the appointment
of Arthur Andersen LLP as
independent public accountants
for the Company for 1997 18,564,634 8,200 -- 3,450 --
</TABLE>
20
<PAGE> 21
ITEM 5. OTHER INFORMATION
On March 17, 1997, a consortium of wireless operators, including the
Company, petitioned the Federal Communications Commission ("FCC") to expand
two-way transmission of interactive services over wireless cable channels using
Multichannel Multipoint Distribution Services ("MMDS") and Instructional
Television Fixed Services ("ITFS") spectrum.
If the rulemaking is adopted by the FCC, wireless cable companies
would be able to offer an array of fixed, two-way wireless services, including
two-way high speed Internet and Intranet access, interactive educational
products, and interactive consumer services, such as video games, home
shopping and banking. Currently, MMDS companies must use almost all of their
allocated spectrum for downstream transmissions, and the current technical and
processing rules are not designed to handle applications for two-way services
in an efficient manner. While the FCC has recently granted permanent waivers
for two-way use of the spectrum, the proposed rules would standardize and
streamline the process. The FCC has acted quickly and accepted the proposed
rulemaking requests and the requests are currently open for public comment.
21
<PAGE> 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3. Certificate of Amendment of Restated Certificate of
Incorporation.
10.1 Employment Agreement effective as of April 28, 1997, between
the Company and Terry J. Holmes.
10.2 Employment Agreement effective as of April 28, 1997, between
the Company and John B. Suranyi.
11. Statement regarding computation of earnings per share.
27. Financial Data Schedule (filed only electronically with
the SEC).
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during the quarter ended
June 30, 1997:
(i) Current Report on Form 8-K dated May 1, 1997 to report, under
Item 5, that The Nasdaq Stock Market, Inc., informed the
Company that the Company no longer meets the net tangible asset
requirement for continued listing on the Nasdaq National
Market;
(ii) Current Report on Form 8-K dated June 12, 1997 to report, under
Item 5, that Nasdaq denied the Company's initial request for
continued listing on The Nasdaq Stock Market;
(iii) Current Report on Form 8-K dated June 30, 1997 to report, under
Item 5, that an oral hearing was set for July 25, 1997, on the
Company's appeal of the determination by the staff of The
Nasdaq Stock Market, Inc. to delist ATI from the Nasdaq Stock
Market.
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN TELECASTING, INC.
Date: August 14, 1997 By:/s/ David K. Sentman
------------------------------ -------------------------
David K. Sentman
Senior Vice President, Chief Financial
Officer and Treasurer
(Principal Financial Officer)
Date: August 14, 1997 By:/s/ Fred C. Pattin Jr.
------------------------------ -------------------------
Fred C. Pattin Jr.
Controller
(Principal Accounting Officer)
23
<PAGE> 24
EXHIBIT INDEX
Exhibit Description
3. Certificate of Amendment of Restated Certificate of
Incorporation.
10.1 Employment Agreement effective as of April 28, 1997, between
the Company and Terry J. Holmes.
10.2 Employment Agreement effective as of April 28, 1997, between
the Company and John B. Suranyi.
11. Statement regarding computation of earnings per share.
27. Financial Data Schedule (filed only electronically with
the SEC).
24
<PAGE> 1
CERTIFICATE OF AMENDMENT OF
RESTATED CERTIFICATE OF INCORPORATION OF
AMERICAN TELECASTING, INC.
AMERICAN TELECASTING, INC. (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of
the State of Delaware, DOES HEREBY CERTIFY:
1. That the Board of Directors of the Corporation acting at a
meeting in accordance with the Corporation's Amended and Restated Bylaws and
the General Corporation Law of the State of Delaware, adopted resolutions
providing that the Restated Certificate of Incorporation of the Corporation be
amended by deleting Section 4.1, in its entirety and inserting the following in
place thereof:
Section 4.1. Total Number of Shares of Capital Stock. The
total number of shares of capital stock of all classes that the
Corporation shall have authority to issue is 58,000,0000 shares. The
authorized capital stock is divided into 3,000,000 shares of Preferred
Stock, of the par value of $.01 each (the "Preferred Stock"), and
55,000,000 shares of Common Stock, of the par value of $.01 each (the
"Common Stock"). The shares of Common Stock of the Corporation shall
consist of two classes, 45,000,000 shares of Class A Common Stock and
10,000,000 shares of Class B Common Stock.
2. That thereafter at the Annual Meeting of the Stockholders of
American Telecasting, Inc., duly called and convened, a majority of the stock
of the Corporation entitled to vote thereon approved the foregoing amendment.
3. That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by Robert D. Hostetler, the Chief Executive Officer and
President of the Corporation, and attested by David K. Sentman, the Assistant
Secretary of the Corporation, as of this 24th day of April, 1997.
By:
----------------------------
Name: Robert D. Hostetler
Title: Chief Executive Officer
and President
Attest:
By:
--------------------------
Name: David K. Sentman
Title: Assistant Secretary
<PAGE> 1
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into, effective as
of the 28th day of April, 1997, by and between American Telecasting, Inc.,
("ATI") a Delaware corporation, and Terry Holmes ("Employee").
W I T N E S S E T H:
WHEREAS, ATI and Employee wish to enter into an Employment Agreement to
reflect certain terms and conditions of ATI's employment of Employee.
NOW, THEREFORE, in consideration of the premises and mutual promises set
forth herein, the sufficiency of which is hereby acknowledged, the parties
hereby agree as follows:
1. Employment; Duties. ATI hereby agrees to employ Employee as a
Vice-President - Operations, or in any other executive capacity as ATI shall
determine is necessary or appropriate in connection with the operation of ATI,
and Employee hereby agrees to serve in such capacity. Employee's principal
areas of responsibility, subject to modification by ATI, shall be management of
the operations of certain ATI wireless cable television systems. Employee shall
perform such additional duties of a responsible nature and not inconsistent
with his position with ATI as shall be designated from time to time by ATI.
Employee agrees to use his best efforts to promote the interests of ATI and to
devote his full business time and energies to the business and affairs of ATI.
2. Term of Agreement. The term of this Agreement shall commence on the
date first above written (the "Effective Date") and shall continue, unless
earlier terminated in accordance with the terms of Paragraph 4, until April 30,
2000 (the "Term of Employment").
3. Compensation.
(a) Base Salary. As compensation for Employees's services rendered by the
Employee hereunder, ATI shall arrange to have Employee paid a base salary at an
annual rate equal to $131,500.00 per year ("Base Salary"), which shall be
increased by at least 5% at the beginning of each calendar year; provided,
however that any salary payments received by Employee from Fresno MMDS
Associates shall be credited against such Base Salary, and ATI's own payment
<PAGE> 2
obligation shall be reduced by such amount, it being acknowledged by the
parties that Employee is presently receiving salary payments from Fresno MMDS
Associates. The portion of the Base Salary to be paid by ATI shall be payable
to the Employee in accordance with ATI's standard policies for management
personnel.
(b) Bonus. Employee shall be eligible to participate in the executive
bonus program established by the Compensation Committee of the Board of
Directors.
(c) Benefits. Employee shall be entitled to participate in all benefit
programs established by ATI and generally applicable to ATI's executive
employees. Employee shall be reimbursed for legitimate business expenses
incurred in the course of his employment with ATI pursuant to ATI policies as
established from time to time. Employee shall be provided with the use of, or
an allowance for, a car as determined by the Board of Directors.
4. Termination of Employment Relationship.
(a) Death or Incapacity. This Agreement shall terminate immediately upon
the death or incapacity of Employee.
(b) Termination by ATI. This Agreement may be terminated by ATI with or
without cause and, in such event, the Term of Employment shall terminate at the
termination date designated by ATI. For the purpose of this Agreement,
"Termination for Cause" or "Cause" shall include, but is not limited to, any
conduct involving dishonesty or moral turpitude or failure of the Employee to
devote full business time and energies to the business and affairs of ATI. ATI
may terminate Employee with or without Cause without prior notice.
(c) Termination by Employee. Employee may terminate this Agreement for any
reason and at any time upon giving thirty (30) days prior notice; provided,
however, that Employee's obligations under Paragraph 5 shall survive any
termination of this Agreement by Employee, by ATI or otherwise.
(d) Payment Upon Termination. If this Agreement is terminated by Employee
or by ATI for Cause prior to the completion of the Term of Employment, the
employee shall not be entitled to severance pay of any kind but shall be
entitled to all reasonable reimbursable expenses incurred by Employee and the
Base Salary earned by Employee prior to the date of termination, and all
obligations of ATI under Paragraph 3 hereof shall terminate upon the
termination date designated by ATI, except to the extent otherwise required by
law. In the event that Employee is terminated without Cause, ATI shall pay
Employee, as severance pay an amount equal to 12 months of Base Salary, to be
paid in
-2-
<PAGE> 3
accordance with ATI's standard policies for management personnel. In the event
Employee is terminated without Cause, Employee's group health insurance
coverage shall be continued, to the extent permitted by ATI's group health
insurance plan at that time, for a period of 12 months, or until Employee is
eligible for coverage under a different group health plan, whichever occurs
first, and Employee shall pay the portion of the premium allocable to other
employees of ATI generally, which allocable amount shall be deducted from
payments made pursuant to the prior sentence. If Employee is terminated without
Cause after the first calendar quarter of any year, Employee shall also be
entitled to receive, with respect to work performed in such calendar year, the
bonus described in Paragraph 3(b) which shall be pro-rated for the number of
days in the year worked by Employee. If Employee is terminated without Cause
within the first calendar quarter of any year, Employee will not be entitled to
receive such bonus with respect to work performed in such calendar year.
Notwithstanding any other provision in this Agreement to the contrary, in
the event Employee terminates his employment following a Change in Employment
Conditions, as defined below, the Employee shall be entitled to receive all the
benefits he would have received under this Agreement if he had been terminated
without Cause. For purposes of this Agreement, a Change in Employment
Conditions shall be:
i) a change by ATI in the Employee's function to a new position that is
not an executive officer position with executive officer responsibilities;
and
ii) the Employee's principal place of employment is relocated to a place
located outside the State of Colorado.
5. Non-Competition Agreement. Employee acknowledges that his services to
be rendered hereunder have a unique value to ATI, for the loss of which ATI
cannot be adequately compensated by damages in an action at law. In view of the
unique value to ATI of the services of Employee, and because of the
Confidential Information to be obtained by or disclosed to Employee, and as a
material inducement to ATI to enter into this Employment Agreement and to pay
to Employee the compensation referred to in Paragraph 3 hereof, Employee
covenants and agrees that:
(a) While Employee is employed by ATI, and for a period of one (1) year
thereafter, the Employee will not, either personally, whether as principal,
partner, employee, agent, distributor, representative, stockholder or
otherwise, or with or through any other person or entity, operate or
participate in the wireless cable business or any other business which competes
with ATI as of the date of Employee's termination date (for purposes of
Paragraph
-3-
<PAGE> 4
5 hereof, ATI shall be deemed to include all subsidiaries and joint ventures of
ATI whether now or hereafter affiliated with ATI) nor will Employee directly or
indirectly (i) solicit any person who has been a supplier or customer of ATI
during the period of one (1) year prior to the termination of employment, or
(ii) solicit or acquire wireless cable television channel licenses or leases of
wireless cable television channel licenses; provided, however, that during the
period of one (1) year following termination of his employment with ATI
Employee may own up to 1% of the stock of another company in the wireless cable
business which is traded on a national stock exchange or on the NASDAQ National
Market System. This noncompetition clause shall apply in the geographic
territory comprised of the entire United States and any other geographic area
in which ATI is engaged in business.
(b) It is agreed that the Employee's services are unique, and that any
breach or threatened breach by the Employee of any provisions of this Paragraph
5 may not be remedied solely by damages. Accordingly, in the event of a breach
or threatened breach by the Employee of any of the provisions or this Paragraph
5, ATI shall be entitled to injunctive relief, restraining the Employee and any
business, firm, partnership, individual, corporation, or entity participating
in such breach or attempted breach, from engaging in any activity which would
constitute a breach of this Paragraph 5. Nothing herein, however, shall be
construed as prohibiting ATI from pursuing any other remedies available at law
or in equity for such breach or threatened breach, including the recovery of
damages.
(c) In the event Employee's employment by ATI is terminated for any reason
during the Term of Employment, the provisions of this Paragraph 5 shall survive
the termination of this Agreement and the termination of Employee's employment.
The provisions of this Paragraph 5 shall not otherwise survive.
6. Assignability. Neither party may assign its rights and obligations
under this Agreement without the prior written consent of the other party,
which consent may be withheld for any reason or for no reason; provided that
(i) ATI may assign its rights and obligations under this Agreement to any
entity which is the successor or assign of ATI's entire business, and (ii) in
the event ATI is reorganized or restructured, ATI may assign its rights and
obligations under this Agreement without restriction or limitation to any
assignee which continues to conduct substantially the same business as ATI and
in which ATI controls, directly or indirectly, 50% or more of the voting power.
This Agreement is binding upon and inures to the benefit of all successors and
permitted assigns of the parties.
-4-
<PAGE> 5
7. Severability. In the event that any of the provisions of this Agreement
shall be held to be invalid or unenforceable, the remaining provisions shall
nevertheless continue to be valid and enforceable as though invalid or
unenforceable parts had not been included therein. Without limiting the
generality of the foregoing, in the event that any provision of Paragraph 5
relating to time period and/or areas of restriction shall be declared by a
court of competent jurisdiction to exceed the maximum time period or area(s)
such court deems enforceable, said time period and/or area(s) of restriction
shall be deemed to become, and thereafter be, the maximum time period and/or
area for which such are enforceable.
8. Entire Agreement. This Agreement constitutes the entire agreement
between the parties relating to the subject matter hereof and supersedes all
prior agreements or understandings among the parties hereto with respect to the
subject matter hereof.
9. Amendments. This Agreement shall not be amended or modified except by
a writing signed by both parties hereto.
10. Miscellaneous. The failure of either party at any time to require
performance of the other party of any provision of this Agreement shall in no
way affect the right of such party thereafter to enforce the same provision,
nor shall the waiver by either party of any breach of any provision hereof be
taken or held to be a waiver of any other or subsequent breach, or as a waiver
of the provision itself. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Colorado, without regard to the
conflict of laws of such State. The benefits of this Agreement may not be
assigned nor any duties under this Agreement be delegated by the Employee
without the prior written consent of ATI, except as contemplated in this
Agreement.
11. Survival. The rights and obligations of the parties shall survive the
Term of Employment to the extent that any performance is required under this
Agreement after the expiration or termination of such Term of Employment.
12. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same document.
13. Notices. Any notice to be given hereunder by either party to the other
may be effected in writing by personal delivery, or by mail, certified with
postage prepaid, or by overnight delivery service. Notices sent by mail or by
an overnight delivery service shall be addressed to the parties at the
addresses appearing following their signatures below, or upon the employment
records of ATI but either party may change its or his address by written notice
in accordance with this paragraph.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first written above.
AMERICAN TELECASTING, INC. EMPLOYEE
By: /s/ [ILLEGIBLE] /s/ TERRY HOLMES
------------------------------------ -----------------------------
President & CEO Terry Holmes
-6-
<PAGE> 1
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into, effective as
of the 28th day of April, 1997, by and between American Telecasting, Inc.,
("ATI") a Delaware corporation, and John Suranyi ("Employee").
W I T N E S S E T H:
WHEREAS, ATI and Employee wish to enter into an Employment Agreement to
reflect certain terms and conditions of ATI's employment of Employee.
NOW, THEREFORE, in consideration of the premises and mutual promises set
forth herein, the sufficiency of which is hereby acknowledged, the parties
hereby agree as follows:
1. Employment; Duties. ATI hereby agrees to employ Employee as a
Vice-President - Operations, or in any other executive capacity as ATI shall
determine is necessary or appropriate in connection with the operation of ATI,
and Employee hereby agrees to serve in such capacity. Employee's principal
areas of responsibility, subject to modification by ATI, shall be management of
the operations of certain ATI wireless cable television systems. Employee shall
perform such additional duties of a responsible nature and not inconsistent
with his position with ATI as shall be designated from time to time by ATI.
Employee agrees to use his best efforts to promote the interests of ATI and to
devote his full business time and energies to the business and affairs of ATI.
2. Term of Agreement. The term of this Agreement shall commence on the
date first above written (the "Effective Date") and shall continue, unless
earlier terminated in accordance with the terms of Paragraph 4, until April 30,
2000 (the "Term of Employment").
3. Compensation.
(a) Base Salary. As compensation for Employees's services rendered by the
Employee hereunder, ATI shall pay to Employee a base salary at an annual rate
equal to $131,500.00 per year ("Base Salary"), which shall be increased by at
least 5% at the beginning of each calendar year. The Base Salary shall be
payable to the Employee in accordance with ATI's standard policies for
management personnel.
<PAGE> 2
(b) Bonus. Employee shall be eligible to participate in the executive
bonus program established by the Compensation Committee of the Board of
Directors.
(c) Benefits. Employee shall be entitled to participate in all benefit
programs established by ATI and generally applicable to ATI's executive
employees. Employee shall be reimbursed for legitimate business expenses
incurred in the course of his employment with ATI pursuant to ATI policies as
established from time to time. Employee shall be provided with the use of, or
an allowance for, a car as determined by the Board of Directors.
4. Termination of Employment Relationship.
(a) Death or Incapacity. This Agreement shall terminate immediately upon
the death or incapacity of Employee.
(b) Termination by ATI. This Agreement may be terminated by ATI with or
without cause and, in such event, the Term of Employment shall terminate at the
termination date designated by ATI. For the purpose of this Agreement,
"Termination for Cause" or "Cause" shall include, but is not limited to, any
conduct involving dishonesty or moral turpitude or failure of the Employee to
devote full business time and energies to the business and affairs of ATI. ATI
may terminate Employee with or without Cause without prior notice.
(c) Termination by Employee. Employee may terminate this Agreement for any
reason and at any time upon giving thirty (30) days prior notice; provided,
however, that Employee's obligations under Paragraph 5 shall survive any
termination of this Agreement by Employee, by ATI or otherwise.
(d) Payment Upon Termination. If this Agreement is terminated by Employee
or by ATI for Cause prior to the completion of the Term of Employment, the
employee shall not be entitled to severance pay of any kind but shall be
entitled to all reasonable reimbursable expenses incurred by Employee and the
Base Salary earned by Employee prior to the date of termination, and all
obligations of ATI under Paragraph 3 hereof shall terminate upon the
termination date designated by ATI, except to the extent otherwise required by
law. In the event that Employee is terminated without Cause, ATI shall pay
Employee as severance pay an amount equal to the Base Salary for 12 months, to
be paid in accordance with ATI's standard policies for management personnel. In
the event Employee is terminated without Cause, Employee's group health
insurance coverage shall be continued, to the extent permitted by ATI's group
health insurance plan at that time, for a period of 12 months, or until
Employee is eligible for coverage under a different group health plan,
whichever occurs first, and
-2-
<PAGE> 3
Employee shall pay the portion of the premium allocable to other employees of
ATI generally, which allocable amount shall be deducted from payments made
pursuant to the prior sentence. If Employee is terminated without Cause after
the first calendar quarter of any year, Employee shall also be entitled to
receive, with respect to work performed in such calendar year, the bonus
described in Paragraph 3(b) which shall be pro-rated for the number of days in
the year worked by Employee. If Employee is terminated without Cause within the
first calendar quarter of any year, Employee will not be entitled to receive
such bonus with respect to work performed in such calendar year.
Notwithstanding any other provision in this Agreement to the contrary, in
the event Employee terminates his employment following a Change in Employment
Conditions, as defined below, the Employee shall be entitled to receive all the
benefits he would have received under this Agreement if he had been terminated
without Cause. For purposes of this Agreement, a Change in Employment
Conditions shall be:
i) a change by ATI in the Employee's function to a new position that is
not an executive officer position with executive officer responsibilities,
and
ii) the Employee's principal place of employment is relocated to a place
located outside the State of Colorado.
5. Non-Competition Agreement. Employee acknowledges that his services to
be rendered hereunder have a unique value to ATI, for the loss of which ATI
cannot be adequately compensated by damages in an action at law. In view of the
unique value to ATI of the services of Employee, and because of the
Confidential Information to be obtained by or disclosed to Employee, and as a
material inducement to ATI to enter into this Employment Agreement and to pay
to Employee the compensation referred to in Paragraph 3 hereof, Employee
covenants and agrees that:
(a) While Employee is employed by ATI, and for a period of one (1) year
thereafter, the Employee will not, either personally, whether as principal,
partner, employee, agent, distributor, representative, stockholder or
otherwise, or with or through any other person or entity, operate or
participate in the wireless cable business or any other business which competes
with ATI as of the date of Employee's termination date (for purposes of
Paragraph 5 hereof, ATI shall be deemed to include all subsidiaries and joint
ventures of ATI whether now or hereafter affiliated with ATI) nor will Employee
directly or indirectly (i) solicit any person who has been a supplier or
customer of ATI during the period of one (1) year prior to the termination of
employment, or (ii) solicit or acquire wireless cable television channel
licenses
-3-
<PAGE> 4
or leases of wireless cable television channel licenses; provided, however,
that during the period of one (1) year following termination of his employment
with ATI Employee may own up to 1% of the stock of another company in the
wireless cable business which is traded on a national stock exchange or on the
NASDAQ National Market System. This noncompetition clause shall apply in the
geographic territory comprised of the entire United States and any other
geographic area in which ATI is engaged in business.
(b) It is agreed that the Employee's services are unique, and that any
breach or threatened breach by the Employee of any provisions of this Paragraph
5 may not be remedied solely by damages. Accordingly, in the event of a breach
or threatened breach by the Employee of any of the provisions or this Paragraph
5, ATI shall be entitled to injunctive relief, restraining the Employee and any
business, firm, partnership, individual, corporation, or entity participating
in such breach or attempted breach, from engaging in any activity which would
constitute a breach of this Paragraph 5. Nothing herein, however, shall be
construed as prohibiting ATI from pursuing any other remedies available at law
or in equity for such breach or threatened breach, including the recovery of
damages.
(c) In the event Employee's employment by ATI is terminated for any reason
during the Term of Employment, the provisions of this Paragraph 5 shall survive
the termination of this Agreement and the termination of Employee's employment.
The provisions of this Paragraph 5 shall not otherwise survive.
6. Assignability. Neither party may assign its rights and obligations
under this Agreement without the prior written consent of the other party,
which consent may be withheld for any reason or for no reason; provided that
(i) ATI may assign its rights and obligations under this Agreement to any
entity which is the successor or assign of ATI's entire business, and (ii) in
the event ATI is reorganized or restructured, ATI may assign its rights and
obligations under this Agreement without restriction or limitation to any
assignee which continues to conduct substantially the same business as ATI and
in which ATI controls, directly or indirectly, 50% or more of the voting power.
This Agreement is binding upon and inures to the benefit of all successors and
permitted assigns of the parties.
7. Severability. In the event that any of the provisions of this Agreement
shall be held to be invalid or unenforceable, the remaining provisions shall
nevertheless continue to be valid and enforceable as though invalid or
unenforceable parts had not been included therein. Without limiting the
generality of the foregoing, in the event that any provision of Paragraph 5
relating to time period and/or areas of restriction shall be declared by a
-4-
<PAGE> 5
court of competent jurisdiction to exceed the maximum time period or area(s)
such court deems enforceable, said time period and/or area(s) of restriction
shall be deemed to become, and thereafter be, the maximum time period and/or
area for which such are enforceable.
8. Entire Agreement. This Agreement constitutes the entire agreement
between the parties relating to the subject matter hereof and supersedes all
prior agreements or understandings among the parties hereto with respect to the
subject matter hereof.
9. Amendments. This Agreement shall not be amended or modified except by
a writing signed by both parties hereto.
10. Miscellaneous. The failure of either party at any time to require
performance of the other party of any provision of this Agreement shall in no
way affect the right of such party thereafter to enforce the same provision,
nor shall the waiver by either party of any breach of any provision hereof be
taken or held to be a waiver of any other or subsequent breach, or as a waiver
of the provision itself. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Colorado, without regard to the
conflict of laws of such State. The benefits of this Agreement may not be
assigned nor any duties under this Agreement be delegated by the Employee
without the prior written consent of ATI, except as contemplated in this
Agreement.
11. Survival. The rights and obligations of the parties shall survive the
Term of Employment to the extent that any performance is required under this
Agreement after the expiration or termination of such Term of Employment.
12. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same document.
13. Notices. Any notice to be given hereunder by either party to the other
may be effected in writing by personal delivery, or by mail, certified with
postage prepaid, or by overnight delivery service. Notices sent by mail or by
an overnight delivery service shall be addressed to the parties at the
addresses appearing following their signatures below, or upon the employment
records of ATI but either party may change its or his address by written notice
in accordance with this paragraph.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first written above.
AMERICAN TELECASTING, INC. EMPLOYEE
By: /s/ [ILLEGIBLE] /s/ JOHN SURANYI
------------------------------- -------------------------------
President & CEO John Suranyi
-------------------------------
-6-
<PAGE> 1
EXHIBIT 11
AMERICAN TELECASTING, INC. AND SUBSIDIARIES
Earnings Per Share
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------- -------------------------------
1996 1997 1996 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net loss applicable to Class A Common Stock ...... $ (18,396) $ (22,813) $ (37,147) $ (45,396)
Weighted average number of shares
outstanding ..................................... 17,381,001 25,743,607 16,970,012 25,168,157
Net loss per share ............................... $ (1.06) $ (.89) $ (2.19) $ (1.80)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 12,777
<SECURITIES> 0
<RECEIVABLES> 1,021
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,905
<PP&E> 83,184
<DEPRECIATION> 0
<TOTAL-ASSETS> 259,448
<CURRENT-LIABILITIES> 23,907
<BONDS> 271,194
0
0
<COMMON> 189,669
<OTHER-SE> (231,818)
<TOTAL-LIABILITY-AND-EQUITY> 259,448
<SALES> 0
<TOTAL-REVENUES> 15,639
<CGS> 0
<TOTAL-COSTS> 28,117
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,796
<INCOME-PRETAX> (22,813)
<INCOME-TAX> 0
<INCOME-CONTINUING> (22,813)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,813)
<EPS-PRIMARY> (.89)
<EPS-DILUTED> (.89)
</TABLE>
