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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 September 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 executive offices) (Zip Code)
Registrant's telephone number, including area code: (719) 260-5533
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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 November 12, 1997, 25,743,607 shares of the registrant's Class A Common
Stock, par value $.01 per share, were outstanding.
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AMERICAN TELECASTING, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
INDEX
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Page
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PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1996 and September 30, 1997...................... 3
Condensed Consolidated Statements of Operations -
Three Months Ended September 30, 1996 and 1997 and
Nine Months Ended September 30, 1996 and 1997................. 4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 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........................... 11
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings................................................ 18
Items 2-3. Not applicable
Item 5. Other Information ............................................... 19
Item 6. Exhibits and Reports on Form 8-K ................................ 20
</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, September 30,
1996 1997
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents .............................................. $ 18,476 $ 46,211
Trade accounts receivable, net ......................................... 1,867 815
Prepaid expenses and other current assets .............................. 2,790 9,428
--------- ---------
Total current assets ...................................................... 23,133 56,454
Property and equipment, net ............................................... 99,271 65,403
Deferred license and leased license acquisition costs, net ................ 139,537 132,642
Goodwill, net ............................................................. 15,163 14,513
Deferred financing costs, net ............................................. 4,704 4,393
Other assets, net ......................................................... 1,764 569
--------- ---------
Total assets ..................................................... $ 283,572 $ 273,974
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses ................................... $ 15,022 $ 14,141
Current portion of long-term obligations ................................ 5,852 2,370
Customer deposits ....................................................... 397 278
--------- ---------
Total current liabilities ................................................. 21,271 16,789
Deferred income taxes ..................................................... 2,834 2,834
2004 Notes ................................................................ 135,484 151,286
2005 Notes ................................................................ 116,480 130,227
Other long-term obligations, net of current portion ....................... 4,390 3,041
--------- ---------
Total liabilities ................................................ 280,459 304,177
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 ................................................ 176,091 189,413
Common Stock warrants outstanding ......................................... 10,129 10,129
Accumulated deficit ....................................................... (196,552) (230,002)
--------- ---------
Total stockholders' equity (deficit) ............................. 3,113 (30,203)
--------- ---------
Total liabilities and stockholders' equity ....................... $ 283,572 $ 273,974
========= =========
</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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1996 1997
------------ ------------ ------------ ------------
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Revenues:
Service and other ................................ $ 15,131 $ 14,061 $ 45,295 $ 45,179
Installation ..................................... 325 246 1,006 787
------------ ------------ ------------ ------------
Total revenues ...................................... 15,456 14,307 46,301 45,966
Costs and Expenses:
Operating ........................................ 8,623 8,100 26,011 27,227
Marketing ........................................ 2,091 666 6,445 2,197
General and administrative ....................... 4,646 5,287 14,166 15,736
Depreciation and amortization .................... 11,456 11,499 31,570 37,108
------------ ------------ ------------ ------------
Total costs and expenses ............................ 26,816 25,552 78,192 82,268
------------ ------------ ------------ ------------
Loss from operations ................................ (11,360) (11,245) (31,891) (36,302)
Interest expense .................................... (9,578) (12,287) (27,465) (33,414)
Interest income ..................................... 298 422 884 772
Gain on sale of wireless cable systems and assets ... -- 35,944 -- 35,944
Other income ........................................ 344 234 840 673
------------ ------------ ------------ ------------
Income (loss) before income tax benefit (expense) ... (20,296) 13,068 (57,632) (32,327)
Income tax benefit (expense) ........................ 84 (1,123) 273 (1,123)
------------ ------------ ------------ ------------
Net loss applicable to Class A Common Stock ......... $ (20,212) $ 11,945 $ (57,359) $ (33,450)
============ ============ ============ ============
Net income (loss) per share ......................... $ (1.09) $ .46 $ (3.28) $ (1.32)
Weighted average number of common
shares outstanding ............................... 18,583,169 25,743,607 17,506,036 25,362,081
</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)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------
1996 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .......................................................... $(57,359) $(33,450)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ................................... 31,570 37,108
Deferred income taxes ........................................... (273) --
Amortization of debt discount and deferred financing costs ...... 26,005 31,145
Bond appreciation rights and warrants ........................... -- 1,345
Minority interest income ........................................ -- (327)
Gain on disposition of wireless cable systems and assets ........ -- (35,944)
Other ........................................................... (682) 134
Changes in operating assets and liabilities ..................... (2,738) (962)
-------- --------
Net cash used in operating activities ........................ (3,477) (951)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ............................... (26,669) (7,956)
Additions to deferred license and leased license
acquisition costs ............................................... (9,573) (18)
Cash proceeds from disposition of wireless cable systems
and assets ...................................................... -- 47,106
Net cash used in acquisitions ..................................... (1,827) (3,416)
Payments received on loans to related parties and others .......... 252 --
-------- --------
Net cash (used in) provided by investing activities ........... (37,817) 35,716
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock, net of
stock issuance costs ............................................ 20,587 --
Proceeds from issuance of Series B Convertible Preferred Stock,
net of stock issuance costs .................................... 9,466 --
Borrowings under credit facilities ................................ 200 6,155
Principal payments on revolving credit facilities ................. (3,500) (9,105)
Increase in deferred financing costs .............................. -- (1,285)
Contributions by minority interest holder ......................... 1,260 462
Redemption of Exchangeable Debt Warrants .......................... -- (850)
Principal payments on notes payable ............................... (1,678) (1,700)
Principal payments on capital lease obligations ................... (619) (707)
-------- --------
Net cash provided by (used in) financing activities .......... 25,716 (7,030)
-------- --------
Net (decrease) increase in cash and cash equivalents .............. (15,578) 27,735
Cash and cash equivalents, beginning of period .................... 32,514 18,476
-------- --------
Cash and cash equivalents, end of period .......................... $ 16,936 $ 46,211
======== ========
</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 September 30, 1997, the Company owned and operated 33
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
September 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 and increased competition
for the renewal of channel lease agreements), 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
marketing and capital expenditures and discretionary expenses. During
1997, the Company has not made 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 its Undeveloped Markets using
analog technology. As a result, the Company's analog subscriber base
decreased from 179,800 at December 31, 1996 to 141,600 at September 30,
1997. Included within such decrease is the Company's loss of approximately
23,000 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 and cash generated from operations
will be sufficient to finance its operations for the balance of 1997 and
part of 1998 without further BellSouth closings. If the Company's capital
resources are not sufficient to finance its operations, either in 1998 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. Under
current capital market conditions, the Company does not expect to be able
to raise additional capital by issuing equity securities. Moreover, at
this time, the Company does not intend to incur any additional bank
borrowings unless subsequent BellSouth closings either do not occur or are
insufficient to provide funds for operations.
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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 and related
services. Such relationships or transactions could involve, among other
things, joint ventures, joint technology and 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. Aggregate interest payments on the 2004 Notes and the 2005
Notes are expected to be approximately $15.5 million, $28.5 million and
$59.1 million in 1999, 2000, and 2001, respectively. The Company's ability
to make these interest payments will depend on its ability to attract
sufficient additional capital through relationships with strategic
partners or otherwise, or to develop product lines that would fund such
cash interest payments.
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 nine
months ended September 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 September 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 based on the weighted-average number
of common shares outstanding for the respective periods. The effect of
common stock equivalents 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 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
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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.
Because the effect of outstanding options is antidilutive, management
does not believe that SFAS No. 128 will have an impact upon the Company's
historical net loss per share as reported.
3. DEBT
Debt at September 30, 1997 consisted of the following (in thousands):
<TABLE>
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2004 Notes ........................................ $151,286
2005 Notes ........................................ 130,227
Notes payable ..................................... 2,738
Capital leases .................................... 1,151
--------
Total ......................................... 285,402
Less current portion .......................... 2,370
--------
Long-term debt ................................ $283,032
========
</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 the first closing of
the sale of certain of its assets to BellSouth Wireless for total
consideration approximating $54 million. Of such proceeds, $7 million was
placed in escrow for a period of twelve months to satisfy any
indemnification obligations of the Company (See Note 5). Concurrent with
the closing, a portion of the proceeds was used to pay off the Credit
Facility.
Upon initiation of the Credit Facility, the Company delivered 4,500
bond appreciation rights ("BARs") and an option to exercise 141,667
exchangeable debt warrants or 141,667 equity warrants. The exchangeable
debt warrants were redeemed by the Company for an aggregate amount of
approximately $850,000 at the holder's option in connection with the
repayment of the Credit Facility.
Upon consummation of the first closing of the BellSouth Transaction,
the credit facility was terminated. The Company's total obligation under
the Credit Facility for the aggregate principal balance, accrued interest,
fees and redemption of the debt warrants was approximately $6.4 million,
net of an unused escrow deposit of approximately $845,000. The Company has
no current plans to replace the Credit Facility. During the quarter ending
September 30, 1997, the Company expensed all remaining 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 the $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 a 2004 Note on the closing date
less $290. The net value of the BARs is payable to holders of the BARs in
cash. As of September 30, 1997, the market price of each 2004 Note was
$400. BARs payable at September 30, 1997, were estimated at $495,000.
8
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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 at 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.
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.
("FTI") 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 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 approximately $220 million. The complaint, as amended, alleges,
among other claims, that all defendants, including the Company,
participated in a conspiracy to misappropriate corporate opportunities
belonging to FTI, and that the Company and the unnamed defendants engaged
in wrongful interference with fiduciary relationship and unfair
competition. On June 11, 1997, the Court dismissed the conspiracy claims
against the Company. On September 10, 1997, the Court dismissed the
plaintiff's claim for interference with fiduciary relationship. The Court
has ordered the trial of the remaining claims, including unfair
competition according to the California Business and Professions Code, 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.
Because settlement discussions were continuing as of September 15, 1997,
the Court further extended the time period for settlement to November 17,
1997. Although the ultimate outcome of this matter (including whether
Videotron will refile a complaint if the matter is not resolved by
November 17, 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.
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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 $9.5
million had been paid as of September 30, 1997. 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 and 1998.
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 of the
BellSouth Transaction, 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 and related gain recorded by the Company from the first
closing totaled approximately $54 million and $35.9 million, respectively.
Of such proceeds, $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 23,000
subscribers as of September 30, 1997. Total revenue, operating expenses
and earnings before interest, taxes, depreciation and amortization
("EBITDA") for the markets sold in the first closing were $906,000,
$843,000 and $63,000, respectively, for the three month period ending
September 30, 1997 and $5.3 million, $4.3 million and $891,000,
respectively, for the nine month period ending September 30, 1997. Total
revenue, operating expenses and EBITDA for such markets were $2.1 million,
$1.9 million and $260,000, respectively, for the three month period ending
September 30, 1996 and $6.6 million, $6.0 million and $615,000,
respectively, for the nine month period ending September 30, 1996. 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 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 and increased competition for the renewal of channel
lease agreements; 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 broadband (i.e.,
video and high-speed Internet) and narrowband (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 September 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 and increased competition for
the renewal of channel lease agreements), 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.
In the near term, 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,
during 1997, the Company has not made the marketing and 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 its Undeveloped Markets using
analog technology. As a result, the Company's analog subscriber base decreased
from 179,800 at December 31, 1996 to 141,600 at September 30, 1997. Included
within such decrease is the Company's loss of approximately 23,000 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. Unless and until sufficient cash
flow is generated from operations, the Company will be required to utilize its
current capital resources or external sources of funding, or sell assets, 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.
The Company expects that its principal capital expenditure requirements
for 1997 and throughout 1998 will relate principally to replacement of customer
churn, additional launches of high-speed Internet services in one or more
markets, trials of broadband data and telephony services, the purchase of
transmission equipment for new channels and the acquisition of additional
wireless spectrum. The Company intends to finance these capital expenditures
from existing cash and investment balances, cash generated from system
operations and additional BellSouth closings. The commercial introduction by the
Company of digital services, such as high-speed Internet access, telephony and
digital video, 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, such proceeds will
not be sufficient to fully implement its digital strategies for Internet access,
telephony and video throughout its markets. The Company is pursuing strategic
relationships or transactions with other providers of telecommunications and
related 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 analog video equipment in new subscribers'
premises, (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 nine month periods
ended September 30, 1997 and 1996, were approximately $8.0 million, and $26.7
million, respectively. Such expenditures were primarily for the installation of
equipment in new subscribers' premises for the nine months ended September 30,
1997 and for the construction and expansion of the Company's wireless cable
systems and the installation of equipment in new subscribers' premises for the
nine months ended September 30, 1996.
In the near future, the Company may experience increased programming
expenses beyond the normal annual escalations due to the renewal of programming
contracts. The Company also expects that depreciation and amortization expense
will increase if and when the Company resumes a customer growth strategy with
respect to its analog business and with the continued development of its
strategy to grow the high-speed Internet business. Marketing expenses can also
be expected to increase, perhaps significantly, if and when the Company resumes
growth of subscribers.
With the advent of Internet and other digital services, the Company is
experiencing more competition for the renewal of channel lease agreements. As a
result, the Company could lose channels or experience increased capital
expenditures and signing costs to retain its existing channels.
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<PAGE> 13
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.
On August 12, 1997, the Company completed the 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 and
related gain recorded by the Company from the first closing totaled
approximately $54 million and $34.9 million, respectively. Of such proceeds, $7
million was placed in escrow for a period of twelve months to satisfy any
indemnification obligations of the Company. Under the terms of the BellSouth
Agreement, additional closings are scheduled over the next two years. If further
BellSouth closings are consummated, proceeds therefrom will provide further
resources to help finance the Company's operations and development plans. 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.
The Company is also pursuing strategic relationships or transactions
with other providers of telecommunications and related 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.
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.
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
(approximately $4.4 million of which had been utilized as of September 30,
1997). Although the Company has the ability under the Indentures to borrow an
additional $13.1 million as of September 30, 1997, the Company, at this time,
does not intend to incur any additional bank borrowings unless subsequent
BellSouth closings either do not occur or are insufficient to provide funds for
operations.
Interest payments on the 2004 Notes and the 2005 Notes will commence
on December 15, 1999 and February 15, 2001, respectively. Aggregate interest
payments on the 2004 Notes and the 2005 Notes are expected to be approximately
$15.5 million, $28.5 million and $59.1 million in 1999, 2000, and 2001,
respectively. The Company's ability to make these interest payments will depend
on its ability to attract sufficient additional capital through relationships
with strategic partners or otherwise, or to develop product lines that would
fund such cash interest payments.
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 and cash generated from operations will be
sufficient to finance its operations for the balance of 1997 and part of 1998
without further BellSouth closings. Under current capital market conditions, the
Company does 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
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<PAGE> 14
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.
At this time, the Company does not intend to incur any additional bank
borrowings unless subsequent BellSouth closings either do not occur or are
insufficient to provide funds for operations. If the Company's capital resources
are not sufficient to finance its operations, either in 1998 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.
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 certain
debt issuances or asset sales, including the BellSouth Transaction. All amounts
outstanding under the Credit Facility were repaid with proceeds of the BellSouth
Transaction. At closing of the Credit Facility, the Company also delivered 4,500
bond appreciation rights ("BARs") and an option to exercise 141,667 exchangeable
debt warrants or 141,667 equity warrants. Concurrent with the closing of the
BellSouth Transaction, proceeds from the BellSouth Transaction were used to
repay the Credit Facility and redeem the exchangeable debt warrants. The
Company's total obligation under the Credit Facility for the aggregate principal
balance, accrued interest, fees and redemption of the exchangeable debt warrants
was approximately $6.4 million, net of an unused escrow deposit of $845,000. The
Credit Facility has been terminated and the Company does not currently intend to
replace 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 each 2004 Note 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 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 $9.5 million had been paid as
of September 30, 1997. 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 or 1998.
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. The final 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. As of September 30, 1997, the Fresno
Partnership was not in compliance with certain of the restrictive covenants
contained in the Fresno Facility or with the requirements relating to repayment
of principal.
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<PAGE> 15
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 September 30, 1997 Compared to Three Months Ended
September 30, 1996
Service revenues decreased $1.1 million, or 7.1%, for the three months
ended September 30, 1997 to $14.1 million, as compared to $15.1 million during
the same period of 1996. This decrease resulted primarily from the loss of
revenues from the markets sold to BellSouth Wireless on August 12, 1997 and
from an overall decline in analog video subscribers, offset partially by
subscription rate increases implemented during the first quarter of 1997. The
number of subscribers to the Company's wireless cable systems decreased to
141,600 at September 30, 1997, compared to 179,800 at December 31, 1996
(179,500 and 173,700 at September 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 September 30, 1997 and 1996),
service revenues were constant at $12.9 million. Same systems during these
periods totaled 33 systems. The Company's Orlando, Daytona, Ft. Myers,
Jacksonville and Louisville systems were omitted from same system revenues for
both periods as these systems were sold during the third quarter of 1997.
Revenue from the Yankton, South Dakota system was omitted from same system
revenues for both periods as this system was sold by the Company during the
fourth quarter of 1996. The average number of subscribers in these same systems
decreased approximately 5.5% for the three months ended September 30, 1997, as
compared to the same period of 1996. Revenue from these lost subscribers was
partially offset by rate increases.
Operating expenses, principally programming, site costs and other
direct expenses, aggregated $8.1 million (or 56.6% of total revenues) during
the three months ended September 30, 1997, compared to $8.6 million (or 55.7%
of total revenues) during the same period of 1996. The decrease of
approximately $523,000 was primarily the result of programming rebates of
approximately $400,000 received during the third quarter and lower service call
and disconnect expenses as a result of a lower subscriber base. The decrease in
operating expenses was partially offset by increased programming rates for
basic and premium programming, and increased channel lease costs due to annual
rate increases.
Marketing and selling expenses totaled $666,000 (or 4.6% of total
revenues) during the three months ended September 30, 1997, compared to $2.1
million (or 13.5% of total revenues) during the same period of 1996. The
decrease in such expenses of $1.4 million was primarily due to headcount
reductions which resulted in reduced salaries and related sales commissions.
Reduced advertising costs also contributed to the reduction in marketing
expenses. This decrease in marketing efforts is consistent with the Company's
strategy to not replace those subscribers who choose to stop receiving the
Company's service.
General and administrative expenses totaled $5.3 million (or 36.9% of
total revenues) for the three months ended September 30, 1997, compared to $4.6
million (or 30% of total revenues) for the same period of 1996. This increase
was principally attributable to the write off in the third quarter of 1997 of
certain merger and acquisition costs previously capitalized and higher legal
costs. Revenues from high-speed Internet access were negligible during the three
months ended September 30, 1997, and expenses incurred in connection therewith
were less than $200,000.
The Company's loss from operations was $11.2 million during the three
months ended September 30, 1997, as compared to $11.4 million during the same
period of 1996. The decrease in the loss from operations of $115,000 resulted
primarily from lower depreciation and amortization expense. The lower
depreciation and amortization expense resulted from a decrease in amortization
expense of approximately $700,000 due to the sale of certain markets to
BellSouth Wireless on August 12, 1997. This decrease was offset by increased
depreciation expense 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, and due to additional expense recorded for
excess subscriber equipment.
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<PAGE> 16
Interest expense increased $2.7 million during the three months ended
September 30, 1997 to $12.3 million, as compared to $9.6 million during the
same period of 1996. The increase in interest expense primarily resulted from
noncash interest charges of approximately $2.2 million associated with the
Company's 2004 Notes and 2005 Notes. Interest expense also increased due to
interest charges of approximately $1.0 million associated with the BARs,
warrants and outstanding and unused loan balances recorded in connection with
the Credit Facility. These increases in interest expense were offset, in part,
by lower debt balances on various notes that were repaid with borrowings from
the Credit Facility.
During the three months ended September 30, 1997, the Company recorded
a gain of approximately $35.9 million related to the sale of certain markets to
BellSouth Wireless. Taxes on this gain were estimated at $1.1 million.
The Company achieved earnings before interest, taxes, depreciation and
amortization of $254,000 for the three months ended September 30, 1997, as
compared to earnings before interest, taxes, depreciation and amortization of
$96,000 for the same period of 1996.
Nine Months Ended September 30, 1997 Compared to Nine Months Ended
September 30, 1996
Service revenues decreased $116,000, or 0.3%, for the nine months
ended September 30, 1997 to $45.2 million, as compared to $45.3 million during
the same period of 1996. This decrease resulted primarily from the loss of
revenues from the markets sold to BellSouth Wireless on August 12, 1997 and
from an overall decline in analog video subscribers, offset partially by
subscription rate increases implemented during the first quarter of 1997. The
number of subscribers to the Company's wireless cable systems decreased to
141,600 at September 30, 1997, compared to 179,800 at December 31, 1996
(179,500 and 173,700 at September 30, 1996 and December 31, 1995,
respectively).
On a "same system" basis (comparing systems that were operational for
all of each of the nine-month periods ended September 30, 1997 and 1996),
service revenues increased $777,000, or 2.0%, to $38.8 million, as compared to
$38.0 million for the nine months ended September 30, 1996. Same systems during
these periods totaled 31 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 Orlando,
Daytona, Ft. Myers, Jacksonville and Louisville, Kentucky systems were omitted
from same system revenues for both periods as these systems were sold in the
third quarter of 1997. 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 2.0% for the nine months ended September 30, 1997, as
compared to the same period of 1996. Revenue from these lost subscribers was
partially offset by rate increases.
Installation revenues for the nine months ended September 30, 1997
totaled $787,000, compared to $1.0 million during the same period of 1996. The
decrease in installation revenues of $219,000, or 21.8%, was primarily the net
result of fewer subscriber installations due to the sale of certain markets to
BellSouth Wireless and the decision to not replace a portion of normal customer
churn. The decrease in installation revenues was partially offset by increased
installation rates for the nine months ended September 30, 1997, as compared to
installation rates during the same period of 1996. The number of installations
completed during the nine months ended September 30, 1997 decreased
approximately 53.4% 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 $27.2 million (or 59.2% of total revenues) during
the nine months ended September 30, 1997, compared to $26.0 million (or 56.2%
of total revenues) during the same period of 1996. The increase of $1.2 million
was primarily the result of increased programming rates for basic and premium
programming, and increased channel lease costs due to annual rate increases.
The increase in operating expenses was offset during the nine months ended
September 30,
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<PAGE> 17
1997 by programming rebates of approximately $400,000 received during the third
quarter of 1997 and reduced service call and disconnect expenses as a result of
a lower subscriber base.
Marketing and selling expenses totaled $2.2 million (or 4.8% of total
revenues) during the nine months ended September 30, 1997, compared to $6.4
million (or 13.9% of total revenues) during the same period of 1996. The
decrease in such expenses of $4.2 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.
This decrease in marketing efforts is consistent with the Company's strategy to
not replace those subscribers who choose to stop receiving the Company's
service.
General and administrative expenses totaled $15.7 million (or 34.2% of
total revenues) for the nine months ended September 30, 1997, compared to $14.2
million (or 30.6% of total revenues) for the same period of 1996. This increase
was principally attributable to the write off in the third quarter of 1997 of
certain merger and acquisition costs previously capitalized, higher legal costs,
and severance costs related to the BellSouth Transaction. Revenues from high
speed Internet access were negligible for the nine months ended September 30,
1997 and expenses incurred in connection therewith were less than $350,000.
The Company's loss from operations was $36.3 million during the nine
months ended September 30, 1997, compared to $31.9 million for the same period
of 1996. The increase in the loss from operations of $4.4 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, and due to
additional expense recorded for excess subscriber equipment. This increase was
offset, in part, by a net decrease in loss from operations of approximately
$1.5 million as a result of fluctuations in operating, marketing and general
and administrative expenses previously discussed.
Interest expense increased $5.9 million during the nine months ended
September 30, 1997 to $33.4 million, as compared to $27.5 million during the
same period of 1996. The increase in interest expense primarily resulted from
noncash interest charges of approximately $5.2 million associated with the
Company's 2004 Notes and 2005 Notes. Interest expense also increased due to
interest charges of approximately $1.7 million associated with the BARs,
warrants and outstanding and unused loan balances recorded in connection with
the Credit Facility. These increases in interest expense were offset, in part,
by lower debt balances on various notes that were repaid with borrowings from
the Credit Facility.
During the nine months ended September 30, 1997, the Company recorded a
gain of approximately $35.9 million related to the sale of certain markets to
BellSouth Wireless. Taxes on this gain were estimated at $1.1 million.
The Company achieved earnings before interest, taxes, depreciation and
amortization of $806,000 for the nine months ended September 30, 1997, as
compared to a loss before interest, taxes, depreciation and amortization of
$321,000 for the same period of 1996.
Pending Accounting Pronouncements
In 1997, the Financial Accounting Standards Board 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 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, management
does not believe that SFAS No. 128 will have an impact upon historical net loss
per share as reported.
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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 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. On August 13, 1997, the Company filed a motion for judgment on the
claim for interference with fiduciary relationship. On September 10, 1997, the
Court dismissed the plaintiff's claim for interference with fiduciary
relationship. FTI stipulated to the Company's demurrer and filed its Second
Amended Complaint on or about September 15, 1997.
The Court 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
approximately $220 million 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.
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. Because settlement discussions were continuing as of
September 15, 1997, the Court further extended the time period for settlement
to November 17, 1997. Although the ultimate outcome of this matter (including
whether Videotron will refile a complaint if the matter is not resolved by
November 17, 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.
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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.
On October 10, 1997, the FCC issued a notice of proposed rulemaking
seeking comments on proposed amendments of its rules to enable MMDS and ITFS
licensees to engage in fixed two way transmissions. Comments on the
Commission's Notice of Proposed Rulemaking are due December 9, 1997 and reply
comments are due January 8, 1998.
In addition, the Company is in the first phase of trials demonstrating
the use of two-way broadband wireless local loop telephone service in select
markets. The results of these trials cannot presently be predicted.
Historically, the Company has generated operating and net losses on a
consolidated basis and can be expected to do so for the foreseeable future. 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 September
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.
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 was subject to certain conditions and was limited in duration. The
Company later determined that it would not satisfy the net tangible asset
listing requirement within the time period and under the terms requested by
Nasdaq. Consequently, on October 7, 1997, the Company submitted a request to
Nasdaq to move the listing of the Company's Class A Common Stock from the Nasdaq
National Market to The Nasdaq SmallCap Market. By letter dated October 14, 1997,
the Company was notified that effective October 17, 1997, the Company's
securities would be listed on The Nasdaq SmallCap Market. In order to continue
to be listed on The Nasdaq SmallCap Market, the Company will be required to
satisfy the maintenance criteria for such market. If the Company does not comply
with the new standards for the Nasdaq SmallCap Market, the Company's Class A
Common stock could be delisted from The Nasdaq SmallCap Market. 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.
19
<PAGE> 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) (a) Exhibits
10.1 Employment agreement effective as of July 1, 1997, between the
Company and Robert D. Hostetler.
10.2 First Amendment to Employment Agreement effective as of
September 9, 1997, between the Company and David K. Sentman.
11. Statement regarding computation of earnings per share.
27. Financial Data Schedule (filed only electronically with the
SEC).
99.1 Associate Stock Purchase Plan.
99.2 Amendment to Associate Stock Purchase Plan.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during the quarter ended
September 30, 1997:
(i) Current Report on Form 8-K dated August 12, 1997, to report,
under Item 5 and Item 7, that the Company had completed the
first closing of the BellSouth Transaction;
(ii) Current Report on Form 8-K dated August 12, 1997, to include,
under Item 5 and Item 7, a July 31, 1997 balance sheet with
proforma adjustments evidencing the first closing of the
BellSouth Transaction; and
(iii) Current Report on Form 8-K dated August 13, 1997 to report,
under Item 5, that Nasdaq had granted the Company a temporary
exception from The Nasdaq Stock Market, Inc. continued listing
requirements for its Class A Common Stock on The Nasdaq National
Market.
20
<PAGE> 21
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: November 14, 1997 By: /s/ David K. Sentman
-------------------------- ------------------------------------
David K. Sentman
Senior Vice President, Chief Financial
Officer and Treasurer
(Principal Financial Officer)
Date: November 14, 1997 By: /s/ Fred C. Pattin Jr.
-------------------------- ------------------------------------
Fred C. Pattin Jr.
Controller
(Principal Accounting Officer)
21
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
10.1 Employment agreement effective as of July 1, 1997, between the
Company and Robert D. Hostetler.
10.2 First Amendment to Employment Agreement effective as of September 9,
1997, between the Company and David K. Sentman.
11. Statement regarding computation of earnings per share.
27. Financial Data Schedule (filed only electronically with the SEC).
99.1 Associate Stock Purchase Plan.
99.2 Amendment to Associate Stock Purchase Plan.
</TABLE>
<PAGE> 1
EMPLOYMENT AGREEMENT
This Agreement is entered into, effective as of the 1st day of July, 1997,
by and between American Telecasting, Inc., ("ATI") a Delaware corporation, and
Robert D. Hostetler ("Employee").
W I T N E S S E T H:
WHEREAS, Employee has served as an employee of ATI pursuant to an
Employment Agreement dated January 4, 1996 between ATI and Employee; and
WHEREAS, ATI wishes to engage Employee's services as President and Chief
Executive Officer of ATI upon the terms and conditions hereinafter set forth;
and
WHEREAS, Employees wishes to work for ATI upon the terms and conditions
hereinafter set forth; and
NOW, THEREFORE, in consideration of the promises 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 effective as
of the Effective Date as President and Chief Executive Officer, 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 the general supervision and management of the
business of ATI. 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 employment hereunder shall be for the period
which shall commence on July 1, 1997 (the "Effective Date") and shall continue,
unless earlier terminated in accordance with the terms of Paragraph 4, until
June 30, 1998 (the "Term of Employment").
<PAGE> 2
(A) Base Salary. As compensation for employees services rendered by the
Employee hereunder, ATI shall pay to Employee, effective retroactively as of
January 1, 1997, a base salary at an annual rate equal to $203,200 per year
("Base Salary"). After January 1, 1998, the Base Salary may be increased by ATI
in its discretion. The Base Salary shall be payable to the Employee on a
semi-monthly basis, 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.
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
-2-
<PAGE> 3
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, on a semi-monthly basis as severance pay, six months Base Salary.
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 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 5% 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.
-3-
<PAGE> 4
(c) The provisions of this Paragraph 5 shall survive the termination of
this Agreement and the termination of Employee's employment.
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
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.
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. This Agreement and all of its rights, privileges, and obligations
will be binding upon the parties and all successors and agreed to assigns
thereof.
-4-
<PAGE> 5
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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first written above.
AMERICAN TELECASTING, INC. EMPLOYEE
By: [ILLEGIBLE] /s/ ROBERT D. HOSTETLER
------------------------- -------------------------
Robert D. Hostetler
-------------------------
-5-
<PAGE> 1
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This First Amendment to Employment Agreement (the "Amendment") is made
as of the 9th day of September, 1997, by and between American Telecasting,
Inc., a Delaware corporation (the "Company"), and David K. Sentman ("Employee").
WHEREAS, the Company and the Employee entered into an Employment Agreement
dated as of the 10th day of August, 1995 (the "Employment Agreement"); and
WHEREAS, the Company and the Employee wish to extend the term of the
Employment Agreement.
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. Section 2 of the Employment Agreement is hereby amended in its
entirety to read as follows:
2. Term of Agreement. The term of this Agreement shall commence on
the date first written above (the "Effective Date") and such term and
the employment hereunder shall continue, unless earlier terminated in
accordance with terms of Paragraph 4, for a period of four (4) years
(the "Term of Employment").
2. Except as set forth herein, the Employment Agreement remains in full
force and effect.
IN WITNESS WHEREOF, the parties hereto have properly and duly executed
this Amendment as of the date first written above.
AMERICAN TELECASTING, INC. EMPLOYEE
By: /s/ ROBERT D. HOSTETLER /s/ DAVID K. SENTMAN
------------------------------- ------------------------------
Robert D. Hostetler David K. Sentman
President and
Chief Executive Officer
<PAGE> 1
EXHIBIT 11
AMERICAN TELECASTING, INC. AND SUBSIDIARIES
Earnings Per Share
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1996 1997 1996 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income (loss) applicable to Class A Common Stock ... $ (20,212) $ 11,945 $ (57,359) $ (33,450)
Weighted average number of shares outstanding .......... 18,583,169 25,743,607 17,506,036 25,362,081
Net income (loss) per share ........................... $ (1.09) $ .46 $ ( 3.28) $ (1.32)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 46,211
<SECURITIES> 0
<RECEIVABLES> 815
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 56,454
<PP&E> 65,403
<DEPRECIATION> 0
<TOTAL-ASSETS> 273,974
<CURRENT-LIABILITIES> 16,789
<BONDS> 281,513
0
0
<COMMON> 189,670
<OTHER-SE> (219,873)
<TOTAL-LIABILITY-AND-EQUITY> 273,974
<SALES> 0
<TOTAL-REVENUES> 14,307
<CGS> 0
<TOTAL-COSTS> 25,552
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,287
<INCOME-PRETAX> 13,068
<INCOME-TAX> 1,123
<INCOME-CONTINUING> 11,945
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,945
<EPS-PRIMARY> .46
<EPS-DILUTED> .46
</TABLE>
<PAGE> 1
AMERICAN TELECASTING, INC.
ASSOCIATE STOCK PURCHASE PLAN
ARTICLE I - GENERAL PROVISIONS
1.1 PURPOSE: The American Telecasting, Inc. Associate Stock Purchase Plan is
intended to provide a method whereby associates of American Telecasting, Inc.
and its Subsidiary Corporations (hereinafter referred to, unless the context
otherwise requires, as the "Company") will have an opportunity to acquire a
proprietary interest in the Company through the purchase of shares of the
Common Stock of the Company. It is the intention of the Company to have the
Plan qualify as an "employee stock purchase plan" under Section 423 of the
Internal Revenue Code of 1986, as amended (the "Code"). The provisions of the
Plan shall be construed so as to extend and limit participation in a manner
consistent with the requirements of that section of the Code.
1.2 EFFECTIVE DATE: The Plan shall be effective as of February 1, 1995,
subject to approval by the holders of the majority of the Common Stock present
and represented at a special or annual meeting of the shareholders held within
12 months after the adoption of the Plan. If the Plan is not so approved, the
Plan shall not become effective.
1.3 AUTOMATIC TERMINATION: The Plan shall terminate January 31, 1998.
ARTICLE II - DEFINITIONS
2.1 ASSOCIATE: "Associate" shall mean any person who is customarily
employed on a full-time or part-time basis by the Company, excluding:
(a) any person whose customary employment is 20 hours or fewer per week,
and
(b) any person whose customary employment is for not more than five
months in any calendar year.
2.2 BOARD OF DIRECTORS: "Board of Directors" shall mean the Board of Directors
of American Telecasting, Inc.
2.3 COMMITTEE: "Committee" shall mean the individuals described in
Article IX.
2.4 COMPENSATION: "Compensation" shall mean all compensation paid as wages,
salary or commissions by the Company to an Associate, including overtime
payments and bonuses, but excluding contributions by the Company to any welfare
benefit plan, retirement plan or deferred compensation plan maintained by the
Company.
2.5 PARTICIPANT: "Participant" shall mean an Associate who has satisfied the
eligibility requirements of the Plan and has elected to participate in the Plan
pursuant to Section 3.3.
<PAGE> 2
2.6 PLAN: "Plan" shall mean this employee stock purchase plan, including all
amendments thereto.
2.7 SEMI-ANNUAL PERIOD: "Semi-Annual Period" shall mean each of the 6-month
periods ending on June 30 and December 31.
2.8 SUBSIDIARY CORPORATION: "Subsidiary Corporation" shall mean any present or
future corporation which (a) would be a "subsidiary corporation" of American
Telecasting, Inc. as that term is defined in Section 424 of the Code and (b) is
designated as a Participant in the Plan by the Committee.
ARTICLE III - ELIGIBILITY AND PARTICIPATION
3.1 INITIAL ELIGIBILITY: Any Associate who has been employed by the Company
for at least one year shall be eligible to participate in the Plan.
3.2 RESTRICTIONS ON PARTICIPATION: Notwithstanding any provisions of the Plan
to the contrary, no Associate shall be granted an option under the Plan:
(a) if, immediately after the grant, such Associate would own stock, and/
or hold outstanding options to purchase stock, possessing 5% or more of the
total combined voting power or value of all classes of stock of the
Company (for purposes of this paragraph, the rules of Section 424(d) of the
Code shall apply in determining stock ownership of any Associate); or
(b) which permits the Associate's rights to purchase stock under all
employee stock purchase plans of the Company to accrue at a rate which
exceeds $25,000 in fair market value of the stock (determined at the time
such option is granted) for each calendar year in which such option is
outstanding.
3.3 COMMENCEMENT OR PARTICIPATION: An eligible Associate may become a
Participant by completing an authorization for a payroll deduction on the form
provided by the Company and filing it with the Committee on or before the date
set therefor by the Committee. Payroll deductions for a Participant shall
commence with the beginning of the pay period following the filing of the
Associate's authorization for payroll deduction.
ARTICLE IV - PAYROLL DEDUCTIONS
4.1 AMOUNT OF DEDUCTION: At the time a Participant files an authorization for
payroll deduction, the Participant shall elect to reduce his Compensation by an
amount not to exceed 10% of Compensation. Such election shall be effective for
the first pay period beginning after such election, and shall continue in
effect until such election is changed or revoked by the participant.
2
<PAGE> 3
4.2 PARTICIPANT'S ACCOUNT: All payroll deductions made for a Participant shall
be credited to his account under the Plan. A Participant may not make any
separate cash payment into such account except when on leave of absence and then
only as provided in Section 4.5
4.3 INTEREST: The Committee shall invest all payroll deductions in a savings
account, money market account or certificate of deposit at any major commercial
bank. At the end of each calendar quarter, earnings of the Plan shall be
allocated to each Participant's account based on the ratio that such
Participant's account balance bears to the total of all Participants' account
balances immediately prior to such allocation.
4.4 CHANGES IN PAYROLL DEDUCTIONS: A Participant may change his payroll
deduction election once per calendar quarter, pursuant to procedures
established by the Committee. Such change shall be effective as of the first
pay period beginning after the end of the calendar quarter in which such change
is made.
4.5 LEAVE OF ABSENCE: If a Participant goes on a leave of absence, such
Participant shall have the right to elect: (a) to withdraw the balance in his
account pursuant to Section 6.2, (b) to discontinue contributions to the Plan
but remain a Participant in the Plan, or (c) to remain a Participant in the
Plan during such leave of absence, authorizing deductions to be made from
payments by the Company to the Participant during such leave of absence and
undertaking to make cash payments to the Plan at the end of each pay period to
the extent that amounts payable by the Company to such Participant are
insufficient to meet such Participant's authorized Plan deductions.
ARTICLE V - GRANTING OF OPTION
5.1 NUMBER OF OPTION SHARES: At the end of each calendar quarter during which
a Participant participates in the Plan, such Participant shall be deemed to
have been granted an option to purchase a maximum number of shares of the
Common Stock of the Company, such maximum number being equal to the total
amount of payroll deductions and any interest credited to such Participant's
account during such calendar quarter, divided by the option price determined
pursuant to Section 5.2.
5.2 OPTION PRICE: The option price of stock purchased with payroll deductions
made during any calendar quarter for a Participant shall be equal to 90% of the
closing price of the stock on the last day of the calendar quarter or the
nearest prior business day on which trading occurred on the NASDAQ National
Market System.
ARTICLE VI - EXERCISE OF OPTION
6.1 AUTOMATIC EXERCISE: Each Participant's option to purchase Common Stock
with payroll deductions made during any calendar quarter shall be deemed to
have been exercised automatically on the last day of such calendar quarter, for
the purchase of the number of shares (including fractional shares) of stock
which the accumulated payroll deductions in his account at that time will
purchase at the applicable option price. Any excess in such Participant's
account at
3
<PAGE> 4
that time shall remain in the account and shall be applied to the exercise of
his option for the following calendar quarter. No interest will be credited to
any Participant's account.
6.2 WITHDRAWAL OF ACCOUNT: By written notice to the Committee, a
Participant may elect to withdraw all the accumulated payroll deductions in
his account as of the end of the Semi-Annual Period in which such election is
made.
6.3 FRACTIONAL SHARES: Fractional shares may be issued under the Plan.
6.4 TRANSFERABILITY OF OPTION: During a Participant's lifetime, options
held by such Participant shall be exercisable only by such Participant.
6.5 DELIVERY OF STOCK: As promptly as practicable after the end of each
calendar year, the Company shall deliver to each Participant, as appropriate,
the stock purchased upon exercise of his options during such calendar year.
ARTICLE VII - WITHDRAWAL
7.1 IN GENERAL: A Participant may withdraw payroll deductions credited to
his account under the Plan at the end of any Semi-Annual Period by giving
written notice to the Committee. All of the Participant's payroll deductions
credited to his account will be paid to him as soon as administratively
feasible after the end of such Semi-Annual Period, and no further payroll
deductions will be made from his pay during such Semi-Annual Period. The
Company may, at its option, treat any attempt to borrow by a Participant on the
security of his accumulated payroll deductions as an election, under Section
6.2, to withdraw such deductions.
7.2 EFFECT ON SUBSEQUENT PARTICIPATION: A Participant's withdrawal of his
account during any Semi-Annual Period shall have no effect on his eligibility
to participate in the Plan during any subsequent period.
7.3 TERMINATION OF EMPLOYMENT: Upon termination of the Participant's
employment for any reason, including retirement (but excluding death while in
the employ of the Company), the payroll deductions credited to his account will
be returned to him or, in the case of his death subsequent to the termination
of his employment, to the person or persons entitled thereto under Section
10.1. Such payroll deductions will be paid as soon as administratively feasible
after the end of the Semi-Annual Period in which such termination occurs.
7.4 TERMINATION OF EMPLOYMENT DUE TO DEATH: Upon termination of the
Participant's employment because of his death, his beneficiary (as designated
under Section 10.1) shall have the right to elect, by written notice given to
the Committee prior to the end of the calendar quarter in which the Participant
died, either:
(a) to withdraw all of the payroll deductions credited to the
Participant's account under the Plan, or
4
<PAGE> 5
(b) to exercise the Participant's option for the purchase of stock at the
end of the calendar quarter in which the Participant died, for the purchase
of the number of full and fractional shares of stock which the accumulated
payroll deductions in the Participant's account at the date of the
Participant's death will purchase at the applicable option price, and any
excess in such account will be returned to such beneficiary, along with any
interest allocable to such excess.
ARTICLE VIII - STOCK
8.1 MAXIMUM SHARES: The maximum number of shares which shall be issued
under the Plan, subject to adjustment upon changes in capitalization of the
Company as provided in Section 10.4, shall be 250,000 shares. If the total
number of shares for which options are exercised during any calendar
quarter, when added to all shares previously issued under this Plan, exceeds the
maximum number of shares under this provision, the Company shall make a pro rata
allocation of the shares available for delivery and distribution in as nearly a
uniform manner as shall be practicable and as it shall determine to be
equitable, and the balance of payroll deductions credited to the account of
each Participant under the Plan shall be returned to him as promptly as
possible.
8.2 PARTICIPANT'S INTEREST IN OPTION STOCK: A Participant will have no
interest in stock covered by his option until such option has been exercised.
8.3 RESTRICTIONS ON EXERCISE: The Board of Directors of the Company may,
in its discretion, require as conditions to the exercise of any option that the
shares of Common Stock reserved for issuance upon the exercise of the option
shall have been duly listed, upon official notice of issuance, upon a stock
exchange, and that either:
(a) a Registration Statement under the Securities Act of 1933, as amended,
with respect to such shares shall be effective, or
(b) the Participant shall have represented at the time of purchase, in form
and substance satisfactory to the Company, that it is his intention to
purchase the shares for investment and not for resale or distribution
ARTICLE IX - ADMINISTRATION
9.1 APPOINTMENT OF COMMITTEE: The Board of Directors shall appoint a
committee (the "Committee") to administer the Plan.
9.2 AUTHORITY OF COMMITTEE: Subject to the express provisions of the Plan,
the Committee shall have plenary authority in its discretion to interpret and
construe any and all provisions of the Plan, and to make all other
determinations deemed necessary or advisable for administering the Plan. The
Committee's determination on the foregoing matters shall be conclusive.
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9.3 ADMINISTRATION OF THE COMMITTEE: The Board of Directors may from time to
time appoint members of the Committee in substitution for or in addition to
members previously appointed any may fill vacancies, however caused, in the
Committee. The Committee may select one of its members as its Chairman and
shall hold its meetings at such times and places as it shall deem advisable and
may hold telephonic meetings. A majority of its members shall constitute a
quorum. All determinations of the Committee shall be made by a majority of its
members. The Committee may correct any defect or omission or reconcile any
inconsistency in the Plan, in the manner and to the extent it shall deem
desirable. Any decision or determination reduced to writing and signed by a
majority of the members of the Committee shall be as fully effective as if it
had been made by a majority vote at a meeting duly called and held. The
Committee may appoint a secretary and shall make such rules and regulations for
the conduct of its business as it shall deem advisable.
ARTICLE X - MISCELLANEOUS
10.1 DESIGNATION OF BENEFICIARY: A Participant may file a written designation
of a beneficiary who is to receive any stock and/or cash. Such designation of
beneficiary may be changed by the Participant at any time by written notice to
the Committee. Upon the death of a Participant and upon receipt by the Company
of proof of identity and existence of a beneficiary validly designated by him
under the Plan, the Company shall deliver such stock and/or cash to such
beneficiary. In the event of the death of a Participant and in the absence of a
beneficiary validly designated under the Plan who is living at the time of such
Participant's death, the Company shall deliver such stock and/or cash to the
executor or administrator of the estate of the Participant, or if no such
executor or administrator has been appointed (to the knowledge of the Company),
the Company, in its discretion, may deliver such stock and/or cash to the
spouse or to any one or more dependents of the Participant as the Company may
designate. No beneficiary shall, prior to the death of the Participant by whom
he has been designated, acquire any interest in the stock or cash credited to
the Participant under the Plan.
10.2 TRANSFERABILITY: Neither payroll deductions credited to a Participant's
account nor any rights with regard to the exercise of an option or to receive
stock under the Plan may be assigned, transferred, pledged, or otherwise
disposed of in any way by the Participant other than by will or the laws of
descent and distribution. Any such attempted assignment, transfer, pledge or
other disposition shall be without effect, except that the Company may treat
such act as an election to withdraw funds in accordance with Section 6.2.
10.3 ADJUSTMENT UPON CHANGES IN CAPITALIZATION
(a) If, while any options are outstanding, the outstanding shares of
Common Stock of the Company have increased, decreased, changed into, or
been exchanged for a different number or kind of shares or securities of
the Company through reorganization, merger, recapitalization,
reclassification, stock split, reverse stock split or similar transaction,
appropriate and proportionate adjustments may be made by the Committee in
the number and/or kind of shares which are subject to purchase under
outstanding options and on the option exercise price or prices applicable
to such outstanding options. No adjustments
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shall be made for stock dividends. For the purposes of this paragraph, any
distribution of shares to shareholders in an amount aggregating 20% or
more of the outstanding shares shall be deemed a stock split and any
distributions of shares aggregating less than 20% of the outstanding
shares shall be deemed a stock dividend.
(b) Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving
corporation, or upon a sale of substantially all of the property or stock
of the Company to another corporation, the holder of each option then
outstanding under the Plan will thereafter be entitled to receive at the
end of the calendar quarter in which such transaction occurs, upon the
exercise of such option for each share as to which such option shall be
exercised, as nearly as reasonably may be determined, the cash, securities
and/or property which a holder of one share of the Common Stock of the
Company was entitled to receive upon and at the time of such transaction.
The Board of Directors shall take such steps in connection with such
transactions as the Board shall deem necessary to assure that the
provisions of this paragraph shall thereafter be applicable, as nearly as
reasonably may be determined, in relation to such cash, securities and/or
property as to which such holder of such option might thereafter be
entitled to receive.
10.4 AMENDMENT AND TERMINATION: Subject to the provisions of Section 1.3, the
Board of Directors shall have complete power and authority to terminate or
amend the Plan; provided, however, that the Board shall not, without the
approval of the stockholders of the Company (i) increase the maximum number of
shares which may be issued under the Plan (except pursuant to Section 10.4); or
(ii) amend the requirements as to class of associates eligible to purchase
stock under the Plan. No termination, modification, or amendment of the Plan
may, without the consent of a Participant then having an option under the Plan
to purchase stock, adversely affect the rights of such Participant under such
option.
10.5 NO EMPLOYMENT RIGHTS: The Plan does not, directly or indirectly, create in
any Associate or class of associates any right with respect to continuation of
employment by the Company, and it shall not be deemed to interfere in any way
with the Company's right to terminate, or otherwise modify, an Associate's
employment at any time.
10.6 EFFECT OF PLAN: The provisions of the Plan shall, in accordance with its
terms, be binding upon, and inure to the benefit of, all successors of each
Associate participating in the Plan, including, without limitation, such
Associate's estate and the executors, administrators or trustees thereof, heirs
and legatees, and any receiver, trustee in bankruptcy or representative of
creditors of such Associate.
10.7 GENDER AND NUMBER: Whenever any words are used herein in the masculine,
feminine or neuter gender, they shall be construed as through they were also
used in another gender in all cases where they would so apply, and whenever any
words are used herein in the singular or plural form, they shall be construed
as though were also use in the other form in all cases where they would so
apply.
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10.8 HEADINGS: The headings and subheadings of this Plan have been inserted
for convenience of reference and are to be ignored in any construction of the
provisions hereof.
10.9 GOVERNING LAW: The law of the State of Colorado shall govern all matters
relating to this Plan except to the extent they are superseded by the laws of
the United States.
IN WITNESS WHEREOF, this Plan has been executed the 1st day of February,
1995.
AMERICAN TELECASTING, INC.
By: /s/ [ILLEGIBLE]
---------------------------------
[ILLEGIBLE]
8
<PAGE> 1
EXHIBIT A
AMENDMENT TO
AMERICAN TELECASTING, INC.
ASSOCIATE STOCK PURCHASE PLAN
The Board of Directors of American Telecasting, Inc., has adopted and
approved the following amendments to the American Telecasting, Inc. Associate
Stock Purchase Plan, as amended from time to time (the "Plan"):
1. AMENDMENTS. The Plan is hereby amended as follows:
(a) The date "January 31, 1998" in Section 1.3 of the Plan
shall be deleted and the date "December 31, 1998" shall
be inserted in place thereof.
(b) Article V of the Plan shall be deleted in its entirety
and the following inserted in place thereof:
"ARTICLE V - GRANTING OF OPTIONS
5.1 PURCHASE OF OPTION SHARES: At the end of each
calendar quarter, the Company shall purchase shares of
its Class A Common Stock in a quantity equal to
(a) the total amount of payroll deductions and interest
credited to the accounts of all Participants during
such calendar quarter, divided by (b) 90% of the price
at which such shares of Class A Common Stock are
purchased by the Company.
5.2 ALLOCATION OF OPTION SHARES: At the end of each
calendar quarter, each Participant shall be granted an
option to purchase a portion of the shares purchased by
the Company pursuant to Section 5.1. The portion of the
shares which may be purchased by a Participant shall
be equal to a fraction, the numerator of which shall be
the total amount of payroll deductions and any interest
credited to such Participant's account during such
calendar quarter, and the denominator of which shall be
the total amount of payroll deductions and interest
credited to the accounts of all Participants during
such calendar quarter."
(c) Section 6.1 of the Plan shall be deleted in its
entirety and the following shall be inserted in place
thereof:
"6.1 AUTOMATIC EXERCISE: Each Participant's option to
purchase Class A Common Stock with payroll deductions
made during any calendar quarter shall be deemed
to have been exercised automatically on the last day of
such calendar
<PAGE> 2
quarter, for the purchase of the number of shares (including
fractional shares) of stock which are made available for purchase by
such Participant pursuant to Section 5.2."
2. Effective Date. This Amendment shall be effective as of the date
set forth below. Except as specifically amended above, the Plan shall remain in
full force and effect and no other provisions of the Plan shall be deemed
amended hereby.
IN WITNESS WHEREOF, the undersigned has hereunto signed his name on this
30th day of September, 1997.
/s/ DAVID K. SENTMAN
_____________________________________
David K. Sentman, Assistant Secretary
American Telecasting, Inc.
