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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 March 31, 1999
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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)
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Delaware 54-1486988
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
5575 Tech Center Drive, Colorado Springs, CO 80919
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(Address of principal executive offices) (Zip Code)
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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
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As of May 14, 1999, 25,847,256 shares of the registrant's Common Stock, par
value $.01 per share, were outstanding.
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AMERICAN TELECASTING, INC.
INDEX
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Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1998 and March 31, 1999........................................................................3
Condensed Consolidated Statements of Operations -
Three months ended March 31, 1998 and 1999..................................................................4
Condensed Consolidated Statements of Cash Flows -
Three months ended March 31, 1998 and 1999..................................................................5
Notes to Condensed Consolidated Financial Statements.........................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings....................................................................................23
Item 2. Changes in Securities................................................................................24
Items 3-4. Not Applicable
Item 5. Other Information....................................................................................24
Item 6. Exhibits and Reports on Form 8-K.....................................................................25
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN TELECASTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
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December 31, March 31,
1998 1999
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(Unaudited)
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ASSETS
Current Assets:
Cash and cash equivalents.................................................................. $ 11,155 $ 9,007
Trade accounts receivable, net ............................................................ 971 940
Prepaid expenses and other current assets ................................................. 1,472 1,292
--------- ---------
Total current assets .......................................................... 13,598 11,239
Property and equipment, net ................................................................. 28,349 24,989
Deferred license and leased license acquisition costs, net .................................. 81,141 80,277
Restricted escrowed funds ................................................................... 1,828 1,846
Deferred financing costs, net ............................................................... 2,523 2,429
Other assets, net ........................................................................... 226 248
--------- ---------
Total assets ................................................................. $ 127,665 $ 121,028
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses ..................................................... $ 11,338 $ 10,056
Current portion of long-term obligations .................................................. 271 164
Subscriber deposits ....................................................................... 186 160
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Total current liabilities .......................................................... 11,795 10,380
2004 Notes .................................................................................. 134,130 138,977
2005 Notes .................................................................................. 105,383 109,269
Other long-term obligations, net of current portion ......................................... 527 191
--------- ---------
Total liabilities ............................................................ 251,835 258,817
COMMITMENTS AND CONTINGENCIES (see Note 4)
STOCKHOLDERS' DEFICIT:
Class A Common Stock, $.01 par value; 45,000,000 shares authorized; 25,743,607
shares issued and outstanding ............................................................. 257 257
Class B Common Stock, $.01 par value; 10,000,000 shares authorized; no shares
issued and outstanding .................................................................... -- --
Additional paid-in capital .................................................................. 189,413 189,710
Deferred compensation ....................................................................... -- (71)
Common Stock warrants ....................................................................... 10,129 10,129
Accumulated deficit ......................................................................... (323,969) (337,814)
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Total stockholders' deficit ........................................................ (124,170) (137,789)
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Total liabilities and stockholders' deficit ........................................ $ 127,665 $ 121,028
========= =========
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See Accompanying Notes to Condensed Consolidated Financial Statements
3
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AMERICAN TELECASTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
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Three Months Ended
March 31,
1998 1999
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Revenues:
Service and other .................................... $ 12,500 $ 10,181
Installation ......................................... 213 118
------------ ------------
Total revenues ......................................... 12,713 10,299
Costs and expenses:
Operating ............................................ 7,762 6,507
Marketing ............................................ 701 106
General and administrative ........................... 5,672 3,763
Noncash compensation expense ......................... -- 226
Depreciation and amortization ........................ 9,644 5,244
------------ ------------
Total costs and expenses ............................... 23,779 15,846
Loss from operations ................................... (11,066) (5,547)
Interest expense ....................................... (10,975) (8,837)
Interest income ........................................ 471 231
Gain on disposition of wireless cable systems and
assets................................................ 3,219 --
Other income, net ...................................... 81 308
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Net loss ............................................... $ (18,270) $ (13,845)
============ ============
Basic and diluted net loss per share ................... $ (.71) $ (.54)
============ ============
Weighted average number of shares outstanding .......... 25,743,607 25,743,607
============ ============
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
4
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AMERICAN TELECASTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
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Three Months Ended
March 31,
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1998 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .................................................................. $(18,270) $(13,845)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ........................................... 9,644 5,244
Amortization of debt discount and deferred financing costs .............. 10,956 8,829
Bond appreciation rights ................................................ (45) --
Minority interest income ................................................ (138) (325)
Noncash compensation expense ............................................ -- 226
Gain on disposition of wireless cable systems and assets ................ (3,219) --
Other ................................................................... 62 32
Changes in operating assets and liabilities ............................. (2,620) (1,168)
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Net cash used in operating activities ................................. (3,630) (1,007)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ....................................... (4,866) (943)
Additions to deferred license and leased license acquisition costs ........ (1,871) (80)
Proceeds from disposition of wireless cable systems and assets ............ 4,377 --
Decrease in cash available for asset purchases and debt repayment ......... 5,058 --
Net cash used in acquisitions ............................................. (1,672) --
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Net cash provided by (used in) investing activities .................... 1,026 (1,023)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable ....................................... (123) (45)
Principal payments on capital lease obligations ........................... (441) (73)
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Net cash used in financing activities ................................... (564) (118)
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Net decrease in cash and cash equivalents ................................. (3,168) (2,148)
Cash and cash equivalents, beginning of period ............................ 9,125 11,155
-------- --------
Cash and cash equivalents, end of period .................................. $ 5,957 $ 9,007
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</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
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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 to residential and commercial subscribers. ATI and its
subsidiaries are collectively referred to herein as the "Company." As
of March 31, 1999, the Company owned and operated 32 wireless cable
systems located throughout the United States (the "Developed Markets").
The Company also has wireless cable (microwave) frequency interests in
21 other U.S. markets (the "Undeveloped Markets").
Pending Sprint Transaction
On April 26, 1999, the Company, DD Acquisition Corp.
("Acquisition"), a wholly owned subsidiary of Sprint Corporation, and
Sprint Corporation ("Sprint") entered into an Agreement and Plan of
Merger (the "Merger Agreement"), pursuant to which Acquisition would be
merged with and into ATI, with ATI being the surviving corporation of
such merger (the "Merger"), upon the terms and subject to the
conditions of the Merger Agreement. After the completion of the Merger,
the Company will be wholly owned by Sprint.
At the effective time of the Merger, each outstanding share of
ATI's Class A Common Stock, par value $.01 per share ("Common Stock"),
would be converted into the right to receive $6.50 in cash. The
consummation of the Merger is subject to certain conditions, including
approval by the stockholders of ATI and the receipt of all necessary
regulatory approvals. Pursuant to the Merger Agreement, ATI adopted a
stockholder rights plan.
Business Strategy
The Company's principal business strategy is to pursue
implementation of a Wireless Broadband Access ("WBA") capability that
it believes will eventually be the best use of the wireless cable
spectrum. The Company believes that market, technological and
regulatory developments are creating an opportunity for the current
wireless cable spectrum to be used to serve future customers with
fixed, two-way, high-speed data and telephony services. The Company is
not presently offering any WBA services. A key element of the Company's
principal business strategy has been to seek a relationship with a
strategic partner who would benefit from this direct broadband "last
mile" access and facilitate access to technology, markets,
infrastructure and capital. Over recent years, the Company has engaged
in discussions with a variety of potential strategic partners,
including several telecommunications, software, Internet service
providers and equipment companies, regarding the possibility of an
investment in or business combination with the Company.
The Company's ability to introduce WBA services on a
commercial basis to future customers depends on a number of factors,
including the completion of the pending Merger with Sprint, the success
of the Company's development efforts, competitive factors such as the
introduction of new technologies, the availability of appropriate
transmission and reception equipment on satisfactory terms, the
expertise of the Company's management, and the Company's ability to
obtain the necessary regulatory changes and approvals in a timely
fashion. There is also uncertainty regarding the degree of subscriber
demand for these services, especially at pricing levels at which the
Company can achieve an attractive return on investment. Moreover, the
Company expects that the market for any such services will be extremely
competitive.
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During the first quarter of 1999, the Company continued
operating its Developed Markets principally as an analog video
subscription television business and offering high-speed Internet
service in three existing markets. The Company is continuing to manage
its analog video business to maximize operating cash flow while
pursuing its WBA business strategy, in part, by not investing the
capital resources necessary to replace all subscribers who choose to
stop receiving the Company's service ("Subscriber Churn").
Going Concern and Other Financial Matters
The financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.
The Company's continuation as a going concern is dependent upon its
ability to complete a strategic relationship such as the Merger with
Sprint or some other strategic partner. If the Merger does not occur,
without additional funding or financing the Company will not have the
necessary unrestricted cash to meet its current obligations as they
come due and will run out of unrestricted cash on or before December
31, 1999. In addition, the Company will require significant additional
capital to fully implement its business strategy. To meet such capital
requirements, the Company is dependent upon consummating a strategic
relationship such as the Merger with Sprint or some other strategic
partner, or securing other funding or financing.
Cash interest payments on the 2004 Notes and 2005 Notes are
required to commence on December 15, 1999 and February 15, 2001,
respectively. The aggregate interest payments on the 2004 Notes and the
2005 Notes are approximately $10.5 million, $21.0 million and $40.7
million in 1999, 2000 and 2001, respectively. If on September 30, 1999,
the initial termination date of the Merger Agreement, the only
condition to the closing of the Merger with Sprint remaining
unfulfilled is the receipt of any required approval by the FCC, then
Sprint will have the option to extend the termination date to December
31, 1999 by Sprint agreeing to loan to the Company up to $13 million in
cash for the purpose, among other things, of paying interest due in
December 1999 on the 2004 Notes. Interest would accrue on such loan at
a rate of 10%.
The Merger would constitute a Change of Control as defined by
the Indentures of the 2004 and 2005 Notes and would also initiate "Put
Rights" for the 2004 Notes and "Call Rights" for the 2005 Notes (see
Note 3).
Antilles Transaction
On April 6, 1999, the Company entered into an agreement with
Antilles Wireless, L.L.C. ("Antilles") to sell to Antilles the
Company's wireless cable channel rights and operating assets in
Billings, Montana, Grand Island, Nebraska and Rapid City, South Dakota
for up to $6.2 million in cash. As of March 31, 1999, these markets
represented approximately 142,000 estimated households in the service
area and served approximately 8,700 subscribers. The transaction is
contingent upon the grant by final order of the FCC of the assignment
application for licenses owned and upon consents of channel lessors for
licenses leased. The transaction is also subject to other customary
closing conditions. The agreement will terminate if the transaction is
not consummated by September 30, 1999. The purchase price is subject to
a downward adjustment for expected decreases in subscriber levels prior
to closing. At closing, the Company will receive the adjusted closing
price less $500,000 which will be held in escrow for one year for
satisfaction of any indemnification obligations.
AESCO Systems Transaction
On March 19, 1999, the Company entered into an agreement with AESCO
Systems, Inc. ("AESCO") to acquire wireless cable channels in Portland,
Oregon from AESCO for a fixed payment of $2.25 million plus a deferred
payment based upon the price received in any further transfer of the
channels within the next five years. In addition, the Company paid
$250,000 on March 19, 1999 as consideration for a no-shop
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covenant. Payment of the $2.25 million fixed portion of the purchase
price to AESCO is contingent upon the Company's closing of sale
transactions of other wireless cable assets, other than the BellSouth
Transaction (as defined below), for cumulative cash consideration of $5
million or more, and the FCC's grant by final order of the assignment
application for the AESCO licenses. The agreement will terminate on
March 15, 2000 if the transaction has not been completed.
BellSouth Transaction
On March 18, 1997, the Company entered into a definitive
agreement (the "BellSouth Agreement") with BellSouth Corporation and
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 "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 Naples, Sebring and Miami, Florida. Several closings have
occurred under this agreement during 1997 and 1998. The Company
completed the most recent closing on April 23, 1999 for cash
consideration of approximately $2.7 million with respect to certain
wireless cable channels in Louisville, Kentucky. Approximately $2.6
million will be recorded as a gain in the second quarter of 1999. The
Company expects to receive the $1.8 million in escrow funds from the
1998 sale of the Lakeland Wireless system in July 1999 in the event no
claims are made against the escrow. The Company may also close on
wireless cable channels in Sebring and Naples, Florida prior to August
12, 1999, if all closing conditions are satisfied. There can be no
assurance the closing conditions will be satisfied and that the
transaction will close. Upon satisfaction of certain conditions, the
Company may also become entitled to receive additional compensation for
wireless cable channel rights in Miami, Florida previously assigned to
BellSouth. The receipt of such additional compensation for the Miami
rights is not subject to restrictions on the closing date. Under the
terms of the BellSouth Agreement, if the additional closings occur with
respect to Naples, Sebring and Miami, Florida, the total gross proceeds
are expected to be less than $8 million. There can be no assurance that
all such closing conditions will be satisfied or that further proceeds
will be received from BellSouth Wireless.
2. SIGNIFICANT ACCOUNTING POLICIES
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 three-month period ended March 31, 1999 are
not necessarily indicative of the results that may be expected for the
year ending December 31, 1999. 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,
1998.
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 March 31,
1999, 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.
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Restricted Escrowed Funds
Restricted escrowed funds as of March 31, 1999 and December
31, 1998 represent a twelve-month escrow related to the Lakeland
Wireless system sale, which occurred on July 15, 1998. These funds will
be released when the Company and BellSouth Wireless jointly submit an
instruction to the escrow agent for the release of such funds.
Net Loss Per Share
Basic and diluted net loss per share is computed by dividing
income available to common stockholders by the weighted average number
of common shares outstanding for the period. Options and warrants to
purchase shares of Common Stock were not included in the computation of
loss per share as the effect would be antidilutive. As a result, the
basic and diluted loss per share amounts are identical.
Stock Option Plan
The Company follows variable plan accounting on certain
options repriced in April 1998 under its Stock Option Plan. Variable
plan accounting requires that the Company record compensation expense
if the market price of the Company's Common Stock exceeds the repriced
exercise price of certain of the options. For the quarter ended March
31, 1999, the Company recorded compensation expense of approximately
$226,000 related to vested stock options and a deferred compensation
equity adjustment related to unvested stock options of approximately
$71,000. The amount of compensation expense and deferred compensation
was based upon the difference between the quoted value of the stock on
March 31, 1999 and the applicable exercise price of certain options
repriced in April 1998. If the quoted price of the stock in future
periods is greater than the quoted price on March 31, 1999, the Company
will incur additional compensation expense and deferred compensation
equity adjustments related to these repriced options. Based upon the
transaction price of $6.50 per Common Share with Sprint and the
outstanding stock options as of March 31, 1999, the Company estimates
that the incremental compensation expense and deferred compensation
equity adjustments could be approximately $1 million and $300,000,
respectively.
New Accounting Pronouncements
The Company is required to adopt Statement of Financial
Accounting Standards No. 133 "Accounting for Derivative Instruments and
Hedging Activities" for fiscal years beginning after June 30, 1999.
3. DEBT
Long-term debt at March 31, 1999 consisted of the following
(in thousands):
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2004 Notes.............................................................................. $138,977
2005 Notes.............................................................................. 109,269
Notes payable........................................................................... 173
Capital leases.......................................................................... 182
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Total............................................................................... 248,601
Less current portion................................................................ 164
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Long-term debt...................................................................... $248,437
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During 1997, the Company entered into a twelve-month $17.0
million credit facility (the "Credit Facility") with a bank. At closing
of the Credit Facility, the Company also delivered 4,500 bond
appreciation rights ("BARs"). During 1997, the Credit Facility was
repaid and terminated.
The BARs remain outstanding as of March 31, 1999. 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
change
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in the value of each BAR, when it occurs, is reflected as interest
expense in the accompanying financial statements as calculated by the
difference between the market value of the 2004 Notes at the balance
sheet date less $290. 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 valuation date less $290. The net value
of the BARs is payable to holders of the BARs in cash. As of March 31,
1999, the Company had no accrued liability associated with the BARs as
the market price of the 2004 Notes was below $290. As of the date of
this filing, the estimated liability of the Company in connection with
the BARs is approximately $3.5 million.
Pursuant to the Merger Agreement, upon the written request of
ATI, Sprint has agreed to loan funds to the Company, in an aggregate
amount not to exceed $3.5 million, for the purpose of funding amounts
required to be paid by ATI to the holders of ATI's BARs upon the
exercise thereof. Interest will accrue on such loans at a rate of 10%
per annum, and the aggregate principal amount of such loans, together
with accrued interest thereon, will be due and payable on the first
anniversary of any termination of the Merger Agreement; provided, that,
if (i) the Company enters into an acquisition agreement related to an
alternative transaction and (ii) the Merger Agreement is terminated by
Sprint because ATI's Board withdrew, modified or changed in a manner
adverse to Sprint or Acquisition its approval or recommendation of the
Merger Agreement or the Merger with Sprint or recommended such
alternative transaction or executed an agreement relating to such
alternative transaction with a person or entity other than Sprint,
Acquisition or their affiliates, then the entire principal amount of
such loans, together with accrued interest thereon, will be due and
payable upon demand as of the date of such termination. All such loans
made to ATI will be secured by the outstanding capital stock of a
subsidiary of ATI which holds rights to use licenses to provide
wireless cable services to not less than 150,000 protected service area
footprint households.
The Merger with Sprint, if consummated, will constitute a
Change of Control as defined by the Indentures. A Change of Control
gives each holder of the notes the right to require the Company to
purchase all or part of such holder's notes ("Put Rights"). The
purchase price is 101% of the Accreted Value of the notes on any
repurchase date prior to June 15, 1999 (with respect to the 2004 Notes)
or August 15, 2000 (with respect to the 2005 Notes). If purchased at
later dates, the purchase price is 101% of the principal amount at
stated maturity, plus any accrued and unpaid interest. With respect to
the 2005 Notes, if the Change of Control occurs prior to August 15,
2000, the Company may elect to redeem all, but not less than all, of
the 2005 notes at a redemption price equal to 100% of the accreted
value plus a "Make-Whole-Premium" (the "Call Rights"). The Make-Whole
Premium of a 2005 Note is the greater of (i) 1% of the outstanding
accreted value of the note, or (ii) the excess of (A) the present value
of the remaining interest, premium and principal payments due on the
note as if it were redeemed on August 15, 2000, computed using a
discount rate equal to the Treasury Rate plus 75 basis points, over (B)
the outstanding accreted value of the note.
The 2004 Notes and 2005 Notes also have redemption privileges
after June 15, 1999 and August 15, 2000, respectively, generally as a
premium to the face amount of each note.
4. COMMITMENTS AND CONTINGENCIES
Litigation
The Company owns all the partnership interests in Fresno MMDS
Associates ("FMA"). On or about December 24, 1997, Peter Mehas, Fresno
County Superintendent of Schools, filed an action against FMA, the
Company and others in an action entitled Peter Mehas, Fresno County
Superintendent of Schools v. Fresno Telsat, Inc., an Indiana
Corporation, et al., Superior Court of the State of California, Fresno,
California. The complaint alleges that a channel lease agreement
between FMA and the Fresno County school system has expired. The
plaintiff seeks a judicial declaration that the lease has expired and
that the defendants, including the Company, hold no right, title or
interest in the channel capacity which is the subject of the lease. The
parties have conducted substantial discovery. The Company removed the
case to
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federal court in December 1998. Plaintiff filed a motion to remand the
case to state court. The motion was granted. No trial date has been set
in the case. The Company denies that the channel lease agreement has
expired.
On or about October 13, 1998, Bruce Merrill and Virginia
Merrill, as Trustees of the Merrill Revocable Trust dated as of August
20, 1982, filed a lawsuit against the Company entitled Bruce Merrill
and Virginia Merrill, as Trustees of the Merrill Revocable Trust dated
as of August 20, 1982 v. American Telecasting, Inc., in the United
States District Court for the District of Colorado. The complaint
alleges that the Company owes the plaintiffs $1,250,000 due on a note
which matured on September 15, 1998. The plaintiffs seek payment of
$1,250,000 plus attorney fees and interest. The Company has answered
the complaint and denied any liability. Limited discovery has occurred
and a trial preparation schedule has been ordered by the court.
The Company is occasionally a party to other 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.
Executive and Key Employee Retention Program
Effective July 1, 1998, the Board of Directors approved a
Retention and Achievement Incentive Program ("Executive Program") for
certain of its executive officers. Under the Executive Program, the
executive officers of the Company are each eligible to receive cash
retention payments of $40,000-$50,000 if such individuals remain in the
Company's employment through June 30, 1999, or if the employment of
such individuals with the Company is terminated by the Company without
cause before June 30, 1999. The maximum aggregate retention payments
that are payable under the Executive Program are approximately
$320,000. In addition, the Executive Program also provides for the
payment of achievement incentives to certain of these executives if the
average closing price of the Company's Common Stock is $2.00 per share
or higher for the last 20 trading days of June 1999. One-half of the
achievement incentives are payable if such average closing price is
$2.00 per share or higher, and the full achievement incentives are
payable if such average closing price per share is $3.00 per share or
higher. If achievement incentives are payable, the first 40% of such
incentives are payable by the Company in cash, and the remaining 60%
may be paid in cash or Common Stock, or a combination thereof, at the
discretion of the Company. Appropriate adjustments in the achievement
incentives will be made to give effect to changes in the Common Stock
resulting from subdivisions, consolidations or reclassifications of the
Common Stock, the payment of dividends or other distributions by the
Company (other than in the ordinary course of business), mergers,
consolidations, combinations or similar transactions or other relevant
changes in the capital of the Company. The maximum aggregate
achievement payments that are payable under the Executive Program are
approximately $910,000. The pending Merger with Sprint is likely to
result in the distribution of the approximately $910,000 in achievement
incentives. Certain executive officers covered under the Executive
Program who do not have employment contracts with the Company have
severance benefits ranging from nine to twelve months and total a
maximum of approximately $320,000. Amounts payable under the Executive
Program are independent of any obligations of the Company, including
severance payments, under employment agreements or other bonus
programs. The Executive Program is evidenced by agreements between the
Company and each executive officer. No amounts have been paid by the
Company under the Executive Program.
The Board of Directors also approved, effective July 1, 1998,
a Retention Program ("Key Employee Program") for key employees (other
than executive officers) as designated by the Chief Executive Officer.
Under the Key Employee Program, certain key employees selected to date
are each eligible to receive cash retention payments of $10,000-$30,000
if such individuals remain in the Company's employment through June 30,
1999, or if the employment of such individuals with the Company is
terminated by the Company without cause before June 30, 1999. The
maximum aggregate retention payments presently payable under the Key
Employee Program are approximately $280,000. In addition, the Key
Employee Program offers severance benefits ranging from three to nine
months of base salary to certain key employees in the event that their
employment with the Company is terminated without
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cause on or before December 31, 1999. The maximum aggregate termination
payments presently payable under the Key Employee Program are
approximately $300,000. The Key Employee Program is evidenced by
agreements between the Company and each key employee. Approximately
$80,000 has been paid out to date under the Key Employee Program.
As of March 31, 1999, $450,000 was accrued for retention
payments under the Executive Program and Key Employee Program. As of
March 31, 1999, no amounts were accrued for achievement incentives
under the Executive Program as the stock was trading below the
achievement thresholds, and no amounts were accrued for severance
benefits for the Executive Program and Key Employee Program. All
amounts for the achievement incentives will be accrued by June 30,
1999.
The Board of Directors approved, effective as of July 1, 1999,
an additional Retention Program ("1999 Key Employee Retention Program")
for key employees, including certain executive officers, as approved by
the Board of Directors. Under the 1999 Key Employee Retention Program,
certain key employees selected to date will be eligible to receive cash
retention payments of $10,000-$25,000 if such individuals remain in the
Company's employment through June 30, 2000. The maximum aggregate
retention payments presently payable under the 1999 Key Employee
Retention Program is approximately $410,000. The 1999 Key Employee
Retention Program does not offer any additional severance benefits
beyond those provided under the Key Employee Program.
No retention, achievement incentives or termination payments
are payable to any executive officer or key employee who voluntarily
terminates employment with the Company or whose employment is
terminated by the Company for cause.
The Board of Directors of the Company has authorized cash
achievement bonuses payable upon the consummation of the Merger to Mr.
Hostetler, Mr. Sentman, Mr. Holmes and certain other officers and
employees to be selected by the board. The aggregate amount of payments
which may be made under this program is a maximum of $2.5 million,
which is based on the total transaction value of the Merger with
Sprint. The Company has not yet determined the extent to which the
anticipated payments to Messrs. Hostetler, Sentman and Holmes, or
others, constitute "excess parachute payments" within the meaning of
the Internal Revenue Code Section 280G. These costs will be fully
accrued and expensed, on or before the date the Merger is closed.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
All statements contained in this filing and elsewhere (such as
in reports, other filings with the Securities and Exchange Commission,
press releases, presentations and communications by the Company or its
management) that are not historical facts, including but not limited to
statements regarding the pending Merger and 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 known and unknown risks and uncertainties. Actual
results may differ materially. Among the factors that could cause
actual results, performance, achievements, plans and objectives to
differ materially are the following: a lack of sufficient capital to
finance the Company's business strategy on terms satisfactory to the
Company; pricing pressures which could affect demand for the Company's
service; changes in labor, equipment and capital costs; the Company's
inability to develop and implement new services such as wireless
broadband access and high-speed Internet access; the Company's
inability to obtain the necessary authorizations from the Federal
Communications Commission for such new services; competitive factors,
such as the introduction of new technologies and competitors into the
wireless communications business; the failure to complete the Merger
with Sprint or otherwise to attract strategic partners; general
business and economic conditions; inexperience of management in
deploying a wireless broadband access business; and the other risk
factors described from time to time in the Company's reports filed with
the Securities and Exchange Commission. 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. The Company expressly disclaims any
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obligation or undertaking to update or revise any forward-looking
statements to reflect any changes in events or circumstances or in the
Company's expectations or results. Statements regarding parties other
than the Company are based upon representations of such other parties.
INTRODUCTION
On April 26, 1999, ATI, Acquisition and Sprint entered into an
Agreement and Plan of Merger, pursuant to which Acquisition would be
merged with and into ATI, with ATI being the surviving corporation of
such Merger, upon the terms and subject to the conditions of the Merger
Agreement. After the completion of the Merger, the Company would be
wholly owned by Sprint.
At the effective time of the Merger, each outstanding share of
the Company's Class A Common Stock would be converted into the right to
receive $6.50 in cash. The consummation of the Merger is subject to
certain conditions, including approval by the stockholders of ATI and
the receipt of all necessary regulatory approvals. Pursuant to the
Merger Agreement, ATI adopted a Stockholder Rights Plan (see Part II,
Item 2). In accordance with the Merger Agreement, ATI will prepare and
file a proxy statement to be mailed to stockholders in connection with
calling a special meeting of the stockholders of ATI to vote on the
Merger Agreement. In addition to stockholder approval, the Merger is
subject to, among other conditions, the receipt of all necessary
regulatory approvals, including approvals pursuant to the
Communications Act of 1934, as amended, and the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended. If the stockholders of
ATI approve the Merger Agreement and the other closing conditions are
timely met, the Merger is expected to close during the third quarter of
1999.
Business Strategy
The Company's principal business strategy is to pursue
implementation of a Wireless Broadband Access ("WBA") capability that
it believes will eventually be the best use of the wireless cable
spectrum. The Company believes that market, technological and
regulatory developments are creating an opportunity for the current
wireless cable spectrum to be used to serve future customers with
fixed, two-way, high-speed data and telephony services. The Company is
not presently offering any WBA services. A key element of the Company's
principal business strategy has been to seek a relationship with a
strategic partner who would benefit from this direct broadband "last
mile" access and facilitate access to technology, markets,
infrastructure and capital. Over recent years, the Company has engaged
in discussions with a variety of potential strategic partners,
including several telecommunications, software, Internet service
providers and equipment companies, regarding the possibility of an
investment in or business combination with the Company.
The Company's ability to introduce WBA services on a
commercial basis to future customers depends on a number of factors,
including the completion of the pending Merger with Sprint, the success
of the Company's development efforts, competitive factors such as the
introduction of new technologies, the availability of appropriate
transmission and reception equipment on satisfactory terms, the
expertise of the Company's management, and the Company's ability to
obtain the necessary regulatory changes and approvals in a timely
fashion. There is also uncertainty regarding the degree of subscriber
demand for these services, especially at pricing levels at which the
Company can achieve an attractive return on investment. Moreover, the
Company expects that the market for any such services will be extremely
competitive.
During the first quarter of 1999, the Company continued
operating its Developed Markets principally as an analog video
subscription television business and offering high-speed Internet
service in three existing markets. The Company is continuing to manage
its analog video business to maximize operating cash flow while
pursuing its WBA business strategy, in part, by not investing the
capital resources necessary to replace all subscribers who choose to
stop receiving the Company's service ("Subscriber Churn"). As a result,
the Company has not been increasing its analog video subscriber levels.
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Wireless Broadband Access Strategy
The execution of the Company's WBA business strategy has two
principal elements. First, pursue the regulatory, technology and
strategic investment activities necessary to shift the Company's
existing analog video business to WBA services. Second, manage the
Company's existing analog video business to preserve limited cash
resources and afford the Company additional time to pursue development
of WBA services. As part of this second element, the Company has not
been increasing its analog video subscriber levels.
Regulatory developments have begun to benefit the WBA business
strategy. In September 1998 the FCC issued regulations that permit
two-way use of the wireless cable spectrum. However, the Company, along
with other entities, has petitioned the FCC to refine its two-way rules
to permit simpler deployment of commercial operations under the two-way
rules. Actual implementation of two-way commercial businesses will
require, among other factors, some changes in the existing rules along
with filing "windows" by the FCC to submit two-way license
applications.
Another component of the WBA business strategy has been the
development of technology. There is presently no commercially available
point-to-multipoint equipment for both two-way data and telephony over
wireless cable spectrum. In 1997, the Company began working with
certain equipment vendors and system integrators to construct and test
broadband, two-way wireless technology to provide "last mile"
connectivity over wireless cable spectrum for both high-speed data and
telephony. As a part of this effort, the Company established technology
trials in Eugene, Oregon and Seattle, Washington and has been testing
various technologies. The technology trials are not presently intended
to become full commercial WBA operations. The Company believes that
point-to-multipoint equipment required for implementing its WBA
business strategy will not be commercially available until late 1999 at
the earliest.
The third component of the WBA business strategy has been to
enter into a relationship with one or more strategic partners that
facilitates access to markets, technologies, products, capital and
infrastructure. The consummation of the Merger with Sprint would
achieve this third component.
The WBA business strategy has many risks and uncertainties,
including but not limited to, not receiving the necessary FCC
authorizations for two-way licenses upon terms acceptable to the
Company, not having access to two-way equipment for wireless cable
spectrum upon commercially acceptable terms, not having access to
sufficient channel capacity upon commercially acceptable terms to
operate the WBA business, not having sufficient capital resources to
implement a WBA business strategy, not having sufficient capital
resources to operate the current analog video subscription business or
to meet the Company's obligations under its high-yield notes and not
having the necessary management skill or human resources.
There is also uncertainty regarding the degree of subscriber
demand for WBA services, especially at pricing levels at which the
Company can achieve an attractive return on investment. There can be no
assurance that there will be sufficient subscriber demand for such
services to justify the cost of their introduction, or that the Company
will be successful in competing against existing or new competitors in
the market for such broadband services. The Company expects that the
market for any such services will be extremely competitive.
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LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of Funds
The Company currently estimates costs related to the pending
Merger with Sprint to be approximately $9.4 million, consisting
primarily of approximately $6.0 million in financial advisory, legal
and other costs and approximately $3.4 million in employee achievement
bonuses. The Company anticipates funding these costs from its existing
unrestricted cash and investment balances, proceeds from additional
closings under the BellSouth Agreement, if such closings occur,
proceeds from other potential asset sales, and, if the Merger occurs,
funding from Sprint.
If the Merger is not completed, the trading price of the
Company's Common Stock could decline and costs incurred in connection
with the Merger would negatively impact results from operations. In
addition, costs incurred in connection with the Merger and a
transaction termination fee of $11 million, if payable, would
negatively impact results from operations. The consummation of the
Merger is subject to the satisfaction or waiver of a number of
conditions, several of which are beyond the control of the Company and
Sprint. In addition, the parties to the Merger Agreement may terminate
the Merger Agreement under certain circumstances. As a result, the
Company can not be sure that the Merger will be completed on the terms
set forth in the Merger Agreement, if at all.
The Company has outstanding 2004 Notes and 2005 Notes. Both
the 2004 Notes and the 2005 Notes were issued pursuant to Indentures
which contain certain restrictive covenants and limitations. Among
other things, the Indentures limit the incurrence of additional debt,
limit the making of restricted payments (as defined) including the
declaration and/or payment of dividends, place limitations on certain
other payments by ATI's subsidiaries, prohibit ATI and its subsidiaries
from engaging in any business other than the transmission of video,
voice and data and related businesses and services, and place
limitations on liens, certain asset dispositions and merger/sale of
assets activity.
The Indentures prohibit the Company from merging unless
certain conditions are met. The conditions are (i) Either (a) the
Company will be the surviving person, or (b) the merged entity is a
United States corporation and it expressly assumes by a supplemental
indenture all the obligations of the Company under the 2004 Notes and
2005 Notes and the Indentures; (ii) immediately after giving effect to
the merger on a pro forma basis no default or event of default as
described in the Indentures shall have occurred and be continuing; and
(iii) the surviving entity, after giving effect to the merger on a pro
forma basis, is able to incur additional debt (other than Permitted
Debt, as defined in the Indentures) under the debt limitations in
Section 1008, and the consolidated net worth of the surviving entity is
equal to or greater than that of the Company immediately prior to the
merger.
The Merger with Sprint, if consummated, will constitute a
Change of Control as defined by the Indentures. A Change of Control
gives each holder of the notes the right to require the Company to
purchase all or part of such holder's notes ("Put Rights"). The
purchase price is 101% of the Accreted Value of the notes on any
repurchase date prior to June 15, 1999 (with respect to the 2004 Notes)
or August 15, 2000 (with respect to the 2005 Notes). If purchased at
later dates, the purchase price is 101% of the principal amount at
stated maturity, plus any accrued and unpaid interest.
With respect to the 2005 Notes, if the Change of Control
occurs prior to August 15, 2000, the Company may elect to redeem all,
but not less than all, of the 2005 notes at a redemption price equal to
100% of the accreted value plus a "Make-Whole-Premium" (the "Call
Rights"). The Make-Whole Premium of a 2005 Note is the greater of (i)
1% of the outstanding accreted value of the note, or (ii) the excess of
(A) the present value of the remaining interest, premium and principal
payments due on the note as if it were redeemed on August 15, 2000,
computed using a discount rate equal to the Treasury Rate plus 75 basis
points, over (B) the outstanding accreted value of the note.
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In 1999, additional obligations for capital expenditures
include purchases of channels and equipment for construction of
channels pursuant to pre-existing commitments. Cash resources available
to apply to the Company's cash obligations include existing cash and
investment balances, proceeds from additional closings under the
BellSouth Agreement, if such closings occur, and proceeds, if any, from
other asset sales.
Cash interest payments on the 2004 Notes and 2005 Notes are
required to commence on December 15, 1999 and February 15, 2001,
respectively. The aggregate interest payments on the 2004 Notes and the
2005 Notes are approximately $10.5 million, $21.0 million and $40.7
million in 1999, 2000 and 2001, respectively. Pursuant to the Merger
Agreement, either ATI or Sprint may terminate the Merger Agreement if
on September 30, 1999 (or October 31, 1999 if the only condition to the
closing of the Merger remaining unfulfilled is the receipt of any
required approval by the FCC) (the "End Date"), the effective date of
the Merger has not occurred, provided however, that Sprint has the
option to extend the End Date to December 31, 1999 by delivering to the
Company on or prior to September 30, 1999 a notice by which Sprint
agrees to loan to the Company up to $13 million, in cash, for the
purpose, among other things, of paying interest due in December 1999 on
the 2004 Notes. Interest would accrue on such loan at a rate of 10% per
annum, and the aggregate principal amount of such loan, together with
accrued interest thereon, would be due and payable on the first
anniversary of any termination of the Merger Agreement, provided, that,
if (i) the Merger Agreement is terminated in accordance with the terms
of the Merger Agreement (other than as a result of a breach of the
Merger Agreement by Sprint or Acquisition) and (ii) the Company enters
into an acquisition agreement related to an alternative transaction
that would, if consummated in accordance with its terms, provide to the
Company or the stockholders ATI a per share cash consideration equal to
or greater than 90% of the consideration that would have been received
in the Merger, then the entire principal amount of such loans, together
with accrued interest thereon, would be due and payable upon demand as
of the date of such termination. Any such loans made to the Company
would be secured by the outstanding capital stock of a subsidiary of
ATI which holds rights to use licenses to provide wireless cable
services to not less than 500,000 protected service area footprint
households with at least twenty multichannel multipoint distribution
service and multipoint distribution service stations and at least
twenty instructional television fixed service channels.
During 1997, the Company entered into a twelve-month $17.0
million credit facility (the "Credit Facility") with a bank. At closing
of the Credit Facility, the Company delivered 4,500 BARs. During 1997,
the Credit Facility was repaid and terminated.
The BARs remain outstanding as of March 31, 1999. 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
change in the value of each BAR, when it occurs, is reflected as
interest expense in the accompanying financial statements as calculated
by the difference between the market value of the 2004 Notes at the
balance sheet date less $290. 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 valuation date less $290. The
net value of the BARs is payable to holders of the BARs in cash. As of
March 31, 1999, the Company had no accrued liability associated with
the BARs as the market price of the 2004 Notes was below $290. As of
the date of this filing, the estimated liability of the Company in
connection with the BARs is approximately $3.5 million.
Pursuant to the Merger Agreement, upon the written request of
ATI, Sprint has agreed to loan funds to the Company, in an aggregate
amount not to exceed $3.5 million, for the purpose of funding amounts
required to be paid by ATI to the holders of ATI's BARs upon the
exercise thereof. Interest will accrue on such loans at a rate of 10%
per annum, and the aggregate principal amount of such loans, together
with accrued interest thereon, will be due and payable on the first
anniversary of any termination of the Merger Agreement; provided, that,
if (i) the Company enters into an acquisition agreement related to an
alternative transaction and (ii) the Merger Agreement is terminated by
Sprint because ATI's Board withdrew, modified or changed in a manner
adverse to Sprint or Acquisition its approval or recommendation of the
Merger
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Agreement or the Merger with Sprint or recommended such alternative
transaction or executed an agreement relating to such alternative
transaction with a person or entity other than Sprint, Acquisition or
their affiliates, then the entire principal amount of such loans,
together with accrued interest thereon, will be due and payable upon
demand as of the date of such termination. All such loans made to ATI
will be secured by the outstanding capital stock of a subsidiary of ATI
which holds rights to use licenses to provide wireless cable services
to not less than 150,000 protected service area footprint households.
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 $355,000 of which had
been utilized as of March 31, 1999). Although the Company had the
ability under the Indentures to borrow an additional $17.1 million as
of March 31, 1999, the Company does not presently intend to incur any
additional bank or other borrowings other than the possible loans from
Sprint, because its cash resources are sufficient to meet its near term
cash requirements.
The Company has experienced negative cash flow from operations
in each year since inception. Although certain of the Company's more
established systems currently generate positive cash flow from
operations, the sale of six operating systems to BellSouth Wireless
since August 1997, and the Company's strategy to not replace all
Subscriber Churn has resulted in a decline in revenue and operating
cash flow. The Company expects this decline in revenue and cash flow to
continue under the current wireless analog video operations. The
Company's high-speed Internet access business, technology trials in
Eugene, Oregon and Seattle, Washington, and activities associated with
the pending Merger with Sprint also have been and are expected to
continue to consume cash resources. Unless and until the Merger with
Sprint is completed, the Company expects to utilize its current capital
resources and the sale of assets to satisfy its working capital and
capital expenditure needs.
With the introduction of the high-speed Internet access
business and the development of a WBA business, the Company may
experience increased competition for the renewal of channel lease
agreements. As a result, the Company could lose channels or incur
higher costs to renew and retain its existing channels. Furthermore,
certain of the Company's channel lease agreements permit only analog
technologies. Thus, the deployment of businesses such as WBA and
high-speed Internet access that utilize digital technologies may
require renegotiations of these channel leases, which could also result
in increased operating costs.
Year 2000
Many computer systems in use today were designed and developed
using two digits, rather than four, to specify the year. As a result,
such systems will recognize the Year 2000 as "00." This could cause
many computer applications to fail completely or to create erroneous
results unless corrective measures are taken. The Company utilizes
software and related computer technologies essential to its operations,
such as its accounting and subscriber management (including customer
invoicing) systems, headend equipment, Internet equipment, phone
systems and network hardware and software servers that will be affected
by the Year 2000 issue.
The Company continues to assess the impact of the Year 2000 on
its operations using internal staff. The Company is following a six
step process to evaluate its state of readiness for Year 2000
compliance -- awareness, inventory, assessment, remediation, testing
and risk management. To date, the Company has substantially completed
its inventory/assessment phase with some remediation and testing taking
place. The inventory/assessment phase includes the accounting software,
subscriber management systems, headend equipment, Internet equipment,
phone systems and network hardware and software servers. The Company
implemented new accounting software during 1998 and the software has
been certified as Year 2000 compliant by the vendor. The Company
presently intends to modify its principal subscriber management system
with a Year 2000 patch from the current vendor by approximately the end
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of the third quarter of 1999. The Company expects to test and implement
this Year 2000 patch on or before the end of 1999.
It is possible that the Company will be adversely affected by
Year 2000 problems encountered by key customers and suppliers. The
Company's most significant suppliers are its providers of video
programming, and the Company is soliciting comments from its major
programmers regarding their Year 2000 compatibility. To date the
Company has not received responses from all its programmers, but it
will continue to pursue these vendors in order to obtain the necessary
information on their Year 2000 compliance.
The Company presently estimates that it will spend
approximately $1.0 to $1.2 million to remediate or replace existing
accounting, subscriber management, hardware and other systems over the
course of this project. These costs relate to the replacement of the
existing accounting software, modification of the principal subscriber
management system, and adaptation of the headend and addressable
set-top controller systems. The Company will refine its cost estimates
as testing and remediation proceeds and as additional information
becomes available. To date, the Company has spent approximately
$800,000 in remediating Year 2000 issues for its accounting software.
The costs of the Company's Year 2000 project and the time frame for its
completion are based on current estimates. These estimates include
assumptions about future events, including the timing and effectiveness
of third-party remediation plans and other factors. The Company gives
no assurance that these estimates will be achieved, and actual results
could differ materially from those currently expected.
The Company believes that the likely worst case scenario would
be the failure of the Company's subscriber management system addressing
the Company's headend equipment, which sends the signals to the
addressable controller units, as well as the addressable controller
units themselves. The controller units communicate to the customer's
set-top box. The loss of the ability to transmit such signals would
result in the loss of customers and related revenues, among other
things.
The Company does not presently have a contingency plan in the
event its systems are not Year 2000 compliant. The Company will
routinely reassess its likely worst case scenario and possible
responses as new information becomes available and it intends to have
contingency plans in place. Such contingency plans could include using
back up systems that do not rely on computers. Although the Company's
remediation plan for Year 2000 is not yet completed, the Company is not
aware of any critical systems that cannot be made Year 2000 compliant.
Executive and Key Employee Retention Program
Effective July 1, 1998, the Board of Directors approved a
Retention and Achievement Incentive Program ("Executive Program") for
certain of its executive officers. Under the Executive Program, the
executive officers of the Company are each eligible to receive cash
retention payments of $40,000-$50,000 if such individuals remain in the
Company's employment through June 30, 1999, or if the employment of
such individuals with the Company is terminated by the Company without
cause before June 30, 1999. The maximum aggregate retention payments
that are payable under the Executive Program are approximately
$320,000. In addition, the Executive Program also provides for the
payment of achievement incentives to certain of these executives if the
average closing price of the Company's Common Stock is $2.00 per share
or higher for the last 20 trading days of June 1999. One-half of the
achievement incentives are payable if such average closing price is
$2.00 per share or higher, and the full achievement incentives are
payable if such average closing price per share is $3.00 per share or
higher. If achievement incentives are payable, the first 40% of such
incentives are payable by the Company in cash, and the remaining 60%
may be paid in cash or Common Stock, or a combination thereof, at the
discretion of the Company. Appropriate adjustments in the achievement
incentives will be made to give effect to changes in the Common Stock
resulting from subdivisions, consolidations or reclassifications of the
Common Stock, the payment of dividends or other distributions by the
Company (other than in the ordinary course of business), mergers,
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consolidations, combinations or similar transactions or other relevant
changes in the capital of the Company. The maximum aggregate
achievement payments that are payable under the Executive Program are
approximately $910,000. The pending Merger with Sprint is likely to
result in the distribution of the approximately $910,000 in achievement
incentives. Certain executive officers covered under the Executive
Program who do not have employment contracts with the Company have
severance benefits ranging from nine to twelve months and total a
maximum of approximately $320,000. Amounts payable under the Executive
Program are independent of any obligations of the Company, including
severance payments, under employment agreements or other bonus
programs. The Executive Program is evidenced by agreements between the
Company and each executive officer. No amounts have been paid by the
Company under the Executive Program.
The Board of Directors also approved, effective July 1, 1998,
a Retention Program ("Key Employee Program") for key employees (other
than executive officers) as designated by the Chief Executive Officer.
Under the Key Employee Program, certain key employees selected to date
are each eligible to receive cash retention payments of $10,000-$30,000
if such individuals remain in the Company's employment through June 30,
1999, or if the employment of such individuals with the Company is
terminated by the Company without cause before June 30, 1999. The
maximum aggregate retention payments presently payable under the Key
Employee Program are approximately $280,000. In addition, the Key
Employee Program offers severance benefits ranging from three to nine
months of base salary to certain key employees in the event that their
employment with the Company is terminated without cause on or before
December 31, 1999. The maximum aggregate termination payments presently
payable under the Key Employee Program are approximately $300,000. The
Key Employee Program is evidenced by agreements between the Company and
each key employee. Approximately $80,000 has been paid out to date
under the Key Employee Program.
As of March 31, 1999, $450,000 was accrued for retention
payments under the Executive Program and Key Employee Program. As of
March 31, 1999, no amounts were accrued for achievement incentives
under the Executive Program as the stock was trading below the
achievement thresholds, and no amounts were accrued for severance
benefits for the Executive Program and Key Employee Program. All
amounts for the achievement incentives will be accrued by June 30,
1999.
The Board of Directors approved, effective as of July 1, 1999,
an additional Retention Program ("1999 Key Employee Retention Program")
for key employees, including certain executive officers, as approved by
the Board of Directors. Under the 1999 Key Employee Retention Program,
certain key employees selected to date will be eligible to receive cash
retention payments of $10,000-$25,000 if such individuals remain in the
Company's employment through June 30, 2000. The maximum aggregate
retention payments presently payable under the 1999 Key Employee
Retention Program is approximately $410,000. The 1999 Key Employee
Retention Program does not offer any additional severance benefits
beyond those provided under the Key Employee Program.
No retention, achievement incentives or termination payments
are payable to any executive officer or key employee who voluntarily
terminates employment with the Company or whose employment is
terminated by the Company for cause.
The Board of Directors of the Company has authorized cash
achievement bonuses payable upon the consummation of the Merger to Mr.
Hostetler, Mr. Sentman, Mr. Holmes and certain other officers and
employees to be selected by the board. The aggregate amount of payments
which may be made under this program is a maximum of $2.5 million,
which is based on the total transaction value of the Merger with
Sprint. The Company has not yet determined the extent to which the
anticipated payments to Messrs. Hostetler, Sentman and Holmes, or
others, constitute "excess parachute payments" within the meaning of
the Internal Revenue Code Section 280G. These costs will be fully
accrued and expensed, on or before the date the Merger is closed.
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OTHER LIQUIDITY AND CAPITAL RESOURCES REQUIREMENTS AND LIMITATIONS
Both the 2004 Notes and the 2005 Notes were issued pursuant to
Indentures which contain certain restrictive covenants and limitations.
Among other things, the Indentures limit the incurrence of additional
debt, limit the making of restricted payments (as defined) including
the declaration and/or payment of dividends, place limitations on
certain payments by the Company's subsidiaries, prohibit the Company
and its subsidiaries from engaging in any business other than the
transmission of video, voice and data and related businesses and
services, and place limitations on liens, certain asset dispositions
and merger/sale of assets activity.
Pursuant to certain restrictive covenants in the Indentures
relating to the Company's 2004 Notes and 2005 Notes, Net Available
Proceeds (as defined in the Indentures) from Asset Dispositions (as
defined in the Indentures) from transactions other than BellSouth must
be applied within 270 days of such closing: (1) first, to prepay or
repay outstanding debt of the Company or any Restricted Subsidiary (as
defined in the Indentures) 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.
In May 1998, the Company received the consent of holders of
the majority of outstanding 2004 Notes and 2005 Notes to amendments
(the "Amendments") to certain provisions of the Indentures (the "Asset
Disposition Covenants") which require that certain Net Available
Proceeds from asset sales by the Company that were not used by the
Company within 270 days following receipt to acquire certain new assets
or to retire certain indebtedness be used to make a pro rata offer to
purchase outstanding 2004 Notes and 2005 Notes at a purchase price
equal to 100% of the accreted value thereof. The Amendments amended the
Asset Disposition Covenants in the case of any and all Net Available
Proceeds received by the Company from dispositions under the BellSouth
Agreement that closed after May 7, 1998.
Pursuant to the Amendments, no later than 30 days after the
aggregate amount of Net Available Proceeds from subsequent asset
dispositions to BellSouth Wireless is greater than $5 million, the
Company shall be obligated to utilize 57% of the amount of such Net
Available Proceeds to make a subsequent required offer at a purchase
price in cash equal to the greater of (i) $280.50 per $1,000 principal
amount at maturity in the case of the 2004 Notes and $247.50 per $1,000
principal amount at maturity in the case of the 2005 Notes and (ii) the
market value of such notes.
The 43% of the Net Available Proceeds not to be utilized for
such required offer to purchase, as well as the amount of the 57% of
Net Available Proceeds to be used to purchase 2004 Notes and 2005 Notes
pursuant to such required offer that is in excess of the amount
required to purchase the 2004 Notes and 2005 Notes tendered by holders
thereof, (the "Unencumbered Net Available Proceeds") shall not be
subject to any such tender obligation and shall be freely available for
use by the Company as it deems appropriate. The Amendments do not
restrict the Company from using Unencumbered Net Available Proceeds for
the purchase or other retirement of 2004 Notes and 2005 Notes on such
terms as it determines to be appropriate.
In March 1997, the Company entered into the BellSouth
Agreement with BellSouth Corporation and BellSouth Wireless which
provides for the sale of all of 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
20
<PAGE> 21
Naples, Sebring and Miami, Florida. Several closings have occurred
under this agreement during 1997 and 1998. The Company completed the
most recent closing on April 23, 1999 for cash consideration of
approximately $2.7 million with respect to certain wireless cable
channels in Louisville, Kentucky. The Company expects to receive the
$1.8 million in escrow funds from the 1998 sale of the Lakeland
Wireless system in July 1999 in the event no claims are made against
the escrow. The Company may also close on wireless cable channels in
Sebring and Naples, Florida prior to August 12, 1999, if all closing
conditions are satisfied. There can be no assurance the closing
conditions will be satisfied and that the transaction will close. Upon
satisfaction of certain conditions, the Company may also become
entitled to receive additional compensation for wireless cable channel
rights in Miami, Florida previously assigned to BellSouth. The receipt
of such additional compensation for the Miami rights is not subject to
restrictions on the closing date. Under the terms of the BellSouth
Agreement, if the additional closings occur with respect to Naples,
Sebring and Miami, Florida, the total gross proceeds are expected to be
less than $8 million. There can be no assurance that all such closing
conditions will be satisfied or that further proceeds will be received
from BellSouth Wireless.
The aggregate proceeds from these BellSouth closings, and
receipt of escrowed funds from a previous BellSouth closing, if they
all occur, are anticipated to exceed $5 million. Once the aggregate
proceeds from these closing exceeds $5 million, the Company will be
required to make a tender offer for a portion of its outstanding 2004
Notes and 2005 Notes in accordance with the amended Indentures.
The Amendments do not apply to net proceeds that may be
received from dispositions of assets that the Company may undertake
other than pursuant to the BellSouth Agreement, and with respect to
such proceeds the Asset Disposition Covenants remain in effect.
In April 1999, the Company entered into an agreement with
Antilles to sell the Company's wireless cable channel rights and
operating assets in Billings, Montana, Grand Island, Nebraska and Rapid
City, South Dakota for up to $6.2 million in cash. As of March 31,
1999, these markets represented approximately 142,000 estimated
households in the service area and served approximately 8,700
subscribers. The transaction is contingent upon the grant by final
order of the FCC of the assignment application for licenses owned and
upon consents of channel lessors for licenses leased. The transaction
is also subject to other customary closing conditions. The agreement
will terminate if the transaction is not consummated by September 30,
1999. The purchase price is subject to a downward adjustment for
expected decreases in subscriber levels prior to closing. At closing,
the Company will receive the adjusted closing price less $500,000 which
will be held in escrow for one year for satisfaction of any
indemnification obligations.
The Antilles transaction is not part of the BellSouth
Agreement. As such, the proceeds from the sale of these assets is
subject to certain restrictive covenants in the Indentures relating to
the Company's 2004 Notes and 2005 Notes. Net Available Proceeds (as
defined in the Indentures) from Asset Dispositions (as defined in the
Indentures) from transactions other than BellSouth must be used in a
tender offer for 2004 Notes and 2005 Notes at a purchase price equal to
100% of the accreted value thereof to any purchase date prior to
maturity unless applied within 270 days of such closing: (1) first, to
prepay or repay outstanding debt of the Company or any Restricted
Subsidiary (as defined) to the extent the terms of the governing
documents therefore 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, to prepay or
repay all outstanding debt of the Company or any Restricted Subsidiary
that prohibits purchases of the 2004 Notes or 2005.
In March 1999, the Company entered into the AESCO agreement to
acquire wireless cable channels in Portland, Oregon from AESCO for a
fixed payment of $2.25 million plus a deferred payment based upon the
price received in any further transfer of the channels within the next
five years. In addition, the Company paid $250,000 on March 19, 1999 as
consideration for a no-shop covenant. Payment of the
21
<PAGE> 22
$2.25 million fixed portion of the purchase price to AESCO is
contingent upon the Company's closing of sale transactions of other
wireless cable assets other than the BellSouth Transaction for
cumulative cash consideration of $5 million or more, and the FCC's
grant by final order of the assignment application for the AESCO
licenses. The agreement will terminate on March 15, 2000 if the
transaction has not been completed.
The Company's capital expenditures, exclusive of acquisitions
of wireless cable systems and additions to deferred license and leased
license acquisition costs, during the three months ended March 31, 1999
and 1998 were approximately $1.0 million and $4.9 million,
respectively.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1999 Compared to Three Months Ended
March 31, 1998
Service revenues decreased $2.3 million, or 18.6%, for the
three months ended March 31, 1999 to $10.2 million, as compared to
$12.5 million during the same period of 1998. The decrease in service
revenues was primarily attributable to the loss of approximately 22,000
subscribers as a result of the Company's strategy to not replace all of
those customers who chose to stop receiving the Company's services
("Subscriber Churn"). Approximately $712,000 of the decrease is
attributable to the sale of the Lakeland, Florida wireless system to
BellSouth Wireless in July of 1998. The number of subscribers to the
Company's wireless cable systems decreased to 102,400 at March 31,
1999, compared to 107,000 at December 31, 1998 and 133,700 at March 31,
1998 (which included approximately 8,900 subscribers in the Lakeland,
Florida operating system sold to BellSouth Wireless in July 1998). For
the comparative period, subscribers decreased approximately 23.4%.
Internet access revenues were negligible in the first quarters of 1998
and 1999.
On a "same system" basis (comparing systems that were
operational for all of each of the three-month periods ended March 31,
1999 and 1998), service revenues decreased approximately $1.5 million,
or 13.5%, to $9.9 million, as compared to $11.4 million for the
three-month period ended March 31, 1998. Same systems during these
periods totaled 32 systems. Revenue from Internet operations in Denver
and Portland are excluded from the analysis because these operations
were launched in the second quarter of 1998. The revenues from the
Company's Lakeland, Florida, hardwire and wireless cable television
systems were omitted from both periods because the systems were sold by
the Company during the first and second quarters, respectively. The
ending number of subscribers in these same systems decreased
approximately 17.9% for the three months ended March 31, 1999, as
compared to the same period of 1998.
Installation revenues for the three months ended March 31,
1999 totaled $118,000, compared to $213,000 during the same period of
1998. The decrease in installation revenues of approximately $95,000,
or 44.6%, was primarily the net result of fewer subscriber
installations because a portion of normal Subscriber Churn was not
replaced.
Operating expenses, principally programming, site costs and
other direct expenses, aggregated $6.5 million (or 63.2% of total
revenues) during the three months ended March 31, 1999, compared to
$7.8 million (or 61.0% of total revenues) during the same period of
1998. The decrease of approximately $1.3 million was primarily
attributable to the sale of the Lakeland, Florida systems, decreased
subscriber levels, and a reduction in the number of employees.
Programming expense, as a percent of service revenues, was 34.6% for
the period ended March 31, 1999 compared to 35.6% for the period ended
March 31, 1998.
Marketing and selling expenses totaled $106,000 (or 1.0% of
total revenues) during the three months ended March 31, 1999, compared
to $701,000 (or 5.5% of total revenues) during the same period of 1998.
The decrease of approximately $595,000 was attributable to the
Company's continued strategy to replace some, but not all of its
Subscriber Churn.
22
<PAGE> 23
General and administrative expenses were $4.0 million
(approximately 38.7% of total revenues) for the three months ended
March 31, 1999, compared to $5.7 million (approximately 44.6% of total
revenues) for the 1998 period. General and administrative expenses
decreased approximately $1.7 million. The expense decreased principally
because of reduced legal expenses related to litigation with Fresno
Telsat, Inc., lower salary costs resulting from a reduction in the
number of employees, and decreased expenses related to the technology
trials conducted by the Company in Eugene, Oregon and Seattle,
Washington.
The Company is following variable plan accounting on certain
options repriced in April 1998 which requires that the Company record
compensation expense if the quoted value of the stock exceeds the
repriced exercise price of the options. For the quarter ended March 31,
1999, the Company recorded compensation expense of approximately
$226,000 related to vested stock options. If the quoted price of the
stock in future periods is greater than the quoted price on March 31,
1999, the Company will incur additional compensation expense related to
these repriced options. Based upon the transaction price of $6.50 per
Common Share with Sprint and the outstanding stock options as of March
31, 1999, the Company estimates that the incremental compensation
expense could be approximately $1 million.
The Company's loss before interest, taxes, depreciation and
amortization was $303,000 for the three months ended March 31, 1999, as
compared to a loss of $1.4 million during the same period of 1998. The
reduction of losses is predominantly related to decreased marketing and
general administrative costs, offset, in part, by decreased revenues.
Depreciation and amortization expenses decreased approximately
$4.4 million to $5.2 million for the quarter ended March 31, 1999
compared to $9.6 million for the first quarter of 1998. The decrease
reflects the effects of the Company's decreased depreciable asset base
resulting from an impairment adjustment of $52.4 million in the fourth
quarter of 1998.
Interest expense decreased $2.1 million during the quarter
ended March 31, 1999 to $8.8 million, as compared to $11.0 million
during the same period of 1998. The Company reduced the outstanding
debt balance on its 2004 Notes and 2005 Notes during 1998 through two
tender offers. The lower debt levels resulted in decreased noncash
interest charges associated with the Company's 2004 Notes and 2005
Notes.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company owns all the partnership interests in Fresno MMDS
Associates ("FMA"). On or about December 24, 1997, Peter Mehas, Fresno
County Superintendent of Schools, filed an action against FMA, the
Company and others in an action entitled Peter Mehas, Fresno County
Superintendent of Schools v. Fresno Telsat, Inc., an Indiana
Corporation, et al., Superior Court of the State of California, Fresno,
California. The complaint alleges that a channel lease agreement
between FMA and the Fresno County school system has expired. The
plaintiff seeks a judicial declaration that the lease has expired and
that the defendants, including the Company, hold no right, title or
interest in the channel capacity which is the subject of the lease. The
parties have conducted substantial discovery. The Company removed the
case to federal court in December 1998. Plaintiff filed a motion to
remand the case to state court. The motion was granted. No trial date
is set in the case. The Company denies that the channel lease agreement
has expired.
23
<PAGE> 24
On or about October 13, 1998, Bruce Merrill and Virginia
Merrill, as Trustees of the Merrill Revocable Trust dated as of August
20, 1982, filed a lawsuit against the Company entitled Bruce Merrill
and Virginia Merrill, as Trustees of the Merrill Revocable Trust dated
as of August 20, 1982 v. American Telecasting, Inc., in the United
States District Court for the District of Colorado. The complaint
alleges that the Company owes the plaintiffs $1,250,000 due on a note
which matured on September 15, 1998. The plaintiffs seek payment of
$1,250,000 plus attorney fees and interest. The Company has answered
the complaint and denied any liability. Limited discovery has occurred
and a trial preparation schedule has been ordered by the court.
The Company is occasionally a party to other 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.
ITEM 2. CHANGES IN SECURITIES
Under the Stockholder Rights Plan, preferred stock purchase
rights were distributed as a dividend at the rate of one right (a
"Right") for each share of Common Stock outstanding as of the close of
business on May 10, 1999. Each Right entitles the holder to purchase
from ATI one one-hundredth of a share of Series A Junior Participating
Preferred Stock of ATI at an exercise price of $27. The Rights will
expire on the earlier of April 30, 2009 and the completion of the
Merger.
The Rights are not exercisable unless a person or group
acquires, or announces the intent to acquire, beneficial ownership of
15% or more of outstanding Common Stock. The Rights are redeemable for
$.001 per Right at the option of the Board of Directors at any time
prior to the close of business on the tenth business day after the
announcement that a person or group has acquired, or intends to
acquire, beneficial ownership of 15% or more of outstanding Common
Stock. Prior to the date upon which the rights would become exercisable
under the Stockholder Rights Plan, ATI's outstanding stock certificates
represent both the shares of Common Stock and the Rights, and the
Rights trade only with the shares of Common Stock.
Generally, if the Rights become exercisable by virtue of a
person or group acquiring beneficial ownership of 15% or more of ATI's
Common Stock, then each stockholder, other than the acquirer, is
entitled to purchase, for the exercise price, that number of shares of
Common Stock that, at the time of the transaction, will have a market
value of two times the exercise price of the Rights. In addition, if,
after the Rights become exercisable, the Company is acquired in a
Merger or other business combination, or 50% or more of its assets or
earning power are sold, each Right will entitle the holder to purchase,
at the exercise price of the Rights, that number of shares of common
stock of the acquiring company that, at the time of the transaction,
will have a market value of two times the exercise price of the Rights.
The Stockholder Rights Plan contains provisions which permit
Sprint and Acquisition to acquire beneficial ownership of 15% or more
of the ATI's Common Stock; provided, that such shares are acquired
pursuant to the Merger and the transactions contemplated by the Voting
Agreements.
ITEM 5. OTHER INFORMATION
None
24
<PAGE> 25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3 Certificate of Designation, Preferences and Rights of
Series A Junior Participating Preferred Stock of American
Telecasting Inc.
4 Rights Agreement, dated as of April 26, 1999, between
American Telecasting Inc. and First Union National Bank, as
Rights Agent, which includes as Exhibit A the Certificate of
Designations, Preferences and Rights of Series A Junior
Participating Preferred Stock and as Exhibit B the Form of
Rights Certificate (incorporated by reference to Exhibit 1
to the Company's Form 8-A filed May 3, 1999).
10 Asset Purchase Agreement dated as of March 19, 1999 by
and among AESCO Systems, Inc., American Telecasting of
Portland, Inc., and American Telecasting, Inc.
27 Financial Data Schedule (filed only electronically with the
SEC).
(b) Reports on Form 8-K.
None
25
<PAGE> 26
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: May 17, 1999 By: /s/ David K. Sentman
--------------------- ------------------------------------
David K. Sentman
Senior Vice President, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
Date: May 17, 1999 By: /s/ Fred C. Pattin Jr.
--------------------- ------------------------------------
Fred C. Pattin Jr.
Controller
(Principal Accounting Officer)
26
<PAGE> 27
EXHIBIT INDEX
Exhibit Description
------- -----------
3 Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock of American Telecasting Inc.
4 Rights Agreement, dated as of April 26, 1999, between
American Telecasting Inc. and First Union National Bank, as
Rights Agent, which includes as Exhibit A the Certificate of
Designations, Preferences and Rights of Series A Junior
Participating Preferred Stock and as Exhibit B the Form of
Rights Certificate (incorporated by reference to Exhibit 1
to the Company's Form 8-A filed May 3, 1999).
10 Asset Purchase Agreement dated as of March 19, 1999 by and among
AESCO Systems, Inc., American Telecasting of Portland, Inc., and
American Telecasting, Inc.
27 Financial Data Schedule (filed only electronically with the SEC).
27
<PAGE> 1
EXHIBIT 3
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RIGHTS OF SERIES A JUNIOR
PARTICIPATING PREFERRED STOCK
of
AMERICAN TELECASTING, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
The undersigned officer of American Telecasting, Inc., a
corporation organized and existing under the General Corporation Law of the
State of Delaware (the "Corporation"), in accordance with the provisions of
Section 103 thereof, DOES HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of
Directors by the Restated Certificate of Incorporation, as amended, of the
Corporation (the "Restated Certificate of Incorporation"), the Board of
Directors of the Corporation on April 29, 1999 adopted the following resolution
creating a series of 300,000 shares of Preferred Stock designated as Series A
Junior Participating Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board
of Directors of this Corporation in accordance with the provisions of its
Restated Certificate of Incorporation, a series of Preferred Stock of the
Corporation be and it hereby is created, and that the designation and amount
thereof and the voting powers, preferences and relative, participating,
optional and other special rights of the shares of such series, and the
qualifications, limitations or restrictions thereof are as follows:
Section I. Designation and Amount. The shares of such series
shall be designated as "Series A Junior Participating Preferred Stock" and the
number of shares constituting such series shall be 300,000.
<PAGE> 2
Section II. Dividends and Distributions.
A. Subject to the prior and superior rights of the holders of
any shares of any series of Preferred Stock ranking prior and superior to the
shares of Series A Junior Participating Preferred Stock with respect to
dividends, if any, the holders of shares of Series A Junior Participating
Preferred Stock shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the last day of March, June, September and
December in each year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend Payment
Date after the first issuance of a share or fraction of a share of Series A
Junior Participating Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to the greater of (a) $1.00 or (b) subject to the provision
for adjustment hereinafter set forth, 100 times the aggregate per share amount
of all cash dividends, and 100 times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions other than a dividend
payable in shares of Class A Common Stock, par value $0.01 per share, of the
Corporation ( the "Common Stock") or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on the Common Stock
since the immediately preceding Quarterly Dividend Payment Date, or, with
respect to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series A Junior Participating Preferred
Stock. In the event the Corporation shall at any time after April 29, 1999 (the
"Rights Declaration Date") (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the amount to which holders of shares of Series A Junior
Participating Preferred Stock were entitled immediately prior to such event
under clause (b) of the preceding sentence shall be adjusted by multiplying
such amount by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
B. The Corporation shall declare a dividend or distribution
on the Series A Junior Participating Preferred Stock as provided in Paragraph
(A) above immediately after it declares a dividend or distribution on the
Common Stock (other than a dividend payable in shares of Common Stock);
provided that, in the event no dividend or distribution shall have been
declared on the Common Stock during the period between any Quarterly Dividend
Payment Date and the next subsequent
2
<PAGE> 3
Quarterly Dividend Payment Date, a dividend of $0.01 per share on the Series A
Junior Participating Preferred Stock shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date.
C. Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Junior Participating Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue of such shares
of Series A Junior Participating Preferred Stock, unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue from
the date of issue of such shares, or unless the date of issue is a Quarterly
Dividend Payment Date or is a date after the record date for the determination
of holders of shares of Series A Junior Participating Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment
Date, in either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series A
Junior Participating Preferred Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series A Junior Participating Preferred Stock entitled
to receive payment of a dividend or distribution declared thereon, which record
date shall be no more than 30 days prior to the date fixed for the payment
thereof.
Section III. Voting Rights. The holders of shares of Series A
Junior Participating Preferred Stock shall have the following voting rights:
A. Subject to the provision for adjustment hereinafter set
forth, each share of Series A Junior Participating Preferred Stock shall
entitle the holder thereof to 100 votes on all matters submitted to a vote of
the stockholders of the Corporation. In the event the Corporation shall at any
time after the Rights Declaration Date (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of shares,
then in each such case the number of votes per share to which holders of shares
of Series A Junior Participating Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying such number by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the
3
<PAGE> 4
number of shares of Common Stock that were outstanding immediately prior to
such event.
B. Except as otherwise provided herein or by law, the holders
of shares of Series A Junior Participating Preferred Stock and the holders of
shares of Common Stock shall vote together as one class on all matters
submitted to a vote of stockholders of the Corporation.
C. 1. If at any time dividends on any Series A Junior
Participating Preferred Stock shall be in arrears in an amount equal to six (6)
quarterly dividends thereon, the occurrence of such contingency shall mark the
beginning of a period (herein called a "default period") which shall extend
until such time when all accrued and unpaid dividends for all previous
quarterly dividend periods and for the current quarterly dividend period on all
shares of Series A Junior Participating Preferred Stock then outstanding shall
have been declared and paid or set apart for payment. During each default
period, all holders of Preferred Stock (including holders of the Series A
Junior Participating Preferred Stock) with dividends in arrears in an amount
equal to six (6) quarterly dividends thereon, voting as a class, irrespective
of series, shall have the right to elect two (2) directors.
2. During any default period, such voting right of
the holders of Series A Junior Participating Preferred Stock may
be exercised initially at a special meeting called pursuant to
subparagraph (iii) of this Section 3(C) or at any annual meeting of
stockholders, and thereafter at annual meetings of stockholders,
provided that neither such voting right nor the right of the holders
of any other series of Preferred Stock, if any, to increase, in
certain cases, the number of directors, shall be exercised unless the
holders of ten percent (10%) in number of shares of Preferred Stock
outstanding shall be present in person or by proxy. The absence of a
quorum of the holders of Common Stock shall not affect the exercise by
the holders of Preferred Stock of such voting right. At any meeting at
which the holders of Preferred Stock shall exercise such voting right
initially during an existing default period, they shall have the
right, voting as a class, to elect directors to fill such vacancies,
if any, in the Board of Directors as may then exist up to two (2)
directors or, if such right is exercised at an annual meeting, to
elect two (2) directors. If the number which may be so elected at any
special meeting does not amount to the required number, the holders of
the Preferred Stock shall have the right to make such increase in the
number of directors as shall be necessary to permit the election by
them of the required number. After the holders of the Preferred Stock
shall have exercised their
4
<PAGE> 5
right to elect directors in any default period and during the
continuance of such period, the number of directors shall not be
increased or decreased except by vote of the holders of Preferred
Stock as herein provided or pursuant to the rights of any equity
securities ranking senior to or pari passu with the Series A Junior
Participating Preferred Stock.
3. Unless the holders of Preferred Stock shall,
during an existing default period, have previously exercised their
right to elect directors, the Board of Directors may order, or any
stockholder or stockholders owning in the aggregate not less than ten
percent (10%) of the total number of shares of Preferred Stock
outstanding, irrespective of series, may request, the calling of a
special meeting of the holders of Preferred Stock, which meeting shall
thereupon be called by the President, a Vice-President or the
Secretary of the Corporation. Notice of such meeting and of any annual
meeting at which holders of Preferred Stock are entitled to vote
pursuant to this Paragraph (C)(iii) shall be given to each holder of
record of Preferred Stock by mailing a copy of such notice to him or
her at his or her last address as the same appears on the books of the
Corporation. Such meeting shall be called for a time not earlier than
20 days and not later than 60 days after such order or request or in
default of the calling of such meeting within 60 days after such order
or request, such meeting may be called on similar notice by any
stockholder or stockholders owning in the aggregate not less than ten
percent (10%) of the total number of shares of Preferred Stock
outstanding. Notwithstanding the provisions of this Paragraph
(C)(iii), no such special meeting shall be called during the period
within 60 days immediately preceding the date fixed for the next
annual meeting of the stockholders.
4. In any default period, the holders of Common
Stock, and other classes of stock of the Corporation if applicable,
shall continue to be entitled to elect the whole number of directors
until the holders of Preferred Stock shall have exercised their right
to elect two (2) directors voting as a class, after the exercise of
which right (x) the directors so elected by the holders of Preferred
Stock shall continue in office until their successors shall have been
elected by such holders or until the expiration of the default period,
and (y) any vacancy in the Board of Directors may (except as provided
in Paragraph (C)(ii) of this Section 3) be filled by vote of a
majority of the remaining directors theretofore elected by the holders
of the class
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<PAGE> 6
of stock which elected the director whose office shall have become
vacant. References in this Paragraph (C) to directors elected by the
holders of a particular class of stock shall include directors elected
by such directors to fill vacancies as provided in clause (y) of the
foregoing sentence.
5. Immediately upon the expiration of a default
period, (x) the right of the holders of Preferred Stock as a class to
elect directors shall cease, (y) the term of any directors elected by
the holders of Preferred Stock as a class shall terminate, and (z) the
number of directors shall be such number as may be provided for in the
Restated Certificate of Incorporation or bylaws of the Corporation
irrespective of any increase made pursuant to the provisions of
Paragraph (C)(ii) of this Section 3 (such number being subject,
however, to change thereafter in any manner provided by law or in the
Restated Certificate of Incorporation or bylaws of the Corporation).
Any vacancies in the Board of Directors effected by the provisions of
clauses (y) and (z) in the preceding sentence may be filled by a
majority of the remaining directors.
D. Except as set forth herein, holders of Series A Junior
Participating Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any corporate
action.
Section IV. Certain Restrictions.
A. Whenever quarterly dividends or other dividends or
distributions payable on the Series A Junior Participating Preferred Stock as
provided in Section 2 are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared, on shares of
Series A Junior Participating Preferred Stock outstanding shall have been paid
in full, the Corporation shall not:
1. declare or pay dividends on, make any
other distributions on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Series A Junior Participating Preferred Stock;
2. declare or pay dividends on or make any
other distributions on any shares of stock ranking on a parity (either
as
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<PAGE> 7
to dividends or upon liquidation, dissolution or winding up) with the
Series A Junior Participating Preferred Stock, except dividends paid
ratably on the Series A Junior Participating Preferred Stock and all
such parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such
shares are then entitled;
3. redeem or purchase or otherwise acquire
for consideration shares of any stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with the
Series A Junior Participating Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise acquire
shares of any such parity stock in exchange for shares of any stock of
the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Junior
Participating Preferred Stock; or
4. purchase or otherwise acquire for
consideration any shares of Series A Junior Participating Preferred
Stock, or any shares of stock ranking on a parity with the Series A
Junior Participating Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
B. The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under Paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section V. Reacquired Shares. Any shares of Series A Junior
Participating Preferred Stock purchased or otherwise acquired by the
Corporation in any manner whatsoever shall be retired and cancelled promptly
after the acquisition thereof. All such shares shall upon their cancellation
become authorized but unissued shares of Preferred Stock and may be reissued as
part of a new series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors, subject to the conditions and
restrictions on issuance set forth herein.
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<PAGE> 8
Section VI. Liquidation, Dissolution or Winding Up. A. Upon
any liquidation (voluntary or otherwise), dissolution or winding up of the
Corporation, no distribution shall be made to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Junior Participating Preferred Stock unless, prior
thereto, the holders of shares of Series A Junior Participating Preferred Stock
shall have received an amount equal to $100 per share of Series A Participating
Preferred Stock, plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment
(the "Series A Liquidation Preference"). Following the payment of the full
amount of the Series A Liquidation Preference, no additional distributions
shall be made to the holders of shares of Series A Junior Participating
Preferred Stock unless, prior thereto, the holders of shares of Common Stock
shall have received an amount per share (the "Common Adjustment") equal to the
quotient obtained by dividing (i) the Series A Liquidation Preference by (ii)
100 (as appropriately adjusted as set forth in subparagraph (C) below to
reflect such events as stock splits, stock dividends and recapitalizations with
respect to the Common Stock) (such number in clause (ii), the "Adjustment
Number"). Following the payment of the full amount of the Series A Liquidation
Preference and the Common Adjustment in respect of all outstanding shares of
Series A Junior Participating Preferred Stock and Common Stock, respectively,
holders of Series A Junior Participating Preferred Stock and holders of shares
of Common Stock shall receive their ratable and proportionate share of the
remaining assets to be distributed in the ratio of the Adjustment Number to 1
with respect to such Preferred Stock and Common Stock, on a per share basis,
respectively.
B. In the event, however, that there are not sufficient
assets available to permit payment in full of the Series A Liquidation
Preference and the liquidation preferences of all other series of preferred
stock, if any, which rank on a parity with the Series A Junior Participating
Preferred Stock, then such remaining assets shall be distributed ratably to the
holders of such parity shares in proportion to their respective liquidation
preferences. In the event, however, that there are not sufficient assets
available to permit payment in full of the Common Adjustment, then such
remaining assets shall be distributed ratably to the holders of Common Stock.
C. In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the Adjustment Number in effect immediately prior to such event
shall be adjusted by multiplying such Adjustment Number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and
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<PAGE> 9
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section VII. Consolidation, Merger, etc. In case the
Corporation shall enter into any consolidation, merger, combination or other
transaction in which the shares of Common Stock are exchanged for or changed
into other stock or securities, cash and/or any other property, then in any
such case the shares of Series A Junior Participating Preferred Stock shall at
the same time be similarly exchanged or changed in an amount per share (subject
to the provision for adjustment hereinafter set forth) equal to 100 times the
aggregate amount of stock, securities, cash and/or any other property (payable
in kind), as the case may be, into which or for which each share of Common
Stock is changed or exchanged. In the event the Corporation shall at any time
after the Rights Declaration Date (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of shares,
then in each such case the amount set forth in the preceding sentence with
respect to the exchange or change of shares of Series A Junior Participating
Preferred Stock shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section VIII. No Redemption. The shares of Series A Junior
Participating Preferred Stock shall not be redeemable.
Section IX. Amendment. At any time when any shares of Series
A Junior Participating Preferred Stock are outstanding, the Restated
Certificate of Incorporation of the Corporation shall not be further amended in
any manner which would materially alter or change the powers, preferences or
special rights of the Series A Junior Participating Preferred Stock so as to
affect them adversely without the affirmative vote of the holders of a majority
or more of the outstanding shares of Series A Junior Participating Preferred
Stock, voting separately as a class.
Section X. Fractional Shares. Series A Junior Participating
Preferred Stock may be issued in fractions of a share which shall entitle the
holder, in proportion to such holders fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have the benefit
of all other rights of holders of Series A Junior Participating Preferred
Stock.
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<PAGE> 10
IN WITNESS WHEREOF, we have executed and subscribed this
Certificate and do affirm the foregoing as true under the penalties of perjury
this 7th day of May, 1999.
AMERICAN TELECASTING, INC.
By: /s/ David K. Sentman
------------------------------------
Name: David K. Sentman
Title: Senior Vice President and Chief
Financial Officer
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<PAGE> 1
EXHIBIT 10
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (this "Agreement") is made and entered into
this ___ day of _______, 1999, by and among AESCO SYSTEMS, INC. a Pennsylvania
corporation ("Seller"), AMERICAN TELECASTING OF PORTLAND, INC., a Delaware
corporation ("Buyer"), and AMERICAN TELECASTING, INC., a Delaware corporation
("ATI").
WHEREAS, Seller holds the authorization issued by the Federal
Communications Commission ("FCC") for Multichannel Multipoint Distribution
Service ("MMDS") Station WHT647, the four E-Group channels, in Portland, Oregon
(the "Station");
WHEREAS, Buyer desires to purchase from Seller and Seller desires to
sell to Buyer all rights of Seller to operate the Station under its FCC
authorization; and
NOW, THEREFORE, in consideration of the premises and promises herein
contained, the parties agree as set forth below.
Section 1. Purchase and Sale of Assets.
(a) Assets. At the Closing (as defined in Section 3(a)
below), Seller shall sell, transfer, assign and deliver to Buyer, and
Buyer shall purchase, accept, assume and receive, all right, title and
interest in, to or arising from the Assets. The "Assets" are (a) all
of Seller's ownership rights in the Station, including all of Seller's
rights as the holder of the FCC authorization for the Station (the
"Authorization"), and (b) all transferable documents and records owned
by, held by, or under the control of the Seller, if any, used in the
operation of the Station. The "Assets" do not include, and Seller has
no obligation to transfer, assign, sell or deliver to Buyer, any
rights or claims under this Agreement or against any third party,
whether arising under a contract, in tort or otherwise, including
rights to receivables (e.g., accounts receivable from ATI, tax
refunds, etc.).
(b) Liabilities. Neither party shall assume or be liable or
responsible for any debt, obligation or liability of the other party,
or any affiliate, successor, heir or assign of the other party, or any
claim against any of the foregoing, of any kind, whether known or
unknown, contingent, absolute, or otherwise.
Section 2. Purchase Price. The purchase price for the Assets shall be
(i) the amount determined pursuant to Section 2(a) (the "Fixed Payment") plus
(ii) the Deferred Payment, as defined below.
(a) Fixed Payment. The Fixed Payment shall be paid by Buyer
to Seller via wire transfer of immediately available funds to Seller
in accordance with instructions provided by Seller at least 2 business
days before Closing upon the latter to occur of (A) the closing of
sales after December 31, 1998 of wireless spectrum or wireless
markets, other than a sale to BellSouth or any of its affiliates, in
which ATI and its affiliates realize $5,000,000 or more in the
aggregate, and (B) FCC approval by Final Order (as defined in
<PAGE> 2
Section 8(a) below) of the Assignment Application (as defined in
Section 7 below); provided, however, that Buyer may in its sole
discretion waive in writing either or both of the conditions set forth
above and may choose to close notwithstanding their non-satisfaction.
The date upon which the conditions set forth in the prior sentence
have been satisfied or waived is referred to as the "Closing Trigger
Date." The amount of the Fixed Payment shall be $2,250,000; provided,
however, if such amount has not been paid in full prior to July 1,
1999, then the amount due as the Fixed Payment shall thereafter be
increased at a rate of $22,500 per month until the date of payment.
(b) Deferred Payment.
(i) Seller shall be entitled to receive the Deferred
Payment from Buyer in respect of any transaction which closes
within five years after the date of this Agreement (the
"Deferred Transaction") in which Buyer or its shareholders or
affiliates, but not any unrelated assignee or successor,
transfers rights in the Station (directly or indirectly,
including through any transfer of interests in the Buyer or
it affiliates (other than American Telecasting, Inc. or
stockholders of American Telecasting, Inc.), whether by
merger, consolidation, share exchange, issuance or sale of
securities, purchase or redemption of securities,
recapitalization, reorganization, division, liquidation or
any other individual or series of transactions of similar
substantive effect), either by itself or in conjunction with
other wireless stations owned or leased by Buyer, including
any transaction which requires FCC approval pursuant to
Section 310(d) of the Communications Act. Buyer shall notify
Seller of any Deferred Transaction, and shall provide Seller
with the necessary information regarding such transaction to
calculate the Deferred Payment. The Deferred Payment shall be
equal to (x) one-third of the purchase price (whether in cash
or in-kind) received by Buyer or its shareholders or
affiliates for all Portland, Oregon wireless stations sold or
assigned in the Deferred Transaction multiplied by a
fraction, the numerator of which is 4 and the denominator of
which is (1) the total number of Portland, Oregon MMDS and
Multichannel Distribution Service ("MDS") wireless channels
assigned, or the leases for which are assigned, in the
Deferred Transaction, plus (2) one-half of the number of
Portland, Oregon Instructional Television Fixed Service
("ITFS") wireless channels assigned, or the leases for which
are assigned, in the Deferred Transaction, minus (y)
$2,500,000. In the event the Deferred Payment as calculated
above is equal to or less than zero, no payment shall be
made. The Deferred Payment, or any portion thereof, shall be
paid only with respect to cash or other in-kind proceeds
actually received by Buyer, subject to Section 2(b)(iii)(a),
and shall be paid by Buyer to Seller within 15 days after
such receipt.
(ii) If assets outside of the Portland, Oregon
wireless stations are also transferred in the Deferred
Transaction, the portion of the purchase price to be
allocated to the Portland, Oregon wireless stations for
purposes of the calculation in Section 2(b)(i) will be
determined based upon the relative fair market values of the
assets transferred (and in comparing the value of wireless
stations,
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<PAGE> 3
consideration of the relative number of households within the
protected service areas of the respective markets and the
number of channels transferred in the respective markets). If
the parties do not agree upon an appropriate allocation, an
independent appraiser shall be selected by the parties within
ten days after written notification by either party to the
other of the dispute. The appraiser shall make a final
binding allocation within 60 days of appointment. The cost of
the appraisal will be shared equally by Buyer and Seller. For
purposes of Sections 2(b)(i) and 2(b)(ii), non-cash
consideration will be valued at the fair market value of such
consideration.
(iii) For purposes of calculating the purchase price
received in a Deferred Transaction:
(a) To the extent the purchase price received in a Deferred
Transaction is in the form of a note (or other obligation to make
payment) issued within five years after the date of this Agreement by
a party to the Deferred Transaction or an affiliate thereof, the
receipt of such note shall not be treated as the receipt of purchase
price, but all payments received in respect of such note (whether
characterized as principal, interest or otherwise) shall be treated as
receipt of purchase price, even if received more than five years after
the date of this Agreement.
(b) If in connection with a Deferred Transaction the buyer or
any of its shareholders or affiliates receives consideration for any
rights or services in excess of the fair market value thereof or
receives a dividend or distribution in excess of its or his
proportionate share of the stock or interests on which such dividend
or distribution is made, such excess shall be treated as purchase
price for the wireless stations that are the subject of the Deferred
Transaction.
(iv) As hypothetical examples, the following
represents the method for calculating the Deferred Payment if
Buyer were to sell, or assign the leases for, 13 MMDS and MDS
wireless cable channels and 20 ITFS wireless cable channels
in the Portland, Oregon market for a total price of (A) $43.1
million or (B) $53.1 million:
<TABLE>
<S> <C>
Hypothetical Deferred Payment A = (1/3) x ($43.1 million x (4/23)) - $2,500,000
= (1/3) x ($43.1 million x 0.1739) - $2,500,000
= $2,498,551 - $2,500,000
Deferred Payment A = $0
Hypothetical Deferred Payment B = (1/3) x ($53.1 million x (4/23)) - $2,500,000
= (1/3) x ($53.1 million x 0.1739) - $2,500,000
= $3,078,261 - $2,500,000
Deferred Payment B = $578,261
</TABLE>
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(v) If the Buyer fails to pay the Deferred Payment
within 15 days after the Deferred Transaction closing, the
Buyer shall pay compound interest at the rate of 1 1/2 % per
month (or, if less, the maximum rate permitted by law) on the
outstanding balance due until the payment is completed in
full. All payments will be paid in cash by Buyer to Seller by
wire transfer of immediately available funds to Seller in
accordance with Seller's instructions.
Section 3. The Closing and the Transfer of Assets.
(a) The Closing. Subject to the delivery of the documents set
forth in Sections 3(c) and (d) below and the satisfaction of the
conditions precedent set forth in Section 8 below, the transfer of
Assets contemplated by this Agreement (the "Closing") shall occur at
10:00 a.m. on the date determined by the mutual consent of the parties
hereto, which date shall be within three business days after the
Closing Trigger Date (the "Closing Date"), at the offices of
McDermott, Will & Emery, 600 13th Street, N.W., Washington, D.C. or at
such other location as mutually agreed upon by Buyer and Seller.
(b) Deliveries by Buyer. At the Closing, Buyer shall deliver
to Seller against receipt of the deliveries from Seller required by
Section 3(c), or shall cause to be delivered to Seller:
(i) the portion of the Fixed Payment, if any, then
owed by Buyer to Seller;
(ii) a certificate, dated the Closing Date, executed
by an executive officer of Buyer stating that all of Buyer's
representations and warranties made in this Agreement are
true and correct in all material respects on the Closing
Date, as if made on such date, and that Buyer has complied in
all material respects with all its covenants and agreements
set forth in this Agreement;
(iii) such other instruments or documents as may be
reasonably necessary to carry out the transactions
contemplated hereby.
(c) Deliveries by Seller. At the Closing, Seller shall
deliver to Buyer against receipt of the deliveries from Buyer required
by Section 3(b):
(i) a General Assignment and Bill of Sale, in
substantially the form of Schedule 3(c)(i) attached hereto;
(ii) a certificate, dated the Closing Date, executed
by an executive officer of Seller stating that all of
Seller's representations and warranties made in this
Agreement are true and correct in all material respects on
the Closing Date, as if made on such date, and that Seller
has complied in all material respects with all its covenants
and agreements set forth in this Agreement;
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<PAGE> 5
(iii) such other instruments or documents as may be
reasonably necessary to carry out the transactions
contemplated hereby; and
(iv) a letter addressed to the FCC stating that the
FCC assignment has been consummated.
(d) Termination of Communications Services Agreement. Upon
consummation of the Closing, the existing Communications Services
Agreement between ATI and Seller dated July 30, 1993 (the
"Communications Services Agreement") shall terminate, and Seller, on
the one hand, and Buyer and ATI, on the other hand, effective as of
the Closing, irrevocably and unconditionally release and forever
discharge the other(s) and its/their affiliates and subsidiaries, and
the officers, directors, employees, representatives, agents, servants,
successors and assigns thereof, from any and all claims, liabilities,
promises, controversies, damages, actions, causes of action, suits,
demands, obligations and the like, whether known or unknown, arising
out of or related to obligations under the Communications Services
Agreement.
Section 4. Expiration. Notwithstanding any breach hereof by either one
or both parties, this Agreement and the parties' respective obligations to
consummate the Closing shall expire, without the necessity of any action by
either party, on March 15, 2000. Such expiration of this Agreement shall be
without prejudice to any right to seek or obtain any legal or equitable remedy
(including specific performance hereof) which may have arisen from a
misrepresentation or breach committed prior to the termination, subject to
Section 8(c).
Section 5. Representations and Warranties of Seller. Seller represents
and warrants to Buyer as of the date hereof, and as of the Closing, as set
forth below.
(a) Authority. Seller has full legal right, and corporate
power and authority, without the consent of any other person, to
execute and deliver this Agreement and, other than the requirement for
FCC approval of assignment of the Authorization, to carry out the
transactions contemplated hereby. All corporate acts or proceedings
required to be taken by Seller to authorize the execution, delivery
and performance of this Agreement and all transactions contemplated
hereby have been duly and properly taken, other than the requirement
for FCC approval of assignment of the Authorization which is required
to be obtained prior to the Closing.
(b) Validity. This Agreement has been, and the documents to
be delivered at the Closing will be, duly executed and delivered and
constitute lawful, valid and legally binding obligations of Seller,
enforceable in accordance with their respective terms. The execution
and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not result in the creation of
any lien, charge or encumbrance of any kind against any of the Assets
or the acceleration of any indebtedness or other obligation of Seller
and are not prohibited by, do not violate or conflict with any
provision of, and do not constitute a default under or a breach of (a)
the articles of incorporation or bylaws of Seller, (b) any contract,
agreement or other instrument to which Seller is a party or by which
Seller or any of the Assets are bound, (c) any order,
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<PAGE> 6
writ, injunction, decree or judgment of any court or governmental
agency, or (d) any law, rule or regulation applicable to Seller.
Except for the prior approval of the FCC, no approval, authorization,
consent or other order or action of or filing with any court,
administrative agency or other governmental authority is required for
the execution and delivery by Seller of this Agreement or such other
agreements and instruments or the consummation by Seller of the
transactions contemplated hereby or thereby.
(c) Due Organization. Seller is a corporation, validly
existing and in good standing under the laws of the Commonwealth of
Pennsylvania and has full power and authority and all requisite
licenses, permits and franchises to own, lease and operate the
Station. Seller is duly licensed and qualified to do business and is
in good standing in all jurisdictions where failure to be so licensed
or qualified would adversely affect the ability of Buyer to enforce
any material rights included in the Assets.
(d) Title to Assets. Seller is the sole and exclusive legal
and equitable owner of all right, title and interest in and has good
and marketable title to all of the Assets, subject to any requirements
for FCC approval of assignment of the Authorization. None of the
Assets which Seller purports to own or hold are subject to (i) any
contract, lease (other than the existing lease with Buyer), license or
sale, (ii) any security interest, mortgage, pledge, lien, or charge of
any kind or character, direct or indirect, whether accrued, absolute,
contingent or otherwise, (iii) any royalty or commission arrangements,
or (iv) any adverse claims, covenants or restrictions (other than
those proposed by applicable law or FCC requirements).
(e) Litigation. As of the date hereof, there are no legal or
administrative proceedings of any kind pending or, to the knowledge of
Seller, threatened in any manner involving Seller which might have a
material adverse effect on the Assets or Seller. If between the date
hereof and the Closing Date Seller acquires knowledge of any
litigation, proceeding or investigation that is pending or threatened
and, if existing and known by Seller on the date hereof would make the
representation stated in the preceding sentence false, Seller shall
disclose to Buyer the existence of such proceeding and such additional
information as Buyer may reasonably request to determine whether the
condition set forth in Section 8(a)(c) hereof has been satisfied.
Seller is not in default with respect to any judgment, order, decree,
or similar instrument applicable to it which might have a material
adverse effect on the Assets or Seller.
(f) Compliance with Law. The Assets conform in all material
respects to all applicable laws, ordinances, codes, licensing
requirements, rules and regulations, and Seller has not received any
notice to the contrary. Seller has complied in all material respects
with all laws, ordinances, regulations, licensing requirements, rules,
decrees, awards or orders, and there is not and will not be any
liability arising from or relating to any violations thereof.
(g) Authorization. Schedule 5(g) contains an accurate and
complete copy of the Authorization. The Authorization is in full force
and effect, and bears the full license term granted for MMDS licenses,
expiring on May 1, 2001. Except as disclosed in
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<PAGE> 7
Schedule 5(g) hereto, the Authorization is unimpaired by any act or
omission of the Seller. The facilities authorized by the Authorization
have been timely constructed in accordance with the construction
authorization granted therefor and a certification of completion of
construction was timely filed with the FCC. The issuance and
assignment of the Authorization to the Seller has been approved by the
FCC, by actions which can no longer be appealed by petitioners or set
aside by the FCC by its own action. Except as disclosed in Schedule
5(g) hereto, the Station has, since the initial certification of
completion of construction was filed with the FCC, provided service as
authorized in compliance with the FCC's Rules, including Section
21.303(d) thereof. Seller has not agreed to accept any interference
from any third party or to take any action to protect any third
party's reception from interference. With regard to the Authorization,
there is no complaint, inquiry, investigation or proceeding pending
before the FCC or, to Seller's knowledge, threatened, other than
proceedings of general applicability and not directed specifically at
the Authorization, which, if determined as requested by the moving
party or as indicated in any document initiating any inquiry,
investigation or proceeding, could result in the revocation,
modification, restriction, cancellation, termination or non-renewal of
the Authorization, the dismissal or denial of an application, or other
action which is adverse to Seller or the imposition of a monetary
forfeiture. The Authorization is freely assignable to Buyer, subject
to FCC consent. The FCC has not concluded in writing, nor to Seller's
knowledge has it been alleged in writing, that Seller has violated any
FCC rules or policies with regard to the Station.
Section 6. Representations and Warranties of Buyer. Buyer and ATI
hereby represent and warrant to Seller as of the date hereof, and as of the
Closing, as follows:
(a) Authority. Buyer has full legal right, power and
authority, without the consent of any other person, to execute and
deliver this Agreement and to carry out the transactions contemplated
hereby. All corporate and other acts or proceedings required to be
taken by Buyer to authorize the execution, delivery and performance of
this Agreement and all transactions contemplated hereby have been duly
and properly taken.
(b) Validity. This Agreement has been, and the documents to
be delivered at the Closing will be, duly executed and delivered and
constitute lawful, valid and legally binding obligations of Buyer,
enforceable in accordance with their respective terms. The execution
and delivery of this Agreement and the consummation of the
transactions contemplated hereby are not prohibited by, do not violate
or conflict with any provision of, and do not constitute a default
under or a breach of (a) the certificate of incorporation or bylaws of
Buyer, (b) any contract, agreement or other instrument to which Buyer
is a party or by which Buyer is bound, (c) any order, writ,
injunction, decree or judgment of any court or governmental agency, or
(d) any law, rule or regulation applicable to Buyer. Except for the
prior approval of the FCC, no approval, authorization, consent or
other order or action of or filing with any court, administrative
agency or other governmental authority is required for the execution
and delivery by Buyer of this Agreement or such other agreements and
instruments or the consummation by Buyer of the transactions
contemplated hereby or thereby.
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<PAGE> 8
(c) Due Organization. Buyer is a Delaware corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization.
(d) Litigation. There are no legal or administrative
proceedings of any kind now pending, or, to the knowledge of Buyer,
threatened in any manner involving Buyer which might have a material
adverse effect on Buyer's ability to consummate the transactions
contemplated herein. Buyer is not in default with respect to any
judgment, order, decree, or similar instrument applicable to it which
might have a material adverse effect on Buyer' ability to consummate
the transactions contemplated herein.
(e) Qualification to Hold Authorization. Buyer is qualified
under the rules of the FCC to hold the Authorization without the need
for waiver of any FCC rule.
Section 7. Covenants. The parties indicated below hereby agree to
keep, perform and fully discharge the following covenants and agreements which
are applicable to them.
(a) No Shop. From the date hereof until the Closing or the
termination or expiration of this Agreement (as applicable), Seller
shall not take any action to seek, encourage, solicit or support any
inquiry, proposal, expression of interest or offer from any other
person or entity with respect to an acquisition, combination or
similar transaction involving the Assets. In consideration for
Seller's covenant pursuant to this Section 7(a), Buyer shall pay
$250,000 to Seller via wire transfer of immediately available funds
upon the execution and delivery of this Agreement by both parties
hereto.
(b) Interim Conduct. From the date hereof until the Closing
Date, Seller shall use all reasonable efforts to preserve, protect and
maintain its rights and interests in and to the Assets, it being
acknowledged by the parties that Seller's ability to do so with
respect to the Authorization and those Assets which are leased to
Buyer is subject to some extent to Buyer's compliance with the
provisions of the channel lease agreement. Without limiting the
generality of the foregoing, as pertains to or in any way affects the
Assets, from the date hereof until the Closing Date, except for
transactions expressly approved in writing by Buyer, Seller shall:
(i) not enter into, amend or terminate, or agree to
enter into, amend or terminate, any contract included within
or related to the Assets, except in the ordinary course of
business or in accordance with Section 7(c);
(ii) not sell, lease or otherwise dispose of or
agree to sell, lease or otherwise dispose of, any of the
Assets, or the rights or claims related thereto;
(ii) not incur or become subject to, nor agree to
incur or become subject to, any debt, obligation or
liability, contingent or otherwise that encumbers the Assets,
except current liabilities and contractual obligations in the
ordinary course of business; and
8
<PAGE> 9
(iii) not to modify the Station Authorization in any
way except as agreed between Seller and Buyer.
(c) Communications Services Agreement. The parties
specifically acknowledge that (i) Seller has asserted a claim that the
amount of the monthly payment (payable to Seller pursuant to paragraph
C.4 of the Communications Services Agreement) should have increased
and other payments should have been made pursuant to paragraph F.1 as
a result of other agreements entered into by ATI prior to the date
hereof (such claim, the "Seller's Claim") and (ii) ATI and Buyer have
disputed the Seller's Claim. From the date hereof until the expiration
or termination of this Agreement (as applicable), Seller agrees not,
based on the Seller's Claim, to terminate the Communications Services
Agreement, cease to perform any of its obligations thereunder or
initiate any suit or action thereunder, provided that ATI and Buyer
completely and timely (A) make all monthly payments required by the
Communications Services Agreement, but without giving effect to any
increase claimed pursuant to the Seller's Claim, (B) perform all other
obligations of the "Customer" under the Communications Services
Agreement and (C) perform all of their respective obligations under
this Agreement. Seller, Buyer and ATI further agree that, should the
Seller file a suit or action asserting the Seller's Claim after the
expiration or termination of this Agreement, ATI hereby waives any
defense based on the statute of limitations or laches as to the
Seller's Claim with respect to the period between the date hereof and
the date of expiration or termination, as appropriate.
(d) Access to Information Pertaining to the Assets. From the
date hereof through the Closing Date, Seller shall give Buyer and its
representatives full and free access to all properties, facilities,
personnel, books, contracts, leases, commitments and records relating
to the Assets, to the extent reasonably requested by Buyer in
connection with its due diligence, preparation for the consummation of
the transactions contemplated hereby or the operation of Station after
the Closing; provided, however, Buyer shall exercise its rights only
during normal business hours, after reasonable advance notice and in a
manner that minimizes disruption to Seller's business. All information
acquired by Buyer pursuant to this Section 7(c) shall be considered
the confidential information of Seller. Notwithstanding anything in
this Agreement to the contrary, nothing herein shall require Seller to
provide Buyer with access to information to the extent that so doing
would either (1) constitute violation of applicable law (e.g., as in
the case of disclosure of the contents of employee files required to
be kept confidential under the Americans With Disability Act) or (2)
cause a forfeiture of Seller's privilege to protect communications
(oral or written) between Seller's counsel, on the one hand, and
Seller's directors, officers and/or employees, on the other hand
(including communications relating to any claims Seller may have
against ATI or Buyer).
(e) FCC Filings.
(i) Within five days after the date hereof, Seller
and Buyer shall join in an application to the FCC, to be
filed on FCC form 702 (the "Assignment Application"),
requesting the FCC's written consent to the assignment of the
9
<PAGE> 10
Authorization from Seller to Buyer. Each party shall pay its
own costs in preparing the Assignment Application. Buyer
shall pay any FCC filing fees associated with the Assignment
Application. Each of Seller and Buyer shall, at its own
expense, cooperate in providing all information and taking
all steps necessary, desirable or appropriate to expedite the
preparation, filing, prosecution and granting of such
application. In the event any person requests the FCC to deny
the Assignment Application, or otherwise challenges the grant
of the Assignment Application, or in the event the FCC
consents to the assignment of the Authorization to Buyer and
any person appeals or otherwise challenges such consent
before the FCC, each of Seller and Buyer shall, at its own
expense, oppose such petition or challenge, or defend such
action and the order of the FCC, diligently and in good faith
to the end that the transactions contemplated by this
Agreement may be finally consummated.
(ii) Seller shall cooperate with Buyer and shall
promptly. and in any event within five business days, after
requested by Buyer execute and file with the FCC all
documents reasonably requested by Buyer in connection with
filing and prosecuting any other applications with the FCC
for digital emissions, it being agreed that there shall be no
digital emissions or other modification to the Station
implemented prior to Closing.
(iii) During the two year period following the
Closing, Seller agrees that it will not file any petitions,
objections, competing proposals, applications or other
documents that would have as their purpose, intent, effect or
result the denial, dismissal, rejection or delay in the
granting of the applications or other requests to the FCC
filed on behalf of the Station.
(f) Best Efforts. Each party shall act in good faith and use
its best efforts to consummate the transactions contemplated by this
Agreement and shall not take any other action inconsistent with its
obligations hereunder or which could hinder or delay the consummation
of the transactions contemplated hereby.
(g) Information Regarding Subsequent Sales. Buyer shall
notify Seller in writing of any sales of the types specified in
Section 2(b) and in such notice shall inform Seller of the proceeds
and the net proceeds of any such sale. Seller acknowledges that such
information may not be publicly available and, unless and until it has
been publicly disclosed by ATI. Buyer agrees to treat the information
as confidential, not disclose it to any other party, and not use it in
any way, except for purposes of determining eligibility to receive the
payment set forth in Section 2(b). Seller further agrees to comply
with all applicable securities laws with respect to use of such
information, and agrees not to trade in ATI securities, or securities
of any successor or assign of ATI, while in possession of such
information or to provide such information to other persons for such
purposes.
10
<PAGE> 11
(h) Confidentiality.
(i) After the date hereof, except as may be required for tax
purposes or other regulatory purposes, no party nor any affiliate of a
party nor any of their respective successors and assigns shall use,
publish or disclose, or permit others to use or disclose any
information regarding this Agreement or regarding another party or its
affiliates obtained in the negotiation and performance of this
Agreement. In the event of any termination of this Agreement, (a) each
party and its affiliates shall treat as confidential and proprietary
and shall not disclose or use, directly or indirectly, in any manner
whatsoever, or permit others under their control to disclose or to
use, any information concerning this Agreement or concerning another
party or its affiliates or their business or products obtained
pursuant to or in connection with the transactions which are the
subject matter of this Agreement, unless such information (i) was
known when received, (ii) is or thereafter becomes lawfully obtainable
from other sources, (iii) is necessary or appropriate to disclose to
any regulatory authority having jurisdiction or as otherwise required
by law, or (iv) is or becomes a matter of public knowledge without
violation of this Section 7(h), and (b) each party shall promptly
return to the other parties upon written request all written
information and documents received from them and their affiliates, and
their accountants or counsel, in connection with such transactions,
including all copies thereof. The provisions of this Section 7(h)(i)
shall survive the Closing and any expiration or termination of this
Agreement.
(ii) In addition, after the date hereof Seller and its
affiliates shall not use, publish, disclose, or permit others to use,
publish or disclose any information regarding the Communications
Services Agreement, the Seller's Claim, or prices paid by Buyer and
its affiliates to channel lessors, except as may be required in
connection with any suit or action the Seller may initiate, in
accordance with the terms hereof, alleging breach of the
Communications Services Agreement. The provisions of this Section
7(h)(ii) shall survive the Closing for a period of two years, but
shall not survive any expiration or termination of this Agreement.
Section 8. Conditions Precedent.
(a) Conditions Precedent to Obligations of Buyer. Each and
all of the obligations of Buyer to consummate the transactions
contemplated by this Agreement are subject to fulfillment prior to or
at the Closing of the following conditions: (a) the representations
and warranties of Seller contained herein shall be accurate in all
material respects as if made on and as of the Closing Date; (b) Seller
shall in all material respects have performed all of the obligations
and complied with each and all of the covenants, agreements and
conditions required to be performed or complied with on or prior to
the Closing; (c) no action, suit, proceeding or investigation before
any court, administrative agency or other governmental authority shall
be pending or threatened which seeks to restrain, prohibit, invalidate
or obtain damages as the result of any of the transactions
contemplated by this Agreement; and (d) all regulatory consents
required for the Seller to consummate the transactions contemplated
hereby shall have been granted and such
11
<PAGE> 12
consents shall remain in full force and effect, including, but not
limited to, the FCC grant of the application for assignment of the
Authorization by Final Order. For purposes of this Agreement, a "Final
Order" is an FCC action granting an application as to which the time
for filing for administrative or judicial review or reconsideration or
for the FCC to set aside such grant on its own motion has expired
without any such filing having been made or FCC action taken, or, in
the event of such filing or FCC action, the FCC grant has been
reaffirmed or upheld and the time for seeking further administrative
or judicial review with respect thereto has expired without any such
request for such further review having been filed.
(b) Conditions Precedent to Obligations of Seller. Each and
all of the obligations of Seller to consummate the transactions
contemplated by this Agreement are subject to fulfillment prior to or
at the Closing of the following conditions: (a) the representations
and warranties of Buyer contained herein shall be accurate in all
material respects as if made on and as of the Closing Date; (b) Buyer
shall in all material respects have performed all of the obligations
and complied with each and all of the covenants, agreements and
conditions required to be performed or complied with on or prior to
the Closing; (c) no action, suit, proceeding or investigation before
any court, administrative agency or other governmental authority shall
be pending or threatened which seeks to restrain, prohibit, invalidate
or obtain damages as the result of any of the transactions
contemplated by this Agreement; (d) all regulatory consents required
for the Buyer to consummate the transactions contemplated hereby shall
have been granted and such consents shall remain in full force and
effect, including, but not limited to, the FCC grant of the
application for assignment of the Authorization by Final Order; (e)
ATI and Buyer have completely and timely made all monthly payments
required by the Communications Services Agreement, but without giving
effect to any increase claimed pursuant to the Seller's Claim, and
performed all of other obligations of the "Customer" under the
Communications Services Agreement, and (f) the Fixed Payments shall
have been paid to Seller in accordance with and to the extent required
by this Agreement.
(c) Disclosure of Breach or Futility. If any party acquires
knowledge of (i) an event, occurrence or circumstance making
satisfaction of a condition in Section 8(a) or (b) hereof unlikely,
the party acquiring such knowledge shall give prompt written notice
thereof to the other party in sufficient detail to permit a reasonable
analysis thereof. In the event of a material misrepresentation or a
material breach of any warranty or covenant made in this Agreement and
the breaching party's failure to rectify such material
misrepresentation or material breach within twenty (20) days after
receipt of written notice thereof from the non-breaching party, then
the non-breaching party shall have the right, upon written notice to
the breaching party given within ten (10) days after the expiration of
said twenty (20)-day period, to terminate this Agreement; provided,
however, if the non-breaching party does not terminate this Agreement
by the expiration of said ten (10)-day period, the non-breaching party
shall be deemed to have waived such misrepresentation or breach.
Termination of this Agreement pursuant to the preceding sentence shall
be without prejudice to the non-breaching party's right to seek and
obtain damages resulting from such misrepresentation or breach. In
addition, in the event of a material misrepresentation or material
breach by Seller, the Buyer may, in its discretion,
12
<PAGE> 13
seek specific performance of this Agreement in lieu of termination.
This Section 8(c) sets forth the sole and exclusive remedies of each
party based on any misrepresentation or breach of this Agreement
discovered prior to the Closing.
Section 9. Survival and Indemnification.
(a) Survival. All representations, warranties, covenants and
agreements contained in this Agreement (including any Schedules
hereto), shall survive the Closing and shall be fully effective and
enforceable for a period of 12 months following the Closing Date, but
shall thereafter be of no further force or effect, except as they
relate to (i) claims for indemnification timely made (pursuant to the
next sentence), (ii) claims involving fraud on the part of a party
hereto or (iii) covenants, agreements and claims relating to the
Deferred Payment. Any claim for indemnification asserted in writing,
setting forth the nature, basis and amount of the claim in sufficient
detail to permit a reasonable analysis thereof, within 12 months after
the Closing Date shall survive until resolved or judicially
determined; provided, however, once a party has asserted a claim for
indemnification hereunder, such party must initiate appropriate
judicial action in a court of competent jurisdiction (or in
arbitration, if the parties to the dispute over indemnification so
agree) prior to the latter of (i) the end of the ensuing ninety (90)
days and (ii) 12 months after the Closing Date, or the claim for
indemnification shall be deemed to have been waived. The
representations and warranties set forth in this Agreement shall not
be affected by any investigation, verification or examination by any
party hereto or by anyone on behalf of any such party, except as
specifically set forth herein or in an Exhibit, Schedule or document
delivered pursuant to this Agreement.
(b) Indemnification.
(i) Each party shall indemnify and hold harmless the
other from and against any and all loss, damage, expense
(including court costs, amounts paid in settlement,
judgments, reasonable attorneys' fees or other expenses for
investigating and defending), suit, action, claim, liability
or obligation related to, caused by or arising from any
misrepresentation, breach of warranty or failure to perform
any covenant or agreement contained herein, together with
interest at a floating interest rate equal at all times to
the rate of interest publicly announced from time to time by
First Union National Bank as its corporate base rate from the
date upon which such loss, damage, expense or liability was
incurred to the date of payment, plus the amount of all
expenses incurred in enforcing this indemnification right,
including court costs, reasonable attorney's fees, and other
expenses for investigating and defending.
(ii) Any party seeking indemnification (the
"Indemnified Party") shall give prompt written notice to the
indemnifying party (the "Indemnifying Party")of the facts and
circumstances giving rise to the claim (the "Notice"). The
loss, damage and expense incurred by a party shall be
determined on a net after-tax basis and shall take into
account any insurance proceeds received by such party.
13
<PAGE> 14
(c) Defense Against Asserted Claims. The Indemnified Party
shall not settle or compromise any claim by a third party for which
the Indemnified Party is entitled to indemnification hereunder without
the prior written consent of the Indemnifying Party, unless legal
action shall have been instituted against the Indemnified Party and
the Indemnifying Party shall not have taken control of such suit
within 60 days after notification thereof as provided herein. In
connection with any claim giving rise to indemnification hereunder
resulting from or rising out of any claim or legal proceeding by a
person other than the Indemnified Party, the Indemnifying Party, at
its sole cost and expense, may, upon written notice to the Indemnified
Party, assume the defense of any such claim or legal proceeding
without prejudice to the right of the Indemnifying Party thereafter to
contest its obligation to indemnify the Indemnified Party in respect
to the claims asserted therein. If the Indemnifying Party assumes the
defense of any such claim or legal proceeding, the Indemnifying Party
shall select counsel to conduct the defense in such claims and legal
proceedings and at its sole cost and expense shall take all steps
necessary in the defense or settlement thereof. The Indemnifying Party
shall not consent to a settlement of, or the entry of any judgment
arising from, any claim or legal proceeding, without the prior written
consent of the Indemnified Party, unless the Indemnifying Party admits
in writing its liability to hold the Indemnified Party harmless from
and against any losses, damages, expenses and liabilities arising out
of such settlement and concurrently with such settlement, Indemnifying
Party pays into the court the full amount of all losses, damages,
expenses and liabilities to be paid by the Indemnifying Party in
connection with such settlement and, if such settlement would impose
or affect ongoing obligations of the Indemnified Party, the
Indemnified Party consents thereto, which consent shall not be
unreasonably withheld. The Indemnified Party shall be entitled to
participate in the defense of any such action with its own counsel and
at its own expense. If the Indemnifying Party does not assume the
defense of any such claim or litigation resulting therefrom in
accordance with the terms hereof, the Indemnified Party may defend
such claim or litigation in such a manner as it may deem appropriate,
including settling such claim or litigation after giving notice of the
same to Indemnifying Party on such terms as the Indemnified Party may
deem appropriate and any action by the Indemnified Party seeking
indemnification from Indemnifying Party in accordance with the
provisions of this Section, Indemnifying Party shall not be entitled
to question the manner in which the Indemnified Party defended such
claim or litigation or the amount or nature of any such settlement. In
the event of a claim by a third party, the Indemnified Party shall
cooperate with the Indemnifying Party in the defense of such action
(including making a personal contact with the third party if deemed
beneficial) and the relevant records of each party shall be made
available on a timely basis.
(d) Failure to Close Because of Default. In the event that
the Closing is not consummated on or before the earlier of the Closing
Date or the first anniversary of the date of this Agreement by virtue
of a default made by a party in the observance or in the due and
timely performance of any of its covenants or agreements herein
contained, the parties shall have and retain all of the rights
afforded them at law or in equity by reason of that default, subject
to Section 8(c). In addition, Seller acknowledges that the Assets are
unique, that a failure by either party to complete the transactions
contemplated by this Agreement will cause irreparable and continuing
damage to the other party, and that
14
<PAGE> 15
actual damages for any such failure may be difficult to ascertain and
may be inadequate and that the other party will have no adequate
remedy at law. Consequently, each party agrees that the other party,
its affiliates, successors and assigns shall be entitled, at such
party's sole election, to specific performance of any of the
provisions of this Agreement in addition to any other legal or
equitable remedies to which such party may otherwise be entitled.
(e) Survival. The provisions set forth in this Section 9
shall survive the Closing. The rights of indemnification set forth in
this Section 9 shall be the sole and exclusive rights and remedies of
the parties hereto and their respective affiliates arising out of or
relating to any misrepresentation or breach of this Agreement
discovered after the Closing.
Section 10. Miscellaneous.
(a) ATI's Guaranty. ATI hereby guarantees and acts as surety
for the complete and timely payment, performance and discharge of all
obligations of Buyer hereunder.
(b) Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived
only with the written consent of (i) both parties in the case of an
amendment, and (ii) the party waiving any term or condition hereof in
the case of waiver. Any amendment or waiver effected in accordance
with this Section shall be binding only in the specific instance for
the specific purpose for which given.
(c) Entire Agreement. This Agreement supersedes any and all
oral or written agreements and understandings heretofore made relating
to the subject matter hereof and contains the entire agreement of the
parties relating to the subject matter hereof. Without limiting the
generality of the preceding sentence, the parties specifically
acknowledge that this Agreement contains all of the representations,
warranties, conditions, covenants and agreements relating to the
transactions contemplated hereby and to the rights and remedies of the
parties with respect thereto.
(d) Construction; Counterparts. All references herein to the
masculine gender shall also include the feminine and neuter, and vice
versa, and all references herein to the singular form shall also
include the plural, and vice versa, all as the context may require.
References in this Agreement to particular firms, agencies,
departments, statutes, regulations and the like shall be considered as
including references to any successors thereto. The word "include"
(and correlative terms, such as "includes" and "including") shall be
construed as if followed by the words "without limitation." All
references for purposes hereof, in computing the number of days, other
than "business days," all days shall be counted, including Saturdays,
Sundays and legal holidays; provided, however, if the final day of any
time period falls on a date that is not a business day, the final day
shall be deemed to be the immediately following business day. A
"business day" means any day that is not a Saturday, Sunday or legal
holiday in the State of Delaware. This
15
<PAGE> 16
Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(e) Expenses. Each party to this Agreement shall pay its own
costs and expenses in connection with the transactions contemplated
hereby. Any sales, transfer or other taxes or fees applicable to the
conveyance and transfer from Seller to Buyer of the Assets shall be
borne equally by Seller and Buyer, except that any fees payable to the
FCC for any application contemplated hereby shall be paid by Buyer..
(f) Successors and Assigns. This Agreement shall bind and
inure to the benefit of the parties named herein and their respective
successors and assigns. Buyer shall be entitled to assign its rights
and duties hereunder to any Affiliate with the prior written consent
of Seller, which shall not be unreasonably withheld, conditioned or
delayed. Seller shall not be entitled to assign its rights and duties
hereunder without the prior written consent of Buyer. No assignment
shall relieve the assignor of any duty or liability hereunder.
(g) Applicable Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of
Delaware.
(h) Partial Invalidity. In the event that any provision of
this Agreement, other than any of the economic terms, shall be held
invalid or unenforceable by any court of competent jurisdiction, such
holding shall not invalidate or render unenforceable any other
provision hereof.
(i) Brokers. Each party hereto represents that it has not
retained any broker or finder or incurred any liability or obligation
for any brokerage fees, commissions or finders fees with respect to
this Agreement or the transactions contemplated hereby.
16
<PAGE> 17
IN WITNESS WHEREOF, the parties have each caused this Agreement to be
duly executed as of the day and year first above written.
SELLER BUYER
AESCO Systems, Inc. American Telecasting of Portland, Inc.
By:
- ------------------------------ --------------------------------
Name: Name:
Title: Title:
ATI
American Telecasting, Inc.
By:
--------------------------------
Name:
Title:
17
<PAGE> 18
LIST OF SCHEDULES
Schedule 3(c)(i) General Assignment and Bill of Sale
<PAGE> 19
Schedule 3(c)(1)
ASSIGNMENT AND BILL OF SALE
The undersigned, AESCO Systems, Inc. (the "Seller"), for good and
valuable consideration, the receipt of which is hereby acknowledged, does
hereby GRANT, SELL, AND DELIVER to American Telecasting of Portland, Inc., a
Delaware corporation (the "Buyer") its successors and assigns, all of (a)
Seller's rights and interests as the holder of that certain Federal
Communications Commission authorization for the E-Group station in Portland,
Oregon licensed under MMDS Station WHT647 (the "Authorization"), and (b) all
transferable documents and records owned by, held by, or under the control of
Seller used in the operation of said Station (collectively, the "Assets"), and
does hereby ASSIGN, TRANSFER AND CONVEY to the Buyer all of its right, title
and interest in and to the Assets.
This Assignment and Bill of Sale has been given pursuant to, and to
effect certain transactions contemplated by, that certain Purchase Agreement
dated ______, 1999 by and among Seller, Buyer and American Telecasting, Inc.
The Seller expressly confirms that the representations, warranties, covenants
and agreement set forth in said Purchase Agreement shall survive the execution
and delivery hereof in accordance with its terms.
IN WITNESS WHEREOF, AESCO Systems, Inc. has caused this Assignment and
Bill of Sale to be executed as of this _____ day of __________________, 1999.
AESCO Systems, Inc.
By:
-------------------------------
Name:
Title:
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 9,007
<SECURITIES> 0
<RECEIVABLES> 940
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,239
<PP&E> 24,989
<DEPRECIATION> 0
<TOTAL-ASSETS> 121,028
<CURRENT-LIABILITIES> 10,380
<BONDS> 248,246
0
0
<COMMON> 189,896
<OTHER-SE> (327,685)
<TOTAL-LIABILITY-AND-EQUITY> 121,028
<SALES> 0
<TOTAL-REVENUES> 10,299
<CGS> 0
<TOTAL-COSTS> 15,846
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,837
<INCOME-PRETAX> (13,845)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,845)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,845)
<EPS-PRIMARY> (.54)
<EPS-DILUTED> (.54)
</TABLE>
